<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1999
REGISTRATION NOS. 2-96223/811-3240
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
---------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post Effective Amendment No. 28 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 64 [X]
---------------------
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
(EXACT NAME OF REGISTRANT)
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 526-5251
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------------
NORI L. GABERT, ESQ.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(NAME AND ADDRESS OF AGENT FOR SERVICE)
PLEASE SEND COPIES OF
ALL COMMUNICATIONS TO:
DIANE E. AMBLER, ESQ.
MAYER, BROWN & PLATT
1909 K STREET, N.W.
WASHINGTON, D.C. 20006-1101
---------------------
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of
Rule 485
[X] on May 1, 1999 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of
Rule 485
[ ] on [DATE] pursuant to paragraph (a)(1) of Rule 485
---------------------
TITLE OF SECURITIES BEING REGISTERED: Group and Individual
Variable Annuity Contracts
SEQUENTIAL NUMBER SYSTEM: PAGE OF PAGES
EXHIBIT INDEX ON SEQUENTIAL PAGE NUMBER
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- --------------------------------------------------------------------------------
<PAGE> 2
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
CONTENTS
REGISTRATION STATEMENT ON FORM N-4
This Post-Effective Amendment consists of the following papers and documents:
FACING SHEET
Contents Sheet
PART A: UIT-981 Contracts
Cross Reference Sheet
Prospectus
PART B: UIT-981 Contracts
Cross Reference Sheet
Statement of Additional Information
PART A: Independence Plus Contract Series
Cross Reference Sheet
Prospectus
PART B: Independence Plus Contract Series
Cross Reference Sheet
Statement of Additional Information
PART C: UIT-981 Contract and Independence Plus Contract Series
Items twenty-four (including exhibit index) through thirty-two
Signatures
<PAGE> 3
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))
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS CAPTION
-------- ------------------
<C> <S> <C>
PART A
1.... Cover Page.................................. Cover Page
2.... Definitions................................. About the Prospectus
3. Synopsis.................................... Summary of Independence Plus
4. Condensed Financial Information............. Selected Purchase Unit Data
5. General Description of Registrant,
Depositor, and Portfolio Companies.......... Summary of Independence Plus, General
Information, Variable Account Options
6. Deductions and Expenses..................... Fees and Charges, Surrender of Account Value
7. General Description of Variable Annuity
Contracts................................... Transfers Between Investment Options,
Purchase Period, Payout Period, Surrender of
Account Value, Other Contract Features
8. Annuity Period.............................. Payout Period
9. Death Benefit............................... Death Benefits
10. Purchases and Contract Value................ Fees and Charges, Purchase Period
11. Redemptions................................. Surrender of Account Value
12. Taxes....................................... Federal Tax Matters
13. Legal Proceedings........................... Not Applicable
14. Table of Contents of the Statement of
Additional Information...................... Contents of Statement of Additional
Information
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION CAPTION
-------- -----------------------
<C> <S> <C>
PART B
15. Cover Page.................................. Cover Page
16. Table of Contents........................... Table of Contents
17. General Information and History............. General Information
18. Services.................................... Experts; Distribution of Variable Annuity
Contracts
19. Purchase of Securities Being Offered........ Calculation of Surrender Charge; Purchase
Unit Value; Exchange Privilege
20. Underwriters................................ Distribution of Variable Annuity Contracts
21. Calculation of Performance Data............. Performance Calculations, Performance
Information
22. Annuity Payments............................ Payout Payments
23. Financial Statements........................ Financial Statements
PART C
</TABLE>
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE> 4
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
INDEPENDENCE PLUS
CONTRACT FORM UIT-585-1
FORM N-4
UNDER
THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940
---------------------
CROSS REFERENCE SHEET
(PURSUANT TO RULE 481(A))
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS CAPTION
-------- ------------------
<C> <S> <C>
PART A
1.... Cover Page.................................. Cover Page
2.... Definitions................................. About the Prospectus
3. Synopsis.................................... Summary of Independence Plus
4. Condensed Financial Information............. Selected Purchase Unit Data
5. General Description of Registrant,
Depositor, and Portfolio Companies.......... Summary of Independence Plus, General
Information, Variable Account Options
6. Deductions and Expenses..................... Fees and Charges, Surrender of Account Value
7. General Description of Variable Annuity
Contracts................................... Transfers Between Investment Options,
Purchase Period, Payout Period, Surrender of
Account Value, Other Contract Features
8. Annuity Period.............................. Payout Period
9. Death Benefit............................... Death Benefits
10. Purchases and Contract Value................ Fees and Charges, Purchase Period
11. Redemptions................................. Surrender of Account Value
12. Taxes....................................... Federal Tax Matters
13. Legal Proceedings........................... Not Applicable
14. Table of Contents of the Statement of
Additional Information...................... Contents of Statement of Additional
Information
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION CAPTION
-------- -----------------------
<C> <S> <C>
PART B
15. Cover Page.................................. Cover Page
16. Table of Contents........................... Table of Contents
17. General Information and History............. General Information
18. Services.................................... Experts; Distribution of Variable Annuity
Contracts
19. Purchase of Securities Being Offered........ Calculation of Surrender Charge; Purchase
Unit Value; Exchange Privilege
20. Underwriters................................ Distribution of Variable Annuity Contracts
21. Calculation of Performance Data............. Performance Calculations, Performance
Information
22. Annuity Payments............................ Payout Payments
23. Financial Statements........................ Financial Statements
PART C
</TABLE>
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE> 5
[Momento Photo]
CONTRACT FORM UIT-981
SEPARATE ACCOUNT A
PROSPECTUS MAY 1, 1999
Units of Interest
Under Variable
Annuity Contracts
<PAGE> 6
(This page intentionally left blank)
<PAGE> 7
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER INDIVIDUAL
VARIABLE ANNUITY CONTRACTS
CONTRACT FORM UIT-981
SEPARATE ACCOUNT A
May 1, 1999
PROSPECTUS
This prospectus describes flexible Purchase Payment individual variable annuity
contracts (the "Contracts") offered by The Variable Annuity Life Insurance
Company ("VALIC") to Participants in certain employer sponsored retirement
plans. The Contracts may be available to you when you participate in a
retirement program that qualifies for deferral of federal income taxes.
Non-qualified contracts are also available for certain other employer sponsored
plans as well as for certain after-tax arrangements that are not part of an
employer's plan.
The Contracts permit you to invest in and receive retirement benefits in up to 3
out of a total of 6 Fixed and Variable Account Options (1 fixed and 5 variable)
described in this prospectus. Each Variable Account Option invests in a separate
portfolio of the American General Series Portfolio Company ("AGSPC").
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VALIC is a member of the Insurance Marketplace Standards Association (IMSA).
IMSA is a voluntary membership organization created by the life insurance
industry to promote ethical market conduct for individual life insurance and
annuity products. VALIC's membership in IMSA applies to VALIC only and not to
its products or affiliates.
This prospectus provides you with information you should know before investing
in the Contracts. This prospectus is accompanied by the current prospectus for
the mutual fund options described in this prospectus. Please read and retain
each of these prospectuses for future reference.
A Statement of Additional Information, dated May 1, 1999, contains additional
information about the Contracts and is part of this prospectus. For a free copy,
complete and return the form contained in the back of this prospectus or call
1-800-44-VALIC. The Statement of Additional Information has been filed with the
Securities and Exchange Commission ("SEC") and is available along with other
related materials at the SEC's internet web site (http://www.sec.gov).
INVESTMENT IN THE CONTRACTS IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE SURRENDERED, THE
VALUE MAY BE HIGHER OR LOWER THAN THE PURCHASE PAYMENTS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABOUT THE PROSPECTUS............................... 1
FEE TABLE.......................................... 2
SUMMARY............................................ 4
SELECTED PURCHASE UNIT DATA........................ 6
GENERAL INFORMATION................................ 7
About the Contracts............................ 7
About VALIC.................................... 7
About VALIC Separate Account A................. 7
Units of Interests............................. 7
Distribution of the Contracts.................. 7
VARIABLE ACCOUNT OPTIONS........................... 8
Summary of Funds............................... 8
PURCHASE PERIOD.................................... 12
Purchase Payments.............................. 12
Purchase Units................................. 12
Calculation of Purchase Unit Value............. 12
Choosing Investment Options.................... 13
Fixed Account Option...................... 13
Variable Account Options.................. 13
Stopping Purchase Payments..................... 13
TRANSFERS BETWEEN INVESTMENT OPTIONS............... 14
During the Purchase Period..................... 14
During the Payout Period....................... 14
Communicating Transfer or Reallocation
Instructions................................. 14
Effective Date of Transfer..................... 14
FEES AND CHARGES................................... 15
Account Maintenance Fee........................ 15
Surrender Charge............................... 15
Amount of Surrender Charge................ 15
10% Free Withdrawal....................... 15
Exceptions to Surrender Charge............ 15
Premium Tax Charge............................. 15
Separate Account Charges....................... 16
Fund Annual Expense Charges.................... 16
Other Tax Charges.............................. 16
Reduction or Waiver of Account Maintenance Fee
and Surrender Charge......................... 16
PAYOUT PERIOD...................................... 17
Fixed Payout................................... 17
Variable Payout................................ 17
Combination Fixed and Variable Payout.......... 17
Payout Date.................................... 17
Payout Options................................. 17
Enhancements to Payout Options................. 18
Payout Information............................. 18
SURRENDER OF ACCOUNT VALUE......................... 19
When Surrenders Are Allowed.................... 19
Amount That May Be Surrendered................. 19
Surrender Restrictions......................... 19
Partial Surrenders............................. 19
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEATH BENEFITS..................................... 20
Beneficiary Information........................ 20
During the Purchase Period..................... 20
During the Payout Period....................... 20
HOW TO REVIEW INVESTMENT PERFORMANCE OF SEPARATE
ACCOUNT DIVISIONS................................ 21
Types of Investment Performance Information
Advertised................................... 21
Total Return Performance Information......... 21
Standard Average Annual Total Return......... 21
Nonstandard Average Annual Total Return...... 21
Cumulative Total Return...................... 21
Annual Change in Purchase Unit Value......... 21
Cumulative Change in Purchase Unit Value..... 22
Total Return Based on Different Investment
Amounts................................... 22
An Assumed Account Value of $10,000.......... 22
Yield Performance Information.................. 22
AGSPC Money Market Division.................. 22
Divisions Other Than The AGSPC Money Market
Divisions................................. 22
Performance Information: Average Annual Total
Return, Cumulative Return and Annual and
Cumulative Change in Purchase Unit Value
Tables....................................... 22
OTHER CONTRACT FEATURES............................ 25
Changes That May Not Be Made................... 25
Change of Beneficiary.......................... 25
Cancellation -- The 10 Day "Free Look"......... 25
We Reserve Certain Rights...................... 25
Relationship to Employer's Plan................ 25
VOTING RIGHTS...................................... 26
Who May Give Voting Instructions............... 26
Determination of Fund Shares Attributable to
Your Account................................. 26
During Purchase Period....................... 26
During Payout Period or after a Death Benefit
Has Been Paid............................. 26
How Fund Shares Are Voted...................... 26
FEDERAL TAX MATTERS................................ 27
Type of Plans.................................. 27
Tax Consequences in General.................... 27
Effect of Tax-Deferred Accumulations........... 27
THE POWER OF TAX-DEFERRED GROWTH................... 28
YEAR 2000.......................................... 29
Year 2000 Risks................................ 29
</TABLE>
<PAGE> 9
PARTICIPANT -- the
individual, (in most
cases you are the
Participant) for whom
Purchase Payments are made.
ABOUT THE PROSPECTUS
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, Company, and
VALIC mean The Variable Annuity Life Insurance Company and the words "you" and
"your" mean the participant, contract owner, annuitant or beneficiary.
Other specific terms that will be used in this prospectus are set forth below,
along with the page number where the term is defined.
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- ------------- --------
<S> <C>
Account Value................ 14
Annuitant.................... 20
Assumed Investment Rate...... 17
Beneficiary.................. 20
Contract Owner............... 20
Divisions.................... 21
Fixed Account Option......... 20
Home Office.................. 14
Mutual Fund or Fund.......... 07
Participant.................. 01
Participant Year............. 15
Payout Period................ 14
Payout Unit.................. 17
Purchase Payments............ 12, 21
Purchase Period.............. 14
Purchase Unit................ 12
VALIC Separate Account A..... 26
Variable Account Options..... 8, 20
</TABLE>
This prospectus is being given to you to help you make decisions for selecting
various investment options and benefits to plan and save for your retirement. It
is intended to provide you with information about VALIC, the Contracts, and
saving for your retirement.
The purpose of Variable Account Options and Variable Payout Options is to
provide you investment returns which are greater than the effects of inflation.
We cannot, however, guarantee that this purpose will be achieved.
This prospectus describes a contract in which units of interest in VALIC's
Separate Account A are offered. The Contracts will allow you to accumulate
retirement dollars in a Fixed Account Option and/or Variable Account Options.
This prospectus describes only the variable aspects of the Contracts except
where the Fixed Account Option is specifically mentioned.
For specific information about the Variable Account Options, you should refer to
the prospectus of AGSPC that you have been given with this document. You should
keep this prospectus to help answer any questions you may have in the future.
Following this introduction is a summary of the major features and options of
the Contracts. This summary is intended to provide you with a brief overview of
those sections discussed in more detail in this prospectus.
1
<PAGE> 10
FEE TABLE
- --------------------------------------------------------------------------------
This Fee Table shows all charges and expenses which may be deducted from the
assets of VALIC Separate Account A and from the Funds in which VALIC Separate
Account A invests. For a further description of these charges and expenses, see
"Fees and Charges" in this prospectus and the descriptions of fees and charges
in AGSPC's prospectus. Any and all limitations on total charges and expenses are
reflected in this Fee Table.
CONTRACT OWNER/PARTICIPANT EXPENSES(1)
Maximum Surrender Charge (as a percentage of Purchase Payments
received during the last 36 months)(2) 5.00%
ACCOUNT MAINTENANCE FEE(2) $ 30
SEPARATE ACCOUNT EXPENSES
(as a percentage of Separate Account net assets):
Mortality and Expense Risk 1.00%
FUND ANNUAL EXPENSES
(as a percentage of net assets):
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL FUND
FUND FEES EXPENSES(3) EXPENSES
---- ---------- ----------- ----------
<S> <C> <C> <C>
AGSPC Asset Allocation Fund(4) 0.50% 0.04% 0.54%
AGSPC Capital Conservation Fund 0.50 0.04 0.54
AGSPC MidCap Index Fund 0.32 0.04 0.36
AGSPC Money Market Fund 0.50 0.04 0.54
AGSPC Stock Index Fund 0.27 0.04 0.31
</TABLE>
- ---------------
(1) Premium taxes are not shown here, but may be charged by some states. See:
"Premium Tax Charge" in this prospectus.
(2) Reductions in the surrender charge and the account maintenance fee are
available if certain conditions are met. See "Reduction or Waiver of Account
Maintenance Fee and Surrender Charge" and "Exceptions to Surrender Charge"
in this prospectus. There will be no surrender charge on purchase payments
received more than 36 months prior to surrender. Also, in any Participant
Year, the first withdrawal of up to 10% of Account Value will not be subject
to a surrender charge.
(3) Other Expenses includes custody, accounting, reports to shareholders, audit,
legal, administrative and other miscellaneous expenses. See AGSPC's
prospectus for a detailed explanation of these fees.
(4) The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
2
<PAGE> 11
EXAMPLE #1 -- If you do not surrender the Contract at the end of the period
shown or you receive Payout Payments under a Payout Option:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Contract without a surrender charge imposed, invested in a
single Separate Account Division as listed below, assuming a 5% annual return on
assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Asset Allocation Division 5........................... $16 $50 $87 $189
AGSPC Capital Conservation Division 1....................... 16 50 87 189
AGSPC MidCap Index Division 4............................... 14 45 77 169
AGSPC Money Market Division 2............................... 16 50 87 189
AGSPC Stock Index Division 10............................... 14 43 74 164
</TABLE>
EXAMPLE #2 -- If you surrender the Contract at the end of the period shown:
- --------------------------------------------------------------------------------
Total Expenses: You would pay the following expenses on a $1,000 investment
under a typical Contract invested in a single Separate Account Division as
listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Asset Allocation Division 5........................... $63 $100 $87 $189
AGSPC Capital Conservation Division 1....................... 63 100 87 189
AGSPC MidCap Index Division 4............................... 61 95 77 169
AGSPC Money Market Division 2............................... 63 100 87 189
AGSPC Stock Index Division 10............................... 60 93 74 164
</TABLE>
Note: These examples should not be considered representations of past or future
expenses for VALIC Separate Account A or for any Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners and
Participants understand the various expenses of VALIC Separate Account A and the
Funds which are, in effect, passed on to the Contract Owners and Participants.
3
<PAGE> 12
SUMMARY
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The following is a summary of the major features of the Contracts is presented
below. For a more detailed discussion of the Contracts, please read the entire
prospectus carefully.
FIXED AND VARIABLE OPTIONS
The Contracts offer a choice from among 5 Variable Account Options. You will not
be able to invest in all of the Variable Account Options described below within
an annuity contract. If your Contract is part of your employer's retirement
program, that program will describe which Variable Account Options are available
to you. The Contracts also offer a Fixed Account Option.
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<TABLE>
<S> <C> <C> <C> <C>
FIXED ACCOUNT
OPTION
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FIXED General Account -- --
OPTION
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VARIABLE OPTIONS VARIABLE ACCOUNT INVESTMENT ADVISER SUB-ADVISER
OPTIONS STRATEGY
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INDEX EQUITY FUNDS
AGSPC MidCap Index Growth through VALIC Bankers Trust
Fund investments Company*
tracking the
S&P MidCap
400(R) Index
------------------------------------------------------------------------------------------------
AGSPC Stock Index Fund Growth through VALIC Bankers Trust
investments Company*
tracking the
S&P 500(R)
Index
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INCOME FUNDS AGSPC Capital Income and VALIC N/A
Conservation Fund possible growth
through
investments in
high quality
debt securities
- --------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS AGSPC Money Market Income through VALIC N/A
Fund investments in
short-term
money market
securities
- --------------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION AGSPC Asset Allocation Maximum return VALIC N/A
FUNDS Fund through
investments in
a mix of
stocks, bonds
and money
market
securities
- --------------------------------------------------------------------------------------------------------------------
* Bankers Trust Company (the "Sub-Adviser") is a wholly owned subsidiary of Bankers Trust Corporation. On November
30, 1998, Bankers Trust Corporation entered into an Agreement and Plan of Merger with Deutsche Bank AG under which
Bankers Trust Corporation and all of its subsidiaries would merge with and into a subsidiary of Deutsche Bank AG.
Deutsche Bank AG is a major global banking institution that is engaged in a wide range of financial services,
including retail and commercial banking, investment banking and insurance. The merger is contingent upon various
regulatory approvals. On April 20, 1999, the Fund's Board of Directors approved a new investment sub-advisory
agreement with Bankers Trust Company, subject to shareholder approval. If the merger is approved and completed,
Deutsche Bank AG, as the Sub-Adviser's new parent company, will control the operations of the Sub-Adviser, Bankers
Trust believes that, under this new arrangement, the services provided to the Fund will be maintained at their
current level.
</TABLE>
4
<PAGE> 13
SUMMARY -- (CONTINUED)
- --------------------------------------------------------------------------------
A detailed description of the investment objective of each mutual fund can be
found in the section of the prospectus entitled "Variable Account Options," and
also in the current prospectus for AGSPC.
GUARANTEED DEATH BENEFIT
The Contracts offer a death benefit equal to the greater of Account Value or
Purchase Payments reduced by withdrawals upon death of the Annuitant during the
Purchase Period.
TRANSFERS
There is no charge to transfer the money in your account among the investment
options. You may transfer your Account Values between Variable Account Options
or to the Fixed Account Option once every 30 days during the Purchase Period.
Your Account Value in the Fixed Account must remain there for at least 90 days
before it can be transferred to other investment options.
Once you begin receiving payments from your account (called the Payout Period),
you may still transfer funds among Variable Account Options or to the Fixed
Account Option once every 365 days.
Transfers can be made by calling VALIC's toll-free transfer service at
1-800-621-7792. For more information on account transfers, see the "Transfers
Between Investment Options" section in the prospectus.
FEES AND CHARGES
ACCOUNT MAINTENANCE FEE
An annual account maintenance fee which is currently $30, but may be increased
or decreased, is charged to your account.
SURRENDER CHARGE
Under some circumstances a surrender charge is made to your account. These
situations are discussed in detail in the section of the prospectus entitled
"Fees and Charges -- Surrender Charge." When this happens the surrender charge
is 5% of the contributions you made to your account during the last 36 months.
Withdrawals are always subject to your plan provisions and federal tax
restrictions, which generally include a tax penalty on withdrawals made prior to
age 59 1/2.
PREMIUM TAX CHARGE
Premium taxes ranging from zero to 3 1/2% are currently imposed by certain
states and municipalities on Purchase Payments made under the Contract.
SEPARATE ACCOUNT CHARGES
If you choose a Variable Account Option you will incur a mortality and expense
risk fee computed at an aggregate annualized rate of 1.00% on the average daily
net asset value of VALIC Separate Account A.
FUND ANNUAL EXPENSE CHARGE
A daily charge based on a percentage of each Fund's average daily net asset
value is payable by each Fund to its investment adviser. In addition to the
management fees, each Fund incurs other operating expenses which may vary.
Since some of these fees may not apply to your contract, consult your VALIC
Retirement Plan Specialist to see how these provisions apply to you.
PAYOUT OPTIONS
When you withdraw your money, you can select from several payout options: an
annuity (which guarantees payment for as long as you live), periodic withdrawals
and systematic withdrawals. More information on payout options can be found in
the "Payout Period" section of the prospectus.
FEDERAL TAX INFORMATION
Although deferred annuity contracts such as the Contracts can be purchased with
after-tax dollars, they are primarily used in connection with retirement
programs which receive favorable tax treatment under federal law.
PURCHASE REQUIREMENTS
If the Contract is a flexible Purchase Payment Contract, Purchase Payments may
be made at any time but each Purchase Payment must be at least $30 per
Participant Account. The amount of each Purchase Payment allocated to each
Variable Account Option and Fixed Account Option must also be at least $30. If
the Contract is a single Purchase Payment Contract, the minimum Purchase Payment
is $1,000 per Contract. These minimums may be waived where one purchaser, such
as an employer, purchases a number of contracts.
More information on FEES
may be found in the
prospectus under the
headings "FEES AND
CHARGES" AND "FEE TABLE."
For a more detailed
discussion of these income
tax provisions, see the
"FEDERAL TAX MATTERS"
section of the prospectus and
of the Statement of Additional
Information.
For more information on
PURCHASE PAYMENTS, refer
to the "Purchase Period"
section of the prospectus.
5
<PAGE> 14
SELECTED PURCHASE UNIT DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC AGSPC AGSPC AGSPC
AGSPC 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, 1998
Purchase Units in Force........................ 6,655,796 169,039,887 60,237,818 1,689,443 1,700,333
Purchase Unit Value............................ $8.457722 $5.029093 $3.772519 $3.726168 $2.468627
December 31, 1997
Purchase Units in Force........................ 7,438,537 171,065,657 57,307,351 1,831,961 1,931,439
Purchase Unit Value............................ $6.652806 $4.269122 $3.219282 $3.505970 $2.371163
December 31, 1996
Purchase Units in Force........................ 8,381,704 172,816,978 65,292,617 1,991,536 2,142,534
Purchase Unit Value............................ $5.049088 $3.272588 $2.651899 $3.262402 $2.277444
December 31, 1995
Purchase Units in Force........................ 9,885,873 172,613,690 75,851,431 2,402,085 2,917,361
Purchase Unit Value............................ $4.155057 $2.782677 $2.411022 $3.238370 $2.190686
December 31, 1994
Purchase Units in Force........................ 12,207,684 171,442,018 89,377,860 2,953,861 3,442,237
Purchase Unit Value............................ $3.056808 $2.153183 $1.951533 $2.709029 $2.096416
December 31, 1993
Purchase Units in Force........................ 14,043,516 134,621,879 93,899,802 3,590,916 4,129,981
Purchase Unit Value............................ $3.066025 $2.259378 $1.997266 $2.913980 $2.040131
December 31, 1992
Purchase Units in Force........................ 16,275,183 81,007,871 80,637,090 4,086,583 5,536,887
Purchase Unit Value............................ $2.818583 $2.021271 $1.846025 $2.628509 $2.006700
December 31, 1991
Purchase Units in Force........................ 17,981,945 49,106,844 76,624,765 4,464,580 7,282,083
Purchase Unit Value............................ $2.746708 $1.858030 $1.878219 $2.444253 $1.963118
December 31, 1990
Purchase Units in Force........................ 20,409,931 42,958,640 72,284,139 5,092,258 9,234,995
Purchase Unit Value............................ $2.097328 $1.538017 $1.563444 $1.995673 $1.879911
December 31, 1989
Purchase Units in Force........................ 23,982,977 40,618,028 68,361,149 6,710,808 11,155,035
Purchase Unit Value............................ $2.189419 $1.712671 $1.618165 $2.228459 $1.762208
</TABLE>
- ---------------
* The Asset Allocation Fund was formerly known as the Timed Opportunity Fund.
(1) Effective with the merger of Quality Growth Fund into Stock Index Fund on
May 1, 1992, Quality Growth Division 9 was merged into Stock Index Division
10. The merger of Divisions was accomplished by an exchange of units of
Quality Growth Division 9 for units of Stock Index Division 10 of equivalent
value as calculated at the close of business on April 30, 1992.
(2) 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. Selected Purchase Unit Data prior to October 1, 1991 reflects
investment experience prior to these changes.
Financial statements of VALIC Separate Account A are included in the Statement
of Additional Information, which is available upon request. Purchase Units shown
are for a Purchase Unit outstanding throughout the year under a representative
contract of the type invested in each column shown. The unit value of each
Division of VALIC Separate Account A will not be the same on any given day as
the net asset value per share of the underlying Fund in which that Division
invests. This is because each unit value consists of the underlying share's net
asset value minus the charges to VALIC Separate Account A. In addition,
dividends declared by the underlying Fund are reinvested by the Division in
additional shares. These distributions have the effect of reducing the value of
each share of the Fund and increasing the number of Fund shares outstanding.
However, the total cash value in VALIC Separate Account A does not change as a
result of such distributions.
6
<PAGE> 15
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ABOUT THE CONTRACTS
The Contracts were developed to help you save money for your retirement. They
offer you a combination of fixed and variable investment options that you can
invest in to help you reach your retirement savings goals. Your contributions to
the Contracts can come from different sources, like payroll deductions or money
transfers. Your retirement savings process with the Contracts will involve two
stages: the Purchase Period; and the Payout Period. The first is when you make
contributions into the Contracts called "Purchase Payments." The second, is when
you receive your retirement payouts. For more information, see "Purchase Period"
and "Payout Period" in this prospectus.
You may choose, depending upon your retirement savings goals, your personal risk
tolerances, and your retirement plan, to invest in the Fixed Account Option
and/or the Variable Account Options described in this prospectus. When you
decide to retire, or otherwise withdraw your money, you can select from a wide
array of payout options including both fixed and variable payments. In addition,
this prospectus will describe for you all fees and charges that may apply to
your participation in the Contracts.
ABOUT VALIC
We were originally organized on December 21, 1955 as The Variable Annuity Life
Insurance Company of America, located in Washington, D.C. We re-organized in the
State of Texas on August 20, 1968, as the Variable Annuity Life Insurance
Company. Our main business is issuing and offering fixed and variable retirement
annuity contracts, like the Contracts. Our principal offices are located at 2929
Allen Parkway, Houston, Texas 77019. We have Regional Offices throughout the
United States. The addresses for these offices are given in the back of this
prospectus.
VALIC is a member of the American General Corporation group of companies.
Members of the American General Corporation group of companies operate in each
of the 50 states, the District of Columbia, and Canada and collectively provide
financial services with activities heavily weighted toward insurance.
VALIC is a member of the Insurance Marketplace Standards Association (IMSA).
IMSA is a voluntary membership organization created by the life insurance
industry to promote ethical market conduct for individual life insurance and
annuity products. VALIC's membership in IMSA applies to VALIC only and not its
products or affiliates.
ABOUT VALIC SEPARATE ACCOUNT A
When you direct money to the Contracts' Variable Account Options, you will be
sending that money through VALIC's Separate Account A. You do not invest
directly in the Mutual Funds made available in the Contracts. VALIC's Separate
Account A invests in the Mutual Funds on behalf of your account. VALIC Separate
Account A is made up of what we call "Divisions." Five Divisions are available
and represent the Variable Account Options in the Contracts. Each of these
Divisions invests in a different Mutual Fund made available through the
Contracts. For example, Division Ten represents and invests in the Stock Index
Fund. The earnings (or losses) of each Division are credited to (or charged
against) the assets of that Division, and do not affect the performance of the
other Divisions of VALIC Separate Account A.
VALIC established Separate Account A on July
25, 1979 under Texas insurance law to allow you to be able to invest in a number
of Variable Account Options available in the Contracts. VALIC Separate Account A
is registered with the SEC as a unit investment trust under the Investment
Company Act of 1940 ("Act"). Units of interest in VALIC Separate Account A are
registered as securities under the Securities Act of 1933.
VALIC Separate Account A is administered and accounted for as part of VALIC's
business operations. However, the income, capital gains or capital losses,
whether or not realized, of each Division of VALIC Separate Account A are
credited to or charged against the assets held in that Division without regard
to the income, capital gains or capital losses of any other Division or arising
out of any other business the Company may conduct. In accordance with the terms
of the Contracts, VALIC Separate Account A may not be charged with the
liabilities of any other VALIC operation. As stated in the Contracts, the Texas
Insurance Code requires that the assets of VALIC Separate Account A attributable
to a Contract be held exclusively for the benefit of the contract owner,
participants, annuitants, and beneficiaries of that Contract. When we discuss
performance information in this prospectus, we mean the performance of a VALIC
Separate Account A Division.
UNITS OF INTERESTS
Your investment in a Division of VALIC Separate Account A is represented by
units of interest issued by VALIC Separate Account A. On a daily basis, the
units of interest issued by VALIC Separate Account A are revalued to reflect
that day's performance of the underlying mutual fund minus any applicable fees
and charges to VALIC Separate Account A.
DISTRIBUTION OF THE CONTRACTS
A.G. Distributors, Inc. ("A.G. Distributors") an affiliate of VALIC, acts as
VALIC's Separate Account A distributor.
The Company will pay the licensed agents who sell the Contracts a commission.
Currently, the commission paid by the Company will range up to 6.0% of each
Purchase Payment. In addition, the Company will pay managers who supervise the
agents overriding commissions ranging up to 1% of each Purchase Payment. These
various commissions are paid by the Company and do not result in any charge to
Contract Owners or to the Separate Account.
All inquiries regarding
THE CONTRACTS may be
directed to your VALIC
Regional Office at the
address shown in the
back of this prospectus.
MUTUAL FUND OR FUND --
the investment portfolio(s)
of a registered open-end
management investment
company, which serves as
the underlying investment
vehicle for each Division
represented in VALIC
Separate Account A.
For more information about
VALIC, see the Statement
of Additional Information.
A.G. DISTRIBUTORS -- our address is
2929 Allen Parkway,
Houston, Texas 77019.
7
<PAGE> 16
VARIABLE ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
The Contracts enable you to participate in Divisions that represent five
Variable Account Options. You may not according to your retirement program be
able to invest in all five Variable Account Options described in this
prospectus. Certain additional limitations may also apply. See "About VALIC
Separate Account A" in this prospectus.
Each individual Division represents and invests, through VALIC's Separate
Account A, in a specific portfolio of AGSPC. AGSPC serves as the investment
vehicle for the Contracts.
AGSPC is registered as a diversified open-end, management investment company and
is regulated under the Act. For complete information about each Mutual Fund
option, including charges and expenses, you should refer to the prospectus of
AGSPC. Additional copies are available from VALIC or you may contact your VALIC
Regional Office at the address shown in the back of this prospectus.
SUMMARY OF FUNDS
A brief summary of the investment objectives of each Mutual Fund is shown below.
In addition to the investment objectives, the Account Value of an assumed
$10,000 investment in each of the Divisions is shown in both table and graph
form as well as the Standard Average Annual Total Return for each Division for a
1, 3, 5 and 10 year period if available. The performance information in the
tables and graphs will reflect a deduction for separate account fees (mortality
and expense risk fees and underlying fund charges). They will not reflect any
deduction for account maintenance fees, surrender charges and premium taxes.
These charges would further reduce your return. The Account Values shown in the
graphs reflect Separate Account performance based on the performance of the
underlying Fund for the last 10 fiscal years or, since inception of the
underlying Fund if for less than 10 years. The returns shown in the tables
reflect for the AGSPC Funds actual historical performance of the related
Separate Account Divisions. Investment return and principal value will fluctuate
with market conditions, and for foreign investments, currencies and the economic
and political climates of the countries where investments are made. Past
performance cannot predict or guarantee future results.
The Standard Average Annual Total Return figures show the average percentage
change in the value of an investment in a Division from the beginning to the end
of the historical periods shown below. The results shown are after all charges
and fees have been applied against the Division. This will include account
maintenance fees and surrender charges that would have been deducted if you
surrendered the Contracts at the end of the specified period. Premium taxes are
not deducted. This information is calculated for each Division based on how an
initial investment of $1,000 performed at the end of the specified periods
shown. For more information about how these returns were calculated including a
statement of the charges reflected and tables showing historical performance
information see "How to Review Investment Performance of Separate Account
Divisions" in this prospectus.
VARIABLE ACCOUNT
OPTIONS -- investment
options that correspond
to Separate Account
Divisions offered by
the Contracts.
Investment returns on
Variable Account
Options may be positive
or negative depending on
the investment
performance of the
underlying Mutual Fund.
8
<PAGE> 17
AGSPC ASSET ALLOCATION FUND*
(Division 5)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks maximum aggregate rate of return over the long-term through controlled
investment risk by adjusting its investment mix among stocks, long-term debt
securities and short-term money market securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1989 $ Value
- ------------------------- -------
<S> <C>
01/01/89 $10,000
12/31/89 11,581
12/31/90 11,189
12/31/91 13,442
12/31/92 13,212
12/31/93 14,294
12/31/94 13,967
12/31/95 17,255
12/31/96 18,979
12/31/97 23,040
12/31/98 26,999
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1989
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC CAPITAL CONSERVATION FUND**
(Division 1)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with preservation of capital
through current income and capital gains on investments in intermediate and
long-term debt instruments and other income producing securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1989 $ Value
- ------------------------- -------
<S> <C>
01/01/89 $10,000
12/31/89 8,701
12/31/90 7,792
12/31/91 9,544
12/31/92 10,263
12/31/93 11,378
12/31/94 10,578
12/31/95 12,645
12/31/96 12,739
12/31/97 13,690
12/31/98 14,549
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1989
[CHART]
PERIOD ENDED DECEMBER 31
* The AGSPC Asset Allocation Fund Division 5 was formerly known as the Timed
Opportunity Fund. The Standard Average Annual Total Return for the Division for
the 1, 3, 5 and 10 year period was 12.14%, 14.81%, 13.53% and 10.41%,
respectively. The Division commenced operations on September 6, 1983.
** The Standard Average Annual Total Return for the AGSPC Capital Conservation
Fund Division 7 for the 1, 3, 5 and 10 year period was 1.46%, 3.21%, 5.00% and
3.78%, respectively. The Division commenced operations on February 11, 1982.
9
<PAGE> 18
AGSPC MIDCAP INDEX FUND*
(Division 4)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide growth of capital through investments primarily in a
diversified portfolio of common stocks that, as a group, are expected to provide
investment results closely corresponding to the performance of the Standard &
Poor's MidCap 400(R) Index**.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 1, 1991 $ Value
- ------------------------- -------
<S> <C>
10/01/91 $10,000
12/31/91 11,163
12/31/92 12,143
12/31/93 13,574
12/31/94 12,936
12/31/95 16,718
12/31/96 19,661
12/31/97 25,648
12/31/98 30,214
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC MONEY MARKET FUND***
(Division 2)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1989 $ Value
- ------------------------- -------
<S> <C>
01/01/89 $10,000
12/31/89 10,790
12/31/90 11,510
12/31/91 12,020
12/31/92 12,287
12/31/93 12,491
12/31/94 12,836
12/31/95 13,413
12/31/96 13,944
12/31/97 14,518
12/31/98 15,115
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1989
[CHART]
PERIOD ENDED DECEMBER 31
* The Standard Average Annual Total Return for the AGSPC MidCap Index Fund
Division 4 for the 1, 3, and 5 year period and since inception was 12.76%,
20.64%, 17.32% and 16.45%, respectively. The Division commenced operations on
October 13, 1982 as the Capital Accumulation Fund. On October 1, 1991, the Fund
underlying the AGSPC MidCap Index Fund 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. The
performance figures for the AGSPC MidCap Index Division reflect the performance
of the MidCap Index Fund since October 1, 1991.
** "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "S&P MidCap 400" are
trademarks of Standard and Poor's ("S&P"). AGSPC MidCap Index Fund is not
sponsored, endorsed, sold or promoted by S&P and S&P makes no representation
regarding the advisability of investing in this Fund.
*** The Standard Average Annual Total Return for the AGSPC Money Market Fund
Division 6 for the 1, 3, 5 and 10 year period was (0.61)%, 2.46%, 3.85% and
4.19%, respectively. The Division commenced operations on February 4, 1982.
10
<PAGE> 19
AGSPC STOCK
INDEX FUND*
(Division 10)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth through investment in common stocks that, as a
group, are expected to provide investment results closely corresponding to the
performance of the Standard & Poor's 500 Stock Index(R)**.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1989 $ Value
- ------------------------- -------
<S> <C>
01/01/89 $10,000
12/31/89 12,766
12/31/90 12,229
12/31/91 16,015
12/31/92 16,434
12/31/93 17,877
12/31/94 17,823
12/31/95 24,227
12/31/96 29,440
12/31/97 38,791
12/31/98 49,315
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1989
[CHART]
PERIOD ENDED DECEMBER 31
* The Standard Average Annual Total Return for the AGSPC Stock Index Fund
Division 10 for the 1, 3, 5 and 10 year period was 22.09%, 25.65%, 22.47% and
17.27%, respectively. The Division commenced operations on July 28, 1982.
** "Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of Standard
and Poor's ("S&P"). The AGSPC Stock Index Fund is not sponsored, endorsed, sold
or promoted by S&P and S&P makes no representation regarding the advisability of
investing in this Fund.
11
<PAGE> 20
PURCHASE PERIOD
- --------------------------------------------------------------------------------
The Purchase Period begins when your first Purchase Payment is made and
continues until you begin your Payout Period. The Purchase Period can also end
when an account is surrendered before the Payout Period. The amount, number, and
frequency of your Purchase Payments is determined by the retirement plan for
which your Contract was purchased.
PURCHASE PAYMENTS
You may establish an account only through a VALIC representative. Initial
Purchase Payments must be received by VALIC either with, or after, a completed
application. Your employer is usually responsible for remitting Purchase
Payments to us. The employer is responsible for furnishing instructions to us as
to the amount being applied to your account.
Minimum initial and subsequent Purchase Payments are as follows:
<TABLE>
<CAPTION>
Initial Subsequent
Contract Type Payment Payment
- ------------------------ ------- ----------
<S> <C> <C>
Periodic Payment $ 30 $30
Single Payment $1,000 -0-
</TABLE>
Periodic Payment minimums apply to each Periodic Payment made. In the case of a
Periodic Payment, the amount of each Purchase Payment allocated to each of the
Variable Account Options and the Fixed Account Option must be at least $30. The
Single Payment minimum applies to each of your Contracts.
Purchase Payments are received in VALIC's Home Office. When an initial Purchase
Payment is accompanied by an application, within 2 business days we will:
- - Accept the Application -- and issue a Contract. We will also establish your
account and apply your Purchase Payment by crediting the amount to the Fixed
Account Option or Variable Account Option selected;
- - Reject the Application -- and return the Purchase Payment; or
- - Request Additional Information -- to correct or complete the application. In
the case of an individual variable annuity contract, we will return the
Purchase Payments within 5 business days if the requested information is not
provided, unless you otherwise so specify.
If we receive Purchase Payments from your employer before we receive your
completed application or enrollment form, we will not be able to establish a
permanent account for you. Under those circumstances, we will take one of the
following actions:
Return Purchase Payments. If we do not have your name, address or social
security number, we will return the Purchase Payment to your employer unless
this information is immediately provided to us.
Employer-Directed Account. If we have your name, address and social security
number and we have an Employer-Directed Account Agreement from your employer,
generally we will deposit your Purchase Payment in an "Employer-Directed"
account invested in the Money Market Division option. You may not transfer these
amounts until VALIC has received a completed application or enrollment form.
Starter Account. If we have your name, address and social security number, but
we do not have an Employer-Directed Account Agreement from your employer, we
will deposit your Purchase Payment in a "starter" account invested in the Money
Market Division. We will send you follow-up letters requesting the information
necessary to complete the application, including your allocation instructions.
Unless a completed application or enrollment form is received by us within 105
days of establishment of your starter account, the account balance, including
earnings, will be returned to your employer. We are not responsible for any
adverse tax consequences to you that may result from the return of your
employer's contributions.
PURCHASE UNITS
A Purchase Unit is a unit of interest owned by you in your Variable Account
Option. Purchase Units apply only to the Variable Account Options selected for
your account. Purchase Unit values are calculated at the close of regular
trading of the New York Stock Exchange (the "Exchange"), currently 4:00 p.m. New
York time (see Calculation of Purchase Unit Value below for more information.)
Purchase Units will be credited the same business day if Purchase Payments are
received by our Home Office before the close of the Exchange. If not, they will
be calculated and credited the next business day. Purchase Unit values will vary
depending on the net investment results of each of the Variable Account Options.
This means the value of your Variable Account Option will fluctuate.
CALCULATION OF PURCHASE UNIT VALUE
The Purchase Unit Value for a Division is calculated as shown below:
Step 1: Calculate the gross investment rate:
Gross Investment Rate
= (EQUALS)
The Division's investment income and capital gains and losses (whether
realized or unrealized) on that day from the assets attributable to the
Division.
/ (DIVIDED BY)
The value of the Division for the immediately preceding day on which the
values are calculated.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by the Contracts.
PURCHASE UNIT -- a
measuring unit used to
calculate your Account Value
during the Purchase Period.
The value of a Purchase Unit
will vary with the investment
experience of the Separate
Account Division you have
selected.
For more information as to
how PURCHASE UNIT VALUES
are calculated, see the
Statement of Additional
Information.
12
<PAGE> 21
- --------------------------------------------------------------------------------
We calculate the gross investment rate as of 4:00 p.m. New York time on each
business day when the Exchange is open.
Step 2: Calculate net investment rate for any day as follows:
Net Investment Rate
= (EQUALS)
Gross Investment Rate (calculated in Step 1)
- - (MINUS)
Separate Account charges and any income tax charges.
Step 3: Determine Purchase Unit Value for that day.
Purchase Unit Value for that day.
= (EQUALS)
Purchase Unit Value for immediate preceding day.
X (MULTIPLIED BY)
Net Investment Rate (as calculated in Step 2) plus 1.00.
CHOOSING INVESTMENT OPTIONS
There are 6 investment options offered in the Contracts. This includes the Fixed
Account Option and 5 Variable Account Options. The Funds that underlie the
Variable Account Options are registered as separate portfolios of AGSPC. AGSPC
is registered as an investment company under the Act and is subject to
regulation of the Act. The Fixed Account Option is not subject to regulation
under the Act and interests in the Fixed Account Option are not required to be
registered under the Securities Act of 1933. As a result, the SEC has not
reviewed data in this prospectus that relates to the Fixed Account Option.
However, federal securities law does require such data to be accurate and
complete.
FIXED ACCOUNT OPTION
The Fixed Account Option is part of the Company's general assets. You may
allocate all or a portion of your Purchase Payment to the Fixed Account Option.
Purchase Payments you allocate to the Fixed Account Option are guaranteed to
earn at least a minimum rate of interest. Interest is paid on the Fixed Account
Option at declared rates. We bear the entire investment risk for the Fixed
Account Option. All Purchase Payments and interest earned on such amounts in
your Fixed Account Option will be paid regardless of the investment results
experienced by the Company's general assets.
Here is how you may calculate the value of your Fixed Account Option during the
Purchase Period:
Value of Your Fixed Account Option
= (EQUALS)
All Purchase Payments made to the Fixed Account Option
+ (PLUS)
Amounts transferred from Variable Account Options to the Fixed
Account Option
+ (PLUS)
All interest earned
- - (MINUS)
Amounts transferred or withdrawn from Fixed Account Option
(including applicable fees and charges)
VARIABLE ACCOUNT OPTIONS
You may allocate all or a portion of your Purchase Payments to the Variable
Account Options listed in this prospectus as permitted by your retirement
program. As noted elsewhere in the prospectus, you will not be permitted to
select from more than 3 investment options. A complete discussion of each of the
Variable Account Options may be found in the "Variable Account Options" section
in this prospectus. Based upon a Variable Account Option's Purchase Unit Value
your account will be credited with the applicable number of Purchase Units. The
Purchase Unit Value of each Variable Account Option will change daily depending
upon the investment performance of the underlying fund (which may be positive or
negative) and the deduction of VALIC Separate Account A charges. See the "Fees
and Charges" section in this prospectus. Because Purchase Unit Values change
daily, the number of Purchase Units your account will be credited with for
subsequent Purchase Payments will vary. Each Variable Account Option bears its
own investment risk. Therefore, the value of your account may be worth more or
less at retirement or withdrawal.
Here is how to calculate the value of each Variable Account Option in your
account during the Purchase Period:
Value of Your Variable Account Option
= (EQUALS)
Total Number of Purchase Units
X (MULTIPLIED BY)
Current Purchase Unit Value
STOPPING PURCHASE PAYMENTS
Purchase Payments may be stopped at any time. Purchase Payments may be resumed
at any time before your account has been surrendered. While no Purchase Payments
are being made, the number of Purchase Units outstanding will remain the same.
(This is assuming no transfers or withdrawals are made.) The value of the
Purchase Units will continue to vary. Your Account Value will continue to be
subject to charges.
In the case of an individual contract, if both your Account Value and Purchase
Payments (less any withdrawals) falls below $300, and you do not make any
Purchase Payments for two years from the date we established your account, we
may close the account and pay the Account Value (less any surrender charge) to
you. In the case of a group contract, if your Account Value (less any
withdrawals) falls below $300, we may close the account and pay the Account
Value (less any surrender charge) to you. Any such account closures will be
subject to applicable distribution restrictions under the contract and/or under
your employer's plan.
13
<PAGE> 22
TRANSFERS BETWEEN INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may transfer all or part of your Account Value between the various Fixed
Account and Variable Account Options in your Contract without a charge. Transfer
instructions may be made either in writing or by telephone as discussed below.
Transfers may be made during the Purchase Period or during the Payout Period. We
reserve the right to limit transfers as discussed below. Your employer's plan
may also limit your rights to transfer.
DURING THE PURCHASE PERIOD
During the Purchase Period, transfers may be made between your Contract's Fixed
Account Option and Variable Account Options.
We currently permit transfers between Variable Account Options or from Variable
Account Options to the Fixed Account Option once every 30 days.
Transfers are also permitted from the Fixed Account Option subject to a 90-day
holding period for transfers previously made from the Variable Account Option.
DURING THE PAYOUT PERIOD
During the Payout Period, transfers may be made between your Contract's
investment options subject to the following limitations:
<TABLE>
<CAPTION>
OPTION OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
- -------------- ------------- ---------- -------------------
<S> <C> <C> <C>
Variable: Up to 100% Once every None
365 days
COMBINATION Up to 100% of Once every None
FIXED AND money in 365 days
VARIABLE variable
PAYOUT: option payout
Fixed: Not permitted -- --
</TABLE>
COMMUNICATING TRANSFER OR
REALLOCATION INSTRUCTIONS
A written instruction to transfer or reallocate all or part of your Account
Value between the various investment options in your Contract, should be sent to
VALIC's Home Office.
Instructions for transfers or reallocations may be made by calling
1-800-621-7792. Telephone transfers will be allowed unless we have been notified
not to accept such telephone instructions. In this event, we must receive
written instructions, in order to permit future telephone transfers to be made.
Before a transfer will be made by telephone, you must give us the requested
identifying information concerning your account(s).
Unless we have been instructed not to accept requests for telephone transfers,
anyone may effect a telephone transfer if they furnish the requested
information. You will bear any loss resulting from such instructions, whether
the caller was specifically authorized by you or not.
No one that we employ or that represents VALIC may give telephone instructions
on your behalf without VALIC's prior written permission. (This does not apply to
a contract with the immediate family of an employee or representative of VALIC).
We will send you a confirmation of the completed transfer within 5 days from the
date of your instruction. When you receive your confirmation, it is your duty to
verify the information shown, and advise us of any errors within one business
day.
You will bear the risk of loss arising from instructions received by telephone.
We are not responsible for the authenticity of such instructions. Any telephone
instructions which we reasonably believe to be genuine will be your
responsibility. This includes losses from errors in communication. Telephone
transfer instruction may not be made during the Payout Period. We reserve the
right to stop telephone transfers at any time.
EFFECTIVE DATE OF TRANSFER
The effective date of a transfer will be:
- - The date of receipt, if received in our Home Office before the close of
regular trading of the Exchange on a day values are calculated; (Normally,
this will be 4:00 P.M. New York time); otherwise
- - The next date values are calculated.
ACCOUNT VALUE -- the total
sum of your Fixed Account
and/or Variable Account
Options that have not yet
been applied to your Payout
Payments.
PURCHASE PERIOD -- the time
between your first Purchase
Payment and your Payout
Period (or surrender).
HOME OFFICE -- our
principal office at 2929 Allen
Parkway, Houston, Texas
77019.
PAYOUT PERIOD -- the time
that starts when you begin to
withdraw your money in a
steady stream of payments.
14
<PAGE> 23
FEES AND CHARGES
- --------------------------------------------------------------------------------
By investing in the Contracts, you may be subject to six basic types of fees and
charges:
- - Account Maintenance Fee
- - Surrender Charge
- - Premium Tax Charge
- - Separate Account Charges
- - Fund Annual Expense Charge
- - Other Tax Charges
These fees and charges are explained below. For additional information about
these fees and charges, see the Fee Table in this prospectus.
ACCOUNT MAINTENANCE FEE
An account maintenance fee of $30.00 will be deducted on the last day of each
calendar quarter following receipt of the first purchase payment and annually on
that date after that. We will sell Purchase Units from your Account to pay the
account maintenance fee. The fee will be assessed equally among the Variable
Account Options and the Fixed Account Option that make up your Account Value.
The account maintenance fee is to reimburse the Company for our administrative
expenses. This includes the expense for establishing and maintaining the record
keeping for your Contract. We do not expect that the amount of fees we receive
will be greater than our expenses.
The amount of the account maintenance fee may be reduced or waived if the
Contracts are issued to certain types of plans which are expected to result in
lower costs to VALIC. To learn more about how we determine if account
maintenance fees may be reduced or waived, see the "Reduction or Waiver of
Account Maintenance Fee and Surrender Charge" section in this prospectus. If you
have two or more accounts established under the same group contract, we may
agree to deduct an account maintenance fee from only one account.
No account maintenance fee will be assessed during the Payout Period.
SURRENDER CHARGE
When you withdraw money from your account, you may be subject to a surrender
charge that will be deducted from the amount withdrawn. For information about
your right to surrender, see "Surrender of Account Value" in this prospectus.
It is assumed that the most recent Purchase Payments are withdrawn first. No
surrender charge will be applied unless an amount is actually withdrawn. We
consider all Purchase Payments to be withdrawn before earnings are withdrawn.
Amounts exchanged from other contracts issued by the Company may or may not be
subject to a surrender charge. After exchange, it is assumed that any new
Purchase Payments are withdrawn before the exchanged amount. For more
information, see "Exchange Privilege" in the Statement of Additional
Information.
Amount of Surrender Charge
A surrender charge is equal to five percent (5%) of the amount of all Purchase
Payments received during the past 36 months.
10% Free Withdrawal
In any Participant Year, the first withdrawal of up to 10% of the Account Value
will not be subject to a surrender charge. The surrender charge will apply to
any amount withdrawn that exceeds this 10% limit or to any subsequent
withdrawals in that year. The percentage withdrawn will be determined by
dividing the amount withdrawn by the Account Value just prior to the withdrawal.
These 10% withdrawals without charge do not reduce Purchase Payments for the
purpose of computing the surrender charge. If a surrender charge is applied to
all or part of a Purchase Payment, no surrender charge will be applied to such
Purchase Payment (or portion thereof) again.
Exceptions to Surrender Charge
No surrender charge will be applied:
- - To money applied to provide a Payout Option;
- - To death benefits;
- - If no Purchase Payments have been received during the 36 months prior to the
date of surrender; or
- - If you are at least 55 years old, are no longer employed by the employer that
established the plan, and your account under the plan was established at least
5 years prior to the date of surrender (applicable to qualified contracts
only).
The surrender charge may be reduced or waived if a Contract is issued to certain
types of plans or similar arrangements which are expected to result in lower
costs to VALIC. To learn more about how we determine if a surrender charge may
be reduced or waived, see the "Reduction or Waiver of Account Maintenance Fee
and Surrender Charge" section in this prospectus.
PREMIUM TAX CHARGE
Taxes on Purchase Payments are imposed by some states, cities, and towns. The
rate will range from zero to 3 1/2%.
If the law of a state, city, or town requires premium taxes to be paid when
Purchase Payments are made, we will, of course, comply. Otherwise, such tax will
be deducted from the Payout Value when annuity payments are to begin.
PARTICIPANT YEAR -- the first
twelve month period and
then each yearly anniversary
of that period following the
issue date of the contract or
certificate.
15
<PAGE> 24
- --------------------------------------------------------------------------------
If we deduct an amount for premium taxes, but later find the tax was not due, we
will:
- - Adjust the amount deducted in error to reflect investment experience from the
date of the deduction to the date we determined the tax was not due; and
- - Apply the excess amount, as adjusted, to increase the number of Pay-in or
Payout Units.
SEPARATE ACCOUNT CHARGES
There will be a mortality and expense risk fee applied to VALIC Separate Account
A. This is a daily charge at an annualized rate of 1.00% on the average daily
net asset value of VALIC Separate Account A. This charge is guaranteed and
cannot be increased by the Company. The mortality and expense risk fee is to
compensate the Company for assuming mortality and expense risks under the
Contracts. The mortality risk that the Company assumes is the obligation to
provide payments during the Payout Period for your life no matter how long that
might be. In addition, the Company assumes the obligation to pay during the
Purchase Period a death benefit which may be higher than your Account Value. For
more information about the death benefit see the "Death Benefit" section of this
prospectus. The expense risk is our obligation to cover the cost of issuing and
administering the Contracts, no matter how large the cost may be.
The Company may make a profit on the mortality and expense risk fee.
For more information about the mortality and expense risk fee, see the Fee Table
in this prospectus.
FUND ANNUAL EXPENSE CHARGES
Investment management charges based on a percentage of each Fund's average daily
net assets are payable by each Fund. Depending on the Variable Account Option
selected, the charges will be paid by each Fund to its investment adviser. These
charges and other Fund charges and expenses are fully described in the
prospectuses for AGSPC. These charges indirectly cost you because they lower
your return.
OTHER TAX CHARGES
We reserve the right to charge for certain taxes (other than premium taxes) that
we may have to pay. This could include federal income taxes. Currently, no such
charges are being made.
REDUCTION OR WAIVER OF ACCOUNT
MAINTENANCE FEE AND SURRENDER CHARGE
We may, as described below, determine that the account maintenance fee and
surrender charges for the Contracts may be reduced or waived. We may reduce or
waive these fees and charges if we determine that your retirement program will
allow us to reduce or eliminate administrative or sales expenses that we usually
incur for such programs and arrangements. There are a number of factors we will
review in determining whether your retirement program will allow us to reduce or
eliminate these administrative or sales expenses:
- - The type of retirement program.
Certain types of retirement programs because of their stability can result in
lower administrative costs.
- - The nature of your retirement program.
Certain types of retirement programs, due to the types of employees who
participate, experience fewer account surrenders thus reducing administrative
costs.
- - Other factors of which we are not presently aware which could reduce
administrative costs.
We review the following additional factors to determine whether we can reduce
or waive account maintenance fees:
- - The frequency of Purchase Payments for your retirement program. Purchase
Payments received no more than once a year can reduce administrative costs.
- - The administrative tasks performed by your employer for your retirement
program.
The employer sponsoring your retirement program can, through their method of
remitting Purchase Payments, reduce administrative costs.
We review the following additional factors to determine whether we can reduce or
waive surrender charges:
- - The size of your retirement program.
A retirement program which involves a larger group of employees may allow us
to reduce sales expenses.
- - The total amount of Purchase Payments to be received for your retirement
program.
Larger Purchase Payments can reduce sales expenses.
- - The use of mass enrollment or related administrative tasks performed by your
employer for your retirement program.
We will only do this if permitted by this Contract and by VALIC guidelines in
effect at the time. In no event will the reduction or waiver of fees and
charges be permitted where the reduction or waiver will unfairly discriminate
against any person.
16
<PAGE> 25
PAYOUT PERIOD
- --------------------------------------------------------------------------------
The Payout Period (Annuity Period) begins when you decide to retire or otherwise
withdraw your money in a steady stream of payments. If your employer's plan
permits, you may apply any portion of your Account Value to one of the types of
Payout Options listed below. You may choose to have your Payout Option on either
a fixed, a variable, or a combination payout basis. When you choose to have your
Payout Option on a variable basis, you may keep the same Variable Account
Options in which your Purchase Payments were made, or transfer to different
ones.
FIXED PAYOUT
Under Fixed Payout, you will receive monthly payments from the Company. These
payments are fixed and guaranteed by the Company. The amount of these payments
will depend on:
- Type and duration of Payout Option chosen;
- Your age or your age and the age of your survivor(1);
- Your sex or your sex and the sex of your survivor(1) (IRA's and certain
nonqualified contracts);
- The portion of your Account Value being applied; and
- The payout rate being applied and the frequency of the payments.
(1) This applies only to joint and survivor payouts.
If the benefit would be greater, the amount of your payments will be based on
the current payout rate the Company uses for immediate annuity contracts.
VARIABLE PAYOUT
With a Variable Payout, you may select from your existing Variable Account
Options. Your payments will vary accordingly. This is due to the varying
investment results that will be experienced by each of the Variable Account
Options you selected. The Payout Unit Value is calculated just like the Purchase
Unit Value for each Variable Account Option except that the Payout Unit Value
includes a factor for the Assumed Investment Rate you select. For additional
information on how Payout Payments and Payout Unit Values are calculated, see
the Statement of Additional Information.
In determining your first Payout Payment, an Assumed Investment Rate of 3 1/2%
is used (unless you select a higher rate as allowed by state law.) If the net
investment experience of the Variable Account Option exceeds your Assumed
Investment Rate, your next payment will be greater than your first payment. If
the investment experience of the Variable Account Option is lower than your
Assumed Investment Rate, your next payment will be less than your first payment.
COMBINATION FIXED AND VARIABLE
PAYOUT
With a Combination Fixed and Variable Payout, you may choose:
- From your existing Variable Account Options (payments will vary); with
- The Fixed Account Option (payment is fixed and guaranteed).
Up to 3 Variable Account Options may be chosen, or up to 2 Variable Account
Options if the Fixed Account Option is chosen.
PAYOUT DATE
The Payout Date is the date selected by you on which your payout (annuity)
payments will start. The date selected must be the first of any month provided
30 days advance notice has been given to VALIC. Your account will be valued ten
days prior to the end of the month preceding the Payout Date. A request to start
payments must be sent to our Home Office on a form approved by VALIC. Generally,
for qualified contracts, the Payout Date may begin when you attain age 59 1/2 or
separate from service, but must begin no later than April 1 following the
calendar year you reach age 70 1/2 or the calendar year in which you retire. For
nonqualified contracts, the Payout Date may begin after the annuitant's 50th
birthday but prior to the Annuitant's 75th birthday. For additional information
on the minimum distribution rules that apply to payments under 403(b), 401,
403(a) and 457 plans or simplified employee plans ("SEPs"), see "Federal Tax
Matters" in this prospectus and in the Statement of Additional Information.
PAYOUT OPTIONS
You may specify the manner in which your Payout Payments are made. You may
select one of the following options:
- LIFE ONLY -- payments are made only to you during your lifetime. Under this
option there is no provision for a death benefit for the beneficiary. For
example, it would be possible under this option for the Annuitant to receive
only one payout payment if he died prior to the date of the second payment,
two if he died before the third payment.
PAYOUT UNIT -- a measuring
unit used to calculate Payout
Payments from your Variable
Account Option. Payout Unit
values will vary with the
investment experience of the
VALIC Separate Account A
Division you have selected.
ASSUMED INVESTMENT
RATE -- the rate used to
determine your first monthly
Payout Payment per
thousand dollars of Account
Value in your Variable
Account Option(s).
17
<PAGE> 26
- --------------------------------------------------------------------------------
- LIFE WITH GUARANTEED PERIOD -- payments are made to you during your
lifetime; but if you die before the guaranteed period has expired, your
beneficiary will receive payments for the rest of your guaranteed period.
- LIFE WITH CASH OR UNIT REFUND -- payments are made to you during your
lifetime. Upon your death, your beneficiary will receive a lump sum payment
equal to the remaining Annuity Value.
- JOINT AND SURVIVOR LIFE -- payments are made to you during the joint
lifetime of you and your beneficiary. Upon the death of one, payments
continue during the lifetime of the survivor. This option is designed
primarily for couples who require maximum possible variable payouts during
their joint lives and are not concerned with providing for beneficiaries at
death of the last survivor. For example, it would be possible under this
option for the Joint Annuitants to receive only one payment if both
Annuitants died prior to the date of the second payment, or for the Joint
Annuitants to receive only one payment and the surviving Annuitant to
receive only one payment if one Annuitant died prior to the date of the
second payment and the surviving Annuitant dies prior to the date of the
third payment.
- PAYMENT FOR A DESIGNATED PERIOD -- payments are made to you for a select
number of years between three and fifteen. Upon your death, payments will
continue to your beneficiary until the designated period is completed. The
Annuitant may elect during the payout period to receive a lump sum payment
equal to the remaining Annuity Value.
Each Payout Option, except Payment for a Designated Period, is available as a
Fixed and Variable Payout. Payment for a Designated Period is available as a
Fixed Payout Option only.
You may elect a different Payout Option if we agree.
ENHANCEMENTS TO PAYOUT OPTIONS
You may be able to select enhancements to the Payout Options described above.
These enhancements include partial annuitization, flexible payments of varying
amounts and inflation protection payments. Additionally, certain options may be
available with a one to twenty year guaranteed period. The Joint and Survivor
Life Option may be available with a one to twenty year guaranteed period option.
Not all of the enhancements are available under each option.
PAYOUT INFORMATION
Once your Payout Payments have begun, the option you have chosen may not be
stopped or changed. Any one of the Variable Account Options may result in your
receiving unequal payments during your life expectancy. If payments begin before
age 59 1/2, you may suffer unfavorable tax consequences, in the form of an
excise tax, if you do not meet an exception under federal tax law. See "Federal
Tax Matters" in this prospectus.
Your Payment Option should be selected at least 30 days before your Payout Date.
If such selection is not made:
- Payments will be made under the Life with Guaranteed Period Option,
- The payments will be guaranteed for a 10 year period,
- The payments will be based on the allocation used for your Purchase
Payments,
- The Fixed Account Option will be used to distribute payments to you on a
Fixed Payout basis, and
- Variable Account Options will be used to distribute payments to you on a
Variable Payout basis.
Your first Payout Payment must total at least $25.
Under certain retirement plans, federal pension law may require that payments be
made under the Joint and Survivor Life Payout Option.
Most Payout Payments are made monthly. If the amount of your payment is less
than $25, we reserve the right to reduce the number of payments made each year
so each of your payments are at least $25, subject to any limitations under the
contract or the plan. Also, if your annual payment is less than $100, we reserve
the right to make a lump sum payment of the remaining annuity value.
For more information about
PAYOUT OPTIONS OR
ENHANCEMENTS of those
Payout Options available
under the Contract,
see the "Statement of
Additional Information".
18
<PAGE> 27
SURRENDER OF ACCOUNT VALUE
- --------------------------------------------------------------------------------
WHEN SURRENDERS ARE ALLOWED
You may withdraw all or part of your Account Value at any time before the Payout
Period begins if:
- allowed under federal and state law; and
- allowed under your employer's plan.
For an explanation of charges that may apply if you surrender your Account
Value, see "Fees and Charges" in this prospectus.
AMOUNT THAT MAY BE SURRENDERED
The amount that may be surrendered at any time can be determined as follows:
<TABLE>
<S> <C> <C>
Your
Account
Allowed Value(1)
Surrender - (MINUS)
Value = (EQUALS) Any
Applicable
Surrender
Charge
</TABLE>
(1) Equals the Account Value next computed after your properly completed
request for surrender is received in our Home Office.
There is no guarantee that the Surrender Value in a Variable Account Option will
ever equal or exceed the total amount of your Purchase Payments received by us.
We will mail to you the Surrender Value within 7 calendar days after we receive
your properly completed surrender request at our Home Office. However, we may be
required to suspend or postpone payments if redemption of an underlying Fund's
shares have been suspended or postponed. See your current AGSPC prospectus for a
discussion of the reasons why the redemption of shares may be suspended or
postponed.
We may defer payment of the Surrender Value in the Fixed Account Options for up
to 6 months. Interest will be paid on such amounts if payment of Fixed Account
Option Surrender Value is deferred for 30 calendar days or more.
We may receive a surrender for a Purchase Payment which has not cleared the
banking system. We may delay payment of that portion of your Surrender Value
until the check clears. The rest of the Surrender Value will be processed as
usual.
SURRENDER RESTRICTIONS
Generally, Internal Revenue Code Section 403(b)(11) permits total or partial
distributions from a 403(b) contract only on account of hardship (employee
contributions only without accrued interest), attainment of age 59 1/2,
separation from service, death or disability.
Under the TEXAS STATE OPTIONAL RETIREMENT PROGRAM, and in many Section 403(b)
contracts, no surrender or partial surrender will be allowed except for
termination of employment, retirement or death.
Under the FLORIDA STATE OPTIONAL RETIREMENT PROGRAM, no surrender or partial
surrender of Purchase Payments made by the employer will be allowed except for
termination of employment, retirement or death. Benefit payments based on
payments from the employer may not be paid in a lump sum or for a period
certain, but must be paid under a life contingency option, except for:
- death benefits; and
- certain small amounts approved by the State of Florida.
Under the LOUISIANA OPTIONAL RETIREMENT PLAN retirement benefits must be paid in
the form of a lifetime income, and except for death benefits, single sum
surrenders and partial surrenders out of the plan are not permitted.
Other employer-sponsored plans may also impose restrictions on the timing and
form of surrenders from the contract.
PARTIAL SURRENDERS
You may request a partial surrender of your Account Value at any time, subject
to any applicable surrender restrictions. A partial surrender plus any surrender
charge will reduce your Account Value. Partial surrenders will be paid from the
Fixed Account Options and Variable Account Options for the payment of Account
Value.
The reduction in the number of Purchase Units credited to your Account Value
will equal:
<TABLE>
<S> <C> <C>
The amount Your Purchase
surrendered Units next
+ (PLUS) computed after
Any Surrender / (DIVIDED BY) the written
Charge request for
surrender is
received at our
Home Office
</TABLE>
19
<PAGE> 28
DEATH BENEFITS
- --------------------------------------------------------------------------------
The Contracts will pay death benefits during either the Purchase Period or the
Payout Period. How these death benefits will be paid are discussed below. The
death benefit provisions in the Contracts may vary from state to state.
BENEFICIARY INFORMATION
The Beneficiary may receive death benefits:
- - In a lump sum; or
- - In the form of an annuity under any of the Payout Options stated in the Payout
Period section of this prospectus subject to the restrictions of that Payout
Option.
Payment of any death benefits must be within the time limits set by federal tax
law and by the plan, if any.
Beneficiaries Other Than Spouses.
If the Beneficiary is not the spouse of the Annuitant, death benefits must be
paid.
- - In full within 5 years after the Annuitant's death; or
- - By payments beginning within 1 year after the Annuitant's death under:
- - A life annuity;
- - A life annuity with payments certain; or
- - An annuity for a designated period not exceeding the Beneficiary's life
expectancy.
If the Annuitant dies before the Annuity Date, the Beneficiary as named by you
may receive the payout.
Payments certain or payments for a designated period cannot be for a greater
period of time than the Beneficiary's life expectancy. After choosing a payment
option, a Beneficiary may exercise many of the investment options and other
rights that the Participant or Contract Owner had under the Contract.
DURING THE PURCHASE PERIOD
If death occurs during the Purchase Period, the death benefit will be the
greater of:
Your Account Value on the Date Proof of Death is Received by VALIC
OR
100% of Purchase Payments (to Fixed and/or Variable Account Options)
- (MINUS)
Amount of all Prior Withdrawals, Charges and any portion of Account Value
applied under a Payout Option
DURING THE PAYOUT PERIOD
If death occurs during the Payout Period, your Beneficiary may receive a death
benefit depending on the Payout Option selected. The amount of death benefits
will also depend on the Payout Option that you selected. The Payout Options
available in the Contracts are described in the "Payout Period" section of this
prospectus.
- - If the Life Only Option or Joint and Last Survivor Life Option were chosen,
there will be no death benefit.
- - If the Life With Guaranteed Period Option, Life with Cash or Unit Refund
Option or Payment for a Designated Period Option were chosen, and the entire
amount guaranteed has not been paid, the Beneficiary may choose one of the
following within 60 days after death benefits are payable:
- Receive the present value of any remaining payments in a lump sum; or
- Receive the remaining payments under the same terms of the option chosen by
the deceased Participant and be entitled to elect anytime thereafter to
receive the present value of any remaining payments in a lump sum; or
- Receive the present value of any remaining payments applied under the
Payment for a Designated Period Option for a period equal to or shorter than
the period remaining. Spouse beneficiaries may be entitled to more favorable
treatment under federal tax law.
BENEFICIARY -- the person
designated to receive Payout
Payments upon the death of
an Annuitant.
ANNUITANT -- the individual,
(in most cases this person is
you) to whom Payout
Payments will be paid.
CONTRACT OWNER -- either
your employer or organization
in the case of a group
contract or the Annuitant in
the case of an individual
contract. If the contract is an
individual non-qualified type,
this is generally the Annuitant
but is not required to be. Also,
a Contingent Contract
Owner may be designated.
FIXED ACCOUNT OPTION -- a
particular subaccount into
which your Purchase
Payments and Account Value
may be allocated to fixed
investment options. Currently,
the Fixed Account Option in
the Contracts is the General
Account. This option of this
type is guaranteed to earn
at least a minimum rate of
interest.
VARIABLE ACCOUNT
OPTIONS -- investment
options that correspond to
VALIC Separate Account A
Divisions offered by the
Contracts. Investment returns
on Variable Account Options
will be positive or negative
depending on the investment
performance of the
underlying mutual fund.
20
<PAGE> 29
HOW TO REVIEW INVESTMENT PERFORMANCE
OF SEPARATE ACCOUNT DIVISIONS
- --------------------------------------------------------------------------------
We will advertise information about the investment performance of VALIC Separate
Account A Divisions. Our advertising of past investment performance results does
not mean that future performance will be the same. The performance information
will not predict what your actual investment experience will be in that Division
or show past performance under an actual contract. We may also show how the
Divisions rank on the basis of data compiled by independent ranking services.
TYPES OF INVESTMENT PERFORMANCE
INFORMATION ADVERTISED
We may advertise the Division's Total Return Performance information and Yield
Performance information.
TOTAL RETURN PERFORMANCE INFORMATION
Total Return Performance Information is based on the overall dollar or
percentage change in value of an assumed investment in a Division over a given
period of time.
There are seven ways Total Return Performance Information may be advertised:
- Standard Average Annual Total Return
- Nonstandard Average Annual Total Return
- Cumulative Total Return
- Annual Change in Purchase Unit Value
- Cumulative Change in Purchase Unit Value
- Total Return Based on Different Investment Amounts
- An Assumed Account Value of $10,000
Each of these is described below.
STANDARD AVERAGE ANNUAL TOTAL RETURN
Standard Average Annual Total Return shows the average percentage change in the
value of an investment in the Division from the beginning to the end of a given
historical period. The results shown are after all charges and fees have been
applied against the Division. This will include account maintenance fees and
surrender charges that would have been deducted if you surrendered the Contract
at the end of each period shown. Premium taxes are not deducted. This
information is calculated for each Division based on how an initial assumed
payment of $1,000 performed at the end of 1, 3, 5 and 10 year periods.
The return for periods of more than one year are annualized to obtain the
average annual percentage increase (or decrease) during the period.
Annualization assumes that the application of a single rate of return each year
during the period will produce the ending value, taking into account the effect
of compounding.
NONSTANDARD AVERAGE ANNUAL TOTAL RETURN
Nonstandard Average Annual Total Return is calculated in the same manner as the
Standard Average Annual Total Return. However, Nonstandard Average Annual Total
Return shows only the historic investment results of the Division. Account
maintenance fees, surrender charges and premium taxes are not deducted.
CUMULATIVE TOTAL RETURN
Cumulative Total Return assumes the investment in the Contracts will stay in the
Division beyond the time that a surrender charge would apply. It may be
calculated for 1, 3, 5 and 10 year periods. It is based on an assumed initial
investment of $10,000. The Cumulative Return will be calculated without
deduction of account maintenance fees, surrender charges or premium taxes.
ANNUAL CHANGE IN PURCHASE UNIT VALUE
Annual Change in Purchase Unit Value is a percentage change during a one year
period. This is calculated as follows:
- The Purchase Unit Value at the start of the year is subtracted from the
Purchase Unit Value at the end of the year;
- The difference is divided by the Purchase Unit Value at the start of the
year.
Account maintenance fees, surrender charges and premium taxes are not deducted.
The effect of these charges, if deducted, would reduce the Division's Annual
Change in Purchase Unit Value.
DIVISIONS -- subaccounts of
VALIC Separate Account A
which represent the Variable
Account Options in the
Contracts. Each Division
invests in a different mutual
fund, each having its own
investment objective and
strategy.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by the Contracts.
