<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1999
REGISTRATION NOS. 2-32783/811-3240
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
---------------------
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post Effective Amendment No. 53 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 63 [X]
</TABLE>
---------------------
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
(EXACT NAME OF REGISTRANT)
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 526-5251
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------------
NORI L. GABERT, ESQ.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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
Variable Annuity Contracts
SEQUENTIAL NUMBER SYSTEM: PAGE OF PAGES
EXHIBIT INDEX ON SEQUENTIAL PAGE NUMBER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
GROUP UNIT PURCHASE AND GROUP VARIABLE ANNUITY CONTRACTS
GUP AND GTS-VA CONTRACTS
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
4. Condensed Financial Information............. Selected Purchase Unit Data
5. General Description of Registrant,
Depositor, and Portfolio Companies.......... Summary, 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
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> 3
[Momento Photo]
GUP and GTS-VA
Contract Sales
Separate Account A
Prospectus May 1, 1999
Units of Interest
Under Group Unit
Purchase and Group
Variable Annuity
Contracts
<PAGE> 4
(This page intentionally left blank)
<PAGE> 5
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER GROUP UNIT PURCHASE AND
GROUP VARIABLE ANNUITY CONTRACTS
GUP AND GTS-VA
SEPARATE ACCOUNT A
May 1, 1999
PROSPECTUS
Group Unit Purchase Contracts, or GUP, and Group Variable Annuity Contracts, or
GTS-VA (the "Contracts"), consist of flexible and single Purchase Payment group
unit purchase variable annuity and group variable annuity contracts that are
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. The Contracts described in this prospectus were
formerly offered through Separate Account One and Separate Account Two of VALIC.
The Contracts permit you to invest in and receive retirement benefits in the
Fixed Account Option and the Variable Account Option described in this
prospectus. The Variable Account Option invests in the Stock Index Fund, a
separate portfolio of 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 GUP or GTS-VA. This prospectus is accompanied by the current prospectus for
the mutual fund option 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 GUP and GTS-VA 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> 6
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............................. 8
Distribution of the Contracts.................. 8
VARIABLE ACCOUNT OPTION............................ 9
Summary of the Fund............................ 9
PURCHASE PERIOD.................................... 11
Purchase Payments.............................. 11
Purchase Units................................. 11
Calculation of Purchase Unit Value............. 11
Choosing Investment Options.................... 12
Fixed Account Option...................... 12
Variable Account Option................... 12
Stopping Purchase Payments..................... 12
TRANSFERS BETWEEN INVESTMENT OPTIONS............... 13
During the Purchase Period..................... 13
During the Payout Period....................... 13
Communicating Transfer or Reallocation
Instructions................................. 13
Effective Date of Transfer..................... 13
FEES AND CHARGES................................... 14
Sales and Administrative Charge................ 14
Premium Tax Charge............................. 14
Separate Account Charges....................... 15
Fund Annual Expense Charges.................... 15
Other Tax Charges.............................. 15
Reduction from Total Expenses.................. 15
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
Level Payments Option.......................... 18
Payout Information............................. 18
SURRENDER OF ACCOUNT VALUE......................... 20
When Surrenders Are Allowed.................... 20
Amount That May Be Surrendered................. 20
Surrender Restrictions......................... 20
Partial Surrenders............................. 20
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEATH BENEFITS..................................... 21
Beneficiary Information........................ 21
During the Purchase Period..................... 21
During the Payout Period....................... 21
HOW TO REVIEW INVESTMENT PERFORMANCE OF SEPARATE
ACCOUNT DIVISIONS................................ 22
Types of Investment Performance Information
Advertised................................... 22
Total Return Performance Information......... 22
Standard Average Annual Total Return......... 22
Nonstandard Average Annual Total Return...... 22
Cumulative Total Return...................... 22
Annual Change in Purchase Unit Value......... 22
Cumulative Change in Purchase Unit Value..... 23
Total Return Based on Different Investment
Amounts................................... 23
An Assumed Account Value of $10,000.......... 23
Yield Performance Information.................. 23
Performance Information: Average Annual Total
Return, Cumulative Return and Annual and
Cumulative Change in Purchase Unit Value
Tables....................................... 23
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
Assigning Your Contract........................ 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> 7
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.
When we refer to the Contracts in this prospectus we mean the GUP Contracts and
the GTS-VA Contracts that have common provisions. We will state which one of the
Contracts we are talking about when the provisions between the Contracts are
different. Both the GUP Contracts and the GTS-VA Contracts may vary depending on
the plan in which they are offered in. We will note when such variations occur,
and what type of plan the Contract with the variations is being offered under.
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................ 13
Annuitant.................... 21
Assumed Investment Rate...... 17
Beneficiary.................. 21
Contract Owner............... 1, 21
Divisions.................... 22
Fixed Account Options........ 21
Home Office.................. 13
Mutual Fund or Fund.......... 7
Participant.................. 1
Participant Year............. 14
Payout Period................ 13
Payout Unit.................. 17
Purchase Payments............ 5, 11, 22
Purchase Period.............. 13
Purchase Unit................ 11
VALIC Separate Account A..... 29
Variable Account Option...... 9, 21
</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 the Variable Account Option and the 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 contracts in which units of interest in VALIC's
Separate Account A are offered. The Contracts, formerly offered through VALIC's
Separate Account One and Separate Account Two, will allow you to accumulate
retirement dollars in a Fixed Account Option and/or a Variable Account Option.
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 Option, 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.
CONTRACT OWNER -- the
individual (in most
cases, your employer)
to whom the Contract
is issued.
PARTICIPANT -- the
individual, (in most
cases you are the
Participant) who makes
Purchase Payments or
for whom Purchase
Payments are made.
1
<PAGE> 8
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 Stock Index Fund 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.
<TABLE>
<CAPTION>
GUP GTS-VA
CONTRACTS CONTRACTS
--------- ---------
<S> <C> <C>
CONTRACT OWNER/PARTICIPANT EXPENSES(1)
Maximum Sales and Administrative Charge (as a percentage
of Purchase Payments)(2)................................ 5.00%(3) 5.00%
SEPARATE ACCOUNT EXPENSES
(as a percentage of Separate Account net assets)
Mortality and Expense Risk................................ 1.00% 0.53%(4)
Total Separate Account Expenses(6)................. 1.00% 0.53%
FUND ANNUAL EXPENSES
(as a percentage of net assets):
</TABLE>
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL FUND
FUND FEES EXPENSES(5) EXPENSES(6)
---- ---------- ----------- -----------
<S> <C> <C> <C>
AGSPC Stock Index Fund...................................... .27% .04% .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 Sales and Administrative Charge are available if certain
conditions are met. See "Fees and Charges" in this prospectus.
(3) Under certain groups, whose contracts are deposit administration contracts
not administered by VALIC, this charge may be higher. See "Fees and Charges"
in this prospectus.
(4) The Mortality and Expense Risk Fee may vary depending on the total assets
attributable to the GTS-VA Contracts. See the "Fees and Charges" section in
this prospectus.
(5) 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.
(6) Reduction from Total Separate Account and Fund Expenses due to Permanent
Guaranteed Expense Limitations. The Company has agreed to reduce the Total
Separate Account and Fund Expenses by a percentage of average net assets, to
1.4157% on the first $359,065,787, 1.36% on the next $40,934,213 and 1.32%
of the excess over $400 million of total assets attributable to the GUP
Contracts and 6.966% on the first $25,434,267, .5% on the next $74,565,733
and .25% of the excess over $100 million of the total assets attributable to
the GTS-VA Contracts. For the period ending December 31, 1998, the Reduction
from Total Separate Account and Fund Expenses were 0% and 0.21%, for the GUP
Contract and the GTS-VA Contract, respectively. This Reduction from Total
Separate Account and Fund Expenses reduced the Total Separate Account and
Fund Expenses to 1.31% and 0.63% for the GUP Contract and the GTS-VA
Contract, respectively. See "Reduction From Total Expenses" in the "Fees and
Charges" section, in this prospectus.
2
<PAGE> 9
EXAMPLE -- Whether you surrender or 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 GUP Contract or GTS-VA Contract, invested in the AGSPC Stock
Index Fund as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
GUP Contract $63 $89 $118 $200
GTS-VA Contract $56 $69 $ 83 $125
</TABLE>
- ---------------
Note: These examples should not be considered representations of past or future
expenses for VALIC Separate Account A or for the Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners and
Participants understand the various expenses of VALIC Separate Account A and the
Fund which are, in effect, passed on to the Contract Owners and Participants.
This Fee Table shows all charges and expenses which may be deducted from the
assets of VALIC Separate Account A and from the Fund 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 the Fund's prospectus. Any and all limitations on total charges and expenses
are reflected in this Fee Table.
3
<PAGE> 10
SUMMARY
- --------------------------------------------------------------------------------
A summary of the Contracts' major features 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 of one Variable Account Option and one Fixed
Account Option.
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
FIXED ACCOUNT
OPTION
- ----------------------------------------------------------------------------------------------------------------
Fixed Account General Account assets of the Company --
- ----------------------------------------------------------------------------------------------------------------
VARIABLE ACCOUNT INVESTMENT STRATEGY ADVISER
OPTION
- ----------------------------------------------------------------------------------------------------------------
AGSPC Stock Index Fund Growth through investments tracking the VALIC
S&P 500(R) Index
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
4
<PAGE> 11
SUMMARY -- (CONTINUED)
- --------------------------------------------------------------------------------
A detailed description of the investment objective of the AGSPC Stock Index Fund
can be found in the section of the prospectus entitled "Variable Account
Option," 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 your money between the Variable Account Option
and the Fixed Account Option during the Purchase Period.
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 this prospectus.
FEES AND CHARGES
SALES AND ADMINISTRATIVE CHARGE
Generally, a Sales and Administrative Charge of up to 5.00% will be deducted
from Purchase Payments. See "Fees and Changes -- Sales and Administrative
Charge."
