<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1999
REGISTRATION NOS. 033-86464/811-8862
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 7 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 11 [X]
</TABLE>
---------------------
AGA SEPARATE ACCOUNT A
(EXACT NAME OF REGISTRANT)
AMERICAN GENERAL ANNUITY 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.
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of
Rule 485
X on May 1, 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: Individual
Variable Annuity Contracts
SEQUENTIAL NUMBER SYSTEM: PAGE OF PAGES
EXHIBIT INDEX ON SEQUENTIAL PAGE NUMBER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
ELITEPLUS BONUS
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........... Transfers Between Investment Options Purchase
Contracts Period, Payout Period, Surrender of
Account Value, Other Contract Features
8. Annuity Period.................................... Payout Period
9. Death Benefit..................................... Death Benefit
10. Purchase and Contract Value....................... Fees and Charges, Purchase Period
11. Redemptions....................................... Surrender of Account Value
12. Taxes............................................. Federal Tax Matters
13. Legal Proceedings................................. Not Applicable
14. Table of Contents of the Statement of Additional
Information....................................... Contents of Statement 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;
20. Underwriters...................................... Distribution of Variable Annuity Contracts
21. Calculation of Performance Data................... Performance Calculations
22. Annuity Payments.................................. Payout Payments
23. Financial Statements.............................. Financial Statements
</TABLE>
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.
<PAGE> 3
[Trophy Graphic]
PROSPECTUS
May 1, 1999
AMERICAN GENERAL ANNUITY
INSURANCE COMPANY
A.G. SEPARATE ACCOUNT A
BONUS
ELITE +
VARIABLE ANNUITY
<PAGE> 4
(This page intentionally left blank)
<PAGE> 5
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
UNITS OF INTEREST UNDER FLEXIBLE PREMIUM INDIVIDUAL FIXED AND
VARIABLE DEFERRED ANNUITY CONTRACTS
ELITEPLUS BONUS
A.G. SEPARATE ACCOUNT A
[FORMERLY KNOWN AS AGA SEPARATE ACCOUNT A]
May 1, 1999
PROSPECTUS
American General Annuity Insurance Company offers the Eliteplus Bonus Contract
that consists of flexible premium fixed and variable deferred annuity contracts
(the "Contracts") to provide for the accumulation of Contract Value on a fixed
or variable basis and payment of annuity payments on a fixed and variable basis.
The Contracts are designed for use by individuals in retirement plans on a
Qualified or Non-Qualified basis.
The Contract permits you to invest in and receive retirement benefits in up to 2
Fixed Account Options and/or an array of up to 15 Variable Account Options
described in this prospectus.
- --------------------------------------------------------------------------------
The Company 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. The Company's membership in IMSA applies to the
Company only and not to its products or affiliates.
This prospectus provides you with information you should know before investing
in the Contract. This prospectus is accompanied by the current prospectuses for
the mutual fund options described in this prospectus. Please read and retain
each of these prospectuses for future reference.
A Statement of Additional Information, dated May 1, 1999, 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). This
Statement of Additional Information contains additional information about the
Contract and is part of this prospectus. For a free copy, complete and return
the form contained in the back of this prospectus or call 1-800-424-4990.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY
ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. 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............................................ 7
Fixed and Variable Options..................... 7
Death Benefit Options.......................... 8
Transfers...................................... 8
Fees and Charges............................... 8
Payout Options................................. 8
Federal Tax Information........................ 8
Purchase Requirements.......................... 9
SELECTED PURCHASE UNIT DATA........................ 10
GENERAL INFORMATION................................ 12
About the Contract............................. 12
About the Company.............................. 12
About A.G. Separate Account A.................. 12
Units of Interest.............................. 13
Distribution of the Contracts.................. 13
VARIABLE ACCOUNT OPTIONS........................... 14
Summary of Funds............................... 14
PURCHASE PERIOD.................................... 23
Purchase Payments.............................. 23
Right to Return................................ 23
1% Bonus Credit................................ 23
Purchase Units................................. 24
Calculation of Purchase Unit Value............. 24
Choosing Investment Options.................... 24
Fixed Account Options..................... 24
Variable Account Options.................. 24
Stopping Purchase Payments..................... 25
TRANSFERS BETWEEN INVESTMENT OPTIONS............... 26
During the Purchase Period..................... 26
During the Payout Period....................... 26
Communicating Transfer or Reallocation
Instructions................................. 26
Sweep Account Program.......................... 27
Effective Date of Transfer..................... 27
Reservation of Rights.......................... 27
Dollar Cost Averaging Program.................. 27
Portfolio Rebalancing Program.................. 28
FEES AND CHARGES................................... 29
Account Maintenance Fee........................ 29
Surrender Charge............................... 29
Amount of Surrender Charge................ 29
10% Free Withdrawal....................... 29
Exceptions to Surrender Charge............ 29
Premium Tax Charge............................. 29
Separate Account Charges....................... 29
Optional Death Benefit Charges................. 30
Fund Annual Expense Charges.................... 30
Other Tax Charges.............................. 30
PAYOUT PERIOD...................................... 31
Fixed Payout................................... 31
Variable Payout................................ 31
Combination Fixed and Variable Payout.......... 31
Payout Date.................................... 31
Payout Options................................. 31
Payout Information............................. 32
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SURRENDER OF ACCOUNT VALUE......................... 33
When Surrenders are Allowed.................... 33
Amount That May Be Surrendered................. 33
Surrender Restrictions......................... 33
Partial Surrender.............................. 33
Systematic Withdrawal Program.................. 33
Distributions Required By Federal Tax Law...... 34
EXCHANGE PRIVILEGE................................. 35
Restrictions on Exchange Privilege............. 35
Charges and Taxes.............................. 35
DEATH BENEFITS..................................... 36
Beneficiary Information........................ 36
Special Information for Non-Tax Qualified
Contracts.................................... 36
Joint Owner Spousal Election Information....... 36
During the Purchase Period..................... 36
Standard Death Benefit....................... 36
Optional Enhanced Death Benefit.............. 37
Optional Annual Step-Up Death Benefit........ 37
During the Payout Period....................... 37
HOW TO REVIEW INVESTMENT PERFORMANCE OF SEPARATE
ACCOUNT DIVISIONS................................ 38
Types of Investment Performance Information
Advertised................................... 38
Total Return Performance Information........... 38
Standard Average Annual Total Return........... 38
Nonstandard Average Annual Total Return........ 38
Cumulative Total Return........................ 38
Annual Change in Purchase Unit Value........... 38
Cumulative Change in Purchase Unit Value....... 38
Total Return Based on Different Investment
Amounts...................................... 39
An Assumed Account Value of $10,000............ 39
Yield Performance Information.................. 39
Divisions Other Than Money Market Fund
Divisions.................................... 39
PERFORMANCE INFORMATION............................ 39
Average Annual Total Return, Cumulative Return
and Annual and Cumulative Change in Purchase
Unit Value Tables............................ 39
OTHER CONTRACT FEATURES............................ 44
Change of Beneficiary.......................... 44
Cancellation -- The 10 Day "Free Look"......... 44
We Reserve Certain Rights...................... 44
VOTING RIGHTS...................................... 45
Who May Give Voting Instructions............... 45
Determination of Fund Shares Attributable to
Your Account................................. 45
During Purchase Period.................... 45
During Payout Period or after a Death
Benefit Has Been Paid................... 45
How Fund Shares Are Voted...................... 45
FEDERAL TAX MATTERS................................ 46
Type of Plans.................................. 46
Tax Consequences in General.................... 46
Effect of Tax-Deferred Accumulations........... 47
The Power of Tax-Deferred Growth............... 47
YEAR 2000.......................................... 49
Year 2000 Risks................................ 49
</TABLE>
<PAGE> 7
ABOUT THE PROSPECTUS
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, Company and
AGAIC mean American General Annuity Insurance Company. The words you and your,
unless otherwise specified in this prospectus, mean the contract owner,
annuitant or beneficiary.
We will use a number of other specific terms in this prospectus. We will, when
that term is used in the prospectus, provide you with a definition of that term.
The terms used in this prospectus for which we will provide you a definition
are:
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- ------------- --------
<S> <C>
Account Value.............. 26
A.G. Separate Account A.... 45
Annuitant.................. 36
Assumed Investment Rate.... 31
Beneficiary................ 36
Bonus...................... 23
Contract Anniversary....... 8, 26, 29, 36
Contract Owner............. 45
Contract Year.............. 29
Divisions.................. 38
Fixed Account Options...... 36
Annuity Service Center..... 26
Mutual Fund or Fund........ 12
Payout Period.............. 26
Payout Unit................ 31
Purchase Payments.......... 23, 38
Purchase Period............ 26
Purchase Unit.............. 24
Variable Account Options... 14, 36
</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 the Company, the Contract, and
saving for your retirement.
The purpose of Variable Account Options and Variable Payout Options is to
provide you investment returns which are greater than the effects of inflation.
We cannot, however, guarantee that this purpose will be achieved.
This prospectus describes a contract in which units of interest in the A.G.
Separate Account A are offered. The Contract will allow you to accumulate
retirement dollars in Fixed Account Options and/or Variable Account Options.
This prospectus describes only the variable aspects of the Contract except where
the Fixed Account Options are specifically mentioned.
For specific information about the Variable Account Options, you should refer to
the mutual fund prospectuses you have been given with this document. You should
keep these prospectuses to help answer any questions you may have in the future.
Following this introduction is a summary of the major features and options of
the Contract. It is intended to provide you with a brief overview of those
sections discussed in more detail in this prospectus.
1
<PAGE> 8
FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER EXPENSES(1)(2)
<TABLE>
<S> <C>
Maximum Surrender Charge
(as a percentage of the Purchase Payment withdrawn and
based on the length of time from when each Purchase
Payment was received):.................................... 5.00%
</TABLE>
<TABLE>
<S> <C>
ACCOUNT MAINTENANCE FEE(3).................................. $ 30
</TABLE>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of Average Account Value):
<TABLE>
<S> <C>
Mortality and Expense Risk Fee.............................. 1.25%
Administration Fee.......................................... .15%
----
Total Separate Account Fee................................ 1.40%
</TABLE>
OPTIONAL SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of Average Account Value):
<TABLE>
<S> <C>
Enhanced Death Benefit Charge(4).......................... .05%
Annual Step-Up Death Benefit Charge(4).................... .10%
</TABLE>
- ---------------
(1) Premium taxes are not shown here, but may be charged by some states. See:
"Premium Tax Charge" in this prospectus.
(2) Currently, no transfer fee is imposed on transfers. The Company reserves the
right to impose such a fee in the future which will not exceed the lesser of
$25 or 2% of the amount transferred. See the "Transfers Between Investment
Options" section of this prospectus.
(3) During the Purchase Period, if the Account Value on a Contract Anniversary
is at least $40,000, then no Account Maintenance Fee will be deducted for
that Contract Year. See the "Fees and Charges" section in this Prospectus.
(4) The Contract offers you the choice of three death benefit options. There
will be a charge for choosing the Optional Enhanced Death Benefit or the
Optional Annual Step-Up Death Benefit. There is no charge for the Standard
Death Benefit. See the "Death Benefit" section and the "Fees and Charges"
section in this prospectus.
2
<PAGE> 9
- --------------------------------------------------------------------------------
FUND ANNUAL EXPENSES
(as a percentage of net assets):
<TABLE>
<CAPTION>
TOTAL
ANNUAL
OTHER PORTFOLIO
MANAGEMENT EXPENSES(2) EXPENSES
FEES (AFTER 12b-1 (AFTER (AFTER
FUND FEE WAIVER) FEES EXPENSE WAIVER) EXPENSE WAIVER)
---- ----------- ----- --------------- ---------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund(5)(6) 0.62% -- 0.05% 0.67%
AIM V.I. Diversified Income Fund(5)(6) 0.60 -- 0.17 0.77
American General U.S. Government Securities
Portfolio(3)(7) 0.41 -- 0.12 0.53
Credit Suisse Growth and Income Portfolio(3) 0.69 -- 0.12 0.81
Credit Suisse International Equity Portfolio(3) 0.82 -- 0.12 0.94
EliteValue Portfolio(3) 0.59 -- 0.12 0.71
Oppenheimer Capital Appreciation Fund/VA(6)(7) 0.72 -- 0.03 0.75
Oppenheimer Main Street Growth & Income Fund/VA(6)(7) 0.74 -- 0.05 0.79
Oppenheimer High Income Fund/VA(6)(7) 0.74 -- 0.04 0.78
Oppenheimer Small Cap Growth Fund/VA(4)(6)(7) 0.75 -- 0.12 0.87
State Street Global Advisors Growth Equity Portfolio(3) 0.54 -- 0.12 0.66
State Street Global Advisors Money Market Portfolio(3) 0.37 -- 0.12 0.49
Templeton Developing Markets Fund -- Class 2(6)(7) 1.25 0.25% 0.41 1.91
Templeton International Fund -- Class 2(6)(7) 0.69 0.25 0.17 1.11
Van Kampen Emerging Growth Portfolio(3) 0.68 -- 0.12 0.80
</TABLE>
- ------------
(1) Premium taxes are not shown here, but may be charged by some states. See:
"Premium Tax Charge" in this prospectus.
(2) OTHER EXPENSES includes custody, accounting, reports to shareholders,
audit, legal, administrative and other miscellaneous expenses. See each
Fund's prospectus for a detailed explanation of these fees.
(3) In the absence of management fee waiver, other expense waiver and total
annual portfolio operating expense waiver, management fees, other expenses
and total annual portfolio operating expenses, respectively, would be:
American General U.S. Government Securities Portfolio, .475%, 1.96% and
2.46%: Credit Suisse Growth and Income Portfolio, .75%, 1.26% and 2.01%;
Credit Suisse International Equity Portfolio, .90%, 2.88% and 3.78%;
EliteValue Portfolio, .65%, .76% and 1.41%; State Street Global Advisors
Growth Equity Portfolio, .61%, 1.35% and 1.96%; State Street Global
Advisors Money Market Portfolio, .45%, 1.99% and 2.44%; and Van Kampen
Emerging Growth Portfolio, .75%, 1.89% and 2.64%.
(4) New Fund; Expense ratio estimated.
(5) A I M Advisors, Inc. ("AIM") may from time to time voluntarily waive or
reduce its respective fees. Effective May 1, 1998, the Funds reimburse AIM
in an amount up to 0.25% of the average net asset value of each Fund, for
expenses incurred in providing, or assuring that participating insurance
companies provide, certain administrative services. Currently, the fee only
applies to the average net asset value of each Fund in excess of the net
asset value of each Fund as calculated on April 30, 1998.
(6) The Company has entered into certain arrangements under which it is
compensated by the Fund's advisers or administrators for administrative
services the Company provides to the Funds.
(7) The American General U.S. Government Securities Portfolio was formerly
known as the Salomon Brothers U.S. Government Securities Portfolio. The
Oppenheimer Capital Appreciation Fund/VA was formerly known as the
Oppenheimer Growth Fund. The Oppenheimer Main Street Growth & Income
Fund/VA was formerly known as the Oppenheimer Growth & Income Fund. The
Oppenheimer High Income Fund/VA was formerly known as the Oppenheimer High
Income Fund. The Oppenheimer Small Cap Growth Fund/VA was formerly known as
the Oppenheimer Small Cap Growth Fund.
3
<PAGE> 10
EXAMPLE #1 -- If you do not surrender the Contract and you do not have an
optional death benefit at the end of the period shown or you
receive Payout Payments under a Payout Option(1)(2):
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under the Contract without a surrender charge or optional death benefit charge
imposed, invested in a single Separate Account Division as listed below,
assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund Division 8 $23 $ 70 $120 $257
AIM V.I. Diversified Income Fund Division 9 $24 $ 73 $125 $267
American General U.S. Government Securities Portfolio
Division 4 $21 $ 66 $113 $243
Credit Suisse Growth and Income Portfolio Division 1 $24 $ 75 $127 $272
Credit Suisse International Equity Portfolio Division 2 $26 $ 79 $134 $285
EliteValue Portfolio Division 3 $17 $ 54 $ 92 $199
The Oppenheimer Capital Appreciation Fund/VA Division 10 $24 $ 73 $124 $265
The Oppenheimer Main Street Growth & Income Fund/VA Division
11 $24 $ 74 $126 $270
The Oppenheimer High Income Fund/VA Division 12 $24 $ 74 $126 $268
The Oppenheimer Small Cap Growth Fund/VA Division 13 $25 $ 76 $131 $278
State Street Global Advisors Growth Equity Portfolio
Division 5 $23 $ 70 $120 $256
State Street Global Advisors Money Market Portfolio Division
6 $21 $ 65 $111 $239
Templeton Developing Markets Fund Division 14 $35 $107 $181 $376
Templeton International Fund Division 15 $27 $ 84 $142 $301
Van Kampen Emerging Growth Portfolio Division 7 $24 $ 74 $127 $271
</TABLE>
EXAMPLE #2 -- If you surrender the Contract and you do not have an optional
death benefit at the end of the period shown(2):
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under the Contract without an optional death benefit charge imposed, invested in
a single Separate Account Division as listed below, assuming a 5% annual return
on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund Division 8 $73 $119 $150 $257
AIM V.I. Diversified Income Fund Division 9 $74 $122 $155 $267
American General U.S. Government Securities Portfolio
Division 4 $71 $115 $143 $243
Credit Suisse Growth and Income Portfolio Division 1 $74 $123 $157 $272
Credit Suisse International Equity Portfolio Division 2 $76 $127 $164 $285
EliteValue Portfolio Division 3 $67 $103 $122 $199
The Oppenheimer Capital Appreciation Fund/VA Division 10 $74 $122 $154 $265
The Oppenheimer Main Street Growth & Income Fund/VA Division
11 $74 $123 $156 $270
The Oppenheimer High Income Fund/VA Division 12 $74 $123 $156 $268
The Oppenheimer Small Cap Growth Fund/VA Division 13 $75 $125 $161 $278
State Street Global Advisors Growth Equity Portfolio
Division 5 $73 $119 $150 $256
State Street Global Advisors Money Market Portfolio Division
6 $71 $114 $141 $239
Templeton Developing Markets Fund Division 14 $85 $155 $211 $376
Templeton International Fund Division 15 $77 $132 $172 $301
Van Kampen Emerging Growth Portfolio Division 7 $74 $123 $157 $271
</TABLE>
- ---------------
(1) Payout Payments under a Payout Option may not commence prior to the end of
the fourth Contract Year.
(2) The Contract offers you the choice of three death benefit options. There
will be a charge for choosing the Optional Enhanced Death Benefit or the
Optional Annual Step-Up Death Benefit. There is no charge for the Standard
Death Benefit. See the "Death Benefit" section and the "Fees and Charges"
section in this prospectus.
4
<PAGE> 11
EXAMPLE #3 -- If you do not surrender the Contract and you have chosen the
Optional Enhanced Death Benefit at the end of the period shown or
you receive Payout Payments under a Payout Option(1)(2):
- --------------------------------------------------------------------------------
Total Expenses. If you choose the Optional Enhanced Death Benefit, you would pay
the following expenses on a $1,000 investment under the Contract without a
surrender charge imposed, invested in a single Separate Account Division as
listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund Division 8 $23 $ 72 $123 $262
AIM V.I. Diversified Income Fund Division 9 24 75 128 273
American General U.S. Government Securities Portfolio
Division 4 22 68 116 248
Credit Suisse Growth and Income Portfolio Division 1 25 76 130 277
Credit Suisse International Equity Portfolio Division 2 26 80 137 290
EliteValue Portfolio Division 3 18 55 95 204
The Oppenheimer Capital Appreciation Fund/VA Division 10 24 74 127 271
The Oppenheimer Main Street Growth & Income Fund/VA Division
11 25 76 129 275
The Oppenheimer High Income Fund/VA Division 12 24 75 128 274
The Oppenheimer Small Cap Growth Fund/VA Division 13 25 78 133 283
State Street Global Advisors Growth Equity Portfolio
Division 5 23 72 122 261
State Street Global Advisors Money Market Portfolio Division
6 22 66 114 244
Templeton Developing Markets Fund Division 14 36 109 184 381
Templeton International Fund Division 15 28 85 145 306
Van Kampen Emerging Growth Portfolio Division 7 25 76 130 276
</TABLE>
EXAMPLE #4 -- If you surrender the Contract and you have chosen the Optional
Enhanced Death Benefit at the end of the period shown(2):
- --------------------------------------------------------------------------------
Total Expenses. If you choose the Optional Enhanced Death Benefit, you would pay
the following expenses on a $1,000 investment under the Contract invested in a
single Separate Account Division as listed below, assuming a 5% annual return on
assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund Division 8 $73 $121 $153 $262
AIM V.I. Diversification Income Fund Division 9 74 124 158 273
American General U.S. Government Securities Portfolio
Division 4 72 117 146 248
Credit Suisse Growth and Income Portfolio Division 1 75 125 160 277
Credit Suisse International Equity Portfolio Division 2 76 129 167 290
EliteValue Portfolio Division 3 68 105 125 204
The Oppenheimer Capital Appreciation Fund/VA Division 10 74 123 157 271
The Oppenheimer Main Street Growth & Income Fund/VA Division
11 75 124 159 275
The Oppenheimer High Income Fund/VA Division 12 74 124 158 274
The Oppenheimer Small Cap Growth Fund/VA Division 13 75 127 163 283
State Street Global Advisors Growth Equity Portfolio
Division 5 73 121 152 261
State Street Global Advisors Money Market Portfolio Division
6 72 116 144 244
Templeton Developing Market Fund Division 14 86 156 213 381
Templeton International Fund Division 15 78 133 175 306
Van Kampen Emerging Growth Portfolio Division 7 75 125 160 276
</TABLE>
- ---------------
(1) Payout Payments under a Payout Option may not commence prior to the end of
the fourth Contract Year.
(2) The Contract offers you the choice of three death benefit options. There
will be a charge for choosing the Optional enhanced Death Benefit or the
Optional Annual Step-Up Death Benefit. There is no charge for the Standard
Death Benefit. See the "Death Benefit" section and the "Fees and Charges"
section in this prospectus.
5
<PAGE> 12
EXAMPLE #5 -- If you do not surrender the Contract and you have chosen the
Optional Step-Up Death Benefit at the end of the period shown or
you receive Payout Payments under a Payout Option(1)(2):
- --------------------------------------------------------------------------------
Total Expenses. If you choose the Optional Annual Step-Up Death Benefit, you
would pay the following expenses on a $1,000 investment under the Contract
without a surrender charge imposed, invested in a single Separate Account
Division as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund Division 8 $24 $73 $125 $267
AIM V.I. Diversified Income Fund Division 9 25 76 131 278
American General U.S. Government Securities Portfolio
Division 4 22 69 118 253
Credit Suisse Growth and Income Portfolio Division 1 25 78 133 282
Credit Suisse International Equity Portfolio Division 2 27 82 139 295
EliteValue Portfolio Division 3 18 57 97 210
The Oppenheimer Capital Appreciation Fund/VA Division 10 25 76 130 276
The Oppenheimer Main Street Growth & Income Fund/VA Division
11 25 77 132 280
The Oppenheimer High Income Fund/VA Division 12 25 77 131 279
The Oppenheimer Small Cap Growth Fund/VA Division 13 26 79 136 288
State Street Global Advisors Growth Equity Portfolio
Division 5 24 73 125 266
State Street Global Advisors Money Market Portfolio Division
6 22 68 116 249
Templeton Developing Market Fund Division 14 36 110 186 385
Templeton International Fund Division 15 28 87 147 311
Van Kampen Emerging Growth Portfolio Division 7 25 77 132 281
</TABLE>
EXAMPLE #6 -- If you surrender the Contract and you have chosen the Optional
Step-Up Death Benefit at the end of the period shown(2):
- --------------------------------------------------------------------------------
Total Expenses. If you choose the Optional Annual Step-Up Death Benefit, you
would pay the following expenses on a $1,000 investment under the Contract
invested in a single Separate Account Division as listed below, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund Division 8 $74 $122 $155 $267
AIM V.I. Diversification Income Fund Division 9 75 125 161 278
American General U.S. Government Securities Portfolio
Division 4 72 118 148 253
Credit Suisse Growth and Income Portfolio Division 1 75 126 163 282
Credit Suisse International Equity Portfolio Division 2 77 130 169 295
EliteValue Portfolio Division 3 68 106 127 210
The Oppenheimer Capital Appreciation Fund/VA Division 10 75 125 160 276
The Oppenheimer Main Street Growth & Income Fund/VA Division
11 75 126 162 280
The Oppenheimer High Income Fund/VA Division 12 75 125 161 279
The Oppenheimer Small Cap Growth Fund/VA Division 13 76 128 166 288
State Street Global Advisors Growth Equity Portfolio
Division 5 74 122 155 266
State Street Global Advisors Money Market Portfolio Division
6 72 117 146 249
Templeton Developing Market Fund Division 14 86 157 215 385
Templeton International Fund Division 15 78 135 177 311
Van Kampen Emerging Growth Portfolio Division 7 75 126 162 281
</TABLE>
- ---------------
(1) Payout Payments under a Payout Option may not commence prior to the end of
the fourth Contract Year.
(2) The Contract offers you the choice of three death benefit options. There
will be a charge for choosing the Optional enhanced Death Benefit or the
Optional Annual Step-Up Death Benefit. There is no charge for the Standard
Death Benefit. See the "Death Benefit" section and the "Fees and Charges"
section in this prospectus.
Note: These examples should not be considered representations of past or future
expenses for A.G. Separate Account A or for any Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners
understand the various expenses of A.G. Separate Account A and the Funds which
are, in effect, passed on to the Contract Owners.
This Fee Table shows all charges and expenses which may be deducted from the
assets of A.G. Separate Account A and from the Funds in which A.G. Separate
Account A invests. For a further description of these charges and expenses, see
"Fees and Charges" in this prospectus and the descriptions of fees and charges
in each of the Fund's prospectuses. Any and all limitations on total charges and
expenses are reflected in this Fee Table.
6
<PAGE> 13
SUMMARY
- --------------------------------------------------------------------------------
The Contract is a combination fixed and variable annuity that offers you a wide
choice of investment options and flexibility. A summary of the Contract's major
features is presented below. For a more detailed discussion of the Contract,
please read the entire prospectus carefully.
FIXED AND VARIABLE OPTIONS
The Contract offers a choice from among 15 Variable Account Options. The
Contract also offers two Fixed Account Options, one of which, the DCA One Year
Guarantee Period Option is available only for dollar cost averaging. See the
"Dollar Cost Averaging Program" section of this prospectus.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FIXED ACCOUNT
OPTIONS
- ---------------------------------------------------------------------------------------------------------------------------
FIXED One Year Guarantee Guaranteed current interest income --
OPTIONS Period
-----------------------------------------------------------------------------------------------------
DCA One Year Guarantee Guaranteed current interest income --
Period
-----------------------------------------------------------------------------------------------------
VARIABLE ACCOUNT INVESTMENT STRATEGY ADVISER
OPTIONS
- ---------------------------------------------------------------------------------------------------------------------------
EQUITY AIM V.I. Capital Capital appreciation through investments in AIM Advisors, Inc.
FUNDS Appreciation Fund** common stocks, with emphasis on medium-sized
and smaller emerging growth companies
-----------------------------------------------------------------------------------------------------
Credit Suisse Growth Long-term capital growth, current income, and A.G. Investment
and Income Portfolio* growth of income, consistent with reasonable Advisory Services,
investment risk through investment in Inc.
domestic equity and debt securities
-----------------------------------------------------------------------------------------------------
Credit Suisse Long-term capital appreciation through A.G. Investment
International Equity investment in equity and equity-related Advisory Services,
Portfolio* securities of companies from at least five Inc.
different countries, excluding the U.S.
-----------------------------------------------------------------------------------------------------
EliteValue Portfolio* Growth through investments in common stocks, A.G. Investment
bonds and cash equivalents Advisory
Services, Inc.
-----------------------------------------------------------------------------------------------------
Oppenheimer Capital Capital appreciation through investment in Oppenheimer Funds,
Appreciation securities of well-known established Inc.
Fund/VA*** companies
-----------------------------------------------------------------------------------------------------
Oppenheimer Main Total return from equity and debt securities Oppenheimer Funds,
Street Growth & Income Inc.
Fund/VA***
-----------------------------------------------------------------------------------------------------
Oppenheimer Small Cap Capital appreciation through investments in Oppenheimer Funds,
Growth Fund/VA*** growth- type companies with market Inc.
capitalizations of less than $1 billion
-----------------------------------------------------------------------------------------------------
State Street Global Total return that exceeds, over time, the A.G. Investment
Advisors Growth Equity Standard & Poor's 500 Composite Stock Price Advisory Services,
Portfolio* Index through investment in equity securities Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Templeton Developing Long-term capital appreciation. It seeks to Templeton Asset
Markets Fund -- achieve this objective by investing primarily Management, Ltd.
Class 2**** in emerging market equity securities
-----------------------------------------------------------------------------------------------------
Templeton Long-term capital growth. It invests Templeton Investment
International primarily in stocks of companies located Counsel, Inc.
Fund -- Class 2**** outside the United States, including emerging
markets
- ---------------------------------------------------------------------------------------------------------------------------
Van Kampen Emerging Capital appreciation by investing in equity A.G. Investment
Growth Portfolio* securities of small and medium sized Advisory Services,
companies in the early stages of their life Inc.
cycles
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FUNDS American General U.S. High current income through investments in A.G. Investment
Government Securities debt obligations and mortgage-backed Advisory Services,
Portfolio* securities issued or guaranteed by the U.S. Inc.
government, its agencies or
instrumentalities, and collateralized
mortgage obligations backed by such
securities
-----------------------------------------------------------------------------------------------------
AIM V.I. Diversified High current income through investment in AIM Advisors, Inc.
Income Fund** domestic and foreign debt securities,
including lower-rated or unrated high yield
debt securities
-----------------------------------------------------------------------------------------------------
Oppenheimer High Income from investments in high yield fixed Oppenheimer Funds,
Income Fund/VA*** income securities Inc.
- ---------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND State Street Global Income through investments in short-term A.G. Investment
Advisors Money Market money market securities Advisory Services,
Portfolio* Inc.
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
- --------------------------------------------------------------
FIXED --
OPTIONS
------------------------------------------------------------
--
---------------------------------------------------------------------------------------------------
SUB-ADVISER
- ---------------------------------------------------------------------------------------------------------------------------
EQUITY --
FUNDS
-----------------------------------------------------------------------------------------------------
Credit Suisse Asset
Management
-----------------------------------------------------------------------------------------------------
Credit Suisse Asset
Management Ltd.
-----------------------------------------------------------------------------------------------------
OpCap Advisors
-----------------------------------------------------------------------------------------------------
--
-----------------------------------------------------------------------------------------------------
--
-----------------------------------------------------------------------------------------------------
--
-----------------------------------------------------------------------------------------------------
State Street Global
Advisors
- ---------------------------------------------------------------------------------------------------------------------------
--
-----------------------------------------------------------------------------------------------------
--
- ---------------------------------------------------------------------------------------------------------------------------
Van Kampen Asset
Management Inc.
- ---------------------------------------------------------------------------------------------------------------------------
INCOME FUNDS --
-----------------------------------------------------------------------------------------------------
--
-----------------------------------------------------------------------------------------------------
--
- ---------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND State Street Global
Advisors
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* A series of A.G. Series Trust formerly AGA Series Trust.
** A series of AIM Variable Insurance Funds, Inc.
*** A series of Oppenheimer Variable Account Funds.
**** A series of Templeton Variable Products Series Fund.
7
<PAGE> 14
SUMMARY -- (CONTINUED)
- --------------------------------------------------------------------------------
A detailed description of the investment objective of each Fund can be found in
the section of this prospectus entitled "Variable Account Options," and also in
the current prospectus for each Fund mentioned.
DEATH BENEFIT OPTIONS
At the time that your Contract is issued you may choose the Optional Enhanced
Death Benefit or the Optional Annual Step-Up Death Benefit, in place of the
Standard Death Benefit offered in the Contract. The death benefit option you
choose may not be changed. There will be a charge for choosing the Optional
Enhanced Death Benefit or the Optional Annual Step-Up Death Benefit. There is no
charge for the Standard Death Benefit. See the "Death Benefit" section and the
"Fees and Charges" section in this prospectus.
TRANSFERS
You may transfer money in your account among the Contract's investment options
during the Purchase Period free of charge. We reserve the right, however, to
impose a fee of $25 or 2% of the amount transferred for each transfer which will
be deducted from the amount transferred. During the Purchase Period you may
transfer your Account Values among the Variable Account Options once each day
and from the Variable Account Options to the non-DCA Fixed Account Option once
every six months. You will not be allowed to transfer your Account Value out of
the DCA Fixed Account Option.
Once you begin receiving payments from your account (called the Payout Period),
you may still transfer funds among the Variable Account Options and from the
Variable Account Options to the non-DCA Fixed Account Option.
Transfers can be made by calling the Company's toll-free transfer service at
1-800-424-4990. For more information on account transfers, see the "Transfers
Between Investment Options" section in this prospectus.
FEES AND CHARGES
ACCOUNT MAINTENANCE FEE
On each Contract Anniversary, the Company deducts an Account Maintenance Fee of
$30 from your Account Value. The fee is deducted proportionately from each
investment option. During the Purchase Period, if the Account Value on a
Contract Anniversary is at least $40,000, the Company will waive the fee for the
following Contract Year.
SURRENDER CHARGE
Under some circumstances a surrender charge is made to your account. These
situations are discussed in detail in the section of this prospectus entitled
"Fees and Charges -- Surrender Charge." When this happens the surrender charge
is computed as a percent of the total Purchase Payments withdrawn based on the
length of time from when each Purchase Payment was received up to a maximum of
5.0% of Purchase Payments.
Withdrawals are always subject to federal tax restrictions, which generally
include a tax penalty on withdrawals made prior to age 59 1/2.
PREMIUM TAX CHARGE
Premium taxes ranging from zero to 3 1/2% are currently imposed by certain
states and municipalities on Purchase Payments made under the Contract.
SEPARATE ACCOUNT CHARGES
If you choose a Variable Account Option you will incur a mortality and expense
risk fee and an administration fee computed at an aggregate annualized rate of
1.25% and 0.15%, respectively, on the average daily net asset value of A.G.
Separate Account A.
OPTIONAL DEATH BENEFIT CHARGES
If you choose the Optional Enhanced Death Benefit or the Optional Annual Step-Up
Death Benefit you will incur a charge computed at an aggregate annualized rate
of 0.05% or 0.10%, respectively, on the average daily net asset value of A.G.
Separate Account A.
FUND ANNUAL EXPENSE CHARGE
A daily charge based on a percentage of each Fund's average daily net asset
value is payable by each Fund to its investment adviser. In addition to the
management fees, each Fund incurs other operating expenses which may vary.
PAYOUT OPTIONS
When you withdraw your money, you can select from several payout options: a
lifetime annuity (which guarantees payment for as long as you live), periodic
withdrawals and systematic withdrawals. More information on payout options can
be found in the "Payout Period" section of the prospectus.
FEDERAL TAX INFORMATION
Although deferred annuity contracts such as the Contract can be purchased with
after-tax dollars, they are also used in connection with retirement programs
which receive favorable tax treatment under federal law.
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.
CONTRACT ANNIVERSARY -- the date
that the contract is issued
and each yearly anniversary
of that date thereafter.
8
<PAGE> 15
SUMMARY -- (CONTINUED)
- --------------------------------------------------------------------------------
PURCHASE REQUIREMENTS
The minimum initial Purchase Payment for Non-Qualified Contracts is $5,000 and
for Qualified Contracts is $2,000. The minimum subsequent Purchase Payment is
$1,000 for Non-Qualified Contracts and $250 for Qualified Contracts. The minimum
amount per a preauthorized debit Purchase Payment under the Automatic Check
Option is $50. More information about the Automatic Check Option can be found in
the "Purchase Period" section of this prospectus.
At the time that your minimum initial Purchase Payment is made, the Company will
credit an additional 1% of the amount as a Bonus. Any subsequent Purchase
Payments of at least $5,000 for Non-Qualified and $2,000 for Qualified will also
be credited with an additional 1% of the amount as a Bonus (subject to state
regulatory approval). For more information on the 1% Bonus credit and on
Purchase Payments, see the "Purchase Period" section in this prospectus.
BONUS - an additional
amount paid by the Company,
equal to 1% of the initial
minimum Purchase Payment
and certain subsequent
Purchase Payments.
9
<PAGE> 16
SELECTED PURCHASE UNIT DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN
GENERAL CREDIT CREDIT
AIM V.I. U.S. SUISSE SUISSE
CAPITAL AIM V.I. GOVERNMENT GROWTH AND INTERNATIONAL
APPRECIATION DIVERSIFIED SECURITIES INCOME EQUITY
FUND INCOME FUND PORTFOLIO PORTFOLIO PORTFOLIO
DIVISION 8 DIVISION 9 DIVISION 4 DIVISION 1 DIVISION 2
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PURCHASE UNITS WITHOUT THE CHARGE FOR AN
OPTIONAL DEATH BENEFIT OPTION(1):
December 31, 1998
Purchase Units in Force 2,550 2,249 461,727 712,462 262,854
Purchase Unit Value $11.125468 $ 9.960883 $11.564124 $16.187812 $11.964095
December 24, 1998
Purchase Unit Value(2) -- -- -- -- --
December 23, 1998
Purchase Unit Value(2) -- -- -- -- --
December 17, 1998
Purchase Unit Value(2) $10.192664 -- -- -- --
December 9, 1998
Purchase Unit Value(2) -- $10.016664 -- -- --
December 31, 1997
Purchase Units in Force -- -- 126,833 262,116 126,400
Purchase Unit Value -- -- $10.910000 $14.380000 $12.240000
December 31, 1996
Purchase Units in Force -- -- 15,638 48,634 17,186
Purchase Unit Value -- -- $10.163000 $11.922000 $11.900000
February 6, 1996
Purchase Unit Value(2) -- -- $ 9.955530 -- --
January 2, 1996
Purchase Unit Value(2) -- -- -- -- --
December 31, 1995
Purchase Units in Force -- -- -- 462 431
Purchase Unit Value -- -- -- $10.624000 $10.361000
October 20, 1995
Purchase Unit Value(2) -- -- -- $ 9.996139 $ 9.996139
October 10, 1995
Purchase Unit Value(2) -- -- -- -- --
PURCHASE UNITS WITH THE CHARGE FOR ENHANCED
DEATH BENEFIT OPTION(1):
December 31, 1998
Purchase Units in Force -- 546 69,901 94,363 27,232
Purchase Unit Value -- $10.098556 $11.508303 $16.109724 $11.906346
December 28, 1998
Purchase Unit Value(2) -- $10.025991 -- -- --
December 17, 1998
Purchase Unit Value(2) -- -- -- -- --
December 31, 1997
Purchase Units in Force -- -- 32,205 44,598 19,510
Purchase Unit Value -- -- $10.870000 $14.330000 $12.200000
December 31, 1996
Purchase Units in Force -- -- 11,806 11,710 8,510
Purchase Unit Value -- -- $10.144000 $11.900000 $11.878000
February 6, 1996
Purchase Unit Value(2) -- -- $ 9.950672 -- --
January 2, 1996
Purchase Unit Value(2) -- -- -- -- --
December 31, 1995
Purchase Units in Force -- -- -- -- --
Purchase Unit Value -- -- -- -- --
October 20, 1995
Purchase Unit Value(2) -- -- -- $ 9.995729 $ 9.995729
October 10, 1995
Purchase Unit Value(2) -- -- -- -- --
PURCHASE UNITS WITH THE CHARGE FOR THE
ANNUAL STEP-UP DEATH BENEFIT OPTION(1):
December 31, 1998
Purchase Units in Force -- 236 11,095 25,644 2,472
Purchase Unit Value -- $ 9.998064 $10.354838 $10.595938 $ 9.239698
December 17, 1998
Purchase Unit Value(2) -- $ 9.999614 -- -- --
June 1, 1998
Purchase Unit Value(2) -- -- $10.000000 $10.000000 $10.000000
<CAPTION>
THE OPPENHEIMER THE OPPENHEIMER
CAPITAL MAIN STREET
ELITEVALUE APPRECIATION GROWTH & INCOME
PORTFOLIO FUND/VA FUND/VA
DIVISION 3 DIVISION 10 DIVISION 11
---------- ----------- -----------
<S> <C> <C> <C>
PURCHASE UNITS WITHOUT THE CHARGE FOR AN
OPTIONAL DEATH BENEFIT OPTION(1):
December 31, 1998
Purchase Units in Force 1,100,459 1,662 6,629
Purchase Unit Value $15.645505 $10.576647 $10.498635
December 24, 1998
Purchase Unit Value(2) -- -- --
December 23, 1998
Purchase Unit Value(2) -- -- --
December 17, 1998
Purchase Unit Value(2) -- -- --
December 9, 1998
Purchase Unit Value(2) -- $10.019822 $ 9.994483
December 31, 1997
Purchase Units in Force 461,930 -- --
Purchase Unit Value $14.870000 -- --
December 31, 1996
Purchase Units in Force 69,576 -- --
Purchase Unit Value $12.453000 -- --
February 6, 1996
Purchase Unit Value(2) -- -- --
January 2, 1996
Purchase Unit Value(2) $ 9.969146 -- --
December 31, 1995
Purchase Units in Force -- -- --
Purchase Unit Value -- -- --
October 20, 1995
Purchase Unit Value(2) -- -- --
October 10, 1995
Purchase Unit Value(2) -- -- --
PURCHASE UNITS WITH THE CHARGE FOR ENHANCED
DEATH BENEFIT OPTION(1):
December 31, 1998
Purchase Units in Force 99,776 -- 793
Purchase Unit Value $15.570036 -- $10.840562
December 28, 1998
Purchase Unit Value(2) -- -- --
December 17, 1998
Purchase Unit Value(2) -- -- $10.094912
December 31, 1997
Purchase Units in Force 72,105 -- --
Purchase Unit Value $14.820000 -- --
December 31, 1996
Purchase Units in Force 13,965 -- --
Purchase Unit Value $12.430000 -- --
February 6, 1996
Purchase Unit Value(2) -- -- --
January 2, 1996
Purchase Unit Value(2) $ 9.965706 -- --
December 31, 1995
Purchase Units in Force -- -- --
Purchase Unit Value -- -- --
October 20, 1995
Purchase Unit Value(2) -- -- --
October 10, 1995
Purchase Unit Value(2) -- -- --
PURCHASE UNITS WITH THE CHARGE FOR THE
ANNUAL STEP-UP DEATH BENEFIT OPTION(1):
December 31, 1998
Purchase Units in Force 23,359 219 --
Purchase Unit Value $ 9.604830 $10.785446 --
December 17, 1998
Purchase Unit Value(2) -- $10.176189 --
June 1, 1998
Purchase Unit Value(2) $10.000000 -- --
</TABLE>
- ------------
(1) Three sets of Selected Purchase Unit Values have been shown above. The first
set of Purchase Unit information does not include the Optional Enhanced
Death Benefit Charge or the Annual Step-Up Death Benefit Charge you would
incur if you choose the Optional Enhanced Death Benefit or the Optional
Annual Step-Up Death Benefit. The second set of Purchase Unit information
includes the Optional Enhance Death Benefit Charge you would incur if you
choose the Optional Enhanced Death Benefit. The third set of Purchase Unit
information includes the Annual Step-Up Death Benefit Charge you would incur
if you choose the Optional Annual Step-Up Death Benefit, which first became
available under the Contracts on June 1, 1998.