For more information on how
TOTAL RETURN PERFORMANCE
INFORMATION is calculated,
see the Statement of
Additional Information.
21
<PAGE> 30
- --------------------------------------------------------------------------------
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
Cumulative Change in Purchase Unit Value is a percentage change from the
beginning to the end of a period usually greater than one year. Otherwise, it is
calculated in the same way as the Annual Change in Purchase Unit Value.
TOTAL RETURN BASED ON DIFFERENT
INVESTMENT AMOUNTS
We may show total return information based on different investment amounts. For
example, we may show $200 a month for 10 years, or $100 a month to age 65. Fees
may or may not be included. Each performance illustration will explain the
Contract charges and fees imposed on the Division.
AN ASSUMED ACCOUNT VALUE OF $10,000
We may show annual values based on an initial investment of $10,000. This will
not reflect any deduction for account maintenance fees, surrender charges and
premium taxes.
YIELD PERFORMANCE INFORMATION
We may advertise Yield Performance, at a given point in time. A Division's yield
is one way of showing the rate of income the Division is earning as a percentage
of the Division's Purchase Unit Value.
AGSPC MONEY MARKET DIVISION
We may advertise the AGSPC Money Market Division's Current Yield and Effective
Yield.
The Current Yield refers to the income produced by an investment in the AGSPC
Money Market Division over a given 7-day period. The Current Yield does not take
into account surrender charges, account maintenance fees or premium taxes. The
income produced over a 7 day period is then "annualized." This means we are
assuming the amount of income produced during the 7-day period will continue to
be produced each week for an entire year. The annualized amount is shown as a
percentage of the investment. For the AGSPC Money Market Division the 7-day
Current Yield for the last 7 days ended December 31, 1998 was 3.64%.
The Effective Yield is calculated in a manner similar to the Current Yield. But,
when the yield is annualized the income earned is assumed to be reinvested. The
compounding effect will cause the Effective Yield to be higher than the Current
Yield. For the AGSPC Money Market Division the 7-day Effective Yield for the
last 7 days ended December 31, 1998 was 3.71%.
DIVISIONS OTHER THAN THE AGSPC MONEY MARKET DIVISION
We may advertise the standardized yield performance for each Division other than
the AGSPC Money Market Division. The yield for each of these Divisions will be
determined as follows:
- We will subtract the account maintenance fee from the average daily net
investment income per Purchase Unit;
- We will divide the remainder by the Purchase Unit Value on the last day of
the period; and
- We will annualize the result.
PERFORMANCE INFORMATION:
AVERAGE ANNUAL TOTAL RETURN, CUMULATIVE RETURN AND ANNUAL AND CUMULATIVE CHANGE
IN PURCHASE UNIT VALUE TABLES.
In the sections above we have described a number of ways we may advertise
information about the investment performance of VALIC Separate Account A
Divisions. Certain performance information for each VALIC Separate Account A
Division is printed in the tables below.
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" in the prospectus
and in the Statement of Additional Information.) The information presented also
does not reflect the advantage under Qualified Contracts of deferring federal
income tax on Purchase Payments.
The performance results shown in the following tables are not an estimate or
guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
22
<PAGE> 31
TABLE I
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED*
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1998)
<TABLE>
<CAPTION>
DIVISION
INCEPTION SINCE
FUND AND DIVISION DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------------- --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Asset Allocation (Division 5) (1)............. 09/06/83 9.03% 10.41% 13.53% 14.81% 12.14%
AGSPC Capital Conservation (Division 1)............. 02/11/82 8.09 3.78 5.00 3.21 1.46
AGSPC MidCap Index (Division 4)**................... 10/13/82** 16.45 -- 17.32 20.64 12.76
AGSPC Money Market (Division 2)..................... 02/04/82 5.47 4.19 3.85 2.46 (0.61)
AGSPC Stock Index (Division 10)..................... 07/28/82 13.86 17.27 22.47 25.65 22.09
</TABLE>
- ---------------
* The performance figures in the Table reflect the investment performance for
the Divisions for the stated periods and should not be used to infer that
future performance will be the same.
** The Division commenced operations on October 13, 1982 as the Capital
Accumulation Fund. Effective October 1, 1991, the Fund underlying the AGSPC
MidCap Index Division changed its name from the Capital Accumulation Fund to
the MidCap Index Fund and amended its investment objective, investment
program and investment restrictions accordingly. The performance figures for
the AGSPC MidCap Index Division reflect the performance of the MidCap Index
Fund since October 1, 1991.
(1) The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
TABLE II
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED*
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1998)
<TABLE>
<CAPTION>
DIVISION
INCEPTION SINCE
FUND AND DIVISION DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------------- --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Asset Allocation (Division 5)(1).................... 09/06/83 9.05% 10.44% 13.56% 16.09% 17.19%
AGSPC Capital Conservation (Division 1)................... 02/11/82 8.10 3.82 5.04 4.79 6.28
AGSPC MidCap Index (Division 4)**......................... 10/13/82** 16.48 -- 17.35 21.81 17.80
AGSPC Money Market (Division 2)........................... 02/04/82 5.49 4.22 3.89 4.06 4.11
AGSPC Stock Index (Division 10)........................... 07/28/82 13.88 17.30 22.50 26.73 27.13
</TABLE>
- ---------------
* The performance figures in the Table reflect the investment performance for
the Divisions for the stated periods and should not be used to infer that
future performance will be the same.
** The Division commenced operations on October 13, 1982 as the Capital
Accumulation Fund. Effective October 1, 1991, the Fund underlying the AGSPC
MidCap Index Division changed its name from the Capital Accumulation Fund to
the MidCap Index Fund and amended its investment objective, investment
program and investment restrictions accordingly. The performance figures for
the AGSPC MidCap Index Division reflect the performance of the MidCap Index
Fund since October 1, 1991.
(1) The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
23
<PAGE> 32
TABLE III
CUMULATIVE RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED*
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1998)
<TABLE>
<CAPTION>
DIVISION
INCEPTION SINCE
FUND AND DIVISION DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------------- --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Asset Allocation (Division 5)(1)................... 09/06/83 277.25% 169.99% 88.88% 56.47% 17.19%
AGSPC Capital Conservation (Division 1).................. 02/11/82 272.62 45.49 27.87 15.06 6.28
AGSPC MidCap Index (Division 4)**........................ 10/13/82** 202.14 -- 122.59 80.73 17.80
AGSPC Money Market (Division 2).......................... 02/04/82 146.86 51.15 21.00 12.69 4.11
AGSPC Stock Index (Division 10).......................... 07/28/82 745.77 393.15 175.85 103.55 27.13
</TABLE>
- ---------------
* The performance figures in the Table reflect the investment performance for
the Divisions for the stated periods and should not be used to infer that
future performance will be the same.
** The Division commenced operations on October 13, 1982 as the Capital
Accumulation Fund. Effective October 1, 1991, the Fund underlying the AGSPC
MidCap Index Division changed its name from the Capital Accumulation Fund to
the MidCap Index Fund and amended its investment objective, investment
program and investment restrictions accordingly. The performance figures for
the AGSPC MidCap Index Division reflect the performance of the MidCap Index
Fund since October 1, 1991.
(1) The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
TABLE IV
ANNUAL AND CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED*
(PERIOD FROM SEPARATE ACCOUNT DIVISION INCEPTION)
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE 12 MONTHS ENDED DECEMBER 31*
<TABLE>
<CAPTION>
FUND AND DIVISION 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
----------------- ------ ------ ------ ------ ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AGSPC Asset Allocation (Division
5)(1)................................. 17.19% 21.40% 9.99% 23.54% (2.29)% 8.19% (1.71)% 20.13% (3.38)% 15.81%
AGSPC Capital Conservation (Division
1).................................... 6.28 7.47 0.74 19.54 (7.03) 10.86 7.54 22.48 (10.45) (12.99)
AGSPC MidCap Index (Division 4)**....... 17.80 30.45 17.61 29.24 (4.70) 11.78 8.79 11.63 -- --
AGSPC Money Market (Division 2)......... 4.11 4.12 3.96 4.50 2.76 1.67 2.22 4.43 6.68 7.90
AGSPC Stock Index (Division 10)......... 27.13 31.76 21.52 35.93 (0.30) 8.78 2.62 30.96 (4.21) 27.66
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR EACH PERIOD END SINCE DECEMBER 31, 1988*
AGSPC Asset Allocation (Division
5)(1)................................. 169.99% 130.40% 89.79% 72.55% 39.67% 42.94% 32.12% 34.42% 11.89% 15.81%
AGSPC Capital Conservation (Division
1).................................... 45.49 36.90 27.39 26.45 5.78 13.78 2.63 (4.56) (22.08) (12.99)
AGSPC MidCap Index (Division 4)**....... 202.14 156.48 96.61 67.18 29.36 35.74 21.43 11.63 -- --
AGSPC Money Market (Division 2)......... 51.15 45.18 39.44 34.13 28.36 24.91 22.87 20.20 15.10 7.90
AGSPC Stock Index (Division 10)......... 393.15 287.91 194.40 142.27 78.23 78.77 64.34 60.15 22.29 27.66
</TABLE>
- ---------------
* The performance figures in the Table reflect the investment performance for
the Divisions for the stated periods and should not be used to infer that
future performance will be the same.
** The Division commenced operations on October 13, 1982 as the Capital
Accumulation Fund. Effective October 1, 1991, the Fund underlying the AGSPC
MidCap Index Division changed its name from the Capital Accumulation Fund
to the MidCap Index Fund and amended its investment objective, investment
program and investment restrictions accordingly. The performance figures
for the AGSPC MidCap Index Division reflect the performance of the MidCap
Index Fund since October 1, 1991.
(1) The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
24
<PAGE> 33
OTHER CONTRACT FEATURES
- --------------------------------------------------------------------------------
CHANGES THAT MAY NOT BE MADE
The following terms in the Contracts may not be changed once your account has
been established:
- The Contract Owner;
- The Participant; and
- The Annuitant.
CHANGE OF BENEFICIARY
The Beneficiary (if not irrevocable) may usually be changed at any time.
Under some retirement programs, the right to name or change a Beneficiary is
subject to approval by the spouse. Also, the right to name a Beneficiary other
than the spouse may be subject to certain tax laws and regulations.
If the Annuitant dies, and there is no Beneficiary, any death benefit will be
payable to the Annuitant's estate.
If a Beneficiary dies while receiving payments, and there is no co-Beneficiary
to continue to receive payments, any amount still due will be paid to the
Beneficiary's estate.
CANCELLATION -- THE 10 DAY "FREE LOOK"
The Contract Owner may cancel an individual contract by returning it to the
Company within 10 days after delivery. (A longer period will be allowed if
required under state law.) A refund will be made to the Contract Owner within 7
days after receipt of the Contract within the required period. The amount of the
refund will be equal to all Purchase Payments received or the amount required
under state law, if larger.
WE RESERVE CERTAIN RIGHTS
We reserve the right to:
- Amend the Contract to conform with substitutions of investments;
- Amend the Contract to comply with tax or other laws;
- Operate VALIC Separate Account A as a management investment company under
the Act, in consideration of an investment management fee or in any other
form permitted by law;
- Deregister VALIC Separate Account A under the Act, if registration is no
longer required;
RELATIONSHIP TO EMPLOYER'S PLAN
If the Contract is being offered as a retirement plan through your employer, you
should always refer to the terms and conditions in your employer's plan when
reviewing the description of the Contracts in this prospectus.
25
<PAGE> 34
VOTING RIGHTS
- --------------------------------------------------------------------------------
As discussed in the "About VALIC Separate Account A" section of this prospectus,
VALIC Separate Account A holds on your behalf shares of the Funds which comprise
the Variable Account Options. From time to time the Funds are required to hold a
shareholder meeting to obtain approval from their shareholders for certain
matters. As a Participant, you may be entitled to give voting instructions to us
as to how VALIC Separate Account A should vote its Fund shares on these matters.
Those persons entitled to give voting instructions will be determined before the
shareholders meeting is held. For more information about these shareholder
meetings and when they may be held, see the Funds' prospectuses.
WHO MAY GIVE VOTING INSTRUCTIONS
In most cases during the Purchase Period, you will have the right to give voting
instructions for the shareholder meetings. This will be true in most cases even
if your employer is the Contract Owner. Contract Owners will instruct VALIC
Separate Account A in accordance with your instructions. You will receive proxy
material and a form on which voting instructions may be given before the
shareholder meeting is held.
You will not have the right to give voting instructions if the Contract was
issued in connection with a nonqualified and unfunded deferred compensation
plan.
DETERMINATION OF FUND SHARES
ATTRIBUTABLE TO YOUR ACCOUNT
During Purchase Period
The number of Fund shares attributable to your account will be determined on the
basis of the Purchase Units credited to your account on the record date set for
the Fund shareholder meeting.
During Payout Period or after a Death
Benefit Has Been Paid
The number of Fund shares attributable to your account will be based on the
liability for future variable annuity payments to your payees on the record date
set for the Fund shareholder meeting. At such time, the Annuitant, or the
Beneficiary after the Annuitant's death, will be entitled to give voting
instructions for shareholder meetings.
HOW FUND SHARES ARE VOTED
The Funds which comprise the Variable Account Options in the Contracts may have
a number of shareholders including VALIC Separate Account A, VALIC's other
affiliated insurance company separate accounts and retirement plans within the
American General group of companies.
VALIC Separate Account A will vote all of the shares of the Funds it holds based
on, and in the same proportion as, the instructions given by all Participant
Accounts invested in that Fund entitled to give instructions at that shareholder
meeting. VALIC Separate Account A will vote the shares of the Funds it holds for
which it receives no voting instruction in the same proportion as the shares for
which voting instructions have been received.
In the future, we may decide how to vote the shares of VALIC Separate Account A
in a different manner if permitted at that time under federal securities law.
VALIC SEPARATE
ACCOUNT A -- a segregated
asset account established by
VALIC under the Texas
Insurance Code. The purpose
of VALIC Separate Account A
is to receive and invest your
Purchase Payments and
Account Value in the Variable
Account Options you have
selected.
26
<PAGE> 35
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
The Contracts provide tax-deferred accumulation over time, but is subject to
federal income and excise taxes, mentioned briefly below. You should refer to
the Statement of Additional Information for further details. Section references
are to the Internal Revenue Code ("Code"). We do not attempt to describe any
potential estate or gift tax, or any applicable state, local or foreign tax law
other than possible premium taxes mentioned under "Premium Tax Charge." Remember
that future legislation could modify the rules discussed below, and always
consult your personal tax adviser regarding how the current rules apply to your
specific situation.
TYPE OF PLANS
Tax rules vary, depending on whether the Contract is offered under your
employer's tax-qualified retirement program, as a Section 408(b) Individual
Retirement Annuity ("IRA"), or is instead a nonqualified Contract. The Contracts
are used under the following types of retirement arrangements:
- Section 403(b) annuities for employees
of public schools and Section 501(c)(3) tax-exempt organizations;
- Section 401(a) and 403(a) qualified plans of all employers and other
employers (including self-employed individuals);
- Section 408(b) IRAs;
- Section 457 deferred compensation plans of governmental and tax-exempt
employers;
- Section 408(k)SEPs and SARSEPs;
- Section 408(p) SIMPLE retirement accounts.
The foregoing Contracts are "Qualified Contracts."
Note that the specific terms of the governing employer plan may limit rights and
options otherwise available under a Contract.
In addition, the Contracts are also available through "Non-Qualified Contracts."
Such Non-Qualified Contracts generally include unfunded, nonqualified deferred
compensation plans of corporate employers, as well as individual annuity
contracts issued to individuals outside of the context of any formal employer or
employee retirement plan or arrangement.
TAX CONSEQUENCES IN GENERAL
Purchase Payments, distributions, withdrawals, transfers and surrender of a
Contract can each have a tax effect, which varies with the governing retirement
arrangement. Please refer to the detailed explanation in the Statement of
Additional Information, the documents (if any) controlling the retirement
arrangement through which the contract is offered, and your personal tax
adviser.
Purchase Payments under the Contracts can be made as contributions by employers,
or as pre-tax or after-tax contributions by employees, depending on the type of
retirement program. After-tax employee contributions constitute "investment in
the Contract." All Qualified Contracts receive deferral of tax on the inside
build-up of earnings on invested Purchase Payments, until a distribution occurs.
See the Statement of Additional Information for special rules, including those
applicable to taxable, non-natural owners of Non-Qualified Contracts.
Distributions are taxed differently depending on the program through which the
Contracts are offered and the previous tax characterization of the contributions
to which the distribution relates. Generally, the portion of a distribution
which is not considered a return of investment in the Contract is subject to
income tax. For annuity payments, investment in the contract is recovered
ratably over the expected payout period. Special recovery rules might apply in
certain situations.
Amounts subject to income tax may also incur excise or penalty taxes, under the
circumstances described in the Statement of Additional Information. Generally,
they would also be subject to some form of federal income tax withholding unless
rolled into another tax-deferred vehicle. Required withholding will vary
according to type of program, type of payment and your tax status. In addition,
amounts received under all Contracts may be subject to state income tax
withholding requirements.
Investment earnings on contributions to Non-Qualified Contracts which are not
owned by (or, generally, for the benefit of) natural persons will be taxed
currently to the owner and such contracts will not be treated as annuities for
federal income tax purposes.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The chart below compares the results from Premium Payments made to:
- A Contract issued to a tax favored retirement program purchased with pre-tax
premium payments;
- A non-qualified Contract purchased with after-tax Premium Payments and;
- Conventional savings vehicles such as savings accounts.
27
<PAGE> 36
- --------------------------------------------------------------------------------
THE POWER OF TAX-DEFERRED GROWTH
[BAR GRAPH]
This hypothetical chart compares the results of (1) contributing $100 per month
to a conventional, non-tax deferred plan, (2) contributing $100 to a
nonqualified, tax-deferred annuity, and (3) contributing $100 per month ($138.89
since contributions are made before tax) to a qualified tax-deferred plan. The
chart assumes a 28% tax rate and an 8% fixed rate of return. Variable options
incur mortality and expense risk fee charges and may also incur account
maintenance fees and surrender charges. The chart does not reflect the deduction
of any such fees. The dotted lines represent the amounts remaining after
withdrawal and payment of taxes and any surrender charge. An additional 10% tax
penalty may apply to withdrawals before age 59 1/2. This information is for
illustrative purposes only and is not a guarantee of future return.
Unlike savings accounts, Premium Payments made to tax-favored retirement
programs and Non-Qualified Contracts generally provide tax deferred treatment on
earnings. In addition, Premium Payments made to tax-favored retirement programs
ordinarily are not subject to income tax until withdrawn. As shown above,
investing in a tax-favored program increases the accumulation power of savings
over time. The more taxes saved and reinvested in the program, the more the
accumulation power effectively grows over the years.
To further illustrate the advantages of tax deferred savings using a 28% Federal
tax bracket, an annual fixed yield (before the deduction of any fees or charges)
of 8% under a tax-favored retirement program in which tax savings were
reinvested has an equivalent after-tax annual fixed yield of 5.76% under a
conventional savings program. The 8% yield on the tax-favored program will be
reduced by the impact of income taxes upon withdrawal. The yield will vary
depending upon the timing of withdrawals. The previous chart represents (without
factoring in fees and charges) after-tax amounts that would be received.
By taking into account the current deferral of taxes, contributions to
tax-favored retirement programs increase the amount available for savings by
decreasing the relative current out-of-pocket cost (referring to the effect on
annual net take-home pay) of the investment. The chart below illustrates this
principle by comparing a pre-tax contribution to a tax-favored retirement plan
with an after-tax contribution to a conventional savings account:
PAYCHECK COMPARISON
<TABLE>
<CAPTION>
TAX-FAVORED CONVENTIONAL
RETIREMENT SAVINGS
PROGRAM ACCOUNT
----------- ------------
<S> <C> <C>
Annual amount available
for savings before
federal taxes......... $2,500 $2,500
Current federal income
tax due on Purchase
Payments.............. 0 (700)
Net retirement plan
Purchase Payments..... $2,500 $1,800
</TABLE>
This chart assumes a 28% federal income tax rate. The $700 which is paid toward
current federal income taxes reduces the actual amount saved in the conventional
savings account to $1,800 while the full $2,500 is contributed to the
tax-qualified program, subject to being taxed upon withdrawal. Stated otherwise,
to reach an annual retirement savings goal of $2,500, the contribution to a tax-
qualified retirement program results in a current out-of-pocket expense of
$1,800 while the contribution to a conventional savings account requires the
full $2,500 out-of-pocket expense. The tax-qualified retirement program
represented in this chart is a plan type, such as one under Section 403(b) of
the Code, which allows participants to exclude contributions (within limits)
from gross income.
28
<PAGE> 37
YEAR 2000
- --------------------------------------------------------------------------------
YEAR 2000 RISKS
Like other organizations and individuals around the world, VALIC could be
adversely affected if the computer systems used by VALIC, as well as by other
service providers over which VALIC may have no control, do not properly process
and calculate date-related information and data from and after January 1, 2000.
This is commonly referred to as the "Year 2000 Problem." VALIC is taking steps
that it believes are reasonably designed to address the Year 2000 Problem with
respect to the computer systems VALIC uses. The following are some of the
initiatives being taken by VALIC to deal with the Year 2000 Problem.
- INTERNAL SYSTEMS. VALIC has developed a plan to deal with the Year 2000
Problem. This plan includes the five steps that we believe are essential to
Year 2000 readiness. The plan includes the following activities: (1) perform
an inventory of VALIC's information technology and non-information
technology systems; (2) assess which items in the inventory may expose VALIC
to business interruptions caused by the Year 2000 Problem; (3) reprogram or
replace systems that are not Year 2000 ready; (4) test systems to prove that
they will work correctly into the year 2000; and (5) return the systems to
operations. As of December 31, 1998, we have substantially completed all
steps with respect to our critical systems.
- EXTERNAL SYSTEMS. VALIC has relationships with various third parties that
must also be Year 2000 ready. Third parties are companies that provide
certain services to VALIC. Third parties are different from internal systems
in that VALIC has less, or no, control over their Year 2000 readiness. VALIC
has developed a plan to review and try to lessen the Year 2000 risks of
third parties. As of December 31, 1998, VALIC has substantially completed
its review of third party Year 2000 risks. VALIC intends to test third party
Year 2000 readiness throughout 1999.
- CONTINGENCY PLANS. VALIC has begun contingency planning to reduce the risk
associated with the Year 2000 Problem. The contingency plans for third party
relationships include the following activities: (1) evaluate the
consequences of any failures associated with the Year 2000 Problem; (2)
determine the chance of a Year 2000-related failure for systems that have a
high chance of failing; (3) develop an action plan to complete contingency
plans for those systems that rank high in both impact of failure and chance
of failure; and (4) complete any action plans.
VALIC expects to substantially complete all contingency planning activities by
April 30, 1999.
RISKS AND UNCERTAINTIES. Based on the above, VALIC believes that it will
experience, at most, isolated and minor disruptions of business systems on and
after January 1, 2000. These disruptions are not expected to have a material
effect on VALIC's operations or financial condition. However, it is impossible
to know exactly how the Year 2000 Problem will affect VALIC. In addition, third
party Year 2000 Problems may have a significant impact on VALIC.
Through December 1998, VALIC has incurred and expensed $26.7 million (pretax)
related to Year 2000 readiness, including $20.2 million incurred during 1998.
VALIC currently anticipates that it will incur future costs of $2.1 million for
additional internal staff, third party vendors, and other expenses to maintain
readiness and complete third party contingency plans.
29
<PAGE> 38
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information............................. 3
Marketing Information....................... 3
Types of Variable Annuity Contracts......... 5
Federal Tax Matters............................. 5
General..................................... 5
Taxes Payable by Participants and
Annuitants............................... 5
Section 403(b) Annuities for Employees of
Certain Tax-Exempt Organizations or
Public Educational Institutions.......... 5
Section 401 Qualified Pension,
Profit-Sharing of Annuity Plans.......... 6
Section 408(b) Individual Retirement
Annuities (other than Roth IRAs)......... 7
Simplified Employee Pension Plans........... 8
Section 457 Deferred Compensation Plans of
Public Employers and Tax-Exempt
Organizations............................ 8
Private Employer Unfunded Deferred
Compensation Plans....................... 9
Non-Qualified Contracts..................... 9
Fund Diversification........................ 10
Calculation of Surrender Charge................. 11
Illustration of Surrender Charge on Total
Surrender................................ 11
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender................................ 11
Purchase Unit Value............................. 13
Illustration of Calculation of Purchase
Units Value.............................. 13
Illustration of Purchase of Purchase
Units.................................... 13
Performance Calculations........................ 14
Money Market Division Yields.................... 14
Calculation of Current Yield for Money
Market Division Two...................... 14
Illustration of Calculation of Current Yield
Money Market Division Two................ 14
Calculation of Effective Yield for Money
Market Division Two...................... 14
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Illustration of Calculation of Effective
Yield for Money Market Division Two...... 14
Standardized Yield for Capital Conservation
Division One.................................. 14
Calculation of Standardized Yield for
Capital Conservation Division One........ 14
Illustration of Calculation of Standardized
Yield for Capital Conservation Division
One...................................... 14
Calculation of Average Annual Total Return...... 15
Performance Information......................... 16
Performance Compared to Market Indices...... 16
Asset Allocation Division Five Performance
Compared to S&P 500(C) Index, Merrill
Lynch Corporate and Government Master
Index and Certificate of Deposit Primary
Offering by New York City Banks, 30 Day
Index.................................... 18
Capital Conservation Division One
Performance Compared to Merrill Lynch
U.S. Corporate High Yield Index and
Merrill Lynch Corporate Master Index..... 19
MidCap Index Division Four Performance
Compared to S&P Index and S&P MidCap 400
Index.................................... 20
Money Market Division Two Performance
Compared to Certificate of Deposit
Primary Offering by New York City Banks,
30 Day Index............................. 21
Stock Index Division Ten Performance
Compared to S&P 500 Index................ 22
Payout Payments................................. 23
Assumed Investment Rate..................... 23
Amount of Payout Payments................... 23
Payout Unit Value........................... 23
Illustration of Calculation of Payout Unit
Value.................................... 24
Illustration of Payout Payments............. 24
Distribution of Variable Annuity Contracts...... 25
Experts......................................... 25
Comments on Financial Statements................ 25
</TABLE>
<PAGE> 39
(This page intentionally left blank)
<PAGE> 40
REVOCATION OF TELEPHONE ASSET TRANSFER AUTHORITY
Participant/Contract Owner Name:
- --------------------------------------------------------------------------------
Social Security Number:
- --------------------------------------------------------------------------------
Birth Date:
- --------------------------------------------------------------------------------
I am the Participant under or Contract Owner of one or more variable annuity
contracts issued by The Variable Annuity Life Insurance Company ("VALIC"). I
hereby instruct VALIC not to accept any telephone instructions to transfer
Accumulation Values among investment options or change the allocation of future
Purchase Payments from me, anyone representing me or anyone representing himself
or herself to be me. I understand as a result of executing this form that the
transfer of Accumulation Values or Annuity Values among investment options or
changes in the allocation of future Purchase Payments may only be effected upon
the receipt by VALIC of my written instructions.
<TABLE>
<S> <C>
- ------------------------------------------------------------ --------------------------
Participant/Contract Owner Signature Date
</TABLE>
Mail this form to any Regional Office (see the last page of your prospectus for
addresses) or to the Home Office at the following address: VALIC, Customer
Service A3-01, 2929 Allen Parkway, Houston, TX 77019.
<PAGE> 41
(This page intentionally left blank)
<PAGE> 42
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.
................................................................................
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 (UIT-981 Contract
Series).
(Please Print or Type)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Name: G.A. #
------------------------------------------------ ---------------------------------------------------
Address: Policy #
------------------------------------------------ --------------------------------------------------
------------------------------------
Social Security Number:
------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 43
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<PAGE> 44
================================================================================
FOR ADDITIONAL INFORMATION ABOUT THE CONTRACTS
CONTACT YOUR NEAREST REGIONAL OFFICE:
3535 Grandview Parkway
Suite 200
Birmingham, AL 35243
(205) 967-8955
415 N. McKinley
Suite 1050
Little Rock, AR 72205
(501) 603-2200
10851 N. Black Canyon Hwy
Suite 700
Phoenix, AZ 85029
(602) 678-1700
222 South Harbor Blvd.
10th Floor
Anaheim, CA 92805
(714) 817-8100
2450 Venture Oaks Way
Suite 120
Sacramento, CA 95833
(916) 614-1700
1900 O'Farrell St.
Suite 390
San Mateo, CA 94403
(650) 358-2900
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
3505 Lake Lynda Drive
Suite 114
Orlando, FL 32817
(407) 482-8825
100 Ashford Center North
Suite 100
Atlanta, GA 30338
(770) 395-4700
230 West Monroe
Suite 1900
Chicago, IL 60606
(312) 214-8870
11711 N. Meridian St.
Suite 300
Carmel, IN 46032
(317) 818-5900
7310 Ritchie Highway
Suite 800
Glen Burnie, MD 21061
(410) 768-2330
1301 West Long Lake Road
Suite 340
Troy, MI 48098
(248) 641-0022
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
(612) 893-1099
4266 Interstate 55N
Suite 108
Jackson, MS 39211
(601) 981-5801
410 Amherst Street
Suite 250
Nashua, NH 03063
(603) 889-1313
90 Woodbridge Ctr. Dr.
Suite 300
Woodbridge, NJ 07095
(732) 596-1600
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) 643-6340
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) 619-2270
Two International Plaza
Suite 601
Nashville, TN 37217
(615) 254-4822
5400 LBJ Freeway
Suite 1340
Dallas, TX 75240
(972) 490-1515
800 Gessner
Suite 1280
Houston, TX 77024
(713) 463-3800
7400 Beaufont Springs Drive
Suite 310
Richmond, VA 23225
(804) 272-0344
There are also more than thirty-three branch offices located throughout the
country.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
1-800-44-VALIC
FOR UNIT VALUE INFORMATION CALL: 1-800-42-VALIC & TDD 1-800-24-VALIC
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-800-621-7792
TDD 1-800-35-VALIC
EASYACCESS 1-800-42-VALIC
TDD EASYACCESS 1-800-24-VALIC
================================================================================
<PAGE> 45
[VALIC LOGO]
PRINTED MATTER
PRINTED IN U.S.A. VA 2620 REV 5/99
(C)The Variable Annuity Life Insurance Company, Houston, Texas
Recycled Paper (LOGO)
<PAGE> 46
[Momento Photo]
INDEPENDENCE PLUS
SEPARATE ACCOUNT A
PROSPECTUS MAY 1, 1999
Units of Interest
Under Group and Individual
Variable Annuity
Contracts
Independence Plus
Contract Series
<PAGE> 47
(This page intentionally left blank)
<PAGE> 48
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER GROUP AND INDIVIDUAL
VARIABLE ANNUITY CONTRACTS
INDEPENDENCE PLUS
SEPARATE ACCOUNT A
May 1, 1999
PROSPECTUS
Independence Plus consists of flexible and single Purchase Payment group and
individual variable annuity contracts that are offered by The Variable Annuity
Life Insurance Company ("VALIC") to Participants in certain employer sponsored
retirement plans. Independence Plus may be available to you when you participate
in a retirement program that qualifies for deferral of federal income taxes.
Non-qualified contracts are also available for certain other employer sponsored
plans as well as for certain after-tax arrangements that are not part of an
employer's plan.
Independence Plus permits you to invest in and receive retirement benefits in up
to 7 out of a total of 12 Fixed and Variable Account Options (2 fixed and 10
variable) described in this prospectus. Each Variable Account Option invests in
a separate portfolio of the American General Series Portfolio Company ("AGSPC").
- --------------------------------------------------------------------------------
VALIC is a member of the Insurance Marketplace Standards Association (IMSA).
IMSA is a voluntary membership organization created by the life insurance
industry to promote ethical market conduct for individual life insurance and
annuity products. VALIC's membership in IMSA applies to VALIC only and not to
its products or affiliates.
This prospectus provides you with information you should know before investing
in Independence Plus. This prospectus is accompanied by the current prospectus
for the mutual fund options described in this prospectus. Please read and retain
each of these prospectuses for future reference.
A Statement of Additional Information, dated May 1, 1999, contains additional
information about Independence Plus and is part of this prospectus. For a free
copy, complete and return the form contained in the back of this prospectus or
call 1-800-44-VALIC. The Statement of Additional Information has been filed with
the Securities and Exchange Commission ("SEC") and is available along with other
related materials at the SEC's internet web site (http://www.sec.gov).
INVESTMENT IN THE INDEPENDENCE PLUS IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE
OF THE OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE SURRENDERED,
THE VALUE MAY BE HIGHER OR LOWER THAN THE PURCHASE PAYMENTS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 49
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABOUT THE PROSPECTUS............................... 1
FEE TABLE.......................................... 2
SUMMARY............................................ 4
SELECTED PURCHASE UNIT DATA........................ 6
GENERAL INFORMATION................................ 7
About Independence Plus........................ 7
About VALIC.................................... 7
About VALIC Separate Account A................. 7
Units of Interests............................. 7
Distribution of the Contracts.................. 7
VARIABLE ACCOUNT OPTIONS........................... 8
Summary of Funds............................... 8
PURCHASE PERIOD.................................... 14
Purchase Payments.............................. 14
Purchase Units................................. 14
Calculation of Purchase Unit Value............. 14
Choosing Investment Options.................... 15
Fixed Account Options..................... 15
Variable Account Options.................. 15
Stopping Purchase Payments..................... 15
TRANSFERS BETWEEN INVESTMENT OPTIONS............... 16
During the Purchase Period..................... 16
During the Payout Period....................... 16
Communicating Transfer or Reallocation
Instructions................................. 16
Effective Date of Transfer..................... 16
FEES AND CHARGES................................... 17
Account Maintenance Fee........................ 17
Surrender Charge............................... 17
Amount of Surrender Charge................ 17
10% Free Withdrawal....................... 17
Exceptions to Surrender Charge............ 17
Premium Tax Charge............................. 17
Separate Account Charges....................... 18
Fund Annual Expense Charges.................... 18
Other Tax Charges.............................. 18
Reduction or Waiver of Account Maintenance Fee
and Surrender Charge......................... 18
PAYOUT PERIOD...................................... 19
Fixed Payout................................... 19
Variable Payout................................ 19
Combination Fixed and Variable Payout.......... 19
Payout Date.................................... 19
Payout Options................................. 19
Enhancements to Payout Options................. 20
Payout Information............................. 20
SURRENDER OF ACCOUNT VALUE......................... 21
When Surrenders Are Allowed.................... 21
Amount That May Be Surrendered................. 21
Surrender Restrictions......................... 21
Partial Surrenders............................. 21
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXCHANGE PRIVILEGE................................. 22
Restrictions on Exchange Privilege............. 22
Agents' and Managers' Retirement Plan Exchange
Offer........................................ 22
DEATH BENEFITS..................................... 23
Beneficiary Information........................ 23
During the Purchase Period..................... 23
During the Payout Period....................... 23
HOW TO REVIEW INVESTMENT PERFORMANCE OF SEPARATE
ACCOUNT DIVISIONS................................ 24
Types of Investment Performance Information
Advertised................................... 24
Total Return Performance Information......... 24
Standard Average Annual Total Return......... 24
Nonstandard Average Annual Total Return...... 24
Cumulative Total Return...................... 24
Annual Change in Purchase Unit Value......... 24
Cumulative Change in Purchase Unit Value..... 25
Total Return Based on Different Investment
Amounts................................... 25
An Assumed Account Value of $10,000.......... 25
Yield Performance Information.................. 25
AGSPC Money Market Division.................. 25
Divisions Other Than The AGSPC Money Market
Divisions................................. 25
Performance Information: Average Annual Total
Return, Cumulative Return and Annual and
Cumulative Change in Purchase Unit Value
Tables....................................... 25
OTHER CONTRACT FEATURES............................ 28
Changes That May Not Be Made................... 28
Change of Beneficiary.......................... 28
Cancellation -- The 10 Day "Free Look"......... 28
We Reserve Certain Rights...................... 28
Relationship to Employer's Plan................ 28
VOTING RIGHTS...................................... 29
Who May Give Voting Instructions............... 29
Determination of Fund Shares Attributable to
Your Account................................. 29
During Purchase Period....................... 29
During Payout Period or after a Death Benefit
Has Been Paid............................. 29
How Fund Shares Are Voted...................... 29
FEDERAL TAX MATTERS................................ 30
Type of Plans.................................. 30
Tax Consequences in General.................... 30
Effect of Tax-Deferred Accumulations........... 30
THE POWER OF TAX-DEFERRED GROWTH................... 31
YEAR 2000.......................................... 32
Year 2000 Risks................................ 32
</TABLE>
<PAGE> 50
ABOUT THE PROSPECTUS
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, Company, and
VALIC mean The Variable Annuity Life Insurance Company and the words "you" and
"your" mean the participant, contract owner, annuitant or beneficiary.
Other specific terms that will be used in this prospectus are set forth below,
along with the page number where the term is defined.
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- ------------- --------
<S> <C>
Account Value................ 16
Annuitant.................... 23
Assumed Investment Rate...... 19
Beneficiary.................. 23
Contract Owner............... 23
Divisions.................... 24
Fixed Account Options........ 23
Home Office.................. 16
Mutual Fund or Fund.......... 7
Participant.................. 1
Participant Year............. 17
Payout Period................ 16
Payout Unit.................. 19
Purchase Payments............ 14, 24
Purchase Period.............. 16
Purchase Unit................ 14
VALIC Separate Account A..... 29
Variable Account Options..... 8, 23
</TABLE>
This prospectus is being given to you to help you make decisions for selecting
various investment options and benefits to plan and save for your retirement. It
is intended to provide you with information about VALIC, Independence Plus, and
saving for your retirement.
The purpose of Variable Account Options and Variable Payout Options is to
provide you investment returns which are greater than the effects of inflation.
We cannot, however, guarantee that this purpose will be achieved.
This prospectus describes a contract in which units of interest in VALIC's
Separate Account A are offered. Independence Plus will allow you to accumulate
retirement dollars in Fixed Account Options and/or Variable Account Options.
This prospectus describes only the variable aspects of Independence Plus except
where the Fixed Account Options are specifically mentioned.
For specific information about the Variable Account Options, you should refer to
the prospectus of AGSPC that you have been given with this document. You should
keep this prospectus to help answer any questions you may have in the future.
Following this introduction is a summary of the major features and options of
Independence Plus. This summary is intended to provide you with a brief overview
of those sections discussed in more detail in this prospectus.
PARTICIPANT -- the
individual, (in most
cases you are the
Participant) for whom
Purchase Payments are made.
1
<PAGE> 51
FEE TABLE
- --------------------------------------------------------------------------------
This Fee Table shows all charges and expenses which may be deducted from the
assets of VALIC Separate Account A and from the Funds in which VALIC Separate
Account A invests. For a further description of these charges and expenses, see
"Fees and Charges" in this prospectus and the descriptions of fees and charges
in AGSPC's prospectus. Any and all limitations on total charges and expenses are
reflected in this Fee Table.
CONTRACT OWNER/PARTICIPANT EXPENSES(1)
Maximum Surrender Charge (as a percentage of the lesser of all Purchase
Payments received during the last 60 months or the amount withdrawn)(2) 5.00%
ACCOUNT MAINTENANCE FEE ($5.00 per quarter, during the first Participant Year,
annualized)(2) $ 20
SEPARATE ACCOUNT EXPENSES
(as a percentage of Separate Account net assets):
Mortality and Expense Risk 1.00%
FUND ANNUAL EXPENSES
(as a percentage of net assets):
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL FUND
FUND FEES EXPENSES(3) EXPENSES
---- ---------- ----------- ----------
<S> <C> <C> <C> <C>
AGSPC Asset Allocation Fund(4) 0.50% 0.04% 0.54%
AGSPC Capital Conservation Fund 0.50 0.04 0.54
AGSPC Government Securities Fund 0.50 0.04 0.54
AGSPC International Equities Fund 0.35 0.05 0.40
AGSPC International Government Bond Fund 0.50 0.05 0.55
AGSPC MidCap Index Fund 0.32 0.04 0.36
AGSPC Money Market Fund 0.50 0.04 0.54
AGSPC Small Cap Index Fund 0.35 0.04 0.39
AGSPC Social Awareness Fund 0.50 0.04 0.54
AGSPC Stock Index Fund 0.27 0.04 0.31
</TABLE>
- ---------------
(1) Premium taxes are not shown here, but may be charged by some states. See:
"Premium Tax Charge" in this prospectus.
(2) Reductions in the surrender charge and the account maintenance fee are
available if certain conditions are met. See "Reduction or Waiver of Account
Maintenance Fee and Surrender Charge" and "Exceptions to Surrender Charge"
in this prospectus. Account maintenance fee reduces to $15 after first
Participant Year. No surrender charge will be applied if your account has
been in effect for 15 years or longer, or your account has been in effect
for 5 years or longer and you have attained age 59 1/2. There will be no
surrender charge on purchase payments received more than 60 months prior to
surrender. Also, in any Participant Year, withdrawals of up to 10% of
Account Value may be withdrawn without a surrender charge.
(3) Other Expenses includes custody, accounting, reports to shareholders, audit,
legal, administrative and other miscellaneous expenses. See AGSPC's
prospectus for a detailed explanation of these fees.
(4) The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
2
<PAGE> 52
EXAMPLE #1 -- If you do not surrender Independence Plus at the end of the period
shown or you receive Payout Payments under a Payout Option:
- --------------------------------------------------------------------------------
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 single Separate Account Division as listed below, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Asset Allocation Division 5 $16 $50 $ 87 $189
AGSPC Capital Conservation Division 7 $16 $50 $ 87 $189
AGSPC Government Securities Division 8 $16 $50 $ 87 $189
AGSPC International Equities Division 11 $15 $46 $ 79 $174
AGSPC International Government Bond Division 13 $16 $50 $ 87 $190
AGSPC MidCap Index Division 4 $14 $45 $ 77 $169
AGSPC Money Market Division 6 $16 $50 $ 87 $189
AGSPC Small Cap Index Division 14 $15 $46 $ 79 $173
AGSPC Social Awareness Division 12 $16 $50 $ 87 $189
AGSPC Stock Index Division 10 $14 $43 $ 74 $164
</TABLE>
EXAMPLE #2 -- If you surrender Independence Plus 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 single Separate Account
Division as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Asset Allocation Division 5........................... $63 $100 $137 $189
AGSPC Capital Conservation Division 7....................... $63 $100 $137 $189
AGSPC Government Securities Division 8...................... $63 $100 $137 $189
AGSPC International Equities Division 11.................... $61 $ 96 $129 $174
AGSPC International Government Bond Division 13............. $63 $100 $137 $190
AGSPC MidCap Index Division 4............................... $61 $ 95 $127 $169
AGSPC Money Market Division 6............................... $63 $100 $137 $189
AGSPC Small Cap Index Division 14........................... $61 $ 96 $129 $173
AGSPC Social Awareness Division 12.......................... $63 $100 $137 $189
AGSPC Stock Index Division 10............................... $60 $ 93 $124 $164
</TABLE>
Note: These examples should not be considered representations of past or future
expenses for VALIC Separate Account A or for any Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners and
Participants understand the various expenses of VALIC Separate Account A and the
Funds which are, in effect, passed on to the Contract Owners and Participants.
3
<PAGE> 53
SUMMARY
- --------------------------------------------------------------------------------
Independence Plus is VALIC's combination fixed and variable annuity that offers
you a wide choice of investment options and flexibility. A summary of
Independence Plus's major features is presented below. For a more detailed
discussion of Independence Plus, please read the entire prospectus carefully.
FIXED AND VARIABLE OPTIONS
Independence Plus offers a choice from among 10 Variable Account Options. You
will not be able to invest in all of the Variable Account Options described
below within a single group or individual annuity contract. If your contract is
part of your employer's retirement program, that program will describe which
Variable Account Options are available to you. Independence Plus also offers two
Fixed Account Options.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
FIXED ACCOUNT
OPTIONS
- ------------------------------------------------------------------------------------------------------------------------------
FIXED Fixed Account Plus Guaranteed high current -- --
OPTIONS interest income
----------------------------------------------------------------------------------------------------------
Short-Term Fixed Guaranteed current -- --
Account interest income
- ------------------------------------------------------------------------------------------------------------------------------
VARIABLE OPTIONS VARIABLE ACCOUNT INVESTMENT STRATEGY ADVISER SUB-ADVISER
OPTIONS
- ------------------------------------------------------------------------------------------------------------------------------
INDEX EQUITY FUNDS AGSPC International Growth through VALIC N/A
Equities Fund investments tracking the
EAFE Index
----------------------------------------------------------------------------------------------------------
AGSPC MidCap Index Growth through VALIC Bankers Trust
Fund investments tracking the Company*
S&P MidCap 400(R) Index
----------------------------------------------------------------------------------------------------------
AGSPC Small Cap Index Growth through VALIC Bankers Trust
Fund investments tracking the Company*
Russell 2000(R) Index
----------------------------------------------------------------------------------------------------------
AGSPC Stock Index Fund Growth through VALIC Bankers Trust
investments tracking the Company*
S&P 500(R) Index
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FUNDS AGSPC Capital Income and possible VALIC N/A
Conservation Fund growth through
investments in high
quality debt securities
----------------------------------------------------------------------------------------------------------
AGSPC Government Income and possible VALIC N/A
Securities Fund growth through
investments in
intermediate and
long-term government debt
securities
----------------------------------------------------------------------------------------------------------
AGSPC International Income and possible VALIC N/A
Government Bond Fund growth through
investments in high
quality foreign
government debt
securities
- ------------------------------------------------------------------------------------------------------------------------------
SPECIALTY FUNDS AGSPC Social Awareness Growth through VALIC N/A
Fund investments in stocks of
companies meeting social
criteria of the Fund
- ------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS AGSPC Money Market Income through VALIC N/A
Fund investments in short-term
money market securities
- ------------------------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION AGSPC Asset Allocation Maximum return through VALIC N/A
FUNDS Fund investments in a mix of
stocks, bonds and money
market securities
- ------------------------------------------------------------------------------------------------------------------------------
* Bankers Trust Company (the "Sub-Adviser") is a wholly owned subsidiary of Bankers Trust Corporation. On November 30, 1998,
Bankers Trust Corporation entered into an Agreement and Plan of Merger with Deutsche Bank AG under which Bankers Trust
Corporation and all of its subsidiaries would merge with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is a
major global banking institution that is engaged in a wide range of financial services, including retail and commercial
banking, investment banking and insurance. The merger is contingent upon various regulatory approvals. On April 20, 1999,
the Fund's Board of Directors approved a new investment sub-advisory agreement with Bankers Trust Company, subject to
shareholder approval. If the merger is approved and completed, Deutsche Bank AG, as the Sub-Adviser's new parent company,
will control the operations of the Sub-Adviser, Bankers Trust believes that, under this new arrangement, the services
provided to the Fund will be maintained at their current level.
</TABLE>
4
<PAGE> 54
SUMMARY -- (CONTINUED)
- --------------------------------------------------------------------------------
A detailed description of the investment objective of each mutual fund can be
found in the section of the prospectus entitled "Variable Account Options," and
also in the current prospectus for AGSPC.
GUARANTEED DEATH BENEFIT
Independence Plus offers a death benefit equal to the greater of Account Value
or Purchase Payments reduced by withdrawals upon death of the Annuitant during
the Purchase Period.
TRANSFERS
There is no charge to transfer the money in your account among Independence
Plus's investment options. You may transfer your Account Values between Variable
Account Options at any time during the Purchase Period.
Your Account Value in the Short-Term Fixed Account must remain there for at
least 90 days before it can be transferred to other investment options. In Fixed
Account Plus, up to 20% of your Account Value may be transferred during each
contract year to other investment options.
Once you begin receiving payments from your account (called the Payout Period),
you may still transfer funds among Variable Account Options once every 365 days.
Transfers can be made by calling VALIC's toll-free transfer service at
1-800-621-7792. For more information on account transfers, see the "Transfers
Between Investment Options" section in the prospectus.
FEES AND CHARGES
ACCOUNT MAINTENANCE FEE
During the first year a quarterly account maintenance fee of $5.00 is charged to
your account. After the first Participant Year, the quarterly account
maintenance fee is $3.75. Reductions in the account maintenance fee may be
available if certain conditions are met.
SURRENDER CHARGE
Under some circumstances a surrender charge is made to your account. These
situations are discussed in detail in the section of the prospectus entitled
"Fees and Charges -- Surrender Charge." When this happens the surrender charge
is computed in two ways and you are charged whichever amount is less. The first
amount is simply 5% of whatever amount you have withdrawn. The second amount is
5% of the contributions you made to your account during the last 60 months.
Withdrawals are always subject to your plan provisions and federal tax
restrictions, which generally include a tax penalty on withdrawals made prior to
age 59 1/2.
PREMIUM TAX CHARGE
Premium taxes ranging from zero to 3 1/2% are currently imposed by certain
states and municipalities on Purchase Payments made under the contract.
SEPARATE ACCOUNT CHARGES
If you choose a Variable Account Option you will incur a mortality and expense
risk fee computed at an aggregate annualized rate of 1.00% on the average daily
net asset value of VALIC Separate Account A.
FUND ANNUAL EXPENSE CHARGE
A daily charge based on a percentage of each Fund's average daily net asset
value is payable by each Fund to its investment adviser. In addition to the
management fees, each Fund incurs other operating expenses which may vary.
Since some of these fees may not apply to your contract, consult your VALIC
Retirement Plan Specialist to see how these provisions apply to you.
PAYOUT OPTIONS
When you withdraw your money, you can select from several payout options: an
annuity (which guarantees payment for as long as you live), periodic withdrawals
and systematic withdrawals. More information on payout options can be found in
the "Payout Period" section of the prospectus.
FEDERAL TAX INFORMATION
Although deferred annuity contracts such as Independence Plus can be purchased
with after-tax dollars, they are primarily used in connection with retirement
programs which receive favorable tax treatment under federal law.
PURCHASE REQUIREMENTS
If the contract is a flexible Purchase Payment contract, Purchase Payments may
be made at any time but each Purchase Payment must be at least $30 per
Participant Account. The amount of each Purchase Payment allocated to each
Variable Account Option and Fixed Account Option must also be at least $30. If
the contract is a single Purchase Payment contract, the minimum Purchase Payment
is $1,000 per Participant Account. These minimums may be waived where one
purchaser, such as an employer, purchases a number of contracts.
More information on FEES
may be found in the
prospectus under the
headings "FEES AND
CHARGES" AND "FEE TABLE."
For a more detailed
discussion of these income
tax provisions, see the
"FEDERAL TAX MATTERS"
section of the prospectus and
of the Statement of Additional
Information.
For more information on
PURCHASE PAYMENTS, refer
to the "Purchase Period"
section of the prospectus.
5
<PAGE> 55
Selected Purchase Unit Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC
AGSPC AGSPC AGSPC AGSPC INTERNATIONAL AGSPC
ASSET CAPITAL GOVERNMENT INTERNATIONAL GOVERNMENT AGSPC MONEY
ALLOCATION CONSERVATION SECURITIES EQUITIES BOND MIDCAP INDEX MARKET
DIVISION 5 DIVISION 7 DIVISION 8 DIVISION 11 DIVISION 13 DIVISION 4(3) DIVISION 6
---------- ------------ ---------- ------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
Purchase Units in Force 60,237,818 28,751,662 53,729,671 101,811,751 97,473,851 169,039,887 147,547,688
Purchase Unit Value $3.772519 $2.085846 $2.111727 $1.454644 $1.728006 $5.029093 $1.742617
DECEMBER 31, 1997
Purchase Units in Force 57,307,351 28,242,598 45,034,894 122,716,744 111,480,591 171,065,657 84,182,521
Purchase Unit Value $3.219282 $1.962239 $1.957755 $1.237299 $1.490645 $4.269122 $1.673590
DECEMBER 31, 1996
Purchase Units in Force 65,292,617 30,286,494 47,130,169 156,226,314 112,601,593 172,816,978 75,124,095
Purchase Unit Value $2.651899 $1.825549 $1.815651 $1.222906 $1.582230 $3.272588 $1.607212
DECEMBER 31, 1995
Purchase Units in Force 75,851,431 29,573,808 39,847,053 172,564,018 73,369,250 172,613,690 51,907,757
Purchase Unit Value $2.411022 $1.812011 $1.799475 $1.156454 $1.530780 $2.782677 $1.545802
DECEMBER 31, 1994
Purchase Units in Force 89,377,860 26,859,219 26,667,073 187,749,916 25,691,713 171,442,018 75,765,781
Purchase Unit Value $1.951533 $1.515278 $1.547150 $1.054460 $1.301357 $2.153183 $1.479129
DECEMBER 31, 1993
Purchase Units in Force 93,899,802 24,628,606 26,563,166 117,215,227 18,155,381 134,621,879 24,799,810
Purchase Unit Value $1.997266 $1.630069 $1.636228 $0.986387 $1.258340 $2.259378 $1.439327
DECEMBER 31, 1992
Purchase Units in Force 80,637,090 14,922,749 16,609,444 52,524,165 6,245,713 81,007,871 23,414,474
Purchase Unit Value $1.846025 $1.470167 $1.491537 $0.767135 $1.112826 $2.021271 $1.415690
MAY 1, 1992
Purchase Unit Value(1) -- -- -- -- -- -- --
DECEMBER 31, 1991
Purchase Units in Force 76,624,765 11,069,044 11,694,890 27,011,169 953,038 49,106,844 25,545,494
Purchase Unit Value $1.878219 $1.366905 $1.405236 $0.895250 $1.090499 $1.858030 $1.384882
OCTOBER 1, 1991
Purchase Unit Value(1) -- -- -- -- $1.000000 -- --
DECEMBER 31, 1990
Purchase Units in Force 72,284,139 9,321,049 8,460,327 13,776,769 -- 42,958,640 25,246,481
Purchase Unit Value $1.563444 $1.178361 $1.237104 $0.813423 -- $1.538017 $1.325393
DECEMBER 31, 1989
Purchase Units in Force 68,361,149 7,502,717 5,556,464 2,247,450 -- 40,618,028 15,949,534
Purchase Unit Value $1.618165 $1.193583 $1.179231 $1.028405 -- $1.712671 $1.240599
OCTOBER 2, 1989
Purchase Unit Value(1) -- -- -- $1.000000 -- -- --
<CAPTION>
AGSPC AGSPC AGSPC
SMALLCAP SOCIAL STOCK
INDEX AWARENESS INDEX
DIVISION 14 DIVISION 12 DIVISION 10(2)
----------- ----------- --------------
<S> <C> <C> <C>
DECEMBER 31, 1998
Purchase Units in Force 107,321,015 114,382,494 691,680,049
Purchase Unit Value $2.100506 $3.762308 $4.772052
DECEMBER 31, 1997
Purchase Units in Force 106,279,077 81,577,104 615,053,124
Purchase Unit Value $2.163595 $2.985333 $3.753436
DECEMBER 31, 1996
Purchase Units in Force 103,320,842 46,574,016 536,806,965
Purchase Unit Value $1.785442 $2.252673 $2.848437
DECEMBER 31, 1995
Purchase Units in Force 98,335,995 32,750,120 455,255,243
Purchase Unit Value $1.544896 $1.835102 $2.343900
DECEMBER 31, 1994
Purchase Units in Force 100,383,839 29,015,764 416,234,288
Purchase Unit Value $1.222329 $1.333899 $1.724134
DECEMBER 31, 1993
Purchase Units in Force 56,159,647 26,230,566 369,550,060
Purchase Unit Value $1.277199 $1.366979 $1.729327
DECEMBER 31, 1992
Purchase Units in Force 9,723,477 16,956,437 283,808,045
Purchase Unit Value $1.112790 $1.279516 $1.589718
MAY 1, 1992
Purchase Unit Value(1) $1.000000 -- --
DECEMBER 31, 1991
Purchase Units in Force -- 8,447,711 90,526,907
Purchase Unit Value -- $1.250634 $1.505641
OCTOBER 1, 1991
Purchase Unit Value(1) -- -- --
DECEMBER 31, 1990
Purchase Units in Force -- 2,947,418 46,016,297
Purchase Unit Value -- $0.987666 $1.179000
DECEMBER 31, 1989
Purchase Units in Force -- 212,636 22,325,990
Purchase Unit Value -- $1.010003 $1.238782
OCTOBER 2, 1989
Purchase Unit Value(1) -- $1.000000 --
</TABLE>
- ---------------
(1) Purchase Unit Value At Date Of Inception.
(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) 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. Selected Purchase Unit Data prior to October 1, 1991 reflects
investment experience prior to these changes.
Financial statements of VALIC Separate Account A are included in the Statement
of Additional Information, which is available upon request. Purchase Units shown
are for a Purchase Unit outstanding throughout the year under a representative
contract of the type invested in each column shown. The unit value of each
Division of VALIC Separate Account A will not be the same on any given day as
the net asset value per share of the underlying Fund in which that Division
invests. This is because each unit value consists of the underlying share's net
asset value minus the charges to VALIC Separate Account A. In addition,
dividends declared by the underlying Fund are reinvested by the Division in
additional shares. These distributions have the effect of reducing the value of
each share of the Fund and increasing the number of Fund shares outstanding.
However, the total cash value in VALIC Separate Account A does not change as a
result of such distributions.
6
<PAGE> 56
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ABOUT INDEPENDENCE PLUS
Independence Plus was developed to help you save money for your retirement. It
offers you a combination of fixed and variable investment options that you can
invest in to help you reach your retirement savings goals. Your contributions to
Independence Plus can come from different sources, like payroll deductions or
money transfers. Your retirement savings process with Independence Plus will
involve two stages: the Purchase Period; and the Payout Period. The first is
when you make contributions into Independence Plus called "Purchase Payments."
The second, is when you receive your retirement payouts. For more information,
see "Purchase Period" and "Payout Period" in this prospectus.
You may choose, depending upon your retirement savings goals, your personal risk
tolerances, and your retirement plan, to invest in the Fixed Account Options
and/or the Variable Account Options described in this prospectus. When you
decide to retire, or otherwise withdraw your money, you can select from a wide
array of payout options including both fixed and variable payments. In addition,
this prospectus will describe for you all fees and charges that may apply to
your participation in Independence Plus.
ABOUT VALIC
We were originally organized on December 21, 1955 as The Variable Annuity Life
Insurance Company of America, located in Washington, D.C. We re-organized in the
State of Texas on August 20, 1968, as the Variable Annuity Life Insurance
Company. Our main business is issuing and offering fixed and variable retirement
annuity contracts, like Independence Plus. Our principal offices are located at
2929 Allen Parkway, Houston, Texas 77019. We have Regional Offices throughout
the United States. The addresses for these offices are given in the back of this
prospectus.
VALIC is a member of the American General Corporation group of companies.
Members of the American General Corporation group of companies operate in each
of the 50 states, the District of Columbia, and Canada and collectively provide
financial services with activities heavily weighted toward insurance.
VALIC is a member of the Insurance Marketplace Standards Association (IMSA).
IMSA is a voluntary membership organization created by the life insurance
industry to promote ethical market conduct for individual life insurance and
annuity products. VALIC's membership in IMSA applies to VALIC only and not its
products or affiliates.
ABOUT VALIC SEPARATE ACCOUNT A
When you direct money to Independence Plus's Variable Account Options, you will
be sending that money through VALIC's Separate Account A. You do not invest
directly in the Mutual Funds made available in Independence Plus. VALIC's
Separate Account A invests in the Mutual Funds on behalf of your account. VALIC
Separate Account A is made up of what we call "Divisions." Ten Divisions are
available and represent the Variable Account Options in Independence Plus. Each
of these Divisions invests in a different Mutual Fund made available through
Independence Plus. For example, Division Ten represents and invests in the AGSPC
Stock Index Fund. The earnings (or losses) of each Division are credited to (or
charged against) the assets of that Division, and do not affect the performance
of the other Divisions of VALIC Separate Account A.
VALIC established Separate Account A on July
25, 1979 under Texas insurance law to allow you to be able to invest in a number
of Variable Account Options available in Independence Plus. VALIC Separate
Account A is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940 ("Act"). Units of interest in VALIC Separate
Account A are registered as securities under the Securities Act of 1933.
VALIC Separate Account A is administered and accounted for as part of VALIC's
business operations. However, the income, capital gains or capital losses,
whether or not realized, of each Division of VALIC Separate Account A are
credited to or charged against the assets held in that Division without regard
to the income, capital gains or capital losses of any other Division or arising
out of any other business the Company may conduct. In accordance with the terms
of Independence Plus, VALIC Separate Account A may not be charged with the
liabilities of any other VALIC operation. As stated in Independence Plus, the
Texas Insurance Code requires that the assets of VALIC Separate Account A
attributable to Independence Plus be held exclusively for the benefit of the
contract owners, participants, annuitants, and beneficiaries of Independence
Plus. When we discuss performance information in this prospectus, we mean the
performance of a VALIC Separate Account A Division.
UNITS OF INTERESTS
Your investment in a Division of VALIC Separate Account A is represented by
units of interest issued by VALIC Separate Account A. On a daily basis, the
units of interest issued by VALIC Separate Account A are revalued to reflect
that day's performance of the underlying mutual fund minus any applicable fees
and charges to VALIC Separate Account A.
DISTRIBUTION OF THE CONTRACTS
A.G. Distributors, Inc. ("A.G. Distributors"), an affiliate subsidiary of VALIC,
acts as VALIC's Separate Account A distributor.
VALIC will pay the licensed agents who sell the Contracts a commission.
Currently, the commission paid by VALIC will range up to 6.0% of each Purchase
Payment. In addition, VALIC will pay managers who supervise the agents
overriding commissions ranging up to 1% of each Purchase Payment. These various
commissions are paid by VALIC and do not result in any charge to Contract Owners
or to the Separate Account.
All inquiries regarding
INDEPENDENCE PLUS
may be directed to your
VALIC Regional Office at
the address shown in the
back of this prospectus.
MUTUAL FUND OR FUND --
the investment portfolio(s)
of a registered open-end
management investment
company, which serves as
the underlying investment
vehicle for each Division
represented in VALIC
Separate Account A.
For more information about
VALIC, see the Statement
of Additional Information.
A.G. DISTRIBUTORS --
our address is
2929 Allen Parkway,
Houston, Texas 77019.
7
<PAGE> 57
VARIABLE ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
Independence Plus enables you to participate in Divisions that represent ten
Variable Account Options. You may not according to your retirement program be
able to invest in all ten Variable Account Options described in this prospectus.
Certain additional limitations may also apply. See "About VALIC Separate Account
A" in this prospectus.
Each individual Division represents and invests, through VALIC's Separate
Account A, in a specific portfolio of AGSPC. AGSPC serves as the investment
vehicle for Independence Plus.
AGSPC is registered as a diversified open-end, management investment company and
is regulated under the Act. For complete information about each Mutual Fund
option, including charges and expenses, you should refer to the prospectus of
AGSPC. Additional copies are available from VALIC or you may contact your VALIC
Regional Office at the address shown in the back of this prospectus.
SUMMARY OF FUNDS
A brief summary of the investment objectives of each Mutual Fund is shown below.
In addition to the investment objectives, the Account Value of an assumed
$10,000 investment in each of the Divisions is shown in both table and graph
form as well as the Standard Average Annual Total Return for each Division for a
1, 3, 5 and 10 year period if available. The performance information in the
tables and graphs will reflect a deduction for separate account fees (mortality
and expense risk fees and underlying fund charges). They will not reflect any
deduction for account maintenance fees, surrender charges and premium taxes.
These charges would further reduce your return. The Account Values shown in the
graphs reflect Separate Account performance based on the performance of the
underlying Fund for the last 10 fiscal years or, since inception of the
underlying Fund if for less than 10 years. The returns shown in the tables
reflect the AGSPC Funds actual historical performance of the related Separate
Account Divisions. Investment return and principal value will fluctuate with
market conditions, and for foreign investments, currencies and the economic and
political climates of the countries where investments are made. Past performance
cannot predict or guarantee future results.
The Standard Average Annual Total Return figures show the average percentage
change in the value of an investment in a Division from the beginning to the end
of the historical periods shown below. The results shown are after all charges
and fees have been applied against the Division. This will include account
maintenance fees and surrender charges that would have been deducted if you
surrendered Independence Plus at the end of the specified period. Premium taxes
are not deducted. This information is calculated for each Division based on how
an initial investment of $1,000 performed at the end of the specified periods
shown. For more information about how these returns were calculated including a
statement of the charges reflected and tables showing historical performance
information see "How to Review Investment Performance of Separate Account
Divisions" in this prospectus.
VARIABLE ACCOUNT
OPTIONS -- investment
options that correspond
to Separate Account
Divisions offered by
Independence Plus.
Investment returns on
Variable Account
Options may be positive
or negative depending on
the investment
performance of the
underlying Mutual Fund.
8
<PAGE> 58
AGSPC ASSET ALLOCATION FUND*
(Division 5)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks maximum aggregate rate of return over the long-term through controlled
investment risk by adjusting its investment mix among stocks, long-term debt
securities and short-term money market securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1989 $ Value
- ------------------------- -------
<S> <C>
01/01/89 $10,000
12/31/89 11,581
12/31/90 11,189
12/31/91 13,442
12/31/92 13,212
12/31/93 14,294
12/31/94 13,967
12/31/95 17,255
12/31/96 18,979
12/31/97 23,040
12/31/98 26,999
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1989
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC CAPITAL CONSERVATION FUND**
(Division 7)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with preservation of capital
through current income and capital gains on investments in intermediate and
long-term debt instruments and other income producing securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1989 $ Value
- ------------------------- -------
<S> <C>
01/01/89 $10,000
12/31/89 11,063
12/31/90 10,922
12/31/91 12,669
12/31/92 13,626
12/31/93 15,108
12/31/94 14,044
12/31/95 16,795
12/31/96 16,920
12/31/97 18,187
12/31/98 19,333
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1989
[CHART]
PERIOD ENDED DECEMBER 31
* The AGSPC Asset Allocation Fund Division 5 was formerly known as the Timed
Opportunity Fund. The Standard Average Annual Total Return for the Division for
the 1, 3, 5 and 10 year period was 12.14%, 14.77%, 12.85% and 10.33%,
respectively. The Division commenced operations on September 6, 1983.
** The Standard Average Annual Total Return for the AGSPC Capital Conservation
Fund Division 7 for the 1, 3, 5 and 10 year period was 1.47%, 3.19%, 4.12% and
6.71%, respectively. The Division commenced operations on January 16, 1986.
9
<PAGE> 59
AGSPC GOVERNMENT
SECURITIES FUND*
(Division 8)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high current income and protection of capital through investments in
intermediate and long-term U.S. Government debt securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1989 $ Value
- ------------------------- -------
<S> <C>
01/01/89 $10,000
12/31/89 11,103
12/31/90 11,648
12/31/91 13,231
12/31/92 14,044
12/31/93 15,406
12/31/94 14,567
12/31/95 16,943
12/31/96 17,095
12/31/97 18,433
12/31/98 19,883
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1989
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC INTERNATIONAL
EQUITIES FUND**
(Division 11)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital through investments primarily in a
diversified portfolio of equity and equity related securities of foreign issuers
that, as a group, are expected to provide investment results closely
corresponding to the performance of the EAFE Index.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 2, 1989 $ Value
- ------------------------- -------
<S> <C>
10/02/89 $10,000
12/31/89 10,284
12/31/90 8,134
12/31/91 8,952
12/31/92 7,671
12/31/93 9,864
12/31/94 10,545
12/31/95 11,565
12/31/96 12,229
12/31/97 12,373
12/31/98 14,546
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
[CHART]
PERIOD ENDED DECEMBER 31
* The Standard Average Annual Total Return for the AGSPC Government Securities
Fund Division 8 for the 1, 3 and 5 and 10 year period was 2.97%, 3.89%, 4.31%
and 7.01%, respectively. The Division commenced operations on January 16, 1986.
** The Standard Average Annual Total Return for the AGSPC International Equities
Fund Division 11 for the 1, 3 and 5 year period and since inception was 12.52%,
6.43%, 7.24% and 4.03%, respectively. The Division commenced operations on
October 2, 1989.
10
<PAGE> 60
AGSPC INTERNATIONAL
GOVERNMENT BOND FUND*
(Division 13)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high current income through investments primarily in high quality debt
securities issued or guaranteed by foreign governments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 1, 1991 $ Value
- ------------------------- -------
<S> <C>
10/01/91 $10,000
12/31/91 10,905
12/31/92 11,128
12/31/93 12,583
12/31/94 13,014
12/31/95 15,308
12/31/96 15,822
12/31/97 14,906
12/31/98 17,280
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC MIDCAP INDEX FUND**
(Division 4)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide growth of capital through investments primarily in a
diversified portfolio of common stocks that, as a group, are expected to provide
investment results closely corresponding to the performance of the Standard &
Poor's MidCap 400(R) Index***.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 1, 1991 $ Value
- ------------------------- -------
<S> <C>
10/01/91 $10,000
12/31/91 11,163
12/31/92 12,143
12/31/93 13,574
12/31/94 12,936
12/31/95 16,718
12/31/96 19,661
12/31/97 25,648
12/31/98 30,214
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
[CHART]
PERIOD ENDED DECEMBER 31
* The Standard Average Annual Total Return for the AGSPC International
Government Bond Fund Division 13 for the 1, 3, and 5 year period and since
inception was 10.88%, 2.49%, 5.66% and 7.74%, respectively. The Division
commenced operations on October 1, 1991.
** The Standard Average Annual Total Return for the AGSPC MidCap Index Fund
Division 4 for the 1, 3, and 5 year period and since inception was 12.75%,
20.60%, 16.72% and 16.37%, respectively. The Division commenced operations on
October 13, 1982 as the Capital Accumulation Fund. On October 1, 1991, the Fund
underlying the AGSPC MidCap Index Fund 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. The
performance figures for the AGSPC MidCap Index Division reflect the performance
of the MidCap Index Fund since October 1, 1991.
*** "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and "S&P MidCap 400" are
trademarks of Standard and Poor's ("S&P"). AGSPC MidCap Index Fund is not
sponsored, endorsed, sold or promoted by S&P and S&P makes no representation
regarding the advisability of investing in this Fund.
11
<PAGE> 61
AGSPC MONEY MARKET FUND*
(Division 6)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1989 $ Value
- ------------------------- -------
<S> <C>
01/01/89 $10,000
12/31/89 10,792
12/31/90 11,530
12/31/91 12,048
12/31/92 12,316
12/31/93 12,521
12/31/94 12,867
12/31/95 13,447
12/31/96 13,982
12/31/97 14,559
12/31/98 15,160
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1989
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC SMALL CAP INDEX FUND**
(Division 14)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide growth of capital through investment primarily in a diversified
portfolio of common stocks that, as a group, are expected to provide investment
results closely corresponding to the performance of the Russell 2000(R)
Index.***
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
May 1, 1992 $ Value
- ------------------------- -------
<S> <C>
05/01/92 $10,000
12/31/92 11,128
12/31/93 12,772
12/31/94 12,223
12/31/95 15,449
12/31/96 17,854
12/31/97 21,636
12/31/98 21,005
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE MAY 1, 1992
[CHART]
PERIOD ENDED DECEMBER 31
* The Standard Average Annual Total Return for the AGSPC Money Market Fund
Division 6 for the 1, 3, 5 and 10 year period was (0.60)%, 2.45%, 2.93% and
4.14%, respectively. The Division commenced operations on January 16, 1986.
** The Standard Average Annual Total Return for the AGSPC Small Cap Index Fund
Division 14 for the 1, 3 and 5 year period and since inception was (7.32)%,
9.34%, 9.68% and 11.67%, respectively. The Division commenced operations on May
1, 1992.
*** The Russell(R) Index is a trademark/servicemark of the Frank Russell Trust
Company. Russell(TM) is a trademark of the Frank Russell Company.
12
<PAGE> 62
AGSPC
SOCIAL AWARENESS FUND*
(Division 12)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in common
stocks, in companies which meet the social criteria established for the Fund.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 2, 1989 $ Value
- ------------------------- -------
<S> <C>
10/02/89 $10,000
12/31/89 10,100
12/31/90 9,877
12/31/91 12,506
12/31/92 12,795
12/31/93 13,670
12/31/94 13,339
12/31/95 18,351
12/31/96 22,527
12/31/97 29,853
12/31/98 37,623
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
[CHART]
PERIOD ENDED DECEMBER 31
AGSPC STOCK
INDEX FUND**
(Division 10)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth through investment in common stocks that, as a
group, are expected to provide investment results closely corresponding to the
performance of the Standard & Poor's 500 Stock Index(R)***.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 1, 1989 $ Value
- ------------------------- -------
<S> <C>
01/01/89 $10,000
12/31/89 12,788
12/31/90 12,171
12/31/91 15,543
12/31/92 16,411
12/31/93 17,853
12/31/94 17,799
12/31/95 24,197
12/31/96 29,406
12/31/97 38,748
12/31/98 49,264
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1989
[CHART]
PERIOD ENDED DECEMBER 31
* The Standard Average Annual Total Return for the AGSPC Social Awareness Fund
Division 12 for the 1, 3 and 5 year period and since inception period was
20.97%, 25.91%, 21.89% and 15.29%, respectively. The Division commenced
operations on October 2, 1989.
** The Standard Average Annual Total Return for the AGSPC Stock Index Fund
Division 10 for the 1, 3, 5 and 10 year period was 22.09%, 25.61%, 21.95% and
17.20%, respectively. The Division commenced operations on April 20, 1987.
*** "Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of Standard
and Poor's ("S&P"). The AGSPC Stock Index Fund is not sponsored, endorsed, sold
or promoted by S&P and S&P makes no representation regarding the advisability of
investing in this Fund.
13
<PAGE> 63
PURCHASE PERIOD
- --------------------------------------------------------------------------------
The Purchase Period begins when your first Purchase Payment is made and
continues until you begin your Payout Period. The Purchase Period can also end
when an Independence Plus account is surrendered before the Payout Period. The
amount, number, and frequency of your Purchase Payments is determined by the
retirement plan for which Independence Plus was purchased.
PURCHASE PAYMENTS
You may establish an account only through a VALIC representative. Initial
Purchase Payments must be received by VALIC either with, or after, a completed
application. Your employer is usually responsible for remitting Purchase
Payments to us. The employer is responsible for furnishing instructions to us as
to the amount being applied to your account.