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 the Variable Account Option you will incur a mortality and expense
risk fee computed at an aggregate annualized rate of 1.00% and 0.53% for the GUP
Contracts and GTS-VA Contracts, respectively, on the average daily net asset
value of VALIC Separate Account A.
STOCK INDEX FUND ANNUAL EXPENSE CHARGE
A daily charge based on a percentage of the Stock Index Fund's average daily net
asset value is payable by the Stock Index Fund to its investment adviser. In
addition to the management fees, the Stock Index 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 this prospectus.
FEDERAL TAX INFORMATION
Although deferred annuity contracts such as GUP and GTS-VA 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
GUP CONTRACTS
Under the GUP Contracts, the minimum initial and subsequent Purchase Payments
per a Participant in a group is $25, if the entire Purchase Payment is allocated
to the Variable Account Option and $30 if the Purchase Payment is split between
the Variable Account Option and the Fixed Account Option. In certain group
plans, the minimum initial Purchase Payment must be at least $2,000, and
subsequent Purchase Payments must be at least $5,000. Under certain plans, the
minimum initial and subsequent Purchase Payment amounts for the GUP Contracts
may differ or may be waived. See "Purchase Period," in this prospectus.
GTS-VA CONTRACTS
Under the GTS-VA Contracts, the minimum initial and subsequent Purchase Payments
is $10,000 per year. This amount may vary depending on the type of plan that the
GTS-VA Contract is offered under. See "Purchase Period," in this prospectus.
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> 12
SELECTED PURCHASE UNIT DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC STOCK INDEX AGSPC STOCK INDEX
DIVISION 10A (GUP CONTRACTS)(1) DIVISION 10B (GTS-VA CONTRACTS)(1)
------------------------------- ----------------------------------
<S> <C> <C>
DECEMBER 31, 1998
Purchase Units in Force 23,726,504 1,131,113
Purchase Unit Value $22.479709 $35.792019
DECEMBER 31, 1997
Purchase Units in Force 25,835,933 1,256,974
Purchase Unit Value $17.679054 $27.956410
DECEMBER 31, 1996
Purchase Units in Force 27,379,389 1,380,401
Purchase Unit Value $13.413891 $21.070956
DECEMBER 31, 1995
Purchase Units in Force 29,995,363 1,560,525
Purchase Unit Value $11.036946 $17.221812
DECEMBER 31, 1994
Purchase Units in Force 33,814,520 1,836,094
Purchase Unit Value $ 8.116786 $12.582568
DECEMBER 31, 1993
Purchase Units in Force 36,512,399 1,937,835
Purchase Unit Value $ 8.140393 $12.535147
DECEMBER 31, 1992
Purchase Units in Force 38,339,955 1,980,063
Purchase Unit Value $ 7.481645 $11.439143
DECEMBER 31, 1991
Purchase Units in Force 39,793,938 2,027,028
Purchase Unit Value $ 7.285058 $11.058834
DECEMBER 31, 1990
Purchase Units in Force 42,428,504 2,077,905
Purchase Unit Value $ 6.045955 $ 9.113417
DECEMBER 31, 1989
Purchase Units in Force 46,272,953 2,159,779
Purchase Unit Value $ 6.333044 $ 9.477254
</TABLE>
- ---------------
(1) Effective with the merger of the AGSPC Quality Growth Fund into the AGSPC
Stock Index Fund on May 1, 1992, the Quality Growth Fund Divisions 9A and 9B
were merged into the Stock Index Fund Divisions 10A and 10B, respectively.
The merger of the Divisions was accomplished by an exchange of units of
Quality Growth Divisions 9A and 9B for units of Stock Index Divisions 10A
and 10B, respectively.
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 the
Division of VALIC Separate Account A will not be the same on any given day as
the net asset value per share of the Stock Index Fund in which the Division
invests in. 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 Stock Index Fund are reinvested by the Division in
additional shares. These distributions have the effect of reducing the value of
each share of the Stock Index Fund and increasing the number of Stock Index Fund
shares outstanding. However, the total cash value in VALIC Separate Account A
does not change as a result of such distributions.
6
<PAGE> 13
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ABOUT THE CONTRACTS
The Contracts were developed to help you save money for your retirement. They
offer you a fixed and a variable investment option 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 Option 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 GUP and GTS-VA. 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 Option, you will be
sending that money through VALIC's Separate Account A. You do not invest
directly in the Stock Index Fund. VALIC's Separate Account A invests in the
Stock Index Fund on behalf of your account. VALIC Separate Account A is made up
of what we call "Divisions."
On May 1, 1992, the AGSPC Quality Growth Fund merged into the AGSPC Stock Index
Fund. Effective with this merger, the Quality Growth Divisions 9A and 9B were
renamed Stock Index Divisions 10A and 10B, respectively. Divisions 10A and 10B,
which invest in a Mutual Fund called the AGSPC Stock Index Fund, are available
under the Contracts. Division 10A is the Variable Account Option for the GUP
Contracts and Division 10B is the Variable Account Option for the GTS-VA
Contracts. The earnings (or losses) of Divisions 10A and 10B are credited to (or
charged against) the assets of Divisions 10A and 10B.
VALIC established Separate Account A on July 25, 1979 under Texas insurance law.
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 the Contracts be held exclusively for the benefit of the contract owner,
participants, annuitants, and beneficiaries of the Contracts. When we discuss
performance information in this prospectus, we mean the performance of a VALIC
Separate Account A Division.
PARTICIPANT -- the
individual, (in most
cases you are the
Participant) who makes
Purchase Payments or
for whom Purchase
Payments are made.
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.
7
<PAGE> 14
- --------------------------------------------------------------------------------
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.
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 to 1% of each Purchase Payment. These various
commissions are paid by VALIC and do not result in any charge to Participants or
to the Separate Account.
A.G. DISTRIBUTORS --
our address is
2929 Allen Parkway,
Houston, Texas 77019.
For more information
about A.G. DISTRIBUTORS,
see the Statement
of Additional
Information.
8
<PAGE> 15
VARIABLE ACCOUNT OPTION
- --------------------------------------------------------------------------------
The Contracts enable you to participate in a Division that represents a Variable
Account Option. Certain limitations may also apply. See "About VALIC Separate
Account A" in this prospectus.
The 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 the Stock Index 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 THE FUND
A brief summary of the investment objective of the Stock Index Fund is shown
below. In addition to the investment objective, the Account Value of an assumed
$10,000 investment in the Division is shown in both table and graph form as well
as the Standard Average Annual Total Return for the Division for a 1, 3, 5 and
10 year period if available. The performance information in the table and graph
will reflect a deduction for separate account fees (mortality and expense risk
fee) and underlying fund charges. It will not reflect any deduction for sales
and administrative charges and premium taxes. These charges would further reduce
your return. The Account Values shown in the graph reflect Separate Account
performance based on the performance of the Stock Index Fund for the last 10
fiscal years. The returns shown in the table reflect for the Stock Index Fund
actual historical performance of the related Separate Account Division.
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 sales and
administrative charges that would have been deducted at the time Purchase
Payments were made. This information is calculated for the 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
Division" in this prospectus.
VARIABLE ACCOUNT
OPTION -- investment
option that corresponds
to a Separate Account
Division offered by
the Contracts.
Investment returns on
the Variable Account
Option may be positive
or negative depending on
the investment
performance of the
Stock Index Fund.
9
<PAGE> 16
AGSPC STOCK INDEX FUND
(Divisions 10A and 10B)
- --------------------------------------------------------------------------------
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>
Division 10A (GUP Contracts)**
- ------------------------------
Annual Value of a $10,000
Stipulated Payment made
January 1, 1989 $ Value
- ------------------------------ -------
<S> <C>
01/01/89 $ 9,550
12/31/89 12,243
12/31/90 11,688
12/31/91 14,084
12/31/92 14,464
12/31/93 15,737
12/31/94 15,692
12/31/95 21,337
12/31/96 25,932
12/31/97 34,178
12/31/98 43,458
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1989
[CHART]
PERIOD ENDED DECEMBER 31
<TABLE>
<CAPTION>
Division 10B (GTS-VA Contracts)***
- ----------------------------------
Annual Value of a $10,000
Stipulated Payment made
January 1, 1989 $ Value
- ---------------------------------- -------
<S> <C>
01/01/89 $ 9,550
12/31/89 12,329
12/31/90 11,856
12/31/91 14,387
12/31/92 14,882
12/31/93 16,307
12/31/94 16,369
12/31/95 22,405
12/31/96 27,412
12/31/97 36,370
12/31/98 48,563
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1989
[CHART]
PERIOD ENDED DECEMBER 31
* "Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of Standard
and Poor's ("S&P"). The AGSPC Stock Index Fund is not sponsored, endorsed, sold
or promoted by S&P and S&P makes no representations regarding the advisability
of investing in this Fund.
** The Standard Average Annual Total Return for the AGSPC Stock Index Fund
Division 10A for the 1, 3, 5 and 10 year period was 20.80%, 24.61%, 21.28% and
15.23%, respectively. The Division, formerly known as the Quality Growth Fund
Division 9A, commenced operations on April 20, 1987.
*** The Standard Average Annual Total Return for the AGSPC Stock Index Fund
Division 10B for the 1, 3, 5 and 10 year period was 21.63%, 25.45%, 22.09% and
16.03%, respectively. The Division, formerly known as the Quality Growth Fund
Division 9B, commenced operations on April 20, 1987.
10
<PAGE> 17
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 under the Contracts 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>
GUP Contracts(1) $30 (with a $12 minimum $30 (with a $12 minimum
allocated to the Variable allocated to the Variable
Account Option) or $25 if Account Option) or $25 if
the entire Purchase the entire Purchase
Payment amount is to be Payment amount is to be
allocated to the Variable allocated to the Variable
Account Option only. Account Option only.
GTS-VA Contracts(2) $10,000 $10,000
</TABLE>
- ---------------
(1) The Minimum Initial and Subsequent Purchase Payments for GUP Contracts
issued under Section 401 of the Internal Revenue Code (the "Code") is $2,000
and $5,000, respectively. VALIC may from time-to-time waive the Minimum
Initial and Subsequent Purchase Payment amounts for group plans established
for employers with 500 or more employees.