(2) Purchase Unit Value At Date Of Inception.
10
<PAGE> 17
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATE STREET STATE STREET TEMPLETON VAN KAMPEN
THE OPPENHEIMER THE OPPENHEIMER GLOBAL ADVISORS GLOBAL ADVISORS DEVELOPING TEMPLETON EMERGING
HIGH INCOME SMALL CAP GROWTH EQUITY MONEY MARKET MARKET INTERNATIONAL GROWTH
FUND/VA FUND/VA PORTFOLIO PORTFOLIO FUND FUND PORTFOLIO
DIVISION 12 DIVISION 13 DIVISION 5 DIVISION 6 DIVISION 14 DIVISION 15 DIVISION 7
----------- ----------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1,792....... 2,973 542,282 669,177 -- 360 501,050
10$.012380... $11.130512 $19.230786 $11.289602 $10.095498 $10.179276 $18.713769
- -- ......... -- -- -- $10.078509 -- --
- -- ......... -- -- -- -- $10.133013 --
9.$981432.... $10.104022 -- -- -- -- --
- -- ......... -- -- -- -- -- --
- -- ......... -- 231,208 444,954 -- -- 303,011
- -- ......... -- $16.040000 $10.880000 -- -- $13.900000
- -- ......... -- 68,155 109,838 -- -- 107,871
- -- ......... -- $12.354000 $10.460000 -- -- $11.702000
- -- ......... -- -- -- -- -- --
- -- ......... -- -- -- -- -- $ 9.969166
- -- ......... -- 124 2,464 -- -- --
- -- ......... -- $10.325000 $10.086000 -- -- --
- -- ......... -- $ 9.996139 -- -- -- --
- -- ......... -- -- $10.000000 -- -- --
22.......... 4 45,200 71,389 -- -- 58,826
10$.011761... $11.129835 $19.138038 $11.235111 -- -- $18.623470
- -- ......... -- -- -- -- -- --
9.$981391.... $10.103981 -- -- -- -- --
- -- ......... -- 19,282 13,477 -- -- 41,161
- -- ......... -- $15.990000 $10.840000 -- -- $13.850000
- -- ......... -- 5,233 3,404 -- -- 2,073
- -- ......... -- $12.331000 $10.441000 -- -- $11.681000
- -- ......... -- -- -- -- -- --
- -- ......... -- -- -- -- -- $ 9.965726
- -- ......... -- -- 25 -- -- --
- -- ......... -- -- $10.083000 -- -- --
- -- ......... -- $ 9.995729 -- -- -- --
- -- ......... -- -- $10.000000 -- -- --
- -- ......... -- 17,009 76,342 -- -- 12,268
- -- ......... -- $10.772225 $10.202042 -- -- $12.231475
- -- ......... -- -- -- -- -- --
- -- ......... -- $10.000000 $10.000000 -- -- $10.000000
</TABLE>
- ------------
Financial statements of A.G. Separate Account A are included in the Statement of
Additional Information, which is available upon request. Purchase units shown
are for a Purchase Unit outstanding throughout the year under a representative
contract of the type invested in each column shown. The unit value of each
Division of A.G. Separate Account A will not be the same on any given day as the
net asset value per share of the underlying Fund of the Series Company and the
other mutual fund portfolios described in this prospectus in which that Division
invests. This is because each unit value consists of the underlying share's net
asset value minus the charges to A.G. Separate Account A. In addition, dividends
declared by the underlying Fund are reinvested by the Division in additional
shares. These distributions have the effect of reducing the value of each share
of the Fund and increasing the number of Fund shares outstanding. However, the
total cash value in A.G. Separate Account A does not change as a result of such
distributions.
11
<PAGE> 18
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ABOUT THE CONTRACT
The Contract was developed to help you save money for your retirement. It offers
you a combination of fixed and variable options that you can invest in to help
you reach your retirement savings goals. Your contributions to the Contract can
come from different sources, like payroll deductions or money transfers. Your
retirement savings process with the Contract will involve two stages: the
Purchase Period; and the Payout Period. The first is when you make contributions
into the Contract 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 and your personal
risk tolerances, to invest in the Fixed Account Options and/or the Variable
Account Options described in this prospectus. When you decide to retire, or
otherwise withdraw your money, you can select from a wide array of payout
options including both fixed and variable payments. In addition, this prospectus
will describe for you all fees and charges that may apply to your participation
in the Contract.
ABOUT THE COMPANY
We are a life insurance company organized on July 5, 1944 and located in the
State of Texas. Our main business is issuing and offering fixed and variable
retirement annuity contracts, like the Contract. Our principal offices are
located at 2929 Allen Parkway, Houston, Texas 77019. Our Annuity Service Center
is located at 205 E. 10th Avenue, Amarillo, Texas 79101. The address to send any
Purchase Payments and sums payable to the Company under the Contract is:
American General Annuity Insurance Company, P.O. Box 5429, Boston, MA
02206-5429, if sent by mail; and State Street Bank and Trust Company, Attention
Lock Box A3W, 1776 Heritage Drive, North Quincy, MA 02171, if sent by overnight
delivery. The Company primarily distributes its annuity contracts through
financial institutions, general agents, and specialty brokers.
The Company is a wholly owned subsidiary of Western National Corporation.
Effective February 25, 1998, Western National Corporation became a wholly-owned
subsidiary of AGC Life Insurance Company, a subsidiary of American General
Corporation. On this date the Company changed its name from Western National
Life Insurance Company to American General Annuity Insurance Company. 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.
The Company 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. The Company's membership in IMSA applies to the
Company only and not its products or affiliates.
ABOUT A.G. SEPARATE ACCOUNT A
When you direct money to the Contract's Variable Account Options, you will be
sending that money through A.G. Separate Account A. You do not invest directly
in the Mutual Funds made available in the Contract. A.G. Separate Account A
invests in the Mutual Funds on behalf of your account. A.G. Separate Account A
is made up of what we call "Divisions." Fifteen Divisions are available and
represent the Variable Account Options in the Contract. Each of these Divisions
invests in a different Mutual Fund made available through the Contract. For
example, Division Twelve represents and invests in the Oppenheimer High Income
Fund/VA. The earnings (or losses) of each Division are credited to (or charged
against) the assets of that Division, and do not affect the performance of the
other Divisions of A.G. Separate Account A.
The Company established A.G. Separate Account A on November 9, 1994 under Texas
insurance law. Prior to May 1, 1999, A.G. Separate Account A was known as AGA
Separate Account A. Prior to May 1, 1998, AGA Separate Account A was known as
WNL Separate Account A. A.G. Separate Account A is registered with the
Securities and Exchange Commission (SEC) as a unit investment trust under the
Investment Company Act of 1940 (Act). Units of interest in A.G. Separate Account
A are registered as securities under the Securities Act of 1933.
A.G. Separate Account A is administered and accounted for as part of the
Company's business operations. However, the income, capital gains or capital
losses, whether or not realized, of each Division of A.G. 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
All inquiries regarding
THE CONTRACT
may be directed to the
Annuity Service Center
at the address shown.
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 AGA
Separate Account A.
For more information about
THE COMPANY, see the Statement
of Additional Information.
12
<PAGE> 19
- --------------------------------------------------------------------------------
or arising out of any other business the Company may conduct. In accordance with
the terms of the Contract, A.G. Separate Account A may not be charged with the
liabilities of any other Company operation. The Texas Insurance Code requires
that the assets of A.G. Separate Account A attributable to the Contract be held
exclusively for the benefit of the contract owner, annuitants, and beneficiaries
of the Contract. When we discuss performance information in this prospectus, we
mean the performance of an A.G. Separate Account A Division.
UNITS OF INTERESTS
Your investment in a Division of A.G. Separate Account A is represented by units
of interest issued by A.G. Separate Account A. On a daily basis, the units of
interests issued by A.G. Separate Account A are revalued to reflect that day's
performance of the underlying mutual fund minus any applicable fees and charges
to A.G. Separate Account A.
DISTRIBUTION OF THE CONTRACTS
A.G. Distributors, Inc. ("A.G. Distributors"), an affiliate of the Company, acts
as the distributor for A.G. Separate Account A. Prior to May 1, 1999, A.G.
Distributors was known as AGA Brokerage Services, Inc. Prior to March 18, 1998,
AGA Brokerage Services, Inc. was known as WNL Brokerage Services, Inc.
The Company will pay the registered representatives who sell the Contracts a
commission. Currently, the commission paid by the Company will not be greater
than 7% of Purchase Payments. The commissions paid by the Company are for
certain promotional and distribution expenses associated with the marketing of
the Contracts.
For more information about
A.G. DISTRIBUTORS, see the Statement
of Additional Information.
A.G. DISTRIBUTORS -- our address is
2929 Allen Parkway,
Houston, Texas 77019.
13
<PAGE> 20
VARIABLE ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
Each individual Division represents and invests, through A.G. Separate Account
A, in specific Mutual Funds. These Mutual Funds serve as the investment vehicles
for the Contract and include:
- - A.G. Series Trust (formerly AGA Series Trust) -- offers 7 funds, for which
A.G. Investment Advisory Services, Inc. serves as investment adviser and
Credit Suisse Asset Management, Credit Suisse Asset Management Ltd., OpCap
Advisors, State Street Global Advisors and Van Kampen Asset Management Inc.
serve as sub-advisers.
- - AIM Variable Insurance Funds, Inc. -- offers 2 funds for which A I M Advisors,
Inc. serves as investment adviser.
- - Oppenheimer Variable Account Funds -- offers 4 funds for which Oppenheimer
Funds, Inc. serves as investment adviser.
- - Templeton Variable Products Series Fund -- offers 2 funds for which Templeton
Investment Counsel, Inc. and Templeton Asset Management, Ltd. (Franklin
Resources, Inc.) respectively serve as investment adviser.
Each of these Funds is registered as a diversified open-end, management
investment company and is regulated under the Act. For complete information
about each of these Funds, including charges and expenses, you should refer to
the prospectus for that Fund. Additional copies are available from the Company's
Annuity Service Center at the address shown in the back of this prospectus.
SUMMARY OF FUNDS
A brief summary of the investment objectives of each Mutual Fund is shown below.
In addition to the investment objectives, the Account Value of an assumed
$10,000 investment in each of the Divisions is shown in both table and graph
form as well as the Standard Average Annual Total Return for certain Division
for a 1, 3, 5 and 10 year period if available. If the Standard Average Annual
Return for a Division is not available for a stated period, we may show the
Standard Average Annual Return since Division inception. We will show the
Standard Average Annual Total Return for Divisions 8-15, which recently
commenced operations when it becomes available. The performance information in
the tables and graphs will reflect a deduction for separate account fees
(mortality and expense risk fees plus administrative charge) and underlying fund
charges. They will not reflect any deduction for account maintenance fees,
surrender charges, optional death benefit charges and premium taxes. These
charges would further reduce your return. The Account Values shown in the graphs
reflect Separate Account performance based on the performance of the underlying
Fund for the last 10 fiscal years or, since inception of the underlying Fund if
for less than 10 years. The returns shown in the tables for certain Funds
(Divisions 1-7) reflect actual historical performance of the related Separate
Account Divisions since inception of each 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 account
maintenance fees, surrender charges and certain optional death benefit charges
(only the charge for the Optional Enhanced Death Benefit is included, because
the Optional Annual Step-Up Death Benefit was first offered under the Contracts
on June 1, 1998) that would have been deducted if you surrendered the Contract
at the end of the specified period. Premium taxes are not deducted. This
information is calculated for each Division based on how an initial investment
of $1,000 performed at the end of the specified periods shown.
For more information about how these returns were calculated including a
statement of the charges reflected and tables showing historical performance
information see "How to Review Investment Performance of Separate Account
Divisions" in this prospectus.
VARIABLE ACCOUNT
OPTIONS -- investment
options that correspond
to Separate Account
Divisions offered by
the Contract.
Investment returns on
Variable Account
Options may be positive
or negative depending on
the investment
performance of the
underlying Mutual Fund.
14
<PAGE> 21
AIM V.I. CAPITAL
APPRECIATION FUND
(Division 8)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation through investments in common stocks, with emphasis
on medium-sized and smaller emerging growth companies.
<TABLE>
<CAPTION>
<S> <C>
</TABLE>
AIM V.I. DIVERSIFIED
INCOME FUND
(Division 9)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to achieve a high level of current income through investment in: (i)
foreign government securities, (ii) foreign and domestic corporate debt
securities, (iii) U.S. Government securities, including U.S. Government Agency
Mortgage-Backed Securities, and (iv) lower-rated or unrated high yield debt
securities (commonly known as "junk bonds") of U.S. and foreign companies.
<TABLE>
<CAPTION>
<S> <C>
</TABLE>
* The Division has only recently been offered through ElitePlus Bonus.
Accordingly, no performance information is available.
15
<PAGE> 22
AMERICAN GENERAL U.S.
GOVERNMENT SECURITIES PORTFOLIO
(Division 4)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks a high level of current income by investing a substantial portion of its
assets in debt obligations and mortgage-backed securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, and collateralized
mortgage obligations backed by such securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
February 6, 1996 $ Value
- ------------------------- -------
<S> <C>
02/06/96 $10,000
12/31/96 10,208
12/31/97 10,960
12/31/98 11,616
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE FEBRUARY 6, 1996
CHART
PERIOD ENDED DECEMBER 31
CREDIT SUISSE GROWTH AND INCOME PORTFOLIO
(Division 1)**
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term capital growth, current income, and growth of income,
consistent with reasonable investment risk through investment primarily in
domestic equity as well as domestic debt securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
February 6, 1996 $ Value
- ------------------------- -------
<S> <C>
10/20/95 $10,000
12/31/95 10,628
12/31/96 11,927
12/31/97 14,386
12/31/98 16,194
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE FEBRUARY 6, 1996
CHART
PERIOD ENDED DECEMBER 31
* The American General U.S. Government Securities Portfolio was formerly known
as the Salomon Brothers U.S. Government Securities Portfolio. The Standard
Average Annual Total Return for the American General U.S. Government
Securities Portfolio for the 1 year period and since inception was 0.80% and
3.70%, respectively. The Division commenced operations on February 6, 1996.
** The Standard Average annual Total Return for the Credit Suisse Growth and
Income Portfolio for the 1 and 3 year period and since inception was 7.37%,
13.59% and 15.08%, respectively. The Division commenced operations on October
20, 1995.
16
<PAGE> 23
CREDIT SUISSE INTERNATIONAL EQUITY PORTFOLIO
(Division 2)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term capital appreciation through investment in equity and
equity-related securities of companies from at least five different countries,
excluding the United States. Under normal conditions, the Portfolio will invest
at least 65% of its total assets in equity securities of issuers whose principal
places of business (as determined by location of the issuer's principal
headquarters) are located in countries other than the United States. The balance
of the Portfolio, up to 35% of its total assets, may be invested in equity or
debt securities of U.S. issuers or foreign entities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 20, 1995 $ Value
- ------------------------- -------
<S> <C>
10/20/95 $10,000
12/31/95 10,365
12/31/96 11,905
12/31/97 12,243
12/31/98 11,969
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 20, 1995
CHART
PERIOD ENDED DECEMBER 31
ELITEVALUE PORTFOLIO
(Division 3)**
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks growth of capital over time through investment in a portfolio consisting
of common stocks, bonds and cash equivalents.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 2, 1996 $ Value
- ------------------------- -------
<S> <C>
01/02/96 $10,000
12/31/96 12,492
12/31/97 14,914
12/31/98 15,694
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 2, 1996
CHART
PERIOD ENDED DECEMBER 31
* The Standard Average Annual Total Return for the Credit Suisse International
Equity Portfolio for the 1 and 3 year period and since inception was (7.41%),
3.19% and 4.36%, respectively. This Division commenced operations on October
20, 1995.
** The Standard Average Annual Total Return for the EliteValue Portfolio for the
1 year period and since inception was 0.05% and 14.96%, respectively. The
Division commenced operations on January 2, 1996.
17
<PAGE> 24
OPPENHEIMER CAPITAL APPRECIATION FUND/VA
(Division 10)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to achieve capital appreciation by investing in securities of well-known
established companies.
OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
(Division 11)**
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high total return (which includes growth in the value of its shares as
well as current income) from equity and debt securities. From time to time, the
Fund may focus on small to medium capitalization common stocks, bonds and
convertible securities.
* The Oppenheimer Capital Appreciation Fund/VA was formerly known as the
Oppenheimer Growth Fund. The Division has only recently been offered through
ElitePlus Bonus. Accordingly, no performance information is available.
** The Oppenheimer Main Street Growth & Income Fund/VA was formerly known as the
Oppenheimer Growth & Income Fund. The Division has only recently been offered
through ElitePlus Bonus. Accordingly, no performance information is
available.
18
<PAGE> 25
OPPENHEIMER HIGH INCOME FUND/VA
(Division 12)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide a high level of current income from investment in high yield
fixed-income securities.
OPPENHEIMER SMALL CAP GROWTH FUND/VA
(Division 13)**
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation principally through investments in securities of
growth-type companies with market capitalizations of less than $1 billion.
* The Oppenheimer High Income Fund/VA was formerly known as the Oppenheimer
High Income Fund. The Division has only recently been offered through
ElitePlus Bonus. Accordingly, no performance information is available.
** The Oppenheimer Small Cap Growth Fund/VA was formerly known as the
Oppenheimer Small Cap Growth Fund. The Division has only recently been
offered through ElitePlus Bonus. Accordingly, no performance information is
available.
19
<PAGE> 26
STATE STREET GLOBAL
ADVISORS GROWTH EQUITY
PORTFOLIO
(Division 5)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide total returns that exceed, over time, the Standard & Poor's 500
Composite Stock Price Index(R)** through investment in equity securities. Equity
securities are selected on the basis of a proprietary analytical model of the
Portfolio's Sub-Adviser. Each security is ranked according to two separate and
uncorrelated measures: value and the momentum of Wall Street sentiment.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 20, 1995 $ Value
- ------------------------- -------
<S> <C>
10/20/95 $10,000
12/31/95 10,329
12/31/96 12,359
12/31/97 16,046
12/31/98 19,238
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 20, 1995
CHART
PERIOD ENDED DECEMBER 31
STATE STREET GLOBAL
ADVISORS MONEY MARKET
PORTFOLIO
(Division 6)***
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks income through investments in short-term money market securities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 10, 1995 $ Value
- ------------------------- -------
<S> <C>
10/10/95 $10,000
12/31/95 10,086
12/31/96 10,460
12/31/97 10,881
12/31/98 11,290
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 10, 1995
CHART
PERIOD ENDED DECEMBER 31
* The Standard Average Annual Total Return for the State Street Global
Advisers Growth Equity Portfolio for the 1 and 3 year period and since
inception was 14.69%, 21.71% and 21.63%, respectively. The Division
commenced operations on October 20, 1995.
** "Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of
Standard and Poor's ("S&P"). The State Street Global Advisors Growth Equity
Portfolio is not sponsored, endorsed, sold or promoted by S&P and S&P makes
no representation regarding the advisability of investing in this
Portfolio.
*** The Standard Average Annual Total Return for the State Street Global
Advisors Money Market Portfolio for the 1 and 3 year period and since
inception was (1.43)%, 2.07% and 2.36%, respectively. The Division commenced
operations on October 6, 1995.
20
<PAGE> 27
TEMPLETON DEVELOPING
MARKETS FUND
Class 2
(Division 14)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long term capital appreciation. The Fund seeks to achieve this objective
by investing primarily in emerging market equity securities.
TEMPLETON INTERNATIONAL
FUND
Class 2
(Division 15)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long term capital growth. It invests primarily in stocks of companies
located outside the United States, including emerging markets.
* The Division has only recently been offered through ElitePlus Bonus.
Accordingly, no performance information is available.
21
<PAGE> 28
VAN KAMPEN EMERGING GROWTH PORTFOLIO
(Division 7)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide capital appreciation by investing in equity securities of small
and medium sized companies in the early stages of their life cycles; any
ordinary income received from portfolio securities is entirely incidental.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
January 2, 1996 $ Value
- ------------------------- -------
<S> <C>
01/02/96 $10,000
12/31/96 11,739
12/31/97 13,941
12/31/98 18,772
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 2, 1996
CHART
PERIOD ENDED DECEMBER 31
* The Standard Average Annual Total Return for the Van Kampen Emerging Growth
Portfolio for the 1 year period and since inception was 29.42% and 22.21%,
respectively. The Division commenced operations on January 2, 1996.
22
<PAGE> 29
PURCHASE PERIOD
- --------------------------------------------------------------------------------
The Purchase Period begins when your first Purchase Payment is made and
continues until you begin your Payout Period. The Purchase Period can also end
when the Contract is surrendered before the Payout Period.
PURCHASE PAYMENTS
You may establish an account only through a registered representative. Initial
Purchase Payments must be received by the Company either with, or after, a
completed application. All Purchase Payments and sums payable to the Company
under the Contract must be sent to the Company's lock box at State Street Bank &
Trust Company at the following addresses: American General Annuity Insurance
Company, P.O. Box 5429, Boston, MA 02206-5429, if the Purchase Payments are sent
by mail; and State Street Bank and Trust Company, Attention Lock Box A3W, 1776
Heritage Drive, North Quincy, MA 02171, if the Purchase Payments are sent by
overnight delivery.
Minimum initial and subsequent Purchase Payments are as follows:
<TABLE>
<CAPTION>
Initial Subsequent
Purchase Purchase
Contract Type Payment Payment
- --------------------------------- -------- ----------
<S> <C> <C>
Non-Qualified Contract $5,000 $1,000
Qualified Contract $2,000 $ 250
</TABLE>
Subject to the maximum and minimum Purchase Payment requirements, you may make
subsequent Purchase Payments and may increase or decrease or change the
frequency of such payments. The maximum total Purchase Payments we will accept
without our prior approval is $500,000 if the Contract is issued to you at age
74 or younger and $250,000 if the Contract is issued to you at age 75 or older.
You may select on your Contract application the Automatic Check Option. The
Automatic Check Option allows you to preauthorize debits against a bank account
that you indicate on the Preauthorized Debit Form to be sent in with your
Contract application. The minimum amount per a preauthorized debit Purchase
Payment under the Automatic Check Option is $50.
Purchase Payments are received by the Company at the address above. When an
initial Purchase Payment is accompanied by an application, within 2 business
days we will:
- - Accept the Application -- and issue a contract.
- - Reject the Application -- and return the Purchase Payment; or
- - Request Additional Information -- to correct or complete the application. We
will return the Purchase Payments within 5 business days if the requested
information is not provided, unless you otherwise so specify.
RIGHT TO RETURN
If for any reason you are not satisfied with your Contract, you may return it to
the Company and receive a refund of your Purchase Payments, less the 1% Bonus
credit, adjusted to reflect investment experience. (In some states, we will
return Purchase Payments, less the 1% Bonus credit, as required by state law.)
To exercise your right to return your Contract, you must mail it directly to the
Annuity Service Center or return it to the registered representative through
whom you purchased the Contract within 10 days (may vary by state) after you
receive it. The address for the Annuity Service Center is located in the back of
this prospectus. In a few states, this period may be longer. In most states, we
invest your initial premium payment in the State Street Global Advisors Money
Market Portfolio Division Six from the date your investment performance begins
until the first business day 10 days later (may vary by state). Then we will
automatically allocate your investment among the investment options as you have
chosen. Any additional Purchase Payments we receive will also be invested in the
State Street Global Advisors Money Market Portfolio Division Six and allocated
to the investment options at the same time as your initial Purchase Payment.
1% BONUS
At the time that your minimum initial Purchase Payment is made, the Company will
credit an additional 1% of the amount to your Account Value as a Bonus. Any
subsequent Purchase Payments of at least $5,000 for Non-Qualified and $2,000 for
Qualified will also be credited with an additional 1% of the amount to your
Account Value as a Bonus. (The 1% Bonus will not be credited for any subsequent
Purchase Payments in the State of New Jersey.) The 1% Bonus credit will be
applied to the Account Value pro rata by each Variable Account Option(s) and/or
the non-DCA Fixed Account Option in the same ratio as the Purchase Payment is
allocated. The Company reserves the right to limit its total payment of such
Bonus to $5,000.
In any of the following circumstances, the 1% Bonus credit will not be payable:
- If you return your Contract within the right to return period(1)
or
- If you withdraw money from your Account Value within seven years of a
Purchase Payment which qualified for the 1% Bonus credit, and the amount of
money withdrawn is more than the amount permitted under the Systematic
Withdrawal Option or the 10% Free Withdrawal amount(1)(2)
- ---------------
(1) The Company will subtract the 1% Bonus credit from the Account Value pro
rata by each Variable Account Option(s) and/or the non-DCA Fixed Account
Option in which you currently have money in. The Company will not subtract
any Account Value earned by the 1% Bonus credit.
(2) Not applicable in the State of New Jersey.
Please see the section on "Federal Tax Matters" in this prospectus for
information on how the bonus credit is treated by federal tax laws.
PURCHASE PAYMENTS -- an
amount of money you pay to
the Company to receive the
benefits of an annuity
offered by the Contract.
BONUS - an additional
amount paid by the Company,
equal to 1% of the initial
minimum Purchase Payment
and certain subsequent
Purchase Payments.
23
<PAGE> 30
- --------------------------------------------------------------------------------
PURCHASE UNITS
A Purchase Unit is a unit of interest owned by you in your Variable Account
Option. Purchase Units apply only to the Variable Account Options selected for
your account. Purchase Unit values are calculated at the close of regular
trading of the New York Stock Exchange (the "Exchange"), currently 4:00 p.m. New
York time (see Calculation of Purchase Unit Value below for more information.)
Purchase Units will be credited the same business day if Purchase Payments are
received by the Company at the address above, 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.
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 17 investment options offered under the Contract. This includes 2
Fixed Account Options and 15 Variable Account Options. The Funds that underlie
the Variable Account Options are registered as investment companies under and
are subject to regulation of the Act. The Fixed Account Options are not subject
to regulation under the Act and are not required to be registered under the
Securities Act of 1933. As a result, the SEC has not reviewed data in this
prospectus that relates to the Fixed Account Options. However, federal
securities law does require such data to be accurate and complete.
FIXED ACCOUNT OPTIONS
Each of the Fixed Account Options are part of the Company's general assets. You
may allocate all or a portion of your Purchase Payment to the Fixed Account
Options listed in "Profile of the Contract" appearing in this prospectus. The
One Year Guarantee Period DCA Fixed Account Option is used exclusively in
connection with the Dollar Cost Averaging Program. See the "Dollar Cost
Averaging Program" section of this prospectus. Purchase Payments you allocate to
these Fixed Account Options are guaranteed to earn at least a minimum rate of
interest. Interest is paid on each of the Fixed Account Options at declared
rates, which may be different for each option. We bear the entire investment
risk for the Fixed Account Option. All Purchase Payments and interest earned on
such amounts in your Fixed Account Option will be paid regardless of the
investment results experienced by the Company's general assets.
Here is how you may calculate the value of your Fixed Account Option during the
Purchase Period:
Value of Your Fixed Account Options
= (EQUALS)
All Purchase Payments made to the Fixed Account Options
+ (PLUS)
Amounts transferred from Variable Account Options to the Fixed
Account Options
+ (PLUS)
All interest earned
- - (MINUS)
Amounts transferred or withdrawn from Fixed Account Options
(including applicable fees and charges)
VARIABLE ACCOUNT OPTIONS
You may allocate all or a portion of your Purchase Payments to the Variable
Account Options listed in this prospectus. A complete discussion of each of the
Variable Account Options may be found in the "Variable Account Options" section
in this prospectus. Based upon a Variable Account Option's Purchase Unit Value
your account will be credited with the applicable number of Purchase Units. The
Purchase Unit Value of each Variable Account Option will change daily depending
upon the investment performance of the underlying fund (which may be positive or
negative) and the deduction of A.G. Separate Account A charges. See the "Fees
and Charges" section in this prospectus. Because Purchase Unit Values change
daily, the number of Purchase Units your account will be credited with for
subsequent Purchase Payments will vary. Each Variable Account Option bears its
own investment risk. Therefore, the value of your account may be worth more or
less at retirement or withdrawal.
PURCHASE UNIT -- a
measuring unit used to
calculate your Account
Value during the Purchase
Period. The value of a
Purchase Unit will vary
with the investment experience
of the Separate Account
Division you have selected.
For more information as to
how PURCHASE UNIT VALUES
are calculated, see the
Statement of Additional
Information.
24
<PAGE> 31
- --------------------------------------------------------------------------------
Here is how to calculate the value of each Variable Account Option in your
account during the Purchase Period:
Value of Your Variable Account Option
= (EQUALS)
Total Number of Purchase Units
X (MULTIPLIED BY)
Current Purchase Unit Value
STOPPING PURCHASE PAYMENTS
Purchase Payments may be stopped at any time. Purchase Payments may be resumed
at any time before your Contract has been surrendered. The value of the Purchase
Units will continue to vary. Your Account Value will continue to be subject to
charges.
If your Account Value falls below $500, and you do not make any Purchase
Payments for 180 days we may forward to you, at our discretion, written notice
that we will close your Account and pay the Account Value 90 days from the date
of notice if additional Purchase Payments are not made in amounts sufficient to
increase your Account Value to $500 or more.
25
<PAGE> 32
TRANSFERS BETWEEN INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may transfer all or part of your Account Value between the various Fixed
Account and Variable Account Options in the Contract subject to the limitations
on transfers discussed below. 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.
DURING THE PURCHASE PERIOD
During the Purchase Period, transfers may be made between the Contract's non-DCA
Fixed Account Option and the Variable Account Options free of charge. We reserve
the right to impose a fee of the lesser of $25 or 2% of the amount transferred
for each transfer (which will be deducted from the amount transferred).
We currently permit transfers among the Variable Account Options once per day
and from the Variable Account Options to the non-DCA Fixed Account Option once
per a six-month period. We may, however, limit the number of transfers you can
make. The minimum amount to be transferred in any one transfer is $250 or the
entire amount in the Variable Account Option or non-DCA Fixed Account Option
from which the transfer is made. If a transfer request would reduce your Account
Value in a Division or the non-DCA Fixed Account Option below $500, we will
transfer your entire Account Value in that Division or Fixed Account Option.
Transfers from the non-DCA Fixed Account Option to a Variable Account Option are
limited to 20% of the non-DCA Fixed Account Option from which the transfer is
made from, determined as of the immediately preceding Contract Anniversary.
We currently do not permit transfers from the Variable Account Options to the
DCA One Year Guarantee Period Fixed Account Option. Transfers from the DCA One
Year Guarantee Period Fixed Account Option may only be made under the Dollar
Cost Averaging Program. See the "Dollar Cost Averaging Program -- section of
this prospectus.
DURING THE PAYOUT PERIOD
During the Payout Period, transfers may be made between the Variable Account
Options and from the Variable Account Options to the non-DCA Fixed Account
Option. We will not permit transfers from any Fixed Account Option during the
Payout Period. We reserve the right to impose a fee of the lesser of $25 or 2%
of the amount transferred for each transfer (which will be deducted from the
amount transferred). The minimum amount to be transferred during the Payout
Period is $250.
Transfers during the Payout Period are permitted subject to the following
limitations:
<TABLE>
<CAPTION>
% OF ACCOUNT OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS(2)
- -------------- ------------ --------------------- ---------------------
<S> <C> <C> <C>
Variable: Up to 100% Unlimited among The minimum amount to
Variable Account be transferred is
Options(1). Once per $250 or the entire
year if the transfer amount in the
is made to the Variable Account
non-DCA Fixed Account Option if less. The
Option. minimum amount which
must remain in the
Variable Account
Option after a
transfer is $500 or
$0 if the entire
amount of the
Variable Account
Option is
transferred.
Fixed: Not -- --
permitted
</TABLE>
- ---------------
(1) AGAIC may change the number of transfers permitted to no more than six (6)
transfers per year during the Payout Period.
(2) AGAIC may impose a transfer fee of $25 or 2% of the amount transferred for
each transfer above six (6) transfers per year.
COMMUNICATING TRANSFER OR
REALLOCATION INSTRUCTIONS
A written instruction to transfer or reallocate all or part of your Account
Value between the various investment options in the Contract should be sent to
our Annuity Service Center.
Instructions for transfers or reallocations may be made by calling
1-800-424-4990. 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 the Company may give telephone
instructions on your behalf without the Company's prior written permission.
(This does not apply to a contract with the immediate family of an employee or
representative of the Company.)
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,
ACCOUNT VALUE -- the total
sum of your Fixed Account
and/or Variable Account
Options that have not yet
been applied to your Payout
Payments.
PURCHASE PERIOD -- the time
between your first Purchase
Payment and your Payout
Period (or surrender).
ANNUITY SERVICE CENTER -- our
Annuity Service Center is
located at 205 E. 10th
Avenue, Amarillo, Texas 79101
CONTRACT ANNIVERSARY -- the date
that the contract is issued
and each yearly anniversary
of that date thereafter.
PAYOUT PERIOD -- the time
that starts when you begin to
withdraw your money in a
steady stream of payments.
26
<PAGE> 33
- --------------------------------------------------------------------------------
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.
SWEEP ACCOUNT PROGRAM
During the Purchase Period you may elect to participate in the Sweep Account
Program if your Account Value in the non-DCA Fixed Account Option is at least
$25,000 on the date that the request for the Sweep Account Program is received
by us at the Annuity Service Center. The Sweep Account Program allows you to
transfer the earnings from the non-DCA Fixed Account Option to the Variable
Account Options. The transfers can be made on an annual, semi-annual, monthly or
quarterly basis. All amounts transferred must be in whole percentages, with a
10% minimum to be transferred to each selected Variable Account Option(s). There
is no charge for the Sweep Account Program. We do not take into account
transfers made pursuant to the Sweep Account Program in assessing any transfer
fee.
EFFECTIVE DATE OF TRANSFER
The effective date of a transfer will be:
- - The date of receipt, if received at our Annuity Service Center 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.
RESERVATION OF RIGHTS
If a transfer causes your Account Value in the non-DCA Fixed Account Option or
Variable Account Option to fall below $500, we may transfer the remaining
Account Value in the same proportions as your transfer request.
We may defer any transfer from the Fixed Account Options to the Variable Account
Options for up to six months. We also may terminate or restrict transfers at any
time.
DOLLAR COST AVERAGING PROGRAM
You may elect the Dollar Cost Averaging Program which permits the systematic
transfer of your Account Value from a Fixed Account Option or the State Street
Global Advisors Money Market Portfolio Division Six to one or more Variable
Account Options not including the State Street Global Advisors Money Market
Portfolio Division Six. By allocating amounts on a regularly scheduled basis, as
opposed to allocating the total amount at one particular time, you may be less
susceptible to the effect of market fluctuations. We currently provide two Fixed
Account Options, one of which, the DCA One Year Guarantee Period Option, is
available only for dollar cost averaging.
We determine the amount of transfers from the DCA Fixed Account Option or the
State Street Global Advisors Money Market Portfolio Division Six by dividing the
Purchase Payments allocated to the DCA Fixed Account Option or the State Street
Global Advisors Money Market Portfolio Division Six by a factor based on the
number of months remaining in the term. Transfers from the DCA Fixed Account
Option or the State Street Global Advisors Money Market Portfolio Division Six
are only available on a monthly basis. We require that you specify each
allocation to a Variable Account Option, not including the State Street Global
Advisors Money Market Portfolio Division Six, in whole percentages using a
maximum of 10 Variable Account options. The minimum amount to be transferred
into a Variable Account Option is 10% of the entire amount transferred.
We will transfer your entire Account Value in the DCA Fixed Account Option by
the expiration of its term. The minimum amount to be transferred under the
Dollar Cost Averaging Program is $250 per a transfer. We currently do not permit
transfers to the DCA Fixed Account Option from the Variable Account Options or
the non-DCA Fixed Account Option. Transfers from the DCA Fixed Account Option
may only be made under the Dollar Cost Averaging Program.
You may enroll in dollar cost averaging for the DCA Fixed Account Option only
when you make your initial Purchase Payment. However, you may enroll in dollar
cost averaging for the State Street Global Advisors Money Market Portfolio
Division Six at any time. There is no charge for dollar cost averaging. We do
not take into account transfers made pursuant to the Dollar Cost Averaging
Program in assessing any transfer fee.
27
<PAGE> 34
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PORTFOLIO REBALANCING PROGRAM
From time to time, we will make available a portfolio rebalancing program which
provides for periodic pre-authorized automatic transfers among the Variable
Account Options pursuant to your written allocation instructions. We will make
such transfers to maintain a specified percentage allocation of Account Value
among the Variable Account Options as selected by you. We require each
allocation to a Variable Account Option equal at least 1% of Account Value.
You may elect the portfolio rebalancing program on the date that the request for
portfolio rebalancing is received by us at the Annuity Service Center. You may
select rebalancing to occur on a monthly, quarterly, semi-annual, or annual
basis, and currently, all Variable Account Options are available for portfolio
rebalancing. The Fixed Account Options do not participate in portfolio
rebalancing.
There is no charge for portfolio rebalancing. We do not take into account
transfers made pursuant to the Portfolio Rebalancing Program in assessing any
transfer fee.
28
<PAGE> 35
FEES AND CHARGES
- --------------------------------------------------------------------------------
By investing in the Contract, you may be subject to seven basic types of fees
and charges:
- - Account Maintenance Fee
- - Surrender Charge
- - Premium Tax Charge
- - Separate Account Charges
- - Optional Death Benefit Charges
- - Fund Annual Expense Charge
- - Other Tax Charges
These fees and charges are explained below. For additional information about
these fees and charges, see the Fee Table in this prospectus.
ACCOUNT MAINTENANCE FEE
An account maintenance fee of $30 will be deducted on each Contract Anniversary
from your Account Value. If all your money in the Contract is withdrawn, the fee
will be deducted at that time. The fee will be assessed equally among the
Variable Account and Fixed Account Options that make up your Account Value.
The account maintenance fee is to reimburse the Company for our administrative
expenses for providing Variable Account and Fixed Account Options. This includes
the expense for establishing and maintaining the recordkeeping for your
Contract.
During the Purchase Period, if your Account Value on a Contract Anniversary is
at least $40,000, we will waive the account maintenance fee for the next
Contract Year.
SURRENDER CHARGE
When you withdraw money from your account, you may be subject to a surrender
charge that will be deducted from the amount withdrawn. For information about
your right to surrender, see "Surrender of Account Value" in this prospectus.