Minimum initial and subsequent Purchase Payments are as follows:
<TABLE>
<CAPTION>
Initial Subsequent
Contract Type Payment Payment
- ------------------------ ------- ----------
<S> <C> <C>
Periodic Payment $ 30 $30
Single Payment $1,000 -0-
</TABLE>
Periodic Payment minimums apply to each Periodic Payment made. In the case of a
Periodic Payment, the amount of each Purchase Payment allocated to each Variable
Account Option and Fixed Account Option must be at least $30. The Single Payment
minimum applies to each of your accounts.
Purchase Payments are received in VALIC's Home Office. When an initial Purchase
Payment is accompanied by an application, within 2 business days we will:
- - Accept the Application -- and issue a contract. We will also establish your
account and apply your Purchase Payment by crediting the amount to the Fixed
Account Option or Variable Account Option selected;
- - Reject the Application -- and return the Purchase Payment; or
- - Request Additional Information -- to correct or complete the application. In
the case of an individual variable annuity contract, we will return the
Purchase Payments within 5 business days if the requested information is not
provided, unless you otherwise so specify.
If we receive Purchase Payments from your employer before we receive your
completed application or enrollment form, we will not be able to establish a
permanent account for you. Under those circumstances, we will take one of the
following actions:
Return Purchase Payments. If we do not have your name, address or social
security number, we will return the Purchase Payment to your employer unless
this information is immediately provided to us.
Employer-Directed Account. If we have your name, address and social security
number and we have an Employer-Directed Account Agreement from your employer,
generally we will deposit your Purchase Payment in an "Employer-Directed"
account invested in the Money Market Division option chosen by your employer.
You may not transfer these amounts until VALIC has received a completed
application or enrollment form.
Starter Account. If we have your name, address and social security number, but
we do not have an Employer-Directed Account Agreement from your employer, we
will deposit your Purchase Payment in a "starter" account invested in the Money
Market Division. We will send you follow-up letters requesting the information
necessary to complete the application, including your allocation instructions.
Unless a completed application or enrollment form is received by us within 105
days of establishment of your starter account, the account balance, including
earnings, will be returned to your employer. We are not responsible for any
adverse tax consequences to you that may result from the return of your
employer's contributions.
PURCHASE UNITS
A Purchase Unit is a unit of interest owned by you in your Variable Account
Option. Purchase Units apply only to the Variable Account Options selected for
your account. Purchase Unit values are calculated at the close of regular
trading of the New York Stock Exchange (the "Exchange"), currently 4:00 p.m. New
York time (see Calculation of Purchase Unit Value below for more information.)
Purchase Units will be credited the same business day if Purchase Payments are
received by our Home Office before the close of the Exchange. If not, they will
be calculated and credited the next business day. Purchase Unit values will vary
depending on the net investment results of each of the Variable Account Options.
This means the value of your Variable Account Option will fluctuate.
CALCULATION OF PURCHASE UNIT VALUE
The Purchase Unit Value for a Division is calculated as shown below:
Step 1: Calculate the gross investment rate:
Gross Investment Rate
= (EQUALS)
The Division's investment income and capital gains and losses (whether
realized or unrealized) on that day from the assets attributable to the
Division.
/ (DIVIDED BY)
The value of the Division for the immediately preceding day on which the
values are calculated.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity contract offered
by Independence Plus.
PURCHASE UNIT -- a
measuring unit used to
calculate your Account Value
during the Purchase Period.
The value of a Purchase Unit
will vary with the investment
experience of the Separate
Account Division you have
selected.
For more information as to
how PURCHASE UNIT VALUES
are calculated, see the
Statement of Additional
Information.
14
<PAGE> 64
- --------------------------------------------------------------------------------
We calculate the gross investment rate as of 4:00 p.m. New York time on each
business day when the Exchange is open.
Step 2: Calculate net investment rate for any day as follows:
Net Investment Rate
= (EQUALS)
Gross Investment Rate (calculated in Step 1)
- - (MINUS)
Separate Account charges and any income tax charges.
Step 3: Determine Purchase Unit Value for that day.
Purchase Unit Value for that day.
= (EQUALS)
Purchase Unit Value for immediate preceding day.
X (MULTIPLIED BY)
Net Investment Rate (as calculated in Step 2) plus 1.00.
CHOOSING INVESTMENT OPTIONS
There are 12 investment options offered in Independence Plus. This includes 2
Fixed Account Options and 10 Variable Account Options. The Funds that underlie
the Variable Account Options are registered as separate portfolios of AGSPC.
AGSPC is registered as an investment company under the Act and is subject to
regulation of the Act. The Fixed Account Options are not subject to regulation
under the Act and interests in the Fixed Account Options are not required to be
registered under the Securities Act of 1933. As a result, the SEC has not
reviewed data in this prospectus that relates to the Fixed Account Options.
However, federal securities law does require such data to be accurate and
complete.
FIXED ACCOUNT OPTIONS
Each of the Fixed Account Options are part of the Company's general assets. You
may allocate all or a portion of your Purchase Payment to the Fixed Account
Options listed in the "Summary of Independence Plus" appearing in this
prospectus. Purchase Payments you allocate to these Fixed Account Options are
guaranteed to earn at least a minimum rate of interest. Interest is paid on each
of the Fixed Account Options at declared rates, which may be different for each
option. We bear the entire investment risk for the Fixed Account Option. All
Purchase Payments and interest earned on such amounts in your Fixed Account
Option will be paid regardless of the investment results experienced by the
Company's general assets.
Here is how you may calculate the value of your Fixed Account Option during the
Purchase Period:
Value of Your Fixed Account Options
= (EQUALS)
All Purchase Payments made to the Fixed Account Options
+ (PLUS)
Amounts transferred from Variable Account Options to the Fixed
Account Options
+ (PLUS)
All interest earned
- - (MINUS)
Amounts transferred or withdrawn from Fixed Account Options
(including applicable fees and charges)
VARIABLE ACCOUNT OPTIONS
You may allocate all or a portion of your Purchase Payments to the Variable
Account Options listed in this prospectus as permitted by your retirement
program. As noted elsewhere in the prospectus, you will not be permitted to
select from more than seven investment options. A complete discussion of each of
the Variable Account Options may be found in the "Variable Account Options"
section in this prospectus. Based upon a Variable Account Option's Purchase Unit
Value your account will be credited with the applicable number of Purchase
Units. The Purchase Unit Value of each Variable Account Option will change daily
depending upon the investment performance of the underlying fund (which may be
positive or negative) and the deduction of VALIC Separate Account A charges. See
the "Fees and Charges" section in this prospectus. Because Purchase Unit Values
change daily, the number of Purchase Units your account will be credited with
for subsequent Purchase Payments will vary. Each Variable Account Option bears
its own investment risk. Therefore, the value of your account may be worth more
or less at retirement or withdrawal.
Here is how to calculate the value of each Variable Account Option in your
account during the Purchase Period:
Value of Your Variable Account Option
= (EQUALS)
Total Number of Purchase Units
X (MULTIPLIED BY)
Current Purchase Unit Value
STOPPING PURCHASE PAYMENTS
Purchase Payments may be stopped at any time. Purchase Payments may be resumed
at any time before your Independence Plus account has been surrendered. While no
Purchase Payments are being made, the number of Purchase Units outstanding will
remain the same. (This is assuming no transfers or withdrawals are made.) The
value of the Purchase Units will continue to vary. Your Account Value will
continue to be subject to charges.
In the case of an individual contract, if both your Account Value and Purchase
Payments (less any withdrawals) falls below $300, and you do not make any
Purchase Payments for two years from the date we established your account, we
may close the account and pay the Account Value (less any surrender charge) to
you. In the case of a group contract, if your Account Value (less any
withdrawals) falls below $300, we may close the account and pay the Account
Value (less any surrender charge) to you. Any such account closures will be
subject to applicable distribution restrictions under the contract and/or under
your employer's plan.
15
<PAGE> 65
TRANSFERS BETWEEN INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may transfer all or part of your Account Value between the various Fixed
Account and Variable Account Options in Independence Plus without a charge.
Transfer instructions may be made either in writing or by telephone as discussed
below. Transfers may be made during the Purchase Period or during the Payout
Period. We reserve the right to limit transfers as discussed below. Your
employer's plan may also limit your rights to transfer.
DURING THE PURCHASE PERIOD
During the Purchase Period, transfers may be made between Independence Plus's
Fixed Account Options and Variable Account Options.
We currently permit transfers between Variable Account Options or from Variable
Account Options to Fixed Account Options, at any time. We may, however, limit
the number of transfers you can make.
Transfers are also permitted from the Fixed Account Options subject to the
following limitations:
<TABLE>
<CAPTION>
OPTION OTHER
FIXED ACCOUNT VALUE FREQUENCY RESTRICTIONS
- -------------- ------------- ----------- ------------------------
<S> <C> <C> <C>
Fixed Account Up to 20% per At any time None (1)
Plus contract year
100% At any time If Account Value is less
than $500
Short-Term Up to 100% At any time 90-day Holding Period If
Fixed transfer was previously
Account: made into Short-Term
Fixed Account.(2)
</TABLE>
- ---------------
(1) Your employer may further limit or expand the restrictions. We may charge
for those modified restrictions if specified in your employer's retirement
plan.
(2) VALIC may change this holding period at any time in the future, but it will
never be more than 180 days.
DURING THE PAYOUT PERIOD
During the Payout Period, transfers may be made from Independence Plus's
investment options subject to the following limitations:
<TABLE>
<CAPTION>
OPTION OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
- -------------- ------------- ---------- -------------------
<S> <C> <C> <C>
Variable: Up to 100% Once every None
365 days
Combination Up to 100% of Once every None
Fixed and money in 365 days
Variable variable
Payout: option payout
Fixed: Not permitted -- --
</TABLE>
COMMUNICATING TRANSFER OR
REALLOCATION INSTRUCTIONS
A written instruction to transfer or reallocate all or part of your Account
Value between the various investment options in Independence Plus, should be
sent to VALIC's Home Office.
Instructions for transfers or reallocations may be made by calling
1-800-621-7792. Telephone transfers will be allowed unless we have been notified
not to accept such telephone instructions. In this event, we must receive
written instructions, in order to permit future telephone transfers to be made.
Before a transfer will be made by telephone, you must give us the requested
identifying information concerning your account(s).
Unless we have been instructed not to accept requests for telephone transfers,
anyone may effect a telephone transfer if they furnish the requested
information. You will bear any loss resulting from such instructions, whether
the caller was specifically authorized by you or not.
No one that we employ or that represents VALIC may give telephone instructions
on your behalf without VALIC's prior written permission. (This does not apply to
a contract with the immediate family of an employee or representative of VALIC).
We will send you a confirmation of the completed transfer within 5 days from the
date of your instruction. When you receive your confirmation, it is your duty to
verify the information shown, and advise us of any errors within one business
day.
You will bear the risk of loss arising from instructions received by telephone.
We are not responsible for the authenticity of such instructions. Any telephone
instructions which we reasonably believe to be genuine will be your
responsibility. This includes losses from errors in communication. Telephone
transfer instruction may not be made during the Payout Period. We reserve the
right to stop telephone transfers at any time.
EFFECTIVE DATE OF TRANSFER
The effective date of a transfer will be:
- - The date of receipt, if received in our Home Office before the close of
regular trading of the Exchange on a day values are calculated; (Normally,
this will be 4:00 P.M. New York time); otherwise
- - The next date values are calculated.
ACCOUNT VALUE -- the total
sum of your Fixed Account
and/or Variable Account
Options that have not yet
been applied to your Payout
Payments.
PURCHASE PERIOD -- the time
between your first Purchase
Payment and your Payout
Period (or surrender).
HOME OFFICE -- our
principal office at 2929 Allen
Parkway, Houston, Texas
77019.
PAYOUT PERIOD -- the time
that starts when you begin to
withdraw your money in a
steady stream of payments.
16
<PAGE> 66
FEES AND CHARGES
- --------------------------------------------------------------------------------
By investing in Independence Plus, you may be subject to six basic types of fees
and charges:
- - Account Maintenance Fee
- - Surrender Charge
- - Premium Tax Charge
- - Separate Account Charges
- - Fund Annual Expense Charge
- - Other Tax Charges
These fees and charges are explained below. For additional information about
these fees and charges, see the Fee Table in this prospectus.
ACCOUNT MAINTENANCE FEE
An account maintenance fee of $5.00 will be deducted on the last day of each
calendar quarter following receipt of the first purchase payment during the
first Participant Year. After the first Participant Year, the quarterly account
maintenance fee is $3.75. We will sell Purchase Units from your Account to pay
the account maintenance fee. The fee will be assessed equally among the Variable
Account Options and Fixed Account Options that make up your Account Value.
The account maintenance fee is to reimburse the Company for our administrative
expenses. This includes the expense for establishing and maintaining the record
keeping for Independence Plus. We do not expect that the amount of fees we
receive will be greater than our expenses.
The amount of the account maintenance fee may be reduced or waived if
Independence Plus is issued to certain types of plans which are expected to
result in lower costs to VALIC. To learn more about how we determine if account
maintenance fees may be reduced or waived, see the "Reduction or Waiver of
Account Maintenance Fee and Surrender Charge" section in this prospectus. If you
have two or more accounts established under the same group contract, we may
agree to deduct an account maintenance fee from only one account.
No account maintenance fee will be assessed during the Payout Period.
SURRENDER CHARGE
When you withdraw money from your account, you may be subject to a surrender
charge that will be deducted from the amount withdrawn. For information about
your right to surrender, see "Surrender of Account Value" in this prospectus.
It is assumed that the most recent Purchase Payments are withdrawn first. No
surrender charge will be applied unless an amount is actually withdrawn. We
consider all Purchase Payments to be withdrawn before earnings are withdrawn.
Amounts exchanged from other contracts issued by the Company may or may not be
subject to a surrender charge. After exchange, it is assumed that any new
Purchase Payments are withdrawn before the exchanged amount. For more
information, see "Exchange Privilege" in the Statement of Additional
Information.
Amount of Surrender Charge
A surrender charge may not be greater than:
- - Five percent (5%) of the amount of all Purchase Payments received during the
past 60 months; or
- - Five percent (5%) of the amount withdrawn.
10% Free Withdrawal
In any Participant Year, the first withdrawal of up to 10% of the Account Value
will not be subject to a surrender charge. The surrender charge will apply to
the lesser of any amount withdrawn that exceeds this 10% limit or the amount of
the surrender attributable to Purchase Payments received during the most recent
60 months. The percentage withdrawn will be determined by dividing the amount
withdrawn by the Account Value just prior to the withdrawal.
These 10% withdrawals without charge do not reduce Purchase Payments for the
purpose of computing the surrender charge. If a surrender charge is applied to
all or part of a Purchase Payment, no surrender charge will be applied to such
Purchase Payment (or portion thereof) again.
Exceptions to Surrender Charge
No surrender charge will be applied:
- - To money applied to provide a Payout Option;
- - To death benefits;
- - If no Purchase Payments have been received during the 60 months prior to the
date of surrender; or
- - If you are at least 55 years old, are no longer employed by the employer that
established the plan, and your account under the plan was established at least
5 years prior to the date of surrender (applicable to qualified contracts
only).
The surrender charge may be reduced or waived if Independence Plus is issued to
certain types of plans or similar arrangements which are expected to result in
lower costs to VALIC. To learn more about how we determine if a surrender charge
may be reduced or waived, see the "Reduction or Waiver of Account Maintenance
Fee and Surrender Charge" section in this prospectus.
PREMIUM TAX CHARGE
Taxes on Purchase Payments are imposed by some states, cities, and towns. The
rate will range from zero to 3 1/2%.
If the law of a state, city, or town requires premium taxes to be paid when
Purchase Payments are made, we will, of course, comply. Otherwise, such tax will
be deducted from the
PARTICIPANT YEAR -- the first
twelve month period and
then each yearly anniversary
of that period following the
issue date of the contract or
certificate.
17
<PAGE> 67
- --------------------------------------------------------------------------------
Payout Value when annuity payments are to begin.
If we deduct an amount for premium taxes, but later find the tax was not due, we
will:
- - Adjust the amount deducted in error to reflect investment experience from the
date of the deduction to the date we determined the tax was not due; and
- - Apply the excess amount, as adjusted, to increase the number of Pay-in or
Payout Units.
SEPARATE ACCOUNT CHARGES
There will be a mortality and expense risk fee applied to VALIC Separate Account
A. This is a daily charge at an annualized rate of 1.00% on the average daily
net asset value of VALIC Separate Account A. This charge is guaranteed and
cannot be increased by the Company. The mortality and expense risk fee is to
compensate the Company for assuming mortality and expense risks under
Independence Plus. The mortality risk that the Company assumes is the obligation
to provide payments during the Payout Period for your life no matter how long
that might be. In addition, the Company assumes the obligation to pay during the
Purchase Period a death benefit which may be higher than your Account Value. For
more information about the death benefit see the "Death Benefit" section of this
prospectus. The expense risk is our obligation to cover the cost of issuing and
administering Independence Plus, no matter how large the cost may be.
The Company may make a profit on the mortality and expense risk fee.
For more information about the mortality and expense risk fee, see the Fee Table
in this prospectus.
FUND ANNUAL EXPENSE CHARGES
Investment management charges based on a percentage of each Fund's average daily
net assets are payable by each Fund. Depending on the Variable Account Option
selected, the charges will be paid by each Fund to its investment adviser. These
charges and other Fund charges and expenses are fully described in the
prospectuses for AGSPC. These charges indirectly cost you because they lower
your return.
OTHER TAX CHARGES
We reserve the right to charge for certain taxes (other than premium taxes) that
we may have to pay. This could include federal income taxes. Currently, no such
charges are being made.
REDUCTION OR WAIVER OF ACCOUNT
MAINTENANCE FEE AND SURRENDER CHARGE
We may, as described below, determine that the account maintenance fee and
surrender charges for Independence Plus may be reduced or waived. We may reduce
or waive these fees and charges if we determine that your retirement program
will allow us to reduce or eliminate administrative or sales expenses that we
usually incur for such programs and arrangements. There are a number of factors
we will review in determining whether your retirement program will allow us to
reduce or eliminate these administrative or sales expenses:
- - The type of retirement program.
Certain types of retirement programs because of their stability can result in
lower administrative costs.
- - The nature of your retirement program.
Certain types of retirement programs, due to the types of employees who
participate, experience fewer account surrenders thus reducing administrative
costs.
- - Other factors of which we are not presently aware which could reduce
administrative costs.
We review the following additional factors to determine whether we can reduce
or waive account maintenance fees:
- - The frequency of Purchase Payments for your retirement program. Purchase
Payments received no more than once a year can reduce administrative costs.
- - The administrative tasks performed by your employer for your retirement
program.
The employer sponsoring your retirement program can, through their method of
remitting Purchase Payments, reduce administrative costs.
We review the following additional factors to determine whether we can reduce or
waive surrender charges:
- - The size of your retirement program.
A retirement program which involves a larger group of employees may allow us
to reduce sales expenses.
- - The total amount of Purchase Payments to be received for your retirement
program.
Larger Purchase Payments can reduce sales expenses.
- - The use of mass enrollment or related administrative tasks performed by your
employer for your retirement program.
We will only do this if permitted by this Contract and by VALIC guidelines in
effect at the time. In no event will the reduction or waiver of fees and
charges be permitted where the reduction or waiver will unfairly discriminate
against any person.
18
<PAGE> 68
PAYOUT PERIOD
- --------------------------------------------------------------------------------
The Payout Period (Annuity Period) begins when you decide to retire or otherwise
withdraw your money in a steady stream of payments. If your employer's plan
permits, you may apply any portion of your Account Value to one of the types of
Payout Options listed below. You may choose to have your Payout Option on either
a fixed, a variable, or a combination payout basis. When you choose to have your
Payout Option on a variable basis, you may keep the same Variable Account
Options in which your Purchase Payments were made, or transfer to different
ones.
FIXED PAYOUT
Under Fixed Payout, you will receive monthly payments from the Company. These
payments are fixed and guaranteed by the Company. The amount of these payments
will depend on:
- Type and duration of Payout Option chosen;
- Your age or your age and the age of your survivor(1);
- Your sex or your sex and the sex of your survivor(1) (IRA's and certain
nonqualified contracts);
- The portion of your Account Value being applied; and
- The payout rate being applied and the frequency of the payments.
(1) This applies only to joint and survivor payouts.
If the benefit would be greater, the amount of your payments will be based on
the current payout rate the Company uses for immediate annuity contracts.
VARIABLE PAYOUT
With a Variable Payout, you may select from your existing Variable Account
Options. Your payments will vary accordingly. This is due to the varying
investment results that will be experienced by each of the Variable Account
Options you selected. The Payout Unit Value is calculated just like the Purchase
Unit Value for each Variable Account Option except that the Payout Unit Value
includes a factor for the Assumed Investment Rate you select. For additional
information on how Payout Payments and Payout Unit Values are calculated, see
the Statement of Additional Information.
In determining your first Payout Payment, an Assumed Investment Rate of 3 1/2%
is used (unless you select a higher rate as allowed by state law.) If the net
investment experience of the Variable Account Option exceeds your Assumed
Investment Rate, your next payment will be greater than your first payment. If
the investment experience of the Variable Account Option is lower than your
Assumed Investment Rate, your next payment will be less than your first payment.
COMBINATION FIXED AND VARIABLE PAYOUT
With a Combination Fixed and Variable Payout, you may choose:
- From your existing Variable Account Options (payments will vary); with
- A Fixed Account Option (payment is fixed and guaranteed).
Up to seven Variable Account Options may be chosen, or up to six Variable
Account Options if the Fixed Account Option is chosen.
PAYOUT DATE
The Payout Date is the date selected by you on which your payout (annuity)
payments will start. The date selected must be the first of any month provided
30 days advance notice has been given to VALIC. Your account will be valued ten
days prior to the end of the month preceding the Payout Date. A request to start
payments must be sent to our Home Office on a form approved by VALIC. Generally,
for qualified contracts, the Payout Date may begin when you attain age 59 1/2 or
separate from service, but must begin no later than April 1 following the
calendar year you reach age 70 1/2 or the calendar year in which you retire. For
nonqualified contracts, the Payout Date may begin after the Annuitant's 50th
birthday but prior to the Annuitant's 75th birthday. For additional information
on the minimum distribution rules that apply to payments under 403(b), 401,
403(a) and 457 plans or simplified employee plans ("SEPs"), see "Federal Tax
Matters" in this prospectus and in the Statement of Additional Information.
PAYOUT OPTIONS
You may specify the manner in which your Payout Payments are made. You may
select one of the following options:
- LIFE ONLY -- payments are made only to you during your lifetime. Under this
option there is no provision for a death benefit for the beneficiary. For
example, it would be possible under this option for the Annuitant to receive
only one payout payment if he died prior to the date of the second payment,
two if he died before the third payment.
PAYOUT UNIT -- a measuring
unit used to calculate Payout
Payments from your Variable
Account Option. Payout Unit
values will vary with the
investment experience of the
VALIC Separate Account A
Division you have selected.
ASSUMED INVESTMENT
RATE -- the rate used to
determine your first monthly
Payout Payment per
thousand dollars of Account
Value in your Variable
Account Option(s).
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<PAGE> 69
- --------------------------------------------------------------------------------
- LIFE WITH GUARANTEED PERIOD -- payments are made to you during your
lifetime; but if you die before the guaranteed period has expired, your
beneficiary will receive payments for the rest of your guaranteed period.
- LIFE WITH CASH OR UNIT REFUND -- payments are made to you during your
lifetime. Upon your death, your beneficiary will receive a lump sum payment
equal to the remaining Annuity Value.
- JOINT AND SURVIVOR LIFE -- payments are made to you during the joint
lifetime of you and your beneficiary. Upon the death of one, payments
continue during the lifetime of the survivor. This option is designed
primarily for couples who require maximum possible variable payouts during
their joint lives and are not concerned with providing for beneficiaries at
death of the last survivor. For example, it would be possible under this
option for the Joint Annuitants to receive only one payment if both
Annuitants died prior to the date of the second payment, or for the Joint
Annuitants to receive only one payment and the surviving Annuitant to
receive only one payment if one Annuitant died prior to the date of the
second payment and the surviving Annuitant dies prior to the date of the
third payment.
- PAYMENT FOR A DESIGNATED PERIOD -- payments are made to you for a select
number of years between three and thirty. Upon your death, payments will
continue to your beneficiary until the designated period is completed.
Each Payout Option, except Payment for a Designated Period, is available as a
Fixed and Variable Payout. Payment for a Designated Period is available as a
Fixed Payout Option only.
You may elect a different Payout Option if we agree.
ENHANCEMENTS TO PAYOUT OPTIONS
You may be able to select enhancements to the Payout Options described above.
These enhancements include partial annuitization, flexible payments of varying
amounts and inflation protection payments. Additionally, certain options may be
available with a one to twenty year guaranteed period. The Joint and Survivor
Life Option may be available with a one to twenty year guaranteed period option.
Not all of the enhancements are available under each option.
PAYOUT INFORMATION
Once your Payout Payments have begun, the option you have chosen may not be
stopped or changed. Any one of the Variable Account Options may result in your
receiving unequal payments during your life expectancy. If payments begin before
age 59 1/2, you may suffer unfavorable tax consequences, in the form of an
excise tax, if you do not meet an exception under federal tax law. See "Federal
Tax Matters" in this prospectus.
Your Payment Option should be selected at least 30 days before your Payout Date.
If such selection is not made:
- Payments will be made under the Life with Guaranteed Period Option,
- The payments will be guaranteed for a 10 year period,
- The payments will be based on the allocation used for your Purchase
Payments,
- Fixed Account Option will be used to distribute payments to you on a Fixed
Payout basis, and
- Variable Account Options will be used to distribute payments to you on a
Variable Payout basis.
Your first Payout Payment must total at least $25.
Under certain retirement plans, federal pension law may require that payments be
made under the Joint and Survivor Life Payout Option.
Most Payout Payments are made monthly. If the amount of your payment is less
than $25, we reserve the right to reduce the number of payments made each year
so each of your payments are at least $25, subject to any limitations under the
contract or the plan. Also, if your annual payment is less than $100, we reserve
the right to make a lump sum payment of the remaining annuity value.
For more information about
PAYOUT OPTIONS OR
ENHANCEMENTS of those
Payout Options available
under the Contract,
see the "Statement of
Additional Information".
20
<PAGE> 70
SURRENDER OF ACCOUNT VALUE
- --------------------------------------------------------------------------------
WHEN SURRENDERS ARE ALLOWED
You may withdraw all or part of your Account Value at any time before the Payout
Period begins if:
- allowed under federal and state law; and
- allowed under your employer's plan.
For an explanation of charges that may apply if you surrender your Account
Value, see "Fees and Charges" in this prospectus.
AMOUNT THAT MAY BE SURRENDERED
The amount that may be surrendered at any time can be determined as follows:
<TABLE>
<S> <C> <C>
Your
Account
Allowed Value(1)
Surrender - (MINUS)
Value = (EQUALS) Any
Applicable
Surrender
Charge
</TABLE>
(1) Equals the Account Value next computed after your properly completed
request for surrender is received in our Home Office.
There is no guarantee that the Surrender Value in a Variable Account Option will
ever equal or exceed the total amount of your Purchase Payments received by us.
We will mail to you the Surrender Value within 7 calendar days after we receive
your properly completed surrender request at our Home Office. However, we may be
required to suspend or postpone payments if redemption of an underlying Fund's
shares have been suspended or postponed. See your current AGSPC prospectus for a
discussion of the reasons why the redemption of shares may be suspended or
postponed.
We may defer payment of the Surrender Value in the Fixed Account Options for up
to 6 months. Interest will be paid on such amounts if payment of Fixed Account
Option Surrender Value is deferred for 30 calendar days or more.
We may receive a surrender for a Purchase Payment which has not cleared the
banking system. We may delay payment of that portion of your Surrender Value
until the check clears. The rest of the Surrender Value will be processed as
usual.
SURRENDER RESTRICTIONS
Generally, Internal Revenue Code Section 403(b)(11) permits total or partial
distributions from a 403(b) contract only on account of hardship (employee
contributions only without accrued interest), attainment of age 59 1/2,
separation from service, death or disability.
Under the TEXAS STATE OPTIONAL RETIREMENT PROGRAM, and in many Section 403(b)
contracts, no surrender or partial surrender will be allowed except for
termination of employment, retirement or death.
Under the FLORIDA STATE OPTIONAL RETIREMENT PROGRAM, no surrender or partial
surrender of Purchase Payments made by the employer will be allowed except for
termination of employment, retirement or death. Benefit payments based on
payments from the employer may not be paid in a lump sum or for a period
certain, but must be paid under a life contingency option, except for:
- death benefits; and
- certain small amounts approved by the State of Florida.
Under the LOUISIANA OPTIONAL RETIREMENT PLAN retirement benefits must be paid in
the form of a lifetime income, and except for death benefits, single sum
surrenders and partial surrenders out of the plan are not permitted.
Other employer-sponsored plans may also impose restrictions on the timing and
form of surrenders from the contract.
PARTIAL SURRENDERS
You may request a partial surrender of your Account Value at any time, subject
to any applicable surrender restrictions. A partial surrender plus any surrender
charge will reduce your Account Value. Partial surrenders will be paid from the
Fixed Account Options and Variable Account Options for the payment of Account
Value.
The reduction in the number of Purchase Units credited to your Account Value
will equal:
<TABLE>
<S> <C> <C>
The amount Your Purchase
surrendered Units next
+ (PLUS) computed after
Any Surrender / (DIVIDED BY) the written
Charge request for
surrender is
received at our
Home Office
</TABLE>
The Surrender Value will be reduced by a full quarterly account maintenance fee
charged in the case of a full surrender during a quarter.
21
<PAGE> 71
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
We issue other fixed and/or variable annuity contracts (others contracts) in
addition to Independence Plus. We will allow you, under certain conditions, to
exchange from one of these other contracts to Independence Plus. This exchange
privilege will be available only to other contracts purchased through your
employer-sponsored retirement plan and for which we have not yet started making
payments under a Payout Option. If you elect to exercise one of these exchange
rights, you should contact your nearest Regional Office at the addresses shown
in the back of this prospectus. An exchange may require the issuance of a
contract or may be subject to any other requirements that the Company may
impose.
RESTRICTIONS ON EXCHANGE PRIVILEGE
We will impose certain general restrictions and rules on the exchange privileges
- Partial exchanges are not permitted.
Additionally, if you have your money in a fixed account of one of the other
contracts or in a fixed annuity contract, you must exchange directly into the
Fixed Account Options of Independence Plus. You will be subject to all of the
rules that apply to the Fixed Account Options in Independence Plus. For example,
you will be subject to the rules concerning transfers among investment options
as stated in the Transfers Between Investment Options section in this
prospectus. We may, at our option, waive any transfer restrictions for a stated
period of time. If we waive these transfer restrictions, you will be allowed to
exchange to any investment option available in Independence Plus.
WE RESERVE THE RIGHT TO TERMINATE, MODIFY OR SUSPEND THESE EXCHANGE PRIVILEGES
AT ANY TIME.
AGENTS' AND MANAGERS' RETIREMENT PLAN
EXCHANGE OFFER
General. All eligible agents and managers of the Company are allowed to
participate in the Company's Agents' and Managers' Retirement Plan ("Plan"). We
grant to participants in the Plan the right to effect a voluntary exchange of
their units of interest under the Company's SA-1 Contracts for the equivalent
units of interest in Independence Plus.
Agents and managers of VALIC who enter into the voluntary exchange will not
incur under Independence Plus any surrender charges or account maintenance fees.
Other individuals who may exchange to Independence Plus from SA-1 Contracts may
have surrender charges and account maintenance fees imposed under Independence
Plus. 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.
22
<PAGE> 72
DEATH BENEFITS
- --------------------------------------------------------------------------------
Independence Plus will pay death benefits during either the Purchase Period or
the Payout Period. How these death benefits will be paid are discussed below.
The death benefit provisions in Independence Plus may vary from state to state.
BENEFICIARY INFORMATION
The Beneficiary may receive death benefits:
- - In a lump sum; or
- - In the form of an annuity under any of the Payout Options stated in the Payout
Period section of this prospectus subject to the restrictions of that Payout
Option.
Payment of any death benefits must be within the time limits set by federal tax
law and by the plan, if any.
Beneficiaries Other Than Spouses.
If the Beneficiary is not the spouse of the Annuitant, death benefits must be
paid.
- - In full within 5 years after the Annuitant's death; or
- - By payments beginning within 1 year after the Annuitant's death under:
- - A life annuity;
- - A life annuity with payments certain; or
- - An annuity for a designated period not exceeding the Beneficiary's life
expectancy.
If the Annuitant dies before the Annuity Date, the Beneficiary as named by you
may receive the payout.
Payments certain or payments for a designated period cannot be for a greater
period of time than the Beneficiary's life expectancy. After choosing a payment
option, a Beneficiary may exercise many of the investment options and other
rights that the Participant or Contract Owner had under Independence Plus.
DURING THE PURCHASE PERIOD
If death occurs during the Purchase Period, the death benefit will be the
greater of:
Your Account Value on the Date Proof of Death is Received by VALIC
OR
100% of Purchase Payments (to Fixed and/or Variable Account Options)
- (MINUS)
Amount of all Prior Withdrawals, Charges and any portion of Account Value
applied under a Payout Option
DURING THE PAYOUT PERIOD
If death occurs during the Payout Period, your Beneficiary may receive a death
benefit depending on the Payout Option selected. The amount of death benefits
will also depend on the Payout Option that you selected. The Payout Options
available in Independence Plus are described in the "Payout Period" section of
this prospectus.
- - If the Life Only Option or Joint and Last Survivor Life Option were chosen,
there will be no death benefit.
- - If the Life With Guaranteed Period Option, Life with Cash or Unit Refund
Option or Payment for a Designated Period Option were chosen, and the entire
amount guaranteed has not been paid, the Beneficiary may choose one of the
following within 60 days after death benefits are payable:
- Receive the present value of any remaining payments in a lump sum; or
- Receive the remaining payments under the same terms of the option chosen by
the deceased Participant and be entitled to elect anytime thereafter to
receive the present value of any remaining payments in a lump sum; or
- Receive the present value of any remaining payments applied under the
Payment for a Designated Period Option for a period equal to or shorter than
the period remaining. Spouse beneficiaries may be entitled to more favorable
treatment under federal tax law.
BENEFICIARY -- the person
designated to receive Payout
Payments upon the death of
an Annuitant.
ANNUITANT -- the individual,
(in most cases this person is
you) to whom Payout
Payments will be paid.
CONTRACT OWNER -- either
your employer or organization
in the case of a group
contract or the Annuitant in
the case of an individual
contract. If the contract is an
individual non-qualified type,
this is generally the Annuitant
but is not required to be. Also,
a Contingent Contract
Owner may be designated.
FIXED ACCOUNT OPTIONS -- a
particular subaccount into
which your Purchase
Payments and Account Value
may be allocated to fixed
investment options. Currently,
the Fixed Account Options in
Independence Plus are Fixed
Account Plus and Short-Term
Fixed Account. Each option
of this type is guaranteed to
earn at least a minimum rate
of interest.
VARIABLE ACCOUNT
OPTIONS -- investment
options that correspond to
VALIC Separate Account A
Divisions offered by Independence
Plus. Investment returns on
Variable Account Options
will be positive or negative
depending on the investment
performance of the
underlying mutual fund.
23
<PAGE> 73
HOW TO REVIEW INVESTMENT PERFORMANCE
OF SEPARATE ACCOUNT DIVISIONS
- --------------------------------------------------------------------------------
We will advertise information about the investment performance of VALIC Separate
Account A Divisions. Our advertising of past investment performance results does
not mean that future performance will be the same. The performance information
will not predict what your actual investment experience will be in that Division
or show past performance under an actual contract. We may also show how the
Divisions rank on the basis of data compiled by independent ranking services.
TYPES OF INVESTMENT PERFORMANCE
INFORMATION ADVERTISED
We may advertise the Division's Total Return Performance information and Yield
Performance information.
TOTAL RETURN PERFORMANCE INFORMATION
Total Return Performance Information is based on the overall dollar or
percentage change in value of an assumed investment in a Division over a given
period of time.
There are seven ways Total Return Performance Information may be advertised:
- Standard Average Annual Total Return
- Nonstandard Average Annual Total Return
- Cumulative Total Return
- Annual Change in Purchase Unit Value
- Cumulative Change in Purchase Unit Value
- Total Return Based on Different Investment Amounts
- An Assumed Account Value of $10,000
Each of these is described below.
STANDARD AVERAGE ANNUAL TOTAL RETURN
Standard Average Annual Total Return shows the average percentage change in the
value of an investment in the Division from the beginning to the end of a given
historical period. The results shown are after all charges and fees have been
applied against the Division. This will include account maintenance fees and
surrender charges that would have been deducted if you surrendered Independence
Plus at the end of each period shown. Premium taxes are not deducted. This
information is calculated for each Division based on how an initial assumed
payment of $1,000 performed at the end of 1, 3, 5 and 10 year periods.
The return for periods of more than one year are annualized to obtain the
average annual percentage increase (or decrease) during the period.
Annualization assumes that the application of a single rate of return each year
during the period will produce the ending value, taking into account the effect
of compounding.
NONSTANDARD AVERAGE ANNUAL TOTAL RETURN
Nonstandard Average Annual Total Return is calculated in the same manner as the
Standard Average Annual Total Return. However, Nonstandard Average Annual Total
Return shows only the historic investment results of the Division. Account
maintenance fees, surrender charges and premium taxes are not deducted.
CUMULATIVE TOTAL RETURN
Cumulative Total Return assumes the investment in Independence Plus will stay in
the Division beyond the time that a surrender charge would apply. It may be
calculated for 1, 3, 5 and 10 year periods. It is based on an assumed initial
investment of $10,000. The Cumulative Return will be calculated without
deduction of account maintenance fees, surrender charges or premium taxes.
ANNUAL CHANGE IN PURCHASE UNIT VALUE
Annual Change in Purchase Unit Value is a percentage change during a one year
period. This is calculated as follows:
- The Purchase Unit Value at the start of the year is subtracted from the
Purchase Unit Value at the end of the year;
- The difference is divided by the Purchase Unit Value at the start of the
year.
Account maintenance fees, surrender charges and premium taxes are not deducted.
The effect of these charges, if deducted, would reduce the Division's Annual
Change in Purchase Unit Value.
DIVISIONS -- subaccounts of
VALIC Separate Account A
which represent the Variable
Account Options in Independence
Plus. Each Division
invests in a different mutual
fund, each having its own
investment objective and
strategy.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Independence Plus.
For more information on how
TOTAL RETURN PERFORMANCE
INFORMATION is calculated,
see the Statement of
Additional Information.
24
<PAGE> 74
- --------------------------------------------------------------------------------
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
Cumulative Change in Purchase Unit Value is a percentage change from the
beginning to the end of a period usually greater than one year. Otherwise, it is
calculated in the same way as the Annual Change in Purchase Unit Value.
TOTAL RETURN BASED ON DIFFERENT
INVESTMENT AMOUNTS
We may show total return information based on different investment amounts. For
example, we may show $200 a month for 10 years, or $100 a month to age 65. Fees
may or may not be included. Each performance illustration will explain the
Independence Plus charges and fees imposed on the Division.
AN ASSUMED ACCOUNT VALUE OF $10,000
We may show annual values based on an initial investment of $10,000. This will
not reflect any deduction for account maintenance fees, surrender charges and
premium taxes.
YIELD PERFORMANCE INFORMATION
We may advertise Yield Performance, at a given point in time. A Division's yield
is one way of showing the rate of income the Division is earning as a percentage
of the Division's Purchase Unit Value.
AGSPC MONEY MARKET DIVISION
We may advertise the AGSPC Money Market Division's Current Yield and Effective
Yield.
The Current Yield refers to the income produced by an investment in the AGSPC
Money Market Division over a given 7-day period. The Current Yield does not take
into account surrender charges, account maintenance fees or premium taxes. The
income produced over a 7 day period is then "annualized." This means we are
assuming the amount of income produced during the 7-day period will continue to
be produced each week for an entire year. The annualized amount is shown as a
percentage of the investment. For the AGSPC Money Market Division the 7-day
Current Yield for the last 7 days ended December 31, 1998 was 3.64%.
The Effective Yield is calculated in a manner similar to the Current Yield. But,
when the yield is annualized the income earned is assumed to be reinvested. The
compounding effect will cause the Effective Yield to be higher than the Current
Yield. For the AGSPC Money Market Division the 7-day Effective Yield for the
last 7 days ended December 31, 1998 was 3.71%.
DIVISIONS OTHER THAN THE AGSPC MONEY MARKET DIVISION
We may advertise the standardized yield performance for each Division other than
the AGSPC Money Market Division. The yield for each of these Divisions will be
determined as follows:
- We will subtract the account maintenance fee from the average daily net
investment income per Purchase Unit;
- We will divide the remainder by the Purchase Unit Value on the last day of
the period; and
- We will annualize the result.
PERFORMANCE INFORMATION:
AVERAGE ANNUAL TOTAL RETURN, CUMULATIVE RETURN AND ANNUAL AND CUMULATIVE CHANGE
IN PURCHASE UNIT VALUE TABLES.
In the sections above we have described a number of ways we may advertise
information about the investment performance of VALIC Separate Account A
Divisions. Certain performance information for each VALIC Separate Account A
Division is printed in the tables below.
The information presented does not reflect the advantage under Independence Plus
of deferring federal income tax on increases in Account Value due to earnings
attributable to Purchase Payments (see "Federal Tax Matters" in the prospectus
and in the Statement of Additional Information.) The information presented also
does not reflect the advantage under Qualified Contracts of deferring federal
income tax on Purchase Payments.
The performance results shown in the following tables are not an estimate or
guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
25
<PAGE> 75
TABLE I
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED*
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1998)
<TABLE>
<CAPTION>
DIVISION
INCEPTION SINCE
FUND AND DIVISION DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------------- --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Asset Allocation (Division 5) (1)............. 09/06/83 8.95% 10.33% 12.85% 14.77% 12.14%
AGSPC Capital Conservation (Division 7)............. 01/16/86 5.73 6.71 4.12 3.19 1.47
AGSPC Government Securities (Division 8)............ 01/16/86 5.83 7.01 4.31 3.89 2.97
AGSPC International Equities (Division 11).......... 10/02/89 4.03 -- 7.24 6.43 12.52
AGSPC International Government Bond (Division 13)... 10/01/91 7.74 -- 5.66 2.49 10.88
AGSPC MidCap Index (Division 4)**................... 10/13/82** 16.37 -- 16.72 20.60 12.75
AGSPC Money Market (Division 6)..................... 01/16/86 4.27 4.14 2.93 2.45 (0.60)
AGSPC Small Cap Index (Division 14)................. 05/01/92 11.67 -- 9.68 9.34 (7.32)
AGSPC Social Awareness (Division 12)................ 10/02/89 15.29 -- 21.89 25.91 20.97
AGSPC Stock Index (Division 10)..................... 04/20/87 14.19 17.20 21.95 25.61 22.09
</TABLE>
- ---------------
* The performance figures in the Table reflect the investment performance for
the Divisions for the stated periods and should not be used to infer that
future performance will be the same.
** The Division commenced operations on October 13, 1982 as the Capital
Accumulation Fund. Effective October 1, 1991, the Fund underlying the AGSPC
MidCap Index Division changed its name from the Capital Accumulation Fund
to the MidCap Index Fund and amended its investment objective, investment
program and investment restrictions accordingly. The performance figures
for the AGSPC MidCap Index Division reflect the performance of the MidCap
Index Fund since October 1, 1991.
(1) The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
TABLE II
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED*
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1998)
<TABLE>
<CAPTION>
DIVISION
INCEPTION SINCE
FUND AND DIVISION DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------------- --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Asset Allocation (Division 5)(1).................... 09/06/83 9.05% 10.44% 13.56% 16.09% 17.19%
AGSPC Capital Conservation (Division 7)................... 01/16/86 5.84 6.81 5.05 4.80 6.30
AGSPC Government Securities (Division 8).................. 01/16/86 5.94 7.11 5.23 5.48 7.86
AGSPC International Equities (Division 11)................ 10/02/89 4.13 -- 8.08 7.95 17.57
AGSPC International Government Bond (Division 13)......... 10/01/91 7.84 -- 6.55 4.12 15.92
AGSPC MidCap Index (Division 4)**......................... 10/13/82** 16.48 -- 17.35 21.81 17.80
AGSPC Money Market (Division 6)........................... 01/16/86 4.38 4.25 3.90 4.08 4.12
AGSPC Small Cap Index (Division 14)....................... 05/01/92 11.77 -- 10.46 10.78 (2.92)
AGSPC Social Awareness (Division 12)...................... 10/02/89 15.40 -- 22.44 27.04 26.03
AGSPC Stock Index (Division 10)........................... 04/20/87 14.29 17.29 22.51 26.74 27.14
</TABLE>
- ---------------
* The performance figures in the Table reflect the investment performance for
the Divisions for the stated periods and should not be used to infer that
future performance will be the same.
** The Division commenced operations on October 13, 1982 as the Capital
Accumulation Fund. Effective October 1, 1991, the Fund underlying the AGSPC
MidCap Index Division changed its name from the Capital Accumulation Fund to
the MidCap Index Fund and amended its investment objective, investment
program and investment restrictions accordingly. The performance figures for
the AGSPC MidCap Index Division reflect the performance of the MidCap Index
Fund since October 1, 1991.
(1) The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
26
<PAGE> 76
TABLE III
CUMULATIVE RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED*
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1998)
<TABLE>
<CAPTION>
DIVISION
INCEPTION SINCE
FUND AND DIVISION DATE INCEPTION 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------------- --------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Asset Allocation (Division 5)(1)............... 09/06/83 277.25% 169.99% 88.88% 56.47% 17.19%
AGSPC Capital Conservation (Division 7).............. 01/16/86 108.58 93.33 27.96 15.11 6.30
AGSPC Government Securities (Division 8)............. 01/16/86 111.17 98.83 29.06 17.35 7.86
AGSPC International Equities (Division 11)........... 10/02/89 45.46 -- 47.47 25.78 17.57
AGSPC International Government Bond (Division 13).... 10/01/91 72.80 -- 37.32 12.88 15.92
AGSPC MidCap Index (Division 4)**.................... 10/13/82** 202.14 -- 122.59 80.73 17.80
AGSPC Money Market (Division 6)...................... 01/16/86 74.26 51.60 21.07 12.73 4.12
AGSPC Small Cap Index (Division 14).................. 05/01/92 110.05 -- 64.46 35.96 (2.92)
AGSPC Social Awareness (Division 12)................. 10/02/89 276.23 -- 175.23 105.02 26.03
AGSPC Stock Index (Division 10)...................... 04/20/87 377.21 392.64 175.95 103.59 27.14
</TABLE>
- ---------------
* The performance figures in the Table reflect the investment performance for
the Divisions for the stated periods and should not be used to infer that
future performance will be the same.
** The Division commenced operations on October 13, 1982 as the Capital
Accumulation Fund. Effective October 1, 1991, the Fund underlying the AGSPC
MidCap Index Division changed its name from the Capital Accumulation Fund to
the MidCap Index Fund and amended its investment objective, investment
program and investment restrictions accordingly. The performance figures for
the AGSPC MidCap Index Division reflect the performance of the MidCap Index
Fund since October 1, 1991.
(1) The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
TABLE IV
ANNUAL AND CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED*
(PERIOD FROM SEPARATE ACCOUNT DIVISION INCEPTION)
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE 12 MONTHS ENDED DECEMBER 31*
<TABLE>
<CAPTION>
FUND AND DIVISION 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
----------------- ------ ------ ------ ------ ----- ----- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AGSPC Asset Allocation (Division
5)(1)................................. 17.19% 21.40% 9.99% 23.55% (2.29)% 8.19% (1.71)% 20.13% (3.38)% 15.81%
AGSPC Capital Conservation (Division
7).................................... 6.30 7.49 0.75 19.58 (7.04) 10.88 7.55 16.00 (1.28) 10.63
AGSPC Government Securities (Division
8).................................... 7.86 7.83 0.90 16.31 (5.44) 9.70 6.14 13.59 4.91 11.03
AGSPC International Equities (Division
11)................................... 17.57 1.18 5.75 9.67 6.90 28.58 (14.31) 10.06 (20.90) 2.84
AGSPC International Government Bond
(Division 13)......................... 15.92 (5.79) 3.36 17.63 3.42 13.08 2.05 9.05 -- --
AGSPC MidCap Index (Division 4)**....... 17.80 30.45 17.61 29.24 (4.70) 11.78 8.79 11.63 -- --
AGSPC Money Market (Division 6)......... 4.12 4.13 3.97 4.51 2.77 1.67 2.22 4.49 6.83 7.92
AGSPC Small Cap Index (Division 14)..... (2.92) 21.18 15.57 26.39 (4.30) 14.77 11.28 -- -- --
AGSPC Social Awareness (Division 12).... 26.03 32.52 22.75 37.57 (2.42) 6.84 2.31 26.63 (2.21) 1.00
AGSPC Stock Index (Division 10)......... 27.14 31.77 21.53 35.95 (0.30) 8.78 5.58 27.70 (4.83) 27.88
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR EACH PERIOD END SINCE DECEMBER 31, 1988*
AGSPC Asset Allocation (Division
5)(1)................................. 169.99% 130.40% 89.79% 72.55% 39.67% 42.94% 32.12% 34.42% 11.89% 15.81%
AGSPC Capital Conservation (Division
7).................................... 93.33 81.87 69.20 67.95 40.44 51.08 36.26 26.69 9.22 10.63
AGSPC Government Securities (Division
8).................................... 98.83 84.33 70.95 69.43 45.67 54.06 40.44 32.31 16.48 11.03
AGSPC International Equities (Division
11)................................... 45.46 23.73 22.29 15.65 5.45 (1.36) (23.29) (10.48) (18.66) 2.84
AGSPC International Government Bond
(Division 13)......................... 72.80 49.06 58.22 53.08 30.14 25.83 11.28 9.05 -- --
AGSPC MidCap Index (Division 4)**....... 202.14 156.48 96.61 67.18 29.36 35.74 21.43 11.63 -- --
AGSPC Money Market (Division 6)......... 51.60 45.59 39.82 34.47 28.67 25.21 23.16 20.48 15.30 7.92
AGSPC Small Cap Index (Division 14)..... 110.05 116.36 78.54 54.49 22.23 27.72 11.28 -- -- --
AGSPC Social Awareness (Division 12).... 276.23 198.53 125.27 83.51 33.39 36.70 27.95 25.06 (1.23) 1.00
AGSPC Stock Index (Division 10)......... 392.64 287.48 194.06 141.97 77.99 78.53 64.11 55.43 21.71 27.88
</TABLE>
- ---------------
* The performance figures in the Table reflect the investment performance for
the Divisions for the stated periods and should not be used to infer that
future performance will be the same.
** The Division commenced operations on October 13, 1982 as the Capital
Accumulation Fund. Effective October 1, 1991, the Fund underlying the AGSPC
MidCap Index Division changed its name from the Capital Accumulation Fund to
the MidCap Index Fund and amended its investment objective, investment
program and investment restrictions accordingly. The performance figures for
the AGSPC MidCap Index Division reflect the performance of the MidCap Index
Fund since October 1, 1991.
(1) The AGSPC Asset Allocation Fund was formerly known as the Timed Opportunity
Fund.
27
<PAGE> 77
OTHER CONTRACT FEATURES
- --------------------------------------------------------------------------------
CHANGES THAT MAY NOT BE MADE
The following terms in Independence Plus may not be changed once your account
has been established:
- The Contract Owner;
- The Participant; and
- The Annuitant.
CHANGE OF BENEFICIARY
The Beneficiary (if not irrevocable) may usually be changed at any time.
Under some retirement programs, the right to name or change a Beneficiary is
subject to approval by the spouse. Also, the right to name a Beneficiary other
than the spouse may be subject to certain tax laws and regulations.
If the Annuitant dies, and there is no Beneficiary, any death benefit will be
payable to the Annuitant's estate.
If a Beneficiary dies while receiving payments, and there is no co-Beneficiary
to continue to receive payments, any amount still due will be paid to the
Beneficiary's estate.
CANCELLATION -- THE 10 DAY "FREE LOOK"
The Contract Owner may cancel an individual contract by returning it to the
Company within 10 days after delivery. (A longer period will be allowed if
required under state law.) A refund will be made to the Contract Owner within 7
days after receipt of the Contract within the required period. The amount of the
refund will be equal to all Purchase Payments received or the amount required
under state law, if larger.
WE RESERVE CERTAIN RIGHTS
We reserve the right to:
- Amend the Contract to conform with substitutions of investments;
- Amend the Contract to comply with tax or other laws;
- Operate VALIC Separate Account A as a management investment company under
the Act, in consideration of an investment management fee or in any other
form permitted by law;
- Deregister VALIC Separate Account A under the Act, if registration is no
longer required;
RELATIONSHIP TO EMPLOYER'S PLAN
If the Contract is being offered as a retirement plan through your employer, you
should always refer to the terms and conditions in your employer's plan when
reviewing the description of Independence Plus in this prospectus.
28
<PAGE> 78
VOTING RIGHTS
- --------------------------------------------------------------------------------
As discussed in the "About VALIC Separate Account A" section of this prospectus,
VALIC Separate Account A holds on your behalf shares of the Funds which comprise
the Variable Account Options. From time to time the Funds are required to hold a
shareholder meeting to obtain approval from their shareholders for certain
matters. As a Participant, you may be entitled to give voting instructions to us
as to how VALIC Separate Account A should vote its Fund shares on these matters.
Those persons entitled to give voting instructions will be determined before the
shareholders meeting is held. For more information about these shareholder
meetings and when they may be held, see the Funds' prospectuses.
WHO MAY GIVE VOTING INSTRUCTIONS
In most cases during the Purchase Period, you will have the right to give voting
instructions for the shareholder meetings. This will be true in most cases even
if your employer is the Contract Owner. Contract Owners will instruct VALIC
Separate Account A in accordance with your instructions. You will receive proxy
material and a form on which voting instructions may be given before the
shareholder meeting is held.
You will not have the right to give voting instructions if Independence Plus was
issued in connection with a nonqualified and unfunded deferred compensation
plan.
DETERMINATION OF FUND SHARES
ATTRIBUTABLE TO YOUR ACCOUNT
During Purchase Period
The number of Fund shares attributable to your account will be determined on the
basis of the Purchase Units credited to your account on the record date set for
the Fund shareholder meeting.
During Payout Period or after a Death
Benefit Has Been Paid
The number of Fund shares attributable to your account will be based on the
liability for future variable annuity payments to your payees on the record date
set for the Fund shareholder meeting. At such time, the Annuitant, or the
Beneficiary after the Annuitant's death, will be entitled to give voting
instructions for shareholder meetings.
HOW FUND SHARES ARE VOTED
The Funds which comprise the Variable Account Options in Independence Plus may
have a number of shareholders including VALIC Separate Account A, VALIC's other
affiliated insurance company separate accounts and retirement plans within the
American General group of companies.
VALIC Separate Account A will vote all of the shares of the Funds it holds based
on, and in the same proportion as, the instructions given by all Participant
Accounts invested in that Fund entitled to give instructions at that shareholder
meeting. VALIC Separate Account A will vote the shares of the Funds it holds for
which it receives no voting instruction in the same proportion as the shares for
which voting instructions have been received.
In the future, we may decide how to vote the shares of VALIC Separate Account A
in a different manner if permitted at that time under federal securities law.
VALIC SEPARATE
ACCOUNT A -- a segregated
asset account established by
VALIC under the Texas
Insurance Code. The purpose
of VALIC Separate Account A
is to receive and invest your
Purchase Payments and
Account Value in the Variable
Account Options you have
selected.
29
<PAGE> 79
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
Independence Plus provides tax-deferred accumulation over time, but is subject
to federal income and excise taxes, mentioned briefly below. You should refer to
the Statement of Additional Information for further details. Section references
are to the Internal Revenue Code ("Code"). We do not attempt to describe any
potential estate or gift tax, or any applicable state, local or foreign tax law
other than possible premium taxes mentioned under "Premium Tax Charge." Remember
that future legislation could modify the rules discussed below, and always
consult your personal tax adviser regarding how the current rules apply to your
specific situation.
TYPE OF PLANS
Tax rules vary, depending on whether the Contract is offered under your
employer's tax-qualified retirement program, as a Section 408(b) Individual
Retirement Annuity ("IRA"), or is instead a nonqualified Contract. Independence
Plus is used under the following types of retirement arrangements:
- Section 403(b) annuities for employees
of public schools and Section 501(c)(3) tax-exempt organizations;
- Section 401(a) and 403(a) qualified plans of all employers and other
employers (including self-employed individuals);
- Section 408(b) IRAs;
- Section 457 deferred compensation plans of governmental and tax-exempt
employers;
- Section 408(k)SEPs and SARSEPs;
- Section 408(p) SIMPLE retirement accounts.
The foregoing Contracts are "Qualified Contracts."
Note that the specific terms of the governing employer plan may limit rights and
options otherwise available under a Contract.
In addition, Independence Plus is also available through "Non-Qualified
Contracts." Such Non-Qualified Contracts generally include unfunded,
nonqualified deferred compensation plans of corporate employers, as well as
individual annuity contracts issued to individuals outside of the context of any
formal employer or employee retirement plan or arrangement.
TAX CONSEQUENCES IN GENERAL
Purchase Payments, distributions, withdrawals, transfers and surrender of a
Contract can each have a tax effect, which varies with the governing retirement
arrangement. Please refer to the detailed explanation in the Statement of
Additional Information, the documents (if any) controlling the retirement
arrangement through which the contract is offered, and your personal tax
adviser.
Purchase Payments under Independence Plus can be made as contributions by
employers, or as pre-tax or after-tax contributions by employees, depending on
the type of retirement program. After-tax employee contributions constitute
"investment in the Contract." All Qualified Contracts receive deferral of tax on
the inside build-up of earnings on invested Purchase Payments, until a
distribution occurs. See the Statement of Additional Information for special
rules, including those applicable to taxable, non-natural owners of
Non-Qualified Contracts.
Distributions are taxed differently depending on the program through which
Independence Plus is offered and the previous tax characterization of the
contributions to which the distribution relates. Generally, the portion of a
distribution which is not considered a return of investment in the Contract is
subject to income tax. For annuity payments, investment in the contract is
recovered ratably over the expected payout period. Special recovery rules might
apply in certain situations.
Amounts subject to income tax may also incur excise or penalty taxes, under the
circumstances described in the Statement of Additional Information. Generally,
they would also be subject to some form of federal income tax withholding unless
rolled into another tax-deferred vehicle. Required withholding will vary
according to type of program, type of payment and your tax status. In addition,
amounts received under all Contracts may be subject to state income tax
withholding requirements.
Investment earnings on contributions to Non-Qualified Contracts which are not
owned by (or, generally, for the benefit of) natural persons will be taxed
currently to the owner and such contracts will not be treated as annuities for
federal income tax purposes.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The chart below compares the results from Premium Payments made to:
- An Independence Plus Contract issued to a tax favored retirement program
purchased with pre-tax premium payments;
- A non-qualified Contract purchased with after-tax Premium Payments and;
30
<PAGE> 80
- --------------------------------------------------------------------------------
- Conventional savings vehicles such as savings accounts.
THE POWER OF TAX-DEFERRED GROWTH
[BAR GRAPH]
This hypothetical chart compares the results of (1) contributing $100 per month
to a conventional, non-tax deferred plan, (2) contributing $100 to a
nonqualified, tax-deferred annuity, and (3) contributing $100 per month ($138.89
since contributions are made before tax) to a qualified tax-deferred plan. The
chart assumes a 28% tax rate and an 8% fixed rate of return. Variable options
incur mortality and expense risk fee charges and may also incur account
maintenance fees and surrender charges. The chart does not reflect the deduction
of any such fees. The dotted lines represent the amounts remaining after
withdrawal and payment of taxes and any surrender charge. An additional 10% tax
penalty may apply to withdrawals before age 59 1/2. This information is for
illustrative purposes only and is not a guarantee of future return.
Unlike savings accounts, Premium Payments made to tax-favored retirement
programs and Non-Qualified Contracts generally provide tax deferred treatment on
earnings. In addition, Premium Payments made to tax-favored retirement programs
ordinarily are not subject to income tax until withdrawn. As shown above,
investing in a tax-favored program increases the accumulation power of savings
over time. The more taxes saved and reinvested in the program, the more the
accumulation power effectively grows over the years.
To further illustrate the advantages of tax deferred savings using a 28% Federal
tax bracket, an annual fixed yield (before the deduction of any fees or charges)
of 8% under a tax-favored retirement program in which tax savings were
reinvested has an equivalent after-tax annual fixed yield of 5.76% under a
conventional savings program. The 8% yield on the tax-favored program will be
reduced by the impact of income taxes upon withdrawal. The yield will vary
depending upon the timing of withdrawals. The previous chart represents (without
factoring in fees and charges) after-tax amounts that would be received.
By taking into account the current deferral of taxes, contributions to
tax-favored retirement programs increase the amount available for savings by
decreasing the relative current out-of-pocket cost (referring to the effect on
annual net take-home pay) of the investment. The chart below illustrates this
principle by comparing a pre-tax contribution to a tax-favored retirement plan
with an after-tax contribution to a conventional savings account:
PAYCHECK COMPARISON
<TABLE>
<CAPTION>
TAX-FAVORED CONVENTIONAL
RETIREMENT SAVINGS
PROGRAM ACCOUNT
----------- ------------
<S> <C> <C>
Annual amount available
for savings before
federal taxes......... $2,500 $2,500
Current federal income
tax due on Purchase
Payments.............. 0 (700)
Net retirement plan
Purchase Payments..... $2,500 $1,800
</TABLE>
This chart assumes a 28% federal income tax rate. The $700 which is paid toward
current federal income taxes reduces the actual amount saved in the conventional
savings account to $1,800 while the full $2,500 is contributed to the
tax-qualified program, subject to being taxed upon withdrawal. Stated otherwise,
to reach an annual retirement savings goal of $2,500, the contribution to a tax-
qualified retirement program results in a current out-of-pocket expense of
$1,800 while the contribution to a conventional savings account requires the
full $2,500 out-of-pocket expense. The tax-qualified retirement program
represented in this chart is a plan type, such as one under Section 403(b) of
the Code, which allows participants to exclude contributions (within limits)
from gross income.
31
<PAGE> 81
YEAR 2000
- --------------------------------------------------------------------------------
YEAR 2000 RISKS
Like other organizations and individuals around the world, VALIC could be
adversely affected if the computer systems used by VALIC, as well as by other
service providers over which VALIC may have no control, do not properly process
and calculate date-related information and data from and after January 1, 2000.
This is commonly referred to as the "Year 2000 Problem." VALIC is taking steps
that it believes are reasonably designed to address the Year 2000 Problem with
respect to the computer systems VALIC uses. The following are some of the
initiatives being taken by VALIC to deal with the Year 2000 Problem.
- INTERNAL SYSTEMS. VALIC has developed a plan to deal with the Year 2000
Problem. This plan includes the five steps that we believe are essential to
Year 2000 readiness. The plan includes the following activities: (1) perform
an inventory of VALIC's information technology and non-information
technology systems; (2) assess which items in the inventory may expose VALIC
to business interruptions caused by the Year 2000 Problem; (3) reprogram or
replace systems that are not Year 2000 ready; (4) test systems to prove that
they will work correctly into the year 2000; and (5) return the systems to
operations. As of December 31, 1998, we have substantially completed all
steps with respect to our critical systems.
- EXTERNAL SYSTEMS. VALIC has relationships with various third parties that
must also be Year 2000 ready. Third parties are companies that provide
certain services to VALIC. Third parties are different from internal systems
in that VALIC has less, or no, control over their Year 2000 readiness. VALIC
has developed a plan to review and try to lessen the Year 2000 risks of
third parties. As of December 31, 1998, VALIC has substantially completed
its review of third party Year 2000 risks. VALIC intends to test third party
Year 2000 readiness throughout 1999.
- CONTINGENCY PLANS. VALIC has begun contingency planning to reduce the risk
associated with the Year 2000 Problem. The contingency plans for third party
relationships include the following activities: (1) evaluate the
consequences of any failures associated with the Year 2000 Problem; (2)
determine the chance of a Year 2000-related failure for systems that have a
high chance of failing; (3) develop an action plan to complete contingency
plans for those systems that rank high in both impact of failure and chance
of failure; and (4) complete any action plans.
VALIC expects to substantially complete all contingency planning activities by
April 30, 1999.
RISKS AND UNCERTAINTIES. Based on the above, VALIC believes that it will
experience, at most, isolated and minor disruptions of business systems on and
after January 1, 2000. These disruptions are not expected to have a material
effect on VALIC's operations or financial condition. However, it is impossible
to know exactly how the Year 2000 Problem will affect VALIC. In addition, third
party Year 2000 Problems may have a significant impact on VALIC.
Through December 1998, VALIC has incurred and expensed $26.7 million (pretax)
related to Year 2000 readiness, including $20.2 million incurred during 1998.
VALIC currently anticipates that it will incur future costs of $2.1 million for
additional internal staff, third party vendors, and other expenses to maintain
readiness and complete third party contingency plans.
32
<PAGE> 82
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information.............................. 3
Marketing Information........................ 3
Types of Variable Annuity Contracts.......... 5
Federal Tax Matters.............................. 5
General...................................... 5
Taxes Payable by Participants and
Annuitants................................ 5
Section 403(b) Annuities for Employees of
Certain Tax-Exempt Organizations or Public
Educational Institutions.................. 5
Section 401 Qualified Pension, Profit-Sharing
or Annuity Plans.......................... 6
Section 408(b) Individual Retirement
Annuities (other than Roth IRAs).......... 7
Simplified Employee Pension Plans............ 8
Section 457 Deferred Compensation Plans of
Public Employers and Tax-Exempt
Organizations............................. 8
Private Employer Unfunded Deferred
Compensation Plans........................ 9
Non-Qualified Contracts...................... 9
Fund Diversification......................... 10
Exchange Privilege............................... 10
General...................................... 10
Differences between New and Existing
Contracts................................. 11
Agents' and Managers' Retirement Plan
Exchange Offer............................ 13
Availability of Offer........................ 14
Calculation of Surrender Charge.................. 15
Illustration of Surrender Charge on Total
Surrender................................. 15
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender................................. 16
Purchase Unit Value.............................. 17
Illustration of Calculation of Purchase Unit
Value..................................... 17
Illustration of Purchase of Purchase Units... 17
Performance Calculations......................... 18
Money Market Division Yields..................... 18
Calculation of Current Yield for Money Market
Division Six.............................. 18
Illustration of Calculation of Current Yield
Money Market Division Six................. 18
Calculation of Effective Yield for Money
Market Division Six....................... 18
Illustration of Calculation of Effective
Yield for Money Market Division Six....... 18
Standardized Yield for Divisions Seven, Eight and
Thirteen....................................... 18
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Calculation of Standardized Yield for
Divisions Seven, Eight and Thirteen....... 18
Illustration of Calculation of Standardized
Yield for Divisions Seven, Eight and
Thirteen.................................. 18
Calculation of Average Annual Total Return....... 19
Performance Information.......................... 20
Performance Compared to Market Indices....... 20
Stock Index Division Ten Performance Compared
to S&P 500 Index.......................... 22
MidCap Index Division Four Performance
Compared to S&P Index and S&P MidCap 400
Index..................................... 23
Small Cap Index Division Fourteen Performance
Compared to Russell 2000(R) Index......... 24
International Equities Division Eleven
Performance Compared to EAFE Index........ 24
Social Awareness Division Twelve Performance
Compared to S&P 500 Index................. 25
Asset Allocation Division Five Performance
Compared to S&P 500 Index, Merrill Lynch
Corporate and Government Master Index and
Certificate of Deposit Primary Offering by
New York City Banks, 30 Day Index......... 26
Capital Conservation Division Seven
Performance Compared to Merrill Lynch
Corporate Master Index.................... 27
Government Securities Division Eight
Performance Compared to Lehman Brothers
U.S. Treasury Composite Index............. 28
International Government Bond Division
Thirteen Performance Compared to Salomon
Brothers Non U.S. Dollar World Government
Bond Index................................ 29
Money Market Division Six Performance
Compared to Certificate of Deposit Primary
Offering by New York City Banks, 30 Day
Index..................................... 30
Payout Payments.................................. 31
Assumed Investment Rate...................... 31
Amount of Payout Payments.................... 31
Payout Unit Value............................ 31
Illustration of Calculation of Payout Unit
Value..................................... 32
Illustration of Payout Payments.............. 32
Distribution of Variable Annuity Contracts....... 33
Experts.......................................... 33
Comments on Financial Statements................. 33
</TABLE>
33
<PAGE> 83
[This page intentionally left blank]
<PAGE> 84
REVOCATION OF TELEPHONE ASSET TRANSFER AUTHORITY
Participant/Contract Owner Name:
- --------------------------------------------------------------------------------
Social Security Number:
- --------------------------------------------------------------------------------
Birth Date:
- --------------------------------------------------------------------------------
I am the Participant under or Contract Owner of one or more variable annuity
contracts issued by The Variable Annuity Life Insurance Company ("VALIC"). I
hereby instruct VALIC not to accept any telephone instructions to transfer
Accumulation Values among investment options or change the allocation of future
Purchase Payments from me, anyone representing me or anyone representing himself
or herself to be me. I understand as a result of executing this form that the
transfer of Accumulation Values or Annuity Values among investment options or
changes in the allocation of future Purchase Payments may only be effected upon
the receipt by VALIC of my written instructions.
<TABLE>
<S> <C>
- ------------------------------------------------------------ --------------------------
Participant/Contract Owner Signature Date
</TABLE>
Mail this form to any Regional Office (see the last page of your prospectus for
addresses) or to the Home Office at the following address: VALIC, Customer
Service A3-01, 2929 Allen Parkway, Houston, TX 77019.
<PAGE> 85
(This page intentionally left blank)
<PAGE> 86
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)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Name: G.A. #
------------------------------------------------ ---------------------------------------------------
Address: Policy #
------------------------------------------------ --------------------------------------------------
------------------------------------------------
Social Security Number:
------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 87
(This page intentionally left blank)
<PAGE> 88
================================================================================
FOR ADDITIONAL INFORMATION ABOUT THE CONTRACTS
CONTACT YOUR NEAREST REGIONAL OFFICE:
3535 Grandview Parkway
Suite 200
Birmingham, AL 35243
(205) 967-8955
415 N. McKinley
Suite 1050
Little Rock, AR 72205
(501) 603-2200
10851 N. Black Canyon Hwy
Suite 700
Phoenix, AZ 85029
(602) 678-1700
222 South Harbor Blvd.
10th Floor
Anaheim, CA 92805
(714) 817-8100
2450 Venture Oaks Way
Suite 120
Sacramento, CA 95833
(916) 614-1700
1900 O'Farrell St.
Suite 390
San Mateo, CA 94403
(650) 358-2900
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
3505 Lake Lynda Drive
Suite 114
Orlando, FL 32817
(407) 482-8825
100 Ashford Center North
Suite 100
Atlanta, GA 30338
(770) 395-4700
230 West Monroe
Suite 1900
Chicago, IL 60606
(312) 214-8870
11711 N. Meridian St.
Suite 300
Carmel, IN 46032
(317) 818-5900
7310 Ritchie Highway
Suite 800
Glen Burnie, MD 21061
(410) 768-2330
1301 West Long Lake Road
Suite 340
Troy, MI 48098
(248) 641-0022
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
(612) 893-1099
4266 Interstate 55N
Suite 108
Jackson, MS 39211
(601) 981-5801
410 Amherst Street
Suite 250
Nashua, NH 03063
(603) 889-1313
90 Woodbridge Ctr. Dr.
Suite 300
Woodbridge, NJ 07095
(732) 596-1600
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) 643-6340
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) 619-2270
Two International Plaza
Suite 601
Nashville, TN 37217
(615) 254-4822
5400 LBJ Freeway
Suite 1340
Dallas, TX 75240
(972) 490-1515
800 Gessner
Suite 1280
Houston, TX 77024
(713) 463-3800
7400 Beaufont Springs Drive
Suite 310
Richmond, VA 23225
(804) 272-0344
There are also more than thirty-three branch offices located throughout the
country.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
1-800-44-VALIC
FOR UNIT VALUE INFORMATION CALL: 1-800-42-VALIC & TDD 1-800-24-VALIC
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-800-621-7792
TDD 1-800-35-VALIC
EASYACCESS 1-800-42-VALIC
TDD EASYACCESS 1-800-24-VALIC
================================================================================
<PAGE> 89
[VALIC LOGO]
PRINTED MATTER
PRINTED IN U.S.A. VA 10855 REV 5/99
(C)The Variable Annuity Life Insurance Company, Houston, Texas
Recycled Paper [RECYCLED PAPER LOGO]
<PAGE> 90
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, 1999
This Statement of Additional Information is not a prospectus but contains
information in addition to that set forth in the Prospectus for the Contract
Form UIT-981 dated May 1, 1999 ("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 Variable Life Insurance Company (the
"Company"), or A.G. Distributors, Inc. (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.