(2) The $10,000 Minimum Initial and Subsequent Purchase Payment amount applies
only to GTS-VA Contracts issued under Sections 401 and 403(b) of the Code.
There are no Minimum Initial and Subsequent Purchase Payment requirements
for other GTS-VA Contracts.
Purchase Payment minimums apply to each Purchase Payment made.
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 certificate. We will also establish your
account and apply your Purchase Payment by crediting the amount to the Fixed
Account Option or the Variable Account Option;
- - Reject the Application -- and return the Purchase Payment; or
- - Request Additional Information -- to correct or complete the application.
If we receive Purchase Payments from your employer before we receive your
completed application or enrollment form, we will not be able to establish a
permanent account for you. Under those circumstances, we will take one of the
following actions:
Return Purchase Payments. If we do not have your name, address or social
security number, we will return the Purchase Payment to your employer unless
this information is immediately provided to us.
Employer-Directed Account. If we have your name, address and social security
number and we have an Employer-Directed Account Agreement from your employer,
generally we will deposit your Purchase Payment in an "Employer-Directed"
account invested in the Fixed Account Option. You may not transfer these amounts
until VALIC has received a completed application or enrollment form.
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 Option in 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.
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.
PURCHASE PAYMENTS -- an
amount of money you or your
employer pay to VALIC to
receive the benefits of an
annuity Contract offered
under GUP or GTS-VA.
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.
For more information as to
how PURCHASE UNIT VALUES
are calculated, see the
Statement of Additional
Information.
11
<PAGE> 18
- --------------------------------------------------------------------------------
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 2 investment options offered in the Contracts. This includes 1 Fixed
Account Option and 1 Variable Account Option. The Fund that underlies the
Variable Account Option is registered as a separate portfolio 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 is 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
listed in the "Summary of the Contracts" appearing in this prospectus. 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 a declared rate. 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 the Variable Account Option 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 OPTION
You may allocate all or a portion of your Purchase Payments to the Variable
Account Option listed in this prospectus as permitted by your retirement
program. A complete discussion of the Variable Account Option may be found in
the "Variable Account Option" section in this prospectus. Based upon the
Variable Account Option's Purchase Unit Value your account will be credited with
the applicable number of Purchase Units. The Purchase Unit Value of the Variable
Account Option will change daily depending upon the investment performance of
the Stock Index 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. The 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 the 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 contract's account has been surrendered. The value of
the Purchase Units will continue to vary. Your Account Value will continue to be
subject to charges.
12
<PAGE> 19
TRANSFERS BETWEEN INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may transfer all or part of your Account Value between the Fixed Account
Option and the Variable Account Option 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 the Fixed Account
Option and the Variable Account Option at any time.
If you make a transfer into the Fixed Account Option within 120 days of making a
transfer out of the Fixed Account Option, the interest rate earned on the
Account Value in the Fixed Account Option may be adversely affected.
Transfers are permitted during the Purchase Period, subject to the following
limitations:
<TABLE>
<CAPTION>
OTHER
ACCOUNT OPTION FREQUENCY RESTRICTIONS
- -------------- ----------- -------------------------------------
<S> <C> <C>
Variable At any time None(1)
Account
Option
Fixed Account At any time None(1)
Option
</TABLE>
- ---------------
(1) VALIC may limit transfers to the extent such a limitation is allowed under
your Contract.
DURING THE PAYOUT PERIOD
During the Payout Period, transfers may be made from the Contracts' investment
options subject to the following limitations:
<TABLE>
<CAPTION>
OTHER
ACCOUNT OPTION FREQUENCY RESTRICTIONS
- -------------- ---------- ------------------------------------
<S> <C> <C>
Variable Once every None
Account 365 days
Option:
Fixed Account Not --
Option: permitted
</TABLE>
COMMUNICATING TRANSFER OR
REALLOCATION INSTRUCTIONS
A written instruction to transfer or reallocate all or part of your Account
Value between the investment options in the Contracts, 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
Option and/or Variable
Account Option 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.
13
<PAGE> 20
FEES AND CHARGES
- --------------------------------------------------------------------------------
By investing in the Contracts, you may be subject to five basic types of fees
and charges:
- - Sales and Administrative 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.
SALES AND ADMINISTRATIVE CHARGE
When you make a Purchase Payment to your account, you may be subject to a Sales
and Administrative Charge that will be deducted from the amount of your Purchase
Payment. The Sales and Administrative Charge will be deducted from the GUP
Contracts as follows:
<TABLE>
<CAPTION>
Deduction as Deduction as
Aggregate Gross a Percentage a Percentage of
Purchase of Purchase Net Purchase
Payments(1) Payments(2) Payments(3)
--------------- ---------------- ----------------
<S> <C> <C>
first $5,000 5.00% 5.26%
next $ 5,000 4.00% 4.17%
next $ 5,000 3.50% 3.63%
over $15,000 3.00% 3.09%
</TABLE>
- ---------------
(1) The Aggregate Gross Purchase Payments is the entire amount that you pay to
the Company under a contract.
(2) We will only deduct 2% (1.4% administrative expenses and 0.6% sales
expenses) from single one-time Purchase Payments, except when the single
one-time Purchase Payment is transferred from other Company annuity
contracts for which no deduction is made. Any subsequent Purchase Payments
made after a single one-time Purchase Payment will be subject to the
deduction as described above with the lump sum included in the Aggregate
Gross Purchase Payment.
(3) The Gross Purchase Payment amount minus the deduction for Sales and
Administrative Expenses is the amount of the Net Purchase Payment.
Certain group plans use GUP Contracts that are not administered by VALIC. These
GUP Contracts are administered by professional actuarial consultants. This type
of contract is known as a deposit administration contract. The GUP Contracts
administered as deposit administration contracts have a different Sales and
Administrative Charge then the GUP Contracts not administered as deposit
administration contracts. A sales charge on the GUP deposit administration
contracts will be deducted annually on 5% of Purchase Payments received (5.26%
of Net Purchase Payments) after an administrative charge is deducted. The
administrative charge on the GUP deposit administration contracts is a dollar
amount calculated and deducted yearly based on the total contributions made by
the group from when the deposit administration contract began.
The administrative charge on the GUP deposit administration contracts will be
determined as follows:
<TABLE>
<CAPTION>
Total Group Amount
Contributions Deducted Per Year
- ------------------------ -----------------
<S> <C>
$0 - $99,999 $1,000
$100,000 - $199,999 $ 750
$200,000 - $299,999 $ 500
$300,000 - $399,999 $ 250
$400,000 and greater 0
</TABLE>
If your Contract is a GTS-VA Contract sold in a 403(b) plan, then your Sales and
Administrative Charge will be the same as for the GUP Contracts administered by
VALIC. Except that, one-time Purchase Payments received by the Company from
amounts that were accumulated in 403(b) plans not associated with VALIC shall be
subject to a charge of 2%. Any future Purchase Payments made will be subject to
the same Sales and Administrative Charge as the GUP Contracts administered by
VALIC. In addition, if under a GTS-VA Contract, you make a one-time payment of
amounts accumulated in other VALIC contracts, than you will not be subject to
the 2% charge, but you will be subject to the same charge as the GUP Contracts
administered by VALIC.
If you are a full-time sales representative of VALIC, and have been employed by
VALIC for 90 days or more, then you may participate in a GUP Contract with no
Sales and Administrative Charge.
If your Contract is unallocated, then the Sales and Administrative Charge will
be 2% for each Purchase Payment.
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. If you are
in a GUP deposit administration contract, then your premium taxes will be added
to payout rates when you are added to a group plan, and not deducted from
Purchase Payments.
PARTICIPANT YEAR -- the first
twelve month period and
then each yearly anniversary
of that period following the
issue date of the contract or
certificate.
14
<PAGE> 21
- --------------------------------------------------------------------------------
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. For GUP Contracts, this is a daily charge at an annualized rate of 1.00% on
the average daily net asset value of VALIC Separate Account A. For GTS-VA
Contracts, this a daily charge at an annualized rate of .85% on the first
$10,000,000 in your group's plan, .425% on the next $90,000,000 in your group's
plan and .21% on assets over $100,000,000 in your group's plan, 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 the Fund's average daily
net assets are payable by the Stock Index Fund. The charges will be paid by the
Fund to its investment adviser. These charges and other Fund charges and
expenses are fully described in the AGSPC prospectus. 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 FROM TOTAL EXPENSES
When the Company reorganized its separate accounts, merging VALIC Separate
Account One and VALIC Separate Account Two into VALIC Separate Account A, the
Company guaranteed that the fees and charges would not be greater as a result of
the Reorganization. Endorsements added to the Contracts provide that certain
Fund Annual Expense Charges and the Separate Account Charges will not be higher
on the Contracts funded by VALIC Separate Account A, than they were when the
Contracts were funded by VALIC Separate Account One and VALIC Separate Account
Two.
The Company, for VALIC Separate Account One and VALIC Separate Account Two,
determined the ratio of certain Fund Annual Expense Charges and Separate Account
Annual Expense Charges to the total net assets of VALIC Separate Account One and
VALIC Separate Account Two, called the Expense Ratio. On April 1, 1987, the
Expense Ratio was calculated, to determine the Maximum Expense Ratio. The
Company guarantees that the amount of the Expense Ratio will never exceed the
amount of the Maximum Expense Ratio. The Maximum Expense Ratio for the GUP and
GTS-VA Contracts is 1.4157% and .6966%, respectively.
The Maximum Expense Ratio does not apply to extraordinary and non-recurring Fund
Annual Expenses. These expenses may include certain liabilities and litigation
associated with indemnification payments of AGSPC failing to qualify as a
Regulated Investment Company under the Code. The Company believes that such
expenses and liabilities, although possible, are unlikely to occur.