It is assumed that the Purchase Payments are withdrawn first under the concept
of first-in, first-out. No surrender charge will be applied unless an amount is
actually withdrawn.
We calculate the surrender charge by multiplying the applicable percentages
specified in the table below by the Purchase Payments withdrawn.
Amount of Surrender Charge
A surrender charge may not be greater than:
<TABLE>
<CAPTION>
NUMBER OF YEARS
SINCE
DATE OF PURCHASE CHARGE AS PERCENTAGE OF
PAYMENT PURCHASE PAYMENT WITHDRAWN
---------------- --------------------------
<S> <C>
1 5%
2 5%
3 5%
4 4%
5 3%
6 2%
7 1%
8+ 0%
</TABLE>
10% Free Withdrawal
For each Contract Year after the first Contract Year, up to 10% of the Account
Value, determined as of the immediately preceding Contract Anniversary (or if
during the first Contract Year, the date the Contract is issued) may be
withdrawn once each Contract Year without a surrender charge. The surrender
charge will apply to any amount withdrawn that exceeds this 10% limit. The
percentage withdrawn will be determined by dividing the amount withdrawn by the
Account Value, determined as of the immediately preceding Contract Anniversary.
If a surrender charge is applied to all or part of a Purchase Payment, no
surrender charge will be applied to such Purchase Payment (or portion thereof)
again.
The 10% free withdrawal requires a minimum withdrawal of $100, or if less, the
entire Account Value. The minimum amount which must remain in each Division in
which you are invested in, after a withdrawal, is $500.
EXCEPTIONS TO SURRENDER CHARGE
No surrender charge will be applied:
- - To death benefits;
- - To Payout Payments; and
- - To partial surrenders through the Systematic Withdrawal Program, in lieu of
the 10% free withdrawal, during the first Contract Year, see the "Surrender of
Account Value" section of this prospectus.
PREMIUM TAX CHARGE
Taxes on Purchase Payments are imposed by some states, cities, and towns.
Currently, rates range from zero to 3.5%.
The timing of tax levies varies from one taxing authority to another. If premium
taxes are applicable to a Contract, we will deduct such tax against Account
Value in a manner determined by us in compliance with applicable state law. We
may deduct an amount for premium taxes either upon:
- - receipt of the Purchase Payments;
- - the commencement of Payout Payments;
- - surrender (full or partial); or
- - the payment of death benefit proceeds.
SEPARATE ACCOUNT CHARGES
There will be a mortality and expense risk fee and an administration fee applied
to A.G. Separate Account A. These are daily charges at annualized rates of 1.25%
and 0.15%, respectively, on the average daily net asset value of A.G. Separate
Account A. Each charge is guaranteed and cannot
CONTRACT ANNIVERSARY --the
date that the contract
is issued and each
yearly anniversary
of that date thereafter.
CONTRACT YEAR -- the first
twelve month period and
then each yearly anniversary
of that period following the
issue date of the contract.
29
<PAGE> 36
- --------------------------------------------------------------------------------
be increased by the Company. The mortality and expense risk fee is to compensate
the Company for assuming mortality and expense risks under the Contract. 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. 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 Contract, no matter how large the cost
may be.
The Company may make a profit on the mortality and expense risk fee and on the
administration fee.
The administration fee is to reimburse the Company for our administrative
expenses under the Contract. This includes the expense of administration and
marketing (including but not limited to enrollment and Contract Owner
education).
For more information about the mortality and expense risk fee and administration
fee, see the Fee Table in this prospectus.
OPTIONAL DEATH BENEFIT CHARGES
At the time that your Contract is issued you may choose the Optional Enhanced
Death Benefit or the Optional Annual Step-Up Death Benefit, in place of the
Standard Death Benefit offered in the Contract. If you choose the Optional
Enhanced Death Benefit or the Optional Annual Step-Up Death Benefit there will
be a charge on the average daily net asset value of A.G. Separate Account A.
These charges are at annualized rates of 0.05% and 0.10%, for the Optional
Enhanced Death Benefit and the Optional Annual Step-Up Death Benefit,
respectively. Each charge is guaranteed and cannot be increased by the Company.
The charge for the Optional Enhanced Death Benefit is to compensate the Company
for assuming the mortality risks of the Optional Enhanced Death Benefit. The
charge for the Optional Annual Step-Up Death Benefit is to compensate the
Company for assuming the mortality risks of the Optional Annual Step-Up Death
Benefit. The mortality risk that the Company assumes is the obligation to
provide a higher death benefit payment than the Standard Death Benefit. There is
no charge for the Standard Death Benefit. For more information about the
Optional Death Benefit Charges, see the "Death Benefit" section of this
prospectus.
The Company may make a profit on the optional death benefit charges. For more
information on the optional death benefit charges, see the "Fee Table" in this
prospectus.
FUND ANNUAL EXPENSE CHARGES
Investment management charges based on a percentage of each Fund's average daily
net assets are payable by each Fund. Depending on the Variable Account Option
selected, the charges will be paid by each Fund to its investment adviser. These
charges and other Fund charges and expenses are fully described in the
prospectuses for the Funds. These charges indirectly cost you because they lower
your return.
OTHER TAX CHARGES
We reserve the right to charge for certain taxes (other than premium taxes) that
we may have to pay. This could include federal income taxes. Currently, no such
charges are being made.
30
<PAGE> 37
PAYOUT PERIOD
- --------------------------------------------------------------------------------
The Payout Period (Annuity Period) begins when you decide to withdraw your money
in a steady stream of payments. You select the date to begin the Payout Period,
the Payout Date. If you do not select a date to begin the Payout Period, then
the Payout Period will begin when you reach age 85. You may change the date
selected to begin the Payout Period at any time before the Payout Date. You may
apply any portion of your Account Value to one of the types of Payout Options
listed below. You may choose to have your Payout Option on either a fixed, a
variable, or a combination payout basis. When you choose to have your Payout
Option on a variable basis, you may keep the same Variable Account Options in
which your Purchase Payments were made, or transfer to different ones.
FIXED PAYOUT
Under Fixed Payout, you will receive payments from the Company. These payments
are fixed and guaranteed by the Company. The amount of these payments will
depend on:
- Type and duration of Payout Option chosen;
- Your age or your age and the age of your survivor(1);
- Your sex or your sex and the sex of your survivor(1)(2);
- 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.
(2) Not applicable for certain Contracts.
VARIABLE PAYOUT
With a Variable Payout, you may select from your existing Variable Account
Options. Your payments will vary accordingly. This is due to the varying
investment results that will be experienced by each of the Variable Account
Options you selected. The Payout Unit Value is calculated just like the Purchase
Unit Value for each Variable Account Option except that the Payout Unit Value
includes a factor for the Assumed Investment Rate. 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% is
used. If the net investment experience of the Variable Account Option exceeds
the Assumed Investment Rate, your next payment will be greater than your first
payment. If the investment experience of the Variable Account Option is lower
than your Assumed Investment Rate, your next payment will be less than your
first payment.
COMBINATION FIXED AND VARIABLE
PAYOUT
With a Combination Fixed and Variable Payout, you may choose:
- From your existing Variable Account Options (payments will vary); with a
- Fixed Payout (payment is fixed and guaranteed).
PAYOUT DATE
The Payout Date is the date elected by you on which your payout payments will
start and is subject to our approval. You may change the Payout Date subject to
our approval. We will notify you of the approaching Payout Date 60 to 90 days
prior to such date. Unless you select a Payout Date, we will automatically
extend the Payout Date to begin at the later of when you attain age 85 or ten
years after we issue the Contract. 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. However, the date may be later
for participants in 403(b) plans. Non-qualified annuities do not have a specific
date. For additional information on the minimum distribution rules that apply to
payments under IRA or 403(b) plans, see "Federal Tax Matters" in this prospectus
and in the Statement of Additional Information.
PAYOUT OPTIONS
You may specify the manner in which your Payout Payments are made. You may
select one of the following options:
- LIFE ONLY -- payments are made only to you during your lifetime. Under this
option there is no provision for a death benefit for the beneficiary. For
example, it would be possible under this option for the Annuitant to receive
only one payout payment if he died prior to the date of the second payment,
two if he died before the third payment.
- LIFE WITH PERIOD CERTAIN -- payments are made to you during your lifetime;
but if you die before the guaranteed period has expired, your beneficiary
will receive payments for the rest of your guaranteed period.
PAYOUT UNIT -- a measuring
unit used to calculate Payout
Payments from your Variable
Account Option. Payout Unit
values will vary with the
investment experience of the
A.G. Separate Account A
Division you have selected.
ASSUMED INVESTMENT
RATE -- the rate used to
determine your first monthly
Payout Payment per
thousand dollars of Account
Value in your Variable
Account Option(s).
31
<PAGE> 38
- --------------------------------------------------------------------------------
- JOINT AND SURVIVOR LIFE -- payments are made to you during the joint
lifetime of you and your joint annuitant. Upon the death of either you or
your joint annuitant, payments continue during the lifetime of the
survivor. This option is designed primarily for couples who require 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.
Additionally, it would be possible 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.
PAYOUT INFORMATION
Once your Payout Payments have begun, the option you have chosen may not be
changed. Any one of the Variable Account Options may result in your receiving
unequal payments during your life expectancy. If payments begin before age
59 1/2, you may suffer unfavorable tax consequences if you do not meet an
exception to federal tax law. See "Federal Tax Matters" in this prospectus.
Your Payment Option should be selected at least 15 days before your Payout
Date. If such selection is not made and state or federal law does not require
the selection of the Joint and Survivor Life Option:
- Payments will be made under the Life with Period Certain Option,
- The payments will be guaranteed for a 10 year period,
- The payments will be based on the allocation used for your Account
Value,
- The non-DCA Fixed Account Option will be used to distribute payments to
you on a Fixed Payout basis, and
- Variable Account Options will be used to distribute payments to you on a
Variable Payout basis.
Most Payout Payments are made monthly; however, Payout Payments may also be
made as quarterly, semi-annual or annual installments. If you have chosen
either a Fixed or Variable Payout Option and if the amount of your payment is
less than $200, we reserve the right to reduce the number of payments made
each year so each of your payments is at least $200. If you have chosen a
combination of Fixed and Variable Payout Options and the amount of your
payment is less than $100, we reserve the right to reduce the number of
payments made each year so each of your payments is at least $100.
For more information about
PAYOUT OPTIONS
available under the Contract,
see the "Statement of
Additional Information".
32
<PAGE> 39
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 retirement plan.
For an explanation of charges that may apply if you surrender your Account
Value, see "Fees and Charges" in this prospectus.
You may be subject to a 10% federal tax penalty for partial or total surrenders
made before age 59 1/2, see "Federal Tax Matters" in this prospectus.
AMOUNT THAT MAY BE SURRENDERED
The amount that may be surrendered at any time can be determined as follows:
<TABLE>
<S> <C> <C>
Your
Account
Allowed Value(1)
Surrender - (MINUS)
Value Any Applicable
= (EQUALS) Surrender
Charge, any
applicable taxes
and Account
Maintenance Fee
</TABLE>
(1) Equals the Account Value next computed after your properly completed
request for surrender is received at the Annuity Service Center.
There is no guarantee that the Surrender Value in a Variable Account Option will
ever equal or exceed the total amount of your Purchase Payments received by us.
We will mail to you the Surrender Value within 7 calendar days after we receive
your properly completed surrender request at the Annuity Service Center.
However, we may be required to suspend or postpone payments if redemption of an
underlying Fund's shares have been suspended or postponed. See your current
Fund(s)' prospectuses for a discussion of the reasons why the redemption of
shares may be suspended or postponed.
We may receive a surrender for a Purchase Payment which has not cleared the
banking system. We may delay payment of that portion of your Surrender Value
until the check clears. The rest of the Surrender Value will be processed as
usual.
SURRENDER RESTRICTIONS
Generally, Internal Revenue Code Section 403(b)(11) permits total or partial
distributions from a 403(b) contract only on account of hardship (employee
contributions only without accrued interest), attainment of age 59 1/2,
separation from service, death or disability.
Under the TEXAS STATE OPTIONAL RETIREMENT PROGRAM, and in many Section 403(b)
contracts, no surrender or partial surrender will be allowed except for
termination of employment, attainment of age 70 1/2, retirement or death.
PARTIAL SURRENDER
You may request a partial surrender of your Account Value at any time during the
Purchase Period. A partial surrender plus any surrender charge will reduce your
Account Value.
To process your partial surrender, you may specify the Account Value that should
be deducted from each investment option. If you fail to provide us with this
information, we may deduct the partial surrender from each investment option in
which your Account Value is held on a pro rata basis.
The minimum partial surrender we will allow is $100 or your entire Account
Value, if less.
We reserve the right to defer the payment of a partial surrender from the
non-DCA Fixed Account Option for up to six months. We currently do not permit
partial surrenders from the DCA Fixed Account Option.
SYSTEMATIC WITHDRAWAL PROGRAM
The Systematic Withdrawal Program allows you to make withdrawals in a Contract
Year of up to 10% of your Account Value without the imposition of a surrender
charge. If you withdraw more than 10% of your Account Value, you will be subject
to a surrender charge. Account Value, for purposes of the Systematic Withdrawal
Program, is determined as of the immediately preceding Contract Anniversary or,
if during the first Contract Year, the date we issue you the Contract. See the
"Fees and Charges" section in this prospectus.
If within seven years of a Purchase Payment, you withdraw more than 10% of your
Account Value, then the 1% Bonus credit will not be payable to you. See the
"Purchase Period" section in this prospectus.
You may elect to withdraw all or part of your Account Value under a systematic
withdrawal method described in your Contract. Withdrawals using this method are
eligible for the 10% free withdrawal privilege each Contract Year. The
Systematic Withdrawal Program provides for:
- Payments to be made to you;
- Payment over a stated period of time;
- Payment of a stated yearly dollar amount or percentage.
We may require a minimum withdrawal of $100 per a withdrawal under this method.
The portion of your account that has not been withdrawn will continue to receive
the investment return of the Variable Account Option or the Fixed Account Option
which you selected. A systematic withdrawal election may be changed or revoked
at no charge. No more than one systematic withdrawal election may be in effect
at any one time. We reserve the right to discontinue any or all systematic
withdrawals or to change its terms, at any time.
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<PAGE> 40
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DISTRIBUTIONS REQUIRED BY FEDERAL TAX LAW
See "Federal Tax Matters" in this prospectus and in the Statement of Additional
Information for more information about required distributions imposed by tax
law.
For an explanation of possible adverse tax consequences of a surrender, see
"Federal Tax Matters" in this prospectus and in the Statement of Additional
Information.
34
<PAGE> 41
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
We issue other fixed and/or variable annuity contracts (other contracts) in
addition to ElitePlus Bonus. We will allow you, under certain conditions, to
exchange from one of these other contracts to ElitePlus Bonus. If you elect to
exercise an exchange, you should contact our Annuity Service Center at the
address shown in the back of this prospectus. An exchange may require the
issuance of a contract or may be subject to any other requirements that the
Company may impose. Below are certain provisions regarding an exchange into
ElitePlus Bonus. Please carefully read this entire prospectus for a more
detailed description of ElitePlus Bonus.
RESTRICTIONS ON EXCHANGE PRIVILEGE
We will impose certain general restrictions and rules on the exchange
privileges.
You will be subject to the rules concerning transfers among investment options
as stated in the Transfers Between Investment Options section in this
prospectus. We may, at our option, waive any transfer restrictions for a stated
period of time. If we waive these transfer restrictions, you will be allowed to
exchange to any investment option available in ElitePlus Bonus. Please read the
"Transfers Between Account Options" section in this prospectus.
WE RESERVE THE RIGHT TO TERMINATE, MODIFY OR SUSPEND THESE EXCHANGE PRIVILEGES
AT ANY TIME.
CHARGES AND TAXES
While we impose no fee for an exchange, you will be subject to all of the fees
and charges stated in this prospectus. These fees and charges may include a
surrender charge, mortality and expense risk fee, administrative fee, account
maintenance fee and certain other fees and charges. These charges will be
incurred even though you may not have them on the contract you were in before
your exchange into ElitePlus Bonus. Please read the "Fees and Charges" section
of this prospectus.
Please read the "Federal Tax Matters" section in this prospectus for information
about the federal income tax treatment of ElitePlus Bonus.
35
<PAGE> 42
DEATH BENEFITS
- --------------------------------------------------------------------------------
The Contract will pay a death benefit during either the Purchase Period or the
Payout Period. How the death benefit will be paid is discussed below. The death
benefit provisions in the Contract may vary from state to state.
BENEFICIARY INFORMATION
The Beneficiary may receive death benefits:
- - In a lump sum; or
- - Payment of the entire death benefit within 5 years of the date of death; 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.
SPECIAL INFORMATION FOR NON-TAX QUALIFIED CONTRACTS
It is possible that the Contract Owner and the Annuitant under a Non-Qualified
Contract are not the same person. If this is the case, and the Contract Owner
dies, death benefits must be paid:
- - commencing within 5 years of the date of death; or
- - beginning within 1 year of the date of death under:
- a life annuity with or without a period certain, or
- an annuity for a designated period not extending beyond the life expectancy
of the Beneficiary.
JOINT OWNER SPOUSAL ELECTION INFORMATION
The Beneficiary will receive the Death Benefit payout if:
- - the Contract Owner dies before the Payout Date, or
- - the Annuitant dies during the Annuity Period.
If the Annuitant dies before the Annuity date, the Owner may designate a new
Annuitant or become the Annuitant.
With regard to Joint Owners of a Non-Qualified Contract, the Death Benefit is
payable upon the death of either Owner during the Purchase Period. However, in
the event of your death where the sole Beneficiary of the Non-Qualified Contract
is your spouse, your spouse may continue the Contract as Owner, in lieu of
receiving the Death Benefit.
DURING THE PURCHASE PERIOD
Three types of death benefits are available if death occurs during the Purchase
Period. The Standard Death Benefit, the Optional Enhanced Death Benefit or the
Optional Annual Step-Up Death Benefit. Your choice of death benefit must be made
at the time that the Contract is issued. If you do not make a choice of death
benefit at the time that the contract is issued then you will automatically be
given the Standard Death Benefit. You will be required to pay a charge if you
choose the Optional Enhanced Death Benefit or the Optional Annual Step-Up Death
Benefit. There is no charge for the Standard Death Benefit offered by the
Contract.
STANDARD DEATH BENEFIT
If death occurs before your 80th birthday, then the Death Benefit during the
Purchase Period will be the greater of:
<TABLE>
<S> <C> <C>
- - Your Account Value on the date both proof of
death and election of the payment method are
received by the Company at its Annuity Service
Center;
- 100% of Purchase Payments (to Fixed and/or
Variable Account Options)
- (MINUS)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under a
Payout Option;
OR
- The greatest Account Value on any prior seventh
Contract Anniversary plus any Purchase Payments
made after such Contract Anniversary.
- (MINUS)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under a
Payout Option made after such Contract
Anniversary
</TABLE>
If death occurs at the age of 80 or older, than the Death Benefit during the
Purchase Period will be:
<TABLE>
<S> <C> <C>
Your Account Value on the date both proof of
death and election of the payment method are
received by the Company at its Annuity Service
Center.
</TABLE>
BENEFICIARY -- the person
designated to receive Payout
Payments or the Account Value
upon the death of
an Annuitant or the Owner.
ANNUITANT -- the individual,
(in most cases this person is
you) to whom Payout
Payments will be paid. The
Annuitant is also the
measuring life for the Contract.
FIXED ACCOUNT OPTIONS -- a
particular subaccount into
which your Purchase
Payments and Account Value
may be allocated to fixed
investment options. Currently,
there are two Fixed
Account Options: the non-DCA
Fixed Account Option and the
DCA One Year Guarantee Period
Option. The non-DCA Fixed
Account Option is guaranteed to
earn at least a minimum
rate of interest.
VARIABLE ACCOUNT
OPTIONS -- Investment
Options that correspond to
A.G. Separate Account A
Divisions offered by the
Contract. Investment returns
on Variable Account Options
will be positive or negative
depending on the investment
performance of the
underlying mutual fund.
CONTRACT ANNIVERSARY --the
date that the contract
is issued and each
yearly anniversary
of that date thereafter.
36
<PAGE> 43
- --------------------------------------------------------------------------------
OPTIONAL ENHANCED DEATH BENEFIT
If death occurs before your 75th birthday, then the Death Benefit during the
Purchase Period will be the greater of:
<TABLE>
<S> <C> <C>
- - Your Account Value on the date both proof of
death and election of the payment method are
received by the Company at its Annuity Service
Center;
- 100% of Purchase Payments (to Fixed and/or
Variable Account Options)
- (MINUS)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under a
Payout Option;
- The greatest Account Value or any prior seventh
Contract Anniversary plus any purchase Payments
made after such Contract Anniversary
- (MINUS)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under a
Payout Option made after such Contract
Anniversary;
OR
- The total amount of Purchase Payments made up
to the date of death accumulated at a 3%
interest rate each year
- (MINUS)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under a
Payout Option accumulated at a 3% interest rate
each year,
not to exceed 200% of Purchase Payment made
minus all prior withdrawals and any surrender
charges.
</TABLE>
If death occurs at the age of 75 or older, than the Death Benefit during the
Purchase Period will be the Standard Death Benefit.
You will be charged a fee for choosing the Optional Enhanced Death Benefit, see
the "Fees and Charges" section in this prospectus.
OPTIONAL ANNUAL STEP-UP DEATH BENEFIT
If death occurs before your 75th birthday, then the Death Benefit during the
Purchase Period will be the greater of:
<TABLE>
<S> <C> <C>
- - Your Account Value on the date of proof of death
and election of the payment method are received
by the Company at its Annuity Service Center;
- 100% of Purchase Payments (to Fixed and/or
Variable Account Options)
- (MINUS)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under a
Payout Option;
OR
- The greatest Account Value on any prior
Contract Anniversary plus any purchase Payments
made after such Contract Anniversary
- (MINUS)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under a
Payout Option made after such Contract
Anniversary
</TABLE>
If death occurs at the age of 75 or older, than the Death Benefit during the
Purchase Period will be the Standard Death Benefit.
You will be charged a fee for choosing the Optional Annual Step-Up Death
Benefit, see the "Fees and Charges" section in this prospectus.
DURING THE PAYOUT PERIOD
If the Annuitant dies during the Payout Period, your Beneficiary may receive any
continuing payments under the Payout Option that you selected. The Payout
Options available in the Contract are described in the "Payout Period" section
of this prospectus.
37
<PAGE> 44
HOW TO REVIEW INVESTMENT PERFORMANCE
OF SEPARATE ACCOUNT DIVISIONS
- --------------------------------------------------------------------------------
We will advertise information about the investment performance of A.G. Separate
Account A Divisions. Our advertising of past investment performance results does
not mean that future performance will be the same. The performance information
will not predict what your actual investment experience will be in that Division
or show past performance under an actual contract. We may also show how the
Divisions rank on the basis of data compiled by independent ranking services.
TYPES OF INVESTMENT PERFORMANCE
INFORMATION ADVERTISED
We may advertise the Division's Total Return Performance information and Yield
Performance information.
TOTAL RETURN PERFORMANCE INFORMATION
Total Return Performance Information is based on the overall dollar or
percentage change in value of an assumed investment in a Division over a given
period of time.
There are seven ways Total Return Performance Information may be advertised:
- Standard Average Annual Total Return
- Nonstandard Average Annual Total Return
- Cumulative Total Return
- Annual Change in Purchase Unit Value
- Cumulative Change in Purchase Unit Value
- Total Return Based on Different Investment Amounts
- An Assumed Account Value of $10,000
Each of these is described below.
STANDARD AVERAGE ANNUAL TOTAL RETURN
Standard Average Annual Total Return shows the average percentage change in the
value of an investment in the Division from the beginning to the end of a given
historical period. The results shown are after all charges and fees have been
applied against the Division. This will include account maintenance fees and
surrender charges that would have been deducted if you surrendered the Contract
at the end of each period shown. Premium taxes are not deducted. This
information is calculated for each Division based on how an initial assumed
payment of $1,000 performed at the end of 1, 3, 5 and 10 year periods. If
Standard Average Annual Return for a Division is not available for a stated
period, we may show the Standard Average Annual Return since Division inception.
The return for periods of more than one year are annualized to obtain the
average annual percentage increase (or decrease) during the period.
Annualization assumes that the application of a single rate of return each year
during the period will produce the ending value, taking into account the effect
of compounding.
NONSTANDARD AVERAGE ANNUAL TOTAL RETURN
Nonstandard Average Annual Total Return is calculated in the same manner as the
Standard Average Annual Total Return. However, Nonstandard Average Annual Total
Return shows only the historic investment results of the Division. Account
maintenance fees, surrender charges and premium taxes are not deducted. The SEC
staff takes the position that performance information of an underlying Fund
reduced by Account fees for a period prior to the inception of the corresponding
Division is nonstandard performance information regardless of whether all
Account fees and charges are deducted.
CUMULATIVE TOTAL RETURN
Cumulative Total Return assumes the investment in the Contract will stay in the
Division beyond the time that a surrender charge would apply. It may be
calculated for 1, 3, 5 and 10 year periods. If Cumulative Total Return for a
Division is not available for a stated period, we may show the Cumulative Total
Return since Division inception. It is based on an assumed initial investment of
$10,000. The Cumulative Return will be calculated without deduction of account
maintenance fees, surrender charges or premium taxes.
ANNUAL CHANGE IN PURCHASE UNIT VALUE
Annual Change in Purchase Unit Value is a percentage change during a one year
period or since inception. 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 period or year;
- The difference is divided by the Purchase Unit Value at the start of the
period or year.
Account maintenance fees, surrender charges and premium taxes are not deducted.
The effect of these charges, if deducted, would reduce the Division's Annual
Change in Purchase Unit Value.
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
Cumulative Change in Purchase Unit Value is a percentage change from the
beginning to the ending of a period usually greater than one year.
DIVISIONS -- subaccounts of
A.G. Separate Account A
which represent the Variable
Account Options in the
Contract. Each Division
invests in a different mutual
fund, each having its own
investment objective and
strategy.
PURCHASE PAYMENTS -- an
amount of money you pay to
the Company to receive the benefits
of an annuity Contract offered
by the Contract.
For more information on how
TOTAL RETURN PERFORMANCE
INFORMATION is calculated,
see the Statement of
Additional Information.
38
<PAGE> 45
- --------------------------------------------------------------------------------
Otherwise, it is calculated in the same way as the Annual Change in Purchase
Unit Value.
TOTAL RETURN BASED ON DIFFERENT
INVESTMENT AMOUNTS
We may show total return information based on different investment amounts. For
example, we may show $200 a month for 10 years, or $100 a month to age 65. Fees
may or may not be included. Each performance illustration will explain the
Contract charges and fees imposed on the Division.
AN ASSUMED ACCOUNT VALUE OF $10,000
We may show annual values based on an initial investment of $10,000. This will
not reflect any deduction for account maintenance fees, surrender charges and
premium taxes.
YIELD PERFORMANCE INFORMATION
We may advertise Yield Performance, at a given point in time. A Division's yield
is one way of showing the rate of income the Division is earning as a percentage
of the Division's Purchase Unit Value.
DIVISIONS OTHER THAN MONEY MARKET FUND DIVISIONS
We may advertise the standardized yield performance for each Division. The yield
for each Division will be determined as follows:
- We will subtract the account maintenance fee from the average daily net
investment income per Purchase Unit;
- We will divide the remainder by the Purchase Unit Value on the last day of
the period; and
- We will annualize the result.
PERFORMANCE INFORMATION:
AVERAGE ANNUAL TOTAL RETURN, CUMULATIVE RETURN AND ANNUAL AND CUMULATIVE CHANGE
IN PURCHASE UNIT VALUE TABLES.
In the sections above we have described a number of ways we may advertise
information about the investment performance of A.G. Separate Account A
Divisions. Certain performance information for A.G. Separate Account A Divisions
1-7 is printed in the four tables below.
The information presented does not reflect the advantage under the Contract of
deferring federal income tax on increases in Account Value due to earnings
attributable to Purchase Payments (see "Federal Tax Matters" in this 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 Contract Owner.
39
<PAGE> 46
TABLE I
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE, ENHANCED DEATH BENEFIT CHARGE AND ACCOUNT MAINTENANCE FEE
IMPOSED*
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1998)
<TABLE>
<CAPTION>
DIVISION
INCEPTION SINCE
FUND AND DIVISION** DATE INCEPTION 3 YEARS 1 YEAR
------------------- --------- --------- ------- ------
<S> <C> <C> <C> <C>
American General U.S. Government Securities Portfolio
(Division 4)(1)........................................... 02/06/96 3.70% -- 0.80%
Credit Suisse Growth and Income Portfolio (Division 1)...... 10/20/95 15.08 13.59% 7.37
Credit Suisse International Equity Portfolio (Division 2)... 10/20/95 4.36 3.19 (7.41)
EliteValue Portfolio (Division 3)........................... 01/02/96 14.96 -- 0.05
State Street Global Advisors Growth Equity Portfolio
(Division 5).............................................. 10/20/95 21.63 21.71 14.69
State Street Global Advisors Money Market Portfolio
(Division 6).............................................. 10/10/95 2.36 2.07 (1.43)
Van Kampen Emerging Growth Portfolio (Division 7)........... 01/02/96 22.21 -- 29.42
</TABLE>
- ---------------
* The Performance figures in the Table reflect the investment performance for
the Divisions for the stated periods and should not be used to infer that
future performance will be the same. The performance figures in the Table do
not reflect a deduction for the Annual Step-Up Death Benefit Charge which
first became available under the Contracts on June 1, 1998.
** The AIM V.I. Capital Appreciation Fund Division 8, the AIM V.I. Diversified
Income Fund Division 9, the Oppenheimer Capital Appreciation Fund/VA
Division 10, the Oppenheimer High Income Fund/VA Division 12, the
Oppenheimer Main Street Growth & Income Fund/VA Division 11, the Oppenheimer
Small Cap Growth Fund/VA Division 13, the Templeton Developing Markets
Fund -- Class 2 Division 14 and the Templeton International Fund -- Class 2
Division 15 have only recently been offered through ElitePlus Bonus.
Accordingly, no performance information is available for such Divisions.
(1) The American General U.S. Government Securities Portfolio was formerly known
as the Salomon Brothers U.S. Government Securities Portfolio.
40
<PAGE> 47
TABLE II
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE, ENHANCED DEATH BENEFIT CHARGE OR ACCOUNT MAINTENANCE
FEE IMPOSED*
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1998)
<TABLE>
<CAPTION>
INCEPTION SINCE
FUND AND DIVISION** DATE INCEPTION 3 YEARS 1 YEAR
------------------- --------- --------- ------- ------
<S> <C> <C> <C> <C>
American General U.S. Government Securities Portfolio
(Division 4).............................................. 02/06/96 5.30% -- 5.98%
Credit Suisse Growth and Income Portfolio (Division 1)...... 10/20/95 16.26 15.07% 12.57
Credit Suisse International Equity Portfolio (Division 2)... 10/20/95 5.78 4.91 (2.24)
EliteValue Portfolio (Division 3)........................... 01/02/96 16.23 -- 5.23
State Street Global Advisors Growth Equity Portfolio
(Division 5).............................................. 10/20/95 22.69 23.04 19.90
State Street Global Advisors Money Market Portfolio
(Division 6).............................................. 10/10/95 3.83 3.83 3.76
Van Kampen Emerging Growth Portfolio (Division 7)........... 01/02/96 23.38 -- 34.65
</TABLE>
- ---------------
* The Performance figures in the Table reflect the investment performance for
the Divisions for the stated periods and should not be used to infer that
future performance will be the same.
** The AIM V.I. Capital Appreciation Fund Division 8, the AIM V.I. Diversified
Income Fund Division 9, the Oppenheimer Capital Appreciation Fund/VA Division
10, the Oppenheimer High Income Fund/VA Division 12, the Oppenheimer Main
Street Growth & Income Fund/VA Division 11, the Oppenheimer Small Cap Growth
Fund/VA Division 13, the Templeton Developing Markets Fund -- Class 2
Division 14 and the Templeton International Fund -- Class 2 Division 15 have
only recently been offered through ElitePlus Bonus. Accordingly, no
performance information is available for such Divisions.
41
<PAGE> 48
TABLE III
CUMULATIVE RETURN
WITH NO SURRENDER CHARGE, ENHANCED DEATH BENEFIT CHARGE OR ACCOUNT MAINTENANCE
FEE IMPOSED*
(FROM SEPARATE ACCOUNT DIVISION INCEPTION TO DECEMBER 31, 1998)
<TABLE>
<CAPTION>
DIVISION
INCEPTION SINCE
FUND AND DIVISION** DATE INCEPTION 3 YEARS 1 YEAR
------------------- --------- --------- ------- ------
<S> <C> <C> <C> <C>
American General U.S. Government Securities Portfolio
(Division 4).............................................. 02/06/96 16.16% -- 5.98%
Credit Suisse Growth and Income Portfolio (Division 1)...... 10/20/95 61.94 52.37% 12.57
Credit Suisse International Equity Portfolio (Division 2)... 10/20/95 19.69 15.48 (2.24)
EliteValue Portfolio (Division 3)........................... 01/02/96 56.94 -- 5.23
State Street Global Advisors Growth Equity Portfolio
(Division 5).............................................. 10/20/95 92.38 86.26 19.90
State Street Global Advisors Money Market Portfolio
(Division 6).............................................. 10/10/95 12.90 11.93 3.76
Van Kampen Emerging Growth Portfolio (Division 7)........... 01/02/96 87.72 -- 34.65
</TABLE>
- ---------------
* The Performance figures in the Table reflect the investment performance for
the Divisions for the stated periods and should not be used to infer that
future performance will be the same.
** The AIM V.I. Capital Appreciation Fund Division 8, the AIM V.I. Diversified
Income Fund Division 9, the Oppenheimer Capital Appreciation Fund/VA Division
10, the Oppenheimer High Income Fund/VA Division 12, the Oppenheimer Main
Street Growth & Income Fund/VA Division 11, the Oppenheimer Small Cap Growth
Fund/VA Division 13, the Templeton Developing Markets Fund -- Class 2
Division 14 and the Templeton International Fund -- Class 2 Division 15 have
only recently been offered through ElitePlus Bonus. Accordingly, no
performance information is available for such Divisions.
42
<PAGE> 49
TABLE IV
ANNUAL AND CUMULATIVE CHANGE IN PURCHASE UNIT VALUE*
WITH NO SURRENDER CHARGE, ENHANCED DEATH BENEFIT CHARGE OR ACCOUNT MAINTENANCE
FEE IMPOSED
(PERIOD FROM SEPARATE ACCOUNT DIVISION INCEPTION)
<TABLE>
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR
THE 12 MONTHS ENDED DECEMBER 31
-----------------------------------------
FUND AND DIVISION** 1998 1997 1996 1995
------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
American General U.S. Government Securities Portfolio
(Division 4).............................................. 5.98% 7.36% 2.08% --
Credit Suisse Growth and Income Portfolio (Division 1)...... 12.57 20.62 12.22 6.28%
Credit Suisse International Equity Portfolio (Division 2)... (2.24) 2.84 14.86 3.65
Elite Value Portfolio (Division 3).......................... 5.23 19.39 24.92 --
State Street Global Advisors Growth Equity Portfolio
(Division 5).............................................. 19.90 29.83 19.65 3.29
State Street Global Advisors Money Market Portfolio
(Division 6).............................................. 3.76 4.02 3.71 0.86
Van Kampen Emerging Growth Portfolio (Division 7)........... 34.65 18.76 17.39 --
</TABLE>
- ------------
* The performance figures in the Table reflect the investment performance for
the Divisions for the stated periods and should not be used to infer that
future performance will be the same. The AIM V.I. Capital Appreciation Fund
Division 8, the AIM V.I. Diversified Income Fund Division 9, the Oppenheimer
Capital Appreciation Fund/VA Division 10, the Oppenheimer High Income
Fund/VA Division 12, the Oppenheimer Main Street Growth & Income Fund/VA
Division 11, the Oppenheimer Small Cap Growth Fund/VA Division 13, the
Templeton Developing Markets Fund -- Class 2 Division 14 and the Templeton
International Fund -- Class 2 Division 15 have only recently been offered
through ElitePlus Bonus. Accordingly, no performance information is
available for such Divisions.
** For the year in which the underlying Fund commenced operations, less than a
full year's performance has been reflected, which is not annualized.
<TABLE>
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT
VALUE FOR EACH PERIOD END SINCE
12/31/95
------------------------------------
FUND AND DIVISION** 1998 1997 1996 1995
------------------- ------- ------- ------- ------
<S> <C> <C> <C> <C>
American General U.S. Government Securities Portfolio
(Division 4).............................................. 16.16% 9.60% 2.08% --
Credit Suisse Growth and Income Portfolio (Division 1)...... 61.94 43.86 19.27 6.28%
Credit Suisse International Equity Portfolio(Division 2).... 19.69 22.43 19.05 3.65
Elite Value Portfolio (Division 3).......................... 56.94 49.14 24.92 --
State Street Global Advisors Growth Equity Portfolio
(Division 5).............................................. 92.38 60.46 23.59 3.29
State Street Global Advisors Money Market Portfolio
(Division 6).............................................. 12.90 8.81 4.60 0.86
Van Kampen Emerging Growth Portfolio (Division 7)........... 87.72 39.41 17.39 --
</TABLE>
- ------------
* The performance figures in the Table reflect the investment performance for
the Divisions for the stated periods and should not be used to infer that
future performance will be the same. The AIM V.I. Capital Appreciation Fund
Division 8, the AIM V.I. Diversified Income Fund Division 9, the Oppenheimer
Capital Appreciation Fund/VA Division 10, the Oppenheimer High Income
Fund/VA Division 12, the Oppenheimer Main Street Growth & Income Fund/VA
Division 11, the Oppenheimer Small Cap Growth Fund/VA Division 13, the
Templeton Developing Markets Fund -- Class 2 Division 14 and the Templeton
International Fund -- Class 2 Division 15 have only recently been offered
through ElitePlus Bonus. Accordingly, no performance information is
available for such Divisions.
** For the year in which the underlying Fund commenced operations, less than a
full year's performance has been reflected, which is not annualized.
43
<PAGE> 50
OTHER CONTRACT FEATURES
- --------------------------------------------------------------------------------
CHANGE OF BENEFICIARY
The Beneficiary (if not irrevocable) may usually be changed at any time.
The right to name or change a Beneficiary may be 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 Owner dies, and there is no Beneficiary, any death benefit will be
payable to the Owner'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"
You may cancel the 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 you within 7 days after receipt of the Contract within the
required period. The refund amount will be your Purchase Payment, adjusted to
reflect investment experience within the State Street Global Advisors Money
Market Portfolio Division 6.
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 A.G. Separate Account A as a management investment company under the
Investment Company Act of 1940 ("1940 Act"), in consideration of an
investment management fee or in any other form permitted by law; and
- Deregister A.G. Separate Account A under the 1940 Act, if registration is no
longer required.
44
<PAGE> 51
VOTING RIGHTS
- --------------------------------------------------------------------------------
As discussed in the "About A.G. Separate Account A" section of this prospectus,
A.G. Separate Account A holds on your behalf shares of the Funds which comprise
the Variable Account Options. From time to time the Funds are required to hold a
shareholder meeting to obtain approval from their shareholders for certain
matters. As a Contract Owner, you may be entitled to give voting instructions to
us as to how A.G. Separate Account A should vote its Fund shares on these
matters. Those persons entitled to give voting instructions will be determined
before the shareholders meeting is held. For more information about these
shareholder meetings and when they may be held, see the Funds' prospectuses.
WHO MAY GIVE VOTING INSTRUCTIONS
In most cases during the Purchase Period, you will have the right to give voting
instructions for the shareholder meetings. Contract Owners will instruct A.G.
Separate Account A in accordance with these instructions. You will receive proxy
material and a form on which voting instructions may be given before the
shareholder meeting is held.
You will not have the right to give voting instructions if the Contract was
issued in connection with a nonqualified and unfunded deferred compensation
plan.
DETERMINATION OF FUND SHARES
ATTRIBUTABLE TO YOUR ACCOUNT
During Purchase Period
The number of Fund shares attributable to your account will be determined on the
basis of the Purchase Units credited to your account on the record date set for
the Fund shareholder meeting.
During Payout Period or after a Death
Benefit Has Been Paid
The number of Fund shares attributable to your account will be based on the
liability for future variable annuity payments to your payees on the record date
set for the Fund shareholder meeting.
HOW FUND SHARES ARE VOTED
The Funds which comprise the Variable Account Options in the Contract may have a
number of shareholders including A.G. Separate Account A, the Company, other
affiliated insurance company separate accounts and retirement plans within the
American General group of companies and public shareholders.
A.G. Separate Account A will vote all of the shares of the Funds it holds based
on, and in the same proportion as, the instructions given by all the Contract
Owners invested in that Fund entitled to give instructions at that shareholder
meeting. A.G. Separate Account A will vote the shares of the Funds it holds for
which it receives no voting instruction in the same proportion as the shares for
which voting instructions have been received.