<PAGE> 91
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information............................. 3
Marketing Information....................... 3
Types of Variable Annuity Contracts......... 5
Federal Tax Matters............................. 5
General..................................... 5
Taxes Payable by Participants and
Annuitants............................... 5
Section 403(b) Annuities for Employees of
Certain Tax-Exempt Organizations or
Public Educational Institutions.......... 5
Section 401 Qualified Pension,
Profit-Sharing of Annuity Plans.......... 6
Section 408(b) Individual Retirement
Annuities (other than Roth IRAs)......... 7
Simplified Employee Pension Plans........... 8
Section 457 Deferred Compensation Plans of
Public Employers and Tax-Exempt
Organizations............................ 8
Private Employer Unfunded Deferred
Compensation Plans....................... 9
Non-Qualified Contracts..................... 9
Fund Diversification........................ 10
Calculation of Surrender Charge................. 11
Illustration of Surrender Charge on Total
Surrender................................ 11
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender................................ 11
Purchase Unit Value............................. 13
Illustration of Calculation of Purchase
Units Value.............................. 13
Illustration of Purchase of Purchase
Units.................................... 13
Performance Calculations........................ 14
Money Market Division Yields.................... 14
Calculation of Current Yield for Money
Market Division Two...................... 14
Illustration of Calculation of Current Yield
Money Market Division Two................ 14
Calculation of Effective Yield for Money
Market Division Two...................... 14
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Illustration of Calculation of Effective
Yield for Money Market Division Two...... 14
Standardized Yield for Capital Conservation
Division One.................................. 14
Calculation of Standardized Yield for
Capital Conservation Division One........ 14
Illustration of Calculation of Standardized
Yield for Capital Conservation Division
One...................................... 14
Calculation of Average Annual Total Return...... 15
Performance Information......................... 16
Performance Compared to Market Indices...... 16
Asset Allocation Division Five Performance
Compared to S&P 500(C) Index, Merrill
Lynch Corporate and Government Master
Index and Certificate of Deposit Primary
Offering by New York City Banks, 30 Day
Index.................................... 18
Capital Conservation Division One
Performance Compared to Merrill Lynch
U.S. Corporate High Yield Index and
Merrill Lynch Corporate Master Index..... 19
MidCap Index Division Four Performance
Compared to S&P Index and S&P MidCap 400
Index.................................... 20
Money Market Division Two Performance
Compared to Certificate of Deposit
Primary Offering by New York City Banks,
30 Day Index............................. 21
Stock Index Division Ten Performance
Compared to S&P 500 Index................ 22
Payout Payments................................. 23
Assumed Investment Rate..................... 23
Amount of Payout Payments................... 23
Payout Unit Value........................... 23
Illustration of Calculation of Payout Unit
Value.................................... 24
Illustration of Payout Payments............. 24
Distribution of Variable Annuity Contracts...... 25
Experts......................................... 25
Comments on Financial Statements................ 25
</TABLE>
2
<PAGE> 92
GENERAL INFORMATION
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.
The Company established Separate Account A (the "Separate Account") on July
25, 1979 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 "Act").
Each Division of the Separate Account (except for AGSPC's International
Government Bond Fund, which is a non-diversified fund) invests in the shares of
an open-end, management-type investment company registered under the Act, or a
portfolio of a diversified, open-end, management investment company registered
under the Act. The Separate Account currently is made up of 53 Divisions, 5 of
which are available as variable investment options under the Contracts
(Divisions One, Two, Four, Five, and Ten).
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 with the Company have grown from $37,000 in 1956 to more than
$3.7 billion as of December 31, 1998. The number of aggregate participant
accounts has increased from 155,000 accounts in 1980 to more than 1,954,190
accounts as of December 31, 1998. The number of employer groups which have
purchased Contracts has increased by 178 percent in the past ten years to more
than 28,094 as of December 31, 1998. As of December 31, 1998, 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, 1998 the Company's assets totaled $39 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, 1998, the Company was marketing Contracts in more than
10,218 public and private, primary and secondary schools with more than 494,584
participant accounts for employees in public and private schools nationwide.
From December 31, 1988, to December 31, 1998, the cash value of investments in
these Contracts has increased by 269 percent while the number of public and
private school groups in these Contracts increased 97 percent and the number of
participant accounts in those Contracts increased by 111 percent.
The Company has also increased its marketing efforts to colleges and
universities. From December 31, 1988 to December 31, 1998, the number of
colleges and universities which allow the Company to market Contracts to their
faculty and staff members has increased 166 percent and for the same period the
number of participant accounts has increased 131 percent. For the same time
period cash values for participants have increased 306 percent. As of December
31, 1998, nearly 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, 1988 to December 31, 1998
Contract cash values have increased 802 percent. During the same period the
number of health care groups that have purchased these Contracts increased 274
percent and the number of participant accounts increased 727 percent.
The Company has also experienced growth in contracts sold to state and
local governmental groups. From December 31, 1988 to December 31, 1998, Contract
cash values for participants in these
3
<PAGE> 93
groups have increased 310 percent. For the same period the number of participant
accounts for individuals in these groups in these Contracts increased 229
percent and the number of employer groups has increased 303 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 28 of the 31 states that sponsor ORPs as an
alternative to a state defined, benefit plan and offers multiple carriers, as of
December 31, 1998. From December 31, 1993 to December 31, 1998 in these ORPs the
number of participant accounts increased 81 percent and cash values increased
153 percent to nearly $2.7 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, The Variable Annuity Research & Data 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 versus actively managed funds, the use of dollar cost
averaging techniques, the tax status of contributions, and the periodic
rebalancing of diversified portfolios.
The Company may, from time to time, refer to Bankers Trust Company as
subadviser to American General Series Portfolio Company ("AGSPC") Stock Index
Fund (underlying Division 10).
Bankers Trust Company, subadviser to Division 10, is a wholly owned
subsidiary of Bankers Trust Corporation. On November 30, 1998, Bankers Trust
Corporation entered into an Agreement and Plan of Merger with Deutsche Bank AG
under which Bankers Trust Corporation and all of its subsidiaries would merge
with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major
global banking institution that is engaged in a wide range of financial
services, including retail and commercial banking, investment banking and
insurance. The merger is contingent upon various regulatory approvals. On April
20, 1999, the AGSPC Fund's Board of Directors approved a new investment
sub-advisory agreement with Bankers Trust Company, subject to shareholder
approval. If the merger is approved and completed, Deutsche Bank AG, as the
Sub-Adviser's new parent company, will control the operations of the
Sub-Adviser. Bankers
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<PAGE> 94
Trust believes that, under this new arrangement, the services provided to the
Fund will be maintained at their current level.
On March 11, 1999, Bankers Trust announced that it had reached an agreement
with the United States Attorney's Office in the Southern District of New York to
resolve an investigation concerning inappropriate transfers of unclaimed funds
and related recordkeeping problems that occurred between 1994 and early 1996.
Pursuant to its agreement with the U.S. Attorney's Office, Bankers Trust pleaded
guilty to misstating entries in the bank's books and records and agreed to pay a
$60 million fine to federal authorities. Separately, Bankers Trust agreed to pay
a $3.5 million fine to the State of New York. The events leading up to the
guilty pleas did not arise out of the investment advisory or mutual fund
management activities of Bankers Trust or its affiliates.
As a result of the plea, absent an order from the SEC, Bankers Trust would
not be able to continue to provide investment advisory services to the Fund. The
SEC has granted a temporary order to permit Bankers Trust and its affiliates to
continue to provide investment advisory services to registered investment
companies. There is no assurance that the SEC will grant a permanent order.
TYPES OF VARIABLE ANNUITY
CONTRACTS
Flexible payment deferred annuity Contracts are offered in connection with
the Prospectus to which this Statement of Additional Information relates.
Under flexible payment deferred annuity 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.
The Contracts are non-participating and will not share in any of the
profits of the Company.
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
5
<PAGE> 95
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 for medical expenses, to the extent deductible.
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 a 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 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
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
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<PAGE> 96
distribution may be subject to special tax treatment. For most individuals
receiving lump sum distributions after attainment of age 59 1/2, the rate of tax
may be determined under a special 5-year income averaging provision; however,
5-year forward averaging has been repealed for distributions occurring after
December 31, 1999. Those who attained age 50 by January 1, 1986 may instead
elect to use a 10-year income averaging provision based on the income tax rates
in effect for 1986. In addition, individuals who attained age 50 by January 1,
1986 may elect capital gains treatment (at a 20% rate) for the taxable portion
of a lump sum distribution attributable to years of service before 1974; such
capital gains treatment has otherwise been repealed. Taxable distributions
received under a Contract purchased under a qualified plan prior to attainment
of age 59 1/2 are subject to the same 10% penalty tax (and the same exceptions)
as described with respect to section 403(b) annuity Contracts.
Required Distributions. The minimum distribution requirements for qualified
plans are generally the same as described with respect to section 403(b) annuity
Contracts, except that no amounts are exempted from the minimum distribution
requirements.
Tax-Free Rollovers. The taxable portion of certain distributions from a
plan qualified under section 401 or 403(a) may be transferred in a tax-free
rollover to an individual retirement account or annuity or to another such plan.
Such a rollover must be completed within 60 days of receipt of the qualifying
distribution. The portion of any distribution which is eligible to be rolled
over to an IRA or another section 401(a) or 403(a) plan is subject to 20%
federal income tax withholding unless the Participant elects a direct rollover
of such distribution to an IRA or other section 401(a) or 403(a) plan.
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 $31,000 or less
($30,000 for 1998, $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 $51,000 or less
($50,000 for 1998, $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), or for certain medical, higher education or
first-time homeowner expenses, or health insurance premiums are not subject to
the penalty tax.
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<PAGE> 97
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 compensation for plan years beginning after
December 31, 1993.
Salary Reduction SEPs. Federal tax law allows employees of certain small
employers to have contributions made to the SEP on their behalf on a salary
reduction basis. These salary reduction contributions may not exceed $10,000
($9,500 prior to 1998), 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 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 were subject to the claims of the
employer's creditors until January 1, 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 $5,000 for certain inactive
Participants. These
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<PAGE> 98
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 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, 1982 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
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<PAGE> 99
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 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.
FUND DIVERSIFICATION
Separate Account investments must be adequately diversified in order for
the increase in the value of Non-Qualified Contracts to receive tax-deferred
treatment. In order to be adequately diversified, each portfolio of the Fund
must, as of the end of each calendar quarter or within 30 days thereafter, have
no more than 55% of its assets invested in any one investment, 70% in any two
investments, 80% in any three investments and 90% in any four investments.
Failure of a Fund portfolio to meet the diversification requirements could
result in tax liability to Non-Qualified Contract Owners.
Each of the portfolios of the Fund expects to meet the diversification
requirements above and assure tax deferred treatment for holders of any
Non-Qualified Contracts.
The investment opportunities of the Fund could conceivably be limited by
adhering to the above diversification requirements. This would affect all
Contract Owners, including those owners of Qualified Contracts for whom
diversification is not a requirement for tax-deferred treatment.
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CALCULATION OF SURRENDER CHARGE
The surrender charge is discussed in the Prospectus under "Fees and
Charges -- Surrender Charge." Examples of calculation of the surrender charge
upon total and partial surrender are set forth below.
ILLUSTRATION OF SURRENDER CHARGE ON TOTAL SURRENDER
Example 1.
TRANSACTION HISTORY
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/95.......................... Purchase Payment 10,000
2/1/96.......................... Purchase Payment 5,000
2/1/97.......................... Purchase Payment 15,000
2/1/98.......................... Purchase Payment 2,000
7/1/98.......................... Total Purchase Payments (Assumes
Account Value is $38,000)
</TABLE>
Surrender Charge is lesser of (a) or (b):
a. Surrender Charge calculated on 36 months of Purchase Payments
<TABLE>
<S> <C>
1. Surrender Charge against Purchase Payment of 2/1/95...... $ 0
2. Surrender Charge against Purchase Payment of 2/1/96
(0.05 X $5,000)........................................... $ 250
3. Surrender Charge against Purchase Payment of 2/1/97
(0.05 X $15,000).......................................... $ 750
4. Surrender Charge against Purchase Payment of 2/1/98
(0.05 X $2,000)........................................... $ 100
Surrender Charge based on Purchase Payments
(1 + 2 + 3 + 4)........................................... $1,100
</TABLE>
b. Surrender charge calculated on the excess over 10% of the Account Value at
the time of surrender:
<TABLE>
<S> <C> <C> <C>
Account 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 Account Value $ 1,710 ............... $1,710
Surrender Charge is the lesser of a or b ............... $1,100
------
</TABLE>
ILLUSTRATION OF SURRENDER CHARGE ON A 10% PARTIAL SURRENDER FOLLOWED BY A FULL
SURRENDER
Example 2.
TRANSACTION HISTORY (ASSUMES NO INTEREST EARNED)
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/95.......................... Purchase Payment 4,000
2/1/96.......................... Purchase Payment 0
2/1/97.......................... Purchase Payment 0
2/1/98.......................... Purchase Payment 1,000
7/1/98.......................... Partial Surrender
(Assumes Account Value is $10,000) 2,500
</TABLE>
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<PAGE> 101
a. Since this is the first partial surrender in this Participant Year, calculate
the excess over 10% of the value of the Purchase Units.
10% of $10,000 = $1,000.
b. The Account Value upon which Surrender Charge on the Full Surrender 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 Full Surrender, the charge can only be calculated on $1,000. Thus, the
charge is $1,000 X (0.05) = $50.00.
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PURCHASE UNIT VALUE
The calculation of Purchase Unit value is discussed in the Prospectus under
"Purchase Period." The following illustrations show a calculation of new Unit
value and the purchase of Purchase Units (using hypothetical examples):
ILLUSTRATION OF CALCULATION OF PURCHASE UNIT VALUE
Example 3.
<TABLE>
<S> <C>
1. Purchase Unit value, beginning of
period................................ $ 1.800000
2. Value of Fund share, beginning of
period................................ 21.200000
3. Change in value of Fund share........ .500000
4. Gross investment return (3)/(2)...... .023585
5. Daily separate account fee........... $ .000027
----------
6. Net investment return (4)-(5)........ .023558
----------
7. Net investment factor 1.000000+(6)... $ 1.023558
----------
8. Purchase Unit value, end of period
(1)X(7)............................... $ 1.842404
----------
</TABLE>
ILLUSTRATION OF PURCHASE OF PURCHASE UNITS (ASSUMING NO STATE PREMIUM TAX)
Example 4.
<TABLE>
<S> <C>
1. First Periodic Purchase Payment...... $ 100.00
2. Purchase Unit value on effective date
of purchase (see Example 3)........... $1.800000
3. Number of Purchase Units purchased
(1)/(2)............................... 55.556
4. Purchase Unit value for valuation
date following purchase (See Example
3).................................... $1.842404
---------
5. Value of Purchase Units in account
for valuation date following purchase
(3)X(4)............................... $ 102.36
---------
</TABLE>
13
<PAGE> 103
PERFORMANCE CALCULATIONS
MONEY MARKET DIVISION YIELDS
CALCULATION OF CURRENT YIELD FOR MONEY MARKET DIVISION TWO
7-DAY CURRENT YIELD: 3.64%
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, 1998, 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: 3.71%
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, 1998, the date of the most recent balance sheet included in the
registration statement ("base period"). It is computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical pre-
existing account having a balance of one Purchase Unit at the beginning of the
period, subtracting a
hypothetical charge reflecting deductions from Contract Owner accounts, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return and then compounding the base period
return by adding 1, raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)(365/7)] - 1
STANDARDIZED YIELD FOR CAPITAL CONSERVATION DIVISION ONE
CALCULATION OF STANDARDIZED YIELD FOR CAPITAL CONSERVATION DIVISION ONE
Standardized Yield: 5.24%
ILLUSTRATION OF CALCULATION OF STANDARDIZED YIELD FOR CAPITAL CONSERVATION
DIVISION ONE
Example 7.
The yield quotation based on a 30-day period ended December 31, 1998, the
date of the most recent balance sheet of the Registrant included in the
registration statement is computed by dividing
the net investment income per Purchase Unit earned during the period by the
maximum offering price per Unit on the last day of the period, according to the
following formula:
YIELD = 2 [( a - b + 1 )(6) - 1]
cd
14
<PAGE> 104
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 Purchase Units outstanding
during the period
d = the maximum offering price per Purchase Unit on the last day
of the period
</TABLE>
Yield on the 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, 1998, 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
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>
We may advertise standardized average annual total return which includes
the surrender charge of up to 5% of Purchase Payments received during the most
recent 36 months as well as non-standardized average annual total returns which
does not include a surrender charge or account maintenance fee.
There is no sales charge for reinvested dividends. All recurring fees have
been deducted. For fees which vary with the account size, an account size equal
to that of the median account size has been assumed. Ending redeemable value has
been determined assuming a complete redemption at the end of the 1, 5 or 10 year
period and deduction of all nonrecurring charges at the end of each such period.
15
<PAGE> 105
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 "How to Review
Investment Performance of Separate Account Divisions" and "The Summary of
Funds").
These tables compare hypothetical investment performance and percentage
changes in Purchase 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 Purchase Unit Values
in the calculation described in the Prospectus, and where applicable, dividend
yields were then added to determine the total returns applied in the dollar
value calculations. Similarly, to calculate Cumulative Return for the indices,
the Cumulative Return calculation described in the Prospectus for Unit values of
the Divisions is used, substituting the Hypothetical $10,000 Account Value at
the end of each year for the Purchase Unit Value. No sales load, administrative
charges, or any other expenses have been deducted from the index calculations.
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 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 from time to time may be
compared with other Indexes which have been deemed by the Company relevant to
the Division.
These benchmarks do not reflect any charges for investment advisory fees,
brokerage commissions or other fees and expenses of the type charged at either
the Separate Account or Fund level. Therefore, the comparisons with these
benchmarks are of limited use.
The performance of Capital Conservation Division One 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
- ---------------
** "Standard & Poors(C)", S&P(C), "S&P 500(C)" and "S&P MidCap 400(C)" 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.
16
<PAGE> 106
which assets are rated AAA to BBB-. The average years to maturity of these
corporate bond holdings are approximately 12 years.
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 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 Stock Index Division Ten may be compared to the record
of the Standard & Poor's(C) Corporation ("S&P(C)")* Composite Stock Price Index
("S&P 500 Index"). The S&P 500(C) 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.
17
<PAGE> 107
The Account Value of an assumed $10,000 investment in each of the Divisions
is shown in table form below. This will reflect a deduction for separate account
fees (mortality and expense risk fees) and underlying fund charges. This will
not reflect any deduction for account maintenance fees, surrender charges and
premium taxes. These charges would further reduce your return. See "How to
Review Investment Performance of Separate Account Divisions" in the prospectus
for information about how these returns were calculated as well as Standard
Average Annual Total Return information that reflects the deduction of all
separate account fees and charges.
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 PURCHASE PAYMENT MADE JANUARY 1, 1989
<TABLE>
<CAPTION>
ASSET ALLOCATION S&P 500 BLENDED
DIVISION FIVE INDEX INDEX*
- ------------------------------------------------------- ------- -------
<S> <C> <C> <C>
01/01/89...................................... $10,000 $10,000 $10,000
12/31/89...................................... 11,581 13,169 12,311
12/31/90...................................... 11,189 12,760 12,583
12/31/91...................................... 13,442 16,647 15,458
12/31/92...................................... 13,212 17,915 16,579
12/31/93...................................... 14,294 19,721 18,186
12/31/94...................................... 13,967 19,982 18,186
12/31/95...................................... 17,255 27,490 23,167
12/31/96...................................... 18,979 33,804 26,372
12/31/97...................................... 23,040 45,081 32,159
12/31/98...................................... 26,999 57,966 38,548
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Asset Allocation Division Five**................. 169.99% 88.88% 56.47% 17.19%
------ ------ ------ -----
Benchmark Comparison
S&P 500 Index....................... 479.66% 193.93% 110.86% 28.58%
------ ------ ------ -----
Blended Index*...................... 285.48% 111.96% 66.39% 19.87%
------ ------ ------ -----
</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.
18
<PAGE> 108
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 PURCHASE PAYMENT MADE JANUARY 1, 1989
<TABLE>
<CAPTION>
MERRILL LYNCH U.S. MERRILL LYNCH
CAPITAL CONSERVATION CORPORATE HIGH CORPORATE MASTER
DIVISION ONE YIELD INDEX** INDEX
- ----------------------------------------------- ------------------ ----------------
<S> <C> <C> <C>
01/01/89.............................. $10,000 $10,000 $10,000
12/31/89.............................. 8,701 10,423 11,411
12/31/90.............................. 7,792 9,970 12,253
12/31/91.............................. 9,544 13,417 14,487
12/31/92.............................. 10,263 15,853 15,808
12/31/93.............................. 11,378 18,578 17,773
12/31/94.............................. 10,578 18,356 17,176
12/31/95.............................. 12,645 22,006 20,882
12/31/96.............................. 12,739 24,453 21,590
12/31/97.............................. 13,690 27,589 23,832
12/31/98.............................. 14,549 28,600 25,910
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Capital Conservation Division One*................ 45.49% 27.87% 15.06% 6.28%
------ ----- ----- ----
Benchmark Comparison
Merrill Lynch U.S. Corporate High
Yield Index**...................... 186.00% 53.95% 29.97% 3.66%
Merrill Lynch Corporate Master
Index.............................. 159.10% 45.78% 24.08% 8.72%
------ ----- ----- ----
</TABLE>
- ---------------
* This Division was initiated on February 11, 1982.
** The Merrill Lynch U.S. Corporate High Yield Index commenced on October 31,
1984.
19
<PAGE> 109
MIDCAP INDEX DIVISION FOUR* PERFORMANCE COMPARED TO S&P INDEX AND S&P MIDCAP 400
INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PURCHASE PAYMENT MADE OCTOBER 1, 1991
<TABLE>
<CAPTION>
S&P S&P
MIDCAP INDEX 500 MIDCAP 400
DIVISION FOUR INDEX INDEX
- ------------------------------------------------------ ------- ----------
<S> <C> <C> <C>
10/01/91..................................... $10,000 $10,000 $10,000
12/31/91..................................... 11,163 10,838 11,229
12/31/92..................................... 12,143 11,664 12,566
12/31/93..................................... 13,574 12,840 14,320
12/31/94..................................... 12,936 13,009 13,806
12/31/95..................................... 16,718 17,898 18,078
12/31/96..................................... 19,661 22,009 21,557
12/31/97..................................... 25,648 29,351 28,506
12/31/98..................................... 30,214 37,739 33,947
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
SINCE
INCEPTION** 5 YEARS 3 YEARS 1 YEAR
----------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Division Four................................. 202.14% 122.59% 80.73% 17.80%
------ ------ ------ ------
Benchmark Comparison
S&P 500 Index.................... 277.39% 193.93% 110.86% 28.58%
------ ------ ------ ------
S&P MidCap 400 Index............. 239.47% 137.07% 87.79% 19.09%
------ ------ ------ ------
</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.
20
<PAGE> 110
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 PURCHASE PAYMENT MADE JANUARY 1, 1989
<TABLE>
<CAPTION>
MONEY MARKET PRIMARY CD
DIVISION TWO INDEX
- -------------------------------------------------------------------- ----------
<S> <C> <C>
01/01/89.................................................. $10,000 $10,000
12/31/89.................................................. 10,790 10,867
12/31/90.................................................. 11,510 11,736
12/31/91.................................................. 12,020 12,377
12/31/92.................................................. 12,287 12,767
12/31/93.................................................. 12,491 13,098
12/31/94.................................................. 12,836 13,565
12/31/95.................................................. 13,413 14,235
12/31/96.................................................. 13,944 14,881
12/31/97.................................................. 14,518 15,592
12/31/98.................................................. 15,115 16,325
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Money Market Division Two*........................ 51.15% 21.00% 12.69% 4.11%
----- ----- ----- ----
Benchmark Comparison
Primary CD Index..................... 63.25% 24.64% 14.68% 4.70%
----- ----- ----- ----
</TABLE>
- ---------------
* This Division was initiated on February 4, 1982.
21
<PAGE> 111
STOCK INDEX DIVISION TEN* PERFORMANCE COMPARED TO S&P 500 INDEX**
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PURCHASE PAYMENT MADE JANUARY 1, 1989
<TABLE>
<CAPTION>
STOCK INDEX S&P 500
DIVISION TEN INDEX
- --------------------------------------------------------------------- -------
<S> <C> <C>
01/01/89.................................................... $10,000 $10,000
12/31/89.................................................... 12,766 13,169
12/31/90.................................................... 12,229 12,760
12/31/91.................................................... 16,015 16,647
12/31/92.................................................... 16,434 17,915
12/31/93.................................................... 17,877 19,721
12/31/94.................................................... 17,823 19,982
12/31/95.................................................... 24,227 27,490
12/31/96.................................................... 29,440 33,804
12/31/97.................................................... 38,791 45,081
12/31/98.................................................... 49,315 57,966
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Stock Index Division Ten***................. 393.15% 175.85% 103.55% 27.13%
------ ------ ------ -----
Benchmark Comparison
S&P 500 Index.................. 479.66% 193.93% 110.86% 28.58%
------ ------ ------ -----
</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.
22
<PAGE> 112
PAYOUT PAYMENTS
ASSUMED INVESTMENT RATE
The discussion concerning the amount of payout payments which follows this
section is based on an Assumed Investment Rate of 3 1/2% per annum. However, the
Company will permit each Annuitant choosing a variable payout option to select
an Assumed Investment Rate permitted by state law or regulations other than the
3 1/2% rate described in this prospectus as follows: 4 1/2% or 5% 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 VALIC Separate Account A.
AMOUNT OF PAYOUT PAYMENTS
The amount of the first variable payout payment to the Annuitant will
depend on the amount of the Account Value applied to effect the variable payout
as of the tenth day immediately preceding the date payout payments commence, the
amount of any premium tax owed, the payout option selected, and the age of the
Annuitant.
The Contracts contain tables indicating the dollar amount of the first
payout payment under each payout option for each $1,000 of Account Value (after
the deduction for any premium tax) at various ages. These tables are based upon
the Annuity 2000 Table (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 payout payment derived from a
Division of VALIC Separate Account A is divided by the Payout Unit Value for
that Division (calculated ten days prior to the date of the first monthly
payment) to determine the number of Payout Units in each Division represented by
the payment. The number of such units will remain fixed during the Payout
Period, assuming the Annuitant makes no transfers of Payout Units to provide
Payout Units under another Division or to provide a fixed payout payment.
In any subsequent month, the dollar amount of the variable payout payment
derived from each Division is determined by multiplying the number of Payout
Units in that Division by the value of such Payout Unit on the tenth day
preceding the due date of such payment. The Payout Unit Value will increase or
decrease in proportion to the net investment return of the Division or Divisions
underlying the variable payout since the date of the previous payout payment,
less an adjustment to neutralize the 3 1/2% or other Assumed Investment Rate
referred to above.
Therefore, the dollar amount of variable payout payments after the first
year will vary with the amount by which the net investment return is greater or
less than 3 1/2% per annum. For example, if a Division has a cumulative net
investment return of 5% over a one year period, the first payout payment in the
next year will be approximately 1 1/2 percentage points greater than the payment
on the same date in the preceding year, and subsequent payments will continue to
vary with the investment experience of the Division. If such net investment
return is 1% over a one year period, the first payout payment in the next year
will be approximately 2 1/2 percentage points less than the payment on the same
date in the preceding year, and subsequent payments will continue to vary with
the investment experience of the applicable Division.
Each deferred Contract provides that, when fixed payout payments are to be
made under one of the first four payout options, the monthly payment to the
Annuitant will not be less than the monthly payment produced by the then current
settlement option rates, which will not be less than the rates used for a
currently issued single payment immediate annuity contract. The purpose of this
provision is to assure the Annuitant that, at retirement, if the fixed payout
purchase rates then required by the Company for new single payment immediate
annuity contracts are significantly more favorable than the annuity rates
guaranteed by a Contract, the Annuitant will be given the benefit of the new
annuity rates.
PAYOUT UNIT VALUE
The value of a Payout Unit is calculated at the same time that the value of
an Purchase Unit is calculated and is based on the same values for Fund shares
and other assets and liabilities. (See "Purchase Period" in the prospectus.) The
calculation of Payout Unit value is discussed in the prospectus under "Payout
Period."
23
<PAGE> 113
The following illustrations show, by use of hypothetical examples, the
method of determining the Payout Unit value and the amount of variable annuity
payments.
ILLUSTRATION OF CALCULATION OF PAYOUT UNIT VALUE
Example 8.
<TABLE>
<S> <C>
1. Payout Unit value, beginning of period.................. $ .980000
2. Net investment factor for Period (see Example 3)........ 1.023558
3. Daily adjustments for 3 1/2% Assumed Investment Rate.... .999906
4. (2)X(3)................................................. 1.023462
5. Payout Unit value, end of period (1)X(4)................ $1.002993
</TABLE>
ILLUSTRATION OF PAYOUT PAYMENTS
Example 9. Annuitant age 65, Life Annuity with 120 Payments Certain
<TABLE>
<S> <C>
1. Number of Purchase Units at Payout Date................. 10,000.00
2. Purchase Unit value (see Example 3)..................... $ 1.800000
3. Account Value of Contract (1)X(2)....................... $18,000.00
4. First monthly Payout Payment per $1,000 of Account
Value.................................................... $ 6.57
5. First monthly Payout Payment (3)X(4)/1,000.............. $ 118.26
6. Payout Unit value (see Example 8)....................... $ .980000
7. Number of Payout Units (5)/(6).......................... $ 120.673
8. Assume Payout Unit value for second month equal to...... $ .997000
9. Second monthly Payout Payment (7)X(8)................... $ 120.31
10. Assume Payout Unit value for third month equal to....... $ .953000
11. Third monthly Payout Payment (7)X(10)................... $ 115.00
</TABLE>
24
<PAGE> 114
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, an
affiliate of the Company. The Underwriter's address is 2929 Allen Parkway,
Houston, Texas 77019. The Underwriter is a Delaware corporation organized in
1994 and is a member of the NASD.
The licensed agents who sell the Contracts will be compensated for such
sales by commissions which will range up to 6.0% of each Purchase payment.
Managers who supervise the agents will receive overriding commissions ranging up
to 1% of Purchase payments. (These various commissions are paid by the Company
and do not result in any charge to Contract Owners or to 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. Prior to May 1, 1999, The Variable
Annuity Marketing Company ("VAMCO") was the principal underwriter for the
Separate Account. Sales commissions paid for the years 1996, 1997 and 1998 were
approximately $42,000, $31,000 and $30,000, respectively. VAMCO retained $0 in
commissions for the years 1996, 1997 and 1998.
EXPERTS
The consolidated financial statements of the Company at December 31, 1998
and 1997, and for each of the three years in the period ended December 31, 1998,
and the financial statements of the Company's Separate Account A at December 31,
1998 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, and are 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 One, Two, Four, Five, and Ten, 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, 1998.
25
<PAGE> 115
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, 1998
and 1997, and the related consolidated statements of income, changes in
stockholder's equity, comprehensive income, and cash flows for each of the three
years in the period ended December 31, 1998. 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, 1998
and 1997, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Houston, Texas
February 16, 1999
<PAGE> 116
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Consolidated Balance Sheet
At December 31
In Thousands
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS Investments - Notes 2, 7, 8, 9:
Fixed maturity securities
(amortized cost: $21,733,209 in 1998 and $20,651,381 in 1997) $22,878,049 $21,641,084
Equity securities (cost: $176,799 in 1998 and $5,581 in 1997) 194,629 5,456
Mortgage loans on real estate 1,212,527 1,259,029
Real estate, net of accumulated depreciation
of $69 in 1998 and 1997 20,679 28,569
Policy loans 788,547 719,127
Other long-term invested assets 59,543 45,474
Short-term investments 164,484 60,904
----------- -----------
Total investments 25,318,458 23,759,643
----------- -----------
Investment income receivable 369,777 347,358
Cash 104,718 32,181
Receivable for securities sold 22,157 32,825
Deferred policy acquisition costs - Note 3 665,127 392,346
Cost of insurance purchased - Note 4 22,113 --
Due from reinsurer, net 13,343 14,545
Other assets 119,310 52,104
Assets held in Separate Accounts 14,712,465 10,564,220
----------- -----------
Total assets $41,347,468 $35,195,222
----------- -----------
LIABILITIES Policy reserves for fixed annuity investment contracts $23,218,626 $21,994,804
Payable for securities purchased 40,757 19,027
Remittances not allocated 95,797 79,392
Commissions, general expenses and taxes (other than income taxes) 37,613 39,546
Other liabilities 193,933 61,756
Income tax liabilities - Note 5 541,676 377,072
Liabilities related to Separate Accounts 14,712,465 10,564,220
----------- -----------
Total liabilities 38,840,867 33,135,817
----------- -----------
Common stock (voting) par value $1 per share, 5,000 shares authorized
STOCKHOLDER'S and 3,575 issued and outstanding in 1998 and 1997 - Note 6 3,575 3,575
EQUITY Additional paid-in capital 833,372 710,624
Retained earnings 1,142,194 1,038,731
Accumulated other comprehensive income - Note 2 527,460 306,475
----------- -----------
Total stockholder's equity 2,506,601 2,059,405
=========== ===========
Total liabilities and stockholder's equity $41,347,468 $35,195,222
=========== ===========
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
2
<PAGE> 117
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Consolidated Statement of Income
For the Years Ended December 31,
In Thousands
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES Surrender charges $ 14,512 $ 12,405 $ 12,348
Mortality charges 135,304 94,162 59,955
Expense charges 6,784 6,102 5,654
Net investment income - Note 2 1,810,624 1,729,541 1,654,496
Net reinsurance income 1,236 1,303 1,528
Realized investment gains (losses) - Note 2 (28,271) 20,235 21,551
Other income 18,593 15,320 10,920
----------- ----------- -----------
Total revenues 1,958,782 1,879,068 1,766,452
----------- ----------- -----------
COSTS AND Policy costs:
EXPENSES Increase in policy reserves for fixed annuity contracts 1,296,120 1,286,010 1,243,993
----------- ----------- -----------
Total costs 1,296,120 1,286,010 1,243,993
----------- ----------- -----------
Expenses:
Commissions 123,983 110,960 97,630
Salaries 70,904 58,873 54,016
Data processing 28,616 14,876 12,088
Postage and telephone 15,473 12,253 11,308
Sales promotion 10,250 10,161 10,394
Depreciation expense on furniture and equipment 10,292 8,964 8,920
Rent 9,315 7,931 7,524
Taxes, licenses and fees 8,302 6,874 6,208
Printing and supplies 6,393 4,496 5,290
Guaranty association assessments - Note 10 37 30 2,678
Other expenses 60,682 35,172 27,223
Amortization of deferred policy acquisition costs - Note 3 55,074 42,101 31,201
Amortization of cost of insurance purchased - Note 4 1,802 -- --
Policy acquisition costs deferred - Note 3 (159,778) (137,655) (116,818)
----------- ----------- -----------
Total expenses 241,345 175,036 157,662
----------- ----------- -----------
EARNINGS Total costs and expenses 1,537,465 1,461,046 1,401,655
----------- ----------- -----------
Income before income tax expense 421,317 418,022 364,797
Income tax expense - Note 5 136,854 144,238 124,370
----------- ----------- -----------
Net income $ 284,463 $ 273,784 $ 240,427
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
3
<PAGE> 118
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Consolidated Statement of Changes in Stockholder's Equity
For the Years Ended December 31,
In Thousands
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<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 710,624 459,281 384,126
PAID-IN-CAPITAL Capital contribution from stockholder 122,748 251,343 75,155
----------- ----------- -----------
Balance at end of year 833,372 710,624 459,281
----------- ----------- -----------
RETAINED Balance at beginning of year 1,038,731 1,143,947 1,014,520
EARNINGS Net income 284,463 273,784 240,427
Dividends paid to stockholder (181,000) (379,000) (111,000)
----------- ----------- -----------
Balance at end of year 1,142,194 1,038,731 1,143,947
----------- ----------- -----------
ACCUMULATED OTHER Balance at beginning of year 306,475 166,852 396,620
COMPREHENSIVE Change in net unrealized gains (losses) on securities 220,985 139,623 (229,768)
----------- ----------- -----------
INCOME Balance at end of year 527,460 306,475 166,852
----------- ----------- -----------
STOCKHOLDER'S
EQUITY Balance at end of year $ 2,506,601 $ 2,059,405 $ 1,773,655
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
Consolidated Statement of Comprehensive Income
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
COMPREHENSIVE Net income $ 284,463 $ 273,784 $ 240,427
INCOME Other comprehensive income
Gross change in unrealized gains (losses) on securities
(pretax: $311,706; $235,040; ($331,938)) 202,609 152,776 (215,760)
Less: gains (losses) realized in net income - Note 2 (18,376) 13,153 14,008
--------- --------- ---------
Change in net unrealized gains (losses) on
securities (pretax: $339,977; $214,805; ($353,489)) 220,985 139,623 (229,768)
--------- --------- ---------
Comprehensive income $ 505,448 $ 413,407 $ 10,659
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
4
<PAGE> 119
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Consolidated Statement of Cash Flows
For the Years Ended December 31,
In Thousands
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING Net income $ 284,463 $ 273,784 $ 240,427
ACTIVITIES Reconciling adjustments to net cash provided by
operating activities:
Insurance and annuity liabilities 1,296,120 1,286,010 1,243,993
Deferred policy acquisition costs (104,704) (95,554) (85,617)
Other, net (37,021) (51,241) (50,233)
------------ ------------ ------------
Net cash provided by operating activities 1,438,858 1,412,999 1,348,570
------------ ------------ ------------
INVESTING Investment purchases (15,180,407) (18,403,013) (14,883,271)
ACTIVITIES Investment calls, maturities and sales 14,731,932 17,500,312 13,897,479
Net increase in short-term investments (103,580) (7,904) (13,722)
------------ ------------ ------------
Net cash used for investing activities (552,055) (910,605) (999,514)
------------ ------------ ------------
FINANCING Policyholder account deposits 3,755,481 3,385,303 2,896,090
ACTIVITIES Policyholder account withdrawals (1,777,580) (1,427,005) (1,276,008)
Transfers to Separate Accounts (2,728,063) (2,325,214) (1,936,727)
Capital contribution from stockholder 116,896 251,343 75,155
Dividends paid (181,000) (379,000) (111,000)
------------ ------------ ------------
Net cash used for financing activities (814,266) (494,573) (352,490)
------------ ------------ ------------
NET CHANGE Net increase (decrease) in cash 72,537 7,821 (3,434)
IN CASH Cash at beginning of year 32,181 24,360 27,794
------------ ------------ ------------
Cash at end of year $ 104,718 $ 32,181 $ 24,360
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
5
<PAGE> 120
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1998
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.
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
COMPREHENSIVE INCOME. During 1998, VALIC adopted Statement of Financial
Accounting Standards (SFAS) 130, "Reporting Comprehensive Income," which
establishes standards for reporting and displaying comprehensive income and its
components in the financial statements. VALIC elected to report comprehensive
income and its components in a separate statement of comprehensive income.
Adoption of this statement did not change recognition or measurement of net
income and, therefore, did not impact VALIC's consolidated results of operations
or financial position.
DERIVATIVES. In June 1998, the Financial Accounting Standards Board issued
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," which
requires all derivative instruments to be recognized at fair value as either
assets or liabilities in the balance sheet. Changes in the fair value of a
derivative instrument are to be reported as earnings or other comprehensive
income, depending upon the intended use of the derivative instrument. This
statement is effective for years beginning after June 15, 1999. Adoption of SFAS
133 is not expected to have a material impact on VALIC's consolidated results of
operations or financial position.
1.4 INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES. At year end, 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 accumulated other
comprehensive income 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.
During 1998, VALIC maintained a trading portfolio of certain fixed maturity
securities. Trading securities are recorded at fair value. Unrealized gains
(losses), as well as realized gains (losses), are included in net investment
income. VALIC held no trading securities at December 31, 1998, and trading
securities did not have a material effect on net investment income.
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
are used to convert specific investment securities from a floating-rate 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.
- --------------------------------------------------------------------------------
6
<PAGE> 121
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
1.5 DERIVATIVES RELATED TO INVESTMENTS-(CONTINUED)
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 accumulated other comprehensive income
included in stockholder's equity, consistent with the treatment of the related
investment security.
For swap agreements hedging anticipated investment purchases, the net swap
settlement amount or unrealized gain or loss is deferred and included in the
measurement of the anticipated transaction when it occurs.
Swap agreements generally have terms of two to ten years. Any gain or loss
from early termination of a swap agreement is deferred and amortized into income
over the remaining term of the related investment. If the underlying investment
is extinguished or sold, any related gain or loss on swap agreements is
recognized in income.
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 prolonged periods of decreasing interest rates, the spread between
investment yields and interest crediting rates may be reduced as a result of
minimum rate guarantees on certain insurance and annuity contracts, which limit
VALIC's ability to reduce interest crediting rates. Call swaptions, which allow
VALIC to enter into interest rate swap agreements to receive fixed rates and pay
lower floating rates, effectively maintain the spread between investment yields
and interest crediting rates during such periods.
During prolonged periods of increasing interest rates, the spread between
investment yields and interest crediting rates may be reduced as a result of
VALIC's decision to increase interest crediting rates to limit surrenders. Put
swaptions, which allow VALIC to enter into interest rate swap agreements to pay
fixed rates and receive higher floating rates, effectively maintain the spread
between investment yields and interest crediting rates during such periods.
Premiums paid to purchase swaptions are included in investments and are
amortized to net investment income over the exercise period of the swaptions. If
a 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 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) on securities had been realized at the balance sheet
date. The impact of this adjustment is included in accumulated other
comprehensive income 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 VALIC. Consequently, VALIC'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 credited 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.
- --------------------------------------------------------------------------------
7
<PAGE> 122
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
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 accumulated other
comprehensive income in stockholder's equity.
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>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 169,855 $ 237,719 $ 213,686
---------- ---------- ----------
Stockholder's equity $1,236,522 $1,189,278 $1,077,366
---------- ---------- ----------
</TABLE>
1.12 COINSURANCE TRANSACTION
On May 21, 1998, VALIC completed the acquisition of a block of individual
annuity business in a coinsurance transaction. This transaction increased assets
and insurance and annuity liabilities by $688,221.
2
INVESTMENTS
2.1 INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Non-affiliated fixed
maturity securities $1,664,325 $1,562,802 $1,471,879
Affiliated fixed
maturity securities 2,761 2,588 2,851
Equity securities 245 483 782
Mortgage loans on
real estate 112,781 123,591 140,492
Other 62,680 53,543 51,040
---------- ---------- ----------
Gross investment income 1,842,792 1,743,007 1,667,044
Investment expense 32,168 13,466 12,548
---------- ---------- ----------
Net investment income $1,810,624 $1,729,541 $1,654,496
---------- ---------- ----------
</TABLE>
The carrying value of investments that produced no investment income during
1998 totaled $313 or 0.001% 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, 1998.
2.2 REALIZED INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fixed maturity securities
Gross gains $ 14,472 $ 35,087 $ 38,222
Gross losses (49,745) (29,012) (36,805)
-------- -------- --------
Total fixed maturity
securities (35,273) 6,075 1,417
-------- -------- --------
Equity securities
Gross gains 158 31 15,867
Gross losses (30) (10) (72)
-------- -------- --------
Total equity securities 128 21 15,795
-------- -------- --------
Mortgage loans on real estate 8,811 21,647 4,635
Real estate 6,673 3,802 389
Other long-term investments (601) (28) (9)
DPAC amortization and
investment expense (8,009) (11,282) (676)
-------- -------- --------
Realized investment gains
(losses) before taxes (28,271) 20,235 21,551
Income tax expense (benefit) (9,895) 7,082 7,543
-------- -------- --------
Net realized investment
gains (losses) $(18,376) $ 13,153 $ 14,008
-------- -------- --------
</TABLE>
2.3 CASH FLOWS FROM INVESTING ACTIVITIES
Uses of cash for investment purchases were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Fixed maturity securities $ 5,469,258 $ 5,174,707 $ 5,299,390
Other 9,711,149 13,228,306 9,583,881
----------- ----------- -----------
Total $15,180,407 $18,403,013 $14,883,271
----------- ----------- -----------
</TABLE>
Sources of cash from investment dispositions and repayments were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Fixed maturity securities $ 4,444,092 $ 4,223,740 $ 4,235,560
Mortgage loans on
real estate 240,954 298,670 280,389
Equity securities 8,319 3,296 67,713
Real estate 17,086 22,525 1,627
Other 10,021,481 12,952,081 9,312,190
----------- ----------- -----------
Total $14,731,932 $17,500,312 $13,897,479
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE> 123
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
2.4 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
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 299,377 $ 175,771 $ 38,019 $ 25,101
Obligations of states and
political subdivisions 55,694 32,264 3,320 1,193
Debt securities issued by
foreign governments 232,406 248,838 16,911 14,018
Corporate securities 16,153,147 15,207,118 933,904 755,877
Mortgage-backed securities 4,947,963 4,959,198 227,160 214,418
Affiliated fixed maturity securities 25,159 28,192 -- 67
Redeemable preferred stock 19,463 -- -- --
------------ ------------ ------------ ------------
Total fixed maturity securities $ 21,733,209 $ 20,651,381 $ 1,219,314 $ 1,010,674
------------ ------------ ------------ ------------
Equity securities $ 176,799 $ 5,581 $ 17,932 $ 114
------------ ------------ ------------ ------------
<CAPTION>
Gross Unrealized Losses Fair Value
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ (136) $ (3) $ 337,260 $ 200,869
Obligations of states and
political subdivisions -- -- 59,014 33,457
Debt securities issued by
foreign governments (210) (1,988) 249,107 260,868
Corporate securities (73,396) (16,179) 17,013,655 15,946,816
Mortgage-backed securities (732) (2,801) 5,174,391 5,170,815
Affiliated fixed maturity securities -- -- 25,159 28,259
Redeemable preferred stock -- -- 19,463 --
------------ ------------ ------------ ------------
Total fixed maturity securities $ (74,474) $ (20,971) $ 22,878,049 $ 21,641,084
------------ ------------ ------------ ------------
Equity securities $ (102) $ (239) $ 194,629 $ 5,456
------------ ------------ ------------ ------------
</TABLE>
2.4 FIXED MATURITY AND EQUITY SECURITIES- (CONTINUED)
MATURITIES. The contractual maturities of fixed maturity securities at
December 31, 1998 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 $ 387,495 $ 391,791
In years two through five 4,571,241 4,793,727
In years six through ten 7,580,048 8,010,517
After ten years 4,246,462 4,507,623
Mortgage-backed securities 4,947,963 5,174,391
----------- -----------
Total fixed maturity securities $21,733,209 $22,878,049
----------- -----------
</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.
2.5 NET UNREALIZED GAINS (LOSSES) ON SECURITIES
Net unrealized gains (losses) on fixed maturity and equity securities
included in accumulated other comprehensive income at December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Gross unrealized gains $ 1,237,246 $ 1,010,788
Gross unrealized losses (74,576) (21,210)
DPAC adjustments (339,163) (511,037)
Deferred federal income taxes (296,047) (172,066)
----------- -----------
Net unrealized gains on securities $ 527,460 $ 306,475
----------- -----------
</TABLE>
2.6 MORTGAGE LOANS ON REAL ESTATE
DIVERSIFICATION. Diversification of the geographic location and type of
property collateralizing mortgage loans reduces the concentration of credit
risk. For new loans, VALIC requires loan-to-value ratios of 75% or less, based
on management's credit assessment of the borrower.
At December 31 the mortgage loan portfolio was distributed as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Geographic distribution:
Atlantic $ 644,594 $ 614,627
Pacific and Mountain 327,969 355,006
Central 252,289 310,535
Allowance for losses (12,325) (21,139)
----------- -----------
Total mortgage loans $ 1,212,527 $ 1,259,029
----------- -----------
Property type:
Office $ 467,219 $ 467,326
Retail 359,368 396,934
Industrial 249,459 246,241
Apartments 93,476 145,272
Residential and other 55,330 24,395
Allowance for losses (12,325) (21,139)
----------- -----------
Total mortgage loans $ 1,212,527 $ 1,259,029
----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE> 124
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
2.6 MORTGAGE LOANS ON REAL ESTATE - (CONTINUED)
ALLOWANCE. The allowance for mortgage loan losses was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1 $ 21,139 $ 44,577 $ 54,213
Recovery of mortgage
loan losses (6,541) (18,178) (2,967)
Deductions (2,273) (5,260) (6,669)
-------- -------- --------
Balance at December 31 $ 12,325 $ 21,139 $ 44,577
-------- -------- --------
</TABLE>
IMPAIRED LOANS. Impaired mortgage loans on real estate and related interest
income were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Impaired loans:
With allowance* $13,470 $28,317
------- -------
Total impaired loans $13,470 $28,317
------- -------
Average investment $20,893 $37,449
Interest income earned -- 2,887
Interest income - cash basis -- --
------- -------
</TABLE>
* Represents gross amounts before allowance for mortgage loan losses of
$1,803 and $9,317, respectively.
3
DEFERRED POLICY ACQUISITION COSTS (DPAC)
Activity in DPAC was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Balance at January 1 $ 392,346 $ 557,748 $ 182,546
Deferrals:
Commissions 83,359 76,327 62,760
Other acquisition costs 76,419 61,328 54,058
Amortization:
Accretion of interest 72,536 65,388 59,810
Operating earnings (127,610) (107,489) (91,011)
Offset to realized gains (3,797) (11,282) (676)
Effect of net unrealized
(gains) losses on securities 171,874 (249,674) 290,261
--------- --------- ---------
Balance at December 31 $ 665,127 $ 392,346 $ 557,748
--------- --------- ---------
</TABLE>
4
COST OF INSURANCE PURCHASED (CIP)
Activity in CIP was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ---------- ---------
<S> <C> <C> <C>
Balance at January 1 $ -- $ -- $ --
Additions from acquisitions 23,915 -- --
Accretion of interest 733 -- --
Amortization (2,535) -- --
-------- ---------- ---------
Balance at December 31 $ 22,113 $ -- $ --
-------- ---------- ---------
</TABLE>
CIP amortization, net of accretion, expected to be recorded in each of the
next five years is $3,099, $2,644, $2,266, $1,920, and $1,763.
5
INCOME TAXES
5.1 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.
5.2 TAX LIABILITIES
Components of income tax liabilities and assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Current tax liabilities (assets) $ (14,560) $ 2,027
--------- ---------
Deferred tax liabilities, applicable to:
Basis differential of investments 438,190 368,591
DPAC 229,803 134,541
Other 31,996 18,576
--------- ---------
Total deferred tax liabilities 699,989 521,708
--------- ---------
Deferred tax assets, applicable to:
Policy reserves (134,409) (138,555)
Basis differential of investments (1,920) (1,545)
Other (7,424) (6,563)
--------- ---------
Total deferred tax assets (143,753) (146,663)
--------- ---------
Net deferred tax liabilities 556,236 375,045
--------- ---------
Total income tax liabilities $ 541,676 $ 377,072
--------- ---------
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE> 125
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
5.3 TAX EXPENSE
Components of income tax expense were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 77,492 $ 114,138 $ 99,560
State 2,154 3,099 2,842
--------- --------- ---------
Total current income
tax expense 79,646 117,237 102,402
--------- --------- ---------
Deferred, applicable to:
DPAC 35,105 29,113 29,308
Policy reserves 4,148 (14,920) (18,581)
Basis differential of
investments 12,484 3,569 2,754
Other, net 5,471 9,239 8,487
--------- --------- ---------
Total deferred income
tax expense 57,208 27,001 21,968
--------- --------- ---------
Income tax expense $ 136,854 $ 144,238 $ 124,370
--------- --------- ---------
</TABLE>
A reconciliation between the federal income tax rate and the effective tax
rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 35%
Income tax expense at
applicable rate $ 147,461 $ 146,308 $ 127,679
Dividends received
deduction (7,851) (5,212) (4,935)
Tax-exempt interest (ESOP) (2,730) (3,326) (3,865)
State income taxes 3,811 3,695 3,311
Other items (3,837) 2,773 2,180
--------- --------- ---------
Income tax expense $ 136,854 $ 144,238 $ 124,370
--------- --------- ---------
</TABLE>
Federal income taxes paid in 1998, 1997, and 1996 were $92,613, $106,338,
and $114,478, respectively. State income taxes paid in 1998, 1997, and 1996 were
$2,841, $2,978, and $3,060, respectively.
6
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 1999 is
$176,753.
7
DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate and currency swap agreements related to investment securities
at December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Interest rate swap agreements
to pay fixed rate
Notional amount $ 332,000 $ 107,000
Average receive rate 5.97% 6.92%
Average pay rate 5.37 6.25
----------- -----------
Currency swap agreements
(receive U.S.$/pay Canadian$)
Notional amount (in U.S.$) $ 108,180 $ 123,326
Average exchange rate 1.50 1.49
----------- -----------
</TABLE>
During 1998, VALIC purchased call swaptions and put swaptions that expire
by 2000. The call swaptions had a notional amount of $950,000 and strike rates
ranging from 3.5% to 4.5% at December 31, 1998. The put swaptions had a notional
amount of $690,000 strike rates ranging from 8.0% to 8.5% at December 31, 1998.
Should the strike rates remain below market rates for call swaptions and above
market rates for put swaptions, the swaptions will expire, and VALIC's exposure
would be limited to the premiums paid. These premiums were immaterial.
CREDIT AND MARKET RISK. Derivative financial instruments expose VALIC to
credit risk in the event of nonperformance by counterparties. VALIC limits this
exposure by entering into agreements with counterparties having high credit
ratings and by regularly monitoring the ratings. VALIC does not expect any
counterparty to fail to meet its obligation; however, nonperformance would not
have a material impact on VALIC's consolidated results of operations and
financial position.
VALIC's exposure to market risk is mitigated by the offsetting effects of
changes in the value of the agreements and the related items being hedged.
- --------------------------------------------------------------------------------
11
<PAGE> 126
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
8
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>
1998 1997
------------------------------ ------------------------------
Fair Value Carrying Amount Fair Value Carrying Amount
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Assets
Fixed maturity and equity securities $23,072,678* $ 23,072,678* $21,646,540* $21,646,540*
Mortgage loans on real estate 1,251,515 1,212,527 1,288,702 1,259,029
Policy loans 801,322 788,547 721,089 719,127
Liabilities
Insurance investment contracts $23,314,345 $23,218,626 $21,536,809 $21,994,804
----------- ----------- ----------- -----------
</TABLE>
- ------------
* Includes derivative financial instruments with a fair value of $19,342 in
1998 and $2,967 in 1997.
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.
9
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, 1998 were as follows:
Operating expenses include $46,556 in 1998, $22,061 in 1997, and $17,533 in
1996, 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 $152 in 1998, $501 in 1997, and $455 in 1996.
On November 4, 1982, VALIC invested $11,853 in 13 1U2% Restricted
Subordinated Note 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, 1998, 1997, and 1996. VALIC recognized $1,212 in interest income
during 1998, $1,292 for 1997, and $1,372 for 1996.
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, 1998, 1997, and 1996. VALIC
recognized $1,048, $1,296, and $1,479 of interest income on the note during
1998, 1997, and 1996, respectively.
On May 15, 1996, VALIC sold SC Financial Corp Mortgage Notes with a book
value of $13,000 to American General Life Insurance Company of NY. Proceeds from
the sale totaled $13,033 with a profit of $33 recognized on the transaction.
VALIC paid common stock dividends of $181,000, $50.63 per share; $379,000,
$106.01 per share; and $111,000, $31.05 per share, in 1998, 1997, and 1996,
respectively.
VALIC received capital contributions of $55,200, $67,000, $250,000, and
$75,000 from AGL on June 30, 1998, December 31, 1998, March 31, 1997, and
December 30, 1996, respectively.
- --------------------------------------------------------------------------------
12
<PAGE> 127
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
9. TRANSACTIONS WITH AFFILIATED COMPANIES - (CONTINUED)
VALIC acquired bonds of various issuers from American General Life and
Accident Insurance Company at a cost of $22,154 and $25,892 on January 30, 1997,
and April 8, 1997, respectively.
On December 5, 1997, VALIC acquired bonds of various issuers from Western
National Life Insurance Company at a cost of $129,715.
10
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 $37, $30, and $2,678, for the years
ended December 31, 1998, 1997, and 1996, respectively. The accrued liability for
anticipated assessments was $4,782, $7,402, and $13,661, at December 31, 1998,
1997, and 1996, respectively. The 1998 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.
11
EMPLOYEE BENEFIT PLANS
11.1 PENSION PLANS
VALIC participates in several employee benefit plans which together cover
substantially all of its employees. One of these plans is a defined benefit
plan. Pension benefits under this plan are based on the participant's average
monthly compensation and length of credited service. VALIC's funding policy for
this plan is to contribute annually no more than the maximum amount that can be
deducted for federal income tax purposes.
11.1 PENSION PLANS - (CONTINUED)
The components of pension expense and underlying assumptions for the
defined benefit plan were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost (benefits earned)
during period $ 1,342 $ 1,091 $ 917
Interest cost on projected
benefit obligation 1,346 1,145 843
Expected return on plan assets (1,102) (801) (575)
Amortization of unrecognized
net asset existing at date of
initial application -- -- (23)
Amortization of unrecognized
prior service cost 66 54 44
Actuarial gain (33) -- --
------- ------- -------
Total pension expense $ 1,619 $ 1,489 $ 1,206
------- ------- -------
Weighted-average discount rate
on benefit obligation 7.00% 7.25% 7.50%
Rate of increase in
compensation levels 4.25 4.00 4.00
Expected long-term rate of
return on plan assets 10.25 10.00 10.00
------- ------- -------
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheet at December 31, 1998 and 1997 for VALIC's defined
benefit pension plan:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Projected benefit obligation $ 21,125 $ 17,394
Plan assets at fair value 14,921 11,759
-------- --------
Projected benefit obligation in excess of
plan assets (6,204) (5,635)
Unrecognized net gain 738 2,162
Unrecognized prior service cost 487 26
-------- --------
Net pension liability $ (4,979) $ (3,447)
-------- --------
</TABLE>
Equity and fixed maturity securities were 66% and 32%, 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.
11.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
VALIC, through AGC, 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.
- --------------------------------------------------------------------------------
13
<PAGE> 128
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
11.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - (CONTINUED)
The life plans are fully insured; the retiree medical and dental plans are
unfunded and self-insured. The accrued liability for postretirement benefits was
$2,388 and $1,784 at year-end 1998 and 1997, respectively. These liabilities
were discounted at the same rates used for the pension plans. Postretirement
benefit expense in 1998, 1997, and 1996 was $275, $295, and $282, respectively.
12
IMPACT OF YEAR 2000 (UNAUDITED)
INTERNAL SYSTEMS. VALIC has numerous technology systems that are managed on
a decentralized basis. Year 2000 readiness efforts are therefore being
undertaken by its key business units with centralized oversight. Each business
unit has developed and is implementing a plan to minimize the risk of a
significant negative impact on its operations.
While the specifics of the plans vary, the plans include the following
activities: (1) perform an inventory of VALIC's information technology and
non-information technology systems; (2) assess which items in the inventory may
expose VALIC to business interruptions due to Year 2000 issues; (3) reprogram or
replace systems that are not Year 2000 ready, (4) test systems to prove that
they will function into the next century as they do currently, and (5) return
the system to operations. As of December 31, 1998, these activities have been
completed for substantially all of VALIC's critical systems, making them Year
2000 ready. Vendor upgrades for a small number of systems are expected in the
first half of 1999; therefore, activities (3) through (5) are ongoing for these
systems. VALIC will continue to test its systems throughout 1999 to maintain
Year 2000 readiness.
THIRD PARTY RELATIONSHIPS. VALIC has relationships with various third
parties who also must be Year 2000 ready. These third parties provide (or
receive) resources and services to (or from) VALIC and include organizations
with which VALIC exchanges information. Third parties include vendors of
hardware, software, and information services; providers of infrastructure
services such as voice and data communications and utilities for office
facilities; investors; customers; distribution channels; and joint venture
partners. Third parties differ from internal systems in that VALIC exercises
less, or no, control over their Year 2000 readiness. VALIC has developed a plan
to assess and attempt to mitigate the risks associated with the potential
failure of third parties to achieve Year 2000 readiness. The plan includes the
following activities: (1) identify and classify third party dependencies; (2)
research, analyze, and document Year 2000 readiness for critical third parties;
and (3) test critical hardware and software products and electronic interfaces.
A more detailed evaluation will be completed during first quarter 1999 as part
of VALIC's contingency planning efforts. Due to the various stages of third
parties' Year 2000 readiness, VALIC's testing activities will extend throughout
1999.
CONTINGENCY PLANS. VALIC has commenced contingency planning to reduce the
risk of Year 2000 related business failures. The contingency plans, which
address both internal systems and third party relationships, include the
following activities: (1) evaluate the consequences of failure of business
processes with significant exposure to Year 2000 risk, (2) determine the
probability of a Year 2000-related failure for those processes that have a high
consequence of failure; (3) develop an action plan to complete contingency plans
for those processes that rank high in consequence and probability of failure;
and (4) complete the applicable action plans. VALIC is currently developing
contingency plans and expects to substantially complete all contingency-planning
activities by April 30, 1999.
RISKS AND UNCERTAINTIES. Based on its plans to make internal systems ready
for Year 2000, to deal with third party relationships, and to develop
contingency actions, VALIC believes that it will experience, at most, isolated
and minor disruptions of business processes following the turn of the century.
Such disruptions are not expected to have a material effect on VALIC's future
results of operations, liquidity, or financial condition. However, due to the
magnitude and complexity of this project, risks and uncertainties exist and
VALIC is not able to predict a most reasonably likely worst case scenario. If
Year 2000 readiness is not achieved due to nonperformance by significant third
party vendors, VALIC's failure to maintain critical systems as Year 2000 ready,
failure of critical third parties to achieve Year 2000 readiness on a timely
basis, or other unforeseen circumstances in completing VALIC's plans, the Year
2000 issues could have a material adverse impact on VALIC's operations following
the turn of the century.
COSTS. Through December 31, 1998, VALIC has incurred and expensed $27
million (pretax) related to Year 2000 readiness, including $20 million incurred
during 1998. VALIC currently anticipates that it will incur future costs of
approximately $2 million (pretax) to maintain Year 2000 readiness, complete Year
2000 work on noncritical systems and third party relationships, and complete
contingency planning activities. In addition, VALIC accelerated the planned
replacement of certain systems as part of the Year 2000 plans.
- --------------------------------------------------------------------------------
14
<PAGE> 129
================================================================================
CHAIRMAN'S LETTER 1
================================================================================
TO OUR PARTICIPANTS:
We are pleased to present the December 31, 1998, 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, Portfolio Director Plus,
Independence Plus, Group Unit Purchase and Impact) appears on pages two and
three.
1998 was a volatile year for investors around the world. Problems that began in
Asia in late 1997 circled the globe throughout 1998. Central banks, fearing the
worst lowered interest rates in the fourth quarter of 1998. The result was an
unexpected and dramatic rise in stock and bond prices worldwide.
The year was marked by extreme flight to quality. Investors general preference
was for larger cap growth in stocks over small cap value stocks, and U.S.
Treasury Securities.
The Standard & Poor's 500 Index, dominated by large cap, high-growth technology
and global consumer product companies, had a total return of 28.58%. The top 15
stocks alone accounted for half of the performance. It was a difficult year for
active equity fund managers, as almost 90% of the active managers lagged the S&P
500 Index returns. Also, the S&P 500 Index returns for the year outperformed
over 71% of all U.S.-traded common stocks. The medium to small-cap companies
lagged, with the large companies S&P MidCap 400 Index returning 6.27% and the
S&P SmallCap 600 Index, producing a negative 1.31%.
There was a greater variability in returns between growth and value components
of the equity indices. In the large capitalization arena, S&P 500/BARRA Growth
Index returned an outstanding 42.16%, while the S&P 500/BARRA Value Index
returned 14.67%. In the mid-cap sector, the S&P 400/BARRA Growth Index returned
34.86% compared to the S&P 400/BARRA Value Index return of 4.67%. However, the
small cap equity returns experienced wide variability, with the S&P SmallCap
600/BARRA Growth Index returning 2.29%, and the S&P SmallCap 600/BARRA Value
returning a negative 5.06%.
Globally, the pattern of investment results was very similar to the U.S. equity
returns. The MSCI world Index returned 22%. The top quintile of growth stocks
outperformed the bottom quintile of value stocks by over two times with returns
of 48% and 17%, respectively.
The yield on the 30 year Treasury bond opened the year at 5.92% and declined to
5.10% by the end of 1998, as the Federal Reserve lowered the federal fund rate
three times between September 29 and November 17, leaving the target rate at
4.75%.
For the year, the bond market return, reflected in the Lehman Aggregate Bond
Index, was 8.69% with the long U.S. Treasury Index showing the highest return of
13.52%, followed by the Long Corporate AA/Better Index 10.52%, and the High
Yield Index with 1.60%. Throughout the developed world international bond prices
appreciated as yields declined.
While international markets outside of North America and Europe remain
unsettled, the U.S. economy is experiencing unprecedented prosperity and growth.
Furthermore, with worldwide inflation rates low, and the Federal Reserve weary
of weakness in Asia and emerging markets, it appears that we can expect a
continuation of the current stable rate environment.
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., Chairman
The Variable Annuity Life Insurance Company
February 18, 1999
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> 130
================================================================================
2 CHAIRMAN'S LETTER
================================================================================
<TABLE>
<CAPTION>
GROUP PORTFOLIO
UNIT INDEPENDENCE DIRECTOR
PURCHASE IMPACT PLUS 1
DIVISION DIVISION DIVISION DIVISION
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTERNATIONAL GROWTH
AGSPC International Equities Fund ..................................... -- -- 11 11
Putnam Global Growth Fund ............................................. -- -- -- --
Templeton Foreign Fund ................................................ -- -- -- --
Templeton International Fund .......................................... -- -- -- 20
AGGRESSIVE GROWTH
AGSPC Science & Technology Fund ....................................... -- -- -- 17
AGSPC Small Cap Index Fund ............................................ -- -- 14 14
Dreyfus Variable Investment Fund - Small Cap Portfolio ................ -- -- 18
Putnam New Opportunities Fund ......................................... -- -- -- --
Putnam OTC & Emerging Growth Fund ..................................... -- -- -- --
GROWTH
AGSPC Growth Fund ..................................................... -- -- -- 15
AGSPC MidCap Index Fund ............................................... -- 4 4 4
American Century - Twentieth Century Ultra Fund ....................... -- -- -- --
Founders Growth Fund .................................................. -- -- -- --
GROWTH & INCOME
AGSPC Growth & Income Fund ............................................ -- -- -- 16
AGSPC Social Awareness Fund ........................................... -- -- 12 12
AGSPC Stock Index Fund ................................................ 10A,10B 10D 10C 10C
Neuberger Berman Guardian Trust ....................................... -- -- -- --
Scudder Growth and Income Fund ........................................ -- -- -- --
Vanguard Windsor II Fund .............................................. -- -- -- --
BALANCED GROWTH - INTERNATIONAL
Templeton Asset Allocation Fund ....................................... -- -- -- 19
BALANCED GROWTH - DOMESTIC
AGSPC Asset Allocation Fund ........................................... -- 5 5 5
Vanguard Wellington Fund .............................................. -- -- -- --
CURRENT INCOME
AGSPC International Government Bond Fund .............................. -- -- 13 13
CURRENT INCOME & CAPITAL PRESERVATION
AGSPC Capital Conservation Fund ....................................... -- 1 7 7
AGSPC Government Securities Fund ...................................... -- -- 8 8
Vanguard Fixed Income Securities Fund - Long-Term Corporate Fund ...... -- -- -- --
Vanguard Fixed Income Securities Fund - Long-Term Treasury Fund ....... -- -- -- --
LIQUIDITY & CAPITAL PRESERVATION
AGSPC Money Market Fund ............................................... -- 2 6 6
<CAPTION>
YEAR TO DATE
TOTAL RETURNS
PORTFOLIO PORTFOLIO FOR YEAR ENDING
DIRECTOR DIRECTOR DECEMBER 31,
2 PLUS ----------------------
DIVISION DIVISION 1998 1997
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
INTERNATIONAL GROWTH
AGSPC International Equities Fund ..................................... -- 11 17.57% 1.18%
Putnam Global Growth Fund ............................................. 28 28 27.48 12.20
Templeton Foreign Fund ................................................ 32 32 (5.82) 5.57
Templeton International Fund .......................................... -- 20 7.95 12.54
AGGRESSIVE GROWTH
AGSPC Science & Technology Fund ....................................... 17 17 40.71 1.57
AGSPC Small Cap Index Fund ............................................ -- 14 (2.92) 21.18
Dreyfus Variable Investment Fund - Small Cap Portfolio ................ -- 18 (4.51) 15.37
Putnam New Opportunities Fund ......................................... 26 26 23.12 21.31
Putnam OTC & Emerging Growth Fund ..................................... 27 27 9.87 9.08
GROWTH
AGSPC Growth Fund ..................................................... 15 15 16.96 19.80
AGSPC MidCap Index Fund ............................................... -- 4 17.80 30.45
American Century - Twentieth Century Ultra Fund ....................... 31 31 33.14 21.74
Founders Growth Fund .................................................. 30 30 23.76 25.25
GROWTH & INCOME
AGSPC Growth & Income Fund ............................................ -- 16 13.41 22.60
AGSPC Social Awareness Fund ........................................... 12 12 26.03 32.52
AGSPC Stock Index Fund ................................................ 10C 10C 27.14 31.77
Neuberger Berman Guardian Trust ....................................... 29 29 1.34 16.66
Scudder Growth and Income Fund ........................................ 21 21 4.99 28.80
Vanguard Windsor II Fund .............................................. 24 24 14.90 30.70
BALANCED GROWTH - INTERNATIONAL
Templeton Asset Allocation Fund ....................................... -- 19 5.07 14.07
BALANCED GROWTH - DOMESTIC
AGSPC Asset Allocation Fund ........................................... -- 5 17.19 21.40
Vanguard Wellington Fund .............................................. 25 25 10.65 21.65
CURRENT INCOME
AGSPC International Government Bond Fund .............................. 13 13 15.92 (5.79)
CURRENT INCOME & CAPITAL PRESERVATION
AGSPC Capital Conservation Fund ....................................... -- 7 6.30 7.49
AGSPC Government Securities Fund ...................................... -- 8 7.86 7.83
Vanguard Fixed Income Securities Fund - Long-Term Corporate Fund ...... 22 22 8.04 12.32
Vanguard Fixed Income Securities Fund - Long-Term Treasury Fund ....... 23 23 11.82 12.44
LIQUIDITY & CAPITAL PRESERVATION
AGSPC Money Market Fund ............................................... 6 6 4.12 4.13
</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> 131
================================================================================
CHAIRMAN'S LETTER 3
================================================================================
<TABLE>
<CAPTION>
Group Portfolio Portfolio
Unit Independence Director Director
Purchase Impact Plus 1 2
- ------------------------------------------------------------------------------------------------------------------------------------
Division Division Division Division Division
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ACTIVELY MANAGED EQUITY FUNDS
American General International Growth Fund .............. -- -- -- -- --
American General Large Cap Growth Fund .................. -- -- -- -- --
American General Mid Cap Growth Fund .................... -- -- -- -- --
American General Small Cap Growth Fund .................. -- -- -- -- --
American General INternational Value Fund ............... -- -- -- -- --
American General Large Cap Value Fund ................... -- -- -- -- --
American General Mid Cap Value Fund ..................... -- -- -- -- --
American General Small Cap Value Fund ................... -- -- -- -- --
T. Rowe Price Small-Cap Stock Fund ...................... -- -- -- -- --
SPECIALTY EQUITY FUND
American General Socially Responsible Fund .............. -- -- -- -- --
BALANCED FUNDS
American General Balanced Fund .......................... -- -- -- -- --
INCOME FUNDS
American General High Yield Bond Fund ................... -- -- -- -- --
American General Strategic Bond Fund .................... -- -- -- -- --
American General Domestic Bond Fund ..................... -- -- -- -- --
American General Core Bond Fund ......................... -- -- -- -- --
MONEY MARKET FUND
American General Money Market Fund ...................... -- -- -- -- --
LIFESTYLE FUNDS
American General Growth Lifestyle Fund .................. -- -- -- -- --
American General Moderate Growth Lifestyle Fund ......... -- -- -- -- --
American General Conservative Growth Lifestyle Fund ..... -- -- -- -- --
Vanguard LifeStrategy Growth ............................ -- -- -- -- --
Vanguard LifeStrategy Moderate Growth ................... -- -- -- -- --
Vanguard LifeStrategy Conservative Growth ............... -- -- -- -- --
<CAPTION>
Year To Date
Total Returns
Portfolio For Year Ending
Director December 31,
Plus ------------------------
Division 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
ACTIVELY MANAGED EQUITY FUNDS
American General International Growth Fund .............. 33 5.17(a) N/A
American General Large Cap Growth Fund .................. 39 24.08(a) N/A
American General Mid Cap Growth Fund .................... 37 34.77(a) N/A
American General Small Cap Growth Fund .................. 35 34.94(a) N/A
American General International Value Fund ............... 34 14.99(a) N/A
American General Large Cap Value Fund ................... 40 24.66(a) N/A
American General Mid Cap Value Fund ..................... 38 25.47(a) N/A
American General Small Cap Value Fund ................... 36 16.53(a) N/A
T. Rowe Price Small-Cap Stock Fund ...................... 51 14.10(b) N/A
SPECIALTY EQUITY FUND
American General Socially Responsible Fund .............. 41 27.78(a) N/A
BALANCED FUNDS
American General Balanced Fund .......................... 42 17.01(a) N/A
INCOME FUNDS
American General High Yield Bond Fund ................... 60 5.31(a) N/A
American General Strategic Bond Fund .................... 59 4.99(a) N/A
American General Domestic Bond Fund ..................... 43 4.44(a) N/A
American General Core Bond Fund ......................... 58 2.92(a) N/A
MONEY MARKET FUND
American General Money Market Fund ...................... 44 1.33(a) N/A
LIFESTYLE FUNDS
American General Growth Lifestyle Fund .................. 48 19.25(a) N/A
American General Moderate Growth Lifestyle Fund ......... 49 18.54(a) N/A
American General Conservative Growth Lifestyle Fund ..... 50 16.20(a) N/A
Vanguard LifeStrategy Growth ............................ 52 16.81(b) N/A
Vanguard LifeStrategy Moderate Growth ................... 53 12.59(b) N/A
Vanguard LifeStrategy Conservative Growth ............... 54 8.40(b) N/A
</TABLE>
(a) Since August 26, 1998, initial capitalizations of Fund. See Note C.
(b) Since September 22, 1998, inception of the Division.