We may, as described below, determine that the Sales and Administrative Charge
for the Contracts may be reduced or waived. We may reduce or waive these 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
15
<PAGE> 22
- --------------------------------------------------------------------------------
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.
16
<PAGE> 23
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) (IRAs 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 select your existing Variable Account Option. Your
payments will vary accordingly. This is due to the varying investment results
that will be experienced by the Variable Account Option. The Payout Unit Value
is calculated just like the Purchase Unit Value for the 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) for all
Contracts, except GTS-VA Contracts that are not sold under Section 403(b), which
have an Assumed Investment Rate of 3% (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 divide your Payout
Payments between a Fixed Payout (payment is fixed and guaranteed) and a Variable
Payout from the Variable Account Option (payments will vary).
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 (depending on the terms of your contract):
- 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.
ASSUMED INVESTMENT
RATE -- the rate used to
determine your first monthly
Payout Payment per
thousand dollars of Account
Value in your Variable
Account Option.
17
<PAGE> 24
- --------------------------------------------------------------------------------
- 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.
Under the GTS-VA Contracts, the payout payments must be at least $25 each.
- 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 Payout 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.
- PAYMENT OF A SPECIFIED AMOUNT -- payments in equal annual, semi-annual,
quarterly or monthly installments are made to you of a specified dollar
amount until the remaining balance is less than the specified dollar
amount, at which time, the remaining balance will be paid to you.
- PAYMENT OF INVESTMENT INCOME -- payments are made to you, out of your
Account Value placed in the Fixed Account Option, on an annual,
semi-annual, quarterly or monthly basis. Payments are calculated by the net
investment rate for the period multiplied by the remaining Account Value.
Upon your death, payments will continue to your beneficiary until the
remaining balance is paid out. At any time, you may elect to receive a lump
sum payment equal to the remaining Account 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.
LEVEL PAYMENTS OPTION
The level payments enhancement is an option that can only be used if you have a
GUP Contract and if you selected one of the first four Payout Options above.
Under the level payments option, payments are made once each month during each
payout year at a certain level determined for that year based on the investment
performance of the Separate Account. The amount of the payments will be
determined by dividing the payment amount by the current Payout Unit Value to
determine the number of Payout Units in each subsequent annual payment.
PAYOUT INFORMATION
Once your Payout Payments have begun, the option you have chosen may not be
stopped or changed. The Variable Account Option 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
For more information about
PAYOUT OPTIONS OR
ENHANCEMENTS of those
Payout Options available
under the Contract,
see the "Statement of
Additional Information".
18
<PAGE> 25
- --------------------------------------------------------------------------------
- Variable Account Option will be used to distribute payments to you on a
Variable Payout basis.
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.
19
<PAGE> 26
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.
AMOUNT THAT MAY BE SURRENDERED
The amount that may be surrendered at any time can be determined as follows:
<TABLE>
<S> <C> <C>
Allowed Your
Surrender = (EQUALS) Account
Value Value(1)
</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 the 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 the underlying Fund's
shares have been suspended or postponed. See your AGSPC prospectus for a
discussion of the reasons why the redemption of shares may be suspended or
postponed.
We may receive a surrender for a Purchase Payment which has not cleared the
banking system. We may delay payment of that portion of your Surrender Value
until the check clears. The rest of the Surrender Value will be processed as
usual.
SURRENDER RESTRICTIONS
Generally, Internal Revenue Code Section 403(b)(11) permits total or partial
distributions from a 403(b) contract only on account of hardship (employee
contributions only without accrued interest), attainment of age 59 1/2,
separation from service, death or disability.
Under the TEXAS STATE OPTIONAL RETIREMENT PROGRAM, and in many Section 403(b)
contracts, no surrender or partial surrender will be allowed except for
termination of employment, retirement or death.
Under the FLORIDA STATE OPTIONAL RETIREMENT PROGRAM, no surrender or partial
surrender of Purchase Payments made by the employer will be allowed except for
termination of employment, retirement or death. Benefit payments based on
payments from the employer may not be paid in a lump sum or for a period
certain, but must be paid under a life contingency option, except for:
- death benefits; and
- certain small amounts approved by the State of Florida.
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.
You may, upon termination of participation in your group's plan, elect to have
your Account Value applied to the purchase of an individual variable annuity
contract offered by VALIC. There will be no charge for this election, but there
may be certain adverse tax consequences, depending on your plan and the terms of
your contract.
Under the GUP Contracts, if you change employers and your new employer is the
owner of a similar GUP Contract, you may have your Account Value transferred to
such other GUP Contract free of charge.
Other employer-sponsored plans may also impose restrictions on the timing and
form of surrenders from the Contracts.
PARTIAL SURRENDERS
You may request a partial surrender of your Account Value at any time, subject
to any applicable surrender restrictions. A partial surrender will reduce your
Account Value. Partial surrenders will be paid from the Fixed Account Option and
the Variable Account Option 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>
Your Purchase
Units next
computed after
The amount the written
surrendered / (DIVIDED BY) request for
surrender is
received at our
Home Office
</TABLE>
20
<PAGE> 27
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 Contracts.
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 Payment (to the Fixed and/or the Variable Account Option)
- (MINUS)
Amount of all Prior Withdrawals 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.
Death Benefits will not be provided during the Payout Period for certain
unallocated GUP and GTS-VA Contracts.
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. The option
is guaranteed to earn at
least a minimum rate of
interest.
VARIABLE ACCOUNT
OPTION -- investment
options that correspond to
VALIC Separate Account A
Divisions offered by the
Contracts. Investment returns
on the Variable Account Option
will be positive or negative
depending on the investment
performance of the
Stock Index Fund
on the date VALIC
receives proof of death.
21
<PAGE> 28
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. Premium taxes are not deducted. This information
is calculated for the 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. The
Nonstandard Average Annual Total Return does not show the charges and fees
applied against the Division.
CUMULATIVE TOTAL RETURN
The Cumulative Total Return will 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 for any charges and fees against the
Division.
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.
Fees and charges against the Division are not deducted. The effect of these
charges, if deducted, would reduce the Division's Annual Change in Purchase Unit
Value.
DIVISION -- subaccount of
VALIC Separate Account A
which represent the Variable
Account Option in the Contracts.
The Division invests in the
Stock Index Fund.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
under GUP or GTS-VA.
For more information on how
TOTAL RETURN PERFORMANCE
INFORMATION is calculated,
see the Statement of
Additional Information.
22
<PAGE> 29
- --------------------------------------------------------------------------------
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
Contracts' 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 charges and fees imposed on the Division.
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.
We may advertise the standardized yield performance for the Division. The yield
for each of these Divisions will be determined as follows:
We will divide the average daily net investment income per Purchase Unit 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.
23
<PAGE> 30
TABLE I
AVERAGE ANNUAL TOTAL RETURN
WITH SALES AND ADMINISTRATIVE CHARGE IMPOSED*
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1998)
<TABLE>
<CAPTION>
DIVISION
INCEPTION
FUND AND DIVISION DATE 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
AGSPC Stock Index Fund (Division 10A -- GUP Contracts)...... 04/20/87** 15.23% 21.28% 24.61% 20.80%
AGSPC Stock Index Fund (Division 10B -- GTS-VA Contracts)... 04/20/87*** 16.03 22.09 25.45 21.63
</TABLE>
- ---------------
* The performance figures in the Table reflect the investment performance for
the Division for the stated periods and should not be used to infer that
future performance will be the same.
** On May 1, 1992, the Quality Growth Fund merged into the Stock Index Fund and
Quality Growth Division 9A was renamed Stock Index Division 10A.
*** On May 1, 1992, the Quality Growth Fund merged into the Stock Index Fund and
Quality Growth Division 9B was renamed Stock Index Division 10B.
24
<PAGE> 31
TABLE II
AVERAGE ANNUAL TOTAL RETURN
WITH NO SALES AND ADMINISTRATIVE CHARGE IMPOSED*
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1998)
<TABLE>
<CAPTION>
DIVISION
INCEPTION
FUND AND DIVISION DATE 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
AGSPC Stock Index Fund (Division 10A -- GUP Contracts)...... 04/20/87** 15.83% 22.53% 26.76% 27.15%
AGSPC Stock Index Fund (Division 10B -- GTS-VA Contracts)... 04/20/87*** 16.63 23.35 27.62 28.03
</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.
** On May 1, 1992, the Quality Growth Fund merged into the Stock Index Fund and
Quality Growth Division 9A was renamed Stock Index Division 10A.
*** On May 1, 1992, the Quality Growth Fund merged into the Stock Index Fund and
Quality Growth Division 9B was renamed Stock Index Division 10B.
25
<PAGE> 32
TABLE III
CUMULATIVE RETURN
WITH NO SALES AND ADMINISTRATIVE CHARGE IMPOSED*
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1998)
<TABLE>
<CAPTION>
DIVISION
INCEPTION
FUND AND DIVISION DATE 10 YEARS 5 YEARS 3 YEARS 1 YEAR
----------------- --------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
AGSPC Stock Index Fund (Division 10A -- GUP Contracts)...... 04/20/87** 334.58% 176.15% 103.68% 27.15%
AGSPC Stock Index Fund (Division 10B -- GTS-VA Contracts)... 04/20/87*** 365.63 185.53 107.83 28.03
</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.
** On May 1, 1992, the Quality Growth Fund merged into the Stock Index Fund and
Quality Growth Division 9A was renamed Stock Index Division 10A.
*** On May 1, 1992, the Quality Growth Fund merged into the Stock Index Fund and
Quality Growth Division 9B was renamed Stock Index Division 10B.