The Company will vote the shares of the Funds it holds based on, and in the same
proportion as, the voting instructions received from Contract Owners.
In the future, we may decide how to vote the shares of the Company or A.G.
Separate Account A in a different manner if permitted at that time under federal
securities law.
CONTRACT OWNER -- the person
entitled to the ownership rights
as stated in this prospectus.
A.G. SEPARATE
ACCOUNT A -- a segregated
asset account established by
the Company under the Texas
Insurance Code. The purpose
of A.G. Separate Account A
is to receive and invest your
Purchase Payments and
Account Value in the Variable
Account Options you have
selected.
45
<PAGE> 52
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
The Contract provides tax-deferred accumulation over time, but is subject to
federal income and excise taxes, mentioned briefly below. You should refer to
the Statement of Additional Information for further details. Section references
are to the Internal Revenue Code ("Code"). We do not attempt to describe any
potential estate or gift tax, or any applicable state, local or foreign tax law
other than possible premium taxes mentioned under "Premium Tax Charge." Remember
that future legislation could modify the rules discussed below, and always
consult your personal tax adviser regarding how the current rules apply to your
specific situation.
TYPE OF PLANS
Tax rules vary, depending on whether the Contract is offered under your
employer's tax-qualified retirement program or 408(b) IRA, or is instead a
nonqualified Contract. The Contract is used under the following types of
retirement arrangements:
- Section 403(b) annuities for employees
of public schools and
Section 501(c)(3) tax-exempt
organizations;
- Section 408(b) individual retirement annuities.
The foregoing Contracts are "Qualified Contracts." Certain series of the
Contract may also be available through a nondeductible Section 408A "Roth"
individual retirement annuity.
Note that the specific terms of the governing employer plan may limit rights and
options otherwise available under a Contract.
In addition, the Contract is also available through "Non-Qualified Contracts."
Such Non-Qualified Contracts generally include unfunded, nonqualified deferred
compensation plans of corporate employers, as well as individual annuity
contracts issued to individuals outside of the context of any formal employer or
employee retirement plan or arrangement. Non-Qualified Contracts generally may
invest only in mutual funds which are not available to the general public
outside of annuity contracts or life insurance contracts.
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 Contract 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.
Transfers among investment options within a variable annuity contract generally
are not taxed at the time of such a transfer. However, in 1986 the Internal
Revenue Service (IRS) indicated that limitations might be imposed with respect
to either the number of investment options available within a contract, or the
frequency of transfers between investment options, or both, in order for the
contract to be treated as an annuity contract for federal income tax purposes.
If imposed, such limitations could be applied to qualified contracts as well as
nonqualified contracts, and the Company can provide no assurance that such
limitations would not be imposed on a retroactive basis to contracts issued
under this prospectus. However, the Company has no present indication that the
IRS intends to impose such limitation, or what the terms or scope of those
limitations might be.
Distributions are taxed differently depending on the program through which the
Contract is offered and the previous tax characterization of the contributions
to which the distribution relates. Generally, the portion of a distribution
which is not considered a return of investment in the Contract is subject to
income tax. For annuity payments, investment in the contract is recovered
ratably over the expected payout period. Special recovery rules might apply in
certain situations.
Amounts subject to income tax may also incur excise tax under the circumstances
described in the Statement of Additional Information. Generally, distributions
would also be subject to some form of federal income tax withholding unless
rolled into another tax-deferred vehicle.
46
<PAGE> 53
- --------------------------------------------------------------------------------
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 natural persons will be taxed currently to the owner, and such
contracts will not be treated as annuities for federal income tax purposes.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The chart below compares the results from
Premium Payments made to:
- The Contract issued to a tax-favored retirement program purchased with
pre-tax premium payments;
- A non-qualified Contract purchased with after-tax Premium Payments and;
- Conventional savings vehicles such as savings accounts.
THE POWER OF TAX-DEFERRED GROWTH
[BAR GRAPH]
This hypothetical chart compares the results of (1) contributing $100 per month
to a conventional, non-tax deferred plan, (2) contributing $100 to a
nonqualified, tax-deferred annuity, and (3) contributing $100 per month ($138.89
since contributions are made before tax) to a tax-deferred plan such as a 403(b)
annuity. The chart assumes a 28% tax rate and an 8% fixed rate of return.
Variable options incur mortality and expense risk fee and administration fee
charges and may also incur account maintenance fees and surrender charges. The
chart does not reflect the deduction of any such fees. The dotted lines
represent the amounts remaining after withdrawal and payment of taxes and any
surrender charge. An additional 10% tax penalty may apply to withdrawals before
age 59 1/2. This information is for illustrative purposes only and is not a
guarantee of future return.
Unlike savings accounts, Premium Payments made to tax-favored retirement
programs and Non-Qualified Contracts generally provide tax deferred treatment of
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......... $2,000 $2,000
Current federal income
tax due on Purchase
Payments.............. 0 (560)
Net retirement
contribution Purchase
Payments.............. $2,000 $1,440
</TABLE>
This chart assumes a 28% federal income tax rate. The $560 which is paid toward
current federal income taxes reduces the actual amount saved in the conventional
savings account to $1,440 while the full $2,000 is contributed to the
tax-qualified program, subject to being taxed upon withdrawal. Stated otherwise,
to reach an annual retirement savings goal of $2,000, the contribution to a
tax-qualified retirement program results in a current
47
<PAGE> 54
- --------------------------------------------------------------------------------
out-of-pocket expense of $1,440 while the contribution to a conventional savings
account requires the full $2,000 out-of-pocket expense. The tax-qualified
retirement program represented in this chart is a plan type, such as one under
Section 403(b) of the Code, which allows participants to exclude contributions
within limits, from gross income.
48
<PAGE> 55
YEAR 2000
- --------------------------------------------------------------------------------
YEAR 2000 RISKS
Like other organizations and individuals around the world, the Company could be
adversely affected if the computer systems used by the Company, as well as by
other service providers over which the Company 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." The
Company is taking steps that it believes are reasonably designed to address the
Year 2000 Problem with respect to the computer systems the Company uses. The
following are some of the initiatives being taken by the Company to deal with
the Year 2000 Problem.
- - INTERNAL SYSTEMS. The Company 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 the Company's information technology and non-information
technology systems; (2) assess which items in the inventory may expose the
Company 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. The Company has relationships with various third parties
that must also be Year 2000 ready. Third parties are companies that provide
certain services to the Company. Third parties are different from internal
systems in that the Company has less, or no, control over their Year 2000
readiness. The Company has developed a plan to review and try to lessen the
Year 2000 risks of third parties. As of December 31, 1998, the Company has
substantially completed its review of third party Year 2000 risks. The Company
intends to test third party Year 2000 readiness throughout 1999.
- - CONTINGENCY PLANS. The Company 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.
The Company expects to substantially complete all contingency planning
activities by April 30, 1999.
RISKS AND UNCERTAINTIES. Based on the above, the Company 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 the Company's operations or financial condition. However, it is
impossible to know exactly how the Year 2000 Problem will affect the Company. In
addition, third party Year 2000 Problems may have a significant impact on the
Company.
Through December 1998, the Company has incurred and expensed over $1 million
(pretax) related to Year 2000 readiness. The Company currently anticipates that
it will incur future costs of over $550,000 for additional internal staff, third
party vendors, and other expenses to maintain readiness and complete third party
contingency plans.
49
<PAGE> 56
Please tear off, complete and return the form below to the Annuity Service
Center at the address shown on the inside back cover of this Prospectus. A
Statement of Additional Information may also be ordered by calling
1-800-424-4990.
................................................................................
THE CONTRACTS
Please send me a free copy of the Statement of Additional Information for A.G.
Separate Account A (ElitePlus Bonus).
(Please Print or Type)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Name: Policy #
Address:
Social Security Number:
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 57
(This page intentionally left blank)
<PAGE> 58
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information.............................. 3
Marketing Information........................ 3
Endorsements and Published Ratings........... 4
Types of Variable Annuity Contracts.............. 4
Variable Annuity Contract General Provisions..... 5
Federal Tax Matters.............................. 5
Tax Consequences of Purchase Payments........ 5
Tax Consequences of Distributions............ 7
Special Tax Consequences -- Early
Distribution.............................. 8
Special Tax Consequences -- Required
Distributions............................. 8
Tax Free Rollovers, Transfers and
Exchanges................................. 9
Exchange Privilege............................... 9
Information Which May Be Applicable To Any
Exchange.................................. 9
Calculation of Surrender Charge.................. 10
Illustration of Surrender Charge on Total
Surrender................................. 10
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender................................. 10
Purchase Unit Value.............................. 11
Illustration of Calculation of Purchase Unit
Value..................................... 11
Illustration of Purchase of Purchase Units... 11
Performance Calculations......................... 12
Money Market Division Yield...................... 12
Illustration of Calculation of Current Yield
for Money Market Division................. 12
Illustration of Calculation of Effective
Yield for Money Market Division........... 12
Standardized Yield for Bond Fund Divisions....... 12
Illustration of Calculation of Standardized
Yield for Bond Fund Divisions............. 12
Calculation of Average Annual Total Return... 13
Performance Information.......................... 14
Hypothetical $10,000 Account Value and
Cumulative Return as Compared to Benchmark
Tables.................................... 14
Performance Compared to Market Indices....... 14
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
American General U.S. Government Securities
Portfolio Division Four................... 16
Credit Suisse Growth and Income Portfolio
Division One.............................. 16
Credit Suisse International Equity Portfolio
Division Two.............................. 17
EliteValue Portfolio Division Three.......... 17
State Street Global Advisors Growth Equity
Portfolio Division Five................... 18
State Street Global Advisors Money Market
Portfolio Division Six.................... 18
Van Kampen Emerging Growth Portfolio Division
Seven..................................... 19
AIM V.I. Diversified Income Fund Division
Nine...................................... 19
AIM V.I. Capital Appreciation Fund Division
Eight..................................... 19
Oppenheimer Capital Appreciation Fund/VA
Division Ten.............................. 19
Oppenheimer High Income Fund/VA Division
Twelve.................................... 19
Oppenheimer Main Street Growth & Income
Fund/VA Division Eleven................... 19
Oppenheimer Small Cap Growth Fund/VA Division
Thirteen.................................. 20
Templeton Developing Markets Fund -- Class 2
Division Fourteen......................... 20
Templeton International Fund -- Class 2
Division Fifteen.......................... 20
Payout Payments.................................. 21
Assumed Investment Rate...................... 21
Amount of Payout Payments.................... 21
Payout Unit Value............................ 21
Illustration of Calculation of Payout Unit
Value..................................... 22
Illustration of Payout Payments.............. 22
Distribution of Variable Annuity Contracts....... 23
Experts.......................................... 23
Comments on Financial Statements................. 23
</TABLE>
<PAGE> 59
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FOR ADDITIONAL INFORMATION ABOUT THE CONTRACTS
CONTACT THE ANNUITY SERVICE CENTER:
205 E. 10TH AVENUE
AMARILLO, TEXAS 79101
1-800-424-4990
PURCHASE PAYMENTS SHOULD BE SENT TO:
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
P.O. BOX 5429
BOSTON, MA 02206-5429 (IF SENT BY MAIL)
OR
STATE STREET BANK AND TRUST COMPANY
ATTENTION LOCK BOX A3W
1776 HERITAGE DRIVE
NORTH QUINCY, MA 02171 (IF SENT BY OVERNIGHT DELIVERY)
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
1-800-424-4990
FOR UNIT VALUE INFORMATION CALL: 1-800-424-4990
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-800-424-4990
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 60
- --AMERCAN GENERAL LOGO--
AMERICAN GENERAL ANNUITY
INSURANCE COMPANY
Executive Offices: Houston, Texas
Variable Annuity Service Center:
205 E. 10th Avenue
P.O. Box 871
Amarillo, Texas 79105-0871
1-800-424-4990
<PAGE> 61
THE AMERICAN GENERAL ANNUITY INSURANCE COMPANY
A.G. SEPARATE ACCOUNT A
UNITS OF INTEREST UNDER FLEXIBLE PREMIUM
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACTS
ELITEPLUS BONUS
--------------------------------------------------------------------
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 Individual
Flexible Premium Fixed and Variable Deferred Annuity Contracts dated May 1, 1999
("Contracts") and should be read in conjunction with the prospectus. The terms
used in this Statement of Additional Information have the same meaning as those
set forth in the prospectus. A prospectus may be obtained by calling or writing
the Company, at 205 E. 10th Avenue, Amarillo, Texas 79101; 1-800-424-4990.
Prospectuses are also available from registered sales representatives.
1
<PAGE> 62
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information.............................. 3
Marketing Information........................ 3
Endorsements and Published Ratings........... 4
Types of Variable Annuity Contracts.............. 4
Variable Annuity Contract General Provisions..... 5
Federal Tax Matters.............................. 5
Tax Consequences of Purchase Payments........ 5
Tax Consequences of Distributions............ 7
Special Tax Consequences -- Early
Distribution.............................. 8
Special Tax Consequences -- Required
Distributions............................. 8
Tax Free Rollovers, Transfers and
Exchanges................................. 9
Exchange Privilege............................... 9
Information Which May Be Applicable To Any
Exchange.................................. 9
Calculation of Surrender Charge.................. 10
Illustration of Surrender Charge on Total
Surrender................................. 10
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender................................. 10
Purchase Unit Value.............................. 11
Illustration of Calculation of Purchase Unit
Value..................................... 11
Illustration of Purchase of Purchase Units... 11
Performance Calculations......................... 12
Money Market Division Yield...................... 12
Illustration of Calculation of Current Yield
for Money Market Division................. 12
Illustration of Calculation of Effective
Yield for Money Market Division........... 12
Standardized Yield for Bond Fund Divisions....... 12
Illustration of Calculation of Standardized
Yield for Bond Fund Divisions............. 12
Calculation of Average Annual Total Return... 13
Performance Information.......................... 14
Hypothetical $10,000 Account Value and
Cumulative Return as Compared to Benchmark
Tables.................................... 14
Performance Compared to Market Indices....... 14
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
American General U.S. Government Securities
Portfolio Division Four................... 16
Credit Suisse Growth and Income Portfolio
Division One.............................. 16
Credit Suisse International Equity Portfolio
Division Two.............................. 17
EliteValue Portfolio Division Three.......... 17
State Street Global Advisors Growth Equity
Portfolio Division Five................... 18
State Street Global Advisors Money Market
Portfolio Division Six.................... 18
Van Kampen Emerging Growth Portfolio Division
Seven..................................... 19
AIM V.I. Capital Appreciation Fund Division
Eight..................................... 19
AIM V.I. Diversified Income Fund Division
Nine...................................... 19
Oppenheimer Capital Appreciation Fund/VA
Division Ten.............................. 19
Oppenheimer Main Street Growth & Income
Fund/VA Division Eleven................... 19
Oppenheimer High Income Fund/VA Division
Twelve.................................... 19
Oppenheimer Small Cap Growth Fund/VA Division
Thirteen.................................. 20
Templeton Developing Markets Fund -- Class 2
Division Fourteen......................... 20
Templeton International Fund -- Class 2
Division Fifteen.......................... 20
Payout Payments.................................. 21
Assumed Investment Rate...................... 21
Amount of Payout Payments.................... 21
Payout Unit Value............................ 21
Illustration of Calculation of Payout Unit
Value..................................... 22
Illustration of Payout Payments.............. 22
Distribution of Variable Annuity Contracts....... 23
Experts.......................................... 23
Comments on Financial Statements................. 23
</TABLE>
2
<PAGE> 63
GENERAL INFORMATION
THE COMPANY
American General Annuity Insurance Company develops, markets, and issues
annuity products through niche distribution channels. We market single-premium
deferred annuities to the savings and retirement markets, flexible-premium
deferred annuities to the tax-qualified retirement market, and single-premium
immediate annuities to the structured settlement and retirement markets. The
Company distributes its annuity products primarily through financial
institutions, general agents, and specialty brokers. As of December 31, 1998,
the Company had over $16 billion in assets.
The Company is licensed to do business in 47 states, Puerto Rico and the
District of Columbia and is incorporated in the state of Texas. We are a
wholly-owned subsidiary of Western National Corporation. Western National
Corporation is a wholly-owned subsidiary of AGC Life Insurance Company, a
subsidiary of American General Corporation. Effective February 25, 1998, we
changed our name from Western National Life Insurance Company to American
General Annuity Insurance Company. Our executive offices are located at 2929
Allen Parkway, Houston, TX 77019.
MARKETING INFORMATION
The Company may, from time-to-time, refer to itself in certain marketing
materials as American General Annuity. Furthermore, the Company may, from
time-to-time refer to American General Retirement Services. American General
Retirement Services is a financial reporting segment of American General
Corporation. The Company and The Variable Annuity Life Insurance Company are the
two insurance companies that constitute American General Retirement Services.
The Company may compare the performance of the Divisions to the S&P 500
Index, S&P 500 & Lehman Brothers Aggregate Index, Lipper Variable Annuity Flex
Portfolio IX, Lipper Variable Annuity Mid-Cap Index, Salomon Brothers 1-10 Yr.
Treasury Index, Europe, Australia and Far East Index, or any other appropriate
market index. The indexes are not managed funds and have no identifiable
investment objectives.
The Company, in its marketing efforts, may also refer to the following
investment advisers referenced in the Prospectus.
The Company may, from time-to-time, refer to A I M Advisors, Inc. (AIM)
and/or AIM Management Group Incorporated (AIM Management), as investment adviser
to the AIM V.I. Capital Appreciation Fund (underlying Division Eight) and the
AIM V.I. Diversified Income Fund (underlying Division Nine). AIM Management was
found in 1976 by three members of the current senior management team. Their
strategy held that investment management has two basic requirements: clearly
conceived strategies and a disciplined investment process. These strategies
still remain the strengths of AIM Management today. With approximately $101
billion in assets under management and more than 5.2 million shareholders as of
June 30, 1998, AIM Management is one of the nation's largest and most respected
mutual fund firms.
The Company may, from time-to-time refer to OppenheimerFunds, Inc.
(OppenheimerFunds) as investment adviser to the Oppenheimer Capital Appreciation
Fund/VA (underlying Division Ten), the Oppenheimer Main Street Growth & Income
Fund/VA (underlying Division Eleven) the Oppenheimer High Income Fund/VA
(underlying Division Twelve) and the Oppenheimer Small Cap Growth Fund/VA
(underlying Division Thirteen). Oppenheimer is one of the largest and most
respected investment managers in the mutual fund business. Founded in 1959,
Oppenheimer (and its subsidiary) manages more than $85 billion in mutual fund
accounts as of August 1, 1998. Oppenheimer advises a broad range of mutual
funds, covering the risk/reward spectrum while combining discipline, collective
insight and individual accountability into its investment process.
The Company may, from time-to-time refer to Templeton Asset Management,
Ltd. (Templeton) as investment adviser to the Templeton Developing Markets Fund
(underlying Division Fourteen) and to Templeton Investment Council, Inc.
(Templeton) as investment adviser the Templeton International Fund (underlying
Division Fifteen). Templeton has served investors for more than fifty years,
having grown from a small family of funds to a global financial services leader.
Today, Templeton is part of the Franklin Templeton Group which serves more than
8.7 million shareholders, who, as of March 31, 1999, have entrusted Franklin
Templeton with more than $216 billion in assets.
The Company may, from time-to-time, refer to the following sub-advisers:
Credit Suisse Asset Management sub-adviser to the Credit Suisse Growth and
Income Portfolio (underlying Division One); Credit Suisse Asset Management, Ltd.
investment sub-adviser to the Credit Suisse Interna-
3
<PAGE> 64
tional Equity Portfolio (underlying Division Two); OpCap Advisors investment
sub-adviser to the EliteValue Portfolio (underlying Division Three); State
Street Global Advisors investment sub-adviser to the State Street Global
Advisors Growth Equity Portfolio (underlying Division Five) and the State Street
Global Advisors Money Market Portfolio (underlying Division Six); and Van Kampen
Asset Management Inc. investment sub-adviser to the Van Kampen Emerging Growth
Portfolio (underlying Division Seven).
The Company may, from time-to-time compare the performance of the funds
that serve as investment vehicles for the Contract to the performance of certain
market indices. These indices are described in the "Performance Information"
Section of this Statement of Additional Information.
ENDORSEMENTS AND
PUBLISHED RATINGS
Also from time to time, the rating of the Company as an insurance company
by A. M. Best may be referred to in advertisements or in reports to Contract
Owners. Each year the A. M. Best Company reviews the financial status of
thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect their current opinion of the relative financial strength and
operating performance of an insurance company in comparison to the norms of the
life/health insurance industry. Best's Ratings range from A++ to F.
In addition, the claims-paying ability of the Company as measured by the
Standard and Poor's Ratings Group may be referred to in advertisements or in
reports to Contract Owners. A Standard and Poor's insurance claims-paying
ability rating is an assessment of an operating insurance company's financial
capacity to meet the obligations of its insurance policies in accordance with
their terms. Standard and Poor's ratings range from AAA to D.
Further, from time to time the Company may refer to Moody's Investor's
Service's rating of the Company. Moody's Investor's Service's financial strength
ratings indicate an insurance company's ability to discharge senior policyholder
obligations and claims and are based on an analysis of the insurance company and
its relationship to its parent, subsidiaries and affiliates. Moody's Investor's
Service's ratings range from Aaa to C.
The Company may additionally refer to its Duff & Phelp's rating. A Duff &
Phelp's rating is an assessment of a company's insurance claims paying ability.
Duff & Phelp's ratings range from AAA to CCC.
Ratings relate to the claims paying ability of the Company's General
Account and not the investment characteristics of the Separate Account.
The Company may from time to time, refer to Lipper Analytical Services
Incorporated ("Lipper"), Morningstar, Inc. ("Morningstar") and CDA/Wiesenberger
Investment Companies (CDA/Wiesenberger) when discussing the performance of its
Divisions. Lipper, Morningstar and CDA/Wiesenberger are leading publishers of
statistical data about the investment company industry in the United States.
Additionally, the Company may compare the performance of the Divisions to
categories published by Lipper and Morningstar. The published categories which
may be utilized in comparison with the performance of the Divisions include the
Morningstar Growth and Income Mutual Fund Category, Morningstar Aggressive
Growth Mutual Fund Category, Morningstar Growth Mutual Fund Category,
Morningstar International Stock Mutual Fund Category, Lipper Growth and Income
Mutual Fund Category, Lipper Small Company Growth Mutual Fund Category, Lipper
Growth Mutual Fund Category and Lipper International Mutual Fund Category.
Additional Lipper or Morningstar categories may be utilized if they are deemed
by the Company relevant to the performance of the Company's Divisions.
The Company may, from time to time, refer to The Variable Annuity Research
& Data Services (VARDS) Report. The VARDS Report offers monthly analysis of the
variable annuity industry, including marketing and performance information.
Finally, the Company will utilize as a comparative measure for the
performance of its Funds the Consumer Price Index ("CPI"). The CPI is a measure
of change in consumer prices, as determined in a monthly survey of the U.S.
Bureau of Labor Statistics. Housing costs, transportation, food, electricity,
changes in taxes and labor costs are among the CPI components. The CPI provides
a tool for determining the impact of inflation on an individual's purchasing
power.
TYPES OF VARIABLE ANNUITY
CONTRACTS
The Contracts offered in connection with the prospectus to which this
Statement of Additional Information relates, are flexible payment deferred
annuity Contracts.
4
<PAGE> 65
Under flexible payment Contracts, Purchase Payments generally are made
until retirement age is reached. However, no Purchase Payments are required to
be made after the first payment. Purchase Payments are subject to any minimum
payment requirements under the Contract. Purchase Payments are invested and
accumulate on a fixed or variable basis until the date the Contract Owner
selects to commence annuity payments.
The majority of these Contract will be sold to individuals through
financial institutions in the Non-Qualified market. A smaller number of these
contracts will be sold in the Qualified market through 403(b) plans and certain
IRA situations.
The Contracts are non-participating and will not share in any of the
profits of the Company.
VARIABLE ANNUITY CONTRACT GENERAL PROVISIONS
THE CONTRACT: The entire Contract consists of the Contract, the
Application, if any, and any riders or endorsements attached to the Contract.
The Contract may be changed or altered only by an authorized officer of the
Company. A change or alteration must be made in writing.
MISSTATEMENT OF AGE OR SEX: If the Age or sex of any Annuitant has been
misstated, any Annuity benefits payable will be the Annuity benefits provided by
the correct Age or sex. After Annuity Payments have begun, any underpayments
will be made up in one sum with the next Annuity Payment. Any overpayments will
be deducted from future Annuity Payments until the total is repaid.
MODIFICATION: The Contract may be modified in order to maintain compliance
with applicable state and federal law. When required, the Company will obtain
the Owner's approval of changes and gain approval from appropriate regulatory
authorities.
NON-PARTICIPATING: The Contract will not share in any distribution of
dividends.
EVIDENCE OF SURVIVAL: The Company may require satisfactory evidence of
continued survival of any person(s) on whose life Annuity Payments are based.
PROOF OF AGE: The Company may require evidence of Age of any Annuitant or
Owner.
PROTECTION OF PROCEEDS: To the extent permitted by law, death benefits and
Annuity Payments shall be free from legal process and the claim of any creditor
if the person is entitled to them under the Contract. No payment and no amount
under the Contract can be taken or assigned in advance of its payment date
unless the Company receives the Owner's written consent.
REPORTS: At least once each calendar year, the Company will furnish the
Owner with a report showing the Contract Value as of a date not more than four
months prior to the date of mailing, and will provide any other information as
may be required by law. Reports will be sent to the last known address of the
Owner.
TAXES: Any taxes paid to any governmental entity relating to the Contract
will be deducted from the Purchase Payment or Contract Value when incurred. The
Company will, in its sole discretion, determine when taxes have resulted from:
the investment experience of the Separate Account; receipt by the Company of the
Purchase Payments; or commencement of Annuity Payments. The Company may, in its
sole discretion, pay taxes when due and deduct that amount from the Contract
Value at a later date. Payment at an earlier date does not waive any right the
Company may have to deduct amounts at a later date. While the Company is not
currently maintaining a provision for federal income taxes with respect to the
Separate Account, the Company has reserved the right to establish a provision
for income taxes if it determines, in its sole discretion, that it will incur a
tax as a result of the operation of the Separate Account. The Company will
deduct for any income taxes incurred by it as a result of the operation of the
Separate Account whether or not there was a provision for taxes and whether or
not it was sufficient. The Company will deduct any withholding taxes required by
applicable law.
REGULATORY REQUIREMENTS: All values payable under the Contract, including
any paid-up annuity, cash withdrawal or death benefits that may be available,
will not be less than the minimum benefits required by the laws and regulations
of the state in which the Contract is delivered.
FEDERAL TAX MATTERS
This Section summarizes the major tax consequences of contributions,
payments, and withdrawals under the Contracts, during life and at death.
TAX CONSEQUENCES OF PURCHASE PAYMENTS
403(b) Annuities. Purchase Payments made by Section 501(c)(3) tax-exempt
organizations and public educational institutions toward Contracts for their
employees are excludable from the gross in-
5
<PAGE> 66
come of employees, to the extent aggregate Purchase Payments do not exceed
several tax law limitations on contributions. This gross income exclusion
applies both to employer contributions and to your voluntary and nonelective
salary reduction contributions.
Your voluntary salary reduction contributions are generally limited to
$10,000 ($9,500 before 1998), although additional, "catch-up" contributions are
permitted under certain circumstances. Combined employer and salary reduction
contributions are generally limited to the smallest of $30,000, approximately
25% of salary, or an exclusion allowance which takes into account a number of
factors. In addition, employer contributions for highly compensated employees
may be further limited by applicable nondiscrimination rules.
408(b) Individual Retirement Annuities ("408(b) IRAs"). Annual
tax-deductible contributions for 408(b) IRA Contracts are limited to the lesser
of $2,000 or 100% of compensation, and generally fully deductible only by
individuals who:
(i) are not active participants in another retirement plan, and are not
married;
(ii) are not active participants in another retirement plan, are married, but
either (a) the spouse is not an active participant in another retirement
plan, or (b) the spouse is an active participant, but the couple's
adjusted gross income does not exceed $150,000.
(iii) are active participants in another retirement
plan, are married, and have adjusted gross income of $30,000 or less
($25,000 or less prior to 1998; adjusted upward for inflation after 1998);
or
(iv) are active participants in another retirement
plan, are married, and have adjusted gross income of $50,000 or less
($40,000 or less prior to 1998; adjusted upward for inflation after 1998).
Active participants in other retirement plans whose adjusted gross income
exceeds the limits in (ii), (iii) or (iv) by less than $10,000 are entitled to
make deductible 408(b) IRA contributions in proportionately reduced amounts. If
a 408(b) IRA is established for a nonworking spouse who has no compensation, the
annual tax-deductible Purchase Payments for both spouses' Contracts cannot
exceed the lesser of $4,000 or 100% of the working spouse's earned income, and
no more than $2,000 may be contributed to either spouse's IRA for any year.
You may be eligible to make nondeductible IRA contributions of an amount
equal to the excess of:
(i) the lesser of $2,000 ($4,000 for you and your
spouse's IRA) or 100% of compensation, over
(ii) your applicable IRA deduction limit.
You may also make rollover contributions to an IRA of eligible rollover
amounts from other qualified plans and contracts. See Tax-Free Rollovers,
Transfers and Exchanges.
408A "Roth" Individual Retirement Annuities ("408A "Roth" IRAs"). After
1997, annual nondeductible contributions for 408A "Roth" IRA Contracts are
limited to the lesser of $2,000 or 100% of compensation, and may be made only by
individuals who:
(i) are unmarried and have adjusted gross
income of $95,000 or less; or
(ii) are married and filing jointly and have
adjusted gross income of $150,000 or less.
The available nondeductible 408A "Roth" IRA contribution is reduced
proportionately to zero where adjusted gross income exceeds the limit in (i) by
$15,000 or less, or the limit in (ii) by $10,000 or less. Similarly, individuals
who are married and filing separately and whose adjusted gross income is less
than $10,000 may make a contribution to a Roth IRA of a portion of the otherwise
applicable $2,000 or 100% of compensation limit.
All contributions to 408(b) IRAs, traditional nondeductible IRAs and 408A
"Roth" IRAs must be aggregated for purposes of the $2,000 annual contribution
limit.
SEP. Employer contributions under a SEP are made to a separate individual
retirement account or annuity established for each participating employee, and
generally must be made at a rate representing a uniform percent of participating
employees' compensation. Employer contributions are excludable from employees'
taxable income and, after 1993, cannot exceed the lesser of $30,000 or 15% of
your compensation.
Through 1996, employees of certain small employers (other than tax-exempt
organizations) were permitted to establish plans allowing employees to
contribute pretax, on a salary reduction basis, to the SEP. These salary
reduction contributions may not exceed $7,000, indexed for inflation in later
years. Such plans, if established by December 31, 1996,
6
<PAGE> 67
may still allow employees to make these contributions.
SIMPLE IRA. Employer and employees contributions under a SIMPLE Retirement
Account Plan are made to a separate individual retirement account or annuity for
each employee. Employee salary reduction contributions cannot exceed $6,000 in
any year. Employer contributions can be a matching or a nonelective contribution
of a percentage as specified in the Code. Only employers with 100 or fewer
employees can maintain a SIMPLE IRA plan, which must also be the only plan the
employer maintains.
Non-Qualified Contracts. Purchase Payments made under Non-Qualified
Contracts are neither excludible from the gross income of the Contract Owner nor
deductible for tax purposes. However, any increase in the Purchase Unit Value of
a Non-Qualified Contract resulting from the investment performance of AGA
Separate Account A is not taxable to the Contract Owner until received by him.
Contract Owners that are not natural persons, however, are currently taxable on
any annual increase in the Purchase Unit Value attributable to Purchase Payments
made after February 28, 1986 to such Contracts.
TAX CONSEQUENCES OF DISTRIBUTIONS
403(b) Annuities. Voluntary salary reduction amounts accumulated after
December 31, 1988, and earnings on voluntary contributions before and after that
date, may not be distributed before one of the following:
(1) attainment of age 59 1/2;
(2) separation from service;
(3) death;
(4) disability, or
(5) hardship (hardship distributions are limited to salary reduction
contributions only, exclusive of earnings thereon).
Similar restrictions will apply to all amounts transferred from a Section
403(b)(7) custodial account (other than rollover contributions). Contributions
which are not subject to these restrictions, such as employer contributions to a
Section 403(b) annuity, may be subject to restrictions under the sponsoring
employer's plan, if any. Distributions are taxed as ordinary income to the
recipient in accordance with Section 72.
408(b) IRA, SEPs and SIMPLE IRAs. Distributions are generally taxed as
ordinary income to the recipient. Rollovers from an IRA to a Roth IRA, and
conversions of an IRA to a Roth IRA, where permitted, are generally taxable in
the year of the rollover or conversion. Such rollovers of conversions completed
in 1998 are generally eligible for pro-rata federal income taxation over four
years. Individuals with adjusted gross income over $100,000 are generally
ineligible for such conversions, regardless of marital status, as are married
individuals who file separately.
408A "Roth" IRAs. "Qualified" distributions upon attainment of age 59 1/2,
death, disability or for first-time homebuyer expenses are tax-free as long as
five or more years have passed since the first contribution to taxpayer's first
408A "Roth" IRA. The five-year holding period may be different for determining
whether a distribution allowable to a conversion contribution is subject to the
10% penalty tax. Qualified distributions may be subject to state income tax in
some states. Other distributions are generally taxable to the extent that the
distribution exceeds purchase payments.
Non-Qualified Contracts. Partial redemptions from a Non-Qualified Contract
purchased after August 13, 1982 (or allocated to post-August 13, 1982 Purchase
Payments under a pre-existing Contract), generally are taxed as ordinary income
to the extent of the accumulated income or gain under the Contract if they are
not received as an annuity. Partial redemptions from a Non-Qualified Contract
purchased before August 14, 1982 are taxed only after the Contract Owner has
received all of his pre-August 14, 1982 investment in the Contract. The amount
received in a complete redemption of a Non-Qualified Contract (regardless of the
date of purchase) will be taxed as ordinary income to the extent that it exceeds
the Contract Owner's investment in the Contract. Two or more Contracts purchased
from the Company (or an affiliated company) by a Contract Owner within the same
calendar year, after October 21, 1988, are treated as a single Contract for
purposes of measuring the income on a partial redemption or complete surrender.
When payments are received as an annuity, the Contract Owner's investment
in the Contract is treated as received ratably and excluded ratably from gross
income as a tax-free return of capital, over the expected payment period of the
annuity. Individuals who begin receiving annuity payments on or after January 1,
1987 can exclude from income only their unrecovered investment in the
7
<PAGE> 68
Contract. Upon death prior to recovering tax-free their entire investment in the
Contract, such individuals generally are entitled to deduct the unrecovered
amount on their final tax return.
SPECIAL TAX CONSEQUENCES -- EARLY DISTRIBUTION
403(b) Annuities, 408(b) IRAs, SEPs and SIMPLE IRAs. Taxable distributions
received before the recipient attains age 59 1/2 generally are subject to a 10%
penalty tax in addition to regular income tax. Distributions on account of the
following generally are excepted from this penalty tax:
(1) death;
(2) disability;
(3) separation from service after a participant reaches age 55 (only applies to
qualified plans and 403(b) annuities);
(4) separation from service at any age if the distribution is in the form of
substantially equal periodic payments over the life (or life expectancy) of
the Participant (or the Participant and Beneficiary); and
(5) distributions which do not exceed the employee's tax-deductible medical
expenses for the taxable year of receipt.
Separation from service is not required for distributions from an IRA, SEP
or SIMPLE IRA under #4 above. Certain distributions from a SIMPLE IRA within two
years after first participating in the plan may be subject to a 25% penalty,
rather than a 10% penalty.
After 1997, distributions from 408(b) IRAs on account of the following
additional reasons are also excepted from this penalty tax:
(6) distributions up to $10,000 (in the aggregate) to cover costs of acquiring,
constructing or reconstructing the residence of a first-time homebuyer;
(7) distributions to cover certain costs of higher education: tuition, fees,
books, supplies and equipment for the IRA owner, a spouse, child or
grandchild; and
(8) distributions to cover certain medical care or long-term care insurance
premiums, for individuals who have received federal or state unemployment
compensation for 12 consecutive months.
408A "Roth" IRAs. Distributions, other than "qualified" distributions where
the five-year holding rule is met, are generally subject to the same 10% penalty
tax as other IRAs.
SPECIAL TAX CONSEQUENCES -- REQUIRED
DISTRIBUTIONS
403(b) Annuities. Generally, minimum required distributions must commence
no later than April 1 of the calendar year following the later of the calendar
year in which the Participant attains age 70 1/2 or the calendar year in which
the Participant retires. Required distributions must be made over a period that
does not exceed the life or life expectancies of the Participant (or lives or
joint life expectancies of the Participant and Beneficiary). The minimum amount
payable can be determined several different ways. A penalty tax of 50% is
imposed on the amount by which the minimum required distribution in any year
exceeds the amount actually distributed in that year.
Amounts accumulated under a Contract on December 31, 1986 may be paid in a
manner that meets the above rule or, alternatively:
(i) should 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 if a Participant's spouse is the joint annuitant.
Notwithstanding these pre-January 1, 1987 rules, the entire contract balance
must meet the minimum distribution incidental benefit requirement of Section
403(b)(10).
At the Participant's death before payout has begun, Contract amounts
generally either must be paid to the Beneficiary within 5 years, or must begin
within 1 year of death and be paid over the life or life expectancy of the
Beneficiary. If death occurs after commencement of (but before full) payout,
distributions generally must continue at least as rapidly as under the method
elected by the Participant and in effect at the time of death.
A participant generally may aggregate his or her 403(b) contracts and
accounts for purposes of satisfying these requirements, and withdraw the
required distribution in any combination from such contracts or accounts, unless
the plan, contract, or account otherwise provides.
408(b) IRAs, SEPs and SIMPLE IRAs. Minimum distribution requirements are
generally the
8
<PAGE> 69
same as described above for 403(b) Annuities, except that:
(1) there is no exception for pre-1987 amounts; and
(2) there is no available postponement, past April 1 of the calendar year
following the calendar year in which age 70 1/2 is attained.
A participant generally may aggregate his or her IRAs for purposes of
satisfying these requirements, and withdraw the required distribution in any
combination from such contracts or accounts, unless the contract or account
otherwise provides.
408A "Roth" IRAs. Minimum distribution requirements generally applicable to
403(b) Annuities, 408(b) IRAs, and SEPs and 457 Plans do not apply to 408A
"Roth" IRAs during the owner's lifetime, but generally do apply after the
owner's death.
A beneficiary generally may aggregate his or her Roth IRAs inherited from
the same decedent for purposes of satisfying these requirements, and withdraw
the required distribution in any combination from such contracts or accounts,
unless the contract or account otherwise provides.
Non-Qualified Contracts. Tax laws do not require commencement of
distributions from Non-Qualified Contracts at any particular time during the
Owner's lifetime, provided that the Owner is a natural person, and generally do
not limit the duration of annuity payments.
At the Participant's death before payout has begun, Contract amounts
generally either must be paid to the Beneficiary within 5 years, or must begin
within 1 year of death and be paid over the life or life expectancy of the
Beneficiary. If death occurs after commencement of (but before full) payout,
distributions generally must continue at least as rapidly as under the method
elected by the Participant at the time of death.
TAX-FREE ROLLOVERS, TRANSFERS AND EXCHANGES
403(b) Annuities. Tax-free transfers between 403(b) annuity contracts
and/or 403(b)(7) custodial accounts, and tax-free rollovers from 403(b) programs
to 408(b) IRAs or other 403(b) programs, are permitted under certain
circumstances.
408(b) IRAs. Funds may be transferred tax-free to a 408(b) IRA Contract
from a 403(b) Annuity, under certain conditions. These amounts may subsequently
be rolled over on a tax-free basis to another 403(b) Annuity Contract from this
"conduit" IRA if no additional contributions have been made to that IRA. In
addition, tax-free rollovers may be made from one 408(b) IRA (other than a Roth
IRA) to another provided that no more than one such rollover is made during any
twelve-month period.
408A "Roth" IRAs. Funds may be transferred tax-free from one 408A "Roth"
IRA to another. Funds in a 408(b) IRA may be rolled in a taxable transaction to
a 408A "Roth" IRA by individuals who:
(i) have adjusted gross income of $100,000 or less, whether single or married
filing jointly; and
(ii) are not married filing separately.
Special, complicated rules governing holding periods, avoidance of the 10%
penalty tax and ratable recognition of 1998 income also apply to rollovers from
408(b) IRAs to 408A "Roth" IRAs, and may be subject to further modification by
Congress. You should consult your tax advisor regarding the application of these
rules.
SEPs. Funds may be rolled over tax free from one SEP only to another SEP or
a 408(b) IRA.