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> 132
[Intentionally Left Blank]
<PAGE> 133
================================================================================
FINANCIAL STATEMENTS 5
================================================================================
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
December 31, 1998
ASSETS: ALL DIVISIONS
----------------
<S> <C>
Total investment in shares of mutual funds, at market (cost $11,178,484,452) .................. $ 14,587,138,409
Balance due from VALIC general account ........................................................ 4,821,209
----------------
NET ASSETS .................................................................................... 14,591,959,618
================
CONTRACT OWNER RESERVES AND CAPITAL SURPLUS:
Reserves for redeemable annuity contracts
(Net of applicable contract loans -- partial withdrawals with right of reinvestment) ....... $ 14,481,888,528
Reserves for annuity contracts on benefit ..................................................... 22,530,083
Capital surplus (Note C) ...................................................................... 87,541,007
----------------
TOTAL CONTRACT OWNER RESERVES AND CAPITAL SURPLUS ............................................. $ 14,591,959,618
================
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
INVESTMENT INCOME: ALL DIVISIONS
----------------
<S> <C>
Dividends from mutual funds ................................................................... $ 161,161,461
----------------
EXPENSES:
Mortality and expense risk charge ............................................................. 133,464,532
Reimbursement of expenses (Note C) ............................................................ (5,204,060)
----------------
Total expenses ................................................................................ 128,260,472
----------------
NET INVESTMENT INCOME ......................................................................... 32,900,989
----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments .............................................................. 256,062,773
Capital gains distributions from mutual funds ................................................. 599,950,475
Net unrealized appreciation of investments during the period .................................. 1,171,591,133
----------------
Net realized and unrealized gain on investments ............................................... 2,027,604,381
----------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .............................................. $ 2,060,505,370
================
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS ALL DIVISIONS
------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income ................................................................. $ 32,900,989 $ 30,758,096
Net realized gain on investments ...................................................... 256,062,773 161,505,567
Capital gains distributions from mutual funds ......................................... 599,950,475 289,703,358
Net unrealized appreciation of investments during the period .......................... 1,171,591,133 1,001,756,337
---------------- ----------------
Increase in net assets resulting from operations ................................... 2,060,505,370 1,483,723,358
---------------- ----------------
PRINCIPAL TRANSACTIONS:
Purchase payments ..................................................................... 2,363,611,528 1,798,552,034
Surrenders of accumulation units by terminations, withdrawals, and maintenance fees ... (576,063,916) (328,105,329)
Annuity benefit payments .............................................................. (2,688,910) (2,273,125)
Amounts transferred from VALIC general account ........................................ 419,281,138 518,857,110
---------------- ----------------
Increase in net assets resulting from principal transactions ....................... 2,204,139,840 1,987,030,690
---------------- ----------------
Total increase in net assets .......................................................... 4,264,645,210 3,470,754,048
NET ASSETS:
Beginning of period ................................................................... 10,327,314,408 6,856,560,360
---------------- ----------------
End of period ......................................................................... $ 14,591,959,618 $ 10,327,314,408
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 134
================================================================================
6 FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1998
AGSPC PUTNAM
INTERNATIONAL GLOBAL TEMPLETON TEMPLETON
EQUITIES GROWTH FOREIGN INTERNATIONAL
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 ....................... $ 148,718,766 $ 162,850,092 $ 218,291,648 $ 769,418,093
Balance due (to) from VALIC general account ........................... (444,384) 244,949 176,625 78,110
------------- ------------- ------------- -------------
NET ASSETS ............................................................ $ 148,274,382 $ 163,095,041 $ 218,468,273 $ 769,496,203
============= ============= ============= =============
CONTRACT OWNER RESERVES AND CAPITAL SURPLUS:
Reserves for redeemable annuity contracts (Net of applicable
contract loans -- partial withdrawals with right of reinvestment) ... $ 148,099,853 $ 163,052,748 $ 218,427,558 $ 769,292,514
Reserves for annuity contracts on benefit ............................. 174,529 42,293 40,715 203,689
Capital Surplus (Note C) .............................................. -- -- -- --
------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES AND CAPITAL SURPLUS ..................... $ 148,274,382 $ 163,095,041 $ 218,468,273 $ 769,496,203
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1998
AMERICAN CENTURY -
TWENTIETH FOUNDERS AGSPC AGSPC
CENTURY GROWTH GROWTH & SOCIAL
ULTRA FUND - FUND - INCOME FUND - AWARENESS FUND -
DIVISION 31 DIVISION 30 DIVISION 16 DIVISION 12
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ..................... $ 366,344,764 $ 412,424,559 $ 285,113,626 $ 434,890,057
Balance due (to) from VALIC general account ......................... 495,565 496,361 114,285 251,402
------------- ------------- ------------- -------------
NET ASSETS .......................................................... $ 366,840,329 $ 412,920,920 $ 285,227,911 $ 435,141,459
============= ============= ============= =============
CONTRACT OWNER RESERVES AND CAPITAL SURPLUS:
Reserves for redeemable annuity contracts (Net of applicable
contract loans -- partial withdrawals with right of reinvestment).. $ 366,789,363 $ 412,850,610 $ 285,171,395 $ 435,010,800
Reserves for annuity contracts on benefit ........................... 50,966 70,310 56,516 130,659
Capital Surplus (Note C) ............................................ -- -- -- --
------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES AND CAPITAL SURPLUS ................... $ 366,840,329 $ 412,920,920 $ 285,227,911 $ 435,141,459
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1998
AGSPC AGSPC
TEMPLETON ASSET VANGUARD INTERNATIONAL
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 ...................... $ 324,138,930 $ 227,493,681 $ 406,576,731 $ 169,141,402
Balance due (to) from VALIC general account .......................... (10,923) 41,476 (66,066) 66,807
------------- ------------- ------------- -------------
NET ASSETS ........................................................... $ 324,128,007 $ 227,535,157 $ 406,510,665 $ 169,208,209
============= ============= ============= =============
CONTRACT OWNER RESERVES AND CAPITAL SURPLUS:
Reserves for redeemable annuity contracts (Net of applicable
contract loans -- partial withdrawals with right of reinvestment) .. $ 323,829,380 $ 227,370,013 $ 406,457,643 $ 169,153,179
Reserves for annuity contracts on benefit ............................ 298,627 165,144 53,022 55,030
Capital Surplus (Note C) ............................................. -- -- -- --
------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES AND CAPITAL SURPLUS .................... $ 324,128,007 $ 227,535,157 $ 406,510,665 $ 169,208,209
============= ============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 135
================================================================================
SEPARATE ACCOUNT A 7
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC DREYFUS VARIABLE PUTNAM PUTNAM OTC & AGSPC
SCIENCE & SMALL CAP INVESTMENT NEW EMERGING AGSPC MIDCAP
TECHNOLOGY INDEX FUND - 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>
$1,357,008,368 $ 225,671,866 $ 801,729,449 $ 411,790,940 $ 142,153,064 $1,213,041,349 $ 850,345,675
233,960 (1,195) 277,466 622,014 158,931 219,257 159,959
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$1,357,242,328 $ 225,670,671 $ 802,006,915 $ 412,412,954 $ 142,311,995 $1,213,260,606 $ 850,505,634
============== ============== ============== ============== ============== ============== ==============
$1,356,787,386 $ 225,553,498 $ 801,796,471 $ 412,396,437 $ 142,270,946 $1,212,743,548 $ 850,117,314
454,942 117,173 210,444 16,517 41,049 517,058 388,320
-- -- -- -- -- -- --
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$1,357,242,328 $ 225,670,671 $ 802,006,915 $ 412,412,954 $ 142,311,995 $1,213,260,606 $ 850,505,634
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
NEUBERGER
BERMAN SCUDDER VANGUARD
AGSPC STOCK INDEX FUND GUARDIAN GROWTH AND WINDSOR II
- ------------------------------------------------------------------ TRUST - INCOME FUND - FUND -
DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D DIVISION 29 DIVISION 21 DIVISION 24
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 548,095,924 $ 42,538,426 $3,335,722,002 $ 56,510,591 $ 61,347,128 $ 247,754,620 $ 651,075,950
(342,049) 10,450 1,070,137 2,453 22,721 213,888 339,032
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 547,753,875 $ 42,548,876 $3,336,792,139 $ 56,513,044 $ 61,369,849 $ 247,968,508 $ 651,414,982
============== ============== ============== ============== ============== ============== ==============
$ 533,364,910 $ 40,484,822 $3,334,328,831 $ 56,292,876 $ 61,355,625 $ 247,893,617 $ 651,232,580
14,388,965 2,064,054 2,463,308 220,168 14,224 74,891 182,402
-- -- -- -- -- -- --
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 547,753,875 $ 42,548,876 $3,336,792,139 $ 56,513,044 $ 61,369,849 $ 247,968,508 $ 651,414,982
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
AGSPC
GOVERNMENT VANGUARD VANGUARD
AGSPC CAPITAL CONSERVATION FUND SECURITIES LONG-TERM LONG-TERM AGSPC MONEY MARKET FUND
- ------------------------------- FUND - CORPORATE FUND - TREASURY FUND - -------------------------------
DIVISION 1 DIVISION 7 DIVISION 8 DIVISION 22 DIVISION 23 DIVISION 2 DIVISION 6
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 6,286,289 $ 60,017,936 $ 113,502,848 $ 59,843,445 $ 119,293,240 $ 4,184,151 $ 266,261,605
13,504 (46,396) (40,451) 121,207 (41,034) 13,336 389,999
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 6,299,793 $ 59,971,540 $ 113,462,397 $ 59,964,652 $ 119,252,206 $ 4,197,487 $ 266,651,604
============== ============== ============== ============== ============== ============== ==============
$ 6,295,147 $ 59,971,540 $ 113,462,397 $ 59,964,652 $ 119,238,598 $ 4,197,487 $ 266,634,790
4,646 -- -- -- 13,608 -- 16,814
-- -- -- -- -- -- --
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 6,299,793 $ 59,971,540 $ 113,462,397 $ 59,964,652 $ 119,252,206 $ 4,197,487 $ 266,651,604
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<PAGE> 136
================================================================================
8 FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1998
AMERICAN AMERICAN AMERICAN AMERICAN
GENERAL GENERAL GENERAL GENERAL
INTERNATIONAL INTERNATIONAL SMALL CAP SMALL CAP
GROWTH FUND - VALUE FUND - GROWTH FUND - VALUE FUND -
DIVISION 33 DIVISION 34 DIVISION 35 DIVISION 36
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ....................... $ 3,853,567 $ 4,153,036 $ 5,279,473 $ 4,500,106
Balance due to VALIC general account .................................. (2,817) -- -- --
------------ ------------ ------------ ------------
NET ASSETS ............................................................ $ 3,850,750 $ 4,153,036 $ 5,279,473 $ 4,500,106
============ ============ ============ ============
CONTRACT OWNER RESERVES AND CAPITAL SURPLUS:
Reserves for redeemable annuity contracts (Net of applicable
contract loans - partial withdrawals with right of reinvestment) .... $ -- $ -- $ -- $ --
Reserves for annuity contracts on benefit ............................. -- -- -- --
Capital surplus (Note C) .............................................. 3,850,750 4,153,036 5,279,473 4,500,106
------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER RESERVES and Capital Surplus ..................... $ 3,850,750 $ 4,153,036 $ 5,279,473 $ 4,500,106
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1998
AMERICAN AMERICAN AMERICAN AMERICAN
GENERAL GENERAL GENERAL GENERAL
MID CAP MID CAP LARGE CAP LARGE CAP
GROWTH FUND - VALUE FUND - GROWTH FUND - VALUE FUND -
DIVISION 37 DIVISION 38 DIVISION 39 DIVISION 40
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ...................... $ 5,475,870 $ 4,972,209 $ 3,549,043 $ 3,626,750
Balance due to VALIC general account ................................. (270) -- (1,410) --
----------- ----------- ----------- -----------
NET ASSETS ........................................................... $ 5,475,600 $ 4,972,209 $ 3,547,633 $ 3,626,750
=========== =========== =========== ===========
CONTRACT OWNER RESERVES AND CAPITAL SURPLUS:
Reserves for redeemable annuity contracts (Net of applicable
contract loans - partial withdrawals with right of reinvestment) ... $ -- $ -- $ -- $ --
Reserves for annuity contracts on benefit ............................ -- -- -- --
Capital surplus (Note C) ............................................. 5,475,600 4,972,209 3,547,633 3,626,750
----------- ----------- ----------- -----------
TOTAL CONTRACT OWNER RESERVES and Capital Surplus .................... $ 5,475,600 $ 4,972,209 $ 3,547,633 $ 3,626,750
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1998
AMERICAN AMERICAN AMERICAN AMERICAN
GENERAL SOCIALLY GENERAL GENERAL GENERAL
RESPONSIBLE BALANCED DOMESTIC MONEY MARKET
FUND - FUND - BOND FUND - FUND -
DIVISION 41 DIVISION 42 DIVISION 43 DIVISION 44
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ...................... $ 6,409,166 $ 5,868,671 $ 1,309,568 $ 5,082,478
Balance due to VALIC general account ................................. -- -- -- --
------------ ------------ ------------ ------------
NET ASSETS ........................................................... $ 6,409,166 $ 5,868,671 $ 1,309,568 $ 5,082,478
============ ============ ============ ============
CONTRACT OWNER RESERVES AND CAPITAL SURPLUS:
Reserves for redeemable annuity contracts (Net of applicable
contract loans - partial withdrawals with right of reinvestment) ... $ -- $ -- $ -- $ --
Reserves for annuity contracts on benefit ............................ -- -- -- --
Capital surplus (Note C) ............................................. 6,409,166 5,868,671 1,309,568 5,082,478
------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER RESERVES and Capital Surplus .................... $ 6,409,166 $ 5,868,671 $ 1,309,568 $ 5,082,478
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 137
================================================================================
SEPARATE ACCOUNT A 9
================================================================================
<TABLE>
<CAPTION>
AMERICAN AMERICAN AMERICAN AMERICAN AMERICAN AMERICAN
GENERAL GENERAL GENERAL GENERAL GENERAL GENERAL T. ROWE PRICE
GROWTH MODERATE GROWTH CONSERVATIVE GROWTH CORE STRATEGIC HIGH YIELD SMALL-CAP STOCK
LIFESTYLE FUND - LIFESTYLE FUND - LIFESTYLE FUND - BOND FUND - BOND FUND - BOND FUND FUND -
DIVISION 48 DIVISION 49 DIVISION 50 DIVISION 58 DIVISION 59 DIVISION 60 DIVISION 51
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 5,991,538 $ 5,950,028 $ 5,829,911 $ 5,161,936 $ 5,265,532 $ 5,282,173 $ 139
(9,933) (4,420) (1,198) -- -- -- --
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 5,981,605 $ 5,945,608 $ 5,828,713 $ 5,161,936 $ 5,265,532 $ 5,282,173 $ 139
============== ============== ============== ============== ============== ============== ==============
$ -- $ -- $ -- $ -- $ -- $ -- $ 139
-- -- -- -- -- -- --
5,981,605 5,945,608 5,828,713 5,161,936 5,265,532 5,282,173 --
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 5,981,605 $ 5,945,608 $ 5,828,713 $ 5,161,936 $ 5,265,532 $ 5,282,173 $ 139
============== ============== ============== ============== ============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 138
===============================================================================
10 FINANCIAL STATEMENTS
===============================================================================
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS AGSPC PUTNAM
For the year ended December 31, 1998 INTERNATIONAL GLOBAL TEMPLETON TEMPLETON
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 .......................... $ 3,115,042 $ 607,762 $ 5,873,157 $ 17,844,520
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge .................... 1,507,006 1,281,924 2,636,652 9,900,147
Reimbursement of expenses (Note C) ................... -- (256,355) (526,963) --
------------ ------------ ------------ ------------
Total expenses .................................... 1,507,006 1,025,569 2,109,689 9,900,147
------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ......................... 1,608,036 (417,807) 3,763,468 7,944,373
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments .............. 4,716,155 107,190 (1,076,896) 52,533,310
Capital gains distributions from mutual funds ........ 11,021,627 4,089,731 17,280,633 31,903,839
Net unrealized appreciation (depreciation)
of investments during the year ..................... 7,346,991 21,600,190 (34,315,820) (37,039,574)
------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments 23,084,773 25,797,111 (18,112,083) 47,397,575
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .......................... $ 24,692,809 $ 25,379,304 $(14,348,615) $ 55,341,948
============ ============ ============ ============
AGSPC
STATEMENTS OF OPERATIONS AMERICAN CENTURY- FOUNDERS AGSPC SOCIAL
For the year ended December 31, 1998 TWENTIETH GROWTH GROWTH & AWARENESS
CENTURY ULTRA FUND - INCOME FUND - FUND -
FUND - DIVISION 30 DIVISION 16 DIVISION 12
------------ ------------ ------------ ------------
INVESTMENT INCOME:
Dividends from mutual funds .......................... $ -- $ 202,602 $ 1,219,255 $ 3,599,599
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge .................... 2,804,758 3,631,491 2,643,321 3,409,326
Reimbursement of expenses (Note C) ................... (521,841) (726,411) -- --
------------ ------------ ------------ ------------
Total expenses .................................... 2,282,917 2,905,080 2,643,321 3,409,326
------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ......................... (2,282,917) (2,702,478) (1,424,066) 190,273
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investments ..................... 473,963 669,679 10,494,295 2,220,138
Capital gains distributions from mutual funds ........ 30,532,354 21,151,616 20,275,426 37,003,617
Net unrealized appreciation (depreciation)
of investments during the year .................... 39,033,600 42,627,883 3,996,252 38,477,902
------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments 70,039,917 64,449,178 34,765,973 77,701,657
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ......................... $ 67,757,000 $ 61,746,700 $ 33,341,907 $ 77,891,930
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 139
================================================================================
SEPARATE ACCOUNT A 11
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC DREYFUS VARIABLE PUTNAM PUTNAM OTC &
SCIENCE & SMALL CAP INVESTMENT FUND NEW EMERGING AGSPC AGSPC
TECHNOLOGY INDEX - SMALL CAP OPPORTUNITIES GROWTH GROWTH MIDCAP
FUND - FUND - PORTFOLIO - FUND - FUND - FUND - INDEX FUND -
DIVISION 17 DIVISION 14 DIVISION 18 DIVISION 26 DIVISION 27 DIVISION 15 DIVISION 4
------------- ------------- ------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ 2,611,782 $ 2,936 $ -- $ 4,436,796 $ -- $ 7,011,168
------------- ------------- ------------- -------------- ------------- ------------- -------------
10,381,062 2,289,688 10,348,098 3,363,729 1,438,779 10,623,737 7,700,596
-- -- (1,244,807) (672,401) (288,124) -- --
------------- ------------- ------------- -------------- ------------- ------------- -------------
10,381,062 2,289,688 9,103,291 2,691,328 1,150,655 10,623,737 7,700,596
------------- ------------- ------------- -------------- ------------- ------------- -------------
(10,381,062) 322,094 (9,100,355) (2,691,328) 3,286,141 (10,623,737) (689,428)
------------- ------------- ------------- -------------- ------------- ------------- -------------
34,745,563 8,661,321 19,673,784 872,455 (332,944) 11,720,556 26,826,443
113,616,462 18,436,501 15,549,964 12,546,729 -- 51,517,534 69,472,796
250,423,659 (34,899,835) (67,338,458) 53,605,222 9,278,020 114,925,718 30,964,965
------------- ------------- ------------- -------------- ------------- ------------- -------------
398,785,684 (7,802,013) (32,114,710) 67,024,406 8,945,076 178,163,808 127,264,204
------------- ------------- ------------- -------------- ------------- ------------- -------------
$ 388,404,622 $ (7,479,919) $ (41,215,065) $ 64,333,078 $ 12,231,217 $ 167,540,071 $ 126,574,776
============= ============= ============= ============== ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
SCUDDER
NEUBERGER GROWTH AND VANGUARD
AGSPC STOCK INDEX FUND BERMAN INCOME WINDSOR II
------------------------------------------------------------------- GUARDIAN TRUST - FUND - FUND -
DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D DIVISION 29 DIVISION 21 DIVISION 24
------------- ------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 6,134,933 $ 482,467 $ 33,994,984 $ 635,074 $ 266,705 $ 4,796,472 $ 11,495,781
------------- ------------- ------------- ------------- -------------- ------------- -------------
5,099,302 206,480 28,029,502 529,334 728,024 2,644,262 5,873,266
-- (82,027) -- -- (145,133) (528,762) --
------------- ------------- ------------- ------------- -------------- ------------- -------------
5,099,302 124,453 28,029,502 529,334 582,891 2,115,500 5,873,266
------------- ------------- ------------- ------------- -------------- ------------- -------------
1,035,631 358,014 5,965,482 105,740 (316,186) 2,680,972 5,622,515
------------- ------------- ------------- ------------- -------------- ------------- -------------
36,292,713 2,895,173 21,789,375 4,368,980 447,267 1,067,960 1,366,076
2,140,138 166,018 13,033,369 219,975 5,112,104 17,737,903 51,898,120
82,035,996 6,394,969 631,036,013 7,900,957 (5,621,588) (15,926,329) 278,987
------------- ------------- ------------- ------------- -------------- ------------- -------------
120,468,847 9,456,160 665,858,757 12,489,912 (62,217) 2,879,534 53,543,183
------------- ------------- ------------- ------------- -------------- ------------- -------------
$ 121,504,478 $ 9,814,174 $ 671,824,239 $ 12,595,652 $ (378,403) $ 5,560,506 $ 59,165,698
============= ============= ============= ============= ============== ============= -------------
</TABLE>
<PAGE> 140
================================================================================
12 FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC
TEMPLETON ASSET VANGUARD INTERNATIONAL
STATEMENTS OF OPERATIONS ASSET ALLOCATION ALLOCATION WELLINGTON GOVERNMENT
For the year ended December 31, 1998 FUND - FUND - FUND - BOND FUND -
DIVISION 19 DIVISION 5 DIVISION 25 DIVISION 13
---------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ................... $ 9,488,692 $ 5,918,741 $ 11,720,002 $ 3,619,997
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge ............. 4,189,971 2,045,234 3,573,103 1,622,993
Reimbursement of expenses (Note C) ............ -- -- -- --
------------ ------------ ------------ ------------
Total expenses ............................. 4,189,971 2,045,234 3,573,103 1,622,993
------------ ------------ ------------ ------------
NET INVESTMENT INCOME ......................... 5,298,721 3,873,507 8,146,899 1,997,004
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments ....... 10,513,951 2,520,862 453,710 (1,068,211)
Capital gains distributions from mutual funds . 9,560,576 12,936,405 30,281,535 872,765
Net unrealized appreciation (depreciation)
of investments during the year .............. (10,693,322) 13,072,376 (13,016,167) 21,926,900
------------ ------------ ------------ ------------
Net realized and unrealized gain on investments 9,381,205 28,529,643 17,719,078 21,731,454
------------ ------------ ------------ ------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................... $ 14,679,926 $ 32,403,150 $ 25,865,977 $ 23,728,458
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 141
================================================================================
FINANCIAL STATEMENTS 13
================================================================================
<TABLE>
<CAPTION>
AGSPC VANGUARD VANGUARD
GOVERNMENT LONG-TERM LONG-TERM
AGSPC CAPITAL CONSERVATION FUND SECURITIES CORPORATE TREASURY AGSPC MONEY MARKET FUND
- ------------------------------- FUND - FUND - FUND - ----------------------------
DIVISION 1 DIVISION 7 DIVISION 8 DIVISION 22 DIVISION 23 DIVISION 2 DIVISION 6
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 402,079 $ 3,710,371 $ 5,462,111 $ 2,478,178 $ 3,523,260 $ 230,073 $ 9,814,968
----------- ----------- ----------- ----------- ----------- ----------- -----------
63,904 585,563 993,952 504,256 798,645 46,056 1,965,005
-- -- -- (78,692) (132,544) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
63,904 585,563 993,952 425,564 666,101 46,056 1,965,005
----------- ----------- ----------- ----------- ----------- ----------- -----------
338,175 3,124,808 4,468,159 2,052,614 2,857,159 184,017 7,849,963
----------- ----------- ----------- ----------- ----------- ----------- -----------
12,194 413,199 1,352,903 136,212 1,195,397 -- --
-- -- -- 1,044,043 -- -- --
35,832 (35,856) 1,437,930 (64,200) 2,611,560 -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
48,026 377,343 2,790,833 1,116,055 3,806,957 -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 386,201 $ 3,502,151 $ 7,258,992 $ 3,168,669 $ 6,664,116 $ 184,017 $ 7,849,963
============ =========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE> 142
================================================================================
14 FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS AMERICAN AMERICAN AMERICAN AMERICAN
For the year ended December 31, 1998 GENERAL GENERAL GENERAL GENERAL
INTERNATIONAL INTERNATIONAL SMALL CAP SMALL CAP
GROWTH FUND - VALUE FUND - GROWTH FUND - VALUE FUND -
DIVISION 33* DIVISION 34* DIVISION 35* DIVISION 36*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ................... $ -- $ 5,760 $ -- $ 13,079
---------- ---------- ---------- ----------
EXPENSES:
Mortality and expense risk charge ............. -- -- -- --
Reimbursement of expenses (Note C) ............ -- -- -- --
---------- ---------- ---------- ----------
Total expenses ............................. -- -- -- --
---------- ---------- ---------- ----------
NET INVESTMENT INCOME ......................... -- 5,760 -- 13,079
---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments .............. -- -- -- --
Capital gains distributions from mutual funds . -- -- 18,373 51,644
Net unrealized appreciation
of investments during the year ............. 200,750 547,276 1,361,100 585,384
---------- ---------- ---------- ----------
Net realized and unrealized gain on investments 200,750 547,276 1,379,473 637,028
---------- ---------- ---------- ----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................... $ 200,750 $ 553,036 $1,379,473 $ 650,107
========== ========== ========== ==========
<CAPTION>
STATEMENTS OF OPERATIONS AMERICAN AMERICAN AMERICAN AMERICAN
For the year ended December 31, 1998 GENERAL GENERAL GENERAL GENERAL
MID CAP MID CAP LARGE CAP LARGE CAP
GROWTH FUND - VALUE FUND - GROWTH FUND - VALUE FUND -
DIVISION 37* DIVISION 38* DIVISION 39* DIVISION 40*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ................... $ -- $ 10,079 $ 2,093 $ 10,224
---------- ---------- ---------- ----------
EXPENSES:
Mortality and expense risk charge ............. -- -- -- --
Reimbursement of expenses (Note C) ............ -- -- -- --
---------- ---------- ---------- ----------
Total expenses ............................. -- -- -- --
---------- ---------- ---------- ----------
NET INVESTMENT INCOME ......................... -- 10,079 2,093 10,224
---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments .............. -- -- -- --
Capital gains distributions from mutual funds . -- 115,562 -- --
Net unrealized appreciation
of investments during the year .............. 1,425,600 896,569 695,540 716,526
---------- ---------- ---------- ----------
Net realized and unrealized gain on investments 1,425,600 1,012,131 695,540 716,526
---------- ---------- ---------- ----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................... $1,425,600 $1,022,210 $ 697,633 $ 726,750
========== ========== ========== ==========
</TABLE>
* For the period from August 26, 1998 (initial capital contribution date)
through December 31, 1998.
See Note C.
** For the period from September 22, 1998 through December 31, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 143
================================================================================
SEPARATE ACCOUNT A 15
================================================================================
<TABLE>
<CAPTION>
AMERICAN AMERICAN AMERICAN
GENERAL AMERICAN AMERICAN AMERICAN GENERAL GENERAL
SOCIALLY AMERICAN GENERAL GENERAL GENERAL MODERATE CONSERVATIVE
RESPONSIBLE GENERAL DOMESTIC MONEY GROWTH GROWTH GROWTH
FUND - BALANCED FUND - BOND FUND - MARKET FUND - LIFESTYLE FUND - LIFESTYLE FUND - LIFESTYLE FUND -
DIVISION 41* DIVISION 42* DIVISION 43* DIVISION 44* DIVISION 48* DIVISION 49* DIVISION 50*
- ------------ --------------- ------------ ------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 23,760 $ 29,084 $ 14,978 $ 82,478 $ 11,226 $ 19,912 $ 27,772
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
-- -- -- -- -- -- --
-- -- -- -- -- -- --
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
-- -- -- -- -- -- --
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
23,760 29,084 14,978 82,478 11,226 19,912 27,772
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
-- -- -- -- -- -- --
285,733 34,051 15,898 -- -- -- --
1,099,673 805,536 28,692 -- 970,379 925,696 800,941
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1,385,406 839,587 44,590 -- 970,379 925,696 800,941
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$1,409,166 $ 868,671 $ 59,568 $ 82,478 $ 981,605 $ 945,608 $ 828,713
========== ========== ========== ========== ========== ========== ==========
<CAPTION>
AMERICAN AMERICAN AMERICAN
GENERAL GENERAL GENERAL T. ROWE PRICE
CORE STRATEGIC HIGH YIELD SMALL-CAP STOCK
BOND FUND - BOND FUND - BOND FUND - FUND -
DIVISION 58* DIVISION 59* DIVISION 60* DIVISION 51**
- ------------ ------------ ------------ ----------------
<S> <C> <C> <C>
$ 50,247 $ 69,000 $ 92,262 $ --
- ---------- ---------- ---------- ----------
-- -- -- --
-- -- -- --
- ---------- ---------- ---------- ----------
-- -- -- --
- ---------- ---------- ---------- ----------
50,247 69,000 92,262 --
- ---------- ---------- ---------- ----------
-- -- -- --
16,291 11,064 -- --
95,397 185,469 189,911 --
- ---------- ---------- ---------- ----------
111,688 196,533 189,911 --
- ---------- ---------- ---------- ----------
$ 161,935 $ 265,533 $ 282,173 $ --
========== ========== ========== ==========
</TABLE>
<PAGE> 144
================================================================================
16 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGSPC
INTERNATIONAL EQUITIES
FUND - DIVISION 11
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ......................................... $ 1,608,036 $ 1,546,185
Net realized gain (loss) on investments .............................. 4,716,155 8,844,811
Capital gains distributions from mutual funds ........................ 11,021,627 4,593,062
Net unrealized appreciation (depreciation)
of investments during the year ..................................... 7,346,991 (11,693,489)
------------- -------------
Increase (decrease) in net assets resulting from operations ..... 24,692,809 3,290,569
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................................... 14,604,832 21,604,936
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .................................. (9,033,065) (8,085,959)
Annuity benefit payments ............................................. (17,602) (10,712)
Amounts transferred interdivision, and (to) from VALIC general account (33,973,374) (56,024,580)
------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ......................... (28,419,209) (42,516,315)
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .............................. (3,726,400) (39,225,746)
NET ASSETS:
Beginning of year .................................................... 152,000,782 191,226,528
------------- -------------
End of year .......................................................... $ 148,274,382 $ 152,000,782
============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ................................. 122,716,744 156,226,314
Purchase payments .................................................... 10,549,627 17,325,859
Surrenders ........................................................... (6,694,955) (6,456,410)
Transfers -- interdivision and (to) from VALIC general account ....... (24,759,665) (44,379,019)
------------- -------------
Total units outstanding, end of year ................................. 101,811,751 122,716,744
============= =============
Units outstanding, by class:
Standard units .................................................... 101,811,751 122,716,744
Enhanced units:
20 bp reduced ................................................... -- --
40 bp reduced ................................................... -- --
------------- -------------
Accumulation units end of year ....................................... 101,811,751 122,716,744
============= =============
<CAPTION>
DECEMBER 31
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Accumulation value per unit:
Standard unit...................................................... $ 1.454644 $ 1.237299
Enhanced unit:
20 bp reduced.................................................... -- --
40 bp reduced.................................................... -- --
</TABLE>
<TABLE>
<CAPTION>
PUTNAM GLOBAL GROWTH
FUND - DIVISION 28
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ......................................... $ (417,807) $ 825,963
Net realized gain (loss) on investments .............................. 107,190 172,968
Capital gains distributions from mutual funds ........................ 4,089,731 9,300,593
Net unrealized appreciation (depreciation)
of investments during the year ..................................... 21,600,190 (7,591,166)
------------- -------------
Increase (decrease) in net assets resulting from operations ..... 25,379,304 2,708,358
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................................... 45,226,423 18,196,466
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .................................. (3,310,436) (812,004)
Annuity benefit payments ............................................. (2,617) (1,799)
Amounts transferred interdivision, and (to) from VALIC general account 36,967,959 21,134,329
------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ......................... 78,881,329 38,516,992
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .............................. 104,260,633 41,225,350
NET ASSETS:
Beginning of year .................................................... 58,834,408 17,609,058
------------- -------------
End of year .......................................................... $ 163,095,041 $ 58,834,408
============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ................................. 49,548,732 16,648,600
Purchase payments .................................................... 32,447,084 15,748,353
Surrenders ........................................................... (2,408,897) (675,628)
Transfers -- interdivision and (to) from VALIC general account ....... 28,040,873 17,827,407
------------- -------------
Total units outstanding, end of year ................................. 107,627,792 49,548,732
============= =============
Units outstanding, by class:
Standard units .................................................... 101,468,260 49,548,732
Enhanced units:
20 bp reduced ................................................... 6,153,771 --
40 bp reduced ................................................... 5,760 --
------------- -------------
Accumulation units end of year ....................................... 107,627,792 49,548,732
============= =============
<CAPTION>
DECEMBER 31
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Accumulation value per unit:
Standard unit...................................................... $ 1.512865 $ 1.186775
Enhanced unit:
20 bp reduced.................................................... 1.549587 --
40 bp reduced.................................................... 1.591007 --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 145
================================================================================
SEPARATE ACCOUNT A 17
================================================================================
<TABLE>
<CAPTION>
TEMPLETON FOREIGN TEMPLETON INTERNATIONAL AGSPC SCIENCE & TECHNOLOGY AGSPC SMALL CAP
FUND - DIVISION 32 FUND - DIVISION 20 FUND - DIVISION 17 INDEX FUND - DIVISION 14
- ---------------------------- ---------------------------- ----------------------------- ----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,763,468 $ 3,566,211 $ 7,944,373 $ 7,044,706 $ (10,381,062) $ (8,359,405) $ 322,094 $ 321,469
(1,076,896) 180,290 52,533,310 24,143,886 34,745,563 27,202,326 8,661,321 7,403,801
17,280,633 12,359,374 31,903,839 6,157,699 113,616,462 -- 18,436,501 17,477,318
(34,315,820) (16,286,999) (37,039,574) 33,826,345 250,423,659 (11,571,856) (34,899,835) 13,195,192
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
(14,348,615) (181,124) 55,341,948 71,172,636 388,404,622 7,271,065 (7,479,919) 38,397,780
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
72,575,285 63,929,059 114,632,129 127,443,761 195,575,628 203,196,325 28,153,952 26,031,893
(7,939,318) (2,231,179) (35,093,007) (21,498,080) (44,292,549) (27,661,660) (11,145,100) (8,101,115)
(1,991) (1,149) (9,179) (6,675) (17,543) (17,353) (7,293) (6,381)
(12,669,089) 79,881,321 (95,114,875) 22,603,734 (92,089,284) 15,908,913 (13,919,719) (10,731,749)
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
51,964,887 141,578,052 (15,584,932) 128,542,740 59,176,252 191,426,225 3,081,840 7,192,648
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
37,616,272 141,396,928 39,757,016 199,715,376 447,580,874 198,697,290 (4,398,079) 45,590,428
180,852,001 39,455,073 729,739,187 530,023,811 909,661,454 710,964,164 230,068,750 184,478,322
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
$ 218,468,273 $ 180,852,001 $ 769,496,203 $ 729,739,187 $1,357,242,328 $909,661,454 $ 225,670,671 $ 230,068,750
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
159,201,107 36,671,828 463,174,350 378,581,949 397,842,959 315,809,646 106,279,077 103,320,842
63,265,244 55,441,897 65,837,726 81,609,273 77,332,989 88,179,109 13,084,095 13,258,805
(7,600,467) (1,875,284) (21,321,029) (13,712,830) (17,946,718) (11,448,429) (5,229,338) (4,191,154)
(10,799,968) 68,962,666 (55,271,958) 16,695,958 (35,393,395) 5,302,633 (6,753,994) (6,109,416)
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
204,065,916 159,201,107 452,419,089 463,174,350 421,835,835 397,842,959 107,379,840 106,279,077
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
198,626,024 159,201,107 452,419,089 463,174,350 418,601,069 397,842,959 107,321,015 106,279,077
5,437,288 -- -- -- 3,228,389 -- 58,825 --
2,604 -- -- -- 6,377 -- -- --
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
204,065,916 159,201,107 452,419,089 463,174,350 421,835,835 397,842,959 107,379,840 106,279,077
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
- ---------------------------- ---------------------------- ----------------------------- ----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.069704 $ 1.135778 $ 1.700398 $ 1.575168 $ 3.216190 $ 2.285739 $ 2.100506 $ 2.163595
1.094954 -- -- -- 3.241847 -- 2.125983 --
1.123840 -- -- -- 3.272354 -- -- --
</TABLE>
<PAGE> 146
================================================================================
18 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DREYFUS SMALL CAP
PORTFOLIO - DIVISION 18
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ......................................... $ (9,100,355) $ (7,877,254)
Net realized gain (loss) on investments .............................. 19,673,784 10,514,976
Capital gains distributions from mutual funds ........................ 15,549,964 47,781,324
Net unrealized appreciation (depreciation)
of investments during the year ..................................... (67,338,458) 56,534,602
------------- -------------
Increase (decrease) in net assets resulting from operations .......... (41,215,065) 106,953,648
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................................... 136,010,701 152,268,343
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .................................. (37,151,392) (25,995,894)
Annuity benefit payments ............................................. (12,769) (13,079)
Amounts transferred interdivision, and (to) from VALIC general account (105,448,868) (41,774,769)
------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ........................ (6,602,328) 84,484,601
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .............................. (47,817,393) 191,438,249
Net Assets:
Beginning of year .................................................... 849,824,308 658,386,059
------------- -------------
End of year .......................................................... $ 802,006,915 $ 849,824,308
============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ................................. 479,851,525 428,883,250
Purchase payments .................................................... 78,837,263 92,300,416
Surrenders ........................................................... (22,827,377) (15,764,818)
Transfers -- interdivision and (to) from VALIC general account ....... (61,646,182) (25,567,323)
------------- -------------
Total units outstanding, end of year ................................. 474,215,229 479,851,525
============= =============
Units outstanding, by class:
Standard units .................................................... 474,215,229 479,851,525
Enhanced units:
20 bp reduced ................................................... -- --
40 bp reduced ................................................... -- --
------------- -------------
Accumulation units end of year ....................................... 474,215,229 479,851,525
============= =============
<CAPTION>
DECEMBER 31
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Accumulation value per unit:
Standard unit...................................................... $ 1.690786 $ 1.770622
Enhanced unit:
20 bp reduced.................................................... -- --
40 bp reduced.................................................... -- -
</TABLE>
<TABLE>
<CAPTION>
PUTNAM NEW OPPORTUNITIES
FUND - DIVISION 26
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ......................................... $ (2,691,328) $ (1,052,294)
Net realized gain (loss) on investments .............................. 872,455 242,887
Capital gains distributions from mutual funds ........................ 12,546,729 3,494,327
Net unrealized appreciation (depreciation)
of investments during the year ..................................... 53,605,222 18,445,868
------------- -------------
Increase (decrease) in net assets resulting from operations .......... 64,333,078 21,130,788
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................................... 108,017,017 51,769,269
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .................................. (8,784,234) (2,540,805)
Annuity benefit payments ............................................. (575) (61)
Amounts transferred interdivision, and (to) from VALIC general account 84,011,090 44,254,408
Increase (decrease) in net assets
------------- -------------
resulting from principal transactions ........................ 183,243,298 93,482,811
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .............................. 247,576,376 114,613,599
Net Assets:
Beginning of year .................................................... 164,836,578 50,222,979
------------- -------------
End of year .......................................................... $ 412,412,954 $ 164,836,578
============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ................................. 143,395,066 53,001,699
Purchase payments .................................................... 85,839,361 49,995,408
Surrenders ........................................................... (6,337,162) (2,517,125)
Transfers -- interdivision and (to) from VALIC general account ....... 68,362,756 42,915,084
------------- -------------
Total units outstanding, end of year ................................. 291,260,021 143,395,066
============= =============
Units outstanding, by class:
Standard units .................................................... 280,523,297 143,395,066
Enhanced units:
20 bp reduced ................................................... 10,725,927 --
40 bp reduced ................................................... 10,797 --
------------- -------------
Accumulation units end of year ....................................... 291,260,021 143,395,066
============= =============
<CAPTION>
DECEMBER 31
--------------------------------
1998 1997
------------- -------------
Accumulation value per unit:
<S> <C> <C>
Standard unit...................................................... $ 1.415175 $ 1.149453
Enhanced unit:
20 bp reduced.................................................... 1.434946 --
40 bp reduced.................................................... 1.459115 --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 147
================================================================================
Separate Account A 19
================================================================================
<TABLE>
<CAPTION>
AMERICAN CENTURY -
PUTNAM OTC & EMERGING AGSPC GROWTH AGSPC MIDCAP INDEX TWENTIETH CENTURY ULTRA
GROWTH FUND - DIVISION 27 FUND - DIVISION 15 FUND - DIVISION 4 FUND - DIVISION 31
- ---------------------------- ----------------------------- ---------------------------- ----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,286,141 $ (720,013) $ (10,623,737) $ (7,550,418) $ (689,428) $ 535,199 $ (2,282,917) $ (633,243)
(332,944) (47,363) 11,720,556 6,207,654 26,826,443 19,471,600 473,963 316,651
-- -- 51,517,534 15,041,175 69,472,796 39,891,431 30,532,354 24,559,704
9,278,020 8,912,297 114,925,718 132,575,644 30,964,965 109,426,279 39,033,600 (16,326,801)
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
12,231,217 8,144,921 167,540,071 146,274,055 126,574,776 169,324,509 67,757,000 7,916,311
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
36,165,527 32,976,492 183,983,180 185,814,571 71,049,146 66,141,090 95,865,928 43,175,072
(4,499,407) (1,887,137) (45,145,966) (24,997,689) (37,639,412) (24,993,718) (6,987,387) (1,444,132)
(2,072) (1,777) (23,099) (18,116) (23,570) (20,499) (1,933) (950)
960,600 14,456,676 (34,517,049) (764,959) (40,068,991) (45,549,090) 86,438,332 56,804,430
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
32,624,648 45,544,254 104,297,066 160,033,807 (6,682,827) (4,422,217) 175,314,940 98,534,420
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
44,855,865 53,689,175 271,837,137 306,307,862 119,891,949 164,902,292 243,071,940 106,450,731
97,456,130 43,766,955 941,423,469 635,115,607 730,613,685 565,711,393 123,768,389 17,317,658
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
$ 142,311,995 $ 97,456,130 $1,213,260,606 $ 941,423,469 $ 850,505,634 $730,613,685 $ 366,840,329 $123,768,389
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
99,785,041 48,902,828 453,172,490 366,272,509 171,065,657 172,816,978 97,745,282 16,654,076
36,257,228 36,775,163 82,864,073 99,349,760 16,010,438 17,600,471 63,913,168 36,243,458
(4,704,400) (2,370,530) (20,670,419) (12,033,793) (8,724,789) (6,688,206) (4,133,151) (1,152,164)
1,221,835 16,477,580 (16,039,778) (415,986) (9,311,419) (12,663,586) 59,835,828 45,999,912
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
132,559,704 99,785,041 499,326,366 453,172,490 169,039,887 171,065,657 217,361,127 97,745,282
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
129,463,792 99,785,041 494,997,997 453,172,490 169,039,887 171,065,657 209,221,513 97,745,282
3,092,839 -- 4,324,799 -- -- -- 8,116,612 --
3,073 -- 3,570 -- -- -- 23,002 --
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
132,559,704 99,785,041 499,326,366 453,172,490 169,039,887 171,065,657 217,361,127 97,745,282
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
- ---------------------------- ----------------------------- ---------------------------- ----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.072660 $ 0.976262 $ 2.428587 $ 2.076503 $ 5.029093 $ 4.269122 $ 1.685503 $ 1.265937
1.098295 -- 2.448443 -- -- -- 1.737734 --
1.127653 -- 2.471473 -- -- -- 1.798208 --
</TABLE>
<PAGE> 148
================================================================================
20 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOUNDERS GROWTH AGSPC GROWTH & INCOME
FUND - DIVISION 30 FUND - DIVISION 16
----------------------------- -----------------------------
1998 1997 1998 1997
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................................... $ (2,702,478) $ (229,837) $ (1,424,066) $ (1,206,116)
Net realized gain on investments ................................ 669,679 270,661 10,494,295 3,270,580
Capital gains distributions from mutual funds ................... 21,151,616 21,678,474 20,275,426 2,863,622
Net unrealized appreciation (depreciation)
of investments during the year ................................ 42,627,883 (6,466,051) 3,996,252 38,217,716
------------- ------------- ------------- -------------
Increase in net assets resulting from operations ........... 61,746,700 15,253,247 33,341,907 43,145,802
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ............................................... 117,393,497 54,770,398 39,532,854 44,825,180
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................. (9,478,330) (1,863,811) (11,951,930) (8,344,519)
Annuity benefit payments ........................................ (1,096) (66) (3,597) (2,954)
Amounts transferred interdivision, and (to) from
VALIC general account ......................................... 72,791,918 70,189,987 (32,787,298) 5,944,261
------------- ------------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions .................... 180,705,989 123,096,508 (5,209,971) 42,421,968
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS .................................... 242,452,689 138,349,755 28,131,936 85,567,770
NET ASSETS:
Beginning of year ............................................... $ 170,468,231 32,118,476 257,095,975 171,528,205
------------- ------------- ------------- -------------
End of year ..................................................... 412,920,920 $ 170,468,231 $ 285,227,911 $ 257,095,975
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................ 132,167,162 31,197,464 132,434,555 108,341,635
Purchase payments ............................................... 80,460,723 45,575,203 19,715,398 24,988,066
Surrenders ...................................................... (6,588,832) (1,491,261) (6,142,924) (4,697,640)
Transfers -- interdivision and (to) from VALIC general account .. 52,471,956 56,885,756 (16,456,334) 3,802,494
------------- ------------- ------------- -------------
Total units outstanding, end of year ............................ 258,511,009 132,167,162 129,550,695 132,434,555
============= ============= ============= =============
Units outstanding, by class:
Standard units ............................................... 250,777,959 132,167,162 129,550,695 132,434,555
Enhanced units:
20 bp reduced .............................................. 7,720,189 -- -- --
40 bp reduced .............................................. 12,861 -- -- --
------------- ------------- ------------- -------------
Accumulation units end of year .................................. 258,511,009 132,167,162 129,550,695 132,434,555
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
----------------------------- -----------------------------
1998 1997 1998 1997
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Accumulation value per unit:
Standard unit ................................................ $ 1.595913 $ 1.289513 $ 2.201234 $ 19981997
Enhanced unit:
20 bp reduced .............................................. 1.633282 -- -- --
40 bp reduced .............................................. 1.676366 -- -- --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 149
================================================================================
SEPARATE ACCOUNT A 21
================================================================================
<TABLE>
<CAPTION>
AGSPC STOCK INDEX FUND
AGSPC SOCIAL AWARENESS ----------------------------------------------------------------
FUND - DIVISION 12 DIVISION 10A DIVISION 10B
- ------------------------------ ------------------------------ ------------------------------
1998 1997 1998 1997 1998 1997
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C>
$ 190,273 $ 281,520 $ 1,035,631 $ 2,030,016 $ 358,014 $ 399,877
2,220,138 1,158,707 36,292,713 23,392,823 2,895,173 2,137,197
37,003,617 9,560,562 2,140,138 2,365,369 166,018 185,844
38,477,902 33,369,211 82,035,996 89,338,679 6,394,969 6,910,324
- ------------- ------------- ------------- ------------- ------------- -------------
77,891,930 44,370,000 121,504,478 117,126,887 9,814,174 9,633,242
- ------------- ------------- ------------- ------------- ------------- -------------
72,710,322 44,746,508 4,116,842 3,670,819 204,507 231,218
(13,355,087) (5,475,293) (30,874,894) (24,373,318) (2,153,577) (2,331,031)
(9,481) -- (1,996,857) (1,717,390) (327,696) (285,785)
54,323,803 55,022,728 (14,779,077) (3,572,644) (1,934,563) (1,027,537)
- ------------- ------------- ------------- ------------- ------------- -------------
113,669,557 94,293,943 (43,533,986) (25,992,533) (4,211,329) (3,413,135)
- ------------- ------------- ------------- ------------- ------------- -------------
191,561,487 138,663,943 77,970,492 91,134,354 5,602,845 6,220,107
243,579,972 104,916,029 469,783,383 378,649,029 36,946,031 30,725,924
- ------------- ------------- ------------- ------------- ------------- -------------
$ 435,141,459 $ 243,579,972 $ 547,753,875 $ 469,783,383 $ 42,548,876 $ 36,946,031
============= ============= ============= ============= ============= =============
81,577,104 46,574,016 25,835,933 27,379,389 1,256,974 1,380,401
21,359,028 16,505,152 206,729 226,321 6,328 9,647
(3,889,138) (1,970,414) (1,549,859) (1,529,579) (68,344) (92,576)
16,555,822 20,468,350 (766,299) (240,198) (63,845) (40,498)
- ------------- ------------- ------------- ------------- ------------- -------------
115,602,816 81,577,104 23,726,504 25,835,933 1,131,113 1,256,974
============= ============= ============= ============= ============= =============
114,382,494 81,577,104 23,726,504 25,835,933 1,131,113 1,256,974
1,218,871 -- -- -- -- --
1,451 -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- -------------
115,602,816 81,577,104 23,726,504 25,835,933 1,131,113 1,256,974
============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31
- ------------------------------ ------------------------------ ------------------------------
1998 1997 1998 1997 1998 1997
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.762308 $ 2.985333 $ 22.479709 $ 17.679054 $ 35.792019 $ 27956641
3.825649 -- -- --
3.897214 -- -- --
</TABLE>
<PAGE> 150
================================================================================
22 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGSPC STOCK INDEX FUND
-----------------------------------
DIVISION 10C
---------------------------------
1998 1997
---------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ...................................... $ 5,965,482 $ 9,342,792
Net realized gain on investments .................................. 21,789,375 19,691,626
Capital gains distributions from mutual funds ..................... 13,033,369 11,611,427
Net unrealized appreciation (depreciation)
of investments during the year .................................. 631,036,013 475,943,738
--------------- ---------------
Increase (decrease) in net assets resulting from operations ... 671,824,239 516,589,583
--------------- ---------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................................. 372,858,039 264,734,800
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................... (130,840,043) (73,944,144)
Annuity benefit payments .......................................... (164,035) (120,896)
Amounts transferred interdivision, and (to) from
VALIC general account ........................................... 112,786,439 72,721,787
--------------- ---------------
Increase (decrease) in net assets
resulting from principal transactions ...................... 354,640,400 263,391,547
--------------- ---------------
TOTAL INCREASE IN NET ASSETS ...................................... 1,026,464,639 779,981,130
NET ASSETS:
Beginning of year ................................................. 2,310,327,500 1,530,346,370
--------------- ---------------
End of year ....................................................... $ 3,336,792,139 $ 2,310,327,500
=============== ===============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .............................. 615,053,124 536,806,965
Purchase payments ................................................. 85,764,962 77,757,636
Surrenders ........................................................ (29,978,801) (20,920,257)
Transfers -- interdivision and (to) from VALIC general account .... 27,731,410 21,408,780
--------------- ---------------
Total units outstanding, end of year .............................. 698,570,695 615,053,124
=============== ===============
Units outstanding, by class:
Standard units .................................................. 691,680,049 615,053,124
Enhanced units:
20 bp reduced ................................................ 6,859,835 --
40 bp reduced ................................................ 30,811 --
--------------- ---------------
Accumulation units end of year .................................... 698,570,695 615,053,124
=============== ===============
<CAPTION>
AGSPC STOCK INDEX FUND
---------------------------------
DIVISION 10D
---------------------------------
1998 1997
---------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ...................................... $ 105,740 $ 222,212
Net realized gain on investments .................................. 4,368,980 3,421,747
Capital gains distributions from mutual funds ..................... 219,975 249,976
Net unrealized appreciation (depreciation)
of investments during the year .................................. 7,900,957 9,003,055
--------------- ---------------
Increase (decrease) in net assets resulting from operations ... 12,595,652 12,896,990
--------------- ---------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................................. 654,342 789,193
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................... (3,879,247) (2,598,402)
Annuity benefit payments .......................................... (15,905) (13,201)
Amounts transferred interdivision, and (to) from
VALIC general account ........................................... (2,514,825) (3,872,680)
--------------- ---------------
Increase (decrease) in net assets
resulting from principal transactions ...................... (5,755,635) (5,695,090)
--------------- ---------------
TOTAL INCREASE IN NET ASSETS ...................................... 6,840,017 7,201,900
NET ASSETS:
Beginning of year ................................................. 49,673,027 42,471,127
--------------- ---------------
End of year ....................................................... $ 56,513,044 $ 49,673,027
=============== ===============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .............................. 7,438,537 8,381,704
Purchase payments ................................................. 88,428 132,628
Surrenders ........................................................ (521,941) (430,026)
Transfers -- interdivision and (to) from VALIC general account .... (349,228) (645,769)
--------------- ---------------
Total units outstanding, end of year .............................. 6,655,796 7,438,537
=============== ===============
Units outstanding, by class:
Standard units .................................................. 6,655,796 7,438,537
Enhanced units:
20 bp reduced ................................................ -- --
40 bp reduced ................................................ -- --
--------------- ---------------
Accumulation units end of year .................................... 6,655,796 7,438,537
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
--------------------------------- ---------------------------------
1998 1997 1998 1997
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Accumulation value per unit:
Standard unit........................... $ 4.772052 $ 3.753436 $ 8.457722 $ 6.652806
Enhanced unit:
20 bp reduced........................ 4.875028 -- -- --
40 bp reduced........................ 4.991135 -- -- --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 151
================================================================================
SEPARATE ACCOUNT A 23
================================================================================
<TABLE>
<CAPTION>
NEUBERGER BERMAN SCUDDER GROWTH AND VANGUARD WINDSOR II TEMPLETON ASSET
GUARDIAN TRUST - DIVISION 29 INCOME FUND - DIVISION 21 FUND - DIVISION 24 ALLOCATION FUND - DIVISION 19
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (316,186) $ (99,741) $ 2,680,972 $ 1,085,048 $ 5,622,515 $ 3,037,913 $ 5,298,721 $ 2,826,899
447,267 406,993 1,067,960 269,953 1,366,076 741,743 10,513,951 982,063
5,112,104 3,161,542 17,737,903 8,952,194 51,898,120 18,541,072 9,560,576 11,661,872
(5,621,588) (1,574,737) (15,926,329) 4,003,711 278,987 16,110,878 (10,693,322) 13,366,704
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(378,403) 1,894,057 5,560,506 14,310,906 59,165,698 38,431,606 14,679,926 28,837,538
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
18,727,026 14,861,097 79,800,185 37,754,331 172,075,011 82,698,118 55,452,646 61,278,823
(1,971,281) (661,852) (7,670,739) (1,502,937) (18,029,126) (3,075,223) (15,786,958) (9,457,167)
-- -- (3,718) (2,106) (6,802) (1,497) (22,337) (19,742)
(1,314,316) 21,010,215 34,897,873 66,400,722 162,813,002 115,544,417 (47,069,555) 41,633,946
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
15,441,429 35,209,460 107,023,601 102,650,010 316,852,085 195,165,815 (7,426,204) 93,435,860
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
15,063,026 37,103,517 112,584,107 116,960,916 376,017,783 233,597,421 7,253,722 122,273,398
46,306,823 9,203,306 135,384,401 18,423,485 275,397,199 41,799,778 316,874,285 194,600,887
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 61,369,849 $ 46,306,823 $ 247,968,508 $ 135,384,401 $ 651,414,982 $ 275,397,199 $ 324,128,007 $ 316,874,285
============= ============= ============= ============= ============= ============= ============= =============
35,406,663 8,211,592 94,225,984 16,524,046 187,929,868 37,292,761 196,150,946 137,384,670
13,737,161 11,711,541 51,892,138 28,874,922 105,145,249 63,199,633 32,881,580 38,574,901
(1,683,029) (501,980) (5,008,156) (1,088,301) (10,145,505) (2,242,658) (10,222,721) (5,822,716)
(1,186,725) 15,985,510 23,203,013 49,915,317 103,638,092 89,680,132 (27,846,098) 26,014,091
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
46,274,070 35,406,663 164,312,979 94,225,984 386,567,704 187,929,868 190,963,707 196,150,946
============= ============= ============= ============= ============= ============= ============= =============
45,261,146 35,406,663 159,815,811 94,225,984 372,737,595 187,929,868 190,963,707 196,150,946
1,012,671 -- 4,494,004 -- 13,800,156 -- -- --
253 -- 3,163 -- 29,953 -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
46,274,070 35,406,663 164,312,979 94,225,984 386,567,704 187,929,868 190,963,707 196,150,946
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.324970 $ 1.307438 $ 1.507724 $ 1.436011 $ 1.683226 $ 1.464949 $ 1.695764 $ 1.613943
1.368269 -- 1.542160 -- 1.723020 -- -- --
1.418252 -- 1.582856 -- 1.770257 -- -- --
</TABLE>
<PAGE> 152
================================================================================
24 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGSPC ASSET ALLOCATION VANGUARD WELLINGTON
FUND - DIVISION 5 FUND - DIVISION 25
----------------------------- -----------------------------
1998 1997 1998 1997
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ............................................. $ 3,873,507 $ 3,768,356 $ 8,146,899 $ 3,011,918
Net realized gain (loss) on investments ........................... 2,520,862 5,941,975 453,710 713,048
Capital gains distributions from mutual funds ..................... 12,936,405 10,546,782 30,281,535 7,375,024
Net unrealized appreciation (depreciation)
of investments during the year .................................. 13,072,376 14,486,554 (13,016,167) 3,998,391
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from operations ... 32,403,150 34,743,667 25,865,977 15,098,381
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................................. 16,199,430 11,497,764 128,896,516 51,882,204
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................... (12,309,318) (10,611,952) (11,075,983) (2,456,686)
Annuity benefit payments .......................................... (9,811) (8,301) (1,770) (68)
Amounts transferred interdivision, and (to) from
VALIC general account ........................................... 6,673,714 (24,272,661) 106,781,378 66,331,198
------------- ------------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ...................... 10,554,015 (23,395,150) 224,600,141 115,756,648
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........................... 42,957,165 11,348,517 250,466,118 130,855,029
NET ASSETS:
Beginning of year ................................................. 184,577,992 173,229,475 156,044,547 25,189,518
------------- ------------- ------------- -------------
End of year ....................................................... $ 227,535,157 $ 184,577,992 $ 406,510,665 $ 156,044,547
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .............................. 57,307,351 65,292,617 116,429,781 22,866,634
Purchase payments ................................................. 4,579,044 3,898,053 87,356,196 42,072,769
Surrenders ........................................................ (3,567,970) (3,591,047) (6,659,976) (1,913,812)
Transfers -- interdivision and (to) from VALIC general account .... 1,950,743 (8,292,272) 76,359,783 53,404,190
------------- ------------- ------------- -------------
Total units outstanding, end of year .............................. 60,269,168 57,307,351 273,485,784 116,429,781
============= ============= ============= =============
Units outstanding, by class:
Standard units .................................................... 60,237,818 57,307,351 253,840,498 116,429,781
Enhanced units:
20 bp reduced ................................................. 31,350 -- 19,636,072 --
40 bp reduced ................................................. -- -- 9,214 --
------------- ------------- ------------- -------------
Accumulation units end of year .................................... 60,269,168 57,307,351 273,485,784 116,429,781
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
----------------------------- -----------------------------
1998 1997 1998 1997
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Standard unit............................................... $ 3.772519 $ 3.219282 $ 1.482836 $ 1.340109
Enhanced unit:
20 bp reduced............................................. 3.882024 -- 1.529797 --
40 bp reduced............................................. -- -- 1.585688 --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 153
================================================================================
SEPARATE ACCOUNT A 25
================================================================================
<TABLE>
<CAPTION>
AGSPC
AGSPC INTERNATIONAL CAPITAL CONSERVATION FUND
GOVERNMENT BOND ------------------------------------------------------------- AGSPC GOVERNMENT SECURITIES
FUND - DIVISION 13 DIVISION 1 DIVISION 7 FUND - DIVISION 8
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,997,004 $ 4,595,764 $ 338,175 $ 344,608 $ 3,124,808 $ 2,913,560 $ 4,468,159 $ 4,230,305
(1,068,211) (3,911,328) 12,194 23,005 413,199 (805,486) 1,352,903 (985,278)
872,765 136,607 -- -- -- -- -- --
21,926,900 (11,068,351) 35,832 90,579 (35,856) 1,739,391 1,437,930 3,130,717
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
23,728,458 (10,247,308) 386,201 458,192 3,502,151 3,847,465 7,258,992 6,375,744
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
25,413,792 40,582,861 146,532 366,816 7,027,648 7,324,860 12,902,909 12,424,460
(7,785,118) (6,757,210) (562,370) (389,473) (3,833,561) (3,026,469) (5,395,424) (3,958,609)
(2,691) (274) (455) (526) -- -- -- --
(38,345,989) (35,550,483) (97,641) (509,353) (2,143,426) (8,016,607) 10,528,632 (12,246,246)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(20,720,006) (1,725,106) (513,934) (532,536) 1,050,661 (3,718,216) 18,036,117 (3,780,395)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
3,008,452 (11,972,414) (127,733) (74,344) 4,552,812 129,249 25,295,109 2,595,349
166,199,757 178,172,171 6,427,526 6,501,870 55,418,728 55,289,479 88,167,288 85,571,939
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 169,208,209 $ 166,199,757 $ 6,299,793 $ 6,427,526 $ 59,971,540 $ 55,418,728 $ 113,462,397 $ 88,167,288
============= ============= ============= ============= ============= ============= ============= =============
111,480,591 112,601,593 1,831,961 1,991,536 28,242,598 30,286,494 45,034,894 47,130,169
16,433,799 27,009,353 40,472 109,285 3,402,874 3,840,755 6,558,071 6,646,726
(5,105,973) (4,696,042) (155,629) (116,952) (1,879,505) (1,555,673) (2,679,928) (2,143,349)
(24,924,879) (23,434,313) (27,361) (151,908) (1,014,305) (4,328,978) 4,816,634 (6,598,652)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
97,883,538 111,480,591 1,689,443 1,831,961 28,751,662 28,242,598 53,729,671 45,034,894
============= ============= ============= ============= ============= ============= ============= =============
97,473,851 111,480,591 1,689,443 1,831,961 28,751,662 28,242,598 53,729,671 45,034,894
408,156 -- -- -- -- -- -- --
1,531 -- -- -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
97,883,538 111,480,591 1,689,443 1,831,961 28,751,662 28,242,598 53,729,671 45,034,894
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.728006 $ 1.490645 $ 3.726168 $ 3.505970 $ 2.085846 $ 1.962239 $ 2.111727 $ 1.957755
1.751922 -- -- -- -- -- -- --
1.777571 -- -- -- -- -- -- --
</TABLE>
<PAGE> 154
================================================================================
26 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
VANGUARD LONG-TERM VANGUARD LONG-TERM
CORPORATE FUND - DIVISION 22 TREASURY FUND - DIVISION 23
----------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ............................................. $ 2,052,614 $ 506,655 $ 2,857,159 $ 567,564
Net realized gain on investments .................................. 136,212 36,716 1,195,397 94,335
Capital gains distributions from mutual funds ..................... 1,044,043 156,984 -- --
Net unrealized appreciation (depreciation)
of investments during the year .................................. (64,200) 643,127 2,611,560 1,066,785
------------- ------------- ------------- -------------
Increase in net assets resulting from operations .............. 3,168,669 1,343,482 6,664,116 1,728,684
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................................. 18,953,737 6,013,744 30,970,739 6,985,216
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................... (1,608,861) (167,812) (2,748,295) (265,787)
Annuity benefit payments .......................................... -- -- (813) (176)
Amounts transferred interdivision, and (to) from
VALIC general account ........................................... 19,011,058 9,719,778 60,728,245 10,813,576
------------- ------------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ....................... 36,355,934 15,565,710 88,949,876 17,532,829
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........................... 39,524,603 16,909,192 95,613,992 19,261,513
NET ASSETS:
Beginning of year ................................................. 20,440,049 3,530,857 23,638,214 4,376,701
------------- ------------- ------------- -------------
End of year ....................................................... $ 59,964,652 $ 20,440,049 $ 119,252,206 $ 23,638,214
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .............................. 17,371,407 3,370,441 20,041,920 4,174,369
Purchase payments ................................................. 15,098,601 5,633,849 23,916,542 6,619,458
Surrenders ........................................................ (1,333,865) (151,626) (1,937,227) (227,789)
Transfers -- interdivision and (to) from VALIC general account .... 15,936,430 8,518,743 48,342,694 9,475,882
------------- ------------- ------------- -------------
Total units outstanding, end of year .............................. 47,072,573 17,371,407 90,363,929 20,041,920
============= ============= ============= =============
Units outstanding, by class:
Standard units .................................................... 44,122,646 17,371,407 86,673,300 20,041,920
Enhanced units:
20 bp reduced ................................................. 2,949,044 -- 3,682,809 --
40 bp reduced ................................................. 883 -- 7,820 --
------------- ------------- ------------- -------------
Accumulation units end of year .................................... 47,072,573 17,371,407 90,363,929 20,041,920
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
----------------------------- -----------------------------
1998 1997 1998 1997
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Accumulation value per unit:
Standard unit............................................... $ 1.271278 $ 1.176649 $ 1.318263 $ 1.178938
Enhanced unit:
20 bp reduced............................................. 1.312731 -- 1.349397 --
40 bp reduced............................................. 1.360696 -- 1.384079 --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 155
================================================================================
SEPARATE ACCOUNT A 27
================================================================================
<TABLE>
<CAPTION>
AGSPC
MONEY MARKET FUND
- ----------------------------------------------------------------
DIVISION 2 DIVISION 6
- ------------------------------ ------------------------------
1998 1997 1998 1997
- ------------- ------------- ------------- -------------
<S> <C> <C> <C>
$ 184,017 $ 188,513 $ 7,849,963 $ 5,293,164
-- -- -- --
-- -- -- --
-- -- -- --
- ------------- ------------- ------------- -------------
184,017 188,513 7,849,963 5,293,164
- ------------- ------------- ------------- -------------
90,884 123,738 87,624,322 58,442,609
(292,611) (277,223) (33,439,890) (16,317,039)
-- -- (1,603) (1,592)
(364,560) (334,772) 63,714,230 (27,271,186)
- ------------- ------------- ------------- -------------
(566,287) (488,257) 117,897,059 14,852,792
- ------------- ------------- ------------- -------------
(382,270) (299,744) 125,747,022 20,145,956
4,579,757 4,879,501 140,904,582 120,758,626
- ------------- ------------- ------------- -------------
$ 4,197,487 $ 4,579,757 $ 266,651,604 $ 140,904,582
============= ============= ============= =============
1,931,439 2,142,534 84,182,521 75,124,095
37,542 53,405 56,361,872 35,256,772
(120,614) (119,264) (17,562,213) (10,205,685)
(148,034) (145,236) 29,891,462 (15,992,661)
- ------------- ------------- ------------- -------------
1,700,333 1,931,439 152,873,642 84,182,521
============= ============= ============= =============
1,700,333 1,931,439 147,547,688 84,182,521
-- -- 5,325,479 --
-- -- 475 --
- ------------- ------------- ------------- -------------
1,700,333 1,931,439 152,873,642 84,182,521
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
- ----------------------------------------------------------------
1998 1997 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
$ 2.468627 $ 2.371163 $ 1.742617 $ 1.673590
-- -- 1.786658 --
-- -- 1.833793 --
</TABLE>
<PAGE> 156
===============================================================================
28 FINANCIAL STATEMENTS
===============================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AMERICAN GENERAL INTERNATIONAL AMERICAN GENERAL INTERNATIONAL
GROWTH FUND - DIVISION 33 VALUE FUND - DIVISION 33
------------------------------ ------------------------------
1998 1997 1998 1997
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
OPERATIONS: $ -- $ -- $ 5,760 $ --
Net investment income ................................. -- -- -- --
Net realized gain on investments
Capital gains distributions from
mutual funds ........................................ -- -- -- --
Net unrealized appreciation
of investments during the year ...................... 200,750 -- 547,276 --
---------- --------- ---------- ---------
Increase in net assets resulting
from operations ................................ 200,750 -- 553,036 --
---------- --------- ---------- ---------
PRINCIPAL TRANSACTIONS:
Purchase payments ..................................... -- -- -- --
Surrenders of accumulation units by
terminations, withdrawals, and maintenance
fees ................................................ -- -- -- --
Annuity benefit payments .............................. -- -- -- --
Amounts transferred interdivision, and from
VALIC general account ............................... 3,650,000 -- 3,600,000 --
---------- --------- ---------- ---------
Increase in net assets
resulting from principal transactions ............ 3,650,000 -- 3,600,000 --
---------- --------- ---------- ---------
TOTAL INCREASE IN NET ASSETS .......................... 3,850,750 -- 4,153,036 --
NET ASSETS:
Beginning of year ..................................... -- -- -- --
End of year ........................................... $3,850,750 $ -- $4,153,036 $ --
========== ========= ========== =========
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .................. -- -- -- --
Purchase payments ..................................... -- -- -- --
Surrenders ............................................ -- -- -- --
Transfers -- interdivision and from VALIC
general account ..................................... -- -- -- --
---------- --------- ---------- ---------
Total units outstanding, end of year .................. -- -- -- --
========== ========= ========== =========
Units outstanding, by class:
Standard units ...................................... -- -- -- --
Enhanced units:
20 bp reduced .................................... -- -- -- --
40 bp reduced .................................... -- -- -- --
---------- --------- ---------- ---------
Accumulation units end of year ........................ -- -- -- --
========== ========= ========== =========
DECEMBER 31 DECEMBER 31
------------------------- -------------------------
1998 1997 1998 1997
---------- --------- ---------- ---------
Accumulation value per unit:
Standard unit ....................................... -- -- -- --
Enhanced unit:
20 bp reduced .................................... -- -- -- --
40 bp reduced .................................... -- -- -- --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 157
===============================================================================
SEPARATE ACCOUNT A 29
===============================================================================
<TABLE>
<CAPTION>
AMERICAN GENERAL SMALL CAP AMERICAN GENERAL SMALL CAP AMERICAN GENERAL MID CAP AMERICAN GENERAL MID CAP
GROWTH FUND - DIVISION 35 VALUE FUND - DIVISION 36 GROWTH FUND - DIVISION 37 VALUE FUND - DIVISION 38
- ----------------------------- ------------------------------ ----------------------------- ----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ 13,079 $ -- $ -- $ -- $ 10,079 $ --
-- -- -- -- -- -- -- --
18,373 -- 51,644 -- -- -- 115,562 --
1,361,100 -- 585,384 -- 1,425,600 -- 896,569 --
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
1,379,473 -- 650,107 -- 1,425,600 -- 1,022,210 --
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
3,900,000 -- 3,849,999 -- 4,050,000 -- 3,949,999 --
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
3,900,000 -- 4,500,106 -- 5,475,600 -- 4,972,209 --
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
5,279,473 -- 4,500,106 -- 5,475,600 -- 4,972,209 --
-- -- -- -- -- -- -- --
$ 5,279,473 $ -- $ 4,500,106 $ -- $ 5,475,600 $ -- $ 4,972,209 $ --
============= =========== ============= =========== ============= =========== ============= ===========
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
-- -- -- -- -- -- -- --
============= =========== ============= =========== ============= =========== ============= ===========
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
-- -- -- -- -- -- -- --
============= =========== ============= =========== ============= =========== ============= ===========
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
- ----------------------------- ------------------------------ ----------------------------- ---------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- -- -- --
</TABLE>
<PAGE> 158
===============================================================================
30 FINANCIAL STATEMENTS
===============================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AMERICAN GENERAL LARGE CAP AMERICAN GENERAL LARGE CAP
GROWTH FUND - DIVISION 39 VALUE FUND - DIVISION 40
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ........................................... $ 2,093 $ -- $ 10,224 $ --
Net realized gain on investments ................................ -- -- -- --
Capital gains distributions from mutual funds ................... -- -- -- --
Net unrealized appreciation
of investments during the year ................................ 695,540 -- 716,526 --
------------- ------------- ------------- -------------
Increase in net assets resulting from operations ........... 697,633 -- 726,750 --
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ............................................... -- -- -- --
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................. -- -- -- --
Annuity benefit payments ........................................ -- -- -- --
Amounts transferred interdivision, and from VALIC general account 2,850,000 -- 2,900,000 --
------------- ------------- ------------- -------------
Increase in net assets
resulting from principal transactions .................... 2,850,000 -- 2,900,000 --
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS .................................... 3,547,633 -- 3,626,750 --
------------- ------------- ------------- -------------
Net Assets:
Beginning of year ............................................... -- -- -- --
End of year ..................................................... $ 3,547,633 $ -- $ 3,626,750 $ --
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................ -- -- -- --
Purchase payments ............................................... - -- -- --
Surrenders ...................................................... -- -- -- --
Transfers -- interdivision and from VALIC general account ....... -- -- -- --
------------- ------------- ------------- -------------
Total units outstanding, end of year............................. -- -- -- --
============= ============= ============= =============
Units outstanding, by class:
Standard units ................................................ -- -- -- --
Enhanced units:
20 bp reduced ............................................... -- -- -- --
40 bp reduced ............................................... -- -- -- --
------------- ------------- ------------- -------------
Accumulation units end of year .................................. -- -- -- --
============= ============= ============= =============
DECEMBER 31 DECEMBER 31
----------------------------- -----------------------------
1998 1997 1998 1997
Accumulation value per unit: ------------- -------------- ------------- --------------
Standard unit $ -- $ -- $ -- $ --
Enhanced unit:
20 bp reduced -- -- -- --
40 bp reduced -- -- -- --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 159
===============================================================================
SEPARATE ACCOUNT A 31
===============================================================================
<TABLE>
<CAPTION>
AMERICAN GENERAL SOCIALLY AMERICAN GENERAL BALANCED AMERICAN GENERAL DOMESTIC AMERICAN GENERAL MONEY
RESPONSIBLE FUND - DIVISION 41 FUND - DIVISION 42 BOND FUND - DIVISION 43 MARKET FUND - DIVISION 44
- ------------------------------ -------------------------- -------------------------- ---------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 23,760 $ -- $ 29,084 $ -- $ 14,978 $ -- $ 82,478 $ --
-- -- -- -- -- -- -- --
285,733 -- 34,051 -- 15,898 -- -- --
1,099,673 -- 805,536 -- 28,692 -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,409,166 -- 868,671 -- 59,568 -- 82,478 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
5,000,000 -- 5,000,000 -- 1,250,000 -- 5,000,000 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
5,000,000 -- 5,000,000 -- 1,250,000 -- 5,000,000 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
6,409,166 -- 5,868,671 -- 1,309,568 -- 5,082,478 --
-- -- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 6,409,166 $ -- $ 5,868,671 $ -- $ 1,309,568 $ -- $ 5,082,478 $ --
============ ============ ============ ============ ============ ============ ============ ============
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- -- --
============ ============ ============ ============ ============ ============ ============ ============
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- -- --
============ ============ ============ ============ ============ ============ ============ ============
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
- -------------------------- -------------------------- -------------------------- --------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
</TABLE>
<PAGE> 160
===============================================================================
32 FINANCIAL STATEMENTS
===============================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AMERICAN GENERAL
AMERICAN GENERAL MODERATE GROWTH LIFESTYLE
FUND - DIVISION 49 FUND - DIVISION 49
------------------------ ------------------------
1998 1997 1998 1997
------------ ---------- ------------ ----------
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ........................................... $ 11,226 $ -- $ 19,912 $ --
Net realized gain on investments ................................ -- -- -- --
Capital gains distributions from mutual funds ................... -- -- -- --
Net unrealized appreciation
of investments during the year ................................. 970,379 -- 925,696 --
------------ ---------- ------------ ----------
Increase in net assets resulting from operations ........... 981,605 -- 945,608 --
------------ ---------- ------------ ----------
PRINCIPAL TRANSACTIONS:
Purchase payments ............................................... -- -- -- --
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................. -- -- -- --
Annuity benefit payments ........................................ -- -- -- --
Amounts transferred interdivision, and from VALIC
general account ............................................... 5,000,000 -- 5,000,000 --
------------ ---------- ------------ ----------
Increase in net assets
resulting from principal transactions .................... 5,000,000 -- 5,000,000 --
------------ ---------- ------------ ----------
TOTAL INCREASE IN NET ASSETS .................................... 5,981,605 -- 5,945,608 --
------------ ---------- ------------ ----------
NET ASSETS:
Beginning of year ............................................... -- -- -- --
------------ ---------- ------------ ----------
End of year ..................................................... $ 5,981,605 $ -- $ 5,945,608 $ --
============ ========== ============ ==========
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................ -- -- -- --
Purchase payments ............................................... -- -- -- --
Surrenders ...................................................... -- -- -- --
Transfers - interdivision and from VALIC general account ........ -- -- -- --
------------ ---------- ------------ ----------
Total units outstanding, end of year ............................ -- -- -- --
============ ========== ============ ==========
Units outstanding, by class:
Standard units ................................................ -- -- -- --
Enhanced units:
20 bp reduced .............................................. -- -- -- --
40 bp reduced .............................................. -- -- -- --
------------ ---------- ------------ ----------
Accumulation units end of year .................................. -- -- -- --
============ ========== ============ ==========
DECEMBER 31, DECEMBER 31,
------------------------ ------------------------
1998 1997 1998 1997
------------ ---------- ------------ ----------
Accumulation value per unit:
Standard unit ................................................. $ -- $ -- $ -- $ --
Enhanced unit:
20 bp reduced .............................................. -- -- -- --
40 bp reduced .............................................. -- -- -- --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 161
===============================================================================
SEPARATE ACCOUNT A 33
===============================================================================
<TABLE>
<CAPTION>
AMERICAN GENERAL
CONSERVATIVE GROWTH LIFESTYLE AMERICAN GENERAL CORE BOND AMERICAN GENERAL STRATEGIC
FUND - DIVISION 50 FUND - DIVISION 58 BOND FUND - DIVISION 59
- --------------------------- --------------------------- -----------------------------
1998 1997 1998 1997 1998 1997
- ----------- -------- -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 27,772 $ -- $ 50,247 $ -- $ 69,000 $ --
-- -- -- -- -- --
-- -- 16,291 -- 11,064 --
800,941 -- 95,397 -- 185,469 --
- ----------- -------- -------------- ---------- ------------- -------------
828,713 -- 161,935 -- 265,533 --
- ----------- -------- -------------- ---------- ------------- -------------
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
5,000,000 -- 5,000,001 -- 4,999,999 --
- ----------- -------- -------------- ---------- ------------- -------------
5,000,000 -- 5,000,001 -- 4,999,999 --
- ----------- -------- -------------- ---------- ------------- -------------
5,828,713 -- 5,161,936 -- 5,265,532 --
-- -- -- -- -- --
- ----------- -------- -------------- ---------- ------------- -------------
$ 5,828,713 $ -- $ 5,161,936 $ -- $ 5,265,532 $ --
- ----------- -------- -------------- ---------- ------------- -------------
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
- ----------- -------- -------------- ---------- ------------- -------------
-- -- -- -- -- --
- ----------- -------- -------------- ---------- ------------- -------------
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
- ----------- -------- -------------- ---------- ------------- -------------
-- -- -- -- -- --
- ----------- -------- -------------- ---------- ------------- -------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
- --------------------------- --------------------------- -----------------------------
1998 1997 1998 1997 1998 1997
- ----------- -------- -------------- ---------- ------------- -------------
$ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- --
-- -- -- -- -- --
</TABLE>
<PAGE> 162
===============================================================================
34 FINANCIAL STATEMENTS
===============================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AMERICAN GENERAL
HIGH YIELD BOND T. ROWE PRICE SMALL-CAP
FUND - DIVISION 60 STOCK FUND - DIVISION 51
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income .............................................. $ 92,262 $ -- $ -- $ --
Net realized gain on investments ................................... -- -- -- --
Capital gains distributions from mutual funds ...................... -- -- -- --
Net unrealized appreciation
of investments during the year .................................. 189,911 -- -- --
---------- ------------ ---------- ------------
Increase in net assets resulting from operations .............. 282,173 -- -- --
---------- ------------ ---------- ------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................................. -- -- 139 --
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ................................ -- -- -- --
Annuity benefit payments ........................................... -- -- -- --
Amounts transferred interdivision, and from VALIC general account .. 5,000,000 -- -- --
---------- ------------ ---------- ------------
Increase in net assets
resulting from principal transactions ....................... 5,000,000 -- 139 --
---------- ------------ ---------- ------------
TOTAL INCREASE IN NET ASSETS ....................................... 5,282,173 -- 139 --
NET ASSETS:
Beginning of year .................................................. -- -- -- --
---------- ------------ ---------- ------------
End of year ........................................................ $5,282,173 $ -- $ 139 $ --
---------- ------------ ---------- ------------
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................... -- -- -- --
Purchase payments .................................................. -- -- 122 --
Surrenders ......................................................... -- -- -- --
Transfers -- interdivision and from VALIC general account .......... -- -- -- --
---------- ------------ ---------- ------------
Total units outstanding, end of year ............................... -- -- 122 --
---------- ------------ ---------- ------------
Units outstanding, by class:
Standard units ................................................... -- -- 122 --
Enhanced units:
20 bp reduced ................................................. -- -- -- --
40 bp reduced ................................................. -- -- -- --
---------- ------------ ---------- ------------
Accumulation units end of year ..................................... -- -- 122 --
---------- ------------ ---------- ------------
DECEMBER 31 DECEMBER 31
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ------------ ---------- ------------
Accumulation value per unit:
Standard unit..................................................... $ -- $ -- $1.141049 $ --
Enhanced unit:
20 bp reduced.................................................. -- -- -- --
40 bp reduced.................................................. -- -- -- --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 163
===============================================================================
SEPARATE ACCOUNT A 35
===============================================================================
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 fifty-five 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 (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)
American General Series Portfolio Company 3 ("AGSPC 3"):
American General International Growth Fund (Division 33)
American General Large Cap Growth Fund (Division 39)
American General Mid Cap Growth Fund (Division 37)
American General Small Cap Growth Fund(Division 35)
American General International Value Fund (Division 34)
American General Large Cap Value Fund (Division 40)
American General Mid Cap Value Fund (Division 38)
American General Small Cap Value Fund (Division 36)
American General Socially Responsible Fund (Division 41)
American General Balanced Fund (Division 42)
American General High Yield Bond Fund (Division 60)
American General Strategic Bond Fund (Division 59)
American General Domestic Bond Fund (Division 43)
American General Core Bond Fund (Division 58)
American General Money Market Fund (Division 44)
American General Growth Lifestyle Fund (Division 48)
American General Moderate Growth
Lifestyle Fund (Division 49)
American General Conservative Growth
Lifestyle Fund (Division 50)
Dreyfus Variable Investment Fund -
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 Long-Term Corporate Fund (Division 22)
Vanguard Long-Term Treasury Fund (Division 23)
Vanguard Wellington Fund (Division 25)
Vanguard Windsor II Fund (Division 24)
Vanguard Lifestrategy Growth Fund (Division 52)
Vanguard Lifestrategy Moderate Growth Fund (Division 53)
Vanguard Lifestrategy Conservative Growth Fund (Division 54)
T. Rowe Price Small-Cap Stock Fund (Division 51)
Divisions 33 through 54 and 58 through 60 became available to contract holders
of the Separate Account effective September 22,1998.