26
<PAGE> 33
TABLE IV
ANNUAL AND CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
WITH NO SALES AND ADMINISTRATIVE CHARGE 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 Stock Index Fund (Division
10A -- GUP Contracts)**............. 27.15% 31.80% 21.54% 35.98% (0.29)% 8.80% 2.70% 20.49% (4.53)% 22.43%
AGSPC Stock Index Fund (Division
10B -- GTS-VA Contracts)***......... 28.03 32.68 22.35 36.87 0.38 9.58 3.44 21.35 (3.84) 23.29
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR EACH PERIOD END SINCE DECEMBER 31, 1989*
AGSPC Stock Index Fund (Division
10A -- GUP Contracts)**............. 334.58% 241.78% 159.32% 113.37% 56.92% 57.37% 44.64% 40.84% 16.88% 22.43%
AGSPC Stock Index Fund (Division
10B -- GTS-VA Contracts)***......... 365.63 263.70 174.12 124.05 63.69 63.07 48.82 43.87 18.56 23.29
</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.
** On May 1, 1992, the Quality Growth Fund merged into the Stock Index Fund and
Quality Growth Division 9A was renamed Stock Index Division 10A.
*** On May 1, 1992, the Quality Growth Fund merged into the Stock Index Fund and
Quality Growth Division 9B was renamed Stock Index Division 10B.
27
<PAGE> 34
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;
- Amend the GUP Contracts to increase all charges and annuity purchase rates
(such change will not affect Participants already invested in a GUP
Contract);
- Amend the GUP Contracts (except where prohibited by the Act) for
Participants whose total Purchase Payments are greater than 200% of the
amount of first-year Purchase Payment(s) made on his/her behalf;
- Amend GUP contracts issued under GUP contract form GVA-SA1 after five years
of your participation in the Contract to change any terms of the Contract
upon 90 days written notice to you (except where prohibited by the Act);
- Amend GTS-VA Contracts issued under GTS-VA contract form GVA-SA2 in
connection with certain 403(b) and 401 plans for self-employed individuals
to increase the deduction for Sales and Administrative Charge after the end
of the first year of the Contract. Contract amendments may affect rates and
Fund Annual Expenses adversely applicable to Participants for Purchase
Payments at an annual rate of up to 200% of the first year Purchase Payment
made for each such Participant;
- Amend the Payout rate applicable to Purchase Payments after the tenth year
of the Contract.
RELATIONSHIP TO EMPLOYER'S PLAN
If the Contract is being offered as a retirement plan through your employer, you
should always refer to the terms and conditions in your employer's plan when
reviewing the description of Independence Plus in this prospectus.
ASSIGNING YOUR CONTRACT
For most Contracts issued under qualified retirement plans or eligible deferred
compensation plans of government employers, you will not be permitted to assign,
sell or pledge your Contract to any person or organization, other than the
Company, unless your contract is owned by a trustee or custodian and the trust
or custodial accounts comply with applicable nontransferable requirements. GUP
Contracts not issued under GUP contract form GVA-SA1 and GTS-VA Contracts that
are issued under GTS-VA contract form GVA-SA2 are not assignable unless
permitted under applicable law. GUP Contracts that are issued under GUP contract
form GVA-SA1 are not assignable.
28
<PAGE> 35
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 Stock Index Fund
which comprises the Variable Account Option. From time to time the Stock Index
Fund is required to hold a shareholder meeting to obtain approval from its
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 AGSPC
prospectus.
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 Contracts 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 Stock Index Fund which comprises the Variable Account Option 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 Stock Index Fund it
holds based on, and in the same proportion as, the instructions given by all
Participant Accounts invested in Stock Index Fund entitled to give instructions
at that shareholder meeting. VALIC Separate Account A will vote the shares of
the Stock Index Fund 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> 36
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 457 deferred compensation plans of governmental and tax-exempt
employers;
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",
issued under unfunded, nonqualified deferred compensation plans of corporate
employers.
TAX CONSEQUENCES IN GENERAL
Purchase Payments, distributions, withdrawals, transfers and surrender of a
Contract can each have a tax effect, which varies with the governing retirement
arrangement. Please refer to the detailed explanation in the Statement of
Additional Information, the documents (if any) controlling the retirement
arrangement through which the contract is offered, and your personal tax
adviser.
Purchase Payments under 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. A
distribution that is eligible for rollover often will 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
certain 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.
30
<PAGE> 37
- --------------------------------------------------------------------------------
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 Sales
and Administrative Charges. The dotted lines represent the amounts remaining
after withdrawal and payment of taxes and any surrender charge. The chart does
not reflect the deduction of any such fees. 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> 38
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> 39
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 or Annuity Plans.......... 6
Section 457 Eligible Deferred Compensation
Plans of Public Employers................ 7
Private Employer Unfunded Deferred
Compensation Plans....................... 8
Fund Diversification........................ 8
Purchase Unit Value............................. 9
Illustration of Calculation of Purchase
Units Value.............................. 9
Illustration of Purchase of Purchase
Units.................................... 9
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Calculations........................ 10
Calculation of Average Annual Total Return...... 10
Performance Information......................... 11
Performance Compared to Market Index........ 11
Stock Index Division 10A (GUP Contracts)
Performance Compared to S&P 500 Index.... 12
Stock Index Division 10B (GTS-VA Contracts)
Performance Compared to S&P 500 Index.... 13
Payout Payments................................. 14
Assumed Investment Rate..................... 14
Amount of Payout Payments................... 14
Payout Unit Value........................... 15
Illustration of Calculation of Payout Unit
Value.................................... 15
Illustration of Payout Payments............. 15
Distribution of Variable Annuity Contracts...... 16
Experts......................................... 16
Comments on Financial Statements................ 16
</TABLE>
<PAGE> 40
[This page intentionally left blank]
<PAGE> 41
REVOCATION OF TELEPHONE ASSET TRANSFER AUTHORITY
Participant/Contract Owner Name:
- --------------------------------------------------------------------------------
Social Security Number:
- --------------------------------------------------------------------------------
Birth Date:
- --------------------------------------------------------------------------------
I am the Participant under or Contract Owner of one or more variable annuity
contracts issued by The Variable Annuity Life Insurance Company ("VALIC"). I
hereby instruct 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> 42
(This page intentionally left blank)
<PAGE> 43
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.
................................................................................
GUP OR GTS-VA CONTRACTS
Please send me a free copy of the Statement of Additional Information for The
Variable Annuity Life Insurance Company Separate Account A (GUP or GTS-VA
Contracts).
(Please Print or Type)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Name: G.A. #
------------------------------------------------ ---------------------------------------------------
Address: Policy #
------------------------------------------------ --------------------------------------------------
------------------------------------------------
Social Security Number:
------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 44
(This page intentionally left blank)
<PAGE> 45
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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> 46
[VALIC LOGO]
PRINTED MATTER
PRINTED IN U.S.A. VA 1019 REV 5/99
(C)The Variable Annuity Life Insurance Company, Houston, Texas
Recycled Paper --Recycled Paper Logo--
<PAGE> 47
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
UNITS OF INTEREST UNDER
GROUP UNIT PURCHASE AND
GROUP VARIABLE ANNUITY CONTRACTS
(GUP AND GTS-VA CONTRACTS)
--------------------------------------------------------------------
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 GUP and
GTS-VA Contracts dated May 1, 1999 (the "Contracts") and should be read in
conjunction with the Prospectus. The terms used in this Statement of Additional
Information have the same meaning as those set forth in the Prospectus. A
Prospectus may be obtained by calling or writing the Company, or A.G.
Distributors, Inc. ("A.G. Distributors") at 2929 Allen Parkway, Houston, Texas
77019 or 1-800-44-VALIC. Prospectuses are also available from regional sales
offices of A.G. Distributors or from its registered sales representatives.
<PAGE> 48
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 or Annuity Plans.......... 6
Section 457 Eligible Deferred Compensation
Plans of Public Employers................ 7
Private Employer Unfunded Deferred
Compensation Plans....................... 8
Fund Diversification........................ 8
Purchase Unit Value............................. 9
Illustration of Calculation of Purchase
Units Value.............................. 9
Illustration of Purchase of Purchase
Units.................................... 9
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Calculations........................ 10
Calculation of Average Annual Total Return...... 10
Performance Information......................... 11
Performance Compared to Market Index........ 11
Stock Index Division 10A (GUP Contracts)
Performance Compared to S&P 500 Index.... 12
Stock Index Division 10B (GTS-VA Contracts)
Performance Compared to S&P 500 Index.... 13
Payout Payments................................. 14
Assumed Investment Rate..................... 14
Amount of Payout Payments................... 14
Payout Unit Value........................... 15
Illustration of Calculation of Payout Unit
Value.................................... 15
Illustration of Payout Payments............. 15
Distribution of Variable Annuity Contracts...... 16
Experts......................................... 16
Comments on Financial Statements................ 16
</TABLE>
2
<PAGE> 49
GENERAL INFORMATION
The Variable Annuity Life Insurance Company ("the Company") is a stock life
insurance company organized under the laws of the State of Texas and is engaged
primarily in the offering and issuance of fixed and variable retirement annuity
contracts and combinations thereof. The Company also is licensed to write life
insurance in all states (other than Connecticut) and the District of Columbia,
and annuities in all fifty states and the District of Columbia. The Company is
an indirectly wholly owned subsidiary of American General Corporation.
VALIC established Separate Account A on July 25, 1979 under Texas insurance
law to allow you to be able to invest in the Variable Account Option available
in GUP and GTS-VA Contracts. VALIC Separate Account A 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 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.
Division 10A and 10B are available as the variable investment options under the
GUP and GTS-VA Contracts, respectively.
Effective May 1, 1992 the Quality Growth Fund merged with the Stock Index
Fund. On that date Quality Growth Divisions 9A and 9B were renamed Stock Index
Division 10A and 10B, respectively.
MARKETING INFORMATION
The Company has targeted not-for-profit organizations as the central focus
of its marketing efforts for the 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, 1987 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, 1987 to December 31, 1998
Contract cash values have increased 802 percent. During the same period the
number of
3
<PAGE> 50
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 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 last 31 states to sponsor ORPs as an
alternative to a state benefit plan and offers with 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 more than $2.7 billion. In addition, during this time period
annual ORP premiums more than doubled.
The Company may, from time to time, refer to Bankers Trust Company as
subadviser to AGSPC Stock Index Fund (underlying Divisions 10A and 10B).