Non-Qualified Contracts. Certain of the Non-Qualified single payment
deferred annuity Contracts permit the Contract Owner to exchange the Contract
for a new deferred annuity contract prior to the commencement of annuity
payments. The exchange of one annuity contract for another is a tax-free
transaction under Section 1035, but is reportable to the IRS.
EXCHANGE PRIVILEGE
In the prospectus we described generally how under certain conditions we
will allow you to exchange from other fixed and/or variable contracts we issue
(other contracts) to ElitePlus Bonus.
INFORMATION WHICH MAY BE APPLICABLE TO ANY EXCHANGE
- The maximum surrender charge in ElitePlus Bonus is 5%;
- ElitePlus Bonus offers three death benefit choices; a standard death
benefit, an optional enhanced death benefit and an optional annual
step-up death benefit; and
- ElitePlus Bonus has a 1.25% mortality and expense charge.
9
<PAGE> 70
CALCULATION OF SURRENDER CHARGE
The surrender charge is discussed in the Prospectus under "Fees and
Charges -- Surrender Charge." Examples of calculation of the Surrender
Charge upon total and partial surrender are set forth below:
ILLUSTRATION OF SURRENDER CHARGE ON TOTAL SURRENDER
Example 1.
TRANSACTION HISTORY
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/92.......................... Purchase Payment $10,000
2/1/93.......................... Purchase Payment 5,000
2/1/94.......................... Purchase Payment 15,000
2/1/95.......................... Purchase Payment 2,000
2/1/96.......................... Purchase Payment 3,000
2/1/97.......................... Purchase Payment 4,000
2/1/98.......................... Purchase Payment 1,000
7/1/98.......................... Total Purchase Payments 40,000
(Assumes Account Value is $50,000)
</TABLE>
Assume the Account Value at the time of full withdrawal is $50,000
(7/1/98), and the Account Value on the previous anniversary (2/1/98) was
$45,000. 10% of $45,000 ($4,500) is not subject to Surrender Charge.
The total Surrender Charge is:
(10,000 - 4,500) * 1% + 5,000 * 2% + 15,000 * 3% + 2,000 * 4% + 3,000 *
5% + 4,000 * 5% + 1,000 * 5% = $1,085
ILLUSTRATION OF SURRENDER CHARGE ON A 10% PARTIAL SURRENDER FOLLOWED BY A FULL
SURRENDER
Example 2.
TRANSACTION HISTORY (ASSUMES NO INTEREST EARNED)
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/92.......................... Purchase Payment $10,000
2/1/93.......................... Purchase Payment 5,000
2/1/94.......................... Purchase Payment 15,000
2/1/95.......................... Purchase Payment 2,000
2/1/96.......................... Purchase Payment 3,000
2/1/97.......................... Purchase Payment 4,000
2/1/98.......................... Purchase Payment 1,000
7/1/98.......................... 10% Partial Surrender 4,000
(Assumes Account Value is $40,000)
8/1/98.......................... Full Surrender
</TABLE>
a. Since this is the first partial surrender in this participant year, calculate
free withdrawal amount (10% of the value as of 2/1/98).
10% * 40,000 = $4,000 (no charge on this 10% withdrawal)
b. The Account Value upon which Surrender Charge on the Full Surrender may be
calculated is $40,000 - $4,000 = $36,000
c. The Surrender Charge is
(10,000 - 4,000) * 1% + 5,000 * 2% + 15,000 * 3% + 2,000 * 4% + 3,000 * 5% +
4,000 * 5% + 1,000 * 5% = $1,090.
d. Assume that the $30 Account Maintenance Charge does not apply.
10
<PAGE> 71
PURCHASE UNIT VALUE
The calculation of Purchase Unit value is discussed in the Prospectus under
"Purchase Period." The following illustrations show a calculation of a new Unit
value and the purchase of Purchase Units (using hypothetical examples):
ILLUSTRATION OF CALCULATION OF PURCHASE UNIT VALUE
Example 3.
<TABLE>
<S> <C>
1. Purchase Unit value, beginning of
period................................ $ 1.800000
2. Value of Fund share, beginning of
period................................ $ 21.200000
3. Change in value of Fund share........ $ .500000
4. Gross investment return (3)/(2)...... .023585
5. Daily separate account fee*.......... .000025
-----------
*Mortality and expense risk fee and
administration and distribution
fee of 0.90% per annum used for
illustrative purposes.
6. Net investment return (4)-(5)........ .023560
-----------
7. Net investment factor 1.000000+(6)... 1.023560
-----------
8. Purchase Unit value, end of period
(1)X(7)............................... 1.842408
-----------
</TABLE>
ILLUSTRATION OF PURCHASE OF PURCHASE UNITS (ASSUMING NO STATE PREMIUM TAX)
Example 4.
<TABLE>
<S> <C>
1. First Periodic Purchase Payment.......................... $ 100.00
2. Purchase Unit value on effective date of purchase (see
Example 3)............................................... $1.800000
3. Number of Purchase Units purchased (1)/(2)............... 55.556
4. Purchase Unit value for valuation date following purchase
(see Example 3).......................................... $1.842408
---------
5. Value of Purchase Units in account for valuation date
following purchase (3)X(4)............................... $ 102.36
---------
</TABLE>
11
<PAGE> 72
PERFORMANCE CALCULATIONS
MONEY MARKET DIVISION YIELD
ILLUSTRATION OF CALCULATION OF CURRENT YIELD FOR MONEY MARKET DIVISION
The current yield quotation based on a seven day period is computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one Purchase Unit at the
beginning of the period, subtracting a hypothetical charge reflecting deductions
from Contract Owner accounts, and dividing the difference by the value of the
account at the beginning of the base period to obtain the base period return and
then multiplying the base period return by 365/7.
ILLUSTRATION OF CALCULATION OF EFFECTIVE YIELD FOR MONEY MARKET DIVISION
An effective yield quotation above is computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one Purchase Unit at the beginning of
the period, subtracting a hypothetical charge reflecting deductions from
Contract Owner accounts, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period return and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula:
365/7
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) ] -1
STANDARDIZED YIELD FOR BOND FUND DIVISIONS
ILLUSTRATION OF CALCULATION OF STANDARDIZED YIELD FOR BOND FUND DIVISIONS
The standardized yield quotation based on a 30-day period is computed by
dividing the net investment income per Purchase Unit earned during the period by
the maximum offering price per Unit on the last day of the period, according to
the following formula:
6
YIELD = 2 [( a - b + 1) - 1]
------
cd
Where:
<TABLE>
<S> <C> <C>
a = net investment income earned during the period by the Fund
attributable to shares owned by the Division
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of Purchase Units outstanding
during the period
d = the maximum offering price per Purchase Unit on the last day
of the period
</TABLE>
Yield on each Division is earned from dividends declared and paid by the
Fund, which are automatically reinvested in Fund shares.
12
<PAGE> 73
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return quotations for the 1, 3, 5, and 10 year periods
ended December 31, 1997, the date of the most recent balance sheet included in
this registration statement, are computed by finding the average annual
compounded rates of over the 1, 3, 5, and 10 year periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
n
P (1+T) = ERV
Where:
<TABLE>
<S> <C> <C>
P = a hypothetical initial Purchase Payment of $1,000
T = average annual total return
n = number of years
ERV = redeemable value at the end of the 1, 3, 5 or 10 year
periods of a hypothetical $1,000 Purchase Payment made at
the beginning of the 1, 3, 5, or 10 year periods (or
fractional portion thereof)
</TABLE>
The Company may advertise standardized average annual total return which,
includes the surrender charge of up to 7% of Gross Purchase Payments as well as
non-standardized average annual total returns which does not include a surrender
charge or maintenance fee.
There is no sales charge for reinvested dividends. All recurring fees have
been deducted. For fees which vary with the account size, an account size equal
to that of the median account size has been assumed. Ending redeemable value has
been determined assuming a complete redemption at the end of the 1, 3, 5 or 10
year period and deduction of all nonrecurring charges at the end of each such
period.
13
<PAGE> 74
PERFORMANCE INFORMATION
HYPOTHETICAL $10,000 ACCOUNT VALUE AND CUMULATIVE RETURN AS COMPARED TO
BENCHMARKS TABLES.
The following tables show the Hypothetical $10,000 Account Value and
Cumulative Return for certain Divisions as compared to the benchmarks shown.
These performance calculations for the Divisions, and the methods used for
calculating them, are explained in the prospectus. (See "How To Review
Investment Performance of Separate Account Divisions" and "Variable Account
Options" in the prospectus.)
These tables compare hypothetical investment performance and percentage
changes in Purchase Unit values with the results of several benchmarks,
representing unmanaged market indices. The performance information has been
added to reflect mortality and expense risk fees and administration fee, net of
any expense reimbursements from the Underlying Fund. Surrender charges,
maintenance fees and premium taxes are not deducted. The effect of these charges
is to reduce total return to a Contract Owner. The comparisons should be
considered in light of the investment policies and objectives of the Funds.
Rates of return for the Divisions include reinvestment of investment income,
including capital gains, interest and dividends. The rates of return on the
market indices also have been adjusted to reflect reinvestment of interest and
dividends.
Price returns for the market indices are calculated by subtracting the
price level at the beginning of the year from the price level at the end of the
year and dividing the difference by the price level at the beginning of the
year. To calculate dollar values for the indices' Hypothetical $10,000 Account
Value presentation, price index values were substituted for Unit values in the
calculation described in the prospectus, and where applicable, dividend yields
were then added to determine the total returns applied in the dollar value
calculations. Similarly, to calculate Cumulative Return for the indices, the
Cumulative Return calculation described in the prospectus for Unit values of the
Divisions is used, substituting the Hypothetical $10,000 Account Value at the
end of each year for the Purchase Unit Value. No sales load, administrative
charges, or any other expenses have been deducted from the index calculations.
Additionally, the performance of a Division may from time to time be
compared with other Indexes which have been deemed by the Company relevant to
the Division.
These benchmarks do not reflect any charges for investment advisory fees,
brokerage commissions or other fees and expenses of the type charged at either
the Separate Account or Fund level. Therefore, the comparisons with these
benchmarks are of limited use.
THE PERFORMANCE RESULTS SHOWN IN THIS SECTION ARE NOT AN ESTIMATE OR
GUARANTEE OF FUTURE INVESTMENT PERFORMANCE, AND DO NOT REPRESENT THE ACTUAL
EXPERIENCE OF AMOUNTS INVESTED BY A PARTICULAR CONTRACT OWNER.
PERFORMANCE COMPARED TO MARKET INDICES
The performance of the American General U.S. Government Securities
Portfolio Division 4 may be compared to Salomon Brothers 1-10 Yr. Treasury
Index.
The performance of the AIM V.I. Capital Appreciation Fund Division 8 may be
compared to Standard & Poor's 500 Index.
The performance of the AIM V.I. Diversified Income Fund Division 9 may be
compared to Lehman Aggregate Bond Index.
The performance of the Credit Suisse Growth and Income Portfolio Division 1
may be compared to the S&P 500 & Lehman Brothers Aggregate Index.
The performance of the Credit Suisse International Equity Portfolio
Division 2 may be compared to EAFE Index.
The performance of the EliteValue Division 3 may be compared to Lipper
Variable Annuity Flex Portfolio IX.
The performance of the Oppenheimer Capital Appreciation Fund/VA Division 10
may be compared to the S&P 500 Index.
The performance of the Oppenheimer High Income Fund/VA Division 12 may be
compared to the Merrill Lynch High Yield Master Index.
14
<PAGE> 75
The performance of the Oppenheimer Main Street Growth & Income Fund/VA
Division 11 may be compared to the S&P 500 Index.
The performance of the Oppenheimer Small Cap Growth Fund/VA Division 13 may
be compared to the Russell 2000 Index.
The performance of the State Street Global Advisors Growth Equity Portfolio
Division 5 may be compared to S&P 500 Index.
The performance of the Templeton Developing Markets Fund Division 14 may be
compared to the Morgan Stanley Capital International (MSCI) Emerging Markets
Free Index.
The performance of the Templeton International Fund Division 15 may be
compared to the Morgan Stanley Capital International-EAFE.
The performance of the Van Kampen Emerging Growth Portfolio Division 7 may
be compared to Lipper Variable Annuity Mid-Cap Index.
The Account Value of an assumed $10,000 investment in each of the Divisions
is shown in table form herein. This will reflect a deduction for separate
account fees (mortality and expense risk fees plus administration and
distribution fees minus any applicable reimbursements) and underlying fund
charges. This will not reflect any deduction for account maintenance fees,
surrender charges and premium taxes. These charges would further reduce your
return. See "How to Review Investment Performance of Separate Account Divisions"
in the prospectus for information about how these returns were calculated as
well as Standard Average Annual Total Return information that reflects the
deduction of all separate account fees and charges.
15
<PAGE> 76
AMERICAN GENERAL U.S. GOVERNMENT SECURITIES PORTFOLIO* DIVISION FOUR PERFORMANCE
COMPARED TO SALOMON BROTHERS 1-10 YR TREASURY INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE FEBRUARY 6, 1996
<TABLE>
<CAPTION>
AMERICAN GENERAL U.S. GOVERNMENT SECURITIES PORTFOLIO
DIVISION FOUR INDEX
- -------------------------------------------------------------------- -------
<S> <C> <C>
02/06/96................................................... $10,000 $10,000
12/31/96................................................... 10,208 10,331
12/31/97................................................... 10,960 11,130
12/31/98................................................... 11,616 12,090
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
SINCE
INCEPTION 1 YEAR
--------- ------
<S> <C> <C>
Investment Division**
American General U.S. Government Securities Portfolio
Division Four.......................................... 16.16% 5.98%
Benchmark Comparison
Salomon Brothers 1-10 Yr Treasury Index...... 20.90% 8.62%
</TABLE>
- ---------------
* The American General U.S. Government Securities Portfolio was formerly known
as the Salomon Brothers U.S. Government Securities Portfolio.
** The Division was initiated on February 6, 1996.
CREDIT SUISSE GROWTH AND INCOME PORTFOLIO DIVISION ONE PERFORMANCE COMPARED TO
S&P 500 & LEHMAN BROTHERS AGGREGATE INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 20, 1995
<TABLE>
<CAPTION>
CREDIT SUISSE GROWTH AND INCOME PORTFOLIO
DIVISION ONE INDEX
- -------------------------------------------------------------------- -------
<S> <C> <C>
10/20/95................................................... $10,000 $10,000
12/31/95................................................... 10,628 10,485
12/31/96................................................... 11,927 11,850
12/31/97................................................... 14,386 14,371
12/31/98................................................... 16,194 17,100
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
SINCE
INCEPTION 3 YEAR 1 YEAR
--------- ------ ------
<S> <C> <C> <C>
Investment Division*
Credit Suisse Growth and Income Portfolio Division
One................................................. 61.94% 52.37% 12.57%
Benchmark Comparison
S&P 500 & Lehman Brothers Aggregate
Index................................... 71.00% 63.10% 18.99%
</TABLE>
- ---------------
* The Division was initiated on October 20, 1995.
16
<PAGE> 77
CREDIT SUISSE INTERNATIONAL EQUITY PORTFOLIO DIVISION TWO PERFORMANCE COMPARED
TO EAFE INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 20, 1995
<TABLE>
<CAPTION>
CREDIT SUISSE INTERNATIONAL EQUITY PORTFOLIO
DIVISION TWO INDEX
- -------------------------------------------------------------------- -------
<S> <C> <C>
10/20/95................................................... $10,000 $10,000
12/31/95................................................... 10,365 10,579
12/31/96................................................... 11,905 11,219
12/31/97................................................... 12,243 11,418
12/31/98................................................... 11,969 13,702
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
SINCE
INCEPTION 3 YEAR 1 YEAR
--------- ------ ------
<S> <C> <C> <C>
Investment Division*
Credit Suisse International Equity Portfolio Division
Two................................................... 19.69% 15.48% (2.24)%
Benchmark Comparison
EAFE Index.................................. 37.02% 29.52% 20.00%
</TABLE>
- ---------------
* The Division was initiated on October 20, 1995.
ELITEVALUE DIVISION THREE PERFORMANCE COMPARED TO LIPPER VARIABLE ANNUITY FLEX
PORTFOLIO IX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 2, 1996
<TABLE>
<CAPTION>
ELITEVALUE
DIVISION THREE INDEX
- -------------------------------------------------------------------- -------
<S> <C> <C>
01/02/96................................................... $10,000 $10,000
12/31/96................................................... 12,492 11,410
12/31/97................................................... 14,914 13,493
12/31/98................................................... 15,694 15,721
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
SINCE
INCEPTION 1 YEAR
--------- ------
<S> <C> <C>
Investment Division*
EliteValue Division Three................................. 56.94% 5.23%
Benchmark Comparison
Lipper Variable Annuity Flex Portfolio IX................. 57.21% 16.51%
</TABLE>
- ---------------
* The Division was initiated on January 2, 1996
17
<PAGE> 78
STATE STREET GLOBAL ADVISORS GROWTH EQUITY PORTFOLIO DIVISION FIVE PERFORMANCE
COMPARED TO S&P 500 INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 20, 1995
<TABLE>
<CAPTION>
STATE STREET GLOBAL ADVISORS GROWTH EQUITY PORTFOLIO
DIVISION FIVE INDEX
- -------------------------------------------------------------------- -------
<S> <C> <C>
10/20/95................................................... $10,000 $10,000
12/31/95................................................... 10,329 10,625
12/31/96................................................... 12,359 13,066
12/31/97................................................... 16,046 17,425
12/31/98................................................... 19,238 22,405
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
SINCE
INCEPTION 3 YEAR 1 YEAR
--------- ------ ------
<S> <C> <C> <C>
Investment Division*
State Street Global Advisors Growth Equity Portfolio
Division Five......................................... 92.38% 86.26% 19.90%
Benchmark Comparison
S&P 500 Index............................... 124.05% 110.86% 28.58%
</TABLE>
- ---------------
* The Division was initiated on October 20, 1995
STATE STREET GLOBAL ADVISORS MONEY MARKET PORTFOLIO DIVISION SIX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 6, 1995
<TABLE>
<CAPTION>
STATE STREET GLOBAL ADVISERS MONEY MARKET PORTFOLIO
DIVISION SIX
- ---------------------------------------------------------------------
<S> <C>
10/06/95.................................................... $10,000
12/31/95.................................................... 10,086
12/31/96.................................................... 10,460
12/31/97.................................................... 10,881
12/31/98.................................................... 11,290
</TABLE>
CUMULATIVE RETURN
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
SINCE
INCEPTION 3 YEAR 1 YEAR
--------- ------ ------
<S> <C> <C> <C>
Investment Division*
State Street Global Advisers Money Market Portfolio
Division Six.......................................... 12.90% 11.93% 3.76%
</TABLE>
- ---------------
* The Division was initiated on October 6, 1995.
18
<PAGE> 79
VAN KAMPEN EMERGING GROWTH PORTFOLIO DIVISION SEVEN PERFORMANCE COMPARED TO
LIPPER VARIABLE ANNUITY MID-CAP INDEX
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE JANUARY 2, 1996
<TABLE>
<CAPTION>
VAN KAMPEN EMERGING GROWTH
DIVISION SEVEN INDEX
- --------------------------------------------------------------------- -------
<S> <C> <C>
01/02/96.................................................... $10,000 $10,000
12/31/96.................................................... 11,739 11,630
12/31/97.................................................... 13,941 13,660
12/31/98.................................................... 18,772 15,562
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
SINCE
INCEPTION 1 YEAR
--------- ---------
<S> <C> <C>
Investment Division*
Van Kampen Emerging Growth Portfolio Division Seven....... 87.72% 34.65%
Benchmark Comparison
Lipper Variable Annuity Mid-Cap Index...... 55.62% 13.92%
</TABLE>
- ---------------
* The Division was initiated on January 2, 1996.
AIM V.I. DIVERSIFIED INCOME FUND DIVISION NINE PERFORMANCE COMPARED TO LEHMAN
BROTHERS
AGGREGATE BOND INDEX
The Division has only recently been offered through ElitePlus Bonus.
Accordingly, no performance information is available.
AIM V.I. CAPITAL APPRECIATION FUND DIVISION EIGHT PERFORMANCE COMPARED TO THE
S&P 500 STOCK INDEX
The Division has only recently been offered through ElitePlus Bonus.
Accordingly, no performance information is available.
OPPENHEIMER CAPITAL APPRECIATION FUND/VA DIVISION TEN PERFORMANCE COMPARED TO
THE S&P 500 STOCK INDEX
The Division has only recently been offered through ElitePlus Bonus.
Accordingly, no performance information is available.
OPPENHEIMER HIGH INCOME FUND/VA DIVISION TWELVE PERFORMANCE COMPARED TO THE
MERRILL LYNCH HIGH YIELD MASTER INDEX
The Division has only recently been offered through ElitePlus Bonus.
Accordingly, no performance information is available.
OPPENHEIMER MAIN STREET GROWTH AND INCOME FUND/VA DIVISION ELEVEN PERFORMANCE
COMPARED TO THE S&P 500 STOCK INDEX
The Division has only recently been offered through ElitePlus Bonus.
Accordingly, no performance information is available.
19
<PAGE> 80
OPPENHEIMER SMALL CAP GROWTH FUND/VA DIVISION THIRTEEN PERFORMANCE COMPARED TO
THE RUSSELL 2000 INDEX
The Division has only recently been offered through ElitePlus Bonus.
Accordingly, no performance information is available.
TEMPLETON DEVELOPING MARKETS FUND DIVISION FOURTEEN PERFORMANCE COMPARED TO MSCI
EMERGING MARKETS FREE INDEX
The Division has only recently been offered through ElitePlus Bonus.
Accordingly, no performance information is available.
TEMPLETON INTERNATIONAL FUND DIVISION FIFTEEN PERFORMANCE COMPARED TO MSCI EAFE
The Division has only recently been offered through ElitePlus Bonus.
Accordingly, no performance information is available.
20
<PAGE> 81
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% per annum. The foregoing
Assumed Investment Rates are used merely in order to determine the first monthly
payment per thousand dollars of value. It should not be inferred that such rates
will bear any relationship to the actual net investment experience of A.G.
Separate Account A.
AMOUNT OF PAYOUT PAYMENTS
The amount of the first variable annuity payment to the Annuitant will
depend on the amount of the Account Value applied to effect the variable annuity
as of the tenth day immediately preceding the date payout payments commence, the
amount of any premium tax owed, the annuity option selected, and the age of the
Annuitant.
The Contracts contain tables indicating the dollar amount of the first
payout payment under each payout option for each $1,000 of Account Value (after
the deduction for any premium tax) at various ages. These tables are based upon
the Annuity 2000 Table (promulgated by the Society of Actuaries) and an Assumed
Investment Rate of 3%.
The portion of the first monthly variable payout payment derived from a
Division of A.G. Separate Account A is divided by the Payout Unit value for that
Division (calculated ten days prior to the date of the first monthly payment) to
determine the number of Payout Units in each Division represented by the
payment. The number of such units will remain fixed during the Payout Period,
assuming the Annuitant makes no transfers of Payout Units to provide Payout
Units under another Division or to provide a fixed annuity.
In any subsequent month, the dollar amount of the variable payout payment
derived from each Division is determined by multiplying the number of Payout
Units in that Division by the value of such Payout Unit on the tenth day
preceding the due date of such payment. The Payout Unit value will increase or
decrease in proportion to the net investment return of the Division or Divisions
underlying the variable payout since the date of the previous payout payment,
less an adjustment to neutralize the 3% or other Assumed Investment Rate
referred to above.
Therefore, the dollar amount of variable payout payments after the first
will vary with the amount by which the net investment return is greater or less
than 3% 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 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 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 three payout options, the monthly payment to the
Annuitant will not be less than the monthly payment produced by the then current
settlement option rates, which will not be less than the rates used for a
currently issued single payment immediate annuity contract. The purpose of this
provision is to assure the Annuitant that, at retirement, if the fixed payout
purchase rates then required by the Company for new single payment immediate
annuity contracts are significantly more favorable than the annuity rates
guaranteed by a Contract, the Annuitant will be given the benefit of the new
annuity rates.
PAYOUT UNIT VALUE
The value of a Payout Unit is calculated at the same time that the value of
a Purchase Unit is calculated and is based on the same values for Fund shares
and other assets and liabilities. (See "Purchase Period" in the prospectus.) The
calculation of Payout Unit value is discussed in the prospectus under "Payout
Period."
21
<PAGE> 82
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.................. $ .980000
2. Net investment factor for Period (see Example 3)........ 1.023558
3. Daily adjustment for 3% Assumed Investment Rate......... .999906
4. (2)X(3)................................................. 1.023462
5. Payout Unit value, end of period (1)X(4)................ $ 1.002993
</TABLE>
ILLUSTRATION OF PAYOUT PAYMENTS
<TABLE>
<S> <C>
1. Number of Purchase Units at Payout Date................. 10,000.00
2. Purchase Unit value (see Example 3)..................... $ 1.800000
3. Account Value of Contract (1)X(2)....................... $18,000.00
4. First monthly Payout Payment per $1,000 of Account
Value..................................................... $ 5.63
5. First monthly Payout Payment (3)X(4)/1,000.............. $ 101.34
6. Payout Unit value (see Example 10)...................... $ .980000
7. Number of Payout Units (5)/(6).......................... 103.408
8. Assume Payout Unit value for second month equal to...... $ .997000
9. Second monthly Payout Payment (7)X(8)................... $ 103.10
10. Assume Payout Unit value for third month equal to....... $ .953000
11. Third monthly Payout Payment (7)X(10)................... $ 98.55
</TABLE>
22
<PAGE> 83
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company has qualified or intends to qualify the Contracts for sale in
47 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 A.G. Separate Account A is A.G. Distributors ("A.G.
Distributors"). Prior to May 7, 1999, A.G. Distributors was known as AGA
Brokerage Services, Inc. Prior to March 18, 1998, AGA Brokerage Services, Inc.
was known as WNL Brokerage Services, Inc. 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% of each Purchase Payment. The Company may
from time to time pay a trail commission to the licensed agents who sell the
Contracts. (These various commissions are paid by the Company and do not result
in any charge to Contract Owners or to A.G. Separate Account A in addition to
the charges described under "Fees and Charges" in the prospectus.)
Pursuant to its underwriting agreement with A.G. Distributors and A.G.
Separate Account A, the Company reimburses A.G. Distributors for reasonable
sales expenses, including overhead expenses. Sales commissions paid for the
years 1996, 1997 and 1998 were $357,975.67, $1,657,236.71 and $8,646,861.37,
respectively. AGA Brokerage retained $0 in Commissions for the years, 1996, 1997
and 1998.
EXPERTS
The balance sheets of the Company as of December 31, 1998 and 1997 and the
related statements of operations, shareholder's equity, comprehensive income and
cash flows for the ten months ended December 31, 1998, the two months ended
February 28, 1998, and the year ended December 31, 1997 and the statement of
assets and liabilities of the Separate Account as of December 31, 1998, and the
related statement of operations for the year then ended and the statement of
changes in net assets for each of the two years in the period ended December 31,
1998, all of which are included in the SAI, have been included herein in
reliance on the reports of Ernst & Young LLP, independent auditors given on the
authority of that firm as experts in accounting and auditing.
The statements of operations, shareholder's equity, and cash flows of the
Company for the year ended December 31, 1996, all of which are included in the
SAI, have been included herein in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
COMMENTS ON FINANCIAL STATEMENTS
The financial statements of American General Annuity 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.
The Separate Account financial statements contained herein reflect the
composition of the Separate Account as of December 31, 1998, and for the fiscal
year then ended.
23
<PAGE> 84
[THIS PAGE INTENTIONALLY LEFT BLANK]
24
<PAGE> 85
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Auditors F-2
Balance Sheet as of December 31, 1998 and 1997 F-4
Statement of Operations for the ten months ended December 31, 1998, the two months ended
February 28, 1998, and the years ended December 31, 1997 and 1996 F-5
Statement of Shareholder's Equity for the ten months ended December 31, 1998,
the two months ended February 28, 1998, and the years ended December 31, 1997 and
1996 F-6
Statement of Cash Flows for the ten months ended December 31, 1998, the
two months ended February 28, 1998, and the years ended December 31, 1997 and 1996 F-7
Notes to Financial Statements F-8
Report of Independent Auditors on Financial Statement Schedule F-27
Financial Statement Schedule:
Schedule IV-Reinsurance for the years ended December 31, 1998, 1997 and 1996 F-28
</TABLE>
<PAGE> 86
Report of Independent Auditors
To the Board of Directors of
American General Annuity Insurance Company
We have audited the accompanying balance sheets of American General
Annuity Insurance Company (formerly known as Western National Life Insurance
Company) as of December 31, 1998, and 1997, and the related statements of
operations, shareholder's equity, and cash flows for the ten months ended
December 31, 1998, the two months ended February 28, 1998, and the year ended
December 31, 1997. Our audits also included the financial statement schedule
listed in the Index on page F-1 of this Form N-4 as of December 31, 1998 and
1997, and for the ten months ended December 31, 1998, the two months ended
February 28, 1998, and the year ended December 31, 1997. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 financial position of American General
Annuity Insurance Company at December 31, 1998, and 1997, and the results of its
operations and its cash flows for the ten months ended December 31, 1998, the
two months ended February 28, 1998, and the year ended December 31, 1997, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Ernst & Young LLP
Houston, Texas
February 22, 1999
F-2
<PAGE> 87
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
American General Annuity Insurance Company
We have audited the accompanying statement of operations, shareholder's
equity, and cash flows of American General Annuity Insurance Company, formerly
known as Western National Life Insurance Company, for the year ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position, results of operations
and cash flows of the Company for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Houston, Texas
February 5, 1997
F-3
<PAGE> 88
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
BALANCE SHEET
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Predecessor
Basis
December 31, December 31,
ASSETS 1998 1997
------ ------------ ------------
<S> <C> <C>
INVESTMENTS:
Fixed maturities available-for-sale at fair value (amortized cost:
1998-$13,097.6; 1997-$9,635.1) $ 13,428.4 $ 9,989.2
Equity securities at fair value (cost: 1998-$21.8; 1997-$21.3) 26.2 23.8
Mortgage loans 119.6 102.5
Credit-tenant loans 197.4 217.0
Policy loans 87.4 61.8
Other invested assets 64.8 20.0
Receivable for securities 10.0 3.4
Short-term investments 9.8 --
---------- ----------
Total investments 13,943.6 10,417.7
Cash and cash equivalents 162.1 475.6
Accrued investment income 195.7 161.7
Funds held by reinsurer and reinsurance receivables 270.4 220.8
Securities lending 111.8 102.2
Cost of insurance purchased 376.4 7.7
Deferred policy acquisition cost 247.6 418.0
Current income taxes 15.2 8.2
Goodwill 898.8 --
Other assets 12.8 13.8
Separate account assets 82.0 29.6
---------- ----------
Total assets $ 16,316.4 $ 11,855.3
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
LIABILITIES:
Investment contracts and insurance liabilities $ 13,573.5 $ 9,801.0
Investment borrowings and payable for securities 0.6 434.6
Securities lending 111.8 102.2
Deferred income taxes 126.0 153.8
Other liabilities 64.4 23.2
Separate account liabilities 82.0 29.6
---------- ----------
Total liabilities 13,958.3 10,544.4
---------- ----------
Shareholder's equity:
Common stock (par value $50 per share;
100,000 shares authorized; 50,000 issued and outstanding) 2.5 2.5
Additional paid-in capital 1,972.1 456.0
Accumulated other comprehensive income 165.4 129.9
Retained earnings 218.1 722.5
---------- ----------
Total shareholder's equity 2,358.1 1,310.9
---------- ----------
Total liabilities and shareholder's equity $ 16,316.4 $ 11,855.3
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 89
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Predecessor Basis
--------------------------------------------
Ten Months Two Months Year Year
Ended Ended Ended Ended
December 31, February 28, December 31, December 31,
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Premiums and other considerations $150.6 $ 13.9 $126.9 $ 91.0
Net investment income 775.1 134.8 789.5 702.0
Net realized investment losses (26.2) (5.9) (22.7) (2.3)
------ ------ ------ ------
Total revenues 899.5 142.8 893.7 790.7
Benefits and expenses:
Interest credited on investment contracts 467.3 73.4 425.9 381.7
Insurance policy benefits 111.5 21.4 108.8 109.6
Change in future policy benefits and other liabilities 117.0 6.8 114.2 74.6
Deferred policy acquisition and cost of insurance pur-
chased amortization related to operations 46.8 9.2 47.8 41.2
Deferred policy acquisition and cost of insurance pur-
chased amortization related to realized gains
(losses) 3.0 (1.2) (4.0) 0.6
Goodwill amortization 19.7 -- -- --
Other operating costs and expenses 21.9 3.2 20.8 13.9
------ ------ ------ ------
Total benefits and expenses 787.2 112.8 713.5 621.6
------ ------ ------ ------
Income before income taxes 112.3 30.0 180.2 169.1
Income tax expense 45.2 10.5 64.9 59.1
------ ------ ------ ------
Net income $ 67.1 $ 19.5 $115.3 $110.0
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 90
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
STATEMENT OF SHAREHOLDER'S EQUITY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Predecessor Basis
--------------------------------------------------
Ten Months Two Months Year Year
Ended Ended Ended Ended
December 31, February 28, December 31, December 31,
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common stock, end of period $ 2.5 $ 2.5 $ 2.5 $ 2.5
======== ======== ======== ========
Additional paid-in capital:
Balance, beginning of period $1,801.3 $ 456.0 $ 446.0 $ 320.1
Capital contribution 170.8 -- 10.0 125.9
Adjustment for the acquisition -- 1,345.3 -- --
-------- -------- -------- --------
Balance, end of period $1,972.1 $1,801.3 $ 456.0 $ 446.0
======== ======== ======== ========
Retained earnings:
Balance, beginning of period $ 151.0 $ 722.5 $ 607.4 $ 496.9
Beginning balance for AGA Investment
Advisory Services, Inc. -- -- -- 0.5
Other -- -- (0.2) --
Adjustment for the acquisition -- (591.0) -- --
Comprehensive income (loss) 172.0 (49.9) 206.1 23.9
Less other comprehensive income (loss):
Change in net unrealized gains (losses) on
securities, net of reclassification adjustments
for losses included in net income (ten months
ended 12/31/98 $20.9, two months ended 2/28/98
$3.1, year ended 12/31/97 $12.2, and year ended
12/31/96 $1.9) 104.9 (4.0) 90.8 (86.1)
Adjustment for the acquisition -- (65.4) -- --
-------- -------- -------- --------
Net income 67.1 19.5 115.3 110.0
-------- -------- -------- --------
Balance, end of period $ 218.1 $ 151.0 $ 722.5 $ 607.4
======== ======== ======== ========
Accumulated other comprehensive income:
Balance, beginning of period $ 60.5 $ 129.9 $ 39.1 $ 125.2
Change in unrealized gains (losses), net 104.9 (4.0) 40.8 (86.1)
Adjustment for the acquisition -- (65.4) -- --
-------- -------- -------- --------
Balance, end of period $ 165.4 $ 60.5 $ 129.9 $ 39.1
======== ======== ======== ========
Total shareholder's equity $2,358.1 $2,015.3 $1,310.9 $1,095.0
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 91
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Predecessor Basis
--------------------------------------------------
Ten Months Two Months Year Year
Ended Ended Ended Ended
December 31, February 28, December 31, December 31,
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 67.1 $ 19.5 $ 115.3 $ 110.0
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and depreciation 72.9 8.1 44.9 42.6
Realized losses on investments, net 26.2 5.9 22.7 2.3
Income taxes (8.4) 10.5 (11.6) 50.4
Increase in investment contracts and insurance
liabilities 1,932.9 8.4 57.3 8.2
Interest credited to investment contracts 490.6 76.9 438.4 391.8
Fees charged to investment contracts (9.5) (1.3) (6.9) (4.4)
Accrued investment income, net (19.5) (1.2) (10.5) (27.3)
Deferral of policy acquisition costs (147.2) (22.4) (147.6) (120.7)
Other, net 84.3 19.8 (21.6) (14.2)
-------- -------- -------- --------
Net cash provided by operating activities 2,489.4 124.2 480.4 438.7
-------- -------- -------- --------
Cash flows from investing activities:
Sales of investments 3,698.7 298.1 3,091.0 3,086.8
Maturities and redemptions of investments 729.3 3.1 581.2 431.0
Purchases of investments (7,961.2) (466.1) (4,593.1) (4,571.8)
Net increase in short-term investments (9.8) -- -- --
-------- -------- -------- --------
Net cash used in investing activities (3,543.0) (164.9) (920.9) (1,054.0)
-------- -------- -------- --------
Cash flows from financing activities:
Deposits to investment contracts 2,187.0 344.6 1,949.6 1,711.3
Withdrawals from investment contracts (1,303.3) (198.6) (1,440.0) (1,402.7)
Capital contributions from parent 170.8 -- 10.0 125.9
Advances to affiliates -- -- 6.0 --
Investment borrowings, net (420.7) 1.0 285.1 (128.6)
-------- -------- -------- --------
Net cash provided by financing activities 633.8 147.0 810.7 305.9
-------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents (419.8) 106.3 370.2 (309.4)
Cash and cash equivalents beginning of period 581.9 475.6 105.4 414.8
-------- -------- -------- --------
Cash and cash equivalents end of period $ 162.1 $ 581.9 $ 475.6 $ 105.4
======== ======== ======== ========
Supplemental cash flow disclosure:
Income taxes paid (refunded), net $ 50.4 $ -- $ 75.1 $ (25.4)
======== ======== ======== ========
Interest paid on investment borrowings $ 29.9 $ 4.3 $ 17.8 $ 8.4
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 92
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
-------------
1. SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION
American General Annuity Insurance Company (the "Company") is a State
of Texas domiciled life insurance company that was founded in 1944. The Company
is a wholly-owned subsidiary of Western National Corporation ("Western
National"). In February 1994, Conseco, Inc. ("Conseco") transferred ownership of
the Company to Western National, an insurance holding company formed by Conseco.
The transactions were approved by the Texas Department of Insurance. Western
National completed an initial public offering of its common stock in February
1994 whereby Conseco retained approximately 40% ownership of Western National's
common stock. On December 23, 1994, AGC Life Insurance Company ("AGC Life"), a
Missouri-domiciled life insurer, purchased the remaining shares of common stock
held by Conseco. AGC Life is a wholly-owned subsidiary of American General
Corporation, ("AGC"), a Texas corporation. References to "American General" are
references to AGC and its direct and indirect majority controlled subsidiaries.
As of December 31, 1996, American General owned approximately a 46% equity
interest in Western National. The increase in American General's equity interest
was the result of Western National issuing preferred stock to American General
in September 1996. On February 25, 1998, with the approval of the Texas
Department of Insurance and the shareholders of Western National, American
General acquired the remaining 54% of the outstanding common stock of Western
National for consideration valued at approximately $1.2 billion. For accounting
purposes, the acquisition was effective as of February 28, 1998 and was
accounted for using the purchase method of accounting in accordance with the
provisions of Accounting Principles Board Opinion 16, "Business Combinations",
and other existing accounting literature pertaining to purchase accounting.
Under purchase accounting, the total purchase cost was allocated to the assets
and liabilities acquired based on a determination of their fair value as of the
effective date of the acquisition, and resulted in goodwill of $918.5 million,
which is being amortized on a straight line basis over 40 years. The Company's
balance sheet at December 31, 1998, and the related statements of operations,
shareholder's equity, comprehensive income, and cash flows for the ten months
then ended, are reported under the purchase method of accounting and,
accordingly, are not consistent with the basis of presentation of the previous
periods' financial statements ("predecessor basis").
WNL Investment Advisory Services, Inc. ("WNLIAS") was formed primarily
to manage the Company's investment portfolio. On March 27, 1998, WNLIAS changed
its name to AGA Investment Advisory Services, Inc ("AGAIAS"). AGAIAS is an
investment subsidiary as defined by the National Association of Insurance
Commissioners. The Company and AGAIAS are subsidiaries of Western National and
are under common management control. The accompanying financial statements
include the accounts of AGAIAS as of December 31, 1998 and 1997 and for the ten
months ended December 31, 1998, the two months ended February 28, 1998 and the
years ended December 31, 1997 and 1996. The Company's investment in AGAIAS
preferred stock, intercompany investment advisory fees, and other intercompany
accounts have been eliminated.
The Company develops, markets, and issues annuity products through
niche distribution channels. The Company sells deferred annuities, including its
proprietary fixed annuities, to the savings and retirement markets through
financial institutions (primarily banks and thrifts), and sells deferred
annuities to both tax-qualified and nonqualified retirement markets through
personal producing general agents ("PPGAs"). The Company also sells deferred
annuities through its direct sales operations. Under a joint marketing
arrangement with American General Life Insurance Company ("AGLIC"), the Company
markets and coinsures single premium immediate annuities ("SPIAs") through
specialty brokers to the structured settlement market. The Company also sells
SPIAs (other than structured settlement SPIAs) through its financial institution
and PPGA distribution channels. The Company commenced sales of its first
variable annuity product in fourth quarter 1995. Sales of deferred annuities
through financial institutions comprised 74%, 81%, and 82% of net premiums
collected in 1998, 1997, and 1996, respectively. Sales through a single
financial institution comprised 39% of net premiums collected in 1998.