NOTE B -- SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The assets 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.
USE OF ESTIMATES. The financial statements have been prepared in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect amounts reported in the financial statements and disclosure of contingent
assets and liabilities. Ultimate results could differ from these estimates.
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 each 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 purchase 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, the Annuity 2000 Mortality Table, and the 1994 Group Annuity
Reserve Mortality Table have 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.
ACCUMULATION UNITS. VALIC offers both standard and enhanced contracts.
These contracts may have different Separate Account charges.
<PAGE> 164
===============================================================================
36 NOTES TO FINANCIAL STATEMENTS
===============================================================================
NOTE C -- TRANSACTIONS WITH AFFILIATES
VALIC serves as investment advisor ("the Advisor"), transfer agent, and
accounting services agent to AGSPC and AGSPC 3. American General Investment
Management, LLP, an affiliate of the Advisor, serves as investment sub-advisor
to certain AGSPC 3 mutual funds.
The Separate Account is charged for mortality and expense risks
assumed by VALIC and for distribution and administrative services provided by
VALIC. The standard 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 through 8, 10A, 10C and 10D, 11 through
17, 33 through 44, 48 through 50, and 58 through 60, 1.00%; and for Divisions
18 through 32, and 51 through 54, 1.25%. Certain 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 through 23, 26 through 30, 32 through 44, 48
through 50, and 58 through 60, 0.25%; for Division 31, 0.24% (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); and for Division
18, 0.15% (commencing July 1, 1997). Separate Account charges may be reduced if
contracts are issued to certain types of plans that are expected to result in
lower costs to VALIC. Consequently, each division may offer separate "classes"
of units of beneficial interest reflecting reductions in separate account
charges.
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, 1998 and 1997, VALIC reduced expenses of Division 10B
by $82,027 and $85,996, respectively.
A portion of the annual contract maintenance charge is assessed on
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 $5,575,601 and $4,510,903 for the
years ended December 31, 1998 and 1997, respectively.
VALIC received surrender charges of $4,581,641 and $2,769,370 for the
years ended December 31, 1998 and 1997, respectively. In addition, VALIC
received $53,171 and $6,156 for the year ended December 31, 1998, in sales load
on variable annuity purchase payments for Divisions 10A and 10B, respectively.
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 contributed to the Separate Account, $100,000 and $74,900,000 on
August 26, 1998 and September 1, 1998, respectively, in order to provide
initial funding for the AGSPC 3 mutual funds. Capital surplus amounts reflected
in the Statements of Net Assets for Divisions 33 through 44, 48 through 50 and
58 through 60 are not subject to contract holder charges since they do not
represent reserves for annuity contracts issued.
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, 1998:
<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 13,079,920 $11.37 $ 148,718,766 $ 148,478,416 $ 240,350
Putnam Global Growth Fund ................. 28 13,080,357 12.45 162,850,092 149,345,622 13,504,470
Templeton Foreign Fund .................... 32 26,018,073 8.39 218,291,648 267,772,677 (49,481,029)
Templeton International Fund .............. 20 37,187,918 20.69 769,418,093 672,572,557 96,845,536
AGSPC Science & Technology Fund ........... 17 52,052,496 26.07 1,357,008,368 1,058,583,311 298,425,057
AGSPC Small Cap Index Fund ................ 14 14,788,462 15.26 225,671,866 216,780,123 8,891,743
Dreyfus Variable Investment Fund -
Small Cap Portfolio ..................... 18 14,871,620 53.91 801,729,449 709,332,114 92,397,335
Putnam New Opportunities Fund ............. 26 7,047,598 58.43 411,790,940 341,359,629 70,431,311
Putnam OTC & Emerging Growth Fund ......... 27 8,240,758 17.25 142,153,064 128,583,339 13,569,725
AGSPC Growth Fund ......................... 15 53,087,130 22.85 1,213,041,349 867,944,168 345,097,181
AGSPC MidCap Index Fund ................... 4 33,517,770 25.37 850,345,675 593,845,989 256,499,686
American Century - Twentieth Century
Ultra Fund .............................. 31 10,965,109 33.41 366,344,764 344,297,873 22,046,891
Founders Growth Fund ...................... 30 20,206,988 20.41 412,424,559 377,960,267 34,464,292
AGSPC Growth & Income Fund ................ 16 14,227,222 20.04 285,113,626 214,814,089 70,299,537
AGSPC Social Awareness Fund ............... 12 19,099,259 22.77 434,890,057 350,790,377 84,099,680
AGSPC Stock Index Fund .................... 10A,B,C,D 106,096,626 37.54 3,982,866,943 2,020,245,208 1,962,621,735
Neuberger Berman Guardian Trust ........... 29 3,796,199 16.16 61,347,128 68,195,002 (6,847,874)
Scudder Growth and Income Fund ............ 21 9,416,745 26.31 247,754,620 259,592,520 (11,837,900)
Vanguard Windsor II Fund .................. 24 21,811,605 29.85 651,075,950 634,903,452 16,172,498
Templeton Asset Allocation Fund ........... 19 14,431,830 22.46 324,138,930 290,415,546 33,723,384
AGSPC Asset Allocation Fund ............... 5 16,111,443 14.12 227,493,681 191,458,464 36,035,217
</TABLE>
<PAGE> 165
===============================================================================
SEPARATE ACCOUNT A 37
===============================================================================
<TABLE>
<CAPTION>
UNREALIZED
MARKET APPRECIATION
UNDERLYING FUND DIVISION SHARES PRICE MARKET COST (DEPRECIATION)
-------- ------ ----- ------ ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Vanguard Wellington Fund ................. 25 13,852,716 29.35 $ 406,576,731 $ 416,038,579 $ (9,461,848)
AGSPC International Government
Bond Fund .............................. 13 13,339,220 12.68 169,141,402 158,031,435 11,109,967
AGSPC Capital Conservation Fund .......... 1 & 7 6,849,612 9.68 66,304,225 65,365,302 938,923
AGSPC Government Securities Fund ......... 8 10,966,460 10.35 113,502,848 110,444,717 3,058,131
Vanguard Fixed Income Securities Fund:
Long-Term Corporate Fund ............... 22 6,441,710 9.29 59,843,445 59,275,925 567,520
Long-Term Treasury Fund ................ 23 10,501,171 11.36 119,293,240 115,581,241 3,711,999
AGSPC Money Market Fund .................. 2 & 6 270,445,756 1.00 270,445,756 270,445,756 --
American General International
Growth Fund ............................ 33 365,269 10.55 3,853,567 3,652,817 200,750
American General Large Cap Growth Fund ... 39 285,293 12.44 3,549,043 2,853,503 695,540
American General Mid Cap Growth Fund ..... 37 405,021 13.52 5,475,870 4,050,270 1,425,600
American General Small Cap Growth Fund ... 35 391,362 13.49 5,279,473 3,918,373 1,361,100
American General International
Value Fund ............................. 34 360,507 11.52 4,153,036 3,605,760 547,276
American General Large Cap Value Fund .... 40 290,838 12.47 3,626,750 2,910,224 716,526
American General Mid Cap Value Fund ...... 38 405,233 12.27 4,972,209 4,075,640 896,569
American General Small Cap Value Fund .... 36 390,634 11.52 4,500,106 3,914,722 585,384
American General Socially
Responsible Fund ....................... 41 525,342 12.20 6,409,166 5,309,493 1,099,673
American General Balanced Fund ........... 42 505,484 11.61 5,868,671 5,063,135 805,536
American General High Yield Bond Fund .... 60 508,880 10.38 5,282,173 5,092,262 189,911
American General Strategic Bond Fund ..... 59 507,766 10.37 5,265,532 5,080,063 185,469
American General Domestic Bond Fund ...... 43 128,012 10.23 1,309,568 1,280,876 28,692
American General Core Bond Fund .......... 58 506,569 10.19 5,161,936 5,066,538 95,398
American General Money Market Fund ....... 44 5,082,478 1.00 5,082,478 5,082,478 --
American General Growth Lifestyle Fund ... 48 501,813 11.94 5,991,538 5,021,159 970,379
American General Moderate Growth
Lifestyle Fund ......................... 49 502,116 11.85 5,950,028 5,024,332 925,696
American General Conservative Growth
Lifestyle Fund ......................... 50 502,580 11.60 5,829,911 5,028,970 800,941
T. Rowe Price Small-Cap Stock Fund ....... 51 7 20.79 139 139 --
Total .................................. 853,696,997 $14,587,138,409 $11,178,484,452 $ 3,408,653,957
</TABLE>
NOTE E -- FEDERAL INCOME TAXES
VALIC is taxed as a life insurance company under the Internal Revenue
Code and includes the operations of the Separate Account in determining its
federal income tax liability. Under current federal income tax law, the
investment income and capital gains from sales 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, 1998, 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 ................... $ 70,340,669 $ 86,195,191
Putnam Global Growth Fund Division 28 ........................... 84,411,341 2,105,181
Templeton Foreign Fund Division 32 .............................. 82,320,483 9,313,676
Templeton International Fund Division 20 ........................ 176,311,032 153,728,857
AGSPC Science & Technology Fund Division 17 ..................... 262,237,519 101,549,488
AGSPC Small Cap Index Fund Division 14 .......................... 56,957,370 35,775,340
Dreyfus Variable Investment Fund -
Small Cap Portfolio Division 18 ........................... 63,341,013 64,349,216
Putnam New Opportunities Fund Division 26 ....................... 196,437,438 3,727,492
Putnam OTC & Emerging Growth Fund Division 27 ................... 43,601,585 7,874,482
AGSPC Growth Fund Division 15 ................................... 168,030,279 22,896,950
AGSPC MidCap Index Fund Division 4 .............................. 121,443,834 59,433,835
American Century - Twentieth Century Ultra Fund Division 31 ..... 206,441,197 3,102,142
Founders Growth Fund Division 30 ................................ 203,148,927 4,157,924
AGSPC Growth & Income Fund Division 16 .......................... 35,712,751 22,023,607
</TABLE>
<PAGE> 166
===============================================================================
38 NOTES TO FINANCIAL STATEMENTS
===============================================================================
<TABLE>
<CAPTION>
PURCHASES SALES
-------------- --------------
<S> <C> <C>
AGSPC Social Awareness Fund Division 12 .............................. $ 155,478,764 $ 4,747,514
AGSPC Stock Index Fund:
Division 10A ................................................ 16,487,825 57,170,007
Division 10B ................................................ 1,430,916 5,138,856
Division 10C ................................................ 409,382,612 36,743,609
Division 10D ................................................ 2,305,198 7,769,904
Neuberger Berman Guardian Trust Division 29 .......................... 24,369,333 4,106,246
Scudder Growth and Income Fund Division 21 ........................... 134,037,172 6,545,427
Vanguard Windsor II Fund Division 24 ................................. 380,154,266 5,838,118
Templeton Asset Allocation Fund Division 19 .......................... 48,497,460 40,983,269
AGSPC Asset Allocation Fund Division 5 ............................... 37,672,428 10,217,954
Vanguard Wellington Fund Division 25 ................................. 267,401,470 4,016,568
AGSPC International Government Bond Fund Division 13 ................. 63,147,566 81,054,776
AGSPC Capital Conservation Fund:
Division 1 .................................................. 832,531 1,006,283
Division 7 .................................................. 16,631,338 12,372,606
AGSPC Government Securities Fund Division 8 .......................... 54,546,370 32,043,559
Vanguard Long-Term Corporate Fund Division 22 ........................ 42,256,730 2,903,724
Vanguard Long-Term Treasury Fund Division 23 ......................... 102,868,659 11,315,873
AGSPC Money Market Fund:
Division 2 .................................................. 2,987,800 3,330,427
Division 6 .................................................. 379,702,464 248,100,695
American General International Growth Fund Division 33 ............... 3,652,817 --
American General Large Cap Growth Fund Division 39 ................... 2,853,503 --
American General Mid Cap Growth Fund Division 37 ..................... 4,050,270 --
American General Small Cap Growth Fund Division 35 ................... 3,918,373 --
American General International Value Fund Division 34 ................ 3,605,760 --
American General Large Cap Value Fund Division 40 .................... 2,910,224 --
American General Mid Cap Value Fund Division 38 ...................... 4,075,640 --
American General Small Cap Value Fund Division 36 .................... 3,914,722 --
American General Socially Responsible Fund Division 41 ............... 5,309,493 --
American General Balanced Fund Division 42 ........................... 5,063,135 --
American General High Yield Bond Fund Division 60 .................... 5,092,262 --
American General Strategic Bond Fund Division 59 ..................... 5,080,063 --
American General Domestic Bond Fund Division 43 ...................... 1,280,876 --
American General Core Bond Fund Division 58 .......................... 5,066,538 --
American General Money Market Fund Division 44 ....................... 5,082,478 --
American General Growth Lifestyle Fund Division 48 ................... 5,021,159 --
American General Moderate Growth Lifestyle Fund Division 49 .......... 5,024,332 --
American General Conservative Growth Lifestyle Fund Division 50 ...... 5,028,970 --
T. Rowe Price Small-Cap Stock Fund Division 51 .............. 139 --
-------------- --------------
Total ....................................................... $3,986,957,094 $1,151,638,796
============== ==============
</TABLE>
NOTE G -- YEAR 2000 (UNAUDITED)
VALIC is in the process of modifying its systems to achieve Year 2000
readiness. This endeavor is directed and managed by VALIC and monitored by the
parent company, American General Corporation. VALIC has developed clearly
defined and documented plans that have been implemented to minimize the risk of
significant negative impact on its operations.
These plans include the following activities: (1) perform an inventory
of VALIC's information technology and non-information technology systems; (2)
assess which items in the inventory may expose VALIC to business interruptions
due to Year 2000 issues; (3) test systems for Year 2000 readiness; (4)
reprogram or replace systems that are not Year 2000 ready; and (5) return the
systems to operation.
In addition, the Separate Account and VALIC have business
relationships with various third parties, each of which must also be Year 2000
ready. Therefore, VALIC's plans also include assessing and attempting to
mitigate the risks associated with the potential failure of third parties, as
well as contingency plans for any identified risks or shortcomings, to achieve
Year 2000 readiness. Due to the various stages of the third parties' Year 2000
readiness, VALIC's efforts in this regard will extend through 1999.
Through December 31, 1998, VALIC has incurred and expensed $26.7
million (pretax) related to Year 2000 readiness, including $20.2 million
incurred in 1998.
As of December 31, 1998, VALIC has completed the inventory,
assessment, testing, reprogramming and implementation phases of the plan with
respect to its critical systems. VALIC believes its comprehensive plan and
resource commitment will allow it to meet its Year 2000 objectives. However,
the Year 2000 issue remains complex and the risks, uncertainties, and
unforeseen circumstances associated with the Year 2000 issue could have a
material adverse impact on VALIC and the Separate Account.
<PAGE> 167
================================================================================
REPORT OF INDEPENDENT AUDITORS 39
================================================================================
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 ("the Separate Account") and
each of the divisions (1, 2, 4, 5, 6, 7, 8, 10A, 10B, 10C, 10D, 11 through 44
inclusive, 48 through 51 inclusive, and 58 through 60, inclusive) comprising
the Separate Account as of December 31, 1998. 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 the
Separate Account and each of its divisions except for divisions 33 through 44
inclusive, divisions 48 through 50 inclusive, and divisions 58 through 60,
inclusive, for which we have audited the statements of operations and changes
in net assets for the period from August 26, 1998 (inception) to December 31,
1998, and for division 51 for which we have audited the statements of
operations and changes in net assets for the period from September 22, 1998
(inception) through December 31, 1998. These financial statements are the
responsibility of the Separate Account'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, 1998,
by correspondence with the transfer agents. 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 the Separate Account and each
of the divisions comprising the Separate Account at December 31, 1998, 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 15, 1999
<PAGE> 168
[THIS PAGE INTENTIONALLY LEFT BLANK]
26
<PAGE> 169
--AMERICAN GENERAL LOGO--
PRINTED MATTER
PRINTED IN U.S.A. VA 2620-1 REV 5/99
(C)Company Name, Houston, Texas
Recycled Paper --RECYCLED PAPER LOGO--
<PAGE> 170
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, 1999
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, 1999 ("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 Variable Life Insurance
Company (the "Company") or A.G. Distributors, Inc. (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.
- ---------------
(* The Independence Plus Contract Series is composed of Contract Forms
UIT-585-96 and UITG-585-96.)
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TABLE OF CONTENTS
<TABLE>
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General Information............................. 3
Marketing Information....................... 3
Types of Variable Annuity Contracts......... 5
Federal Tax Matters............................. 5
General..................................... 5
Taxes Payable by Participants and
Annuitants............................... 5
Section 403(b) Annuities for Employees of
Certain Tax-Exempt Organizations or
Public Educational Institutions.......... 5
Section 401 Qualified Pension,
Profit-Sharing or Annuity Plans.......... 6
Section 408(b) Individual Retirement
Annuities (other than Roth IRAs)......... 7
Simplified Employee Pension Plans........... 8
Section 457 Deferred Compensation Plans of
Public Employers and Tax-Exempt
Organizations............................ 8
Private Employer Unfunded Deferred
Compensation Plans....................... 9
Non-Qualified Contracts..................... 9
Fund Diversification........................ 10
Exchange Privilege.............................. 10
General..................................... 10
Differences between New and Existing
Contracts................................ 11
Agents' and Managers' Retirement Plan
Exchange Offer........................... 13
Availability of Offer....................... 14
Calculation of Surrender Charge................. 15
Illustration of Surrender Charge on Total
Surrender................................ 15
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender................................ 16
Purchase Unit Value............................. 17
Illustration of Calculation of Purchase Unit
Value.................................... 17
Illustration of Purchase of Purchase
Units.................................... 17
Performance Calculations........................ 18
Money Market Division Yields.................... 18
Calculation of Current Yield for Money
Market Division Six...................... 18
Illustration of Calculation of Current Yield
Money Market Division Six................ 18
Calculation of Effective Yield for Money
Market Division Six...................... 18
Illustration of Calculation of Effective
Yield for Money Market Division Six...... 18
Standardized Yield for Divisions Seven, Eight
and Thirteen.................................. 18
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Calculation of Standardized Yield for
Divisions Seven, Eight and Thirteen...... 18
Illustration of Calculation of Standardized
Yield for Divisions Seven, Eight and
Thirteen................................. 18
Calculation of Average Annual Total Return...... 19
Performance Information......................... 20
Performance Compared to Market Indices...... 20
Stock Index Division Ten Performance
Compared to S&P 500 Index................ 22
MidCap Index Division Four Performance
Compared to S&P Index and S&P MidCap 400
Index.................................... 23
Small Cap Index Division Fourteen
Performance Compared to Russell 2000(R)
Index.................................... 24
International Equities Division Eleven
Performance Compared to EAFE Index....... 24
Social Awareness Division Twelve Performance
Compared to S&P 500 Index................ 25
Asset Allocation Division Five Performance
Compared to S&P 500 Index, Merrill Lynch
Corporate and Government Master Index and
Certificate of Deposit Primary Offering
by New York City Banks, 30 Day Index..... 26
Capital Conservation Division Seven
Performance Compared to Merrill Lynch
Corporate Master Index................... 27
Government Securities Division Eight
Performance Compared to Lehman Brothers
U.S. Treasury Composite Index............ 28
International Government Bond Division
Thirteen Performance Compared to Salomon
Brothers Non U.S. Dollar World Government
Bond Index............................... 29
Money Market Division Six Performance
Compared to Certificate of Deposit
Primary Offering by New York City Banks,
30 Day Index............................. 30
Payout Payments................................. 31
Assumed Investment Rate..................... 31
Amount of Payout Payments................... 31
Payout Unit Value........................... 31
Illustration of Calculation of Payout Unit
Value.................................... 32
Illustration of Payout Payments............. 32
Distribution of Variable Annuity Contracts...... 33
Experts......................................... 33
Comments on Financial Statements................ 33
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GENERAL INFORMATION
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.
The Company established Separate Account A (the "Separate Account") on July
25, 1979 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 "Act").
Each Division of the Separate Account (except for AGSPC's International
Government Bond Fund, which is a non-diversified Fund) invests in the shares of
an open-end, management-type investment company registered under the Act, or a
portfolio of a diversified, open-end, management investment company registered
under the Act. The Separate Account currently is made up of 53 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 with the Company have grown from $37,000 in 1956 to more than
$3.7 billion as of December 31, 1998. The number of aggregate participant
accounts has increased from 155,000 accounts in 1980 to more than 1,954,190
accounts as of December 31, 1998. The number of employer groups which have
purchased Contracts has increased by 178 percent in the past ten years to more
than 28,094 as of December 31, 1998. As of December 31, 1998, 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, 1998 the Company's assets totaled more than $39
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, 1998, the Company was marketing Contracts in more than
10,218 public and private, primary and secondary schools with more than 494,584
participant accounts for employees in public and private schools nationwide.
From December 31, 1988, to December 31, 1998, the cash value of investments in
these Contracts has increased by 269 percent while the number of public and
private school groups in these Contracts increased 97 percent and the number of
participant accounts in those Contracts increased by 111 percent.
The Company has also increased its marketing efforts to colleges and
universities. From December 31, 1988 to December 31, 1998, the number of
colleges and universities which allow the Company to market Contracts to their
faculty and staff members has increased 166 percent and for the same period the
number of participant accounts has increased 131 percent. For the same time
period cash values for participants have increased 306 percent. As of December
31, 1998, nearly 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, 1988 to December 31, 1998
Contract cash values have increased 802 percent. During the same period the
number of health care groups that have purchased these Contracts increased 274
percent and the number of participant accounts increased 727 percent.
The Company has also experienced growth in contracts sold to state and
local governmental
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groups. From December 31, 1988 to December 31, 1998, Contract cash values for
participants in these groups have increased 310 percent. For the same period the
number of participant accounts for individuals in these groups in these
Contracts increased 229 percent and the number of employer groups has increased
303 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 28 of the 31 states that sponsor ORPs as an
alternative to a state defined, benefit plan and offers multiple carriers, as of
December 31, 1998. From December 31, 1993 to December 31, 1998 in these ORPs the
number of participant accounts increased 81 percent and cash values increased
153 percent to nearly $2.7 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, The Variable Annuity Research and Data 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 versus actively managed funds, the use of dollar cost
averaging techniques, the tax status of contributions, and the periodic
rebalancing of diversified portfolios.
The Company may, from time to time, refer to Bankers Trust Company as
subadviser to American General Series Portfolio Company ("AGSPC") Stock Index
Fund (underlying Division 10).
Bankers Trust Company, subadviser to Divisions 4, 10, and 14, is a wholly
owned subsidiary of Bankers Trust Corporation. On November 30, 1998, Bankers
Trust Corporation entered into an Agreement and Plan of Merger with Deutsche
Bank AG under which Bankers Trust Corporation and all of its subsidiaries would
merge with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is a
major global banking institution that is engaged in a wide range of financial
services, including retail and commercial banking, investment banking and
insurance. The merger is contingent upon various regulatory approvals. On April
20, 1999, the AGSPC Fund's Board of Directors approved a new investment
sub-advisory agreement with Bankers Trust Company, subject to shareholder
approval. If the merger is approved and completed, Deutsche Bank
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<PAGE> 174
AG, as the Sub-Adviser's new parent company, will control the operations of the
Sub-Adviser. Bankers Trust believes that, under this new arrangement, the
services provided to the Fund will be maintained at their current level.
On March 11, 1999, Bankers Trust announced that it had reached an agreement
with the United States Attorney's Office in the Southern District of New York to
resolve an investigation concerning inappropriate transfers of unclaimed funds
and related recordkeeping problems that occurred between 1994 and early 1996.
Pursuant to its agreement with the U.S. Attorney's Office, Bankers Trust pleaded
guilty to misstating entries in the bank's books and records and agreed to pay a
$60 million fine to federal authorities. Separately, Bankers Trust agreed to pay
a $3.5 million fine to the State of New York. The events leading up to the
guilty pleas did not arise out of the investment advisory or mutual fund
management activities of Bankers Trust or its affiliates.
As a result of the plea, absent an order from the SEC, Bankers Trust would
not be able to continue to provide investment advisory services to the Fund. The
SEC has granted a temporary order to permit Bankers Trust and its affiliates to
continue to provide investment advisory services to registered investment
companies. There is no assurance that the SEC will grant a permanent order.
TYPES OF VARIABLE ANNUITY
CONTRACTS
Flexible payment deferred annuity Contracts are offered in connection with
the Prospectus to which this Statement of Additional Information relates.
Under flexible payment deferred annuity 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.
The Contracts are non-participating and will not share in any of the
profits of the Company.
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
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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 for medical expenses, to the extent deductible.
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 a 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 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
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 taxa-
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ble 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 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 $31,000 or less
($30,000 for 1998, $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 $51,000 or less
($50,000 for 1998, $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,
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<PAGE> 177
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), or for certain medical, higher education or
first-time homeowner expenses, or health care premiums 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 compensation for plan years beginning after
December 31, 1993.
Salary Reduction SEPs. Federal tax law allows employees of certain small
employers to have contributions made to the SEP on their behalf on a salary
reduction basis. These salary reduction contributions may not exceed $10,000
($9,500 prior to 1998), 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 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 were subject to the claims of the
employer's creditors until January 1, 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.
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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 $5,000 for certain 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 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, 1982 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.
9
<PAGE> 179
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 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.
FUND DIVERSIFICATION
Separate Account investments must be adequately diversified in order for
the increase in the value of Non-Qualified Contracts to receive tax-deferred
treatment. In order to be adequately diversified, each portfolio of the Fund
must, as of the end of each calendar quarter or within 30 days thereafter, have
no more than 55% of its assets invested in any one investment, 70% in any two
investments, 80% in any three investments and 90% in any four investments.
Failure of a Fund portfolio to meet the diversification requirements could
result in tax liability to Non-Qualified Contract Owners.
Each of the portfolios of the Fund expects to meet the diversification
requirements above and assure tax deferred treatment for holders of any
Non-Qualified Contracts.
The investment opportunities of the Fund could conceivably be limited by
adhering to the above diversification requirements. This would affect all
Contract Owners, including those owners of Qualified Contracts for whom
diversification is not a requirement for tax-deferred treatment.
EXCHANGE PRIVILEGE
GENERAL
We are making an exchange offer to annuitants and contract owners under
certain of our outstanding fixed annuity contracts (including both "Fixed
Contracts" (i.e., 1FA-582 and 6FA-582) 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 we have not yet started making payout 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
herein.
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
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<PAGE> 180
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 our nearest Regional Office. (The addresses
for these offices appear on the inside back cover of the 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 the lesser of 7% of purchase payments withdrawn within five years of
the date such purchase payments were made or the amount withdrawn. 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 five 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 a 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 Account Value applied to the
New Contracts (the "Exchanged Amount.") Purchase payments made subsequent to the
exchange, however, will be subject to the surrender charge under the New
Contracts. In the case of a partial surrender, all such subsequent purchase
payments will be deemed to be withdrawn before any of the Exchanged Amount is
deemed to be withdrawn. No exchange pursuant to this offer will be allowed
within 120 days of a transfer of fixed accumulations under an SA-1 or SA-2
contract to the variable portion of such contract.
If a UIT-981 or Fixed Contract is exchanged for a New Contract, the
surrender charge under the UIT-981 or Fixed Contract will not apply to the
exchanged amount. However, in the case of a total or partial surrender, Purchase
Payments under the UIT-981 Contract or under the Fixed Contract,
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<PAGE> 181
which were exchanged for 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 us.
There are no administrative and risk charges under the Fixed Contracts.
Under the New Contracts, an account maintenance free of $20 is assessed for
the first Participant Year and an annual fee of $15 is assessed for the second
and later years during the Purchase 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 account maintenance fee will not be refunded. In
addition, the New Contract will be subject to the account 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
American General Series Portfolio Company ("AGSPC"). This portfolio is managed
by us 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.
Under UIT-981 Contracts, five divisions of Separate Account A are
available, each investing in shares of a different underlying mutual fund of
AGSPC. The five mutual funds are managed by us for advisory fees at annual AGSPC
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 AGSPC. The investment
portfolios are managed by us for advisory fees at annual rates ranging from .35%
to .75% of each portfolio's average monthly net assets. In addition, two Fixed
Account Options are available.
Payout 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 Payout Payments (the "Payout
Period") SA-1 and SA-2 Contracts make no provision for transfers from a separate
account to provide a Fixed
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<PAGE> 182
Payout Option. The option, subject to certain conditions, is available under the
New Contracts as well as under UIT-981 Contracts.
PAYOUT OPTIONS. One option under the New Contracts provides for Payout
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 Payout Payments may
be on either a fixed or variable basis. SA-2 Contracts do not provide a
guaranteed period option. Under the UIT-981, SA-1, Fixed and Compounder
Contracts, the guaranteed 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 Payout Payments
to be made at a level payment basis during each year of the Payout 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 Payout Payments for Fixed Payouts will be based on
mortality tables then being used by us, if more favorable to the Annuitant then
those included in the Contract. The SA-1 Contracts contain a similar "betterment
of rates" provision which is applicable to both Fixed and Variable Payouts. The
Compounder and SA-2 Contracts contain no betterment of rates provision.
GUARANTEED PAYOUT PAYMENT RATES. Mortality rates have improved since Payout
Payment rates were developed for the Existing Contracts. Therefore, the Payout
Payment rates guaranteed in the New Contracts are less favorable to Contract
Owners and Annuitants than those guaranteed in the Existing Contracts. However,
the current Payout Payment rates being charged for Fixed Payout Payments 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 the Payout
Period commences for a given contract. Guaranteed Payout Payment 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 our regional offices listed on the inside back cover of the
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 account maintenance fees. Other
individuals who are not eligible agents and managers of the Company who may
exchange their Account Value under the SA-1 contracts for the equivalent in the
New contracts may have imposed under the New Contract such charges and fees. All
other provisions with regard to exchange offers referenced in the section
entitled "Exchange Offers" will apply to the Agents' and Managers' Retirement
Plan Exchange Offer.
Pursuant to this voluntary exchange offer, participants in the Plan will
have three options to choose from. As to the funding vehicle for their purchase
payment plan, the participant may choose to:
1. remain in the SA-1 contract;
2. leave current assets in the SA-1 contract and direct future Purchase Payments
to the New Contract; or
3. transfer Account Value and future Purchase Payments to the New Contract.
If you choose to remain in the SA-1 contract, future Purchase Payments and
Account Value will be controlled by the provisions of the SA-1 contract. If you
choose to leave Account Value in the SA-1 and direct future Purchase Payments to
the New
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<PAGE> 183
Contract, your Account Value will be controlled by the provisions of the SA-1
contract. Future Purchase Payments will be controlled by the terms of the New
Contract subject to the exception that surrender charges and annual account
maintenance fees will not be imposed under the New Contract. If you choose to
transfer all Account Value and future Purchase Payments to the New Contract,
such Account Value and Purchase Payments will be controlled by the provisions of
the New Contract subject to the exception that surrender charges and annual
account maintenance fees will not be imposed under the New Contract.
Once you transfer Account Value and future Purchase Payments to the New
Contract you will not be permitted to exchange back to the SA-1 contract. If you
choose to transfer future Purchase Payments but not Account Value to the New
Contract, you will be allowed at a later date to transfer Account Value 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.
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.
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<PAGE> 184
CALCULATION OF SURRENDER CHARGE
The surrender charge is discussed in the Prospectus under "Fees and
Charges -- Surrender Charge." Examples of calculation of the surrender charge
upon total and partial surrender are set forth below.
ILLUSTRATION OF SURRENDER CHARGE ON TOTAL SURRENDER
Example 1.
TRANSACTION HISTORY
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/93.......................... Purchase Payment $10,000
2/1/94.......................... Purchase Payment 5,000
2/1/95.......................... Purchase Payment 15,000
2/1/96.......................... Purchase Payment 2,000
2/1/97.......................... Purchase Payment 3,000
2/1/98.......................... Purchase Payment 4,000
7/1/98.......................... Total Purchase Payments (Assumes
Account Value is $50,000)
</TABLE>
Surrender Charge is lesser of (a) or (b):
a. Surrender Charge calculated on 60 months of Purchase Payments
<TABLE>
<S> <C>
1. Surrender Charge against Purchase Payment of 2/1/93...... $ 0
2. Surrender Charge against Purchase Payment of 2/1/94
(0.05 X $5,000)........................................... $ 250
3. Surrender Charge against Purchase Payment of 2/1/95
(0.05 X $15,000).......................................... $ 750
4. Surrender Charge against Purchase Payment of 2/1/96
(0.05 X $2,000)........................................... $ 100
5. Surrender Charge against Purchase Payment of 2/1/97
(0.05 X $3,000)........................................... $ 150
6. Surrender Charge against Purchase Payment of 2/1/98
(0.05 X $4,000)........................................... $ 200
Surrender Charge based on Purchase Payments
(1 + 2 + 3 + 4 + 5 + 6)................................... $1,450
</TABLE>
b. Surrender charge calculated on the excess over 10% of the Account Value at
the time of surrender:
<TABLE>
<S> <C> <C> <C>
Account Value at time of surrender $ 50,000
Less 10% not subject to surrender charge -5,000
--------
Subject to surrender charge 45,000
X .05
--------
Surrender Charge based on Account Value $ 2,250 ............... $2,250
Surrender Charge is the lesser of a or b ............... $1,450
------
</TABLE>
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<PAGE> 185
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>
2/1/93.......................... 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
2/1/98.......................... Purchase Payment 10,000
7/1/98.......................... 10% Partial Surrender
(Assumes Account Value is $39,000) 3,900
8/1/98.......................... Full Surrender 35,100
</TABLE>
a. Since this is the first partial surrender in this Participant Year, calculate
the excess over 10% of the value of the Purchase Units.
10% of $39,000 = $3,900 [no charge on this 10% withdrawal].
b. The Account Value upon which Surrender Charge on the Full Surrender may be
calculated (levied) is $39,000 - $3,900 = $35,100.
c. The Surrender Charge calculated on the Account Value withdrawn
$35,100 X .05 = $1,755.
d. Since only $29,000 has been paid in Purchase Payments in the 60 months prior
to the Full Surrender, the charge can only be calculated on $29,000. The
$3,900 partial withdrawal does not reduce this amount. Thus, the charge is
$29,000 X (0.05) = $1,450.
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<PAGE> 186
PURCHASE UNIT VALUE
The calculation of Purchase Unit value is discussed in the Prospectus under
"Purchase Period." The following illustrations show a calculation of new Unit
value and the purchase of Purchase Units (using hypothetical examples):
ILLUSTRATION OF CALCULATION OF PURCHASE UNIT VALUE
<TABLE>
<S> <C>
1. Purchase Unit value, beginning of
period................................ $ 1.800000
2. Value of Fund share, beginning of
period................................ 21.200000
3. Change in value of Fund share........ .500000
4. Gross investment return (3)/(2)...... .023585
5. Daily separate account fee........... $ .000027
----------
6. Net investment return (4)-(5)........ .023558
----------
7. Net investment factor 1.000000+(6)... $ 1.023558
----------
8. Purchase Unit value, end of period
(1)X(7)............................... $ 1.842404
----------
</TABLE>
ILLUSTRATION OF PURCHASE OF PURCHASE UNITS (ASSUMING NO STATE PREMIUM TAX)
<TABLE>
<S> <C>
1. First Periodic Purchase Payment...... $ 100.00
2. Purchase Unit value on effective date
of purchase (see Example 3)........... $1.800000
3. Number of Purchase Units purchased
(1)/(2)............................... 55.556
4. Purchase Unit value for valuation
date following purchase (See Example
3).................................... $1.842404
---------
5. Value of Purchase Units in account
for valuation date following purchase
(3)X(4)............................... $ 102.36
---------
</TABLE>
17
<PAGE> 187
PERFORMANCE CALCULATIONS
MONEY MARKET DIVISION YIELDS
CALCULATION OF CURRENT YIELD FOR MONEY MARKET DIVISION SIX
7-DAY CURRENT YIELD: 3.64%
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, 1998, the date of the most recent balance sheet included in the registration
statement ("base period"). It is computed by determining the net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one Accumulation Unit at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Contract
Owner Accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return and then
multiplying the base period return by 365/7.
CALCULATION OF EFFECTIVE YIELD FOR MONEY MARKET DIVISION SIX
7-DAY EFFECTIVE YIELD: 3.71%
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, 1998, the date of the most recent balance sheet included in the
registration statement ("base period"). It is computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical pre-
existing account having a balance of one Purchase Unit at the beginning of the
period, subtracting a
hypothetical charge reflecting deductions from Contract Owner accounts, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return and then compounding the base period
return by adding 1, raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result, according to the following formula:
365/7
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) ] - 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.......................................... 5.24% 4.82% 3.28%
---- ---- ----
</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, 1998, the
date of the most recent balance sheet of the Registrant included in the
registration statement is computed by dividing
the net investment income per Purchase Unit earned during the period by the
maximum offering price per Unit on the last day of the period, according to the
following formula:
6
YIELD = 2 [( a - b + 1 ) - 1]
-----
cd
18
<PAGE> 188
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 Purchase Units outstanding
during the period
d = the maximum offering price per Purchase Unit on the last day
of the period
</TABLE>
Yield on each Division is earned from dividends declared and paid by the
Fund, which are automatically reinvested in Fund shares.
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return quotations for the 1, 3, 5, and 10 year periods
ended December 31, 1998, 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:
n
P (1 + T) = 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
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>
We may advertise standardized average annual total return which includes
the surrender charge of up to 5% of 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 account maintenance fee.
There is no sales charge for reinvested dividends. All recurring fees have
been deducted. For fees which vary with the account size, an account size equal
to that of the median account size has been assumed. Ending redeemable value has
been determined assuming a complete redemption at the end of the 1, 5 or 10 year
period and deduction of all nonrecurring charges at the end of each such period.
19
<PAGE> 189
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 "How to Review
Investment Performance of Separate Account Divisions" and "The Summary of
Funds").
These tables compare hypothetical investment performance and percentage
changes in Purchase 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 Purchase Unit Values
in the calculation described in the Prospectus, and where applicable, dividend
yields were then added to determine the total returns applied in the dollar
value calculations. Similarly, to calculate Cumulative Return for the indices,
the Cumulative Return calculation described in the Prospectus for Unit values of
the Divisions is used, substituting the Hypothetical $10,000 Account Value at
the end of each year for the Purchase Unit Value. No sales load, administrative
charges, or any other expenses have been deducted from the index calculations.
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(C) Corporation
("S&P(C)")* Composite Stock Price Index ("S&P 500 Index"). The S&P 500(C) 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
- ---------------
* "Standard & Poors(C)", S&P(C), "S&P 500(C)" and "S&P MidCap 400(C)" 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.
20
<PAGE> 190
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.
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(R) Index ("Russell 2000").** The Russell 2000 was
developed in 1984 by the Frank Russell Company to track the stock market
performance of small capitalization domestic stocks. The Russell 2000 is market
weighted and consists of approximately 2000 stocks. Stocks included in the
Russell 2000 are chosen by the Frank Russell Company on the basis of their
market size.
The performance of 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 from time to time may be
compared with other Indexes which have been deemed by the Company relevant to
the Division.
These benchmarks do not reflect any charges for investment advisory fees,
brokerage commissions or other fees and expenses of the type charged at either
the Separate Account or Fund level. Therefore, the comparisons with these
benchmarks are of limited use.
- ---------------
** The Russell 2000(R) Index is a trademark/service mark of the Frank Russell
Trust Company. Russell(TM) is a
trademark of the Frank Russell Company.
21
<PAGE> 191
The Account Value of an assumed $10,000 investment in each of the Divisions
is shown in table form below. This will reflect a deduction for separate account
fees (mortality and expense risk fees) and underlying fund charges. This will
not reflect any deduction for account maintenance fees, surrender charges and
premium taxes. These charges would further reduce your return. See "How to
Review Investment Performance of Separate Account Divisions" in the prospectus
for information about how these returns were calculated as well as Standard
Average Annual Total Return information that reflects the deduction of all
separate account fees and charges.
STOCK INDEX DIVISION TEN PERFORMANCE COMPARED TO S&P 500 INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PURCHASE PAYMENT MADE JANUARY 1, 1989
<TABLE>
<CAPTION>
STOCK INDEX S&P 500
DIVISION TEN INDEX
- -------------------------------------------------------------------- -------
<S> <C> <C>
01/01/89................................................... $10,000 $10,000
------- -------
12/31/89................................................... 12,788 13,169
------- -------
12/31/90................................................... 12,171 12,760
------- -------
12/31/91................................................... 15,543 16,647
------- -------
12/31/92................................................... 16,411 17,915
------- -------
12/31/93................................................... 17,853 19,721
------- -------
12/31/94................................................... 17,799 19,982
------- -------
12/31/95................................................... 24,197 27,490
------- -------
12/31/96................................................... 29,406 33,804
------- -------
12/31/97................................................... 38,748 45,081
------- -------
12/31/98................................................... 49,264 57,966
------- -------
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Stock Index Division Ten...................... 392.64% 175.95% 103.59% 27.14%
------ ------ ------ -----
Benchmark Comparison
S&P 500 Index.................... 479.66% 193.93% 110.86% 28.58%
------ ------ ------ -----
</TABLE>
- ---------------
* This Division was initiated on April 20, 1987.
22
<PAGE> 192
MIDCAP INDEX DIVISION FOUR* PERFORMANCE COMPARED TO S&P INDEX AND S&P MIDCAP 400
INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PURCHASE PAYMENT MADE OCTOBER 1, 1991
<TABLE>
<CAPTION>
S&P S&P
MIDCAP INDEX 500 MIDCAP 400
DIVISION FOUR INDEX INDEX
- ---------------------------------------------------------------- ------- ----------
<S> <C> <C> <C>
10/01/91............................................... $10,000 $10,000 $10,000
12/31/91............................................... 11,163 10,838 11,229
------- ------- -------
12/31/92............................................... 12,143 11,664 12,566
------- ------- -------
12/31/93............................................... 13,574 12,840 14,320
------- ------- -------
12/31/94............................................... 12,936 13,009 13,806
------- ------- -------
12/31/95............................................... 16,718 17,898 18,078
------- ------- -------
12/31/96............................................... 19,661 22,009 21,557
------- ------- -------
12/31/97............................................... 25,648 29,351 28,506
------- ------- -------
12/31/98............................................... 30,214 37,739 33,947
------- ------- -------
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
SINCE
INCEPTION** 5 YEARS 3 YEARS 1 YEAR
----------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
MidCap Index Division Four..................... 202.14% 122.59% 80.73% 17.80%
------ ------ ------ -----
Benchmark Comparison
S&P 500 Index..................... 277.39% 193.93% 110.86% 28.58%
------ ------ ------ -----
S&P MidCap 400 Index.............. 239.47% 137.07% 87.79% 19.09%
------ ------ ------ -----
</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.
23
<PAGE> 193
SMALL CAP INDEX DIVISION FOURTEEN PERFORMANCE COMPARED TO RUSSELL 2000 INDEX(R)
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PURCHASE PAYMENT MADE MAY 1, 1992
<TABLE>
<CAPTION>
RUSSELL
SMALL CAP INDEX 2000
DIVISION FOURTEEN INDEX
- -------------------------------------------------------------------- -------
<S> <C> <C>
05/01/92................................................... $10,000 $10,000
12/31/92................................................... 11,128 11,416
------- -------
12/31/93................................................... 12,772 13,571
------- -------
12/31/94................................................... 12,223 13,324
------- -------
12/31/95................................................... 15,449 17,114
------- -------
12/31/96................................................... 17,854 19,937
------- -------
12/31/97................................................... 21,636 24,396
------- -------
12/31/98................................................... 21,005 23,775
------- -------
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Small Cap Index Division 14..................... 110.05% 64.46% 35.96% (2.92)%
------ ----- ----- -----
Benchmark Comparison
Russell 2000....................... 137.75% 75.19% 38.92% (2.55)%
------ ----- ----- -----
</TABLE>
- ---------------
* This Division was initiated on May 1, 1992.
INTERNATIONAL EQUITIES DIVISION ELEVEN PERFORMANCE COMPARED TO EAFE INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PURCHASE 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
------- -------
12/31/98................................................... 14,546 16,237
------- -------
</TABLE>
24
<PAGE> 194
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
International Equities Division Eleven........ 45.46% 47.47% 25.78% 17.57%
----- ----- ----- -----
Benchmark Comparison
EAFE Index....................... 62.37% 55.23% 29.52% 20.00%
----- ----- ----- -----
</TABLE>
- ---------------
* This Division was initiated on October 2, 1989.
SOCIAL AWARENESS DIVISION TWELVE PERFORMANCE COMPARED TO S&P 500 INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PURCHASE 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
------- -------
12/31/98................................................... 37,623 44,961
------- -------
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Social Awareness Division Twelve............. 276.23% 175.23% 105.02% 26.03%
------ ------ ------ -----
Benchmark Comparison
S&P 500 Index................... 349.61% 193.93% 110.86% 28.58%
------ ------ ------ -----
</TABLE>
- ---------------
* This Division was initiated on October 2, 1989.
25
<PAGE> 195
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 PURCHASE PAYMENT MADE JANUARY 1, 1989
<TABLE>
<CAPTION>
ASSET ALLOCATION S&P 500 BLENDED
DIVISION FIVE INDEX INDEX**
- --------------------------------------------------- ------- -------
<S> <C> <C> <C>
01/01/89.................................. $10,000 $10,000 $10,000
------- ------- -------
12/31/89.................................. 11,581 13,169 12,311
------- ------- -------
12/31/90.................................. 11,189 12,760 12,583
------- ------- -------
12/31/91.................................. 13,442 16,647 15,458
------- ------- -------
12/31/92.................................. 13,212 17,915 16,579
------- ------- -------
12/31/93.................................. 14,294 19,721 18,186
------- ------- -------
12/31/94.................................. 13,967 19,982 18,186
------- ------- -------
12/31/95.................................. 17,255 27,490 23,167
------- ------- -------
12/31/96.................................. 18,979 33,804 26,372
------- ------- -------
12/31/97.................................. 23,040 45,081 32,159
------- ------- -------
12/31/98.................................. 26,999 57,966 38,548
------- ------- -------
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Asset Allocation Division Five.................. 169.99% 88.88% 56.47% 17.19%
------ ------ ------ -----
Benchmark Comparison**
S&P 500 Index...................... 479.66% 193.93% 110.86% 28.58%
------ ------ ------ -----
Blended Index...................... 285.48% 111.96% 66.39% 19.87%
------ ------ ------ -----
</TABLE>
- ---------------
* The Asset Allocation Fund was formerly known as the Timed Opportunity Fund.
** The Blended Index reflects an allocation of investments in the following
Indexes: 55% of investments included in the S&P 500 Index, 35% of investments
included in the Merrill Lynch Corporate and Government Master Index, and 10%
of investments included in the Certificate of Deposit Primary Offering by New
York City Banks, 30 Day Index.
26
<PAGE> 196
CAPITAL CONSERVATION DIVISION SEVEN PERFORMANCE COMPARED TO MERRILL LYNCH
CORPORATE MASTER INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PURCHASE PAYMENT MADE JANUARY 1, 1989
<TABLE>
<CAPTION>
MERRILL LYNCH
CAPITAL CONSERVATION CORPORATE MASTER
DIVISION SEVEN INDEX
- -------------------------------------------------------------- ----------------
<S> <C> <C>
01/01/89............................................. $10,000 $10,000
------- -------
12/31/89............................................. 11,063 11,411
------- -------
12/31/90............................................. 10,922 12,253
------- -------
12/31/91............................................. 12,669 14,487
------- -------
12/31/92............................................. 13,626 15,808
------- -------
12/31/93............................................. 15,108 17,773
------- -------
12/31/94............................................. 14,044 17,176
------- -------
12/31/95............................................. 16,795 20,882
------- -------
12/31/96............................................. 16,920 21,590
------- -------
12/31/97............................................. 18,187 23,832
------- -------
12/31/98............................................. 19,333 25,910
------- -------
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Capital Conservation Division Seven.............. 93.33% 27.96% 15.11% 6.30%
------ ----- ----- ----
Benchmark Comparison
Merrill Lynch Corporate Master
Index............................. 159.10% 45.78% 24.08% 8.72%
------ ----- ----- ----
</TABLE>
- ---------------
* This Division was initiated on January 16, 1986.
27
<PAGE> 197
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 PURCHASE PAYMENT MADE JANUARY 1, 1989
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES U.S. TREASURY
DIVISION EIGHT CORPORATE INDEX
- --------------------------------------------------------------- ---------------
<S> <C> <C>
01/01/89.............................................. $10,000 $10,000
------- -------
12/31/89.............................................. 11,103 11,435
------- -------
12/31/90.............................................. 11,648 12,419
------- -------
12/31/91.............................................. 13,231 14,327
------- -------
12/31/92.............................................. 14,044 15,363
------- -------
12/31/93.............................................. 15,406 17,013
------- -------
12/31/94.............................................. 14,567 16,430
------- -------
12/31/95.............................................. 16,943 19,445
------- -------
12/31/96.............................................. 17,095 19,984
------- -------
12/31/97.............................................. 18,433 21,876
------- -------
12/31/98.............................................. 19,883 24,081
------- -------
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Government Securities Division Eight........... 98.83% 29.06% 17.35% 7.86%
------ ----- ----- -----
Benchmark Comparison
U.S. Treasury Composite Index..... 140.81% 41.55% 23.84% 10.08%
------ ----- ----- -----
</TABLE>
- ---------------
* This Division was initiated on January 16, 1986.
28
<PAGE> 198
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 PURCHASE PAYMENT MADE OCTOBER 1, 1991
<TABLE>
<CAPTION>
SALOMON BROS.
NON-U.S. DOLLAR
WORLD
INTERNATIONAL GOVERNMENT BOND GOVERNMENT
DIVISION THIRTEEN 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
------- -------
12/31/98.............................................. 17,280 19,497
------- -------
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
International Government Bond Division
Thirteen...................................... 72.80% 37.32% 12.88% 15.92%
----- ----- ----- -----
Benchmark Comparison
Salomon Bros. Non-U.S. Dollar World
Government Bond Index............. 94.97% 47.19% 16.80% 17.68%
----- ----- ----- -----
</TABLE>
- ---------------
* This Division was initiated on October 1, 1991.
29
<PAGE> 199
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 PURCHASE PAYMENT MADE JANUARY 1, 1989
<TABLE>
<CAPTION>
MONEY MARKET PRIMARY
DIVISION SIX CD INDEX
- ------------------------------------------------------------------- --------
<S> <C> <C>
01/01/89.................................................. $10,000 $10,000
------- -------
12/31/89.................................................. 10,792 10,867
------- -------
12/31/90.................................................. 11,530 11,736
------- -------
12/31/91.................................................. 12,048 12,377
------- -------
12/31/92.................................................. 12,316 12,767
------- -------
12/31/93.................................................. 12,521 13,098
------- -------
12/31/94.................................................. 12,867 13,565
------- -------
12/31/95.................................................. 13,447 14,235
------- -------
12/31/96.................................................. 13,982 14,881
------- -------
12/31/97.................................................. 14,559 15,592
------- -------
12/31/98.................................................. 15,160 16,325
------- -------
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Money Market Division Six........................ 51.60% 21.07% 12.73% 4.12%
----- ----- ----- ----
Benchmark Comparison
Primary CD Index.................... 63.25% 24.64% 14.68% 4.70%
----- ----- ----- ----
</TABLE>
30
<PAGE> 200
PAYOUT PAYMENTS
ASSUMED INVESTMENT RATE
The discussion concerning the amount of payout payments which follows this
section is based on an Assumed Investment Rate of 3 1/2% per annum. However, the
Company will permit each Annuitant choosing a variable payout option to select
an Assumed Investment Rate permitted by state law or regulations other than the
3 1/2% rate described in this prospectus as follows: 4 1/2% or 5% 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 VALIC Separate Account A.
AMOUNT OF PAYOUT PAYMENTS
The amount of the first variable payout payment to the Annuitant will
depend on the amount of the Account Value applied to effect the variable payout
as of the tenth day immediately preceding the date payout payments commence, the
amount of any premium tax owed, the payout option selected, and the age of the
Annuitant.
The Contracts contain tables indicating the dollar amount of the first
payout payment under each payout option for each $1,000 of Account Value (after
the deduction for any premium tax) at various ages. These tables are based upon
the Annuity 2000 Table (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 payout payment derived from a
Division of VALIC Separate Account A is divided by the Payout Unit Value for
that Division (calculated ten days prior to the date of the first monthly
payment) to determine the number of Payout Units in each Division represented by
the payment. The number of such units will remain fixed during the Payout
Period, assuming the Annuitant makes no transfers of Payout Units to provide
Payout Units under another Division or to provide a fixed payout payment.
In any subsequent month, the dollar amount of the variable payout payment
derived from each Division is determined by multiplying the number of Payout in
that Division by the value of such Payout Unit on the tenth day preceding the
due date of such payment. The Payout Unit Value will increase or decrease in
proportion to the net investment return of the Division or Divisions underlying
the variable payout since the date of the previous payout payment, less an
adjustment to neutralize the 3 1/2% or other Assumed Investment Rate referred to
above.
Therefore, the dollar amount of variable payout payments after the first
year will vary with the amount by which the net investment return is greater or
less than 3 1/2% per annum. For example, if a Division has a cumulative net
investment return of 5% over a one year period, the first payout payment in the
next year will be approximately 1 1/2 percentage points greater than the payment
on the same date in the preceding year, and subsequent payments will continue to
vary with the investment experience of the Division. If such net investment
return is 1% over a one year period, the first payout payment in the next year
will be approximately 2 1/2 percentage points less than the payment on the same
date in the preceding year, and subsequent payments will continue to vary with
the investment experience of the applicable Division.
Each deferred Contract provides that, when fixed payout payments are to be
made under one of the first four payout options, the monthly payment to the
Annuitant will not be less than the monthly payment produced by the then current
settlement option rates, which will not be less than the rates used for a
currently issued single payment immediate annuity contract. The purpose of this
provision is to assure the Annuitant that, at retirement, if the fixed payout
purchase rates then required by the Company for new single payment immediate
annuity contracts are significantly more favorable than the annuity rates
guaranteed by a Contract, the Annuitant will be given the benefit of the new
annuity rates.
PAYOUT UNIT VALUE
The value of a Payout Unit is calculated at the same time that the value of
an Purchase Unit is calculated and is based on the same values for Fund shares
and other assets and liabilities. (See "Purchase Period" in the prospectus.) The
calculation of Payout Unit value is discussed in the prospectus under "Payout
Period."
31
<PAGE> 201
The following illustrations show, by use of hypothetical examples, the
method of determining the Payout Unit value and the amount of variable annuity
payments.
ILLUSTRATION OF CALCULATION OF PAYOUT UNIT VALUE
Example 8.
<TABLE>
<S> <C>
1. Payout Unit value, beginning of period.................. $ .980000
2. Net investment factor for Period (see Example 3)........ 1.023558
3. Daily adjustments for 3 1/2% Assumed Investment Rate.... .999906
4. (2)X(3)................................................. 1.023462
5. Payout Unit value, end of period (1)X(4)................ $1.002993
</TABLE>
ILLUSTRATION OF PAYOUT PAYMENTS
Example 9. Annuitant age 65, Life Annuity with 120 Payments Certain
<TABLE>
<S> <C>
1. Number of Purchase Units at Payout Date................. 10,000.00
2. Purchase Unit value (see Example 3)..................... $ 1.800000
3. Account Value of Contract (1)X(2)....................... $18,000.00
4. First monthly Payout Payment per $1,000 of Account
Value.................................................... $ 5.63
5. First monthly Payout Payment (3)X(4) divided by 1,000... $ 101.34
6. Payout Unit value (see Example 8)....................... $ .980000
7. Number of Payout Units (5) divided by (6)............... $ 103.408
8. Assume Payout Unit value for second month equal to...... $ .997000
9. Second monthly Payout Payment (7)X(8)................... $ 103.10
10. Assume Payout Unit value for third month equal to....... $ .953000
11. Third monthly Payout Payment (7)X(10)................... $ 98.55
</TABLE>
32
<PAGE> 202
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, an
affiliate of the Company. The Underwriter's address is 2929 Allen Parkway,
Houston, Texas 77019. The Underwriter is a Delaware corporation organized in
1994 and is a member of the NASD.
The licensed agents who sell the Contracts will be compensated for such
sales by commissions which will range up to 6.0% of each Purchase payment.
Managers who supervise the agents will receive overriding commissions ranging up
to 1% of Purchase payments. (These various commissions are paid by the Company
and do not result in any charge to Contract Owners or to 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. Prior to May 1, 1999, The Variable
Annuity Marketing Company ("VAMCO") was the principal underwriter for the
Separate Account. Sales commissions paid for the years 1996, 1997 and 1998 were
approximately $6,038,000, $4,566,000 and $3,962,000, respectively. VAMCO
retained $0 in commissions for the years 1996, 1997 and 1998.
EXPERTS
The consolidated financial statements of the Company at December 31, 1998
and 1997, and for each of the three years in the period ended December 31, 1998,
and the financial statements of the Company's Separate Account A at December 31,
1998 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, and are 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, 1998.
33
<PAGE> 203
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, 1998
and 1997, and the related consolidated statements of income, changes in
stockholder's equity, comprehensive income, and cash flows for each of the three
years in the period ended December 31, 1998. 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, 1998
and 1997, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Houston, Texas
February 16, 1999
<PAGE> 204
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Consolidated Balance Sheet
At December 31
In Thousands
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS Investments - Notes 2, 7, 8, 9:
Fixed maturity securities
(amortized cost: $21,733,209 in 1998 and $20,651,381 in 1997) $22,878,049 $21,641,084
Equity securities (cost: $176,799 in 1998 and $5,581 in 1997) 194,629 5,456
Mortgage loans on real estate 1,212,527 1,259,029
Real estate, net of accumulated depreciation
of $69 in 1998 and 1997 20,679 28,569
Policy loans 788,547 719,127
Other long-term invested assets 59,543 45,474
Short-term investments 164,484 60,904
----------- -----------
Total investments 25,318,458 23,759,643
----------- -----------
Investment income receivable 369,777 347,358
Cash 104,718 32,181
Receivable for securities sold 22,157 32,825
Deferred policy acquisition costs - Note 3 665,127 392,346
Cost of insurance purchased - Note 4 22,113 --
Due from reinsurer, net 13,343 14,545
Other assets 119,310 52,104
Assets held in Separate Accounts 14,712,465 10,564,220
----------- -----------
Total assets $41,347,468 $35,195,222
----------- -----------
LIABILITIES Policy reserves for fixed annuity investment contracts $23,218,626 $21,994,804
Payable for securities purchased 40,757 19,027
Remittances not allocated 95,797 79,392
Commissions, general expenses and taxes (other than income taxes) 37,613 39,546
Other liabilities 193,933 61,756
Income tax liabilities - Note 5 541,676 377,072
Liabilities related to Separate Accounts 14,712,465 10,564,220
----------- -----------
Total liabilities 38,840,867 33,135,817
----------- -----------
Common stock (voting) par value $1 per share, 5,000 shares authorized
STOCKHOLDER'S and 3,575 issued and outstanding in 1998 and 1997 - Note 6 3,575 3,575
EQUITY Additional paid-in capital 833,372 710,624
Retained earnings 1,142,194 1,038,731
Accumulated other comprehensive income - Note 2 527,460 306,475
----------- -----------
Total stockholder's equity 2,506,601 2,059,405
=========== ===========
Total liabilities and stockholder's equity $41,347,468 $35,195,222
=========== ===========
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
2
<PAGE> 205
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Consolidated Statement of Income
For the Years Ended December 31,
In Thousands
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES Surrender charges $ 14,512 $ 12,405 $ 12,348
Mortality charges 135,304 94,162 59,955
Expense charges 6,784 6,102 5,654
Net investment income - Note 2 1,810,624 1,729,541 1,654,496
Net reinsurance income 1,236 1,303 1,528
Realized investment gains (losses) - Note 2 (28,271) 20,235 21,551
Other income 18,593 15,320 10,920
----------- ----------- -----------
Total revenues 1,958,782 1,879,068 1,766,452
----------- ----------- -----------
COSTS AND Policy costs:
EXPENSES Increase in policy reserves for fixed annuity contracts 1,296,120 1,286,010 1,243,993
----------- ----------- -----------
Total costs 1,296,120 1,286,010 1,243,993
----------- ----------- -----------
Expenses:
Commissions 123,983 110,960 97,630
Salaries 70,904 58,873 54,016
Data processing 28,616 14,876 12,088
Postage and telephone 15,473 12,253 11,308
Sales promotion 10,250 10,161 10,394
Depreciation expense on furniture and equipment 10,292 8,964 8,920
Rent 9,315 7,931 7,524
Taxes, licenses and fees 8,302 6,874 6,208
Printing and supplies 6,393 4,496 5,290
Guaranty association assessments - Note 10 37 30 2,678
Other expenses 60,682 35,172 27,223
Amortization of deferred policy acquisition costs - Note 3 55,074 42,101 31,201
Amortization of cost of insurance purchased - Note 4 1,802 -- --
Policy acquisition costs deferred - Note 3 (159,778) (137,655) (116,818)
----------- ----------- -----------
Total expenses 241,345 175,036 157,662
----------- ----------- -----------
EARNINGS Total costs and expenses 1,537,465 1,461,046 1,401,655
----------- ----------- -----------
Income before income tax expense 421,317 418,022 364,797
Income tax expense - Note 5 136,854 144,238 124,370
----------- ----------- -----------
Net income $ 284,463 $ 273,784 $ 240,427
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
3
<PAGE> 206
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Consolidated Statement of Changes in Stockholder's Equity
For the Years Ended December 31,
In Thousands
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<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 710,624 459,281 384,126
PAID-IN-CAPITAL Capital contribution from stockholder 122,748 251,343 75,155
----------- ----------- -----------
Balance at end of year 833,372 710,624 459,281
----------- ----------- -----------
RETAINED Balance at beginning of year 1,038,731 1,143,947 1,014,520
EARNINGS Net income 284,463 273,784 240,427
Dividends paid to stockholder (181,000) (379,000) (111,000)
----------- ----------- -----------
Balance at end of year 1,142,194 1,038,731 1,143,947
----------- ----------- -----------
ACCUMULATED OTHER Balance at beginning of year 306,475 166,852 396,620
COMPREHENSIVE Change in net unrealized gains (losses) on securities 220,985 139,623 (229,768)
----------- ----------- -----------
INCOME Balance at end of year 527,460 306,475 166,852
----------- ----------- -----------
STOCKHOLDER'S
EQUITY Balance at end of year $ 2,506,601 $ 2,059,405 $ 1,773,655
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
Consolidated Statement of Comprehensive Income
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
COMPREHENSIVE Net income $ 284,463 $ 273,784 $ 240,427
INCOME Other comprehensive income
Gross change in unrealized gains (losses) on securities
(pretax: $311,706; $235,040; ($331,938)) 202,609 152,776 (215,760)
Less: gains (losses) realized in net income - Note 2 (18,376) 13,153 14,008
--------- --------- ---------
Change in net unrealized gains (losses) on
securities (pretax: $339,977; $214,805; ($353,489)) 220,985 139,623 (229,768)
--------- --------- ---------
Comprehensive income $ 505,448 $ 413,407 $ 10,659
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
4
<PAGE> 207
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Consolidated Statement of Cash Flows
For the Years Ended December 31,
In Thousands
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING Net income $ 284,463 $ 273,784 $ 240,427
ACTIVITIES Reconciling adjustments to net cash provided by
operating activities:
Insurance and annuity liabilities 1,296,120 1,286,010 1,243,993
Deferred policy acquisition costs (104,704) (95,554) (85,617)
Other, net (37,021) (51,241) (50,233)
------------ ------------ ------------
Net cash provided by operating activities 1,438,858 1,412,999 1,348,570
------------ ------------ ------------
INVESTING Investment purchases (15,180,407) (18,403,013) (14,883,271)
ACTIVITIES Investment calls, maturities and sales 14,731,932 17,500,312 13,897,479
Net increase in short-term investments (103,580) (7,904) (13,722)
------------ ------------ ------------
Net cash used for investing activities (552,055) (910,605) (999,514)
------------ ------------ ------------
FINANCING Policyholder account deposits 3,755,481 3,385,303 2,896,090
ACTIVITIES Policyholder account withdrawals (1,777,580) (1,427,005) (1,276,008)
Transfers to Separate Accounts (2,728,063) (2,325,214) (1,936,727)
Capital contribution from stockholder 116,896 251,343 75,155
Dividends paid (181,000) (379,000) (111,000)
------------ ------------ ------------
Net cash used for financing activities (814,266) (494,573) (352,490)
------------ ------------ ------------
NET CHANGE Net increase (decrease) in cash 72,537 7,821 (3,434)
IN CASH Cash at beginning of year 32,181 24,360 27,794
------------ ------------ ------------
Cash at end of year $ 104,718 $ 32,181 $ 24,360
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
5
<PAGE> 208
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1998
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.
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
COMPREHENSIVE INCOME. During 1998, VALIC adopted Statement of Financial
Accounting Standards (SFAS) 130, "Reporting Comprehensive Income," which
establishes standards for reporting and displaying comprehensive income and its
components in the financial statements. VALIC elected to report comprehensive
income and its components in a separate statement of comprehensive income.
Adoption of this statement did not change recognition or measurement of net
income and, therefore, did not impact VALIC's consolidated results of operations
or financial position.
DERIVATIVES. In June 1998, the Financial Accounting Standards Board issued
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," which
requires all derivative instruments to be recognized at fair value as either
assets or liabilities in the balance sheet. Changes in the fair value of a
derivative instrument are to be reported as earnings or other comprehensive
income, depending upon the intended use of the derivative instrument. This
statement is effective for years beginning after June 15, 1999. Adoption of SFAS
133 is not expected to have a material impact on VALIC's consolidated results of
operations or financial position.