Bankers Trust Company 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 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.
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
4
<PAGE> 51
provide a higher return with the same risk or the same return with lower risk.
When presenting the asset allocation process the Company may outline the
process of personal and investment risk analysis including determining
individual risk tolerances and a discussion of the different types of investment
risk. The Company may classify investors into five categories based on their
risk tolerance and will quote various industry experts on which types of
investments are best suited to each of the five risk categories. The industry
experts quoted may include Ibbotson Associates, CDA Investment Technologies,
Lipper Analytical Services, VARDS Report, Wilson Associates, Morningstar, Inc.
and any other expert which has been deemed by the Company to be appropriate. The
Company may also provide a historical overview of the performance of a variety
of investment market indexes, the performance of these indexes over time, and
the performance of different asset categories, such as stocks, bonds, cash
equivalents, etc. The Company may also discuss investment volatility (standard
deviation) including the range of returns for different asset categories and
classes over different time horizons, and the correlation between the returns of
different asset categories and classes. The Company may also discuss the basis
of portfolio optimization including the required inputs and the construction of
efficient portfolios using sophisticated computer-based techniques. Finally, the
Company may describe various investment strategies and methods of implementation
such as the use of index funds versus actively managed funds, the use of dollar
cost averaging techniques, the tax status of contributions, and the periodic
rebalancing of diversified portfolios.
TYPES OF VARIABLE ANNUITY
CONTRACTS
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.
5
<PAGE> 52
An individual's voluntary salary reduction contributions under section
403(b) are generally limited to $10,000 ($9,500 before 1998); additional
catch-up contributions are permitted under certain circumstances. Combined
employer and salary reduction contributions are generally limited to the
smallest of: $30,000; approximately 25 percent of salary; or, an exclusion
allowance which takes into account a number of factors. In addition, for plan
years beginning after December 31, 1988, employer contributions must comply with
various nondiscrimination rules; these rules may have the effect of further
limiting the rate of employer contributions for highly compensated employees.
Taxation of Distributions. Distributions of voluntary salary reduction
amounts are restricted. The restrictions apply to amounts accumulated after
December 31, 1988 (including voluntary contributions after that date and
earnings on prior and current voluntary contributions). These restrictions
require that no distributions will be permitted prior to one of the following
events: (1) attainment of age 59 1/2, (2) separation from service, (3) death,
(4) disability, or (5) hardship (hardship distributions will be limited to the
amount of salary reduction contributions exclusive of earnings thereon). Similar
restrictions will apply to all amounts transferred from a Section 403(b)(7)
custodial account other than rollover contributions.
Distributions from a section 403(b) annuity Contract are taxed as ordinary
income to the recipient in accordance with section 72 of the Code. Distributions
received before the recipient attains age 59 1/2 generally are subject to a 10%
penalty tax in addition to regular income tax. Certain distributions are
excepted from this penalty tax, including distributions following (1) death, (2)
disability, (3) separation from service during or after the year the participant
reaches age 55, (4) separation from service at any age if the distribution is in
the form of substantially equal periodic payments over the life (or life
expectancy) of the Participant (or the Participant and Beneficiary), and (5)
distributions 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 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
6
<PAGE> 53
basis by reason of sections 401(k) or 414(h) of the Code.
Taxation of Distributions. Distributions from Contracts purchased under
qualified plans are taxable as ordinary income, except to the extent allocable
to an employee's after-tax contributions (which constitute "investment in the
Contract.") However, if an employee or the Beneficiary receives a lump sum
distribution, as defined in the Code, from an exempt employees' trust, the
taxable portion of the distribution may be subject to special tax treatment. For
most individuals receiving lump sum distributions after attainment of age
59 1/2, the rate of tax may be determined under a special 5-year income
averaging provision; however, 5-year forward averaging has been repealed for
distributions occurring after December 31, 1999. Those who attained age 50 by
January 1, 1986 may instead elect to use a 10-year income averaging provision
based on the income tax rates in effect for 1986. In addition, individuals who
attained age 50 by January 1, 1986 may elect capital gains treatment (at a 20%
rate) for the taxable portion of a lump sum distribution attributable to years
of service before 1974; such capital gains treatment has otherwise been
repealed. Taxable distributions received under a Contract purchased under a
qualified plan prior to attainment of age 59 1/2 are subject to the same 10%
penalty tax (and the same exceptions) as described with respect to section
403(b) annuity Contracts.
Required Distributions. The minimum distribution requirements for qualified
plans are generally the same as described with respect to section 403(b) annuity
Contracts, except that no amounts are exempted from the minimum distribution
requirements.
Tax-Free Rollovers. The taxable portion of certain distributions from a
plan qualified under section 401 or 403(a) may be transferred in a tax-free
rollover to an individual retirement account or annuity or to another such plan.
Such a rollover must be completed within 60 days of receipt of the qualifying
distribution. The portion of any distribution which is eligible to be rolled
over to an IRA or another section 401(a) or 403(a) plan is subject to 20%
federal income tax withholding unless the Participant elects a direct rollover
of such distribution to an IRA or other section 401(a) or 403(a) plan.
SECTION 457 ELIGIBLE DEFERRED COMPENSATION
PLANS OF PUBLIC EMPLOYERS
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 EDCPs of private tax exempt employees,
the Contract is an asset of the employer or other owner. The employee has no
present right or vested interest in the Contract and is only entitled to payment
in accordance with the EDCP. For EDCPs maintained by a unit of a state or local
government, the Contract is generally held for the exclusive benefit of plan
participants, although Contracts under some such plans may have been subject to
the claims of the employer's creditors until January 1, 1999. In such plans the
employee has no present rights to a distribution from the Contract until
distribution requirements under the Contract and the Plan have been satisfied,
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
7
<PAGE> 54
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.
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.
8
<PAGE> 55
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>
9
<PAGE> 56
PERFORMANCE CALCULATIONS
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 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.
10
<PAGE> 57
PERFORMANCE INFORMATION
PERFORMANCE COMPARED TO MARKET INDEX
The following tables show the Hypothetical $10,000 Account Value and
Cumulative Return of Divisions 10A and 10B as compared to the benchmarks shown.
These performance calculations for Divisions 10A and 10B and the methods
used for calculating them are described in the Prospectus. (See "How to Review
Investment Performance of Separate Account Division" and "The Summary of the
Fund.")
These tables compare hypothetical investment performance and percentage
changes in Contract Purchase Unit values with the results of a benchmark,
representing an unmanaged market index. The comparisons should be considered in
light of the investment policies and objectives of the Fund. Rates of return for
Division 10A and 10B include reinvestment of investment income, including
capital gains, interest and dividends. The rate of return on the market index
also has been adjusted to reflect reinvestment of interest and dividends.
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 Divisions 10A and 10B may be compared to the
record of the Standard & Poor's(R) Corporation Composite Stock Price Index ("S&P
500(R)")*. The S&P 500 is a well known measure of the price performance of 500
leading larger domestic stocks which represent approximately 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. This benchmark is not subject to any charges for investment advisory
fees or other expenses of the type charged at either the Separate Account or the
fund level. Therefore, the comparison with this benchmark is of limited use.
- ---------------
* "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.
11
<PAGE> 58
STOCK INDEX DIVISION 10A (GUP CONTRACTS) 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 10A INDEX
- -------------------------------------------------------------------- -------
<S> <C> <C>
01/01/89................................................... $10,000 $10,000
------- -------
12/31/89................................................... 12,243 13,169
------- -------
12/31/90................................................... 11,688 12,760
------- -------
12/31/91................................................... 14,084 16,647
------- -------
12/31/92................................................... 14,464 17,915
------- -------
12/31/93................................................... 15,737 19,721
------- -------
12/31/94................................................... 15,692 19,982
------- -------
12/31/95................................................... 21,337 27,490
------- -------
12/31/96................................................... 25,932 33,804
------- -------
12/31/97................................................... 34,178 45,801
------- -------
12/31/98................................................... 43,458 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 10A*.................. 334.58% 176.15% 103.68% 27.15%
------ ------ ------ ------
Benchmark Comparison
S&P 500 Index................. 479.66% 193.93% 110.86% 28.58%
------ ------ ------ ------
</TABLE>
- ---------------
* The Division was initiated on April 20, 1987. On May 1, 1992, the Quality
Growth Fund merged into the Stock Index Fund and Quality Growth Division 9A
was renamed Stock Index Division 10A.
12
<PAGE> 59
STOCK INDEX DIVISION 10B (GTS-VA CONTRACTS) 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>
S&P
STOCK INDEX 500
DIVISION 10B INDEX
- --------------------------------------------------------------------- -------
<S> <C> <C>
01/01/89.................................................... $10,000 $10,000
12/31/89.................................................... 12,329 13,169
12/31/90.................................................... 11,856 12,760
12/31/91.................................................... 14,387 16,647
------- -------
12/31/92.................................................... 14,882 17,915
------- -------
12/31/93.................................................... 16,307 19,721
------- -------
12/31/94.................................................... 16,369 19,982
------- -------
12/31/95.................................................... 22,405 27,490
------- -------
12/31/96.................................................... 27,412 33,804
------- -------
12/31/97.................................................... 36,370 45,081
------- -------
12/31/98.................................................... 46,563 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 10B*....................... 365.63% 185.53% 107.83% 28.03%
------ ------ ------ -----
Benchmark Comparison
S&P 500 Index...................... 479.66% 193.93% 110.86% 28.58%
------ ------ ------ -----
</TABLE>
- ---------------
* The Division was initiated on April 20, 1987. On May 1, 1992, the Quality
Growth Fund merged into the Stock Index Fund and Quality Growth Division 9B
was renamed Stock Index Division 10B.
13
<PAGE> 60
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 (3% for
GTS-VA Contracts sold in connection with section 403(b) plans). 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% (or 3%) rate described in the Prospectus. 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 Progressive Annuity Tables for GUP Contracts. GTS-VA Contracts use the 1949
male annuity mortality tables at 3% for Contracts sold in connection with
section 403(b) plans and the Progressive Annuity Table (assuming all births in
1915) at 3.5% for all other Contracts.