F-8
<PAGE> 93
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
ACCOUNTING CHANGES
Comprehensive Income. During 1998, the Company 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. The Company 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 the Company's consolidated results of
operations or financial position.
Division Reporting. Effective December 31, 1998, the Company adopted
SFAS 131, "Disclosure about Segments of an Enterprise and Related Information,"
which changes the way companies report segment information. Adoption of this
statement did not change the Company's reportable divisions since the Company
has only one division.
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 the Company's consolidated
results of operations or financial position.
OVERALL EFFECT OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENTS
Fixed maturity investments ("fixed maturities") are debt securities
that have original maturities greater than one year and are comprised of
investments such as U.S. Treasury securities, mortgage-backed securities,
corporate bonds, asset-backed securities and redeemable preferred stocks. Equity
securities include common and non-redeemable preferred stocks.
All of the Company's fixed maturities and equity securities were
classified as available-for-sale as of December 31, 1998 and 1997.
Available-for-sale fixed maturities and equity securities are securities that
may be sold prior to maturity due to changes that might occur in market interest
rates, changes in prepayment risk, the Company's management of its income tax
position, general liquidity needs, increase in loan demand, the need to increase
regulatory capital or similar factors. Available-for-sale securities are carried
at estimated fair value and the net unrealized gains (losses) are recorded as a
component of shareholder's equity, net of tax and adjustments to deferred policy
acquisition costs and cost of insurance purchased (as described below).
During 1998, the Company maintained a trading portfolio of certain
fixed maturities, which represent fixed maturities and equity securities that
are bought and held primarily for the purpose of selling them in the near term.
Trading securities are carried at estimated fair value and the net unrealized
gains (losses), as well as realized gains (losses), are included in net
investment income. The Company held no trading securities as of December 31,
1998 or 1997, and trading securities did not have a material effect on net
investment income.
Changes in interest rates have a direct, inverse impact on the market
value of fixed-income investments. It is reasonably possible that changes in
interest rates will occur in the near term and such changes will have a material
impact on the carrying value of available-for-sale fixed maturities and equity
securities, with an offsetting effect to stockholder's equity, net of the
related effects on deferred policy acquisition cost, cost of insurance
purchased, and income taxes.
Anticipated returns, including realized gains and losses, from the
investment of policyholder balances are considered in determining the
amortization of the deferred policy acquisition cost and cost of insurance
purchased. When available-for-sale fixed maturities and equity securities are
stated at fair value, an adjustment is made to the deferred policy acquisition
cost and cost of insurance purchased equal to the change in amortization that
would have been recorded if such securities had been
F-9
<PAGE> 94
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
sold at their fair value and the proceeds reinvested at current yields.
Furthermore, if future yields expected to be earned on such securities decline,
it may be necessary to increase certain insurance liabilities. Adjustments to
such liabilities are required when their balances, in addition to future net
cash flows including investment income, are insufficient to cover future
benefits and expenses.
Short-term investments are carried at amortized cost, which
approximates fair value.
Mortgage loans and credit-tenant loans are carried at amortized cost.
Loans for which the Company determines that collection of all amounts due under
the contractual terms is not probable are considered to be impaired. The Company
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 are carried at their
unpaid principal balance. Fees received and costs incurred in connection with
the Company's origination of these loans are deferred and amortized as yield
adjustments over the loan's remaining contractual lives. Cash and cash
equivalents, which principally include commercial paper, cash and other
financial instruments with original maturities of 90 days or less, are carried
at amortized cost, which approximates fair value.
Discounts and premiums of debt securities are amortized as yield
adjustments over the contractual lives of the underlying securities and callable
corporate bonds. Principal prepayments can alter the cash flow pattern and yield
of prepayment-sensitive investments such as mortgage-backed securities ("MBS")
and callable bonds. The accretion of discount and amortization of premium takes
into consideration actual and estimated principal prepayments. In the case of
MBS, the Company utilizes estimated prepayment speed information obtained from
published sources or from estimates developed internally. If actual prepayments
differ from estimated prepayments, a new effective yield is calculated and the
net investment in the security is adjusted accordingly. The effects on the yield
of a security from changes in principal prepayments are recognized
retrospectively, except for interest only or residual interests in structured
securities which are recognized prospectively, and is included in net investment
income. The degree to which a security is susceptible to yield adjustments is
influenced by the difference between its carrying value and par, the relative
sensitivity of the underlying assets backing the securities to changing interest
rates, and the repayment priority of the securities in the overall
securitization structure. Prepayments may also reduce future yields to the
extent that proceeds are reinvested in a lower rate environment.
The Company manages the extent of these risks by (i) principally
purchasing securities which are backed by collateral with lower prepayment
sensitivity (such as MBS priced at or near par value that are highly seasoned),
(ii) avoiding securities with values heavily influenced by changes in
prepayments (such as interest-only and principal-only securities), and (iii)
purchasing securities with prepayment protected structures.
The specific identification method is used to account for the
disposition of investments. The differences between the sales proceeds and the
carrying values are reported as gains (losses), or in the case of prepayments,
as adjustments to investment income. Declines in values of investments which are
considered other than temporary are recognized as realized losses.
Subsequent recoveries in value are recognized only when the investments are
sold.
Other invested assets include investments in limited partnerships. The
Company follows the equity method of accounting for these investments. Limited
partnerships investments are likely to result in a higher degree of volatility
in reported earnings than is typically the case with fixed income investments,
and present a greater risk of loss, as they reflect claims on an issuer's
capital structure junior to that of most fixed-income investments.
DERIVATIVE FINANCIAL INSTRUMENTS
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.
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.
F-10
<PAGE> 95
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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 the Company'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 the Company's ability to reduce interest crediting rates. Call
swaptions, which allow the Company 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 the Company's decision to increase interest crediting rates to limit
surrenders. Put swaptions, which allow the Company 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.
Mortgage Dollar Roll and Reverse Repurchase Transactions. As part of
its investment strategy, the Company enters into mortgage dollar rolls and
reverse repurchase transactions (collectively "dollar rolls") principally to
increase investment earnings and to improve liquidity. These transactions are
typically terminable after 30 days and are accounted for as short-term
investment borrowings, with the proceeds of such borrowings typically reinvested
in short-term financial instruments. The dollar rolls are collateralized by
mortgage-backed agency pass-throughs with fair values approximating the
underlying loan value. There were no borrowings at December 31, 1998, compared
to $419.7 million at December 31, 1997, which are included as "investment
borrowings and payable for securities" in the accompanying balance sheet.
Credit and Market Risk. Derivative financial instruments expose the
Company to credit risk in the event of nonperformance by counterparties. The
Company limits this exposure by entering into agreements with counterparties
having high credit ratings and by regularly monitoring the ratings. The Company
does not expect any counterparty to fail to meet its obligation; however,
nonperformance would not have a material impact on the Company's results of
operations and financial position.
The Company'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.
F-11
<PAGE> 96
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SECURITY LENDING
The Company enters into security lending arrangements which are held by
State Street and Trust Co., Boston, MA. At December 31, 1998, this amount was
$111.8 million, compared to $102.2 million at December 31, 1997.
COST OF INSURANCE PURCHASED
The value of the cost of policies purchased is the actuarially
determined present value of the projected future cash flows from the acquired
policies.
Expected future cash flows used in determining the cost of insurance
purchased are based on actuarially determined projections of future premium
collection, mortality, surrenders, benefit payments, operating expenses, changes
in insurance liabilities, investment yields on the assets held to back such
policy liabilities and other factors. These projections take into account all
factors known or expected at the purchase date based on the collective judgment
of the management of the Company. Actual experience on purchased business may
vary from projections due to differences in renewal premiums collected,
investment spread, investment gains (losses), mortality and morbidity costs and
other factors. These variances from original projections, whether positive or
negative, are included in net income as they occur. To the extent that these
variances indicate that future cash flows will differ from those reflected in
the scheduled amortization of the cost of policies purchased, current and future
amortization is adjusted. Therefore, when the Company sells fixed maturities and
recognizes a gain (loss) it also reduces (increases) the future investment
spread because the proceeds from the sale of investments are reinvested at a
lower (higher) earnings rate and amortization is increased (decreased) to
reflect the change in the incidence of cash flows. The discount rate used to
determine such value is the current rate of return the Company would require to
justify the investment.
The cost of policies purchased is amortized (with interest at the same
rate credited to the insurance liabilities) based on the incidence of the
expected cash flows. The Company reviews the carrying amount of CIP on at least
an annual basis using the same methods used to evaluate deferred policy
acquisition costs.
DEFERRED POLICY ACQUISITION COST
Costs of producing new business (primarily commissions and certain
costs of policy issuance and underwriting) which vary with and are primarily
related to the production of new business, are deferred to the extent
recoverable from future profits. Such costs are amortized with interest as
follows:
- For investment-type contracts, in relation to the present value
of expected gross profits from these contracts, discounted using
the interest rate credited to the policy;
- For immediate annuities with mortality risks, in relation to the
present value of benefits to be paid;
- For traditional life contracts, in relation to future
anticipated premium revenue using the same assumptions that are
used in calculating the insurance liabilities.
Recoverability of the unamortized balance of the deferred policy
acquisition cost is evaluated regularly. For investment-type contracts, the
accumulated amortization is adjusted (whether an increase or a decrease)
whenever there is a material change in the estimated gross profits expected over
the life of a block of business in order to maintain a constant relationship
between cumulative amortization and the present value (discounted at the rate of
interest that accrues to the policies) of expected gross profits. For most other
contracts, the unamortized asset balance is reduced by a charge to income only
when the sum of the present value of future cash flows and the policy
liabilities is not sufficient to cover such asset balance. Expected gross
profits used in determining the amortization pattern and recoverability of
deferred policy acquisition cost is based on historical gross profits and
management's estimates and assumptions regarding future investment spreads,
maintenance expenses, and persistency of the block of business. The accuracy of
the estimates and assumptions are impacted by several factors, including factors
outside the control of management such as movements in interest rates and
competition from other investment alternatives. It is reasonably possible that
conditions impacting the estimates and assumptions will change and that such
changes will result in future adjustments to deferred policy acquisition cost.
F-12
<PAGE> 97
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPARATE ACCOUNTS
Separate accounts are assets and liabilities associated with certain
contracts for which the investment risk lies primarily with the holder of the
contract. Consequently, the insurer's liability for these accounts equals the
value of the account assets. Investment income, realized investment gains
(losses), and policyholder account deposits and withdrawals related to the
separate accounts are excluded from the 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.
INVESTMENT CONTRACTS AND INSURANCE LIABILITIES, RECOGNITION OF INSURANCE POLICY
INCOME AND RELATED BENEFITS AND EXPENSES
Reserves for universal life-type and investment-type contracts are
based on the contract account balance, if future benefit payments in excess of
the account balance are not guaranteed, or on the present value of future
benefit payments when such payments are guaranteed.
For investment contracts without mortality risk (such as deferred
annuities and immediate annuities with benefits paid for a period certain) and
for contracts that permit the Company or the insured to make changes in the
contract terms (such as single premium whole life and universal life), premium
deposits and benefit payments are recorded as increases or decreases in a
liability account rather than as revenue and expense. Amounts charged against
the liability account for the cost of insurance, policy administration and
surrender penalties are recorded as revenues. Interest credited to the liability
account and benefit payments made in excess of the contract liability account
balance are charged to expense.
Reserves for traditional and limited-payment contracts are generally
calculated using the net level premium method and assumptions as to investment
yields, mortality, withdrawals and dividends. The assumptions are based on
projections of past experience and include provisions for possible adverse
deviation. These assumptions are made at the time the contract is issued or, in
the case of contracts acquired by purchase, at the purchase date.
For traditional insurance contracts, premiums are recognized as income
when due. Benefits and expenses are associated with earned premiums so as to
result in their recognition over the premium-paying period of the contracts.
Such recognition is accomplished through the provision for future policy
benefits and the amortization of deferred policy acquisition costs.
For contracts with mortality risk, but with premiums paid for only a
limited period (such as single premium immediate annuities with benefits paid
for the life of the annuitant), the accounting treatment is similar to
traditional contracts. However, the excess of the gross premium over the net
premium is deferred and recognized in relation to the present value of expected
future benefit payments.
Liabilities for incurred claims are determined using historical
experience and represent an estimate of the present value of the ultimate net
cost of all reported and unreported claims. Management believes these estimates
are adequate. Such estimates are periodically reviewed and any adjustments are
reflected in current operations.
INCOME TAXES
The Company files a separate life insurance tax return. AGAIAS is
included in the consolidated life/non-life tax return of AGC. Income taxes are
allocated to AGAIAS on a separate return basis in accordance with the
tax-sharing agreement between the companies included in the consolidated return.
Deferred income taxes are provided for the future tax effects of
temporary differences between the tax bases of assets and liabilities and their
financial reporting amounts, measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. The Company
provides a valuation allowance, if necessary, to reduce deferred tax assets, if
any, to their estimated realizable value.
F-13
<PAGE> 98
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
COINSURANCE TRANSACTION
On May 21, 1998, the Company acquired the in-force individual and tax
sheltered annuity business of Provident Companies, Inc., a Delaware corporation,
for approximately $27 million. Under the agreement, approximately $1.7 billion
of assets and insurance liabilities were assumed by the Company under a
coinsurance arrangement and resulted in cost of insurance purchased of $59.8
million. In addition, the results of operations associated with this transaction
have been included in the accompanying financial statements from the effective
date through December 31, 1998. This transaction was effective as of April 30,
1998.
RECLASSIFICATIONS
Certain financial statement items presented in prior years have been
reclassified to conform to the current year's presentation. Such
reclassifications had no effect on net income or shareholder's equity.
F-14
<PAGE> 99
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
2. INVESTMENTS:
The amortized cost, gross unrealized gains and losses, estimated fair
value and carrying value of available-for-sale fixed maturities were as follows
(dollars in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $ 96.5 $ 1.8 $ (0.2) $ 98.1
Obligations of states and political subdivisions 158.8 12.6 (0.0) 171.4
Public utility securities 968.5 60.9 (0.3) 1,029.1
Other corporate securities 7,603.7 272.6 (90.3) 7,786.0
Asset-backed securities 691.9 22.9 (5.1) 709.7
Mortgage-backed securities 3,578.2 63.0 (7.1) 3,634.1
---------- ---------- ---------- ----------
Total available-for-sale $ 13,097.6 $ 433.8 $ (103.0) $ 13,428.4
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR BASIS
DECEMBER 31, 1997
-----------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $ 130.1 $ 1.0 $ -- $ 131.1
Obligations of states and political subdivisions 185.7 9.4 (5.3) 189.8
Public utility securities 1,015.2 37.3 (14.6) 1,037.9
Other corporate securities 5,030.8 258.3 (32.9) 5,256.2
Asset-backed securities 479.6 19.0 (0.9) 497.7
Mortgage-backed securities 2,793.7 88.4 (5.6) 2,876.5
---------- ---------- ---------- ----------
Total available-for-sale $ 9,635.1 $ 413.4 $ (59.3) $ 9,989.2
========== ========== ========== ==========
</TABLE>
The estimated fair value of below investment grade available-for-sale
maturities included above were $790.5 million as of December 31, 1998, and
$725.9 million as of December 31, 1997.
The amortized cost and estimated fair value of fixed maturities by
contractual maturity as of December 31, 1998, were as follows (dollars in
millions):
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due in one year or less $ 98.6 $ 99.9
Due after one year through five years 1,490.5 1,519.2
Due after five years through ten years 3,869.8 3,931.7
Due after ten years 4,060.5 4,243.5
---------- ----------
Subtotal 9,519.4 9,794.3
Mortgage-backed securities 3,578.2 3,634.1
---------- ----------
Total fixed maturities $ 13,097.6 $ 13,428.4
========== ==========
</TABLE>
F-15
<PAGE> 100
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Actual maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations, with or without call
or prepayment penalties, and because most mortgage-backed securities provide for
periodic payments throughout their lives.
Net investment income consisted of the following (dollars in millions):
<TABLE>
<CAPTION>
PREDECESSOR BASIS
---------------------------------------------------
TEN MONTHS TWO MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, FEBRUARY 28, DECEMBER 31, DECEMBER 31,
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Fixed maturities $ 750.5 $ 128.4 $ 746.2 $ 656.8
Equity securities 0.8 0.7 0.4 0.8
Mortgage loans 7.5 1.2 7.9 9.7
Credit-tenant loans 15.0 3.0 17.7 19.8
Policy loans 4.2 0.6 3.9 4.1
Other invested assets 5.6 1.1 16.9 15.3
Short-term investments and cash and cash
equivalents 32.1 5.2 18.6 6.8
-------- -------- -------- --------
Gross investment income 815.7 140.2 811.6 713.3
Investment expenses (10.7) (1.1) (4.3) (3.2)
Interest expense on dollar rolls (29.9) (4.3) (17.8) (8.1)
-------- -------- -------- --------
Total investment expenses (40.6) (5.4) (22.1) (11.3)
Net investment income $ 775.1 $ 134.8 $ 789.5 $ 702.0
======== ======== ======== ========
</TABLE>
The Company had no investments on nonaccrual status nor any fixed
maturities in default as to the payment of principal or interest at December 31,
1998 and 1997. The Company had impairment write-downs of $5.0 million in 1998,
compared to no write-downs in 1997, and write-downs of $5.6 million in 1996.
Net realized investment losses were as follows (dollars in millions):
<TABLE>
<CAPTION>
PREDECESSOR BASIS
---------------------------------------------------
TEN MONTHS TWO MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, FEBRUARY 28, DECEMBER 31, DECEMBER 31,
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Fixed maturities:
Gross realized gains $ 21.2 $ 5.9 $ 29.9 $ 34.0
Gross realized losses (38.0) (10.2) (47.5) (25.6)
Decline in net realizable value that is other
than Temporary (5.0) -- -- (5.6)
-------- -------- -------- --------
(21.8) (4.3) (17.6) 2.8
Mortgages loans -- -- -- (0.2)
Other -- -- 1.4 --
-------- -------- -------- --------
Net realized investment gains (losses) before expenses (21.8) (4.3) (16.2) 2.6
Investment expenses (4.4) (1.6) (6.5) (4.9)
-------- -------- -------- --------
Net realized investment losses $ (26.2) $ (5.9) $ (22.7) $ (2.3)
======== ======== ======== ========
</TABLE>
F-16
<PAGE> 101
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Changes in unrealized appreciation on investments carried at estimated
fair value, net of the effects on other balance sheet accounts, were as follows
(dollars in millions):
<TABLE>
<CAPTION>
PREDECESSOR BASIS
-------------------------------------------------
TEN MONTHS TWO MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, FEBRUARY 28, DECEMBER 31, DECEMBER 31,
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Investments carried at estimated fair value:
Available-for-sale fixed maturities $ 119.0 (142.3) $ 250.0 $ (238.1)
Equity securities 1.6 0.3 0.3 --
Other -- -- 1.3 (10.1)
-------- -------- -------- --------
Change in unrealized appreciation, gross 120.6 (142.0) 251.6 (248.2)
Less effect on other balance sheet accounts:
Cost of insurance purchased 72.8 (62.7) (37.7) 18.9
Deferred policy acquisition costs (32.1) 99.1 (71.0) 68.3
Insurance liabilities -- -- -- 36.3
Other liabilities -- (1.1) (3.3) (7.8)
Deferred income taxes (56.4) 37.3 (48.8) 46.4
-------- -------- -------- --------
Change in unrealized appreciation, net $ 104.9 $ (69.4) $ 90.8 $ (86.1)
======== ======== ======== ========
</TABLE>
MORTGAGE LOANS
Approximately 70% of the commercial mortgages were on properties
located in four states - New Jersey (34%), Texas (14%), Florida (11%), and North
Carolina (11%), respectively. No other state comprised greater than 10% of the
total commercial mortgage loan balance. During 1998 and 1997 the Company did not
recognize any realized losses on mortgage loans compared to $0.2 million in
1996.
At December 31, 1998, the Company held $197.4 million, or 1.4% of total
invested assets, of credit-tenant loans ("CTLs") compared to $217.0 million at
year-end 1997. CTLs are mortgage loans for commercial properties which require,
as stipulated by the Company's underwriting guidelines, (i) the lease of the
principal tenant to be assigned to the Company (including the direct receipt by
the Company of the tenant's lease payments) and to produce adequate cash flow to
fund the requirements of the loan and (ii) the principal tenant (or the
guarantor of such tenant's obligations) to have a credit rating of generally at
least "BBB" or its equivalent. The underwriting guidelines take into account
such factors as the lease terms on the subject property; the borrower's
management ability, including business experience, property management
capabilities and financial soundness; and such economic, demographic or other
factors that may affect the income generated by the property or its value. The
underwriting guidelines also require a loan-to-value ratio of 75% or less.
Because CTLs are principally underwritten on the basis of the creditworthiness
of the tenant rather than on the value of the underlying property, they are
classified as a separate class of securities for financial reporting purposes.
As with commercial mortgage loans, CTLs are additionally secured by liens on the
underlying property.
DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swap agreements related to investment securities at
December 31, 1998 were as follows (dollars in millions):
<TABLE>
<CAPTION>
Interest rate swap agreements to pay fixed rate: Interest rate swap agreements to receive fixed rate:
<S> <C> <C> <C>
Notional amount $55.0 Notional amount $80.0
Average receive rate 6.73% Average receive rate 6.73%
Average pay rate 6.88% Average pay rate 5.31%
</TABLE>
F-17
<PAGE> 102
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
The Company's interest rate swaps had an estimated fair value of a
positive $0.5 million and $1.1 million at year-end 1998 and 1997, respectively.
During 1998, the Company purchased call swaptions and put swaptions
that expire by 2000. The call swaptions had a notional amount of $640 million
and an average strike rate of 4.14% at December 31, 1998. The put swaptions had
a notional amount of $1.1 billion and an average strike rate of 8.33% 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 the Company's exposure would be limited to the premiums paid.
3. REINSURANCE:
In the normal course of business, the Company seeks to limit its
exposure to loss on any single policy and to recover a portion of benefits paid
by ceding reinsurance to other insurance enterprises or reinsurers under excess
coverage contracts. The Company has set its retention limit for acceptance of
risk on life insurance policies at various levels up to $0.8 million. To the
extent that reinsuring companies are unable to meet obligations under these
agreements, the Company remains contingently liable. The Company evaluates the
financial condition of its reinsurers to minimize its exposure to significant
losses from reinsurer insolvencies. Assets and liabilities relating to
reinsurance contracts are reported gross of the effects of reinsurance.
Reinsurance receivables and prepaid reinsurance premiums, including amounts
related to insurance liabilities, are reported as assets.
Direct and assumed life insurance in force totaled $444.5 million,
$495.8 million, and $561.5 million at December 31, 1998, 1997 and 1996,
respectively and ceded life insurance in force totaled $195.6, $212.8 million,
and $247.6 million at December 31, 1998, 1997 and 1996, respectively.
The cost of ceded policies containing mortality risks totaled $1.3 in
1998, $1.2 million in 1997, and $1.5 million in 1996, and was deducted from
insurance premium revenue. Reinsurance recoveries netted against insurance
policy benefits totaled $0.4 million, $1.5 million, and $1.4 million in 1998,
1997, and 1996, respectively.
In October 1995, the Company and American General Life Insurance
Company ("AG Life") entered into a modified coinsurance agreement. Under the
agreement, AG Life issues SPIAs, and 50% of each risk is reinsured to the
Company. Under this arrangement, the Company reports its pro rata share of
premiums and shares in its pro rata portion of the gain or loss on policies
sold. Pursuant to this arrangement, the Company assumed premiums of $51.7
million, $126.3 million and $90.9 million for the years ended December 31, 1998,
1997 and 1996, respectively. The arrangement resulted in $52.0 million, $126.8
million and $91.3 million of revenues and expenses for the Company in 1998, 1997
and 1996, respectively. As of December 31, 1998 and 1997, the funds held by the
Company and the insurance liabilities resulting from this agreement were $269.4
million and $219.5 million, respectively.
F-18
<PAGE> 103
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. INCOME TAXES:
The components of income tax included in the balance sheet are as follows
(dollars in millions):
<TABLE>
<CAPTION>
PREDECESSOR BASIS
DECEMBER 31, DECEMBER 31,
1998 1997
------------ -----------------
<S> <C> <C>
Deferred income tax liabilities:
Deferred policy acquisition costs and
cost of insurance purchased $ 175.9 $ 176.0
Basis differential of investments 141.1 89.8
Other 5.8 --
------- -------
Gross deferred income tax liabilities 322.8 265.9
Deferred income tax assets:
Insurance liabilities 196.8 105.4
Other -- 6.7
------- -------
Gross deferred income tax assets 196.8 112.1
Net deferred income tax liabilities $ 126.0 $ 153.8
======= =======
</TABLE>
Income tax expense was as follows:
<TABLE>
<CAPTION>
PREDECESSOR BASIS
------------------------------------------------
TEN MONTHS TWO MONTHS
ENDED ENDED YEAR YEAR
DECEMBER 31, FEBRUARY 28, ENDED ENDED
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current tax provision $ 39.8 $ 7.7 $ 55.8 $ 31.6
Deferred tax provision 5.4 2.8 9.1 27.5
-------- -------- -------- --------
Income tax expense $ 45.2 $ 10.5 $ 64.9 $ 59.1
======== ======== ======== ========
</TABLE>
Income tax expense differed from that computed at the applicable federal
statutory rate (35% during 1998, 1997 and 1996) for the following reasons:
<TABLE>
<CAPTION>
PREDECESSOR BASIS
------------------------------------
TEN MONTHS TWO MONTHS
ENDED ENDED YEAR YEAR
DECEMBER 31, FEBRUARY 28, ENDED ENDED
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Federal tax on income before income
taxes at statutory rates $ 39.3 $ 10.5 $ 63.1 $ 59.1
State taxes 1.1 -- 1.4 0.3
Amortization of goodwill 6.9 -- -- --
Various adjustments (2.1) -- 0.4 (0.3)
-------- -------- -------- --------
Income tax expense $ 45.2 $ 10.5 $ 64.9 $ 59.1
======== ======== ======== ========
</TABLE>
F-19
<PAGE> 104
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS 107, "Disclosures about Fair Values of Financial Instruments",
requires disclosures of fair value information about financial instruments, and
includes assets and liabilities recognized or not recognized in the balance
sheet, for which it is practicable to estimate their fair value. In cases where
quoted market prices are not available, fair values are based on estimates using
discounted cash flow or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rates and
estimates of the amount and timing of future cash flows. SFAS 107 excludes
certain insurance liabilities and other non-financial instruments from its
disclosure requirements, such as the amount for the value associated with
customer or agent relationships, the expected interest margin (interest earnings
over interest credited) to be earned in the future on investment-type products,
or other intangible items. Accordingly, the aggregate fair value amounts
presented herein do not necessarily represent the underlying value of the
Company; likewise, care should be exercised in deriving conclusions about the
Company's business or financial condition based on the fair value information
presented herein.
The following methods and assumptions were used by the Company in
determining estimated fair values of financial instruments:
FIXED MATURITIES AND EQUITY SECURITIES: The estimated fair values of
fixed maturities and equity securities are based on quoted market
prices, where available. For fixed maturities and equity securities not
actively traded, the estimated fair values are determined using values
obtained from independent pricing services or, in the case of private
placements, by discounting expected future cash flows using a current
market rate commensurate with the credit quality, prepayment
optionality and maturity of the respective securities.
SHORT-TERM INVESTMENTS: The carrying values approximate estimated fair
value.
MORTGAGE LOANS, CREDIT-TENANT LOANS, AND POLICY LOANS: The estimated
fair values for mortgage loans, CTLs and policy loans are determined by
discounting future expected cash flows using interest rates currently
being offered for similar loans to borrowers with similar credit
ratings.
OTHER INVESTED ASSETS: The estimated fair values are determined using
quoted market prices for similar instruments.
INVESTMENT CONTRACTS: The estimated fair values are determined using
discounted cash flow calculations based on interest rates currently
being offered for similar contracts with maturities consistent with
those remaining for the contracts being valued. The estimated fair
values of investment contracts were approximately equal to the carrying
values as of December 31, 1998 and 1997, because interest rates
credited on the vast majority of account balances approximate current
rates paid on similar investments and are not generally guaranteed
beyond one year. Fair values for the Company's insurance liabilities
other than those for investment-type insurance contracts are not
required to be disclosed. However, the estimated fair values of
liabilities for all insurance contracts are taken into consideration in
the Company's overall management of interest rate risk, which minimizes
exposure to changing interest rates through the matching of investment
maturities with amounts due under insurance contracts.
F-20
<PAGE> 105
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
INVESTMENT BORROWINGS: The carrying values approximate estimated fair
value.
The estimated fair values and carrying values of the Company's
financial instruments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
---- ----
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
----- ----- ----- -----
(DOLLARS IN MILLIONS)
PREDECESSOR BASIS
-----------------
<S> <C> <C> <C> <C>
ASSETS:
Fixed maturities $13,428.4 $13,428.4 $ 9,989.2 $ 9,989.2
Equity securities 26.2 26.2 23.8 23.8
Mortgage loans 124.5 119.6 105.6 102.5
Credit-tenant loans 223.7 197.4 222.9 217.0
Policy loans 78.1 87.4 55.6 61.8
Other invested assets 64.8 64.8 20.0 20.0
Short-term investments 9.8 9.8 - -
LIABILITIES:
Insurance liabilities for investment contracts 10,933.2 11,750.9 7,796.5 8,294.2
Investment borrowings 0.6 0.6 434.6 434.6
</TABLE>
6. SHAREHOLDER'S EQUITY:
Generally, dividends that can be paid by the Company during any
twelve-month period cannot exceed the greater of statutory net gain from
operations (excluding realized gains on investments) for the preceding year or
10% of statutory surplus at the end of the preceding year. In 1999, the Company
can pay dividends of up to $94.6 million.
7. COMMITMENTS AND CONTINGENCIES:
COMMITMENTS
The Company leases office space and equipment under noncancellable
operating leases. The approximate future minimum lease rental commitments under
such leases as of December 31, 1998 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1999 $ 733
2000 674
2001 615
2002 598
2003 581
Thereafter 242
------
$3,443
======
</TABLE>
Rent expense was $799,000, $946,000 and $1,018,000 in 1998, 1997, and
1996, respectively.
Until May 1, 1998, the Company was committed to reimburse the AGA Series
Trust (formerly WNL Series Trust) for administrative expenses in excess of .12%
of the market value of investments related to variable annuity policies issued
by the Company. During 1998, 1997 and 1996, the Company incurred approximately
$0.8 million, $0.9 million and $0.6 million respectively, related to this
commitment.
F-21
<PAGE> 106
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
CONTINGENCIES
Assessments are levied on the Company from time to time by guaranty
fund associations of states in which it is licensed to provide for payment of
covered claims or to meet other insurance obligations, subject to prescribed
limits, of insolvent insurance enterprises. Assessments are allocated to an
insurer based on the ratio of premiums written by an insurer to total premiums
written in the state. The terms of the assessments depend on how each guaranty
fund association elects to fund its obligations. Assessments levied by certain
states may be recoverable through a reduction in future premium taxes. The
Company provides a liability, and estimates premium tax offsets, for estimated
future assessments of known insolvencies. Included in other liabilities is a
reserve for guaranty fund assessments of $11.2 million, $16.6 million, and $22.1
million in 1998, 1997, and 1996, respectively. The Company determines guaranty
fund liabilities by utilizing a report prepared annually by the National
Organization of Life and Health Insurance Guaranty Associations which provides
estimates of assessments by insolvency. Although management believes the
provision for guaranty fund assessments is adequate for all known insolvencies,
and does not currently anticipate the need for any material additions to the
reserve for known insolvencies. However, it is reasonably possible that the
estimates on which the provision is based will change and that such changes will
result in future adjustments.
From time to time, the Company is involved in lawsuits which are
related to its operations. In most cases, such lawsuits involve claims under
insurance policies or other contracts of the Company. None of the lawsuits
currently pending, either individually or in the aggregate, is expected to have
a material effect on the Company's financial condition or results of operations.
8. EMPLOYEE BENEFIT PLANS:
The Company participates in several employee benefit plans which
together cover substantially all of its employees. The amounts related to the
pension plans were not significant to the Company operations.
9. RELATED PARTY TRANSACTIONS:
The Company and several of its affiliates have entered into contracts
indefinite in duration for the performance of various services. These services
include mortgage loan origination and servicing, and various other routine
business services or materials which may be provided to the Company. All other
agreements are cost allocation agreements, based upon generally accepted
accounting principles, involving the Company with its parent or any affiliated
insurer.
The Company from time to time borrows funds from American General
Corporation under an intercompany borrowing agreement. These borrowings are on
demand and are unsecured. Interest charges on the average borrowings each
quarter are based upon an average commercial paper rate.
In addition, the Company pays management fees for affiliated service
expenses. These expenses are allocated by American General Corporation to the
Company. In 1998, the Company paid $11.4 million for investment management fees
and $1.1 million for data processing services.
In 1998, the Company received capital contributions from its parent of
$170.8 million. In 1998, there was a note issued of $100.0 million to American
General Corporation.
See Note 3 for a description of the modified coinsurance agreement with
AG Life.
F-22
<PAGE> 107
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
10. OTHER OPERATING STATEMENT DATA:
Premiums and other considerations consisted of the following (dollars
in millions):
<TABLE>
<CAPTION>
PREDECESSOR BASIS
-------------------------------------------------
TEN MONTHS TWO MONTHS
ENDED ENDED YEAR YEAR
DECEMBER 31, FEBRUARY 28, ENDED ENDED
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Premiums collected $2,290.1 $ 349.5 $2,051.1 $1,625.5
Reinsurance ceded (1.1) (0.2) (1.2) (1.5)
-------- -------- -------- --------
Premiums collected, net 2,289.0 349.3 2,049.9 1,624.0
Less premiums on universal life and
Investment contracts without mortality
Risk which are recorded as additions to
Insurance liabilities (2,184.6) (347.4) (2,040.8) (1,613.4)
-------- -------- -------- --------
Premiums on products with mortality
Risk, recorded as insurance policy income 104.4 1.9 9.1 10.6
Reinsurance assumed 33.5 12.6 109.4 71.1
Amortization of deferred revenue 0.2 0.1 0.6 0.5
Fees and surrender charges 9.5 1.3 6.9 4.4
Other 3.0 (2.0) 0.9 4.4
-------- -------- -------- --------
Premiums and other considerations $ 150.6 $ 13.9 $ 126.9 $ 91.0
======== ======== ======== ========
</TABLE>
The changes in cost of insurance purchased (CIP) were as follows (dollars in
millions):
<TABLE>
<CAPTION>
PREDECESSOR BASIS
-------------------------------------------------
TEN MONTHS TWO MONTHS
ENDED ENDED YEAR YEAR
DECEMBER 31, FEBRUARY 28, ENDED ENDED
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance, beginning of period before effect of
fair value adjustments of available for sale
fixed maturities $ 400.9 $ 66.5 $ 71.5 $ 75.8
Acquisition of new business 59.8 -- -- --
Scheduled amortization (33.4) (0.8) (5.0) (4.3)
Amortization related to realized gains and losses (2.2) -- -- --
-------- -------- -------- --------
425.1 65.7 66.5 71.5
Adjustment for the acquisition (a) -- 335.2 -- --
Balance, end of period before effect of fair value
adjustments of available for sale fixed 425.1 400.9 66.5 71.5
maturities
Effect of fair value adjustment of available for
sale fixed maturities (48.7) (121.5) (58.8) (21.1)
-------- -------- -------- --------
Balance, end of period $ 376.4 $ 279.4 $ 7.7 $ 50.4
======== ======== ======== ========
</TABLE>
(a) Represents the incremental amount necessary to recognize the new
CIP asset attributable to the 1998 acquisition.
CIP amortization, net of accretion and additions, expected to be
recorded in cash over the next five years is $41.9 million, $40.2 million, $37.6
million, $34.4, and $31.2 million.
F-23
<PAGE> 108
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
The changes in the deferred policy acquisition cost were as follows
(dollars in millions):
<TABLE>
<CAPTION>
PREDECESSOR BASIS
------------------------------------------------
TEN MONTHS TWO MONTHS
ENDED ENDED YEAR YEAR
DECEMBER 31, FEBRUARY 28, ENDED ENDED
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance, beginning of period before effect of
fair value adjustments of available for sale
fixed maturities $ 146.7 $ 517.1 $ 408.3 $ 325.1
Acquisition costs incurred 147.2 22.4 147.6 120.7
Scheduled amortization (13.4) (8.4) (42.8) (36.9)
Amortization related to realized gains and losses (0.8) 1.2 4.0 (0.6)
-------- -------- -------- --------
279.7 532.3 517.1 408.3
Adjustment for the acquisition (a) -- (385.6) -- --
Balance, end of period before effect of fair value
adjustments of available for sale fixed maturities 279.7 146.7 517.1 408.3
Effect of fair value adjustment of available for
sale fixed maturities (32.1) -- (99.1) (28.1)
-------- -------- -------- --------
Balance, end of period $ 247.6 $ 146.7 $ 418.0 $ 380.2
======== ======== ======== ========
</TABLE>
(a) Represents the necessary elimination of the historical DPAC
asset required by purchase accounting.
11. STATUTORY INFORMATION:
Statutory accounting practices prescribed or permitted for the Company
by regulatory authorities differ from generally accepted accounting principles.
The Company reported the following amounts to regulatory agencies:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
-------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Statutory capital and surplus $ 823.1 $ 638.7
Asset valuation reserve 135.9 116.4
Interest maintenance reserve 100.4 105.4
-------- -------
Total $1,059.4 $ 860.5
======== =======
</TABLE>
Statutory accounting practices require that certain investment-related
portions of surplus, called the asset valuation reserve ("AVR") and the interest
maintenance reserve ("IMR"), be appropriated and reported as liabilities. The
purpose of these reserves is to stabilize statutory surplus against fluctuations
in the market value of investments. The AVR captures realized and unrealized
investment gains and losses related to changes in creditworthiness. The IMR
captures realized investment gains and losses on debt instruments resulting from
changes in interest rates and provides for subsequent amortization of such
amounts into statutory net income on a basis reflecting the remaining life of
the assets sold.
F-24
<PAGE> 109
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Statutory financial statements differ from GAAP. Significant
differences were as follows (dollars in millions):
<TABLE>
<CAPTION>
PREDECESSOR BASIS
-------------------------------------------------
TEN MONTHS TWO MONTHS
ENDED ENDED YEAR YEAR
DECEMBER 31, FEBRUARY 28, ENDED ENDED
1998 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income:
Statutory net gain from operations $ 70.5 $ 24.1 $ 76.3 $ 39.2
Deferred policy acquisition costs and cost of
insurance purchased 110.0 13.5 103.1 78.9
Income taxes (9.9) (2.8) (9.1) (23.8)
Adjustment to policy reserves (57.7) (13.4) (58.1) (1.5)
Goodwill amortization (19.7) 0.0 0.0 0.0
Net realized gains/investments (33.4) (1.3) (3.6) 11.4
Other, net 7.3 (0.6) 6.7 5.8
-------- -------- -------- --------
GAAP net income $ 67.1 $ 19.5 $ 115.3 $ 110.0
======== ======== ======== ========
Shareholder's equity:
Statutory capital and surplus $ 823.1 $ 663.4 $ 638.7 $ 572.4
Deferred policy acquisition costs and cost of
insurance purchased 624.0 445.8 425.7 430.6
Income taxes (129.2) (155.6) (156.2) (95.8)
Adjustments to policy reserves (484.7) (207.8) (195.5) (136.5)
Acquisition-related goodwill 898.8 0.0 0.0 0.0
Asset valuation reserve 135.9 116.4 116.4 109.0
Interest maintenance reserve 100.4 105.4 105.4 104.4
Investments 435.4 357.4 376.6 133.7
Adjustment for the acquisition 0.0 688.9 0.0 0.0
Other, net (45.6) 1.4 (0.2) (22.8)
-------- -------- -------- --------
Total GAAP shareholder's equity $2,358.1 $2,015.3 $1,310.9 $1,095.0
======== ======== ======== ========
</TABLE>
12. YEAR 2000 CONTINGENCY (UNAUDITED)
Internal Systems. The Company has numerous technology systems that are
managed on a decentralized basis. The Company's 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 the Company's information technology and
non-information technology systems; (2) assess which items in the inventory may
expose the Company 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 the Company'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. The Company will continue to test its systems
throughout 1999 to maintain Year 2000 readiness.
Third Party Relationships. The Company 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) the Company and include
organizations with which the Company 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 the Company
F-25
<PAGE> 110
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
(FORMERLY WESTERN NATIONAL LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
exercises less, or no, control over their Year 2000 readiness. The Company 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 the Company's contingency planning efforts. Due to the
various stages of third parties' Year 2000 readiness, the Company's testing
activities will extend throughout 1999.