1.4 INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES. At year end, 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 accumulated other
comprehensive income 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.
During 1998, VALIC maintained a trading portfolio of certain fixed maturity
securities. Trading securities are recorded at fair value. Unrealized gains
(losses), as well as realized gains (losses), are included in net investment
income. VALIC held no trading securities at December 31, 1998, and trading
securities did not have a material effect on net investment income.
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
are used to convert specific investment securities from a floating-rate 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.
- --------------------------------------------------------------------------------
6
<PAGE> 209
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
1.5 DERIVATIVES RELATED TO INVESTMENTS-(CONTINUED)
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 accumulated other comprehensive income
included in stockholder's equity, consistent with the treatment of the related
investment security.
For swap agreements hedging anticipated investment purchases, the net swap
settlement amount or unrealized gain or loss is deferred and included in the
measurement of the anticipated transaction when it occurs.
Swap agreements generally have terms of two to ten years. Any gain or loss
from early termination of a swap agreement is deferred and amortized into income
over the remaining term of the related investment. If the underlying investment
is extinguished or sold, any related gain or loss on swap agreements is
recognized in income.
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 prolonged periods of decreasing interest rates, the spread between
investment yields and interest crediting rates may be reduced as a result of
minimum rate guarantees on certain insurance and annuity contracts, which limit
VALIC's ability to reduce interest crediting rates. Call swaptions, which allow
VALIC to enter into interest rate swap agreements to receive fixed rates and pay
lower floating rates, effectively maintain the spread between investment yields
and interest crediting rates during such periods.
During prolonged periods of increasing interest rates, the spread between
investment yields and interest crediting rates may be reduced as a result of
VALIC's decision to increase interest crediting rates to limit surrenders. Put
swaptions, which allow VALIC to enter into interest rate swap agreements to pay
fixed rates and receive higher floating rates, effectively maintain the spread
between investment yields and interest crediting rates during such periods.
Premiums paid to purchase swaptions are included in investments and are
amortized to net investment income over the exercise period of the swaptions. If
a 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 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) on securities had been realized at the balance sheet
date. The impact of this adjustment is included in accumulated other
comprehensive income 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 VALIC. Consequently, VALIC'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 credited 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.
- --------------------------------------------------------------------------------
7
<PAGE> 210
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
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 accumulated other
comprehensive income in stockholder's equity.
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>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 169,855 $ 237,719 $ 213,686
---------- ---------- ----------
Stockholder's equity $1,236,522 $1,189,278 $1,077,366
---------- ---------- ----------
</TABLE>
1.12 COINSURANCE TRANSACTION
On May 21, 1998, VALIC completed the acquisition of a block of individual
annuity business in a coinsurance transaction. This transaction increased assets
and insurance and annuity liabilities by $688,221.
2
INVESTMENTS
2.1 INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Non-affiliated fixed
maturity securities $1,664,325 $1,562,802 $1,471,879
Affiliated fixed
maturity securities 2,761 2,588 2,851
Equity securities 245 483 782
Mortgage loans on
real estate 112,781 123,591 140,492
Other 62,680 53,543 51,040
---------- ---------- ----------
Gross investment income 1,842,792 1,743,007 1,667,044
Investment expense 32,168 13,466 12,548
---------- ---------- ----------
Net investment income $1,810,624 $1,729,541 $1,654,496
---------- ---------- ----------
</TABLE>
The carrying value of investments that produced no investment income during
1998 totaled $313 or 0.001% 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, 1998.
2.2 REALIZED INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fixed maturity securities
Gross gains $ 14,472 $ 35,087 $ 38,222
Gross losses (49,745) (29,012) (36,805)
-------- -------- --------
Total fixed maturity
securities (35,273) 6,075 1,417
-------- -------- --------
Equity securities
Gross gains 158 31 15,867
Gross losses (30) (10) (72)
-------- -------- --------
Total equity securities 128 21 15,795
-------- -------- --------
Mortgage loans on real estate 8,811 21,647 4,635
Real estate 6,673 3,802 389
Other long-term investments (601) (28) (9)
DPAC amortization and
investment expense (8,009) (11,282) (676)
-------- -------- --------
Realized investment gains
(losses) before taxes (28,271) 20,235 21,551
Income tax expense (benefit) (9,895) 7,082 7,543
-------- -------- --------
Net realized investment
gains (losses) $(18,376) $ 13,153 $ 14,008
-------- -------- --------
</TABLE>
2.3 CASH FLOWS FROM INVESTING ACTIVITIES
Uses of cash for investment purchases were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Fixed maturity securities $ 5,469,258 $ 5,174,707 $ 5,299,390
Other 9,711,149 13,228,306 9,583,881
----------- ----------- -----------
Total $15,180,407 $18,403,013 $14,883,271
----------- ----------- -----------
</TABLE>
Sources of cash from investment dispositions and repayments were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Fixed maturity securities $ 4,444,092 $ 4,223,740 $ 4,235,560
Mortgage loans on
real estate 240,954 298,670 280,389
Equity securities 8,319 3,296 67,713
Real estate 17,086 22,525 1,627
Other 10,021,481 12,952,081 9,312,190
----------- ----------- -----------
Total $14,731,932 $17,500,312 $13,897,479
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE> 211
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
2.4 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
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 299,377 $ 175,771 $ 38,019 $ 25,101
Obligations of states and
political subdivisions 55,694 32,264 3,320 1,193
Debt securities issued by
foreign governments 232,406 248,838 16,911 14,018
Corporate securities 16,153,147 15,207,118 933,904 755,877
Mortgage-backed securities 4,947,963 4,959,198 227,160 214,418
Affiliated fixed maturity securities 25,159 28,192 -- 67
Redeemable preferred stock 19,463 -- -- --
------------ ------------ ------------ ------------
Total fixed maturity securities $ 21,733,209 $ 20,651,381 $ 1,219,314 $ 1,010,674
------------ ------------ ------------ ------------
Equity securities $ 176,799 $ 5,581 $ 17,932 $ 114
------------ ------------ ------------ ------------
<CAPTION>
Gross Unrealized Losses Fair Value
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ (136) $ (3) $ 337,260 $ 200,869
Obligations of states and
political subdivisions -- -- 59,014 33,457
Debt securities issued by
foreign governments (210) (1,988) 249,107 260,868
Corporate securities (73,396) (16,179) 17,013,655 15,946,816
Mortgage-backed securities (732) (2,801) 5,174,391 5,170,815
Affiliated fixed maturity securities -- -- 25,159 28,259
Redeemable preferred stock -- -- 19,463 --
------------ ------------ ------------ ------------
Total fixed maturity securities $ (74,474) $ (20,971) $ 22,878,049 $ 21,641,084
------------ ------------ ------------ ------------
Equity securities $ (102) $ (239) $ 194,629 $ 5,456
------------ ------------ ------------ ------------
</TABLE>
2.4 FIXED MATURITY AND EQUITY SECURITIES- (CONTINUED)
MATURITIES. The contractual maturities of fixed maturity securities at
December 31, 1998 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 $ 387,495 $ 391,791
In years two through five 4,571,241 4,793,727
In years six through ten 7,580,048 8,010,517
After ten years 4,246,462 4,507,623
Mortgage-backed securities 4,947,963 5,174,391
----------- -----------
Total fixed maturity securities $21,733,209 $22,878,049
----------- -----------
</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.
2.5 NET UNREALIZED GAINS (LOSSES) ON SECURITIES
Net unrealized gains (losses) on fixed maturity and equity securities
included in accumulated other comprehensive income at December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Gross unrealized gains $ 1,237,246 $ 1,010,788
Gross unrealized losses (74,576) (21,210)
DPAC adjustments (339,163) (511,037)
Deferred federal income taxes (296,047) (172,066)
----------- -----------
Net unrealized gains on securities $ 527,460 $ 306,475
----------- -----------
</TABLE>
2.6 MORTGAGE LOANS ON REAL ESTATE
DIVERSIFICATION. Diversification of the geographic location and type of
property collateralizing mortgage loans reduces the concentration of credit
risk. For new loans, VALIC requires loan-to-value ratios of 75% or less, based
on management's credit assessment of the borrower.
At December 31 the mortgage loan portfolio was distributed as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Geographic distribution:
Atlantic $ 644,594 $ 614,627
Pacific and Mountain 327,969 355,006
Central 252,289 310,535
Allowance for losses (12,325) (21,139)
----------- -----------
Total mortgage loans $ 1,212,527 $ 1,259,029
----------- -----------
Property type:
Office $ 467,219 $ 467,326
Retail 359,368 396,934
Industrial 249,459 246,241
Apartments 93,476 145,272
Residential and other 55,330 24,395
Allowance for losses (12,325) (21,139)
----------- -----------
Total mortgage loans $ 1,212,527 $ 1,259,029
----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE> 212
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
2.6 MORTGAGE LOANS ON REAL ESTATE - (CONTINUED)
ALLOWANCE. The allowance for mortgage loan losses was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1 $ 21,139 $ 44,577 $ 54,213
Recovery of mortgage
loan losses (6,541) (18,178) (2,967)
Deductions (2,273) (5,260) (6,669)
-------- -------- --------
Balance at December 31 $ 12,325 $ 21,139 $ 44,577
-------- -------- --------
</TABLE>
IMPAIRED LOANS. Impaired mortgage loans on real estate and related interest
income were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Impaired loans:
With allowance* $13,470 $28,317
------- -------
Total impaired loans $13,470 $28,317
------- -------
Average investment $20,893 $37,449
Interest income earned -- 2,887
Interest income - cash basis -- --
------- -------
</TABLE>
* Represents gross amounts before allowance for mortgage loan losses of
$1,803 and $9,317, respectively.
3
DEFERRED POLICY ACQUISITION COSTS (DPAC)
Activity in DPAC was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Balance at January 1 $ 392,346 $ 557,748 $ 182,546
Deferrals:
Commissions 83,359 76,327 62,760
Other acquisition costs 76,419 61,328 54,058
Amortization:
Accretion of interest 72,536 65,388 59,810
Operating earnings (127,610) (107,489) (91,011)
Offset to realized gains (3,797) (11,282) (676)
Effect of net unrealized
(gains) losses on securities 171,874 (249,674) 290,261
--------- --------- ---------
Balance at December 31 $ 665,127 $ 392,346 $ 557,748
--------- --------- ---------
</TABLE>
4
COST OF INSURANCE PURCHASED (CIP)
Activity in CIP was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ---------- ---------
<S> <C> <C> <C>
Balance at January 1 $ -- $ -- $ --
Additions from acquisitions 23,915 -- --
Accretion of interest 733 -- --
Amortization (2,535) -- --
-------- ---------- ---------
Balance at December 31 $ 22,113 $ -- $ --
-------- ---------- ---------
</TABLE>
CIP amortization, net of accretion, expected to be recorded in each of the
next five years is $3,099, $2,644, $2,266, $1,920, and $1,763.
5
INCOME TAXES
5.1 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.
5.2 TAX LIABILITIES
Components of income tax liabilities and assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Current tax liabilities (assets) $ (14,560) $ 2,027
--------- ---------
Deferred tax liabilities, applicable to:
Basis differential of investments 438,190 368,591
DPAC 229,803 134,541
Other 31,996 18,576
--------- ---------
Total deferred tax liabilities 699,989 521,708
--------- ---------
Deferred tax assets, applicable to:
Policy reserves (134,409) (138,555)
Basis differential of investments (1,920) (1,545)
Other (7,424) (6,563)
--------- ---------
Total deferred tax assets (143,753) (146,663)
--------- ---------
Net deferred tax liabilities 556,236 375,045
--------- ---------
Total income tax liabilities $ 541,676 $ 377,072
--------- ---------
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE> 213
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
5.3 TAX EXPENSE
Components of income tax expense were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 77,492 $ 114,138 $ 99,560
State 2,154 3,099 2,842
--------- --------- ---------
Total current income
tax expense 79,646 117,237 102,402
--------- --------- ---------
Deferred, applicable to:
DPAC 35,105 29,113 29,308
Policy reserves 4,148 (14,920) (18,581)
Basis differential of
investments 12,484 3,569 2,754
Other, net 5,471 9,239 8,487
--------- --------- ---------
Total deferred income
tax expense 57,208 27,001 21,968
--------- --------- ---------
Income tax expense $ 136,854 $ 144,238 $ 124,370
--------- --------- ---------
</TABLE>
A reconciliation between the federal income tax rate and the effective tax
rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 35%
Income tax expense at
applicable rate $ 147,461 $ 146,308 $ 127,679
Dividends received
deduction (7,851) (5,212) (4,935)
Tax-exempt interest (ESOP) (2,730) (3,326) (3,865)
State income taxes 3,811 3,695 3,311
Other items (3,837) 2,773 2,180
--------- --------- ---------
Income tax expense $ 136,854 $ 144,238 $ 124,370
--------- --------- ---------
</TABLE>
Federal income taxes paid in 1998, 1997, and 1996 were $92,613, $106,338,
and $114,478, respectively. State income taxes paid in 1998, 1997, and 1996 were
$2,841, $2,978, and $3,060, respectively.
6
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 1999 is
$176,753.
7
DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate and currency swap agreements related to investment securities
at December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Interest rate swap agreements
to pay fixed rate
Notional amount $ 332,000 $ 107,000
Average receive rate 5.97% 6.92%
Average pay rate 5.37 6.25
----------- -----------
Currency swap agreements
(receive U.S.$/pay Canadian$)
Notional amount (in U.S.$) $ 108,180 $ 123,326
Average exchange rate 1.50 1.49
----------- -----------
</TABLE>
During 1998, VALIC purchased call swaptions and put swaptions that expire
by 2000. The call swaptions had a notional amount of $950,000 and strike rates
ranging from 3.5% to 4.5% at December 31, 1998. The put swaptions had a notional
amount of $690,000 strike rates ranging from 8.0% to 8.5% at December 31, 1998.
Should the strike rates remain below market rates for call swaptions and above
market rates for put swaptions, the swaptions will expire, and VALIC's exposure
would be limited to the premiums paid. These premiums were immaterial.
CREDIT AND MARKET RISK. Derivative financial instruments expose VALIC to
credit risk in the event of nonperformance by counterparties. VALIC limits this
exposure by entering into agreements with counterparties having high credit
ratings and by regularly monitoring the ratings. VALIC does not expect any
counterparty to fail to meet its obligation; however, nonperformance would not
have a material impact on VALIC's consolidated results of operations and
financial position.
VALIC's exposure to market risk is mitigated by the offsetting effects of
changes in the value of the agreements and the related items being hedged.
- --------------------------------------------------------------------------------
11
<PAGE> 214
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
8
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>
1998 1997
------------------------------ ------------------------------
Fair Value Carrying Amount Fair Value Carrying Amount
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Assets
Fixed maturity and equity securities $23,072,678* $ 23,072,678* $21,646,540* $21,646,540*
Mortgage loans on real estate 1,251,515 1,212,527 1,288,702 1,259,029
Policy loans 801,322 788,547 721,089 719,127
Liabilities
Insurance investment contracts $23,314,345 $23,218,626 $21,536,809 $21,994,804
----------- ----------- ----------- -----------
</TABLE>
- ------------
* Includes derivative financial instruments with a fair value of $19,342 in
1998 and $2,967 in 1997.
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.
9
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, 1998 were as follows:
Operating expenses include $46,556 in 1998, $22,061 in 1997, and $17,533 in
1996, 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 $152 in 1998, $501 in 1997, and $455 in 1996.
On November 4, 1982, VALIC invested $11,853 in 13 1U2% Restricted
Subordinated Note 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, 1998, 1997, and 1996. VALIC recognized $1,212 in interest income
during 1998, $1,292 for 1997, and $1,372 for 1996.
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, 1998, 1997, and 1996. VALIC
recognized $1,048, $1,296, and $1,479 of interest income on the note during
1998, 1997, and 1996, respectively.
On May 15, 1996, VALIC sold SC Financial Corp Mortgage Notes with a book
value of $13,000 to American General Life Insurance Company of NY. Proceeds from
the sale totaled $13,033 with a profit of $33 recognized on the transaction.
VALIC paid common stock dividends of $181,000, $50.63 per share; $379,000,
$106.01 per share; and $111,000, $31.05 per share, in 1998, 1997, and 1996,
respectively.
VALIC received capital contributions of $55,200, $67,000, $250,000, and
$75,000 from AGL on June 30, 1998, December 31, 1998, March 31, 1997, and
December 30, 1996, respectively.
- --------------------------------------------------------------------------------
12
<PAGE> 215
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
9. TRANSACTIONS WITH AFFILIATED COMPANIES - (CONTINUED)
VALIC acquired bonds of various issuers from American General Life and
Accident Insurance Company at a cost of $22,154 and $25,892 on January 30, 1997,
and April 8, 1997, respectively.
On December 5, 1997, VALIC acquired bonds of various issuers from Western
National Life Insurance Company at a cost of $129,715.
10
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 $37, $30, and $2,678, for the years
ended December 31, 1998, 1997, and 1996, respectively. The accrued liability for
anticipated assessments was $4,782, $7,402, and $13,661, at December 31, 1998,
1997, and 1996, respectively. The 1998 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.
11
EMPLOYEE BENEFIT PLANS
11.1 PENSION PLANS
VALIC participates in several employee benefit plans which together cover
substantially all of its employees. One of these plans is a defined benefit
plan. Pension benefits under this plan are based on the participant's average
monthly compensation and length of credited service. VALIC's funding policy for
this plan is to contribute annually no more than the maximum amount that can be
deducted for federal income tax purposes.
11.1 PENSION PLANS - (CONTINUED)
The components of pension expense and underlying assumptions for the
defined benefit plan were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost (benefits earned)
during period $ 1,342 $ 1,091 $ 917
Interest cost on projected
benefit obligation 1,346 1,145 843
Expected return on plan assets (1,102) (801) (575)
Amortization of unrecognized
net asset existing at date of
initial application -- -- (23)
Amortization of unrecognized
prior service cost 66 54 44
Actuarial gain (33) -- --
------- ------- -------
Total pension expense $ 1,619 $ 1,489 $ 1,206
------- ------- -------
Weighted-average discount rate
on benefit obligation 7.00% 7.25% 7.50%
Rate of increase in
compensation levels 4.25 4.00 4.00
Expected long-term rate of
return on plan assets 10.25 10.00 10.00
------- ------- -------
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheet at December 31, 1998 and 1997 for VALIC's defined
benefit pension plan:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Projected benefit obligation $ 21,125 $ 17,394
Plan assets at fair value 14,921 11,759
-------- --------
Projected benefit obligation in excess of
plan assets (6,204) (5,635)
Unrecognized net gain 738 2,162
Unrecognized prior service cost 487 26
-------- --------
Net pension liability $ (4,979) $ (3,447)
-------- --------
</TABLE>
Equity and fixed maturity securities were 66% and 32%, 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.
11.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
VALIC, through AGC, 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.
- --------------------------------------------------------------------------------
13
<PAGE> 216
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - Continued
December 31, 1998
- --------------------------------------------------------------------------------
11.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - (CONTINUED)
The life plans are fully insured; the retiree medical and dental plans are
unfunded and self-insured. The accrued liability for postretirement benefits was
$2,388 and $1,784 at year-end 1998 and 1997, respectively. These liabilities
were discounted at the same rates used for the pension plans. Postretirement
benefit expense in 1998, 1997, and 1996 was $275, $295, and $282, respectively.
12
IMPACT OF YEAR 2000 (UNAUDITED)
INTERNAL SYSTEMS. VALIC has numerous technology systems that are managed on
a decentralized basis. Year 2000 readiness efforts are therefore being
undertaken by its key business units with centralized oversight. Each business
unit has developed and is implementing a plan to minimize the risk of a
significant negative impact on its operations.
While the specifics of the plans vary, the plans include the following
activities: (1) perform an inventory of VALIC's information technology and
non-information technology systems; (2) assess which items in the inventory may
expose VALIC to business interruptions due to Year 2000 issues; (3) reprogram or
replace systems that are not Year 2000 ready, (4) test systems to prove that
they will function into the next century as they do currently, and (5) return
the system to operations. As of December 31, 1998, these activities have been
completed for substantially all of VALIC's critical systems, making them Year
2000 ready. Vendor upgrades for a small number of systems are expected in the
first half of 1999; therefore, activities (3) through (5) are ongoing for these
systems. VALIC will continue to test its systems throughout 1999 to maintain
Year 2000 readiness.
THIRD PARTY RELATIONSHIPS. VALIC has relationships with various third
parties who also must be Year 2000 ready. These third parties provide (or
receive) resources and services to (or from) VALIC and include organizations
with which VALIC exchanges information. Third parties include vendors of
hardware, software, and information services; providers of infrastructure
services such as voice and data communications and utilities for office
facilities; investors; customers; distribution channels; and joint venture
partners. Third parties differ from internal systems in that VALIC exercises
less, or no, control over their Year 2000 readiness. VALIC has developed a plan
to assess and attempt to mitigate the risks associated with the potential
failure of third parties to achieve Year 2000 readiness. The plan includes the
following activities: (1) identify and classify third party dependencies; (2)
research, analyze, and document Year 2000 readiness for critical third parties;
and (3) test critical hardware and software products and electronic interfaces.
A more detailed evaluation will be completed during first quarter 1999 as part
of VALIC's contingency planning efforts. Due to the various stages of third
parties' Year 2000 readiness, VALIC's testing activities will extend throughout
1999.
CONTINGENCY PLANS. VALIC has commenced contingency planning to reduce the
risk of Year 2000 related business failures. The contingency plans, which
address both internal systems and third party relationships, include the
following activities: (1) evaluate the consequences of failure of business
processes with significant exposure to Year 2000 risk, (2) determine the
probability of a Year 2000-related failure for those processes that have a high
consequence of failure; (3) develop an action plan to complete contingency plans
for those processes that rank high in consequence and probability of failure;
and (4) complete the applicable action plans. VALIC is currently developing
contingency plans and expects to substantially complete all contingency-planning
activities by April 30, 1999.
RISKS AND UNCERTAINTIES. Based on its plans to make internal systems ready
for Year 2000, to deal with third party relationships, and to develop
contingency actions, VALIC believes that it will experience, at most, isolated
and minor disruptions of business processes following the turn of the century.
Such disruptions are not expected to have a material effect on VALIC's future
results of operations, liquidity, or financial condition. However, due to the
magnitude and complexity of this project, risks and uncertainties exist and
VALIC is not able to predict a most reasonably likely worst case scenario. If
Year 2000 readiness is not achieved due to nonperformance by significant third
party vendors, VALIC's failure to maintain critical systems as Year 2000 ready,
failure of critical third parties to achieve Year 2000 readiness on a timely
basis, or other unforeseen circumstances in completing VALIC's plans, the Year
2000 issues could have a material adverse impact on VALIC's operations following
the turn of the century.
COSTS. Through December 31, 1998, VALIC has incurred and expensed $27
million (pretax) related to Year 2000 readiness, including $20 million incurred
during 1998. VALIC currently anticipates that it will incur future costs of
approximately $2 million (pretax) to maintain Year 2000 readiness, complete Year
2000 work on noncritical systems and third party relationships, and complete
contingency planning activities. In addition, VALIC accelerated the planned
replacement of certain systems as part of the Year 2000 plans.
- --------------------------------------------------------------------------------
14
<PAGE> 217
================================================================================
CHAIRMAN'S LETTER 1
================================================================================
TO OUR PARTICIPANTS:
We are pleased to present the December 31, 1998, 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, Portfolio Director Plus,
Independence Plus, Group Unit Purchase and Impact) appears on pages two and
three.
1998 was a volatile year for investors around the world. Problems that began in
Asia in late 1997 circled the globe throughout 1998. Central banks, fearing the
worst lowered interest rates in the fourth quarter of 1998. The result was an
unexpected and dramatic rise in stock and bond prices worldwide.
The year was marked by extreme flight to quality. Investors general preference
was for larger cap growth in stocks over small cap value stocks, and U.S.
Treasury Securities.
The Standard & Poor's 500 Index, dominated by large cap, high-growth technology
and global consumer product companies, had a total return of 28.58%. The top 15
stocks alone accounted for half of the performance. It was a difficult year for
active equity fund managers, as almost 90% of the active managers lagged the S&P
500 Index returns. Also, the S&P 500 Index returns for the year outperformed
over 71% of all U.S.-traded common stocks. The medium to small-cap companies
lagged, with the large companies S&P MidCap 400 Index returning 6.27% and the
S&P SmallCap 600 Index, producing a negative 1.31%.
There was a greater variability in returns between growth and value components
of the equity indices. In the large capitalization arena, S&P 500/BARRA Growth
Index returned an outstanding 42.16%, while the S&P 500/BARRA Value Index
returned 14.67%. In the mid-cap sector, the S&P 400/BARRA Growth Index returned
34.86% compared to the S&P 400/BARRA Value Index return of 4.67%. However, the
small cap equity returns experienced wide variability, with the S&P SmallCap
600/BARRA Growth Index returning 2.29%, and the S&P SmallCap 600/BARRA Value
returning a negative 5.06%.
Globally, the pattern of investment results was very similar to the U.S. equity
returns. The MSCI world Index returned 22%. The top quintile of growth stocks
outperformed the bottom quintile of value stocks by over two times with returns
of 48% and 17%, respectively.
The yield on the 30 year Treasury bond opened the year at 5.92% and declined to
5.10% by the end of 1998, as the Federal Reserve lowered the federal fund rate
three times between September 29 and November 17, leaving the target rate at
4.75%.
For the year, the bond market return, reflected in the Lehman Aggregate Bond
Index, was 8.69% with the long U.S. Treasury Index showing the highest return of
13.52%, followed by the Long Corporate AA/Better Index 10.52%, and the High
Yield Index with 1.60%. Throughout the developed world international bond prices
appreciated as yields declined.
While international markets outside of North America and Europe remain
unsettled, the U.S. economy is experiencing unprecedented prosperity and growth.
Furthermore, with worldwide inflation rates low, and the Federal Reserve weary
of weakness in Asia and emerging markets, it appears that we can expect a
continuation of the current stable rate environment.
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., Chairman
The Variable Annuity Life Insurance Company
February 18, 1999
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> 218
================================================================================
2 CHAIRMAN'S LETTER
================================================================================
<TABLE>
<CAPTION>
GROUP PORTFOLIO
UNIT INDEPENDENCE DIRECTOR
PURCHASE IMPACT PLUS 1
DIVISION DIVISION DIVISION DIVISION
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTERNATIONAL GROWTH
AGSPC International Equities Fund ..................................... -- -- 11 11
Putnam Global Growth Fund ............................................. -- -- -- --
Templeton Foreign Fund ................................................ -- -- -- --
Templeton International Fund .......................................... -- -- -- 20
AGGRESSIVE GROWTH
AGSPC Science & Technology Fund ....................................... -- -- -- 17
AGSPC Small Cap Index Fund ............................................ -- -- 14 14
Dreyfus Variable Investment Fund - Small Cap Portfolio ................ -- -- 18
Putnam New Opportunities Fund ......................................... -- -- -- --
Putnam OTC & Emerging Growth Fund ..................................... -- -- -- --
GROWTH
AGSPC Growth Fund ..................................................... -- -- -- 15
AGSPC MidCap Index Fund ............................................... -- 4 4 4
American Century - Twentieth Century Ultra Fund ....................... -- -- -- --
Founders Growth Fund .................................................. -- -- -- --
GROWTH & INCOME
AGSPC Growth & Income Fund ............................................ -- -- -- 16
AGSPC Social Awareness Fund ........................................... -- -- 12 12
AGSPC Stock Index Fund ................................................ 10A,10B 10D 10C 10C
Neuberger Berman Guardian Trust ....................................... -- -- -- --
Scudder Growth and Income Fund ........................................ -- -- -- --
Vanguard Windsor II Fund .............................................. -- -- -- --
BALANCED GROWTH - INTERNATIONAL
Templeton Asset Allocation Fund ....................................... -- -- -- 19
BALANCED GROWTH - DOMESTIC
AGSPC Asset Allocation Fund ........................................... -- 5 5 5
Vanguard Wellington Fund .............................................. -- -- -- --
CURRENT INCOME
AGSPC International Government Bond Fund .............................. -- -- 13 13
CURRENT INCOME & CAPITAL PRESERVATION
AGSPC Capital Conservation Fund ....................................... -- 1 7 7
AGSPC Government Securities Fund ...................................... -- -- 8 8
Vanguard Fixed Income Securities Fund - Long-Term Corporate Fund ...... -- -- -- --
Vanguard Fixed Income Securities Fund - Long-Term Treasury Fund ....... -- -- -- --
LIQUIDITY & CAPITAL PRESERVATION
AGSPC Money Market Fund ............................................... -- 2 6 6
<CAPTION>
YEAR TO DATE
TOTAL RETURNS
PORTFOLIO PORTFOLIO FOR YEAR ENDING
DIRECTOR DIRECTOR DECEMBER 31,
2 PLUS ----------------------
DIVISION DIVISION 1998 1997
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
INTERNATIONAL GROWTH
AGSPC International Equities Fund ..................................... -- 11 17.57% 1.18%
Putnam Global Growth Fund ............................................. 28 28 27.48 12.20
Templeton Foreign Fund ................................................ 32 32 (5.82) 5.57
Templeton International Fund .......................................... -- 20 7.95 12.54
AGGRESSIVE GROWTH
AGSPC Science & Technology Fund ....................................... 17 17 40.71 1.57
AGSPC Small Cap Index Fund ............................................ -- 14 (2.92) 21.18
Dreyfus Variable Investment Fund - Small Cap Portfolio ................ -- 18 (4.51) 15.37
Putnam New Opportunities Fund ......................................... 26 26 23.12 21.31
Putnam OTC & Emerging Growth Fund ..................................... 27 27 9.87 9.08
GROWTH
AGSPC Growth Fund ..................................................... 15 15 16.96 19.80
AGSPC MidCap Index Fund ............................................... -- 4 17.80 30.45
American Century - Twentieth Century Ultra Fund ....................... 31 31 33.14 21.74
Founders Growth Fund .................................................. 30 30 23.76 25.25
GROWTH & INCOME
AGSPC Growth & Income Fund ............................................ -- 16 13.41 22.60
AGSPC Social Awareness Fund ........................................... 12 12 26.03 32.52
AGSPC Stock Index Fund ................................................ 10C 10C 27.14 31.77
Neuberger Berman Guardian Trust ....................................... 29 29 1.34 16.66
Scudder Growth and Income Fund ........................................ 21 21 4.99 28.80
Vanguard Windsor II Fund .............................................. 24 24 14.90 30.70
BALANCED GROWTH - INTERNATIONAL
Templeton Asset Allocation Fund ....................................... -- 19 5.07 14.07
BALANCED GROWTH - DOMESTIC
AGSPC Asset Allocation Fund ........................................... -- 5 17.19 21.40
Vanguard Wellington Fund .............................................. 25 25 10.65 21.65
CURRENT INCOME
AGSPC International Government Bond Fund .............................. 13 13 15.92 (5.79)
CURRENT INCOME & CAPITAL PRESERVATION
AGSPC Capital Conservation Fund ....................................... -- 7 6.30 7.49
AGSPC Government Securities Fund ...................................... -- 8 7.86 7.83
Vanguard Fixed Income Securities Fund - Long-Term Corporate Fund ...... 22 22 8.04 12.32
Vanguard Fixed Income Securities Fund - Long-Term Treasury Fund ....... 23 23 11.82 12.44
LIQUIDITY & CAPITAL PRESERVATION
AGSPC Money Market Fund ............................................... 6 6 4.12 4.13
</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> 219
================================================================================
CHAIRMAN'S LETTER 3
================================================================================
<TABLE>
<CAPTION>
Group Portfolio Portfolio
Unit Independence Director Director
Purchase Impact Plus 1 2
- ------------------------------------------------------------------------------------------------------------------------------------
Division Division Division Division Division
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ACTIVELY MANAGED EQUITY FUNDS
American General International Growth Fund .............. -- -- -- -- --
American General Large Cap Growth Fund .................. -- -- -- -- --
American General Mid Cap Growth Fund .................... -- -- -- -- --
American General Small Cap Growth Fund .................. -- -- -- -- --
American General INternational Value Fund ............... -- -- -- -- --
American General Large Cap Value Fund ................... -- -- -- -- --
American General Mid Cap Value Fund ..................... -- -- -- -- --
American General Small Cap Value Fund ................... -- -- -- -- --
T. Rowe Price Small-Cap Stock Fund ...................... -- -- -- -- --
SPECIALTY EQUITY FUND
American General Socially Responsible Fund .............. -- -- -- -- --
BALANCED FUNDS
American General Balanced Fund .......................... -- -- -- -- --
INCOME FUNDS
American General High Yield Bond Fund ................... -- -- -- -- --
American General Strategic Bond Fund .................... -- -- -- -- --
American General Domestic Bond Fund ..................... -- -- -- -- --
American General Core Bond Fund ......................... -- -- -- -- --
MONEY MARKET FUND
American General Money Market Fund ...................... -- -- -- -- --
LIFESTYLE FUNDS
American General Growth Lifestyle Fund .................. -- -- -- -- --
American General Moderate Growth Lifestyle Fund ......... -- -- -- -- --
American General Conservative Growth Lifestyle Fund ..... -- -- -- -- --
Vanguard LifeStrategy Growth ............................ -- -- -- -- --
Vanguard LifeStrategy Moderate Growth ................... -- -- -- -- --
Vanguard LifeStrategy Conservative Growth ............... -- -- -- -- --
<CAPTION>
Year To Date
Total Returns
Portfolio For Year Ending
Director December 31,
Plus ------------------------
Division 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
ACTIVELY MANAGED EQUITY FUNDS
American General International Growth Fund .............. 33 5.17(a) N/A
American General Large Cap Growth Fund .................. 39 24.08(a) N/A
American General Mid Cap Growth Fund .................... 37 34.77(a) N/A
American General Small Cap Growth Fund .................. 35 34.94(a) N/A
American General International Value Fund ............... 34 14.99(a) N/A
American General Large Cap Value Fund ................... 40 24.66(a) N/A
American General Mid Cap Value Fund ..................... 38 25.47(a) N/A
American General Small Cap Value Fund ................... 36 16.53(a) N/A
T. Rowe Price Small-Cap Stock Fund ...................... 51 14.10(b) N/A
SPECIALTY EQUITY FUND
American General Socially Responsible Fund .............. 41 27.78(a) N/A
BALANCED FUNDS
American General Balanced Fund .......................... 42 17.01(a) N/A
INCOME FUNDS
American General High Yield Bond Fund ................... 60 5.31(a) N/A
American General Strategic Bond Fund .................... 59 4.99(a) N/A
American General Domestic Bond Fund ..................... 43 4.44(a) N/A
American General Core Bond Fund ......................... 58 2.92(a) N/A
MONEY MARKET FUND
American General Money Market Fund ...................... 44 1.33(a) N/A
LIFESTYLE FUNDS
American General Growth Lifestyle Fund .................. 48 19.25(a) N/A
American General Moderate Growth Lifestyle Fund ......... 49 18.54(a) N/A
American General Conservative Growth Lifestyle Fund ..... 50 16.20(a) N/A
Vanguard LifeStrategy Growth ............................ 52 16.81(b) N/A
Vanguard LifeStrategy Moderate Growth ................... 53 12.59(b) N/A
Vanguard LifeStrategy Conservative Growth ............... 54 8.40(b) N/A
</TABLE>
(a) Since August 26, 1998, initial capitalizations of Fund. See Note C.
(b) Since September 22, 1998, inception of the Division.
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> 220
[Intentionally Left Blank]
<PAGE> 221
================================================================================
FINANCIAL STATEMENTS 5
================================================================================
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS
December 31, 1998
ASSETS: ALL DIVISIONS
----------------
<S> <C>
Total investment in shares of mutual funds, at market (cost $11,178,484,452) .................. $ 14,587,138,409
Balance due from VALIC general account ........................................................ 4,821,209
----------------
NET ASSETS .................................................................................... 14,591,959,618
================
CONTRACT OWNER RESERVES AND CAPITAL SURPLUS:
Reserves for redeemable annuity contracts
(Net of applicable contract loans -- partial withdrawals with right of reinvestment) ....... $ 14,481,888,528
Reserves for annuity contracts on benefit ..................................................... 22,530,083
Capital surplus (Note C) ...................................................................... 87,541,007
----------------
TOTAL CONTRACT OWNER RESERVES AND CAPITAL SURPLUS ............................................. $ 14,591,959,618
================
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
INVESTMENT INCOME: ALL DIVISIONS
----------------
<S> <C>
Dividends from mutual funds ................................................................... $ 161,161,461
----------------
EXPENSES:
Mortality and expense risk charge ............................................................. 133,464,532
Reimbursement of expenses (Note C) ............................................................ (5,204,060)
----------------
Total expenses ................................................................................ 128,260,472
----------------
NET INVESTMENT INCOME ......................................................................... 32,900,989
----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments .............................................................. 256,062,773
Capital gains distributions from mutual funds ................................................. 599,950,475
Net unrealized appreciation of investments during the period .................................. 1,171,591,133
----------------
Net realized and unrealized gain on investments ............................................... 2,027,604,381
----------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .............................................. $ 2,060,505,370
================
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS ALL DIVISIONS
------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
OPERATIONS:
Net investment income ................................................................. $ 32,900,989 $ 30,758,096
Net realized gain on investments ...................................................... 256,062,773 161,505,567
Capital gains distributions from mutual funds ......................................... 599,950,475 289,703,358
Net unrealized appreciation of investments during the period .......................... 1,171,591,133 1,001,756,337
---------------- ----------------
Increase in net assets resulting from operations ................................... 2,060,505,370 1,483,723,358
---------------- ----------------
PRINCIPAL TRANSACTIONS:
Purchase payments ..................................................................... 2,363,611,528 1,798,552,034
Surrenders of accumulation units by terminations, withdrawals, and maintenance fees ... (576,063,916) (328,105,329)
Annuity benefit payments .............................................................. (2,688,910) (2,273,125)
Amounts transferred from VALIC general account ........................................ 419,281,138 518,857,110
---------------- ----------------
Increase in net assets resulting from principal transactions ....................... 2,204,139,840 1,987,030,690
---------------- ----------------
Total increase in net assets .......................................................... 4,264,645,210 3,470,754,048
NET ASSETS:
Beginning of period ................................................................... 10,327,314,408 6,856,560,360
---------------- ----------------
End of period ......................................................................... $ 14,591,959,618 $ 10,327,314,408
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 222
================================================================================
6 FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1998
AGSPC PUTNAM
INTERNATIONAL GLOBAL TEMPLETON TEMPLETON
EQUITIES GROWTH FOREIGN INTERNATIONAL
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 ....................... $ 148,718,766 $ 162,850,092 $ 218,291,648 $ 769,418,093
Balance due (to) from VALIC general account ........................... (444,384) 244,949 176,625 78,110
------------- ------------- ------------- -------------
NET ASSETS ............................................................ $ 148,274,382 $ 163,095,041 $ 218,468,273 $ 769,496,203
============= ============= ============= =============
CONTRACT OWNER RESERVES AND CAPITAL SURPLUS:
Reserves for redeemable annuity contracts (Net of applicable
contract loans -- partial withdrawals with right of reinvestment) ... $ 148,099,853 $ 163,052,748 $ 218,427,558 $ 769,292,514
Reserves for annuity contracts on benefit ............................. 174,529 42,293 40,715 203,689
Capital Surplus (Note C) .............................................. -- -- -- --
------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES AND CAPITAL SURPLUS ..................... $ 148,274,382 $ 163,095,041 $ 218,468,273 $ 769,496,203
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1998
AMERICAN CENTURY -
TWENTIETH FOUNDERS AGSPC AGSPC
CENTURY GROWTH GROWTH & SOCIAL
ULTRA FUND - FUND - INCOME FUND - AWARENESS FUND -
DIVISION 31 DIVISION 30 DIVISION 16 DIVISION 12
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ..................... $ 366,344,764 $ 412,424,559 $ 285,113,626 $ 434,890,057
Balance due (to) from VALIC general account ......................... 495,565 496,361 114,285 251,402
------------- ------------- ------------- -------------
NET ASSETS .......................................................... $ 366,840,329 $ 412,920,920 $ 285,227,911 $ 435,141,459
============= ============= ============= =============
CONTRACT OWNER RESERVES AND CAPITAL SURPLUS:
Reserves for redeemable annuity contracts (Net of applicable
contract loans -- partial withdrawals with right of reinvestment).. $ 366,789,363 $ 412,850,610 $ 285,171,395 $ 435,010,800
Reserves for annuity contracts on benefit ........................... 50,966 70,310 56,516 130,659
Capital Surplus (Note C) ............................................ -- -- -- --
------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES AND CAPITAL SURPLUS ................... $ 366,840,329 $ 412,920,920 $ 285,227,911 $ 435,141,459
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1998
AGSPC AGSPC
TEMPLETON ASSET VANGUARD INTERNATIONAL
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 ...................... $ 324,138,930 $ 227,493,681 $ 406,576,731 $ 169,141,402
Balance due (to) from VALIC general account .......................... (10,923) 41,476 (66,066) 66,807
------------- ------------- ------------- -------------
NET ASSETS ........................................................... $ 324,128,007 $ 227,535,157 $ 406,510,665 $ 169,208,209
============= ============= ============= =============
CONTRACT OWNER RESERVES AND CAPITAL SURPLUS:
Reserves for redeemable annuity contracts (Net of applicable
contract loans -- partial withdrawals with right of reinvestment) .. $ 323,829,380 $ 227,370,013 $ 406,457,643 $ 169,153,179
Reserves for annuity contracts on benefit ............................ 298,627 165,144 53,022 55,030
Capital Surplus (Note C) ............................................. -- -- -- --
------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES AND CAPITAL SURPLUS .................... $ 324,128,007 $ 227,535,157 $ 406,510,665 $ 169,208,209
============= ============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 223
================================================================================
SEPARATE ACCOUNT A 7
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC DREYFUS VARIABLE PUTNAM PUTNAM OTC & AGSPC
SCIENCE & SMALL CAP INVESTMENT NEW EMERGING AGSPC MIDCAP
TECHNOLOGY INDEX FUND - 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>
$1,357,008,368 $ 225,671,866 $ 801,729,449 $ 411,790,940 $ 142,153,064 $1,213,041,349 $ 850,345,675
233,960 (1,195) 277,466 622,014 158,931 219,257 159,959
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$1,357,242,328 $ 225,670,671 $ 802,006,915 $ 412,412,954 $ 142,311,995 $1,213,260,606 $ 850,505,634
============== ============== ============== ============== ============== ============== ==============
$1,356,787,386 $ 225,553,498 $ 801,796,471 $ 412,396,437 $ 142,270,946 $1,212,743,548 $ 850,117,314
454,942 117,173 210,444 16,517 41,049 517,058 388,320
-- -- -- -- -- -- --
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$1,357,242,328 $ 225,670,671 $ 802,006,915 $ 412,412,954 $ 142,311,995 $1,213,260,606 $ 850,505,634
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
NEUBERGER
BERMAN SCUDDER VANGUARD
AGSPC STOCK INDEX FUND GUARDIAN GROWTH AND WINDSOR II
- ------------------------------------------------------------------ TRUST - INCOME FUND - FUND -
DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D DIVISION 29 DIVISION 21 DIVISION 24
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 548,095,924 $ 42,538,426 $3,335,722,002 $ 56,510,591 $ 61,347,128 $ 247,754,620 $ 651,075,950
(342,049) 10,450 1,070,137 2,453 22,721 213,888 339,032
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 547,753,875 $ 42,548,876 $3,336,792,139 $ 56,513,044 $ 61,369,849 $ 247,968,508 $ 651,414,982
============== ============== ============== ============== ============== ============== ==============
$ 533,364,910 $ 40,484,822 $3,334,328,831 $ 56,292,876 $ 61,355,625 $ 247,893,617 $ 651,232,580
14,388,965 2,064,054 2,463,308 220,168 14,224 74,891 182,402
-- -- -- -- -- -- --
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 547,753,875 $ 42,548,876 $3,336,792,139 $ 56,513,044 $ 61,369,849 $ 247,968,508 $ 651,414,982
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
AGSPC
GOVERNMENT VANGUARD VANGUARD
AGSPC CAPITAL CONSERVATION FUND SECURITIES LONG-TERM LONG-TERM AGSPC MONEY MARKET FUND
- ------------------------------- FUND - CORPORATE FUND - TREASURY FUND - -------------------------------
DIVISION 1 DIVISION 7 DIVISION 8 DIVISION 22 DIVISION 23 DIVISION 2 DIVISION 6
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 6,286,289 $ 60,017,936 $ 113,502,848 $ 59,843,445 $ 119,293,240 $ 4,184,151 $ 266,261,605
13,504 (46,396) (40,451) 121,207 (41,034) 13,336 389,999
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 6,299,793 $ 59,971,540 $ 113,462,397 $ 59,964,652 $ 119,252,206 $ 4,197,487 $ 266,651,604
============== ============== ============== ============== ============== ============== ==============
$ 6,295,147 $ 59,971,540 $ 113,462,397 $ 59,964,652 $ 119,238,598 $ 4,197,487 $ 266,634,790
4,646 -- -- -- 13,608 -- 16,814
-- -- -- -- -- -- --
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 6,299,793 $ 59,971,540 $ 113,462,397 $ 59,964,652 $ 119,252,206 $ 4,197,487 $ 266,651,604
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<PAGE> 224
================================================================================
8 FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1998
AMERICAN AMERICAN AMERICAN AMERICAN
GENERAL GENERAL GENERAL GENERAL
INTERNATIONAL INTERNATIONAL SMALL CAP SMALL CAP
GROWTH FUND - VALUE FUND - GROWTH FUND - VALUE FUND -
DIVISION 33 DIVISION 34 DIVISION 35 DIVISION 36
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ....................... $ 3,853,567 $ 4,153,036 $ 5,279,473 $ 4,500,106
Balance due to VALIC general account .................................. (2,817) -- -- --
------------ ------------ ------------ ------------
NET ASSETS ............................................................ $ 3,850,750 $ 4,153,036 $ 5,279,473 $ 4,500,106
============ ============ ============ ============
CONTRACT OWNER RESERVES AND CAPITAL SURPLUS:
Reserves for redeemable annuity contracts (Net of applicable
contract loans - partial withdrawals with right of reinvestment) .... $ -- $ -- $ -- $ --
Reserves for annuity contracts on benefit ............................. -- -- -- --
Capital surplus (Note C) .............................................. 3,850,750 4,153,036 5,279,473 4,500,106
------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER RESERVES and Capital Surplus ..................... $ 3,850,750 $ 4,153,036 $ 5,279,473 $ 4,500,106
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1998
AMERICAN AMERICAN AMERICAN AMERICAN
GENERAL GENERAL GENERAL GENERAL
MID CAP MID CAP LARGE CAP LARGE CAP
GROWTH FUND - VALUE FUND - GROWTH FUND - VALUE FUND -
DIVISION 37 DIVISION 38 DIVISION 39 DIVISION 40
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ...................... $ 5,475,870 $ 4,972,209 $ 3,549,043 $ 3,626,750
Balance due to VALIC general account ................................. (270) -- (1,410) --
----------- ----------- ----------- -----------
NET ASSETS ........................................................... $ 5,475,600 $ 4,972,209 $ 3,547,633 $ 3,626,750
=========== =========== =========== ===========
CONTRACT OWNER RESERVES AND CAPITAL SURPLUS:
Reserves for redeemable annuity contracts (Net of applicable
contract loans - partial withdrawals with right of reinvestment) ... $ -- $ -- $ -- $ --
Reserves for annuity contracts on benefit ............................ -- -- -- --
Capital surplus (Note C) ............................................. 5,475,600 4,972,209 3,547,633 3,626,750
----------- ----------- ----------- -----------
TOTAL CONTRACT OWNER RESERVES and Capital Surplus .................... $ 5,475,600 $ 4,972,209 $ 3,547,633 $ 3,626,750
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
December 31, 1998
AMERICAN AMERICAN AMERICAN AMERICAN
GENERAL SOCIALLY GENERAL GENERAL GENERAL
RESPONSIBLE BALANCED DOMESTIC MONEY MARKET
FUND - FUND - BOND FUND - FUND -
DIVISION 41 DIVISION 42 DIVISION 43 DIVISION 44
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ...................... $ 6,409,166 $ 5,868,671 $ 1,309,568 $ 5,082,478
Balance due to VALIC general account ................................. -- -- -- --
------------ ------------ ------------ ------------
NET ASSETS ........................................................... $ 6,409,166 $ 5,868,671 $ 1,309,568 $ 5,082,478
============ ============ ============ ============
CONTRACT OWNER RESERVES AND CAPITAL SURPLUS:
Reserves for redeemable annuity contracts (Net of applicable
contract loans - partial withdrawals with right of reinvestment) ... $ -- $ -- $ -- $ --
Reserves for annuity contracts on benefit ............................ -- -- -- --
Capital surplus (Note C) ............................................. 6,409,166 5,868,671 1,309,568 5,082,478
------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER RESERVES and Capital Surplus .................... $ 6,409,166 $ 5,868,671 $ 1,309,568 $ 5,082,478
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 225
================================================================================
SEPARATE ACCOUNT A 9
================================================================================
<TABLE>
<CAPTION>
AMERICAN AMERICAN AMERICAN AMERICAN AMERICAN AMERICAN
GENERAL GENERAL GENERAL GENERAL GENERAL GENERAL T. ROWE PRICE
GROWTH MODERATE GROWTH CONSERVATIVE GROWTH CORE STRATEGIC HIGH YIELD SMALL-CAP STOCK
LIFESTYLE FUND - LIFESTYLE FUND - LIFESTYLE FUND - BOND FUND - BOND FUND - BOND FUND FUND -
DIVISION 48 DIVISION 49 DIVISION 50 DIVISION 58 DIVISION 59 DIVISION 60 DIVISION 51
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 5,991,538 $ 5,950,028 $ 5,829,911 $ 5,161,936 $ 5,265,532 $ 5,282,173 $ 139
(9,933) (4,420) (1,198) -- -- -- --
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 5,981,605 $ 5,945,608 $ 5,828,713 $ 5,161,936 $ 5,265,532 $ 5,282,173 $ 139
============== ============== ============== ============== ============== ============== ==============
$ -- $ -- $ -- $ -- $ -- $ -- $ 139
-- -- -- -- -- -- --
5,981,605 5,945,608 5,828,713 5,161,936 5,265,532 5,282,173 --
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 5,981,605 $ 5,945,608 $ 5,828,713 $ 5,161,936 $ 5,265,532 $ 5,282,173 $ 139
============== ============== ============== ============== ============== ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 226
===============================================================================
10 FINANCIAL STATEMENTS
===============================================================================
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS AGSPC PUTNAM
For the year ended December 31, 1998 INTERNATIONAL GLOBAL TEMPLETON TEMPLETON
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 .......................... $ 3,115,042 $ 607,762 $ 5,873,157 $ 17,844,520
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge .................... 1,507,006 1,281,924 2,636,652 9,900,147
Reimbursement of expenses (Note C) ................... -- (256,355) (526,963) --
------------ ------------ ------------ ------------
Total expenses .................................... 1,507,006 1,025,569 2,109,689 9,900,147
------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ......................... 1,608,036 (417,807) 3,763,468 7,944,373
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments .............. 4,716,155 107,190 (1,076,896) 52,533,310
Capital gains distributions from mutual funds ........ 11,021,627 4,089,731 17,280,633 31,903,839
Net unrealized appreciation (depreciation)
of investments during the year ..................... 7,346,991 21,600,190 (34,315,820) (37,039,574)
------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments 23,084,773 25,797,111 (18,112,083) 47,397,575
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .......................... $ 24,692,809 $ 25,379,304 $(14,348,615) $ 55,341,948
============ ============ ============ ============
AGSPC
STATEMENTS OF OPERATIONS AMERICAN CENTURY- FOUNDERS AGSPC SOCIAL
For the year ended December 31, 1998 TWENTIETH GROWTH GROWTH & AWARENESS
CENTURY ULTRA FUND - INCOME FUND - FUND -
FUND - DIVISION 30 DIVISION 16 DIVISION 12
------------ ------------ ------------ ------------
INVESTMENT INCOME:
Dividends from mutual funds .......................... $ -- $ 202,602 $ 1,219,255 $ 3,599,599
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge .................... 2,804,758 3,631,491 2,643,321 3,409,326
Reimbursement of expenses (Note C) ................... (521,841) (726,411) -- --
------------ ------------ ------------ ------------
Total expenses .................................... 2,282,917 2,905,080 2,643,321 3,409,326
------------ ------------ ------------ ------------
NET INVESTMENT INCOME (LOSS) ......................... (2,282,917) (2,702,478) (1,424,066) 190,273
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investments ..................... 473,963 669,679 10,494,295 2,220,138
Capital gains distributions from mutual funds ........ 30,532,354 21,151,616 20,275,426 37,003,617
Net unrealized appreciation (depreciation)
of investments during the year .................... 39,033,600 42,627,883 3,996,252 38,477,902
------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments 70,039,917 64,449,178 34,765,973 77,701,657
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ......................... $ 67,757,000 $ 61,746,700 $ 33,341,907 $ 77,891,930
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 227
================================================================================
SEPARATE ACCOUNT A 11
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC DREYFUS VARIABLE PUTNAM PUTNAM OTC &
SCIENCE & SMALL CAP INVESTMENT FUND NEW EMERGING AGSPC AGSPC
TECHNOLOGY INDEX - SMALL CAP OPPORTUNITIES GROWTH GROWTH MIDCAP
FUND - FUND - PORTFOLIO - FUND - FUND - FUND - INDEX FUND -
DIVISION 17 DIVISION 14 DIVISION 18 DIVISION 26 DIVISION 27 DIVISION 15 DIVISION 4
------------- ------------- ------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ 2,611,782 $ 2,936 $ -- $ 4,436,796 $ -- $ 7,011,168
------------- ------------- ------------- -------------- ------------- ------------- -------------
10,381,062 2,289,688 10,348,098 3,363,729 1,438,779 10,623,737 7,700,596
-- -- (1,244,807) (672,401) (288,124) -- --
------------- ------------- ------------- -------------- ------------- ------------- -------------
10,381,062 2,289,688 9,103,291 2,691,328 1,150,655 10,623,737 7,700,596
------------- ------------- ------------- -------------- ------------- ------------- -------------
(10,381,062) 322,094 (9,100,355) (2,691,328) 3,286,141 (10,623,737) (689,428)
------------- ------------- ------------- -------------- ------------- ------------- -------------
34,745,563 8,661,321 19,673,784 872,455 (332,944) 11,720,556 26,826,443
113,616,462 18,436,501 15,549,964 12,546,729 -- 51,517,534 69,472,796
250,423,659 (34,899,835) (67,338,458) 53,605,222 9,278,020 114,925,718 30,964,965
------------- ------------- ------------- -------------- ------------- ------------- -------------
398,785,684 (7,802,013) (32,114,710) 67,024,406 8,945,076 178,163,808 127,264,204
------------- ------------- ------------- -------------- ------------- ------------- -------------
$ 388,404,622 $ (7,479,919) $ (41,215,065) $ 64,333,078 $ 12,231,217 $ 167,540,071 $ 126,574,776
============= ============= ============= ============== ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
SCUDDER
NEUBERGER GROWTH AND VANGUARD
AGSPC STOCK INDEX FUND BERMAN INCOME WINDSOR II
------------------------------------------------------------------- GUARDIAN TRUST - FUND - FUND -
DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D DIVISION 29 DIVISION 21 DIVISION 24
------------- ------------- ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 6,134,933 $ 482,467 $ 33,994,984 $ 635,074 $ 266,705 $ 4,796,472 $ 11,495,781
------------- ------------- ------------- ------------- -------------- ------------- -------------
5,099,302 206,480 28,029,502 529,334 728,024 2,644,262 5,873,266
-- (82,027) -- -- (145,133) (528,762) --
------------- ------------- ------------- ------------- -------------- ------------- -------------
5,099,302 124,453 28,029,502 529,334 582,891 2,115,500 5,873,266
------------- ------------- ------------- ------------- -------------- ------------- -------------
1,035,631 358,014 5,965,482 105,740 (316,186) 2,680,972 5,622,515
------------- ------------- ------------- ------------- -------------- ------------- -------------
36,292,713 2,895,173 21,789,375 4,368,980 447,267 1,067,960 1,366,076
2,140,138 166,018 13,033,369 219,975 5,112,104 17,737,903 51,898,120
82,035,996 6,394,969 631,036,013 7,900,957 (5,621,588) (15,926,329) 278,987
------------- ------------- ------------- ------------- -------------- ------------- -------------
120,468,847 9,456,160 665,858,757 12,489,912 (62,217) 2,879,534 53,543,183
------------- ------------- ------------- ------------- -------------- ------------- -------------
$ 121,504,478 $ 9,814,174 $ 671,824,239 $ 12,595,652 $ (378,403) $ 5,560,506 $ 59,165,698
============= ============= ============= ============= ============== ============= -------------
</TABLE>
<PAGE> 228
================================================================================
12 FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC
TEMPLETON ASSET VANGUARD INTERNATIONAL
STATEMENTS OF OPERATIONS ASSET ALLOCATION ALLOCATION WELLINGTON GOVERNMENT
For the year ended December 31, 1998 FUND - FUND - FUND - BOND FUND -
DIVISION 19 DIVISION 5 DIVISION 25 DIVISION 13
---------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ................... $ 9,488,692 $ 5,918,741 $ 11,720,002 $ 3,619,997
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge ............. 4,189,971 2,045,234 3,573,103 1,622,993
Reimbursement of expenses (Note C) ............ -- -- -- --
------------ ------------ ------------ ------------
Total expenses ............................. 4,189,971 2,045,234 3,573,103 1,622,993
------------ ------------ ------------ ------------
NET INVESTMENT INCOME ......................... 5,298,721 3,873,507 8,146,899 1,997,004
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments ....... 10,513,951 2,520,862 453,710 (1,068,211)
Capital gains distributions from mutual funds . 9,560,576 12,936,405 30,281,535 872,765
Net unrealized appreciation (depreciation)
of investments during the year .............. (10,693,322) 13,072,376 (13,016,167) 21,926,900
------------ ------------ ------------ ------------
Net realized and unrealized gain on investments 9,381,205 28,529,643 17,719,078 21,731,454
------------ ------------ ------------ ------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................... $ 14,679,926 $ 32,403,150 $ 25,865,977 $ 23,728,458
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 229
================================================================================
FINANCIAL STATEMENTS 13
================================================================================
<TABLE>
<CAPTION>
AGSPC VANGUARD VANGUARD
GOVERNMENT LONG-TERM LONG-TERM
AGSPC CAPITAL CONSERVATION FUND SECURITIES CORPORATE TREASURY AGSPC MONEY MARKET FUND
- ------------------------------- FUND - FUND - FUND - ----------------------------
DIVISION 1 DIVISION 7 DIVISION 8 DIVISION 22 DIVISION 23 DIVISION 2 DIVISION 6
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 402,079 $ 3,710,371 $ 5,462,111 $ 2,478,178 $ 3,523,260 $ 230,073 $ 9,814,968
----------- ----------- ----------- ----------- ----------- ----------- -----------
63,904 585,563 993,952 504,256 798,645 46,056 1,965,005
-- -- -- (78,692) (132,544) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
63,904 585,563 993,952 425,564 666,101 46,056 1,965,005
----------- ----------- ----------- ----------- ----------- ----------- -----------
338,175 3,124,808 4,468,159 2,052,614 2,857,159 184,017 7,849,963
----------- ----------- ----------- ----------- ----------- ----------- -----------
12,194 413,199 1,352,903 136,212 1,195,397 -- --
-- -- -- 1,044,043 -- -- --
35,832 (35,856) 1,437,930 (64,200) 2,611,560 -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
48,026 377,343 2,790,833 1,116,055 3,806,957 -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 386,201 $ 3,502,151 $ 7,258,992 $ 3,168,669 $ 6,664,116 $ 184,017 $ 7,849,963
============ =========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE> 230
================================================================================
14 FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS AMERICAN AMERICAN AMERICAN AMERICAN
For the year ended December 31, 1998 GENERAL GENERAL GENERAL GENERAL
INTERNATIONAL INTERNATIONAL SMALL CAP SMALL CAP
GROWTH FUND - VALUE FUND - GROWTH FUND - VALUE FUND -
DIVISION 33* DIVISION 34* DIVISION 35* DIVISION 36*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ................... $ -- $ 5,760 $ -- $ 13,079
---------- ---------- ---------- ----------
EXPENSES:
Mortality and expense risk charge ............. -- -- -- --
Reimbursement of expenses (Note C) ............ -- -- -- --
---------- ---------- ---------- ----------
Total expenses ............................. -- -- -- --
---------- ---------- ---------- ----------
NET INVESTMENT INCOME ......................... -- 5,760 -- 13,079
---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments .............. -- -- -- --
Capital gains distributions from mutual funds . -- -- 18,373 51,644
Net unrealized appreciation
of investments during the year ............. 200,750 547,276 1,361,100 585,384
---------- ---------- ---------- ----------
Net realized and unrealized gain on investments 200,750 547,276 1,379,473 637,028
---------- ---------- ---------- ----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................... $ 200,750 $ 553,036 $1,379,473 $ 650,107
========== ========== ========== ==========
<CAPTION>
STATEMENTS OF OPERATIONS AMERICAN AMERICAN AMERICAN AMERICAN
For the year ended December 31, 1998 GENERAL GENERAL GENERAL GENERAL
MID CAP MID CAP LARGE CAP LARGE CAP
GROWTH FUND - VALUE FUND - GROWTH FUND - VALUE FUND -
DIVISION 37* DIVISION 38* DIVISION 39* DIVISION 40*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ................... $ -- $ 10,079 $ 2,093 $ 10,224
---------- ---------- ---------- ----------
EXPENSES:
Mortality and expense risk charge ............. -- -- -- --
Reimbursement of expenses (Note C) ............ -- -- -- --
---------- ---------- ---------- ----------
Total expenses ............................. -- -- -- --
---------- ---------- ---------- ----------
NET INVESTMENT INCOME ......................... -- 10,079 2,093 10,224
---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments .............. -- -- -- --
Capital gains distributions from mutual funds . -- 115,562 -- --
Net unrealized appreciation
of investments during the year .............. 1,425,600 896,569 695,540 716,526
---------- ---------- ---------- ----------
Net realized and unrealized gain on investments 1,425,600 1,012,131 695,540 716,526
---------- ---------- ---------- ----------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................... $1,425,600 $1,022,210 $ 697,633 $ 726,750
========== ========== ========== ==========
</TABLE>
* For the period from August 26, 1998 (initial capital contribution date)
through December 31, 1998.
See Note C.