The portion of the first 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.
The dollar amount of each subsequent variable payout payment is determined
by multiplying the number of Payout Units in the Participant Account by the
applicable Payout Unit value 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 factor for the Contract since the date of the previous payout
payment, less an adjustment to neutralize the Assumed Investment Rate referred
to above. For example, a factor of .999919 is applied to Contracts containing a
3% Assumed Investment Rate and a factor of .999906 is applied to Contracts
containing a 3.5% Assumed Investment Rate. (Calculation of the net investment
factor is discussed in the Prospectus under "Purchase Period -- Purchase Unit
Value.") This is true for all annuity options except the sixth payout option
described in the Prospectus (see "Payout Period"). Under the sixth payout
option, the amount of subsequent payments remains fixed, but the number of
payments varies with the experience of Divisions 10A and 10B for GUP and GTS-VA,
respectively.
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
14
<PAGE> 61
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 Payout Unit value for any period is determined by multiplying the
Payout Unit value for the immediately preceding period by the net investment
factor for the date for which the Payout Unit value is being calculated. (The
net investment factor used is the net investment factor used to calculate the
Purchase Unit value described in the Prospectus under "Purchase Period.") In
order to avoid the crediting of "double interest," the result is then multiplied
by a factor to neutralize the Assumed Investment Rate built into the annuity
table contained in the Contract. For example, a factor of .999919 is applied to
Contracts containing a 3% Assumed Investment Rate, and a factor of .999906 is
applied to Contracts containing a 3.5% rate.
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
<TABLE>
<S> <C>
1. Payout Unit value, beginning of period.................. $ 1.000000
2. Net investment factor for period (see Example 1)........ 1.019991
3. Daily adjustment for 3.5% Assumed Investment Rate....... .999906
4. (2)X(3)................................................. 1.019895
5. Payout Unit value, end of period (1)X(4)................ $ 1.019895
</TABLE>
ILLUSTRATION OF PAYOUT PAYMENTS
Any 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 1)..................... $ 1.000000
3. Purchase Value of Contract (1)X(2)...................... $10,000.00
4. First monthly annuity payment per $1,000 of Accumulation
Value.................................................... $ 5.63
5. First monthly annuity payment (3)X(4)/1,000............. $ 56.30
6. Payout Unit value (see Example 6)....................... $ 1.000000
7. Number of Payout Units (5)/(6).......................... 56.30
8. Assume Payout Unit value for second month equal to...... $ .997000
9. Second monthly Payout Payment (7)X(8)................... $ 56.13
10. Assume Payout Unit value for third month equal to....... $ .980000
11. Third monthly Payout Payment (7)X(10)................... $ 55.17
</TABLE>
15
<PAGE> 62
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 A.G. Distributors, an affiliate of
VALIC. A.G. Distributors' address is 2929 Allen Parkway, Houston, Texas 77019.
A.G. Distributors 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 ranging up to 6.0% of each Purchase payment. Managers who
supervise the agents will receive overriding commissions ranging to 1% of
Purchase payments. (These various commissions are paid by the Company and do not
result in any charge to Contract Owners or to the Separate Account in addition
to the charges described under "Charges Under Variable Annuity Contracts.")
Pursuant to its underwriting agreement with A.G. Distributors and the
Separate Account, the Company reimburses A.G. Distributors for reasonable sales
expenses, including overhead expenses. Prior to May 1, 1999, The Variable
Annuity marketing Company (VAMCO) was the principal underwriter for VALIC
Separate Account A. Sales commissions paid for the years 1996, 1997 and 1998
were $549,000, $451,000 and $358,634, 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 10A and 10B 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.
16
<PAGE> 63
[THIS PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
================================================================================
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> 79
================================================================================
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> 80
================================================================================
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> 81
[Intentionally Left Blank]
<PAGE> 82
================================================================================
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> 83
================================================================================
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> 84
================================================================================
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> 85
================================================================================
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> 86
================================================================================
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> 87
===============================================================================
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> 88
================================================================================
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> 89
================================================================================
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> 90
================================================================================
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> 91
================================================================================
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> 92
================================================================================
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> 93
================================================================================
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> 94
================================================================================
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> 95
================================================================================
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> 96
================================================================================
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> 97
================================================================================
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> 98
================================================================================
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> 99
================================================================================
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> 100
================================================================================
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> 101
================================================================================
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> 102
================================================================================
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> 103
================================================================================
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> 104
================================================================================
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> 105
===============================================================================
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> 106
===============================================================================
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> 107
===============================================================================
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> 108
===============================================================================
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> 109
===============================================================================
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> 110
===============================================================================
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> 111
===============================================================================
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> 112
===============================================================================
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> 113
===============================================================================
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> 114
===============================================================================
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> 115
===============================================================================
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> 116
================================================================================
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> 117
[VALIC LOGO]
PRINTED MATTER
PRINTED IN U.S.A. VA 1019-1 REV 5/99
(C)Company Name, Houston, Texas
Recycled Paper --RECYCLED PAPER LOGO--
<PAGE> 118
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER GROUP UNIT PURCHASE AND
GROUP VARIABLE ANNUITY CONTRACTS
(GUP AND GTS-VA CONTRACT SERIES)
SEPARATE ACCOUNT A
PART C. OTHER INFORMATION
<TABLE>
<S> <C>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
</TABLE>
(a) Financial statements
Filed with Part A:
Selected Purchase Unit Data for the Fund for the last ten years
Filed with Part B:
(i) Audited Financial Statements
The Variable Annuity Life Insurance Company
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholder Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(ii) Audited Financial Statements
The Variable Annuity Life Insurance Company Separate Account A --
Statement of Net Assets
Statement of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Report of Independent Auditors
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable, or the related
information is included in the financial statements and therefore such
schedules have been omitted.
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<PAGE> 119
(b) Exhibits
<TABLE>
<C> <S> <C>
1. -- Resolutions adopted by The Variable Annuity Life
Insurance Company Board of Directors at its Annual
Meeting of April 18, 1979 establishing The Variable
Annuity Life Insurance Company Separate Account A,
incorporated herein by reference to Post-Effective
Statement No. 52 filed with the Securities and Exchange
Commission ("SEC") on April 27, 1998 (File No.
2-32783/811-3240).
2. -- Not Applicable.
3. -- Underwriting Agreement between The Variable Annuity Life
Insurance Company, The Variable Annuity Life Insurance
Company Separate Account A and The Variable Annuity
Marketing Company, incorporated herein by reference to
Post-Effective Amendment No. 52 filed with the SEC on
April 27, 1998 (File No. 2-32783/811-3240).
4(a). -- Form of Group Annuity Contract (Form GTS-VA-1)
incorporated herein by reference to Post-Effective
Amendment No. 52 filed with the SEC on April 27, 1998
(File No. 2-32783/811-3240).
4(b). -- Form of Group Annuity Contract (Form GUP-64) incorporated
herein by reference to Post-Effective Amendment No. 52
filed with the SEC on April 27, 1998 (File No.
2-32783/811-3240).
4(c). -- Form of Group Annuity Contract (Form GUP-74) incorporated
herein by reference to Post-Effective Amendment No. 52
filed with the SEC on April 27, 1998 (File No.
2-32783/811-3240).
5(a). -- Form of Application for Annuity Contract Forms IFA-582,
GFA-582, GUP 64/74 and GTSVA incorporated herein by
reference to Post-Effective Amendment No. 52 filed with
the SEC on April 27, 1998 (File No. 2-32783/811-3240).
5(b). -- Form of Group Master Application for Group Unit Purchase
Annuity (GUP 64/74) incorporated herein by reference to
Post-Effective Amendment No. 52 filed with the SEC on
April 27, 1998 (File No. 2-32783/811-3240).
6(a). -- Copy of Amended and Restated Articles of Incorporation of
The Variable Annuity Life Insurance Company effective as
of April 28, 1989 incorporated herein by reference to
Post-Effective Amendment No. 52 filed with the SEC on
April 27, 1998 (File No. 2-32783/811-3240).
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 incorporated herein by reference
to Post-Effective Amendment No. 52 filed with the SEC on
April 27, 1998 (File No. 2-32783/811-3240).
6(c). -- Copy of Amended and Restated Bylaws of The Variable
Annuity Life Insurance Company as amended through March
4, 1992 incorporated herein by reference to
Post-Effective Amendment No. 52 filed with the SEC on
April 27, 1998 (File No. 2-32783/811-3240).
7. -- Not Applicable.
8. -- Not Applicable.
9. -- Not Applicable.
10. -- Consent of Independent Auditors.
11. -- Not Applicable.
12. -- Not Applicable.
</TABLE>
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<PAGE> 120
<TABLE>
<C> <S> <C>
13. -- Calculation of standard and nonstandard performance
information, incorporated herein by reference to
Post-Effective Amendment No. 51 filed with the SEC on
April 18, 1997 (File No. 2-32783/811-3240).
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 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(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> 121
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> 122
<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. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
No person is controlled by the Registrant. The Registrant is a segregated
asset account of the Depositor established in accordance with the Texas
Insurance Code. The Registrant supports benefits payable under variable annuity
contracts by investing in American General Series Portfolio Company (the "Series
Company"). The Registrant votes the Series Company shares only as directed by
the Contract Owners. (See "Voting Rights" in the Prospectus for these
Contracts).
The Depositor is indirectly wholly-owned by American General Corporation
(formerly American General Insurance Company). Therefore, the Depositor and
various companies affiliated with the Depositor may be under common control with
the Registrant. These companies, together with their state of incorporation and
the identity of the owners of their common stock, are set forth in 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,
VALIC Separate Account A, the Registrant, offered the following Contracts in
connection with this Registration Statement: 21 Non-Qualified Contracts; and
204,376 Qualified Contracts.