Contingency Plans. The Company 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. The Company 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, the Company 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 the
Company's future results of operations, liquidity, or financial condition.
However, due to the magnitude and complexity of this project, risks and
uncertainties exist and the Company 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, the Company'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 the Company's plans, the Year 2000 issues could have
a material adverse impact on the Company's operations following the turn of the
century.
Costs. Through December 31, 1998, the Company has incurred and expensed
$1 million (pretax) related to Year 2000 readiness, all of which was incurred in
1998. The Company currently anticipates that it will incur future costs of
approximately $0.6 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, the Company accelerated
the planned replacement of certain systems as part of the Year 2000 plans.
F-26
<PAGE> 111
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
American General Annuity Insurance Company
Our report on the financial statements of American General Annuity
Insurance Company, formerly known as Western National Life Insurance Company, is
included on page F-3 of this Form N-4. In connection with our audit of such
financial statements, we have also audited the related financial statement
schedule as of December 31, 1996 and for the year then ended listed in the index
on page F-1 of this Form N-4.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Houston, Texas
February 5, 1997
F-27
<PAGE> 112
WESTERN NATIONAL LIFE INSURANCE COMPANY
SCHEDULE IV
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
PREDECESSOR BASIS
-------------------
1998 1997 1996
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
LIFE INSURANCE IN FORCE:
Direct $443.1 $494.1 $559.3
Assumed 1.4 1.8 2.2
Ceded (195.6) (212.8) (247.6)
------ ------ ------
Net insurance in force $248.9 $283.1 $313.9
====== ====== ======
Percentage of assumed to net 0.6% 0.6% 0.7%
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR BASIS
------------------------------------------------
TEN MONTHS TWO MONTHS
ENDED ENDED YEAR YEAR
DECEMBER 31, FEBRUARY 28, ENDED ENDED
1998 1998 1997 1996
------------ ------------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
PREMIUMS RECORDED AS REVENUE FOR GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES:
Premiums and other considerations, gross $ 118.2 $ 1.5 $ 18.7 $ 21.4
Assumed 33.5 12.6 109.4 71.1
Ceded (1.1) (0.2) (1.2) (1.5)
-------- -------- -------- --------
Net premiums $ 150.6 $ 13.9 $ 126.9 $ 91.0
======== ======== ======== ========
Percentage of assumed to net 22.2% 90.1% 86.2% 78.1%
</TABLE>
F-28
<PAGE> 113
FINANCIAL STATEMENTS
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA SEPARATE ACCOUNT A
YEAR ENDED DECEMBER 31, 1998
<PAGE> 114
American General Annuity Insurance Company
AGA Separate Account A
Financial Statements
Year ended December 31, 1998
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.................................................1
Audited Financial Statements
Statement of Assets and Liabilities............................................2
Statement of Operations........................................................6
Statement of Changes in Net Assets............................................10
Notes to Financial Statements.................................................16
</TABLE>
<PAGE> 115
Report of Independent Auditors
Board of Directors and Contract Owners
American General Annuity Insurance
Company
We have audited the accompanying statement of assets and liabilities of AGA
Separate Account A (comprising, respectively, the State Street Global Advisors
Money Market, State Street Global Advisors Growth Equity, Credit Suisse Growth
and Income, Credit Suisse International Equity, Van Kampen American Capital
Emerging Growth, Salomon Brothers U.S. Government Securities, Elite Value Asset
Allocation, Oppenheimer Growth and Income, Oppenheimer Growth, Oppenheimer Small
Cap, Oppenheimer High Income, Templeton Developing Markets, Templeton
International, AIM VI Capital Appreciation, and AIM VI Diversified Income
Portfolios) (the "Company") as of December 31, 1998, and the related statement
of operations for the year then ended and the statements of changes in net
assets for each of the two 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform our 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 shares owned as of December 31, 1998, by correspondence with the
custodians. 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 audit provides 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 each of the respective
portfolios constituting AGA Separate Account A as of December 31, 1998, the
results of their operations for the year ended December 31, 1998, and the
changes in their net assets for each of the two years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Houston, Texas
February 15, 1999
1
<PAGE> 116
American General Annuity Insurance Company
AGA Separate Account A
Statement of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
STATE STREET
STATE STREET GLOBAL CREDIT SUISSE CREDIT SUISSE
GLOBAL ADVISORS ADVISORS GROWTH AND INTERNATIONAL
MONEY MARKET GROWTH EQUITY INCOME EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Net asset value per share $ 1.00 $ 16.57480 $ 13.89493 $ 10.22663
=============== ============= ============= =============
Number of shares 9,253,686.480 935,256.096 1,202,821.643 586,308.409
=============== ============= ============= =============
Identified cost $ 9,253,686 $ 12,981,054 $ 15,300,096 $ 6,177,632
=============== ============= ============= =============
Market value $ 9,253,686 $ 15,501,683 $ 16,713,123 $ 5,995,959
=============== ============= ============= =============
Net assets $ 9,253,686 $ 15,501,683 $ 16,713,123 $ 5,995,959
=============== ============= ============= =============
Net assets attributable to:
Contract owners $ 9,135,649 $ 11,476,776 $ 13,325,093 $ 3,491,883
American General Annuity Insurance
Company 118,037 4,024,907 3,388,030 2,504,076
--------------- ------------- ------------- -------------
$ 9,253,686 $ 15,501,683 $ 16,713,123 $ 5,995,959
=============== ============= ============= =============
Accumulation units of contract owners:
Standard benefit units 669,177.195 542,282.250 712,462.456 262,854.312
Enhanced benefit units 71,388.927 45,199.956 94,362.916 27,231.843
Bonus benefit units 76,341.784 17,008.926 25,644.192 2,471.687
Accumulation value per unit:
Standard benefit units $ 11.289602 $ 19.230786 $ 16.187812 $ 11.964095
Enhanced benefit units 11.235111 19.138038 16.109724 11.906346
Bonus benefit units 10.202042 10.772225 10.595938 9.239698
</TABLE>
See accompanying notes.
2
<PAGE> 117
American General Annuity Insurance Company
AGA Separate Account A
Statement of Assets and Liabilities (continued)
December 31, 1998
<TABLE>
<CAPTION>
VAN KAMPEN
AMERICAN SALOMON
CAPITAL BROTHERS U.S. ELITE VALUE OPPENHEIMER
EMERGING GOVERNMENT ASSET GROWTH AND
GROWTH SECURITIES ALLOCATION INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Net asset value per share $ 18.93541 $ 10.23332 $ 14.95112 $ 20.48000
============= ============== ============== ===========
Number of shares 612,681.886 848,130.555 1,379,156.042 3,817.965
============= ============== ============== ===========
Identified cost $ 8,535,003 $ 8,642,699 $ 19,809,099 $ 75,608
============= ============== ============== ===========
Market value $ 11,601,383 $ 8,679,191 $ 20,619,927 $ 78,192
============= ============== ============== ===========
Net assets $ 11,601,383 $ 8,679,191 $ 20,619,927 $ 78,192
============= ============== ============== ===========
Net assets attributable to:
Contract owners $ 10,622,134 $ 6,258,799 $ 18,995,116 $ 78,192
American General Annuity Insurance
Company 979,249 2,420,392 1,624,811 --
------------- -------------- -------------- -----------
$ 11,601,383 $ 8,679,191 $ 20,619,927 $ 78,192
============= ============== ============== ===========
Accumulation units of contract owners:
Standard benefit units 501,049.913 461,727.241 1,100,459.217 6,629.025
Enhanced benefit units 58,826.233 69,900.862 99,776.317 792.916
Bonus benefit units 12,267.803 11,095.044 23,358.578 --
Accumulation value per unit:
Standard benefit units $ 18.713769 $ 11.564124 $ 15.645505 $ 10.498635
Enhanced benefit units 18.623470 11.508303 15.570036 10.840562
Bonus benefit units 12.231475 10.354838 9.604830 10.000000
</TABLE>
See accompanying notes.
3
<PAGE> 118
American General Annuity Insurance Company
AGA Separate Account A
Statement of Assets and Liabilities (continued)
December 31, 1998
<TABLE>
<CAPTION>
TEMPLETON
OPPENHEIMER OPPENHEIMER OPPENHEIMER DEVELOPING
GROWTH SMALL CAP HIGH INCOME MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Net asset value per share $ 36.67 $ 9.60 $ 11.02 $ 5.12
Number of shares 543.722 3,451.894 1,648.049 --
============= ============= ============= ============
Identified cost $ 19,433 $ 31,629 $ 18,131 $ --
============= ============= ============= ============
Market value $ 19,938 $ 33,138 $ 18,161 $ --
============= ============= ============= ============
Net assets $ 19,938 $ 33,138 $ 18,161 $ --
============= ============= ============= ============
Net assets attributable to:
Contract owners $ 19,938 $ 33,138 $ 18,161 $ --
American General Annuity Insurance
Company -- -- -- --
------------- ------------- ------------- ------------
$ 19,938 $ 33,138 $ 18,161 $ --
============= ============= ============= ============
Accumulation units of contract owners:
Standard benefit units 1,662.071 2,972.732 1,791.585 --
Enhanced benefit units -- 4.463 22.316 --
Bonus benefit units 218.755 -- -- --
Accumulation value per unit:
Standard benefit units $ 10.576647 $ 11.130512 $ 10.012380 $ 10.095498
Enhanced benefit units 10.000000 11.129835 10.011761 10.000000
Bonus benefit units 10.785446 10.000000 10.000000 10.000000
</TABLE>
See accompanying notes.
4
<PAGE> 119
American General Annuity Insurance Company
AGA Separate Account A
Statement of Assets and Liabilities (continued)
December 31, 1998
<TABLE>
<CAPTION>
AIM VI AIM VI
TEMPLETON CAPITAL DIVERSIFIED
INTERNATIONAL APPRECIATION INCOME
PORTFOLIO PORTFOLIO PORTFOLIO TOTAL
--------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Net asset value per share $ 20.61 $ 25.20 $ 10.94
=============== ============== =============
Number of shares 177.741 1,125.847 2,767.786
=============== ============== =============
Identified cost $ 3,641 $ 26,832 $ 31,326 $ 80,905,870
=============== ============== ============= ============
Market value $ 3,663 $ 28,371 $ 30,279 $ 88,576,694
=============== ============== ============= ============
Net assets $ 3,663 $ 28,371 $ 30,279 $ 88,576,694
=============== ============== ============= ============
Net assets attributable to:
Contract owners $ 3,663 $ 28,371 $ 30,279 $ 73,517,192
American General Annuity Insurance
Company -- -- -- 15,059,502
--------------- -------------- ------------- ------------
$ 3,663 $ 28,371 $ 30,279 $ 88,576,694
=============== ============== ============= ============
Accumulation units of contract owners:
Standard benefit units 359.871 2,550.092 2,249.186
Enhanced benefit units -- -- 546.004
Bonus benefit units -- -- 236.187
Accumulation value per unit:
Standard benefit units $ 10.179276 $ 11.125468 $ 9.960883
Enhanced benefit units 10.000000 10.000000 10.098556
Bonus benefit units 10.000000 10.000000 9.998064
</TABLE>
See accompanying notes.
5
<PAGE> 120
American General Annuity Insurance Company
AGA Separate Account A
Statement of Operations
Year ended December 31, 1998
<TABLE>
<CAPTION>
STATE STREET
STATE STREET GLOBAL CREDIT SUISSE CREDIT SUISSE
GLOBAL ADVISORS ADVISORS GROWTH INTERNATIONAL
MONEY MARKET GROWTH EQUITY AND INCOME EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Investment income (expense):
Income:
Dividends $ 275,567 $ 91,978 $ 247,175 $ 16,424
Expenses:
Mortality and expense risk
and administrative fees (75,365) (97,828) (114,658) (37,287)
----------- ----------- ----------- -----------
Net investment income (expense) 200,202 (5,850) 132,517 (20,863)
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) on
investments -- 174,013 171,523 (51,421)
Net unrealized appreciation
(depreciation) on
investments
-- 1,582,159 721,291 (8,961)
Capital gain distributions -- 357,781 396,781 --
----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss) on investments -- 2,113,953 1,289,595 (60,382)
----------- ----------- ----------- -----------
Increase (decrease) in net assets
resulting from operations $ 200,202 $ 2,108,103 $ 1,422,112 $ (81,245)
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
6
<PAGE> 121
American General Annuity Insurance Company
AGA Separate Account A
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
VAN KAMPEN
AMERICAN SALOMON
CAPITAL BROTHERS U.S. ELITE VALUE OPPENHEIMER
EMERGING GOVERNMENT ASSET GROWTH AND
GROWTH SECURITIES ALLOCATION INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Investment income (expense):
Income:
Dividends $ 481 $ 309,413 $ 247,142 $ --
Expenses:
Mortality and expense risk
and administrative fees (96,477) (45,013) (183,535) (16)
---------- -------------- ----------- -----------
Net investment income (expense) (95,996) 264,400 63,607 (16)
Realized and unrealized gain on
investments:
Net realized gain on
investments 256,963 22,495 190,973 40
Net unrealized appreciation
on investments 2,483,874 19,198 100,055 2,584
Capital gain distributions -- 32,231 201,075 --
---------- -------------- ----------- -----------
Net realized and unrealized gain
on investments 2,740,837 73,924 492,103 2,624
---------- -------------- ----------- -----------
Increase in net assets resulting
from operations $2,644,841 $ 338,324 $ 555,710 $ 2,608
========== ============== =========== ===========
</TABLE>
See accompanying notes.
7
<PAGE> 122
American General Annuity Insurance Company
AGA Separate Account A
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
TEMPLETON
OPPENHEIMER OPPENHEIMER OPPENHEIMER DEVELOPING
GROWTH SMALL CAP HIGH INCOME MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Investment income (expense):
Income:
Dividends $ -- $ -- $ -- $ --
Expenses:
Mortality and expense risk
and administrative fees (5) (7) (7) --
----------- ----------- ----------- ----------
Net investment expense (5) (7) (7) --
Realized and unrealized gain on
investments:
Net realized gain on
investments -- -- -- 52
Net unrealized appreciation
on investments 542 1,509 31 --
Capital gain distributions -- -- -- --
----------- ----------- ----------- ----------
Net realized and unrealized gain
on investments 542 1,509 31 52
----------- ----------- ----------- ----------
Increase in net assets resulting
from operations $ 537 $ 1,502 $ 24 $ 52
=========== =========== =========== ==========
</TABLE>
See accompanying notes.
8
<PAGE> 123
American General Annuity Insurance Company
AGA Separate Account A
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
AIM VI AIM VI
TEMPLETON CAPITAL DIVERSIFIED
INTERNATIONAL APPRECIATION INCOME
PORTFOLIO PORTFOLIO PORTFOLIO TOTAL
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Investment income (expense):
Income:
Dividends $ -- $ 27 $ 847 $ 1,189,054
Expenses:
Mortality and expense risk
and administrative fees (1) (11) (14) (650,224)
------------- ------------ ----------- -----------
Net investment income (expense) (1) 16 833 538,830
Realized and unrealized gain
(loss) on investments:
Net realized gain on
investments -- -- 1 764,639
Net unrealized appreciation
(depreciation) on
investments 22 1,540 (1,046) 4,902,798
Capital gain distributions -- 316 270 988,454
------------- ------------ ----------- -----------
Net realized and unrealized gain
(loss) on investments 22 1,856 (775) 6,655,891
------------- ------------ ----------- -----------
Increase in net assets resulting
from operations $ 21 $ 1,872 $ 58 $ 7,194,721
============= ============ =========== ===========
</TABLE>
See accompanying notes.
9
<PAGE> 124
American General Annuity Insurance Company
AGA Separate Account A
Statement of Changes in Net Assets
Year ended December 31, 1998
<TABLE>
<CAPTION>
STATE STREET
STATE STREET GLOBAL CREDIT SUISSE CREDIT SUISSE
GLOBAL ADVISORS ADVISORS GROWTH INTERNATIONAL
MONEY MARKET GROWTH EQUITY AND INCOME EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income
(expense) $ 200,202 $ (5,850) $ 132,517 $ (20,863)
Net realized gain (loss) on
investments -- 174,013 171,523 (51,421)
Net unrealized appreciation
(depreciation) on
investments -- 1,582,159 721,291 (8,961)
Capital gain distributions -- 357,781 396,781 --
--------------- ------------- ------------- -------------
Increase (decrease) in net assets
from operations 200,202 2,108,103 1,422,112 (81,245)
Increase (decrease) in net assets
from variable annuity contract
transactions:
Contract purchase payments 25,687,634 1,375,575 1,751,605 453,737
Death benefit payments (9,530) (40,042) (64,603) (2,388)
Surrenders and withdrawals (661,458) (375,639) (415,923) (88,339)
Transfers from general
account 1,643,371 1,040,521 1,381,487 240,397
Interportfolio transfers (22,706,797) 4,066,151 5,250,448 1,163,472
--------------- ------------- ------------- -------------
Increase in net assets from
variable annuity contract
transactions 3,953,220 6,066,566 7,903,014 1,766,879
--------------- ------------- ------------- -------------
Total increase in net assets 4,153,422 8,174,669 9,325,126 1,685,634
Net assets at beginning of year 5,100,264 7,327,014 7,387,997 4,310,325
--------------- ------------- ------------- -------------
Net assets at end of year $ 9,253,686 $ 15,501,683 $ 16,713,123 $ 5,995,959
=============== ============= ============= =============
</TABLE>
See accompanying notes.
10
<PAGE> 125
American General Annuity Insurance Company
AGA Separate Account A
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
VAN KAMPEN
AMERICAN SALOMON
CAPITAL BROTHERS U.S. ELITE VALUE OPPENHEIMER
EMERGING GOVERNMENT ASSET GROWTH AND
GROWTH SECURITIES ALLOCATION INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income
(expense) $ (95,996) $ 264,400 $ 63,607 $ (16)
Net realized gain on
investments 256,963 22,495 190,973 40
Net unrealized appreciation
on investments 2,483,874 19,198 100,055 2,584
Capital gain distributions -- 32,231 201,075 --
----------- ------------- ----------- -----------
Increase in net assets from
operations 2,644,841 338,324 555,710 2,608
Increase (decrease) in net assets
from variable annuity contract
transactions:
Contract purchase payments 929,992 1,379,453 2,065,606 6,577
Death benefit payments (199,282) -- (214,985) --
Surrenders and withdrawals (329,791) (135,502) (756,313) --
Transfers from general
account 595,708 1,136,001 1,813,521 8,191
Interportfolio transfers 2,461,318 1,975,016 7,685,769 60,816
----------- ------------- ----------- -----------
Increase in net assets from
variable annuity contract
transactions 3,457,945 4,354,968 10,593,598 75,584
----------- ------------- ----------- -----------
Total increase in net assets 6,102,786 4,693,292 11,149,308 78,192
Net assets at beginning of year 5,498,597 3,985,899 9,470,619 --
----------- ------------- ----------- -----------
Net assets at end of year $11,601,383 $ 8,679,191 $20,619,927 $ 78,192
=========== ============= =========== ===========
</TABLE>
See accompanying notes.
11
<PAGE> 126
American General Annuity Insurance Company
AGA Separate Account A
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
TEMPLETON
OPPENHEIMER OPPENHEIMER OPPENHEIMER DEVELOPING
GROWTH SMALL CAP HIGH INCOME MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment expense $ (5) $ (7) $ (7) $ --
Net realized gain on investments -- -- -- 52
Net unrealized appreciation on
investments 542 1,509 31 --
Capital gain distributions -- -- -- --
----------- ----------- ----------- ----------
Increase in net assets from
operations 537 1,502 24 52
Increase (decrease) in net assets
from variable annuity contract
transactions:
Contract purchase payments 4,809 11,377 11,269 --
Death benefit payments -- -- -- --
Surrenders and withdrawals -- (250) (250) --
Transfers (to) from general
account 5,940 2,532 2,501 (52)
Interportfolio transfers 8,652 17,977 4,617 --
----------- ----------- ----------- ----------
Increase (decrease) in net assets
from variable annuity contract
transactions 19,401 31,636 18,137 (52)
----------- ----------- ----------- ----------
Total increase in net assets 19,938 33,138 18,161 --
Net assets at beginning of year -- -- -- --
----------- ----------- ----------- ----------
Net assets at end of year $ 19,938 $ 33,138 $ 18,161 $ --
=========== =========== =========== ==========
</TABLE>
See accompanying notes.
12
<PAGE> 127
American General Annuity Insurance Company
AGA Separate Account A
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
AIM VI AIM VI
TEMPLETON CAPITAL DIVERSIFIED
INTERNATIONAL APPRECIATION INCOME
PORTFOLIO PORTFOLIO PORTFOLIO TOTAL
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations:
Net investment income
(expense) $ (1) $ 16 $ 833 $ 538,830
Net realized gain on
investments -- -- 1 764,639
Net unrealized
appreciation
(depreciation) on
investments 22 1,540 (1,046) 4,902,798
Capital gain distributions -- 316 270 988,454
------------- ------------ ------------ ------------
Increase in net assets from
operations 21 1,872 58 7,194,721
Increase (decrease) in net assets
from variable annuity
contract transactions:
Contract purchase payments -- 11,353 18,558 33,707,545
Death benefit payments -- -- -- (530,830)
Surrenders and withdrawals -- (250) (250) (2,763,965)
Transfers from general
account 3,642 12,974 1,774 7,888,508
Interportfolio transfers -- 2,422 10,139 --
------------- ------------ ------------ ------------
Increase in net assets
from variable annuity
contract transactions 3,642 26,499 30,221 38,301,258
------------- ------------ ------------ ------------
Total increase in net assets 3,663 28,371 30,279 45,495,979
Net assets at beginning of year -- -- -- 43,080,715
------------- ------------ ------------ ------------
Net assets at end of year $ 3,663 $ 28,371 $ 30,279 $ 88,576,694
============= ============ ============ ============
</TABLE>
See accompanying notes.
13
<PAGE> 128
American General Annuity Insurance Company
AGA Separate Account A
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
STATE STREET
STATE STREET GLOBAL CREDIT SUISSE CREDIT SUISSE
GLOBAL ADVISORS ADVISORS GROWTH INTERNATIONAL
MONEY MARKET GROWTH EQUITY AND INCOME EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Increase in assets from
operations:
Net investment income $ 119,221 $ 37,441 $ 107,086 $ 111,322
Net realized gain on
investments -- 130,354 100,916 13,670
Net unrealized
appreciation
(depreciation) on
investments -- 531,795 480,921 (288,014)
Capital gain distributions -- 636,692 237,747 174,638
--------------- ------------- ------------- -------------
Increase in net assets from
operations 119,221 1,336,282 926,670 11,616
Increase in net assets from
variable annuity contract
transactions:
Contract purchase
payments 21,397,097 542,144 862,564 357,394
Surrenders and
withdrawals (777,511) (76,995) (81,416) (67,495)
Death benefit payments -- (18,871) -- --
Transfers (to) from general
account (2,621,752) 2,689 (10,270) 2,524
Interportfolio transfers (14,307,815) 2,121,299 2,545,350 1,279,304
--------------- ------------- ------------- -------------
Increase in net assets from
variable annuity contract
transactions 3,690,019 2,570,266 3,316,228 1,571,727
--------------- ------------- ------------- -------------
Total increase in net assets 3,809,240 3,906,548 4,242,898 1,583,343
Net assets at beginning of year 1,291,024 3,420,466 3,145,099 2,726,982
--------------- ------------- ------------- -------------
Net assets at end of year $ 5,100,264 $ 7,327,014 $ 7,387,997 $ 4,310,325
=============== ============= ============= =============
</TABLE>
See accompanying notes.
14
<PAGE> 129
American General Annuity Insurance Company
AGA Separate Account A
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
VAN KAMPEN
AMERICAN SALOMON
CAPITAL BROTHERS U.S. ELITE VALUE
EMERGING BLACKROCK GOVERNMENT ASSET
GROWTH MANAGED SECURITIES ALLOCATION
PORTFOLIO BOND PORTFOLIO PORTFOLIO PORTFOLIO
---------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Increase in net assets from
operations:
Net investment income
(expense) $ (33,852) $ 191,902 $ 153,971 $ 28,057
Net realized gain on
investments 20,833 49,882 3,525 205,487
Net unrealized
appreciation on
investments 581,783 62,853 58,319 403,870
Capital gain distributions -- 28,519 -- 213,790
---------- -------------- ------------- -----------
Increase in net assets from
operations 568,764 333,156 215,815 851,204
Increase (decrease) in net assets
from variable annuity
contract transactions:
Contract purchase
payments 867,637 250,628 92,161 1,260,185
Surrenders and withdrawals (60,234) (38,350) (40,812) (171,166)
Death benefit payments (16,672) -- -- --
Transfers to general account (21,657) -- -- (8,947)
Interportfolio transfers 2,278,922 (521,383) 1,372,018 5,232,305
---------- -------------- ------------- -----------
Increase (decrease) in net assets
from variable annuity
contract transactions 3,047,996 (309,105) 1,423,367 6,312,377
Capital distribution to
American
General Annuity Insurance
Company -- (3,400,169) -- --
---------- -------------- ------------- -----------
Total increase (decrease) in net
assets 3,616,760 (3,376,118) 1,639,182 7,163,581
Net assets at beginning of year 1,881,837 3,376,118 2,346,717 2,307,038
---------- -------------- ------------- -----------
Net assets at end of year $5,498,597 $ -- $ 3,985,899 $ 9,470,619
========== ============== ============= ===========
</TABLE>
See accompanying notes.
15
<PAGE> 130
American General Annuity Insurance Company
AGA Separate Account A
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION
AGA Separate Account A (the "Separate Account") was established by American
General Annuity Insurance Company (the "Company") to fund variable annuity
insurance contracts issued by the Company. The Separate Account is registered
with the Securities and Exchange Commission as a unit investment trust pursuant
to the provisions of the Investment Company Act of 1940, as amended.
On February 25, 1998, the Company's parent, Western National Corporation, was
acquired by American General Corporation.
The Separate Account is divided into fifteen sub-accounts. Nine of the
sub-accounts invest in one portfolio of AGA Series Trust (the "Trust"). The
Trust is managed by AGA Investment Advisory Services, Inc. (the "Advisor"), an
affiliate of the Company. The remaining sub-accounts are managed by third-party
portfolio managers. As of December 31, 1998, the Trust portfolios available to
contract holders through the various sub-accounts ("Portfolios") are as follows:
AGA SERIES TRUST:
State Street Global Advisors Money Market Portfolio (formerly Global
Advisors Money Market Portfolio)
State Street Global Advisors Growth Equity Portfolio (formerly Global
Advisors Growth Equity Portfolio)
Credit Suisse Growth and Income Portfolio (formerly BEA Growth and Income
Portfolio)
Credit Suisse International Equity Portfolio
Van Kampen American Capital Emerging Growth Portfolio (formerly American
Capital Emerging Growth Portfolio)
Salomon Brothers U.S. Government Securities Portfolio
Elite Value Asset Allocation Portfolio (formerly Quest for Value Asset
Allocation Portfolio)
AIM VI Capital Appreciation Portfolio
AIM VI Diversified Income Portfolio
16
<PAGE> 131
American General Annuity Insurance Company
AGA Separate Account A
Notes to Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
OPPENHEIMER FUND:
Oppenheimer Growth and Income Portfolio
Oppenheimer Growth Portfolio
Oppenheimer Small Cap Growth Portfolio
Oppenheimer High Income Portfolio
FRANKLIN TEMPLETON INVESTOR SERVICES:
Templeton Developing Markets Portfolio
Templeton International Portfolio
In addition to the fifteen sub-accounts above, a contract owner may allocate
contract funds to a fixed account, which is part of the Company's general
account. Contract owners should refer to the ElitePlus Bonus Variable Annuity
Prospectus for a complete description of the Trust portfolios.
Net premiums from the contracts are allocated to the sub-accounts and invested
in the Portfolios in accordance with contract owner instructions and are
recorded as variable annuity contract transactions in the statement of changes
in net assets. There is no assurance that the investment objectives of any of
the Portfolios will be met. Contract owners bear the complete investment risk
for purchase payments allocated to a sub-account.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Separate Account have been prepared
on the basis of generally accepted accounting principles. The accounting
principles followed by the Separate Account and the methods of applying those
principles are presented below or in the footnotes which follow.
INVESTMENT VALUATION
The investment shares of the Portfolios are valued at the closing net asset
value (market) per share as determined by the fund on the day of measurement.
Changes in the economic environment have a direct impact on the net asset value
per share of a Portfolio. It is
17
<PAGE> 132
American General Annuity Insurance Company
AGA Separate Account A
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reasonably possible that changes in the economic environment will occur in the
near term and that such changes will have a material effect on the net asset
value per share of the Portfolios included in the Separate Account.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME
Investment transactions are accounted for on the date the order to buy or sell
is executed (trade date). Dividend income and distributions of capital gains are
recorded on the ex-dividend date. Realized gains and losses from investment
transactions are reported on the basis of first-in, first-out for financial
reporting and federal income tax purposes.
ANNUITY RESERVES
At December 31, 1998, the Separate Account did not have contracts in the annuity
pay-out phase; therefore, no future policy benefit reserve was required.
FEDERAL INCOME TAXES
The Company is taxed as a life insurance company and includes the operations of
the Separate Account in its federal income tax return. As a result, the Separate
Account is not taxed as a "Regulated Investment Company" under subchapter M of
the Internal Revenue Code. Under existing laws, taxes are not currently payable
on the investment income on the realized gains of the Separate Account. The
Company reserves the right to allocate to the Separate Account any federal,
state, or other tax liability that may result in the future from maintenance of
the Separate Account.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported amounts
of income and expenses during the period. Actual results could differ from those
estimates.
18
<PAGE> 133
American General Annuity Insurance Company
AGA Separate Account A
Notes to Financial Statements (continued)
3. CONTRACT CHARGES
Deductions for the administrative expenses and mortality and expense risks
assumed by the Company are calculated daily, at an annual rate, on the average
daily net asset value of the Portfolios attributable to the contract owners and
are paid to the Company. The annual rate for administrative expenses is .15% and
the annual rate for the mortality and expense risks is 1.25%. The annual rate
for Enhanced Death Benefit Option Charge is .05% and the Annual Step-Up Death
Benefit Charge is .10%. For the year ended December 31, 1998, deductions for
administrative expenses and mortality and expense risk charges were $6,950 and
$643,274, respectively.
An annual maintenance charge of $30 per contract is assessed on the contract
anniversary during the accumulation period for the maintenance of the contract.
The maintenance charge is not an expense of the Separate Account but rather is
paid by a redemption of units outstanding and is not assessed if the contract
value on the contract anniversary equals or exceeds $40,000. Maintenance charges
totaled $20,791 for the year ended December 31, 1998.
A contingent deferred sales charge is applicable to certain contract withdrawals
pursuant to the contract and is payable to the Company. For the year ended
December 31, 1998, deferred sales charges totaled $89,874 and are included as a
component of surrenders and withdrawals on the statement of changes in net
assets.
4. PURCHASE AND SALE OF INVESTMENTS
Portfolio shares are purchased at net asset value with net contract payments
(contract purchase payments less surrenders) and with reinvestment of dividend
and capital distributions made by the Portfolios. The aggregate cost of
purchases and proceeds from sales of investment in the shares of the Portfolios
for the year ended December 31, 1998 was $65,545,271 and $25,716,689,
respectively, and $40,050,074 and $19,281,037, respectively, for the year ended
December 31, 1997. The cost of total investments in Trust shares owned at
December 31, 1998 was the same for financial reporting and federal income tax
purposes. At December 31, 1998, gross unrealized appreciation and depreciation
on the shares of the Portfolios was $7,853,545 and $182,720, respectively.
19
<PAGE> 134
American General Annuity Insurance Company
AGA Separate Account A
Notes to Financial Statements (continued)
5. NET INCREASE (DECREASE) IN ACCUMULATION UNITS
The Company offers owners standard and enhanced death benefit contracts, which
differ in the calculation of death benefits and related charges (see Note 3).
The increase (decrease) in accumulation units for the year ended December 31,
1998 are as follows:
<TABLE>
<CAPTION>
STATE STREET
STATE STREET GLOBAL CREDIT SUISSE CREDIT SUISSE
GLOBAL ADVISORS ADVISORS GROWTH INTERNATIONAL
MONEY MARKET GROWTH EQUITY AND INCOME EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Standard benefit units:
Outstanding at beginning of year 444,953.990 231,208.014 262,116.126 126,400.020
Increase for payments received 2,252,345.340 78,411.963 113,762.998 35,652.617
Decrease for surrendered contracts (156,518.345) (32,945.428) (41,064.404) (13,586.483)
Decrease for death claims (860.510) (2,264.258) (4,130.140) (213.439)
Change for net interportfolio
exchanges (1,870,743.280 267,871.959 381,777.876 114,601.597
--------------- ------------- ------------- -------------
Outstanding at end of period 669,177.195 542,282.250 712,462.456 262,854.312
=============== ============= ============= =============
Enhanced benefit units:
Outstanding at beginning of year 13,476.498 19,281.533 44,598.001 19,510.384
Increase for payments received 191,874.421 4,319.872 7,845.879 2,063.685
Decrease for surrendered contracts (1,738.911) (2,391.319) (2,221.417) (1,708.901)
Decrease for death claims -- -- -- --
Change for net interportfolio
exchanges (132,223.081) 23,989.870 44,140.453 7,366.675
--------------- ------------- ------------- -------------
Outstanding at end of period 71,388.927 45,199.956 94,362.916 27,231.843
=============== ============= ============= =============
Bonus benefit units:
Outstanding at beginning of year -- -- -- --
Increase for payments received 78,978.595 1,462.659 4,290.371 517.696
Decrease for surrendered contracts (222.020) -- -- --
Decrease for death claims -- -- -- --
Change for net interportfolio
exchanges (2,414.791) 15,546.267 21,353.821 1,953.991
--------------- ------------- ------------- -------------
Outstanding at end of period 76,341.784 17,008.926 25,644.192 2,471.687
=============== ============= ============= =============
</TABLE>
20
<PAGE> 135
American General Annuity Insurance Company
AGA Separate Account A
Notes to Financial Statements (continued)
5. NET INCREASE (DECREASE) IN ACCUMULATION UNITS (CONTINUED)
<TABLE>
<CAPTION>
VAN KAMPEN
AMERICAN SALOMON
CAPITAL BROTHERS U.S. ELITE VALUE OPPENHEIMER
EMERGING GOVERNMENT ASSET GROWTH AND
GROWTH SECURITIES ALLOCATION INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
Standard benefit units:
Outstanding at beginning of year 303,011.188 126,832.523 461,930.074 --
Increase for payments received 58,893.240 110,585.955 130,099.937 631.898
Decrease for surrendered contracts (30,780.520) (10,034.216) (58,416.660) --
Decrease for death claims (9,182.789) -- (13,264.174) --
Change for net interportfolio
exchanges 179,108.794 234,342.979 580,110.040 5,997.127
------------ ------------- -------------- -------------
Outstanding at end of period 501,049.913 461,727.241 1,100,459.217 6,629.025
============ ============= ============== =============
Enhanced benefit units:
Outstanding at beginning of year 41,160.908 32,205.189 72,104.785 --
Increase for payments received 2,808.991 13,566.210 4,187.580 --
Decrease for surrendered contracts (2,435.428) (4,630.409) (13,700.765) --
Decrease for death claims (3,536.249) -- -- --
Change for net interportfolio 20,828.011 28,759.872 37,184.717 792.916
exchanges ------------ ------------- -------------- -------------
Outstanding at end of period 58,826.233 69,900.862 99,776.317 792.916
============ ============= ============== =============
Bonus benefit units:
Outstanding at beginning of year -- -- -- --
Increase for payments received 4,465.594 (417.904) 5,762.382 --
Decrease for surrendered contracts -- (49.322) -- --
Decrease for death claims -- -- -- --
Change for net interportfolio
exchanges 7,802.209 11,562.270 17,596.196 --
------------ ------------- -------------- -------------
Outstanding at end of period 12,267.803 11,095.044 23,358.578 --
============ ============= ============== =============
</TABLE>
21
<PAGE> 136
American General Annuity Insurance Company
AGA Separate Account A
Notes to Financial Statements (continued)
5. NET INCREASE (DECREASE) IN ACCUMULATION UNITS (CONTINUED)
<TABLE>
<CAPTION>
OPPENHEIMER TEMPLETON
OPPENHEIMER SMALL CAP OPPENHEIMER DEVELOPING
GROWTH GROWTH HIGH INCOME MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Standard benefit units:
Outstanding at beginning of year -- -- -- --
Increase for payments received 252.790 1,124.352 1,124.352 --
Decrease for surrendered contracts -- (24.086) (25.030) --
Decrease for death claims -- -- -- --
Change for net interportfolio exchanges
1,409.281 1,872.466 692.263 --
----------- ----------- ----------- ----------
Outstanding at end of period 1,662.071 2,972.732 1,791.585 --
=========== =========== =========== ==========
Enhanced benefit units:
Outstanding at beginning of year -- -- -- --
Increase for payments received -- -- -- --
Decrease for surrendered contracts -- -- -- --
Decrease for death claims -- -- -- --
Change for net interportfolio exchanges
-- 4.463 22.316 --
----------- ----------- ----------- ----------
Outstanding at end of period -- 4.463 22.316 --
=========== =========== =========== ==========
Bonus benefit units:
Outstanding at beginning of year -- -- -- --
Increase for payments received 218.755 -- -- --
Decrease for surrendered contracts -- -- -- --
Decrease for death claims -- -- -- --
Change for net interportfolio
exchanges -- -- -- --
------------ ----------- ----------- ----------
Outstanding at end of period 218.755 -- -- --
=========== =========== =========== ==========
</TABLE>
22
<PAGE> 137
American General Annuity Insurance Company
AGA Separate Account A
Notes to Financial Statements (continued)
5. NET INCREASE (DECREASE) IN ACCUMULATION UNITS (CONTINUED)
<TABLE>
<CAPTION>
AIM VI AIM VI
TEMPLETON CAPITAL DIVERSIFIED
INTERNATIONAL APPRECIATION INCOME
PORTFOLIO PORTFOLIO PORTFOLIO TOTAL
------------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Standard benefit units:
Outstanding at beginning of year -- -- -- 1,956,451.935
Increase for payments received -- 1,124.352 1,628.046 2,785,637.840
Decrease for surrendered contracts -- (23.393) (25.346) (343,443.911)
Decrease for death claims -- -- -- (29,915.310)
Change for net interportfolio
exchanges 359.871 1,449.133 646.486 (100,503.408)
------------- ------------ ----------- --------------
Outstanding at end of period 359.871 2,550.092 2,249.186 4,268,227.146
============= ============ =========== ==============
Enhanced benefit units:
Outstanding at beginning of year -- -- -- 242,337.298
Increase for payments received -- -- -- 226,666.638
Decrease for surrendered contracts -- -- -- (28,827.150)
Decrease for death claims -- -- -- (3,536.249)
Change for net interportfolio exchanges
-- -- 546.004 31,412.216
------------- ------------ ----------- --------------
Outstanding at end of period -- -- 546.004 468,052.753
============= ============ =========== ==============
Bonus benefit units:
Outstanding at beginning of year -- -- -- --
Increase for payments received -- -- 236.187 95,514.335
Decrease for surrendered contracts -- -- -- (271.342)
Decrease for death claims -- -- -- --
Change for net interportfolio exchanges
-- -- -- 73,399.963
------------- ------------- ----------- --------------
Outstanding at end of period -- -- 236.187 168,642.956
============= ============ =========== ==============
</TABLE>
23
<PAGE> 138
American General Annuity Insurance Company
AGA Separate Account A
Notes to Financial Statements (continued)
5. NET INCREASE (DECREASE) IN ACCUMULATION UNITS (CONTINUED)
For the year ended December 31, 1997:
<TABLE>
<CAPTION>
STATE STREET
STATE STREET GLOBAL CREDIT SUISSE CREDIT SUISSE
GLOBAL ADVISORS ADVISORS GROWTH INTERNATIONAL
MONEY MARKET GROWTH EQUITY AND INCOME EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C>
Standard benefit units:
Outstanding at beginning of year 109,837.9 68,154.9 48,634.3 17,186.2
Increase for payments received 1,748,815.9 35,404.8 60,968.9 26,594.6
Decrease for surrendered contracts (62,967.4) (4,923.2) (5,242.9) (2,943.8)
Decrease for death claims -- (1,202.5) -- --
Change for net interportfolio
exchanges (1,350,732.4) 133,774.0 157,755.8 85,563.0
--------------- ------------- -------------- ----------------
Outstanding at end of period 444,954.0 231,208.0 262,116.1 126,400.0
=============== ============= ============== ================
Enhanced benefit units:
Outstanding at beginning of year 3,403.7 5,232.7 11,709.8 8,510.2
Increase for payments received 254,399.5 225.9 658.6 88.1
Decrease for surrendered contracts (10,056.9) (312.5) (845.4) (2,159.1)
Decrease for death claims -- -- -- --
Change for net interportfolio exchanges
(234,269.8) 14,135.4 33,075.0 13,071.2
--------------- ------------- -------------- ----------------
Outstanding at end of period 13,476.5 19,281.5 44,598.0 19,510.4
=============== ============= ============== ================
</TABLE>
24
<PAGE> 139
American General Annuity Insurance Company
AGA Separate Account A
Notes to Financial Statements (continued)
5. NET INCREASE (DECREASE) IN ACCUMULATION UNITS (CONTINUED)
<TABLE>
<CAPTION>
VAN KAMPEN
AMERICAN SALOMON
CAPITAL BROTHERS U.S. ELITE VALUE
EMERGING BLACKROCK GOVERNMENT ASSET
GROWTH MANAGED SECURITIES ALLOCATION
PORTFOLIO BOND PORTFOLIO PORTFOLIO PORTFOLIO
---------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Standard benefit units:
Outstanding at beginning of year 107,870.9 14,436.2 15,638.1 69,575.7
Increase for payments received 61,310.8 23,328.7 8,598.5 84,615.1
Decrease for surrendered contracts (4,703.4) (2,641.1) (674.1) (8,707.2)
Decrease for death claims (1,147.7) -- -- --
Change for net interportfolio
exchanges 139,680.6 (35,123.8) 103,270.0 316,446.5
---------- -------------- ------------- -----------
Outstanding at end of period 303,011.2 -- 126,832.5 461,930.1
========== ============== ============= ===========
Enhanced benefit units:
Outstanding at beginning of year 2,072.6 11,399.4 11,806.1 13,965.2
Increase for payments received 2,711.6 -- -- 272.4
Decrease for surrendered contracts (5.8) (933.2) (3,245.5) (3,424.9)
Decrease for death claims -- -- -- --
Change for net interportfolio
exchanges 36,382.5 (10,466.2) 23,644.6 61,292.1
---------- -------------- ------------- -----------
Outstanding at end of period 41,160.9 -- 32,205.2 72,104.8
========== ============== ============= ===========
</TABLE>
6. DISTRIBUTION AGREEMENT
AGA Brokerage Services, Inc. ("AGA Brokerage") acts as the principal underwriter
of the contracts funded by the Separate Account. AGA Brokerage is registered as
a broker-dealer under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc. The contracts are sold by
registered representatives of the Company, who are also insurance agents under
state law.