** For the period from September 22, 1998 through December 31, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 231
================================================================================
SEPARATE ACCOUNT A 15
================================================================================
<TABLE>
<CAPTION>
AMERICAN AMERICAN AMERICAN
GENERAL AMERICAN AMERICAN AMERICAN GENERAL GENERAL
SOCIALLY AMERICAN GENERAL GENERAL GENERAL MODERATE CONSERVATIVE
RESPONSIBLE GENERAL DOMESTIC MONEY GROWTH GROWTH GROWTH
FUND - BALANCED FUND - BOND FUND - MARKET FUND - LIFESTYLE FUND - LIFESTYLE FUND - LIFESTYLE FUND -
DIVISION 41* DIVISION 42* DIVISION 43* DIVISION 44* DIVISION 48* DIVISION 49* DIVISION 50*
- ------------ --------------- ------------ ------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 23,760 $ 29,084 $ 14,978 $ 82,478 $ 11,226 $ 19,912 $ 27,772
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
-- -- -- -- -- -- --
-- -- -- -- -- -- --
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
-- -- -- -- -- -- --
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
23,760 29,084 14,978 82,478 11,226 19,912 27,772
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
-- -- -- -- -- -- --
285,733 34,051 15,898 -- -- -- --
1,099,673 805,536 28,692 -- 970,379 925,696 800,941
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1,385,406 839,587 44,590 -- 970,379 925,696 800,941
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$1,409,166 $ 868,671 $ 59,568 $ 82,478 $ 981,605 $ 945,608 $ 828,713
========== ========== ========== ========== ========== ========== ==========
<CAPTION>
AMERICAN AMERICAN AMERICAN
GENERAL GENERAL GENERAL T. ROWE PRICE
CORE STRATEGIC HIGH YIELD SMALL-CAP STOCK
BOND FUND - BOND FUND - BOND FUND - FUND -
DIVISION 58* DIVISION 59* DIVISION 60* DIVISION 51**
- ------------ ------------ ------------ ----------------
<S> <C> <C> <C>
$ 50,247 $ 69,000 $ 92,262 $ --
- ---------- ---------- ---------- ----------
-- -- -- --
-- -- -- --
- ---------- ---------- ---------- ----------
-- -- -- --
- ---------- ---------- ---------- ----------
50,247 69,000 92,262 --
- ---------- ---------- ---------- ----------
-- -- -- --
16,291 11,064 -- --
95,397 185,469 189,911 --
- ---------- ---------- ---------- ----------
111,688 196,533 189,911 --
- ---------- ---------- ---------- ----------
$ 161,935 $ 265,533 $ 282,173 $ --
========== ========== ========== ==========
</TABLE>
<PAGE> 232
================================================================================
16 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGSPC
INTERNATIONAL EQUITIES
FUND - DIVISION 11
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ......................................... $ 1,608,036 $ 1,546,185
Net realized gain (loss) on investments .............................. 4,716,155 8,844,811
Capital gains distributions from mutual funds ........................ 11,021,627 4,593,062
Net unrealized appreciation (depreciation)
of investments during the year ..................................... 7,346,991 (11,693,489)
------------- -------------
Increase (decrease) in net assets resulting from operations ..... 24,692,809 3,290,569
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................................... 14,604,832 21,604,936
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .................................. (9,033,065) (8,085,959)
Annuity benefit payments ............................................. (17,602) (10,712)
Amounts transferred interdivision, and (to) from VALIC general account (33,973,374) (56,024,580)
------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ......................... (28,419,209) (42,516,315)
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .............................. (3,726,400) (39,225,746)
NET ASSETS:
Beginning of year .................................................... 152,000,782 191,226,528
------------- -------------
End of year .......................................................... $ 148,274,382 $ 152,000,782
============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ................................. 122,716,744 156,226,314
Purchase payments .................................................... 10,549,627 17,325,859
Surrenders ........................................................... (6,694,955) (6,456,410)
Transfers -- interdivision and (to) from VALIC general account ....... (24,759,665) (44,379,019)
------------- -------------
Total units outstanding, end of year ................................. 101,811,751 122,716,744
============= =============
Units outstanding, by class:
Standard units .................................................... 101,811,751 122,716,744
Enhanced units:
20 bp reduced ................................................... -- --
40 bp reduced ................................................... -- --
------------- -------------
Accumulation units end of year ....................................... 101,811,751 122,716,744
============= =============
<CAPTION>
DECEMBER 31
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Accumulation value per unit:
Standard unit...................................................... $ 1.454644 $ 1.237299
Enhanced unit:
20 bp reduced.................................................... -- --
40 bp reduced.................................................... -- --
</TABLE>
<TABLE>
<CAPTION>
PUTNAM GLOBAL GROWTH
FUND - DIVISION 28
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ......................................... $ (417,807) $ 825,963
Net realized gain (loss) on investments .............................. 107,190 172,968
Capital gains distributions from mutual funds ........................ 4,089,731 9,300,593
Net unrealized appreciation (depreciation)
of investments during the year ..................................... 21,600,190 (7,591,166)
------------- -------------
Increase (decrease) in net assets resulting from operations ..... 25,379,304 2,708,358
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................................... 45,226,423 18,196,466
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .................................. (3,310,436) (812,004)
Annuity benefit payments ............................................. (2,617) (1,799)
Amounts transferred interdivision, and (to) from VALIC general account 36,967,959 21,134,329
------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ......................... 78,881,329 38,516,992
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .............................. 104,260,633 41,225,350
NET ASSETS:
Beginning of year .................................................... 58,834,408 17,609,058
------------- -------------
End of year .......................................................... $ 163,095,041 $ 58,834,408
============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ................................. 49,548,732 16,648,600
Purchase payments .................................................... 32,447,084 15,748,353
Surrenders ........................................................... (2,408,897) (675,628)
Transfers -- interdivision and (to) from VALIC general account ....... 28,040,873 17,827,407
------------- -------------
Total units outstanding, end of year ................................. 107,627,792 49,548,732
============= =============
Units outstanding, by class:
Standard units .................................................... 101,468,260 49,548,732
Enhanced units:
20 bp reduced ................................................... 6,153,771 --
40 bp reduced ................................................... 5,760 --
------------- -------------
Accumulation units end of year ....................................... 107,627,792 49,548,732
============= =============
<CAPTION>
DECEMBER 31
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Accumulation value per unit:
Standard unit...................................................... $ 1.512865 $ 1.186775
Enhanced unit:
20 bp reduced.................................................... 1.549587 --
40 bp reduced.................................................... 1.591007 --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 233
================================================================================
SEPARATE ACCOUNT A 17
================================================================================
<TABLE>
<CAPTION>
TEMPLETON FOREIGN TEMPLETON INTERNATIONAL AGSPC SCIENCE & TECHNOLOGY AGSPC SMALL CAP
FUND - DIVISION 32 FUND - DIVISION 20 FUND - DIVISION 17 INDEX FUND - DIVISION 14
- ---------------------------- ---------------------------- ----------------------------- ----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,763,468 $ 3,566,211 $ 7,944,373 $ 7,044,706 $ (10,381,062) $ (8,359,405) $ 322,094 $ 321,469
(1,076,896) 180,290 52,533,310 24,143,886 34,745,563 27,202,326 8,661,321 7,403,801
17,280,633 12,359,374 31,903,839 6,157,699 113,616,462 -- 18,436,501 17,477,318
(34,315,820) (16,286,999) (37,039,574) 33,826,345 250,423,659 (11,571,856) (34,899,835) 13,195,192
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
(14,348,615) (181,124) 55,341,948 71,172,636 388,404,622 7,271,065 (7,479,919) 38,397,780
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
72,575,285 63,929,059 114,632,129 127,443,761 195,575,628 203,196,325 28,153,952 26,031,893
(7,939,318) (2,231,179) (35,093,007) (21,498,080) (44,292,549) (27,661,660) (11,145,100) (8,101,115)
(1,991) (1,149) (9,179) (6,675) (17,543) (17,353) (7,293) (6,381)
(12,669,089) 79,881,321 (95,114,875) 22,603,734 (92,089,284) 15,908,913 (13,919,719) (10,731,749)
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
51,964,887 141,578,052 (15,584,932) 128,542,740 59,176,252 191,426,225 3,081,840 7,192,648
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
37,616,272 141,396,928 39,757,016 199,715,376 447,580,874 198,697,290 (4,398,079) 45,590,428
180,852,001 39,455,073 729,739,187 530,023,811 909,661,454 710,964,164 230,068,750 184,478,322
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
$ 218,468,273 $ 180,852,001 $ 769,496,203 $ 729,739,187 $1,357,242,328 $909,661,454 $ 225,670,671 $ 230,068,750
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
159,201,107 36,671,828 463,174,350 378,581,949 397,842,959 315,809,646 106,279,077 103,320,842
63,265,244 55,441,897 65,837,726 81,609,273 77,332,989 88,179,109 13,084,095 13,258,805
(7,600,467) (1,875,284) (21,321,029) (13,712,830) (17,946,718) (11,448,429) (5,229,338) (4,191,154)
(10,799,968) 68,962,666 (55,271,958) 16,695,958 (35,393,395) 5,302,633 (6,753,994) (6,109,416)
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
204,065,916 159,201,107 452,419,089 463,174,350 421,835,835 397,842,959 107,379,840 106,279,077
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
198,626,024 159,201,107 452,419,089 463,174,350 418,601,069 397,842,959 107,321,015 106,279,077
5,437,288 -- -- -- 3,228,389 -- 58,825 --
2,604 -- -- -- 6,377 -- -- --
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
204,065,916 159,201,107 452,419,089 463,174,350 421,835,835 397,842,959 107,379,840 106,279,077
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
- ---------------------------- ---------------------------- ----------------------------- ----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ------------- ------------- ------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.069704 $ 1.135778 $ 1.700398 $ 1.575168 $ 3.216190 $ 2.285739 $ 2.100506 $ 2.163595
1.094954 -- -- -- 3.241847 -- 2.125983 --
1.123840 -- -- -- 3.272354 -- -- --
</TABLE>
<PAGE> 234
================================================================================
18 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DREYFUS SMALL CAP
PORTFOLIO - DIVISION 18
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ......................................... $ (9,100,355) $ (7,877,254)
Net realized gain (loss) on investments .............................. 19,673,784 10,514,976
Capital gains distributions from mutual funds ........................ 15,549,964 47,781,324
Net unrealized appreciation (depreciation)
of investments during the year ..................................... (67,338,458) 56,534,602
------------- -------------
Increase (decrease) in net assets resulting from operations .......... (41,215,065) 106,953,648
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................................... 136,010,701 152,268,343
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .................................. (37,151,392) (25,995,894)
Annuity benefit payments ............................................. (12,769) (13,079)
Amounts transferred interdivision, and (to) from VALIC general account (105,448,868) (41,774,769)
------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ........................ (6,602,328) 84,484,601
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .............................. (47,817,393) 191,438,249
Net Assets:
Beginning of year .................................................... 849,824,308 658,386,059
------------- -------------
End of year .......................................................... $ 802,006,915 $ 849,824,308
============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ................................. 479,851,525 428,883,250
Purchase payments .................................................... 78,837,263 92,300,416
Surrenders ........................................................... (22,827,377) (15,764,818)
Transfers -- interdivision and (to) from VALIC general account ....... (61,646,182) (25,567,323)
------------- -------------
Total units outstanding, end of year ................................. 474,215,229 479,851,525
============= =============
Units outstanding, by class:
Standard units .................................................... 474,215,229 479,851,525
Enhanced units:
20 bp reduced ................................................... -- --
40 bp reduced ................................................... -- --
------------- -------------
Accumulation units end of year ....................................... 474,215,229 479,851,525
============= =============
<CAPTION>
DECEMBER 31
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Accumulation value per unit:
Standard unit...................................................... $ 1.690786 $ 1.770622
Enhanced unit:
20 bp reduced.................................................... -- --
40 bp reduced.................................................... -- -
</TABLE>
<TABLE>
<CAPTION>
PUTNAM NEW OPPORTUNITIES
FUND - DIVISION 26
--------------------------------
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ......................................... $ (2,691,328) $ (1,052,294)
Net realized gain (loss) on investments .............................. 872,455 242,887
Capital gains distributions from mutual funds ........................ 12,546,729 3,494,327
Net unrealized appreciation (depreciation)
of investments during the year ..................................... 53,605,222 18,445,868
------------- -------------
Increase (decrease) in net assets resulting from operations .......... 64,333,078 21,130,788
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................................... 108,017,017 51,769,269
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .................................. (8,784,234) (2,540,805)
Annuity benefit payments ............................................. (575) (61)
Amounts transferred interdivision, and (to) from VALIC general account 84,011,090 44,254,408
Increase (decrease) in net assets
------------- -------------
resulting from principal transactions ........................ 183,243,298 93,482,811
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .............................. 247,576,376 114,613,599
Net Assets:
Beginning of year .................................................... 164,836,578 50,222,979
------------- -------------
End of year .......................................................... $ 412,412,954 $ 164,836,578
============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ................................. 143,395,066 53,001,699
Purchase payments .................................................... 85,839,361 49,995,408
Surrenders ........................................................... (6,337,162) (2,517,125)
Transfers -- interdivision and (to) from VALIC general account ....... 68,362,756 42,915,084
------------- -------------
Total units outstanding, end of year ................................. 291,260,021 143,395,066
============= =============
Units outstanding, by class:
Standard units .................................................... 280,523,297 143,395,066
Enhanced units:
20 bp reduced ................................................... 10,725,927 --
40 bp reduced ................................................... 10,797 --
------------- -------------
Accumulation units end of year ....................................... 291,260,021 143,395,066
============= =============
<CAPTION>
DECEMBER 31
--------------------------------
1998 1997
------------- -------------
Accumulation value per unit:
<S> <C> <C>
Standard unit...................................................... $ 1.415175 $ 1.149453
Enhanced unit:
20 bp reduced.................................................... 1.434946 --
40 bp reduced.................................................... 1.459115 --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 235
================================================================================
Separate Account A 19
================================================================================
<TABLE>
<CAPTION>
AMERICAN CENTURY -
PUTNAM OTC & EMERGING AGSPC GROWTH AGSPC MIDCAP INDEX TWENTIETH CENTURY ULTRA
GROWTH FUND - DIVISION 27 FUND - DIVISION 15 FUND - DIVISION 4 FUND - DIVISION 31
- ---------------------------- ----------------------------- ---------------------------- ----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,286,141 $ (720,013) $ (10,623,737) $ (7,550,418) $ (689,428) $ 535,199 $ (2,282,917) $ (633,243)
(332,944) (47,363) 11,720,556 6,207,654 26,826,443 19,471,600 473,963 316,651
-- -- 51,517,534 15,041,175 69,472,796 39,891,431 30,532,354 24,559,704
9,278,020 8,912,297 114,925,718 132,575,644 30,964,965 109,426,279 39,033,600 (16,326,801)
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
12,231,217 8,144,921 167,540,071 146,274,055 126,574,776 169,324,509 67,757,000 7,916,311
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
36,165,527 32,976,492 183,983,180 185,814,571 71,049,146 66,141,090 95,865,928 43,175,072
(4,499,407) (1,887,137) (45,145,966) (24,997,689) (37,639,412) (24,993,718) (6,987,387) (1,444,132)
(2,072) (1,777) (23,099) (18,116) (23,570) (20,499) (1,933) (950)
960,600 14,456,676 (34,517,049) (764,959) (40,068,991) (45,549,090) 86,438,332 56,804,430
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
32,624,648 45,544,254 104,297,066 160,033,807 (6,682,827) (4,422,217) 175,314,940 98,534,420
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
44,855,865 53,689,175 271,837,137 306,307,862 119,891,949 164,902,292 243,071,940 106,450,731
97,456,130 43,766,955 941,423,469 635,115,607 730,613,685 565,711,393 123,768,389 17,317,658
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
$ 142,311,995 $ 97,456,130 $1,213,260,606 $ 941,423,469 $ 850,505,634 $730,613,685 $ 366,840,329 $123,768,389
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
99,785,041 48,902,828 453,172,490 366,272,509 171,065,657 172,816,978 97,745,282 16,654,076
36,257,228 36,775,163 82,864,073 99,349,760 16,010,438 17,600,471 63,913,168 36,243,458
(4,704,400) (2,370,530) (20,670,419) (12,033,793) (8,724,789) (6,688,206) (4,133,151) (1,152,164)
1,221,835 16,477,580 (16,039,778) (415,986) (9,311,419) (12,663,586) 59,835,828 45,999,912
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
132,559,704 99,785,041 499,326,366 453,172,490 169,039,887 171,065,657 217,361,127 97,745,282
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
129,463,792 99,785,041 494,997,997 453,172,490 169,039,887 171,065,657 209,221,513 97,745,282
3,092,839 -- 4,324,799 -- -- -- 8,116,612 --
3,073 -- 3,570 -- -- -- 23,002 --
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
132,559,704 99,785,041 499,326,366 453,172,490 169,039,887 171,065,657 217,361,127 97,745,282
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
- ---------------------------- ----------------------------- ---------------------------- ----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ------------ -------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.072660 $ 0.976262 $ 2.428587 $ 2.076503 $ 5.029093 $ 4.269122 $ 1.685503 $ 1.265937
1.098295 -- 2.448443 -- -- -- 1.737734 --
1.127653 -- 2.471473 -- -- -- 1.798208 --
</TABLE>
<PAGE> 236
================================================================================
20 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOUNDERS GROWTH AGSPC GROWTH & INCOME
FUND - DIVISION 30 FUND - DIVISION 16
----------------------------- -----------------------------
1998 1997 1998 1997
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................................... $ (2,702,478) $ (229,837) $ (1,424,066) $ (1,206,116)
Net realized gain on investments ................................ 669,679 270,661 10,494,295 3,270,580
Capital gains distributions from mutual funds ................... 21,151,616 21,678,474 20,275,426 2,863,622
Net unrealized appreciation (depreciation)
of investments during the year ................................ 42,627,883 (6,466,051) 3,996,252 38,217,716
------------- ------------- ------------- -------------
Increase in net assets resulting from operations ........... 61,746,700 15,253,247 33,341,907 43,145,802
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ............................................... 117,393,497 54,770,398 39,532,854 44,825,180
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................. (9,478,330) (1,863,811) (11,951,930) (8,344,519)
Annuity benefit payments ........................................ (1,096) (66) (3,597) (2,954)
Amounts transferred interdivision, and (to) from
VALIC general account ......................................... 72,791,918 70,189,987 (32,787,298) 5,944,261
------------- ------------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions .................... 180,705,989 123,096,508 (5,209,971) 42,421,968
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS .................................... 242,452,689 138,349,755 28,131,936 85,567,770
NET ASSETS:
Beginning of year ............................................... $ 170,468,231 32,118,476 257,095,975 171,528,205
------------- ------------- ------------- -------------
End of year ..................................................... 412,920,920 $ 170,468,231 $ 285,227,911 $ 257,095,975
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................ 132,167,162 31,197,464 132,434,555 108,341,635
Purchase payments ............................................... 80,460,723 45,575,203 19,715,398 24,988,066
Surrenders ...................................................... (6,588,832) (1,491,261) (6,142,924) (4,697,640)
Transfers -- interdivision and (to) from VALIC general account .. 52,471,956 56,885,756 (16,456,334) 3,802,494
------------- ------------- ------------- -------------
Total units outstanding, end of year ............................ 258,511,009 132,167,162 129,550,695 132,434,555
============= ============= ============= =============
Units outstanding, by class:
Standard units ............................................... 250,777,959 132,167,162 129,550,695 132,434,555
Enhanced units:
20 bp reduced .............................................. 7,720,189 -- -- --
40 bp reduced .............................................. 12,861 -- -- --
------------- ------------- ------------- -------------
Accumulation units end of year .................................. 258,511,009 132,167,162 129,550,695 132,434,555
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
----------------------------- -----------------------------
1998 1997 1998 1997
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Accumulation value per unit:
Standard unit ................................................ $ 1.595913 $ 1.289513 $ 2.201234 $ 19981997
Enhanced unit:
20 bp reduced .............................................. 1.633282 -- -- --
40 bp reduced .............................................. 1.676366 -- -- --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 237
================================================================================
SEPARATE ACCOUNT A 21
================================================================================
<TABLE>
<CAPTION>
AGSPC STOCK INDEX FUND
AGSPC SOCIAL AWARENESS ----------------------------------------------------------------
FUND - DIVISION 12 DIVISION 10A DIVISION 10B
- ------------------------------ ------------------------------ ------------------------------
1998 1997 1998 1997 1998 1997
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C>
$ 190,273 $ 281,520 $ 1,035,631 $ 2,030,016 $ 358,014 $ 399,877
2,220,138 1,158,707 36,292,713 23,392,823 2,895,173 2,137,197
37,003,617 9,560,562 2,140,138 2,365,369 166,018 185,844
38,477,902 33,369,211 82,035,996 89,338,679 6,394,969 6,910,324
- ------------- ------------- ------------- ------------- ------------- -------------
77,891,930 44,370,000 121,504,478 117,126,887 9,814,174 9,633,242
- ------------- ------------- ------------- ------------- ------------- -------------
72,710,322 44,746,508 4,116,842 3,670,819 204,507 231,218
(13,355,087) (5,475,293) (30,874,894) (24,373,318) (2,153,577) (2,331,031)
(9,481) -- (1,996,857) (1,717,390) (327,696) (285,785)
54,323,803 55,022,728 (14,779,077) (3,572,644) (1,934,563) (1,027,537)
- ------------- ------------- ------------- ------------- ------------- -------------
113,669,557 94,293,943 (43,533,986) (25,992,533) (4,211,329) (3,413,135)
- ------------- ------------- ------------- ------------- ------------- -------------
191,561,487 138,663,943 77,970,492 91,134,354 5,602,845 6,220,107
243,579,972 104,916,029 469,783,383 378,649,029 36,946,031 30,725,924
- ------------- ------------- ------------- ------------- ------------- -------------
$ 435,141,459 $ 243,579,972 $ 547,753,875 $ 469,783,383 $ 42,548,876 $ 36,946,031
============= ============= ============= ============= ============= =============
81,577,104 46,574,016 25,835,933 27,379,389 1,256,974 1,380,401
21,359,028 16,505,152 206,729 226,321 6,328 9,647
(3,889,138) (1,970,414) (1,549,859) (1,529,579) (68,344) (92,576)
16,555,822 20,468,350 (766,299) (240,198) (63,845) (40,498)
- ------------- ------------- ------------- ------------- ------------- -------------
115,602,816 81,577,104 23,726,504 25,835,933 1,131,113 1,256,974
============= ============= ============= ============= ============= =============
114,382,494 81,577,104 23,726,504 25,835,933 1,131,113 1,256,974
1,218,871 -- -- -- -- --
1,451 -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- -------------
115,602,816 81,577,104 23,726,504 25,835,933 1,131,113 1,256,974
============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31
- ------------------------------ ------------------------------ ------------------------------
1998 1997 1998 1997 1998 1997
- ------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.762308 $ 2.985333 $ 22.479709 $ 17.679054 $ 35.792019 $ 27956641
3.825649 -- -- --
3.897214 -- -- --
</TABLE>
<PAGE> 238
================================================================================
22 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGSPC STOCK INDEX FUND
-----------------------------------
DIVISION 10C
---------------------------------
1998 1997
---------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ...................................... $ 5,965,482 $ 9,342,792
Net realized gain on investments .................................. 21,789,375 19,691,626
Capital gains distributions from mutual funds ..................... 13,033,369 11,611,427
Net unrealized appreciation (depreciation)
of investments during the year .................................. 631,036,013 475,943,738
--------------- ---------------
Increase (decrease) in net assets resulting from operations ... 671,824,239 516,589,583
--------------- ---------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................................. 372,858,039 264,734,800
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................... (130,840,043) (73,944,144)
Annuity benefit payments .......................................... (164,035) (120,896)
Amounts transferred interdivision, and (to) from
VALIC general account ........................................... 112,786,439 72,721,787
--------------- ---------------
Increase (decrease) in net assets
resulting from principal transactions ...................... 354,640,400 263,391,547
--------------- ---------------
TOTAL INCREASE IN NET ASSETS ...................................... 1,026,464,639 779,981,130
NET ASSETS:
Beginning of year ................................................. 2,310,327,500 1,530,346,370
--------------- ---------------
End of year ....................................................... $ 3,336,792,139 $ 2,310,327,500
=============== ===============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .............................. 615,053,124 536,806,965
Purchase payments ................................................. 85,764,962 77,757,636
Surrenders ........................................................ (29,978,801) (20,920,257)
Transfers -- interdivision and (to) from VALIC general account .... 27,731,410 21,408,780
--------------- ---------------
Total units outstanding, end of year .............................. 698,570,695 615,053,124
=============== ===============
Units outstanding, by class:
Standard units .................................................. 691,680,049 615,053,124
Enhanced units:
20 bp reduced ................................................ 6,859,835 --
40 bp reduced ................................................ 30,811 --
--------------- ---------------
Accumulation units end of year .................................... 698,570,695 615,053,124
=============== ===============
<CAPTION>
AGSPC STOCK INDEX FUND
---------------------------------
DIVISION 10D
---------------------------------
1998 1997
---------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) ...................................... $ 105,740 $ 222,212
Net realized gain on investments .................................. 4,368,980 3,421,747
Capital gains distributions from mutual funds ..................... 219,975 249,976
Net unrealized appreciation (depreciation)
of investments during the year .................................. 7,900,957 9,003,055
--------------- ---------------
Increase (decrease) in net assets resulting from operations ... 12,595,652 12,896,990
--------------- ---------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................................. 654,342 789,193
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................... (3,879,247) (2,598,402)
Annuity benefit payments .......................................... (15,905) (13,201)
Amounts transferred interdivision, and (to) from
VALIC general account ........................................... (2,514,825) (3,872,680)
--------------- ---------------
Increase (decrease) in net assets
resulting from principal transactions ...................... (5,755,635) (5,695,090)
--------------- ---------------
TOTAL INCREASE IN NET ASSETS ...................................... 6,840,017 7,201,900
NET ASSETS:
Beginning of year ................................................. 49,673,027 42,471,127
--------------- ---------------
End of year ....................................................... $ 56,513,044 $ 49,673,027
=============== ===============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .............................. 7,438,537 8,381,704
Purchase payments ................................................. 88,428 132,628
Surrenders ........................................................ (521,941) (430,026)
Transfers -- interdivision and (to) from VALIC general account .... (349,228) (645,769)
--------------- ---------------
Total units outstanding, end of year .............................. 6,655,796 7,438,537
=============== ===============
Units outstanding, by class:
Standard units .................................................. 6,655,796 7,438,537
Enhanced units:
20 bp reduced ................................................ -- --
40 bp reduced ................................................ -- --
--------------- ---------------
Accumulation units end of year .................................... 6,655,796 7,438,537
=============== ===============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
--------------------------------- ---------------------------------
1998 1997 1998 1997
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Accumulation value per unit:
Standard unit........................... $ 4.772052 $ 3.753436 $ 8.457722 $ 6.652806
Enhanced unit:
20 bp reduced........................ 4.875028 -- -- --
40 bp reduced........................ 4.991135 -- -- --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 239
================================================================================
SEPARATE ACCOUNT A 23
================================================================================
<TABLE>
<CAPTION>
NEUBERGER BERMAN SCUDDER GROWTH AND VANGUARD WINDSOR II TEMPLETON ASSET
GUARDIAN TRUST - DIVISION 29 INCOME FUND - DIVISION 21 FUND - DIVISION 24 ALLOCATION FUND - DIVISION 19
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (316,186) $ (99,741) $ 2,680,972 $ 1,085,048 $ 5,622,515 $ 3,037,913 $ 5,298,721 $ 2,826,899
447,267 406,993 1,067,960 269,953 1,366,076 741,743 10,513,951 982,063
5,112,104 3,161,542 17,737,903 8,952,194 51,898,120 18,541,072 9,560,576 11,661,872
(5,621,588) (1,574,737) (15,926,329) 4,003,711 278,987 16,110,878 (10,693,322) 13,366,704
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(378,403) 1,894,057 5,560,506 14,310,906 59,165,698 38,431,606 14,679,926 28,837,538
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
18,727,026 14,861,097 79,800,185 37,754,331 172,075,011 82,698,118 55,452,646 61,278,823
(1,971,281) (661,852) (7,670,739) (1,502,937) (18,029,126) (3,075,223) (15,786,958) (9,457,167)
-- -- (3,718) (2,106) (6,802) (1,497) (22,337) (19,742)
(1,314,316) 21,010,215 34,897,873 66,400,722 162,813,002 115,544,417 (47,069,555) 41,633,946
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
15,441,429 35,209,460 107,023,601 102,650,010 316,852,085 195,165,815 (7,426,204) 93,435,860
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
15,063,026 37,103,517 112,584,107 116,960,916 376,017,783 233,597,421 7,253,722 122,273,398
46,306,823 9,203,306 135,384,401 18,423,485 275,397,199 41,799,778 316,874,285 194,600,887
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 61,369,849 $ 46,306,823 $ 247,968,508 $ 135,384,401 $ 651,414,982 $ 275,397,199 $ 324,128,007 $ 316,874,285
============= ============= ============= ============= ============= ============= ============= =============
35,406,663 8,211,592 94,225,984 16,524,046 187,929,868 37,292,761 196,150,946 137,384,670
13,737,161 11,711,541 51,892,138 28,874,922 105,145,249 63,199,633 32,881,580 38,574,901
(1,683,029) (501,980) (5,008,156) (1,088,301) (10,145,505) (2,242,658) (10,222,721) (5,822,716)
(1,186,725) 15,985,510 23,203,013 49,915,317 103,638,092 89,680,132 (27,846,098) 26,014,091
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
46,274,070 35,406,663 164,312,979 94,225,984 386,567,704 187,929,868 190,963,707 196,150,946
============= ============= ============= ============= ============= ============= ============= =============
45,261,146 35,406,663 159,815,811 94,225,984 372,737,595 187,929,868 190,963,707 196,150,946
1,012,671 -- 4,494,004 -- 13,800,156 -- -- --
253 -- 3,163 -- 29,953 -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
46,274,070 35,406,663 164,312,979 94,225,984 386,567,704 187,929,868 190,963,707 196,150,946
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.324970 $ 1.307438 $ 1.507724 $ 1.436011 $ 1.683226 $ 1.464949 $ 1.695764 $ 1.613943
1.368269 -- 1.542160 -- 1.723020 -- -- --
1.418252 -- 1.582856 -- 1.770257 -- -- --
</TABLE>
<PAGE> 240
================================================================================
24 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGSPC ASSET ALLOCATION VANGUARD WELLINGTON
FUND - DIVISION 5 FUND - DIVISION 25
----------------------------- -----------------------------
1998 1997 1998 1997
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ............................................. $ 3,873,507 $ 3,768,356 $ 8,146,899 $ 3,011,918
Net realized gain (loss) on investments ........................... 2,520,862 5,941,975 453,710 713,048
Capital gains distributions from mutual funds ..................... 12,936,405 10,546,782 30,281,535 7,375,024
Net unrealized appreciation (depreciation)
of investments during the year .................................. 13,072,376 14,486,554 (13,016,167) 3,998,391
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from operations ... 32,403,150 34,743,667 25,865,977 15,098,381
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................................. 16,199,430 11,497,764 128,896,516 51,882,204
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................... (12,309,318) (10,611,952) (11,075,983) (2,456,686)
Annuity benefit payments .......................................... (9,811) (8,301) (1,770) (68)
Amounts transferred interdivision, and (to) from
VALIC general account ........................................... 6,673,714 (24,272,661) 106,781,378 66,331,198
------------- ------------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ...................... 10,554,015 (23,395,150) 224,600,141 115,756,648
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........................... 42,957,165 11,348,517 250,466,118 130,855,029
NET ASSETS:
Beginning of year ................................................. 184,577,992 173,229,475 156,044,547 25,189,518
------------- ------------- ------------- -------------
End of year ....................................................... $ 227,535,157 $ 184,577,992 $ 406,510,665 $ 156,044,547
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .............................. 57,307,351 65,292,617 116,429,781 22,866,634
Purchase payments ................................................. 4,579,044 3,898,053 87,356,196 42,072,769
Surrenders ........................................................ (3,567,970) (3,591,047) (6,659,976) (1,913,812)
Transfers -- interdivision and (to) from VALIC general account .... 1,950,743 (8,292,272) 76,359,783 53,404,190
------------- ------------- ------------- -------------
Total units outstanding, end of year .............................. 60,269,168 57,307,351 273,485,784 116,429,781
============= ============= ============= =============
Units outstanding, by class:
Standard units .................................................... 60,237,818 57,307,351 253,840,498 116,429,781
Enhanced units:
20 bp reduced ................................................. 31,350 -- 19,636,072 --
40 bp reduced ................................................. -- -- 9,214 --
------------- ------------- ------------- -------------
Accumulation units end of year .................................... 60,269,168 57,307,351 273,485,784 116,429,781
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
----------------------------- -----------------------------
1998 1997 1998 1997
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Standard unit............................................... $ 3.772519 $ 3.219282 $ 1.482836 $ 1.340109
Enhanced unit:
20 bp reduced............................................. 3.882024 -- 1.529797 --
40 bp reduced............................................. -- -- 1.585688 --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 241
================================================================================
SEPARATE ACCOUNT A 25
================================================================================
<TABLE>
<CAPTION>
AGSPC
AGSPC INTERNATIONAL CAPITAL CONSERVATION FUND
GOVERNMENT BOND ------------------------------------------------------------- AGSPC GOVERNMENT SECURITIES
FUND - DIVISION 13 DIVISION 1 DIVISION 7 FUND - DIVISION 8
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,997,004 $ 4,595,764 $ 338,175 $ 344,608 $ 3,124,808 $ 2,913,560 $ 4,468,159 $ 4,230,305
(1,068,211) (3,911,328) 12,194 23,005 413,199 (805,486) 1,352,903 (985,278)
872,765 136,607 -- -- -- -- -- --
21,926,900 (11,068,351) 35,832 90,579 (35,856) 1,739,391 1,437,930 3,130,717
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
23,728,458 (10,247,308) 386,201 458,192 3,502,151 3,847,465 7,258,992 6,375,744
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
25,413,792 40,582,861 146,532 366,816 7,027,648 7,324,860 12,902,909 12,424,460
(7,785,118) (6,757,210) (562,370) (389,473) (3,833,561) (3,026,469) (5,395,424) (3,958,609)
(2,691) (274) (455) (526) -- -- -- --
(38,345,989) (35,550,483) (97,641) (509,353) (2,143,426) (8,016,607) 10,528,632 (12,246,246)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(20,720,006) (1,725,106) (513,934) (532,536) 1,050,661 (3,718,216) 18,036,117 (3,780,395)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
3,008,452 (11,972,414) (127,733) (74,344) 4,552,812 129,249 25,295,109 2,595,349
166,199,757 178,172,171 6,427,526 6,501,870 55,418,728 55,289,479 88,167,288 85,571,939
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 169,208,209 $ 166,199,757 $ 6,299,793 $ 6,427,526 $ 59,971,540 $ 55,418,728 $ 113,462,397 $ 88,167,288
============= ============= ============= ============= ============= ============= ============= =============
111,480,591 112,601,593 1,831,961 1,991,536 28,242,598 30,286,494 45,034,894 47,130,169
16,433,799 27,009,353 40,472 109,285 3,402,874 3,840,755 6,558,071 6,646,726
(5,105,973) (4,696,042) (155,629) (116,952) (1,879,505) (1,555,673) (2,679,928) (2,143,349)
(24,924,879) (23,434,313) (27,361) (151,908) (1,014,305) (4,328,978) 4,816,634 (6,598,652)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
97,883,538 111,480,591 1,689,443 1,831,961 28,751,662 28,242,598 53,729,671 45,034,894
============= ============= ============= ============= ============= ============= ============= =============
97,473,851 111,480,591 1,689,443 1,831,961 28,751,662 28,242,598 53,729,671 45,034,894
408,156 -- -- -- -- -- -- --
1,531 -- -- -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
97,883,538 111,480,591 1,689,443 1,831,961 28,751,662 28,242,598 53,729,671 45,034,894
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ----------------------------- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.728006 $ 1.490645 $ 3.726168 $ 3.505970 $ 2.085846 $ 1.962239 $ 2.111727 $ 1.957755
1.751922 -- -- -- -- -- -- --
1.777571 -- -- -- -- -- -- --
</TABLE>
<PAGE> 242
================================================================================
26 FINANCIAL STATEMENTS
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
VANGUARD LONG-TERM VANGUARD LONG-TERM
CORPORATE FUND - DIVISION 22 TREASURY FUND - DIVISION 23
----------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ............................................. $ 2,052,614 $ 506,655 $ 2,857,159 $ 567,564
Net realized gain on investments .................................. 136,212 36,716 1,195,397 94,335
Capital gains distributions from mutual funds ..................... 1,044,043 156,984 -- --
Net unrealized appreciation (depreciation)
of investments during the year .................................. (64,200) 643,127 2,611,560 1,066,785
------------- ------------- ------------- -------------
Increase in net assets resulting from operations .............. 3,168,669 1,343,482 6,664,116 1,728,684
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................................. 18,953,737 6,013,744 30,970,739 6,985,216
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................... (1,608,861) (167,812) (2,748,295) (265,787)
Annuity benefit payments .......................................... -- -- (813) (176)
Amounts transferred interdivision, and (to) from
VALIC general account ........................................... 19,011,058 9,719,778 60,728,245 10,813,576
------------- ------------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ....................... 36,355,934 15,565,710 88,949,876 17,532,829
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........................... 39,524,603 16,909,192 95,613,992 19,261,513
NET ASSETS:
Beginning of year ................................................. 20,440,049 3,530,857 23,638,214 4,376,701
------------- ------------- ------------- -------------
End of year ....................................................... $ 59,964,652 $ 20,440,049 $ 119,252,206 $ 23,638,214
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .............................. 17,371,407 3,370,441 20,041,920 4,174,369
Purchase payments ................................................. 15,098,601 5,633,849 23,916,542 6,619,458
Surrenders ........................................................ (1,333,865) (151,626) (1,937,227) (227,789)
Transfers -- interdivision and (to) from VALIC general account .... 15,936,430 8,518,743 48,342,694 9,475,882
------------- ------------- ------------- -------------
Total units outstanding, end of year .............................. 47,072,573 17,371,407 90,363,929 20,041,920
============= ============= ============= =============
Units outstanding, by class:
Standard units .................................................... 44,122,646 17,371,407 86,673,300 20,041,920
Enhanced units:
20 bp reduced ................................................. 2,949,044 -- 3,682,809 --
40 bp reduced ................................................. 883 -- 7,820 --
------------- ------------- ------------- -------------
Accumulation units end of year .................................... 47,072,573 17,371,407 90,363,929 20,041,920
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
----------------------------- -----------------------------
1998 1997 1998 1997
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Accumulation value per unit:
Standard unit............................................... $ 1.271278 $ 1.176649 $ 1.318263 $ 1.178938
Enhanced unit:
20 bp reduced............................................. 1.312731 -- 1.349397 --
40 bp reduced............................................. 1.360696 -- 1.384079 --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 243
================================================================================
SEPARATE ACCOUNT A 27
================================================================================
<TABLE>
<CAPTION>
AGSPC
MONEY MARKET FUND
- ----------------------------------------------------------------
DIVISION 2 DIVISION 6
- ------------------------------ ------------------------------
1998 1997 1998 1997
- ------------- ------------- ------------- -------------
<S> <C> <C> <C>
$ 184,017 $ 188,513 $ 7,849,963 $ 5,293,164
-- -- -- --
-- -- -- --
-- -- -- --
- ------------- ------------- ------------- -------------
184,017 188,513 7,849,963 5,293,164
- ------------- ------------- ------------- -------------
90,884 123,738 87,624,322 58,442,609
(292,611) (277,223) (33,439,890) (16,317,039)
-- -- (1,603) (1,592)
(364,560) (334,772) 63,714,230 (27,271,186)
- ------------- ------------- ------------- -------------
(566,287) (488,257) 117,897,059 14,852,792
- ------------- ------------- ------------- -------------
(382,270) (299,744) 125,747,022 20,145,956
4,579,757 4,879,501 140,904,582 120,758,626
- ------------- ------------- ------------- -------------
$ 4,197,487 $ 4,579,757 $ 266,651,604 $ 140,904,582
============= ============= ============= =============
1,931,439 2,142,534 84,182,521 75,124,095
37,542 53,405 56,361,872 35,256,772
(120,614) (119,264) (17,562,213) (10,205,685)
(148,034) (145,236) 29,891,462 (15,992,661)
- ------------- ------------- ------------- -------------
1,700,333 1,931,439 152,873,642 84,182,521
============= ============= ============= =============
1,700,333 1,931,439 147,547,688 84,182,521
-- -- 5,325,479 --
-- -- 475 --
- ------------- ------------- ------------- -------------
1,700,333 1,931,439 152,873,642 84,182,521
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
- ----------------------------------------------------------------
1998 1997 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
$ 2.468627 $ 2.371163 $ 1.742617 $ 1.673590
-- -- 1.786658 --
-- -- 1.833793 --
</TABLE>
<PAGE> 244
===============================================================================
28 FINANCIAL STATEMENTS
===============================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AMERICAN GENERAL INTERNATIONAL AMERICAN GENERAL INTERNATIONAL
GROWTH FUND - DIVISION 33 VALUE FUND - DIVISION 33
------------------------------ ------------------------------
1998 1997 1998 1997
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
OPERATIONS: $ -- $ -- $ 5,760 $ --
Net investment income ................................. -- -- -- --
Net realized gain on investments
Capital gains distributions from
mutual funds ........................................ -- -- -- --
Net unrealized appreciation
of investments during the year ...................... 200,750 -- 547,276 --
---------- --------- ---------- ---------
Increase in net assets resulting
from operations ................................ 200,750 -- 553,036 --
---------- --------- ---------- ---------
PRINCIPAL TRANSACTIONS:
Purchase payments ..................................... -- -- -- --
Surrenders of accumulation units by
terminations, withdrawals, and maintenance
fees ................................................ -- -- -- --
Annuity benefit payments .............................. -- -- -- --
Amounts transferred interdivision, and from
VALIC general account ............................... 3,650,000 -- 3,600,000 --
---------- --------- ---------- ---------
Increase in net assets
resulting from principal transactions ............ 3,650,000 -- 3,600,000 --
---------- --------- ---------- ---------
TOTAL INCREASE IN NET ASSETS .......................... 3,850,750 -- 4,153,036 --
NET ASSETS:
Beginning of year ..................................... -- -- -- --
End of year ........................................... $3,850,750 $ -- $4,153,036 $ --
========== ========= ========== =========
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .................. -- -- -- --
Purchase payments ..................................... -- -- -- --
Surrenders ............................................ -- -- -- --
Transfers -- interdivision and from VALIC
general account ..................................... -- -- -- --
---------- --------- ---------- ---------
Total units outstanding, end of year .................. -- -- -- --
========== ========= ========== =========
Units outstanding, by class:
Standard units ...................................... -- -- -- --
Enhanced units:
20 bp reduced .................................... -- -- -- --
40 bp reduced .................................... -- -- -- --
---------- --------- ---------- ---------
Accumulation units end of year ........................ -- -- -- --
========== ========= ========== =========
DECEMBER 31 DECEMBER 31
------------------------- -------------------------
1998 1997 1998 1997
---------- --------- ---------- ---------
Accumulation value per unit:
Standard unit ....................................... -- -- -- --
Enhanced unit:
20 bp reduced .................................... -- -- -- --
40 bp reduced .................................... -- -- -- --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 245
===============================================================================
SEPARATE ACCOUNT A 29
===============================================================================
<TABLE>
<CAPTION>
AMERICAN GENERAL SMALL CAP AMERICAN GENERAL SMALL CAP AMERICAN GENERAL MID CAP AMERICAN GENERAL MID CAP
GROWTH FUND - DIVISION 35 VALUE FUND - DIVISION 36 GROWTH FUND - DIVISION 37 VALUE FUND - DIVISION 38
- ----------------------------- ------------------------------ ----------------------------- ----------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ 13,079 $ -- $ -- $ -- $ 10,079 $ --
-- -- -- -- -- -- -- --
18,373 -- 51,644 -- -- -- 115,562 --
1,361,100 -- 585,384 -- 1,425,600 -- 896,569 --
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
1,379,473 -- 650,107 -- 1,425,600 -- 1,022,210 --
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
3,900,000 -- 3,849,999 -- 4,050,000 -- 3,949,999 --
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
3,900,000 -- 4,500,106 -- 5,475,600 -- 4,972,209 --
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
5,279,473 -- 4,500,106 -- 5,475,600 -- 4,972,209 --
-- -- -- -- -- -- -- --
$ 5,279,473 $ -- $ 4,500,106 $ -- $ 5,475,600 $ -- $ 4,972,209 $ --
============= =========== ============= =========== ============= =========== ============= ===========
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
-- -- -- -- -- -- -- --
============= =========== ============= =========== ============= =========== ============= ===========
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
-- -- -- -- -- -- -- --
============= =========== ============= =========== ============= =========== ============= ===========
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
- ----------------------------- ------------------------------ ----------------------------- ---------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------- ----------- ------------- ----------- ------------- ----------- ------------- ----------
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- -- -- --
</TABLE>
<PAGE> 246
===============================================================================
30 FINANCIAL STATEMENTS
===============================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AMERICAN GENERAL LARGE CAP AMERICAN GENERAL LARGE CAP
GROWTH FUND - DIVISION 39 VALUE FUND - DIVISION 40
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ........................................... $ 2,093 $ -- $ 10,224 $ --
Net realized gain on investments ................................ -- -- -- --
Capital gains distributions from mutual funds ................... -- -- -- --
Net unrealized appreciation
of investments during the year ................................ 695,540 -- 716,526 --
------------- ------------- ------------- -------------
Increase in net assets resulting from operations ........... 697,633 -- 726,750 --
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ............................................... -- -- -- --
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................. -- -- -- --
Annuity benefit payments ........................................ -- -- -- --
Amounts transferred interdivision, and from VALIC general account 2,850,000 -- 2,900,000 --
------------- ------------- ------------- -------------
Increase in net assets
resulting from principal transactions .................... 2,850,000 -- 2,900,000 --
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS .................................... 3,547,633 -- 3,626,750 --
------------- ------------- ------------- -------------
Net Assets:
Beginning of year ............................................... -- -- -- --
End of year ..................................................... $ 3,547,633 $ -- $ 3,626,750 $ --
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................ -- -- -- --
Purchase payments ............................................... - -- -- --
Surrenders ...................................................... -- -- -- --
Transfers -- interdivision and from VALIC general account ....... -- -- -- --
------------- ------------- ------------- -------------
Total units outstanding, end of year............................. -- -- -- --
============= ============= ============= =============
Units outstanding, by class:
Standard units ................................................ -- -- -- --
Enhanced units:
20 bp reduced ............................................... -- -- -- --
40 bp reduced ............................................... -- -- -- --
------------- ------------- ------------- -------------
Accumulation units end of year .................................. -- -- -- --
============= ============= ============= =============
DECEMBER 31 DECEMBER 31
----------------------------- -----------------------------
1998 1997 1998 1997
Accumulation value per unit: ------------- -------------- ------------- --------------
Standard unit $ -- $ -- $ -- $ --
Enhanced unit:
20 bp reduced -- -- -- --
40 bp reduced -- -- -- --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 247
===============================================================================
SEPARATE ACCOUNT A 31
===============================================================================
<TABLE>
<CAPTION>
AMERICAN GENERAL SOCIALLY AMERICAN GENERAL BALANCED AMERICAN GENERAL DOMESTIC AMERICAN GENERAL MONEY
RESPONSIBLE FUND - DIVISION 41 FUND - DIVISION 42 BOND FUND - DIVISION 43 MARKET FUND - DIVISION 44
- ------------------------------ -------------------------- -------------------------- ---------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 23,760 $ -- $ 29,084 $ -- $ 14,978 $ -- $ 82,478 $ --
-- -- -- -- -- -- -- --
285,733 -- 34,051 -- 15,898 -- -- --
1,099,673 -- 805,536 -- 28,692 -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,409,166 -- 868,671 -- 59,568 -- 82,478 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
5,000,000 -- 5,000,000 -- 1,250,000 -- 5,000,000 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
5,000,000 -- 5,000,000 -- 1,250,000 -- 5,000,000 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
6,409,166 -- 5,868,671 -- 1,309,568 -- 5,082,478 --
-- -- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 6,409,166 $ -- $ 5,868,671 $ -- $ 1,309,568 $ -- $ 5,082,478 $ --
============ ============ ============ ============ ============ ============ ============ ============
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- -- --
============ ============ ============ ============ ============ ============ ============ ============
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- -- -- --
============ ============ ============ ============ ============ ============ ============ ============
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
- -------------------------- -------------------------- -------------------------- --------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
</TABLE>
<PAGE> 248
===============================================================================
32 FINANCIAL STATEMENTS
===============================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AMERICAN GENERAL
AMERICAN GENERAL MODERATE GROWTH LIFESTYLE
FUND - DIVISION 49 FUND - DIVISION 49
------------------------ ------------------------
1998 1997 1998 1997
------------ ---------- ------------ ----------
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ........................................... $ 11,226 $ -- $ 19,912 $ --
Net realized gain on investments ................................ -- -- -- --
Capital gains distributions from mutual funds ................... -- -- -- --
Net unrealized appreciation
of investments during the year ................................. 970,379 -- 925,696 --
------------ ---------- ------------ ----------
Increase in net assets resulting from operations ........... 981,605 -- 945,608 --
------------ ---------- ------------ ----------
PRINCIPAL TRANSACTIONS:
Purchase payments ............................................... -- -- -- --
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................. -- -- -- --
Annuity benefit payments ........................................ -- -- -- --
Amounts transferred interdivision, and from VALIC
general account ............................................... 5,000,000 -- 5,000,000 --
------------ ---------- ------------ ----------
Increase in net assets
resulting from principal transactions .................... 5,000,000 -- 5,000,000 --
------------ ---------- ------------ ----------
TOTAL INCREASE IN NET ASSETS .................................... 5,981,605 -- 5,945,608 --
------------ ---------- ------------ ----------
NET ASSETS:
Beginning of year ............................................... -- -- -- --
------------ ---------- ------------ ----------
End of year ..................................................... $ 5,981,605 $ -- $ 5,945,608 $ --
============ ========== ============ ==========
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................ -- -- -- --
Purchase payments ............................................... -- -- -- --
Surrenders ...................................................... -- -- -- --
Transfers - interdivision and from VALIC general account ........ -- -- -- --
------------ ---------- ------------ ----------
Total units outstanding, end of year ............................ -- -- -- --
============ ========== ============ ==========
Units outstanding, by class:
Standard units ................................................ -- -- -- --
Enhanced units:
20 bp reduced .............................................. -- -- -- --
40 bp reduced .............................................. -- -- -- --
------------ ---------- ------------ ----------
Accumulation units end of year .................................. -- -- -- --
============ ========== ============ ==========
DECEMBER 31, DECEMBER 31,
------------------------ ------------------------
1998 1997 1998 1997
------------ ---------- ------------ ----------
Accumulation value per unit:
Standard unit ................................................. $ -- $ -- $ -- $ --
Enhanced unit:
20 bp reduced .............................................. -- -- -- --
40 bp reduced .............................................. -- -- -- --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 249
===============================================================================
SEPARATE ACCOUNT A 33
===============================================================================
<TABLE>
<CAPTION>
AMERICAN GENERAL
CONSERVATIVE GROWTH LIFESTYLE AMERICAN GENERAL CORE BOND AMERICAN GENERAL STRATEGIC
FUND - DIVISION 50 FUND - DIVISION 58 BOND FUND - DIVISION 59
- --------------------------- --------------------------- -----------------------------
1998 1997 1998 1997 1998 1997
- ----------- -------- -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 27,772 $ -- $ 50,247 $ -- $ 69,000 $ --
-- -- -- -- -- --
-- -- 16,291 -- 11,064 --
800,941 -- 95,397 -- 185,469 --
- ----------- -------- -------------- ---------- ------------- -------------
828,713 -- 161,935 -- 265,533 --
- ----------- -------- -------------- ---------- ------------- -------------
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
5,000,000 -- 5,000,001 -- 4,999,999 --
- ----------- -------- -------------- ---------- ------------- -------------
5,000,000 -- 5,000,001 -- 4,999,999 --
- ----------- -------- -------------- ---------- ------------- -------------
5,828,713 -- 5,161,936 -- 5,265,532 --
-- -- -- -- -- --
- ----------- -------- -------------- ---------- ------------- -------------
$ 5,828,713 $ -- $ 5,161,936 $ -- $ 5,265,532 $ --
- ----------- -------- -------------- ---------- ------------- -------------
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
- ----------- -------- -------------- ---------- ------------- -------------
-- -- -- -- -- --
- ----------- -------- -------------- ---------- ------------- -------------
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
- ----------- -------- -------------- ---------- ------------- -------------
-- -- -- -- -- --
- ----------- -------- -------------- ---------- ------------- -------------
DECEMBER 31 DECEMBER 31 DECEMBER 31
- --------------------------- --------------------------- -----------------------------
1998 1997 1998 1997 1998 1997
- ----------- -------- -------------- ---------- ------------- -------------
$ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- --
-- -- -- -- -- --
</TABLE>
<PAGE> 250
===============================================================================
34 FINANCIAL STATEMENTS
===============================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AMERICAN GENERAL
HIGH YIELD BOND T. ROWE PRICE SMALL-CAP
FUND - DIVISION 60 STOCK FUND - DIVISION 51
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income .............................................. $ 92,262 $ -- $ -- $ --
Net realized gain on investments ................................... -- -- -- --
Capital gains distributions from mutual funds ...................... -- -- -- --
Net unrealized appreciation
of investments during the year .................................. 189,911 -- -- --
---------- ------------ ---------- ------------
Increase in net assets resulting from operations .............. 282,173 -- -- --
---------- ------------ ---------- ------------
PRINCIPAL TRANSACTIONS:
Purchase payments .................................................. -- -- 139 --
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ................................ -- -- -- --
Annuity benefit payments ........................................... -- -- -- --
Amounts transferred interdivision, and from VALIC general account .. 5,000,000 -- -- --
---------- ------------ ---------- ------------
Increase in net assets
resulting from principal transactions ....................... 5,000,000 -- 139 --
---------- ------------ ---------- ------------
TOTAL INCREASE IN NET ASSETS ....................................... 5,282,173 -- 139 --
NET ASSETS:
Beginning of year .................................................. -- -- -- --
---------- ------------ ---------- ------------
End of year ........................................................ $5,282,173 $ -- $ 139 $ --
---------- ------------ ---------- ------------
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................... -- -- -- --
Purchase payments .................................................. -- -- 122 --
Surrenders ......................................................... -- -- -- --
Transfers -- interdivision and from VALIC general account .......... -- -- -- --
---------- ------------ ---------- ------------
Total units outstanding, end of year ............................... -- -- 122 --
---------- ------------ ---------- ------------
Units outstanding, by class:
Standard units ................................................... -- -- 122 --
Enhanced units:
20 bp reduced ................................................. -- -- -- --
40 bp reduced ................................................. -- -- -- --
---------- ------------ ---------- ------------
Accumulation units end of year ..................................... -- -- 122 --
---------- ------------ ---------- ------------
DECEMBER 31 DECEMBER 31
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ------------ ---------- ------------
Accumulation value per unit:
Standard unit..................................................... $ -- $ -- $1.141049 $ --
Enhanced unit:
20 bp reduced.................................................. -- -- -- --
40 bp reduced.................................................. -- -- -- --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 251
===============================================================================
SEPARATE ACCOUNT A 35
===============================================================================
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 fifty-five 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 (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)
American General Series Portfolio Company 3 ("AGSPC 3"):
American General International Growth Fund (Division 33)
American General Large Cap Growth Fund (Division 39)
American General Mid Cap Growth Fund (Division 37)
American General Small Cap Growth Fund(Division 35)
American General International Value Fund (Division 34)
American General Large Cap Value Fund (Division 40)
American General Mid Cap Value Fund (Division 38)
American General Small Cap Value Fund (Division 36)
American General Socially Responsible Fund (Division 41)
American General Balanced Fund (Division 42)
American General High Yield Bond Fund (Division 60)
American General Strategic Bond Fund (Division 59)
American General Domestic Bond Fund (Division 43)
American General Core Bond Fund (Division 58)
American General Money Market Fund (Division 44)
American General Growth Lifestyle Fund (Division 48)
American General Moderate Growth
Lifestyle Fund (Division 49)
American General Conservative Growth
Lifestyle Fund (Division 50)
Dreyfus Variable Investment Fund -
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 Long-Term Corporate Fund (Division 22)
Vanguard Long-Term Treasury Fund (Division 23)
Vanguard Wellington Fund (Division 25)
Vanguard Windsor II Fund (Division 24)
Vanguard Lifestrategy Growth Fund (Division 52)
Vanguard Lifestrategy Moderate Growth Fund (Division 53)
Vanguard Lifestrategy Conservative Growth Fund (Division 54)
T. Rowe Price Small-Cap Stock Fund (Division 51)
Divisions 33 through 54 and 58 through 60 became available to contract holders
of the Separate Account effective September 22,1998.
NOTE B -- SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The assets 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.
USE OF ESTIMATES. The financial statements have been prepared in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect amounts reported in the financial statements and disclosure of contingent
assets and liabilities. Ultimate results could differ from these estimates.
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 each 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 purchase 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, the Annuity 2000 Mortality Table, and the 1994 Group Annuity
Reserve Mortality Table have 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.
ACCUMULATION UNITS. VALIC offers both standard and enhanced contracts.
These contracts may have different Separate Account charges.
<PAGE> 252
===============================================================================
36 NOTES TO FINANCIAL STATEMENTS
===============================================================================
NOTE C -- TRANSACTIONS WITH AFFILIATES
VALIC serves as investment advisor ("the Advisor"), transfer agent, and
accounting services agent to AGSPC and AGSPC 3. American General Investment
Management, LLP, an affiliate of the Advisor, serves as investment sub-advisor
to certain AGSPC 3 mutual funds.
The Separate Account is charged for mortality and expense risks
assumed by VALIC and for distribution and administrative services provided by
VALIC. The standard 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 through 8, 10A, 10C and 10D, 11 through
17, 33 through 44, 48 through 50, and 58 through 60, 1.00%; and for Divisions
18 through 32, and 51 through 54, 1.25%. Certain 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 through 23, 26 through 30, 32 through 44, 48
through 50, and 58 through 60, 0.25%; for Division 31, 0.24% (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); and for Division
18, 0.15% (commencing July 1, 1997). Separate Account charges may be reduced if
contracts are issued to certain types of plans that are expected to result in
lower costs to VALIC. Consequently, each division may offer separate "classes"
of units of beneficial interest reflecting reductions in separate account
charges.
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, 1998 and 1997, VALIC reduced expenses of Division 10B
by $82,027 and $85,996, respectively.
A portion of the annual contract maintenance charge is assessed on
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 $5,575,601 and $4,510,903 for the
years ended December 31, 1998 and 1997, respectively.
VALIC received surrender charges of $4,581,641 and $2,769,370 for the
years ended December 31, 1998 and 1997, respectively. In addition, VALIC
received $53,171 and $6,156 for the year ended December 31, 1998, in sales load
on variable annuity purchase payments for Divisions 10A and 10B, respectively.
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 contributed to the Separate Account, $100,000 and $74,900,000 on
August 26, 1998 and September 1, 1998, respectively, in order to provide
initial funding for the AGSPC 3 mutual funds. Capital surplus amounts reflected
in the Statements of Net Assets for Divisions 33 through 44, 48 through 50 and
58 through 60 are not subject to contract holder charges since they do not
represent reserves for annuity contracts issued.
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, 1998:
<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 13,079,920 $11.37 $ 148,718,766 $ 148,478,416 $ 240,350
Putnam Global Growth Fund ................. 28 13,080,357 12.45 162,850,092 149,345,622 13,504,470
Templeton Foreign Fund .................... 32 26,018,073 8.39 218,291,648 267,772,677 (49,481,029)
Templeton International Fund .............. 20 37,187,918 20.69 769,418,093 672,572,557 96,845,536
AGSPC Science & Technology Fund ........... 17 52,052,496 26.07 1,357,008,368 1,058,583,311 298,425,057
AGSPC Small Cap Index Fund ................ 14 14,788,462 15.26 225,671,866 216,780,123 8,891,743
Dreyfus Variable Investment Fund -
Small Cap Portfolio ..................... 18 14,871,620 53.91 801,729,449 709,332,114 92,397,335
Putnam New Opportunities Fund ............. 26 7,047,598 58.43 411,790,940 341,359,629 70,431,311
Putnam OTC & Emerging Growth Fund ......... 27 8,240,758 17.25 142,153,064 128,583,339 13,569,725
AGSPC Growth Fund ......................... 15 53,087,130 22.85 1,213,041,349 867,944,168 345,097,181
AGSPC MidCap Index Fund ................... 4 33,517,770 25.37 850,345,675 593,845,989 256,499,686
American Century - Twentieth Century
Ultra Fund .............................. 31 10,965,109 33.41 366,344,764 344,297,873 22,046,891
Founders Growth Fund ...................... 30 20,206,988 20.41 412,424,559 377,960,267 34,464,292
AGSPC Growth & Income Fund ................ 16 14,227,222 20.04 285,113,626 214,814,089 70,299,537
AGSPC Social Awareness Fund ............... 12 19,099,259 22.77 434,890,057 350,790,377 84,099,680
AGSPC Stock Index Fund .................... 10A,B,C,D 106,096,626 37.54 3,982,866,943 2,020,245,208 1,962,621,735
Neuberger Berman Guardian Trust ........... 29 3,796,199 16.16 61,347,128 68,195,002 (6,847,874)
Scudder Growth and Income Fund ............ 21 9,416,745 26.31 247,754,620 259,592,520 (11,837,900)
Vanguard Windsor II Fund .................. 24 21,811,605 29.85 651,075,950 634,903,452 16,172,498
Templeton Asset Allocation Fund ........... 19 14,431,830 22.46 324,138,930 290,415,546 33,723,384
AGSPC Asset Allocation Fund ............... 5 16,111,443 14.12 227,493,681 191,458,464 36,035,217
</TABLE>
<PAGE> 253
===============================================================================
SEPARATE ACCOUNT A 37
===============================================================================
<TABLE>
<CAPTION>
UNREALIZED
MARKET APPRECIATION
UNDERLYING FUND DIVISION SHARES PRICE MARKET COST (DEPRECIATION)
-------- ------ ----- ------ ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Vanguard Wellington Fund ................. 25 13,852,716 29.35 $ 406,576,731 $ 416,038,579 $ (9,461,848)
AGSPC International Government
Bond Fund .............................. 13 13,339,220 12.68 169,141,402 158,031,435 11,109,967
AGSPC Capital Conservation Fund .......... 1 & 7 6,849,612 9.68 66,304,225 65,365,302 938,923
AGSPC Government Securities Fund ......... 8 10,966,460 10.35 113,502,848 110,444,717 3,058,131
Vanguard Fixed Income Securities Fund:
Long-Term Corporate Fund ............... 22 6,441,710 9.29 59,843,445 59,275,925 567,520
Long-Term Treasury Fund ................ 23 10,501,171 11.36 119,293,240 115,581,241 3,711,999
AGSPC Money Market Fund .................. 2 & 6 270,445,756 1.00 270,445,756 270,445,756 --
American General International
Growth Fund ............................ 33 365,269 10.55 3,853,567 3,652,817 200,750
American General Large Cap Growth Fund ... 39 285,293 12.44 3,549,043 2,853,503 695,540
American General Mid Cap Growth Fund ..... 37 405,021 13.52 5,475,870 4,050,270 1,425,600
American General Small Cap Growth Fund ... 35 391,362 13.49 5,279,473 3,918,373 1,361,100
American General International
Value Fund ............................. 34 360,507 11.52 4,153,036 3,605,760 547,276
American General Large Cap Value Fund .... 40 290,838 12.47 3,626,750 2,910,224 716,526
American General Mid Cap Value Fund ...... 38 405,233 12.27 4,972,209 4,075,640 896,569
American General Small Cap Value Fund .... 36 390,634 11.52 4,500,106 3,914,722 585,384
American General Socially
Responsible Fund ....................... 41 525,342 12.20 6,409,166 5,309,493 1,099,673
American General Balanced Fund ........... 42 505,484 11.61 5,868,671 5,063,135 805,536
American General High Yield Bond Fund .... 60 508,880 10.38 5,282,173 5,092,262 189,911
American General Strategic Bond Fund ..... 59 507,766 10.37 5,265,532 5,080,063 185,469
American General Domestic Bond Fund ...... 43 128,012 10.23 1,309,568 1,280,876 28,692
American General Core Bond Fund .......... 58 506,569 10.19 5,161,936 5,066,538 95,398
American General Money Market Fund ....... 44 5,082,478 1.00 5,082,478 5,082,478 --
American General Growth Lifestyle Fund ... 48 501,813 11.94 5,991,538 5,021,159 970,379
American General Moderate Growth
Lifestyle Fund ......................... 49 502,116 11.85 5,950,028 5,024,332 925,696
American General Conservative Growth
Lifestyle Fund ......................... 50 502,580 11.60 5,829,911 5,028,970 800,941
T. Rowe Price Small-Cap Stock Fund ....... 51 7 20.79 139 139 --
Total .................................. 853,696,997 $14,587,138,409 $11,178,484,452 $ 3,408,653,957
</TABLE>
NOTE E -- FEDERAL INCOME TAXES
VALIC is taxed as a life insurance company under the Internal Revenue
Code and includes the operations of the Separate Account in determining its
federal income tax liability. Under current federal income tax law, the
investment income and capital gains from sales 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, 1998, 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 ................... $ 70,340,669 $ 86,195,191
Putnam Global Growth Fund Division 28 ........................... 84,411,341 2,105,181
Templeton Foreign Fund Division 32 .............................. 82,320,483 9,313,676
Templeton International Fund Division 20 ........................ 176,311,032 153,728,857
AGSPC Science & Technology Fund Division 17 ..................... 262,237,519 101,549,488
AGSPC Small Cap Index Fund Division 14 .......................... 56,957,370 35,775,340
Dreyfus Variable Investment Fund -
Small Cap Portfolio Division 18 ........................... 63,341,013 64,349,216
Putnam New Opportunities Fund Division 26 ....................... 196,437,438 3,727,492
Putnam OTC & Emerging Growth Fund Division 27 ................... 43,601,585 7,874,482
AGSPC Growth Fund Division 15 ................................... 168,030,279 22,896,950
AGSPC MidCap Index Fund Division 4 .............................. 121,443,834 59,433,835
American Century - Twentieth Century Ultra Fund Division 31 ..... 206,441,197 3,102,142
Founders Growth Fund Division 30 ................................ 203,148,927 4,157,924
AGSPC Growth & Income Fund Division 16 .......................... 35,712,751 22,023,607
</TABLE>
<PAGE> 254
===============================================================================
38 NOTES TO FINANCIAL STATEMENTS
===============================================================================
<TABLE>
<CAPTION>
PURCHASES SALES
-------------- --------------
<S> <C> <C>
AGSPC Social Awareness Fund Division 12 .............................. $ 155,478,764 $ 4,747,514
AGSPC Stock Index Fund:
Division 10A ................................................ 16,487,825 57,170,007
Division 10B ................................................ 1,430,916 5,138,856
Division 10C ................................................ 409,382,612 36,743,609
Division 10D ................................................ 2,305,198 7,769,904
Neuberger Berman Guardian Trust Division 29 .......................... 24,369,333 4,106,246
Scudder Growth and Income Fund Division 21 ........................... 134,037,172 6,545,427
Vanguard Windsor II Fund Division 24 ................................. 380,154,266 5,838,118
Templeton Asset Allocation Fund Division 19 .......................... 48,497,460 40,983,269
AGSPC Asset Allocation Fund Division 5 ............................... 37,672,428 10,217,954
Vanguard Wellington Fund Division 25 ................................. 267,401,470 4,016,568
AGSPC International Government Bond Fund Division 13 ................. 63,147,566 81,054,776
AGSPC Capital Conservation Fund:
Division 1 .................................................. 832,531 1,006,283
Division 7 .................................................. 16,631,338 12,372,606
AGSPC Government Securities Fund Division 8 .......................... 54,546,370 32,043,559
Vanguard Long-Term Corporate Fund Division 22 ........................ 42,256,730 2,903,724
Vanguard Long-Term Treasury Fund Division 23 ......................... 102,868,659 11,315,873
AGSPC Money Market Fund:
Division 2 .................................................. 2,987,800 3,330,427
Division 6 .................................................. 379,702,464 248,100,695
American General International Growth Fund Division 33 ............... 3,652,817 --
American General Large Cap Growth Fund Division 39 ................... 2,853,503 --
American General Mid Cap Growth Fund Division 37 ..................... 4,050,270 --
American General Small Cap Growth Fund Division 35 ................... 3,918,373 --
American General International Value Fund Division 34 ................ 3,605,760 --
American General Large Cap Value Fund Division 40 .................... 2,910,224 --
American General Mid Cap Value Fund Division 38 ...................... 4,075,640 --
American General Small Cap Value Fund Division 36 .................... 3,914,722 --
American General Socially Responsible Fund Division 41 ............... 5,309,493 --
American General Balanced Fund Division 42 ........................... 5,063,135 --
American General High Yield Bond Fund Division 60 .................... 5,092,262 --
American General Strategic Bond Fund Division 59 ..................... 5,080,063 --
American General Domestic Bond Fund Division 43 ...................... 1,280,876 --
American General Core Bond Fund Division 58 .......................... 5,066,538 --
American General Money Market Fund Division 44 ....................... 5,082,478 --
American General Growth Lifestyle Fund Division 48 ................... 5,021,159 --
American General Moderate Growth Lifestyle Fund Division 49 .......... 5,024,332 --
American General Conservative Growth Lifestyle Fund Division 50 ...... 5,028,970 --
T. Rowe Price Small-Cap Stock Fund Division 51 .............. 139 --
-------------- --------------
Total ....................................................... $3,986,957,094 $1,151,638,796
============== ==============
</TABLE>
NOTE G -- YEAR 2000 (UNAUDITED)
VALIC is in the process of modifying its systems to achieve Year 2000
readiness. This endeavor is directed and managed by VALIC and monitored by the
parent company, American General Corporation. VALIC has developed clearly
defined and documented plans that have been implemented to minimize the risk of
significant negative impact on its operations.
These plans include the following activities: (1) perform an inventory
of VALIC's information technology and non-information technology systems; (2)
assess which items in the inventory may expose VALIC to business interruptions
due to Year 2000 issues; (3) test systems for Year 2000 readiness; (4)
reprogram or replace systems that are not Year 2000 ready; and (5) return the
systems to operation.
In addition, the Separate Account and VALIC have business
relationships with various third parties, each of which must also be Year 2000
ready. Therefore, VALIC's plans also include assessing and attempting to
mitigate the risks associated with the potential failure of third parties, as
well as contingency plans for any identified risks or shortcomings, to achieve
Year 2000 readiness. Due to the various stages of the third parties' Year 2000
readiness, VALIC's efforts in this regard will extend through 1999.
Through December 31, 1998, VALIC has incurred and expensed $26.7
million (pretax) related to Year 2000 readiness, including $20.2 million
incurred in 1998.
As of December 31, 1998, VALIC has completed the inventory,
assessment, testing, reprogramming and implementation phases of the plan with
respect to its critical systems. VALIC believes its comprehensive plan and
resource commitment will allow it to meet its Year 2000 objectives. However,
the Year 2000 issue remains complex and the risks, uncertainties, and
unforeseen circumstances associated with the Year 2000 issue could have a
material adverse impact on VALIC and the Separate Account.
<PAGE> 255
================================================================================
REPORT OF INDEPENDENT AUDITORS 39
================================================================================
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 ("the Separate Account") and
each of the divisions (1, 2, 4, 5, 6, 7, 8, 10A, 10B, 10C, 10D, 11 through 44
inclusive, 48 through 51 inclusive, and 58 through 60, inclusive) comprising
the Separate Account as of December 31, 1998. 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 the
Separate Account and each of its divisions except for divisions 33 through 44
inclusive, divisions 48 through 50 inclusive, and divisions 58 through 60,
inclusive, for which we have audited the statements of operations and changes
in net assets for the period from August 26, 1998 (inception) to December 31,
1998, and for division 51 for which we have audited the statements of
operations and changes in net assets for the period from September 22, 1998
(inception) through December 31, 1998. These financial statements are the
responsibility of the Separate Account'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, 1998,
by correspondence with the transfer agents. 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 the Separate Account and each
of the divisions comprising the Separate Account at December 31, 1998, 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 15, 1999
<PAGE> 256
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34
<PAGE> 257
--AMERCAN GENERAL LOGO--
PRINTED MATTER
PRINTED IN U.S.A. VA 9079-1 REV 5/99
(C)Company Name, Houston, Texas
Recycled Paper --RECYCLED PAPER LOGO--
<PAGE> 258
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 Purchase Unit Data for each Fund
Filed with Part B:
(i) Audited Financial Statements
The Variable Annuity Life Insurance Company
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholder Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(ii) Audited Financial Statements
The Variable Annuity Life Insurance Company Separate Account A --
Statement of Net Assets
Statement of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Report of Independent 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>
<S> <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.
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).
</TABLE>
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<PAGE> 259
<TABLE>
<CAPTION>
<S> <C>
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) is incorporated herein by
reference to Post-Effective Amendment No. 27 filed with the
SEC on April 27, 1998 (File No. 2-96223/811-3240).
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 is
incorporated herein by reference to Post-Effective Amendment
No. 27 filed with the SEC on April 27, 1998 (File No.
2-96223/811-3240).
7. -- Not Applicable.
8. -- Not Applicable.
9. -- Not Applicable.
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 is incorporated
herein by reference to Post-Effective Amendment No. 27 filed
with the SEC on April 27, 1998 (File No. 2-96223/811-3240).
16(a). -- Copies of manually signed powers of attorney for The
Variable Annuity Life Insurance Company Directors John E.
Arant, Kent E. Barrett and Carl J. Santillo.
16(b). -- Copy of manually signed power of attorney for The Variable
Annuity Life Insurance Company Director, Robert M. Devlin
incorporated herein by reference to Post-Effective Amendment
No. 52 filed with the SEC on April 27, 1998 (File No.
2-32783/811-3240).
16(c). -- Copy of manually signed powers of attorney for The Variable
Annuity Life Insurance Company Directors Thomas L. West,
Jr., Bruce R. Abrams, John A. Graf and John P. Newton
incorporated herein by reference to Post-Effective Amendment
No. 52 filed with the SEC on April 27, 1998 (File No.
2-32783/811-3240).
</TABLE>
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<PAGE> 260
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The directors and principal officers of the Company are set forth below,
together with their current principal occupations including any position with
American General Corporation ("AGC"), the indirect parent of The Variable
Annuity Life Insurance Company ("VALIC"), the depositor of the Registrant, and
The Variable Annuity Marketing Company ("VAMCO"), the principal underwriter of
the Contracts issued through the Registrant. The business address of each
officer and director is 2929 Allen Parkway, Houston, Texas 77019.
<TABLE>
<CAPTION>
NAMES AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES HELD WITH DEPOSITOR
------------------- -----------------------------------------
<S> <C>
Thomas L. West, Jr..................... Chairman and Chief Executive Officer, VALIC.
Vice Chairman and Group Executive -- Retirement Services,
American General Corporation.
Jon P. Newton.......................... Senior Chairman of the Board of Directors, VALIC. Vice
Chairman of the Board of Directors, American General
Corporation.
Kent E. Barrett........................ Director, Executive Vice President and Chief Financial
Officer, VALIC.
John A. Graf........................... Director and President, VALIC.
Robert M. Devlin....................... Director, VALIC.
Chairman of the Board of Directors, President and Chief
Executive Officer, American General Corporation.
Bruce R. Abrams........................ Director and Executive Vice President -- Marketing, VALIC.
John E. Arant.......................... Director and Executive Vice President -- Sales, VALIC.
Chairman of the Board of Directors and President, VAMCO.
Patrick E. Grady....................... Senior Vice President and Treasurer, VALIC.
Brent C. Nelson........................ Senior Vice President and Controller, VALIC.
Carl J. Santillo....................... Director and Executive Vice President -- Operations,
VALIC.
Richard W. Scott....................... Vice President and Chief Investment Officer, VALIC.
Executive Vice President and Chief Investment Officer,
American General Corporation.
Michael J. Akers....................... Senior Vice President and Chief Actuary, VALIC.
Dwight L. Cramer, II................... Senior Vice President -- Specialty Markets, VALIC.
Stephen G. Kellison.................... Senior Vice President -- Institutional Services, VALIC.
Charles D. Robinson.................... Senior Vice President -- Institutional Marketing, VALIC.
Executive Vice President, VAMCO.
Cynthia A. Toles....................... Senior Vice President, General Counsel and Secretary,
VALIC.
Director and Secretary, VAMCO.
Dan W. Arnold.......................... Vice President -- Customer Care Center, VALIC.
James D. Bonsall....................... Vice President -- Financial Reporting, VALIC.
Harry N. Bragg......................... Vice President -- Strategic Systems, VALIC.
Gregory S. Broer....................... Vice President -- Actuarial, VALIC.
Richard A. Combs....................... Vice President -- Actuarial, VALIC.
J. David Crank......................... Vice President -- Group Services, VALIC.
Neil J. Davidson....................... Vice President -- Actuarial, VALIC.
David H. denBoer....................... Vice President -- Compliance, VALIC.
Stephen R. Duff........................ Vice President -- Financial Institution Acquisitions,
VALIC.
Daniel Fritz........................... Vice President -- Actuarial, VALIC.
</TABLE>
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<PAGE> 261
<TABLE>
<CAPTION>
NAMES AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES HELD WITH DEPOSITOR
------------------- -----------------------------------------
<S> <C>
Paul W. Green.......................... Vice President and Investment Officer, VALIC.
Sharla A. Jackson...................... Vice President -- Operations and Customer Service, VALIC.
Jeff S. Johnson........................ Vice President -- Marketing Communications, VALIC.
Kent W. Lamb........................... Vice President -- Financial Reporting, VALIC.
Richard Lindsay........................ Vice President -- Personal Retirement Services, VALIC.
James J. Michel........................ Vice President -- Insurance Accounting, VALIC.
Craig R. Mitchell...................... Vice President and Investment Officer, VALIC.
Maruti More............................ Vice President -- Investments, VALIC.
Stephen J. Poston...................... Vice President -- National Sales Manager, VALIC.
Steven D. Rubinstein................... Vice President -- Financial Planning and Reporting, VALIC.
Gary N. See............................ Vice President -- Actuarial, VALIC.
Gregory R. Seward...................... Vice President -- Variable Product Accounting, VALIC.
Norman A. Skinrood, Jr................. Vice President -- Group Plan Administration, VALIC.
Paula F. Snyder........................ Vice President -- Marketing Services, VALIC.
Robert E. Steele....................... Vice President -- Structured Settlements, VALIC.
Kenneth R. Story....................... Vice President -- Amarillo Systems, VALIC.
Peter V. Tuters........................ Vice President and Investment Officer, VALIC.
Sr. Vice President -- Investments, American General
Corporation.
William C. Vetterling.................. Vice President -- Marketing Administration, VALIC.
William A. Wilson...................... Vice President -- Government Affairs, VALIC.
Jane E. Bates.......................... Chief Compliance Officer, VALIC.
Director, 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, 1998 (File No. 1-7981), which is incorporated herein by reference.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1999, a date within 90 days prior to the date of filing,
there were 28,695 individual Contract Owners and 0 group Contract Owners of the
qualified Contracts offered by the UIT-981 prospectus of the Registrant; and
184,043 individual Contract Owners and 261,581 group Contract Owners qualified
Contracts offered by the Independence Plus prospectus. As of March 31, 1999
there were 4,920 individual Contract Owners and 61 group Contract Owners of the
non-qualified Contracts offered by the Independence Plus prospectus. The
Registrant issues different contracts through other Registration Statements.
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<PAGE> 262
ITEM 28. INDEMNIFICATION
Set forth below is a summary of the general effect of applicable provisions
of the Depositor's Bylaws regarding indemnification of, and advancement of legal
expenses to, the Depositor's officers, directors and employees (collectively,
"Indemnitees").
The Depositor shall indemnify any Indemnitee who was or is a named
defendant or respondent or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative (including any action by or in the
right of the Depositor), or any appeal of such action, suit or proceeding and
any inquiry or investigation that could lead to such an action, suit or
proceeding, by reason of the fact that the Indemnitee is or was a director, or
officer or employee of the Depositor, or is or was serving at the request of the
Depositor as a director, officer, partner, venturer, proprietor, trustee,
employee, or similar functionary of another foreign 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
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<PAGE> 263
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
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>
John E. Arant(1).......................... Chairman of the Board of Directors and President
Jane E. Bates(1).......................... Director, Treasurer and Chief Compliance Officer
Cynthia A. Toles(1)....................... Director and Secretary
Joe C. Osborne(1)......................... Executive Vice President
Charles D. Robinson(1).................... Executive Vice President
Steven P. Boero........................... Senior Vice President
1900 O'Farrell Street
Suite 390
San Mateo, CA 94403-1311
Thomas N. Lange........................... Senior Vice President
14025 Riveredge Drive
Suite 250
Tampa, FL 33637
Jim C. Lehan.............................. Senior Vice President
945 Concord Street
Suite 123 and 124
Framingham, MA 01701
Donald R. Van Putten...................... Senior Vice President
165 South Union Blvd.
Suite 1050
Lakewood, CO 80228
D. Lynne Walters(1)....................... Tax Officer
</TABLE>
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<PAGE> 264
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS WITH VAMCO
------------------ --------------------
<S> <C>
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
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
Paige T. Davis............................ Vice President
7310 Ritchie Highway
Suite 800
Glen Burnie, MD 21061
Robert G. Fillmore........................ Vice President
165 South Union Blvd.
Suite 1050
Lakewood, CO 80228
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
Ernest Jordan III......................... Vice President
4266 Interstate 55N
Suite 108
Jackson, MS 39211
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
John MacTavish............................ Vice President
2450 Venture Oaks Way
Suite 120
Sacramento, CA 95833
</TABLE>
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<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS WITH VAMCO
------------------ --------------------
<S> <C>
Bryce Malsbary............................ Vice President
3505 Lake Lynda Drive
Suite 114
Orlando, FL 32817
Sharon J. Novickas........................ Vice President
230 West Monroe
Suite 1900
Chicago, IL 60606
Robert A. Obester......................... Vice President
800 Gessner
Suite 1280
Houston, TX 77024
Suzanne L. Perez.......................... Vice President
10006 N. Dale Mabry Hwy.
Suite 113
Tampa, FL 33618
Keith A. Poch............................. Vice President
1900 O'Farrell Street
Suite 390
San Mateo, CA 94403-1311
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
Donna M. Zucchi........................... Vice President
90 Woodbridge Center Dr.
Suite 300
Woodbridge, NJ 07095
</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
C-8
<PAGE> 266
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 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.
C-9
<PAGE> 267
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) 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.
C-10
<PAGE> 268
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. PAGES
----------- ------------
<S> <C> <C>
10. -- Consent of Independent Auditors.
16(a). -- Copies of manually signed powers of attorney for The
Variable Annuity Life Insurance Company Directors John E.
Arant, Kent E. Barrett and Carl J. Santillo.
</TABLE>
<PAGE> 269
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 for effectiveness of this
Registration Statement 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 29th
day of April, 1999.
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.
Senior Vice President, General Counsel Chairman and Chief Executive Officer
and Secretary
</TABLE>
<PAGE> 270
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
for effectiveness of this Registration Statement 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 29th day of April 1999.
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.
Senior Vice President, General Counsel Chairman and Chief Executive Officer
and Secretary
</TABLE>
<PAGE> 271
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
--------- ----- ----
<S> <C> <C>
/s/ THOMAS L. WEST, JR. Chairman and Chief Executive April 29, 1999
- ----------------------------------------------------- Officer
Thomas L. West, Jr.
* President and Director April 29, 1999
- -----------------------------------------------------
John A. Graf
/s/ BRENT C. NELSON Senior Vice President, Controller April 29, 1999
- ----------------------------------------------------- and Principal Accounting Officer
Brent C. Nelson
* Senior Chairman of the Board of April 29, 1999
- ----------------------------------------------------- Directors
Jon P. Newton
</TABLE>
<PAGE> 272
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* April 29, 1999
- ----------------------------------------------------- Director, Executive Vice President
Kent E. Barrett and Chief Financial Officer
* Executive Vice President -- April 29, 1999
- ----------------------------------------------------- Marketing and Director
Bruce R. Abrams
* Executive Vice President - Sales April 29, 1999
- ----------------------------------------------------- and Director
John E. Arant
* Executive Vice President -- April 29, 1999
- ----------------------------------------------------- Operations and Director
Carl J. Santillo
* Director April 29, 1999
- -----------------------------------------------------
Robert M. Devlin
*By: /s/ CYNTHIA A. TOLES April 29, 1999
-----------------------------------------------
Cynthia A. Toles
Attorney-in-Fact
**By: /s/ THOMAS L. WEST, JR. April 29, 1999
------------------------------------------------
Thomas L. West, Jr.
Attorney-in-Fact
</TABLE>
<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 16, 1999 as to The Variable Annuity Life
Insurance Company and February 15, 1999 as to The Variable Annuity Life
Insurance Company Separate Account A in Post-Effective Amendment No. 64 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 28, 1999
<PAGE> 1
EXHIBIT 16(a)
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 Jon P. Newton, 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 30th
day of November, 1998.
/s/ JOHN E. ARANT
------------------------------------
John E. Arant
In the Presence of:
/s/ CHERYL G. HEMLEY
<PAGE> 2
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 Jon P. Newton, 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 21st
day of April, 1999.
/s/ KENT E. BARRETT
------------------------------------
Kent E. Barrett
In the Presence of:
/s/ CHERYL G. HEMLEY
<PAGE> 3
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 Jon P. Newton, 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 21st
day of April, 1999.
/s/ CARL J. SANTILLO
------------------------------------
Carl J. Santillo
In the Presence of:
/s/ CHERYL G. HEMLEY