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<PAGE> 123
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 attorneys' fees) actually
incurred by him in connection with such action, suit or proceeding, if
Indemnitee acted in good faith and in a manner he reasonably believed, (i) in
the case of conduct in his official capacity as a director of the Depositor, to
be in the best interests of the Depositor and (ii) in all other cases, to be not
opposed to the best interests of the Depositor; and, with respect to any
criminal action or proceeding, if Indemnitee had no reasonable cause to believe
his conduct was unlawful; provided, however that in the case of any threatened,
pending or completed action, suit or proceeding by or in the right of the
Depositor, the indemnity shall be limited to reasonable expenses (including
court costs and attorneys' fees) actually incurred in connection with such
action, suit or proceeding; and no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the Depositor or liable on the basis that personal benefit was
improperly received by him, whether or not the benefit resulted from an action
taken in the person's official capacity as a director or officer. The
termination of any action, suit or proceeding by judgment, order, settlement, or
conviction, or on a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the Indemnitee did not act in good faith and
in a manner which Indemnitee reasonably believed to be in the best interests of
the Depositor; and, with respect to any criminal action or proceeding, shall not
create a presumption that the person had reasonable cause to believe that his
conduct was unlawful.
Where an Indemnitee of the Depositor or other person entitled to indemnity
hereunder has been wholly successful, on the merits or otherwise, in defense of
any such action, suit or proceeding, Indemnitee shall be indemnified against
reasonable expenses (including court costs and attorneys' fees) actually
incurred by him in connection therewith.
Any indemnification (unless otherwise ordered by a court of competent
jurisdiction) shall be made by the Depositor only as authorized in a specific
case upon a determination that the applicable standard of conduct has been met.
Such determination shall be made (i) by the Board of Directors by a majority
vote of a quorum consisting of directors who at the time of the vote have not
been named as defendants or respondents in such action, suit or proceeding, or
(ii) if such a quorum cannot be obtained, by a majority vote of a committee of
the Board of Directors, designated to act in the matter by a majority vote of
all directors, consisting solely of two or more directors who at the time of the
vote are not named defendants or respondents in such action, suit or proceeding,
or (iii) by special legal counsel selected by the Board of Directors (or a
committee thereof) by vote in the manner set forth in subparagraphs (i) and (ii)
immediately above or if such a quorum cannot be obtained and such a committee
cannot be established, by a majority vote of all directors, or (iv) by the
shareholders in a vote that excludes the shares held by any Indemnitee who is
named as a defendant or respondent in such action, suit or proceeding.
Reasonable expenses incurred by an Indemnitee of the Depositor or other
person entitled to indemnity hereunder, who was, is or is threatened to be made
a named defendant or respondent in any such action, suit or proceeding described
above may be paid by the Depositor in advance of the final disposition thereof
upon (i) receipt of a written affirmation by the Indemnitee of his good faith
belief that he has met the standard of conduct necessary for indemnification
under this article and a written undertaking by or on behalf of the
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<PAGE> 124
Indemnitee to repay such amount unless it shall ultimately be determined that he
is entitled to be indemnified by the Depositor as authorized under this article
and (ii) a determination that the facts then known to those making the
determination would not preclude indemnification under this article.
Notwithstanding any other provision of this article, the Depositor may pay
or reimburse expenses incurred by any Indemnitee of the Depositor or any other
person entitled to indemnity hereunder in connection with his appearance as a
witness or other participation in any action, suit or a proceeding described
above at a time when he is not named defendant or respondent in such action,
suit or proceeding.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant, as provided above or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification by the Depositor is against public policy, as expressed in the
Act, and therefore may be unenforceable. In the event that a claim of such
indemnification (except insofar as it provides for the payment by the Depositor
of expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted against the
Depositor by such director, officer or controlling person and the Securities and
Exchange Commission is still of the same opinion, the Depositor or Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by the Depositor is against public
policy as expressed by the Act and will be governed by the final adjudication of
such issue.
ITEM 29. 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> 125
<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
</TABLE>
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<PAGE> 126
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS WITH VAMCO
------------------ --------------------
<S> <C>
John MacTavish............................ Vice President
2450 Venture Oaks Way
Suite 120
Sacramento, CA 95833
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
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<PAGE> 127
(c) VAMCO is the principal underwriter for Registrant. The licensed agents
who sell the Contracts are compensated for such sales by commissions paid by
Depositor. These commissions do not result in any charge to the Registrant or to
Contract Owners, Participants, Annuitants or Beneficiaries in addition to the
charges described in the prospectus for the Contracts.
ITEM 30. BOOKS AND RECORDS OF VALIC
The books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules promulgated thereunder will be
in the physical possession of:
The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
ITEM 31. MANAGEMENT SERVICES
There have been no management-related services provided to the Separate
Account for the last three fiscal years.
ITEM 32. UNDERTAKINGS
a. VALIC hereby commits itself, on behalf of the Contract Owners, to the
following undertakings:
1. To file a post-effective amendment to this registration statement as
frequently as necessary to ensure that the audited financial statements
in the registration statement are never more than 16 months old for so
long as payments under the variable annuity contracts may be accepted;
2. To include either (1) as part of any application to purchase a contract
offered by the prospectus, a space that an applicant can check to
request a Statement of Additional Information, or (2) a post card or
similar written communication affixed to or included in the prospectus
that the applicant can remove to send for a Statement of Additional
Information;
3. To deliver any Statement of Additional Information and any financial
statements required to be made available under this form promptly upon
written or oral request.
b. The Company hereby represents that the fees and charges deducted under the
Contracts, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred and the risks assumed by the
Company.
ITEM 33. WITHDRAWAL RESTRICTIONS FOR 403(B) PLANS
The Tax Reform Act of 1986 added to the Internal Revenue Code a new Section
403(b)(11) which applies to tax years beginning after December 31, 1988. This
paragraph provides that withdrawal restrictions apply to contributions made and
interest earned subsequent to December 31, 1988. Such restrictions require that
distributions not begin before age 59 1/2, separation from service, death,
disability, or hardship (only employee contributions without accrued interest
may be withdrawn in case of hardship). These withdrawal restrictions appear in
the section "Federal Tax Matters" in either the Prospectus or the Statement of
Additional Information for Contracts of this Registration Statement.
The Company relies on a no-action letter issued by the Securities and
Exchange Commission on November 28, 1988 stating that no enforcement action
would be taken under sections 22(e), 27(c)(1), or 27(d) of the Investment
Company Act of 1940 (the "Act") if, in effect, the Company permits restrictions
on cash distributions from elective contributions to the extent necessary to
comply with Section 403(b)(11) of the Internal Revenue Code in accordance with
the following conditions:
(1) Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403(b)(11) in each registration statement,
including the prospectus, used in connection with the offer of the
Contract;
C-10
<PAGE> 128
(2) Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403(b)(11) in any sales literature used in
connection with the offer of the Contract;
(3) Instruct sales representatives who solicit participants to
purchase the Contract specifically to being the redemption restrictions
imposed by Section 403(b)(11) to the attention of the potential
participants;
(4) Obtain from each plan participant who purchases a Section 403(b)
annuity Contract, prior to or at the time of such purchase, a signed
statement acknowledging the participant's understanding of (1) the
restrictions on redemption imposed by Section 403(b)(11), and (2) the
investment alternatives available under the employer's Section 403(b)
arrangement, to which the participant may elect to transfer his contract
value.
The Company has complied, and is complying, with the provisions of
paragraphs (1)-(4) above.
The Company relies on Rule 6c-7 of the Act which states that a registered
separate account, and any depositor of or underwriter for such account, shall be
exempt from the provisions of sections 22(e), 27(c)(1) and 27(d) of the Act with
respect to this Contract participating in this account to the extent necessary
to permit compliance with the Texas Optional Retirement Program (Program) in
accordance with the following conditions:
(a) include appropriate disclosure regarding the restrictions on
redemption imposed by the Program in each registration statement, including
the prospectus, used in connection with the Program;
(b) include appropriate disclosure regarding the restrictions on
redemption imposed by the Program in any sales literature used in
connection with the offer of this Contract to Program participants;
(c) instruct salespeople who solicit Program participants to purchase
this Contract specifically to bring the restrictions on redemption imposed
by the Program to the attention of potential Program participants;
(d) obtain from each Program participant who purchases this Contract
in connection with the Program, prior to or at the time of such purchase, a
signed statement acknowledging the restrictions on redemption imposed by
the Program.
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-11
<PAGE> 129
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 27th
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> 130
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 27th 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> 131
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 27, 1999
- ----------------------------------------------------- Officer
Thomas L. West, Jr.
* President and Director April 27, 1999
- -----------------------------------------------------
John A. Graf
/s/ BRENT C. NELSON Senior Vice President, Controller April 27, 1999
- ----------------------------------------------------- and Principal Accounting Officer
Brent C. Nelson
* Senior Chairman of the Board of April 27, 1999
- ----------------------------------------------------- Directors
Jon P. Newton
</TABLE>
<PAGE> 132
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* April 27, 1999
- ----------------------------------------------------- Director, Executive Vice President
Kent E. Barrett and Chief Financial Officer
* Executive Vice President -- April 27, 1999
- ----------------------------------------------------- Marketing and Director
Bruce R. Abrams
* Executive Vice President - Sales and April 27, 1999
- ----------------------------------------------------- Director
John E. Arant
* Executive Vice President -- April 27, 1999
- ----------------------------------------------------- Operations and Director
Carl J. Santillo
* Director April 27, 1999
- -----------------------------------------------------
Robert M. Devlin
*By: /s/ CYNTHIA A. TOLES April 27, 1999
-----------------------------------------------
Cynthia A. Toles
Attorney-in-Fact
**By: /s/ THOMAS L. WEST, JR. April 27, 1999
------------------------------------------------
Thomas L. West, Jr.
Attorney-in-Fact
</TABLE>
<PAGE> 133
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. PAGE
- ------------ ------------
<C> <S> <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> 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. 53 to the
Registration Statement (Form N-4 No. 2-32783/811-3240) 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