25
<PAGE> 140
American General Annuity Insurance Company
AGA Separate Account A
Notes to Financial Statements (continued)
7. RELATED PARTIES
Total capital ("seed money") contributed by the Company to the Separate Account
was $9,600,000, which had a fair value of $15,059,502, as of December 31, 1998.
The seed money was contributed to provide diversification and to enhance
investment performance. The seed money will be removed as the funds grow large
enough to meet the diversification requirements without the additional seed
money. Dividends, realized gain distributions, and the change in unrealized
gains related to the seed money, as of and for the year ended December 31, 1998
were $268,258, $-0-, and $1,628,706, respectively.
8. YEAR 2000 (UNAUDITED)
The Company is in the process of modifying its systems to achieve Year 2000
readiness. This endeavor is directed and managed by the Company and monitored by
the parent company, American General Corporation. The Company 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 the
Company's information technology and non-information technology systems; (2)
assess which items in the inventory may expose the Company 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 the Company have business relationships
with various third parties, each of which must also be Year 2000 ready.
Therefore, the Company'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,
the Company's efforts in this regard will extend through 1999.
Through December 31, 1998, the Company has incurred and expensed $1,041,400
(pretax) related to Year 2000 readiness, including $1,000,000 incurred in 1998.
26
<PAGE> 141
American General Annuity Insurance Company
AGA Separate Account A
Notes to Financial Statements (continued)
8. YEAR 2000 (UNAUDITED) (CONTINUED)
As of December 31, 1998, the Company has completed the inventory, assessment,
testing, reprogramming, and implementation phases of the plan with respect to
its critical systems. The Company 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 the Company and the Separate Account.
27
<PAGE> 142
--AMERCAN GENERAL LOGO--
AMERICAN GENERAL ANNUITY
INSURANCE COMPANY
PRINTED IN U.S.A. REV 5/99
Recycled Paper --RECYCLED PAPER LOGO--
<PAGE> 143
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
A. FINANCIAL STATEMENTS
The financial statements of the Separate Account and the Company are
included in Part B hereof.
B. EXHIBITS
<TABLE>
<C> <S>
1. -- Resolution of Board of Directors of the Company
authorizing the establishment of the Separate Account.
2. -- Not applicable.
3. -- Principal Underwriter's Agreement.
4. -- (i) Individual Fixed and Variable Deferred Annuity
Contract.
-- (ii) Annual Step-Up Death Benefit
-- (iii) Persistency Bonus Endorsement***
5. -- Application Form.**
6. -- (i) Copy of Amended and Restated Articles of
Incorporation of the Company.*
-- (ii) Copy of the Restated Bylaws of the Company.*
7. -- Not applicable.
8. -- (i) Participation Agreement Between AIM Variable
Insurance Funds, Inc. and American General Annuity
Insurance Company.
-- (ii) Participation Agreement Between Oppenheimer
Variable Account Funds and American General Annuity
Insurance Company.
-- (iii) Participation Agreement Between Templeton Variable
Products and American General Annuity Insurance Company.
-- (iv) First Amendment to Participation Agreement Among
Oppenheimer Variable Account Funds and American General
Annuity Insurance Company.
9. -- Not Applicable.
10. -- (i) Consent of Independent Auditors.
-- (ii) Consent of Independent Accountants
11. -- Not applicable.
12. -- Not applicable.
13. -- Calculation of Performance Information.**
14. -- Not applicable.
15. -- Company Organizational Chart.**
</TABLE>
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<PAGE> 144
<TABLE>
<C> <S>
16. -- (i) Copies of manually signed powers of attorney for
American General Annuity Insurance Company Directors John
E. Arant, Kent E. Barrett and Carl J. Santillo.
-- (ii) Copy of manually signed power of attorney for
American General Annuity Insurance Company Director,
Robert M. Devlin.**
-- (iii) Copy of manually signed powers of attorney for
American General Annuity Insurance Company Directors,
Thomas L. West, Jr., Bruce R. Abrams, John A. Graf
and John P. Newton.**
</TABLE>
- ---------------
* Incorporated by reference to Post-Effective Amendment No. 5 to Registrant's
Form N-4 Registration Statement as electronically filed on May 26, 1998
(File No. 33-86464).
** Incorporated by reference to Post-Effective Amendment No. 6 to Registrant's
Form N-4 Registration Statement as electronically filed on September 29,
1998 (File No. 33-86464).
*** Incorporated by reference to Post-Effective Amendment No. 6 to Registrant's
Form N-4 Registration Statement as electronically filed on March 2, 1998
(File No. 33-86464).
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 American General
Annuity Insurance Company ("AGAIC"), the depositor of 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, AGAIC.
Vice Chairman and Group Executive -- Retirement Services,
American General Corporation.
Jon P. Newton.......................... Senior Chairman of the Board of Directors, AGAIC. Vice
Chairman of the Board of Directors, American General
Corporation.
Kent E. Barrett........................ Director, Executive Vice President and Chief Financial
Officer, AGAIC.
John A. Graf........................... Director and President, AGAIC.
Robert M. Devlin....................... Director, AGAIC.
Chairman of the Board of Directors, President and Chief
Executive Officer, American General Corporation.
Bruce R. Abrams........................ Director and Executive Vice President -- Marketing, AGAIC.
John E. Arant.......................... Director and Executive Vice President -- Sales, AGAIC.
Chairman of the Board of Directors and President.
Patrick E. Grady....................... Senior Vice President and Treasurer, AGAIC.
Brent C. Nelson........................ Senior Vice President and Controller, AGAIC.
Carl J. Santillo....................... Director and Executive Vice President -- Operations,
AGAIC.
Richard W. Scott....................... Vice President and Chief Investment Officer, AGAIC.
Executive Vice President and Chief Investment Officer,
American General Corporation.
Michael J. Akers....................... Senior Vice President and Chief Actuary, AGAIC.
Dwight L. Cramer, II................... Senior Vice President -- Specialty Markets, AGAIC.
Stephen G. Kellison.................... Senior Vice President -- Institutional Services, AGAIC.
Charles D. Robinson.................... Senior Vice President -- Institutional Marketing, AGAIC.
Executive Vice President.
</TABLE>
C-2
<PAGE> 145
<TABLE>
<CAPTION>
NAMES AND PRINCIPAL
BUSINESS ADDRESS POSITIONS AND OFFICES HELD WITH DEPOSITOR
------------------- -----------------------------------------
<S> <C>
Cynthia A. Toles....................... Senior Vice President, General Counsel and Secretary,
AGAIC.
Director and Secretary.
Dan W. Arnold.......................... Vice President -- Customer Care Center, AGAIC.
James D. Bonsall....................... Vice President -- Financial Reporting, AGAIC.
Harry N. Bragg......................... Vice President -- Strategic Systems, AGAIC.
Gregory S. Broer....................... Vice President -- Actuarial, AGAIC.
Richard A. Combs....................... Vice President -- Actuarial, AGAIC.
J. David Crank......................... Vice President -- Group Services, AGAIC.
Neil J. Davidson....................... Vice President -- Actuarial, AGAIC.
David H. denBoer....................... Vice President -- Compliance, AGAIC.
Stephen R. Duff........................ Vice President -- Financial Institution Acquisitions,
AGAIC.
Daniel Fritz........................... Vice President -- Actuarial, AGAIC.
Paul W. Green.......................... Vice President and Investment Officer, AGAIC.
Sharla A. Jackson...................... Vice President -- Operations and Customer Service, AGAIC.
Jeff S. Johnson........................ Vice President -- Marketing Communications, AGAIC.
Kent W. Lamb........................... Vice President -- Financial Reporting, AGAIC.
Richard Lindsay........................ Vice President -- Personal Retirement Services, AGAIC.
James J. Michel........................ Vice President -- Insurance Accounting, AGAIC.
Craig R. Mitchell...................... Vice President and Investment Officer, AGAIC.
Maruti More............................ Vice President -- Investments, AGAIC.
Stephen J. Poston...................... Vice President -- National Sales Manager, AGAIC.
Steven D. Rubinstein................... Vice President -- Financial Planning and Reporting, AGAIC.
Gary N. See............................ Vice President -- Actuarial, AGAIC.
Gregory R. Seward...................... Vice President -- Variable Product Accounting, AGAIC.
Norman A. Skinrood, Jr................. Vice President -- Group Plan Administration, AGAIC.
Paula F. Snyder........................ Vice President -- Marketing Services, AGAIC.
Robert E. Steele....................... Vice President -- Structured Settlements, AGAIC.
Kenneth R. Story....................... Vice President -- Amarillo Systems, AGAIC.
Peter V. Tuters........................ Vice President and Investment Officer, AGAIC.
Sr. Vice President -- Investments, American General
Corporation.
William C. Vetterling.................. Vice President -- Marketing Administration, AGAIC.
William A. Wilson...................... Vice President -- Government Affairs, AGAIC.
Jane E. Bates.......................... Chief Compliance Officer, AGAIC.
Director, Treasurer and Chief Compliance Officer.
D. Lynne Walters....................... Tax Officer, AGAIC.
Tax Officer.
Vice President -- Taxes, American General Corporation.
</TABLE>
The principal business address is 2929 Allen Parkway, Houston, Texas 77019.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Company organizational chart is included as Exhibit 15.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 1, 1999, there were 3,848 Contract Owners.
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<PAGE> 146
ITEM 28. INDEMNIFICATION
The Bylaws (Article VI - Section 1) of the Company provide that:
The Corporation shall indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative, by reason of the fact that he is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
(collectively, "Agent") against expenses (including attorneys, fees),
judgments, fines, penalties, court costs and amounts paid in settlement
actually and reasonably incurred by him in connection with such action,
suit or proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit, or proceeding by judgment, order, settlement (whether with or without
court approval), conviction or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that the Agent did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe
that his conduct was unlawful. If several claims, issues or matters are
involved, an Agent may be entitled to indemnification as to some matters
even though he is not entitled as to other matters. Any director or officer
of the Corporation serving in any capacity of another corporation, of which
a majority of the shares entitled to vote in the election of its directors
is held, directly or indirectly, by the Corporation, shall be deemed to be
doing so at the request of the Corporation.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted directors and officers or controlling persons
of the Company pursuant to the foregoing, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Company 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 whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Not Applicable.
C-4
<PAGE> 147
(b) AGA Brokerage Services, Inc. ("AGA Brokerage") is the principal
underwriter for the Contracts. The following persons are the officers and
directors of AGA Brokerage.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
- ------------------ --------------------
<S> <C>
Bruce R. Abrams.......................... President and Chief Executive Officer
Cynthia A. Toles......................... Secretary
Patrick E. Grady......................... Treasurer and Chief Financial Officer
D. Lynne Walters......................... Tax Officer
V. Keith Roberts......................... Compliance Officer
Greg R. Seward........................... Assistant Treasurer
Cheryl G. Hemley......................... Assistant Secretary
James L. Gleaves......................... Assistant Treasurer
Barbara G. Trygstad...................... Assistant Treasurer
Marylyn S. Zlotnick...................... Assistant Treasurer
</TABLE>
The principal business address is 2929 Allen Parkway, Houston, Texas 77019.
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Persons maintaining physical possession of the accounts, books or documents
of the Separate Account required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules promulgated thereunder include Kent
W. Lamb, Vice President -- Financial Reporting of the Company, whose address is
2929 Allen Parkway, Houston, TX 77019.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payments under the variable annuity contracts may
be accepted.
b. Registrant hereby undertakes 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
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written or oral request.
d. American General Annuity Insurance Company ("Company"), hereby
represents that the fees and charges deducted under the Contract described in
the Prospectus, in the aggregate, are reasonable in relation to the services
rendered, the expenses to be incurred and the risks assumed by the Company.
Representations
(1) The Company hereby represents that it is relying upon Investment
Company Act Rule 6c-7. The Company further represents that paragraphs (a)-(d) of
Rule 6c-7 have been complied with.
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<PAGE> 148
(2) The Company hereby represents that it is relying upon a No-Action
Letter issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
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<PAGE> 149
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, AGA 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 28th day of April
1999.
AGA SEPARATE ACCOUNT A
AMERICAN GENERAL ANNUITY
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 and Secretary Chairman and Chief Executive Officer
</TABLE>
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Depositor, American General Annuity 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 28th
day of April, 1999.
AMERICAN GENERAL ANNUITY
INSURANCE COMPANY
<TABLE>
<S> <C>
Attest: /s/ CYNTHIA A. TOLES By: /s/ THOMAS L. WEST, JR.
- ----------------------------------------------------- -----------------------------------------------------
Thomas L. West, Jr.
Cynthia A. Toles Chairman and Chief Executive Officer
Senior Vice President, General Counsel and Secretary
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ THOMAS L. WEST, JR. Chairman and Chief Executive April 28, 1999
- ----------------------------------------------------- Officer
Thomas L. West, Jr.
* President and Director April 28, 1999
- -----------------------------------------------------
John A. Graf
/s/ BRENT C. NELSON Senior Vice President, Controller April 28, 1999
- ----------------------------------------------------- and Principal Accounting Officer
Brent C. Nelson
* Senior Chairman of the Board of April 28, 1999
- ----------------------------------------------------- Directors
Jon P. Newton
* Director, Executive Vice President April 28, 1999
- ----------------------------------------------------- and Chief Financial Officer
Kent E. Barrett
* Executive Vice President -- April 28, 1999
- ----------------------------------------------------- Marketing and Director
Bruce R. Abrams
</TABLE>
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<PAGE> 150
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Executive Vice President -- Sales April 28, 1999
- ----------------------------------------------------- and Director
John E. Arant
* Executive Vice President -- April 28, 1999
- ----------------------------------------------------- Operations and Director
Carl J. Santillo
* Director April 28, 1999
- -----------------------------------------------------
Robert M. Devlin
*By: /s/ CYNTHIA A. TOLES April 28, 1999
------------------------------------------------
Cynthia A. Toles
Attorney-in-Fact
**By: /s/ THOMAS L. WEST, JR. April 28, 1999
------------------------------------------------
Thomas L. West, Jr.
Attorney-in-Fact
</TABLE>
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<PAGE> 151
EXHIBITS
TO
POST-EFFECTIVE AMENDMENT NO. 7
TO
FORM N-4
FOR
AGA SEPARATE ACCOUNT A
OF
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<C> <S> <C>
1 -- Resolution of Board of Directors of the Company
authorizing the establishment of the Separate Account
3 -- Principal Underwriter's Agreement
4 -- (i) Individual Fixed and Variable Deferred Annuity
Contract
-- (ii) Annual Step-Up Death Benefit
8 -- (i) Form of Participation Agreement between American
General Annuity Insurance Company and AIM Variable Insurance
Funds, Inc.
-- (ii) Form of Participation Agreement between American
General Annuity Insurance Company and Templeton Variable
Product Series Fund and Franklin Templeton
Distributors, Inc.
-- (iii) Form of Participation Agreement between American
General Annuity Insurance Company and Oppenheimer Variable
Accounts Funds and OppenheimerFunds, Inc.
-- (iv) First Amendment to Participation Agreement Among
Oppenheimer Variable Account Funds and American General
Annuity Insurance Company.
10 -- (i) Consent of Independent Auditors.
-- (ii) Consent of Independent Accountants.
16 -- (i) Copies of manually signed powers of attorney for
American General Annuity Insurance Company Directors John E.
Arant, Kent E. Barrett and Carl J. Santillo.
</TABLE>
<PAGE> 1
EXHIBIT 1
SECRETARY'S CERTIFICATE
I, Dwight L. Cramer, the duly elected Secretary of Western National Life
Insurance Company, a Texas corporation (the "Company"), do hereby certify that
attached hereto as Exhibit "A" is a true, complete and correct copy of certain
resolutions duly adopted by the unanimous written consent thereto of all of the
directors of the Company.
Executed this 9th day of November, 1994.
/s/ DWIGHT L. CRAMER
------------------------------
DWIGHT L. CRAMER
Vice President and Secretary
<PAGE> 2
WRITTEN CONSENT TO RESOLUTIONS
OF THE BOARD OF DIRECTORS OF
WESTERN NATIONAL LIFE INSURANCE COMPANY
The undersigned, constituting all of the members of the Board of Directors
of Western National Life Insurance Company, a Texas corporation (the "Company"),
hereby unanimously consent to the adoption of the following resolutions without
a meeting of the Board of Directors:
RESOLVED, that the Board of Directors hereby adopts and approves each of
the Resolutions attached hereto as Annex "A".
The resolutions adopted pursuant to this Written Consent shall be
effective as of November 9th, 1994.
/s/ MICHAEL J. AKERS /s/ JOSEPH S. MANISCALCO
- --------------------------- ------------------------
Michael J. Akers Joseph S. Maniscalco
/s/ ARTHUR R. MCGIMSEY
- --------------------------- ------------------------
William O. Daniel, Jr. Arthur R. McGimsey
/s/ JOHN A. GRAF /s/ MICHAEL J. POULOS
- --------------------------- ------------------------
John A. Graf Michael J. Poulos
/s/ RICHARD W. SCOTT
---------------------------
Richard W. Scott
<PAGE> 3
Annex "A"
WESTERN NATIONAL LIFE INSURANCE COMPANY
RESOLUTIONS FOR
VARIABLE ANNUITY CONTRACTS
WHEREAS, the Company is desirous of developing and marketing certain types
of variable and fixed annuity contracts which may be required to be registered
with the Securities and Exchange Commission pursuant to the various securities
laws; and
WHEREAS, it will be necessary to take certain actions including, but not
limited to, establishing separate accounts for segregation of assets and
seeking approval of regulatory authorities;
NOW THEREFORE, BE IT RESOLVED, that the Company is hereby authorized to
develop the necessary program in order to effectuate the issuance and sale of
variable and fixed annuity contracts; and further
RESOLVED, that the Company is hereby authorized to establish and designate
one or more separate accounts of the Company in accordance with the provisions
of state insurance law. The purpose of any such separate account shall be to
provide an investment medium for such variable and fixed annuity contracts
issued by the Company as may be designated as participating therein. Any such
separate account shall receive, hold, invest and reinvest only the monies
arising from (i) premiums, contributions or payments made pursuant to the
variable and fixed annuity contracts participating therein; (ii) such assets of
the Company as shall be deemed appropriate to be invested in the same manner as
the assets applicable to the Company's reserve liability under the variable and
fixed annuity contracts participating in such separate accounts; or as may be
necessary for the establishment of such separate accounts; (iii) the dividends,
interest and gains produced by the foregoing; and further
RESOLVED, that the proper officers of the Company are hereby authorized:
(i) to register the variable and fixed annuity contracts participating in
any such separate accounts under the provisions of the Securities Act of
1933 to the extent that it shall be determined that such registration is
necessary;
(ii) to register any such separate accounts with the Securities and
Exchange Commission under the provisions of the Investment Company Act of
1940 to the extent that it shall be determined that such registration is
necessary;
(iii) to prepare, execute and file such amendments to any registration
statements filed under the aforementioned Acts (including post-effective
amendments), supplements and
<PAGE> 4
Annex "A"
exhibits thereto as they may be deemed necessary or desirable;
(iv) to apply for exemption from those provisions of the aforementioned
Acts as shall be deemed necessary to take any and all other actions
which shall be deemed necessary, desirable, or appropriate in
connection with such Acts;
(v) to file the variable and fixed annuity contracts participating in
any such separate accounts with the appropriate state insurance
departments and to prepare and execute all necessary documents to
obtain approval of the insurance departments;
(vi) to prepare or have prepared and execute all necessary documents to
obtain approval of, or clearance with, or other appropriate actions
required, of any other regulatory authority that may be necessary; and
further
RESOLVED, that for the purposes of facilitating the execution and
filing of any registration statement and of remedying any deficiencies therein
by appropriate amendments (including post-effective amendments) or supplements
thereto, the President or any vice president, of the Company and the Secretary
of the Company, and each of them, are hereby designated as attorneys and agents
of the Company and the appropriate officers of the Company be, and they hereby
are, authorized and directed to grant the power of attorney of the Company to
the President or any vice president of the Company and the Secretary of the
Company by executing and delivering to such individuals, on behalf of the
Company, a power of attorney; and further
RESOLVED, that in connection with the offering and sale of the fixed
and variable annuity contracts in the various States of the United States, as
and to the extent necessary the appropriate officers of the Company be, and they
hereby are, authorized to take any and all such action, including but not
limited to the preparation, execution and filing with proper State authorities,
on behalf of and in the name of the Company, of such applications, notices,
certificates, affidavits, powers of attorney, consents to service or process,
issuer's covenants, certified copies of minutes of shareholders' and directors'
meetings, bonds, escrow and impounding agreements and other writings and
instruments, as may be required in order to render permissible the offering and
sale of the fixed and variable annuity contracts in such jurisdictions; and
further
RESOLVED, that the forms of any resolutions required by any State
authority to be filed in connection with any of the documents or instruments
referred to in any of the preceding resolutions be, and the same hereby are,
adopted as if fully set forth herein if (1) in the opinion of the appropriate
officers of the Company, the adoption of the resolutions is advisable and (2)
the Secretary or any Assistant Secretary of the Company evidences such adoption
by recording into these minutes the text of each in haec verbae resolutions; and
further
RESOLVED, that the designation of Dwight L. Cramer, Vice President and
Secretary of the Company, whose address is Western National Life Insurance
Company, 5555 San Felipe
<PAGE> 5
Annex "A"
Road, Suite 900, Houston, Texas 77056, as the agent for service named in any
registration statement and the authority of Mr. Cramer to receive notices and
communications with respect to any such registration; and further
RESOLVED, that the officers of the Company, and each of them, are
hereby authorized to prepare and to execute the necessary documents and to take
such further actions as may be deemed necessary or appropriate, in their
discretion, to implement the purpose of these resolutions.
<PAGE> 1
EXHIBIT 3
PRINCIPAL UNDERWRITER'S AGREEMENT
IT IS HEREBY AGREED by and between WESTERN NATIONAL LIFE INSURANCE
COMPANY ("INSURANCE COMPANY") on behalf of WNL SEPARATE ACCOUNT A (the "Variable
Account") and WNL BROKERAGE SERVICES, INC. ("PRINCIPAL UNDERWRITER") as follows:
I
INSURANCE COMPANY proposes to issue and sell Individual Fixed and
Variable Deferred Annuity Contracts with flexible Purchase Payments (the
"Contracts") of the Variable Account to the public through PRINCIPAL
UNDERWRITER. The PRINCIPAL UNDERWRITER agrees to provide sales service subject
to the terms and conditions hereof. The Contracts to be sold are more fully
described in the registration statement and prospectus hereinafter mentioned.
Such Contracts will be issued by INSURANCE COMPANY through the Variable Account.
II
INSURANCE COMPANY grants PRINCIPAL UNDERWRITER the exclusive right,
during the term of this Agreement, subject to registration requirements of the
Securities Act of 1933 and the Investment Company Act of 1940 and the provisions
of
-1-
<PAGE> 2
the Securities Exchange Act of 1934, to be the distributor of the Contracts
issued through the Variable Account. PRINCIPAL UNDERWRITER will sell the
Contracts under such terms as set by INSURANCE COMPANY and will make such sales
to purchasers permitted to buy such Contracts as specified in the prospectus.
III
PRINCIPAL UNDERWRITER shall be compensated for its distribution
services in such amount as to meet all of its obligations to selling
broker-dealers with respect to all Purchase Payments accepted by INSURANCE
COMPANY on the Contracts covered hereby.
IV
On behalf of the Variable Account, INSURANCE COMPANY shall furnish
PRINCIPAL UNDERWRITER with copies of all prospectuses, financial statements and
other documents which PRINCIPAL UNDERWRITER reasonably requests for use in
connection with the distribution of the Contracts. INSURANCE COMPANY shall
provide to PRINCIPAL UNDERWRITER such number of copies of the current effective
prospectuses as PRINCIPAL UNDERWRITER shall request.
-2-
<PAGE> 3
V
PRINCIPAL UNDERWRITER is not authorized to give any information, or to
make any representations concerning the Contracts or the Variable Account of
INSURANCE COMPANY other than those contained in the current registration
statements or prospectuses relating to the Variable Account filed with the
Securities and Exchange Commission or such sales literature as may be authorized
by INSURANCE COMPANY.
VI
Both parties to this Agreement agree to keep the necessary records as
indicated by applicable state and federal law and to render the necessary
assistance to one another for the accurate and timely preparation of such
records.
VII
This Agreement shall be effective upon the execution hereof and will
remain in effect unless terminated as hereinafter provided. This Agreement shall
automatically be terminated in the event of its assignment by PRINCIPAL
UNDERWRITER.
-3-
<PAGE> 4
This Agreement may at any time be terminated by either party hereto
upon 60 days' written notice to the other party.
VIII
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been given on the date
of service if served personally on the party to whom notice is to be given, or
on the date of mailing if sent by First Class Mail, Registered or Certified,
postage prepaid and properly addressed.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be signed on their behalf by their respective officers thereunto duly
authorized.
EXECUTED this 23rd day of August, 1995
INSURANCE COMPANY
WESTERN NATIONAL LIFE
INSURANCE COMPANY
BY: /s/ [ILLEGIBLE]
-------------------------------
ATTEST:
----------------------
Secretary
PRINCIPAL UNDERWRITER
WNL BROKERAGE SERVICES, INC.
BY: /s/ [ILLEGIBLE]
-------------------------------
ATTEST:
----------------------
Secretary
-5-
<PAGE> 1
EXHIBIT 4(i)
WESTERN NATIONAL LIFE INSURANCE COMPANY
ADMINISTRATIVE OFFICE: 205 E. 10TH STREET, AMARILLO, TEXAS 79101-0001
TELEPHONE: (806) 345-7400
A STOCK COMPANY
WESTERN NATIONAL LIFE INSURANCE COMPANY ("Company"), in consideration of the
payment of the initial Purchase Payment, issued this Contract, subject to its
terms.
RIGHT TO EXAMINE CONTRACT: Within 10 days of the date of receipt of this
Contract by the Owner, it may be returned by delivering or mailing it to the
Company at its Variable Annuity Service Center or to the agent through whom it
was purchased. When this Contract is received by the Company, it will be voided
as if it had never been in force. The Company will refund the greater of
Purchase Payments less withdrawals or the Contract Value less the Bonus, if any.
For the 15 days following the date this Contract was issued, Purchase Payments
will be allocated to the Money Market Sub-Account. At the end of the 15 days,
the Contract Value will be allocated to the Sub-Accounts of the Separate Account
in accordance with the selections made by the Owner.
THIS IS A LEGAL CONTRACT BETWEEN THE OWNER AND THE COMPANY.
READ YOUR CONTRACT CAREFULLY.
SECRETARY PRESIDENT
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACT
WITH FLEXIBLE PURCHASE PAYMENTS
DEATH BENEFIT PRIOR TO MATURITY
MONTHLY INCOME AT MATURITY
Nonparticipating
ANNUITY PAYMENTS, WITHDRAWAL VALUES AND THE DEATH BENEFITS PROVIDED BY THIS
CONTRACT, WHEN BASED ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT, ARE
VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT. SEE "VARIABLE ANNUITY"
PROVISIONS ON PAGE 21.
DISCLOSURE OF GUARANTY FUND NON-PARTICIPATION: IN THE EVENT THE COMPANY IS
UNABLE TO FULFILL ITS OBLIGATION UNDER THIS CONTRACT, TO THE EXTENT OF THE
OWNER'S INTEREST IN THE SEPARATE ACCOUNT, THE OWNER IS NOT PROTECTED BY AN
INSURANCE GUARANTY FUND OR OTHER SOLVENCY PROTECTION ARRANGEMENT.
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
CONTRACT SCHEDULE.................................................................................................4
DEFINITIONS.......................................................................................................8
PURCHASE PAYMENT PROVISIONS......................................................................................10
ALLOCATION OF PURCHASE PAYMENTS.........................................................................10
PURCHASE PAYMENTS.......................................................................................10
SUBSEQUENT PURCHASE PAYMENTS............................................................................10
GENERAL ACCOUNT PROVISIONS.......................................................................................10
GENERAL ACCOUNT VALUE...................................................................................10
INTEREST TO BE CREDITED.................................................................................11
SEPARATE ACCOUNT PROVISIONS......................................................................................11
THE SEPARATE ACCOUNT....................................................................................11
VALUATION OF ASSETS.....................................................................................11
ACCUMULATION UNITS......................................................................................11
ACCUMULATION UNIT VALUE.................................................................................11
NET INVESTMENT FACTOR:...........................................................................................11
MORTALITY AND EXPENSE RISK CHARGE.......................................................................12
ADMINISTRATIVE CHARGE...................................................................................12
ENHANCED DEATH BENEFIT CHARGE...........................................................................12
MORTALITY AND EXPENSE GUARANTEE.........................................................................12
CONTRACT MAINTENANCE CHARGE......................................................................................13
DEDUCTION FOR CONTRACT MAINTENANCE CHARGE...............................................................13
TRANSFERS........................................................................................................13
TRANSFERS PRIOR TO THE ANNUITY DATE.....................................................................13
TRANSFERS DURING THE ANNUITY PERIOD.....................................................................14
WITHDRAWAL PROVISIONS............................................................................................15
WITHDRAWALS.............................................................................................15
CONTINGENT DEFERRED SALES CHARGE........................................................................15
PROCEEDS PAYABLE ON DEATH........................................................................................15
DEATH OF OWNER DURING THE ACCUMULATION PERIOD...........................................................15
DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PERIOD.....................................................16
DEATH BENEFIT OPTIONS DURING THE ACCUMULATION PERIOD....................................................16
DEATH OF OWNER DURING THE ANNUITY PERIOD................................................................17
DEATH OF ANNUITANT......................................................................................17
PAYMENT OF DEATH BENEFIT................................................................................17
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
BENEFICIARY.............................................................................................17
CHANGE OF BENEFICIARY...................................................................................18
SUSPENSION OR DEFERRAL OF PAYMENTS PROVISION.....................................................................18
ANNUITANT, OWNERSHIP, ASSIGNMENT PROVISIONS......................................................................19
ANNUITANT...............................................................................................19
OWNER...................................................................................................19
JOINT OWNER.............................................................................................19
ASSIGNMENT OF THE CONTRACT..............................................................................19
ANNUITY PROVISIONS...............................................................................................19
GENERAL.................................................................................................19
ANNUITY DATE............................................................................................19
SELECTION OF AN ANNUITY OPTION..........................................................................20
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS................................................................20
ANNUITY OPTIONS.........................................................................................20
OPTION A. LIFE ANNUITY.........................................................................20
OPTION B. LIFE ANNUITY WITH PERIODS CERTAIN....................................................21
OPTION C. JOINT AND SURVIVOR ANNUITY...........................................................21
ANNUITY.................................................................................................21
FIXED ANNUITY...........................................................................................21
VARIABLE ANNUITY........................................................................................22
ANNUITY UNIT............................................................................................22
MORTALITY TABLES........................................................................................22
GENERAL PROVISIONS...............................................................................................23
THE CONTRACT............................................................................................23
MISSTATEMENT OF AGE OR SEX..............................................................................23
INCONTESTABILITY........................................................................................23
MODIFICATION............................................................................................23
NON-PARTICIPATING.......................................................................................23
EVIDENCE OF SURVIVAL....................................................................................23
PROOF OF AGE............................................................................................23
PROTECTION OF PROCEEDS..................................................................................23
REPORTS.................................................................................................23
TAXES...................................................................................................24
REGULATORY REQUIREMENTS.................................................................................24
ANNUITY TABLES..........................................................................................25
</TABLE>
3
<PAGE> 4
CONTRACT SCHEDULE
OWNER: [John Smith] AGE AND SEX: [50 male]
ANNUITANT: [John Smith] AGE AND SEX: [50 male]
CONTRACT NUMBER: [12345] ISSUE DATE: [July 01, 1995]
ANNUITY DATE: [July 01, 2009]
PURCHASE PAYMENTS:
MINIMUM INITIAL PURCHASE PAYMENT: $5,000 for Non-Qualified Contracts;
$2,000 for Qualified Contracts
MINIMUM SUBSEQUENT PURCHASE PAYMENT: For Non-Qualified Contracts: $1,000,
or if the automatic premium check
option is elected: $50; for Qualified
Contracts: $50
MAXIMUM TOTAL PURCHASE PAYMENTS: $500,000 for issue ages up to 75
without Company approval; $250,000
for issue ages 75 and higher without
Company approval
ALLOCATION RULES:
1. The maximum number of Sub-Accounts that can be selected by an Owner is
20.
2. Allocations must be in whole percentages with a minimum allocation of
10% of each Purchase Payment or transfer, unless the Purchase Payment is
being made pursuant to an approved Dollar Cost Averaging program or an
approved asset allocation program.
BENEFICIARY:
As designated by the Owner at the Issue Date, unless subsequently changed.
CONTRACT MAINTENANCE CHARGE:
The Contract Maintenance Charge is $30 each Contract Year, unless reduced as
specified in the Contract. However, during the Accumulation Period, if the
Contract Value on the Contract Anniversary is at least $40,000, then no Contract
Maintenance Charge is deducted. If a total withdrawal is made on other than a
Contract Anniversary and the Contract Value for the Valuation Period during
which the total withdrawal is made is less than $40,000, the full Contract
Maintenance Charge will be deducted at the time of the total withdrawal. During
the
4
<PAGE> 5
Annuity Period, the Contract Maintenance Charge will be deducted pro-rata from
Annuity Payments regardless of Contract size and will result in a reduction of
each Annuity Payment.
MORTALITY AND EXPENSE RISK CHARGE:
Equal on an annual basis to 1.25% of the average daily net asset value of the
Separate Account.
ADMINISTRATIVE CHARGE:
Equal on an annual basis to .15% of the average daily net asset value of the
Separate Account.
ENHANCED DEATH BENEFIT CHARGE: If the Enhanced Death Benefit has been selected,
an Enhanced Death Benefit Charge is deducted each Valuation Period prior to the
75th birthday of the Owner, or oldest Joint Owner which is equal on an annual
basis to .15% of the average daily net asset value of the Separate Account.
TRANSFERS:
NUMBER OF TRANSFERS: Subject to any restrictions imposed on such
transfers by the Company, there are currently no restrictions on the
number of transfers that can be made. However, if the Company does limit
the number of transfers in the future, Owners are guaranteed the right
to at least 4 transfers during any Contract Year.
TRANSFER FEE: Currently, none. However, should the Company impose a
Transfer Fee in the future it will not exceed the lesser of $25 or 2% of
the amount transferred.
FREE TRANSFERS: Currently there are no restrictions on the number of
transfers that can be made. However, if the Company does limit the
number of transfers in the future, Owners are guaranteed 4 transfers
free of any Transfer Fee during any Contract Year.
MINIMUM AMOUNT TO BE TRANSFERRED: $250 (from (i) one or multiple
Sub-Accounts or (ii) the General Account), or the Owner's entire
interest in the Sub-Account or the General Account, if less.
MINIMUM AMOUNT WHICH MUST REMAIN IN A SUB-ACCOUNT AFTER A TRANSFER: $500
per Sub-Account; or $0 if the entire amount in the Sub-Account is
transferred.
MINIMUM AMOUNT WHICH MUST REMAIN IN THE GENERAL ACCOUNT AFTER A
TRANSFER: $500; or $0 if the entire amount in the General Account is
transferred.
MAXIMUM AMOUNT WHICH CAN BE TRANSFERRED FROM THE GENERAL ACCOUNT TO THE
SEPARATE ACCOUNT DURING THE ACCUMULATION PERIOD: Each Contract Year 20%
of the Owner's Contract Value in the General Account as of the last
Contract Anniversary. However, if the Sweep Account Option has been
elected, any funds transferred pursuant to that program will not be
included in this limitation.
5
<PAGE> 6
WITHDRAWALS:
If all or a portion of the Contract Value is withdrawn, a Contingent Deferred
Sales Charge will be calculated at the time of each withdrawal and will be
deducted from the Contract Value. The Contingent Deferred Sales Charge is based
upon the length of time from when each Purchase Payment was made and is deemed
to be first-in, first-out in accordance with the following:
CONTINGENT DEFERRED SALES CHARGE:
<TABLE>
<CAPTION>
Length of Time From
Purchase Payment Charge (as a % of
(Number of Years) Purchase Payment
------------------- ----------------
<S> <C>
1 5%
2 5%
3 5%
4 4%
5 3%
6 2%
7 1%
8 or more 0%
</TABLE>
FREE WITHDRAWAL:
1. After the first Contract Anniversary, a withdrawal of up to 10% of the
Contract Value, determined as of the immediately preceding Contract
Anniversary, may be withdrawn once each Contract Year on a
non-cumulative basis without the imposition of the Contingent Deferred
Sales Charge.
2. A Systematic Withdrawal Option may be selected in lieu of the 10% Free
Withdrawal Option. If the Systematic Withdrawal Option is selected the
total permitted systematic withdrawal in a Contract Year without the
imposition of the Contingent Deferred Sales Charge is limited to 10% of
the Contract Value determined as of the immediately preceding Contract
Anniversary or, during the first Contract Year, the Issue Date.
Systematic Withdrawals can be made monthly, quarterly and semi-annually.
The Systematic Withdrawal Option can be exercised at any time, including
the first Contract Year.
MINIMUM PARTIAL WITHDRAWAL: $500
MINIMUM CONTRACT VALUE WHICH MUST REMAIN IN THE CONTRACT AFTER A PARTIAL
WITHDRAWAL: $5,000 for Non-Qualified Contracts;
$2,000 for Qualified Contracts
6
<PAGE> 7
INVESTMENT OPTIONS AND SUB-ACCOUNTS:
INVESTMENT OPTIONS:
WNL SERIES TRUST: PORTFOLIOS SUB-ACCOUNTS:
Global Advisors Growth Equity Global Advisors Growth Equity
Portfolio Sub-Account
BEA Growth and Income Portfolio BEA Growth and Income Sub-Account
CS First Boston International Equity CS First Boston International
Portfolio Equity Sub-Account
American Capital Emerging Growth American Capital Emerging Growth
Portfolio Sub-Account
BlackRock Managed Bond Portfolio BlackRock Managed Bond Sub-Account
Salomon Brothers U.S. Government Salomon Brothers U.S. Government
Securities Portfolio Securities Sub-Account
Quest for Value Asset Allocation Quest for Value Asset Allocation
Portfolio Sub-Account
Global Advisors Money Market Global Advisors Money Market
Portfolio Sub-Account
SEPARATE ACCOUNT: WNL Separate Account A
MINIMUM GUARANTEED INTEREST RATE FOR THE GENERAL ACCOUNT:
3% per year
RIDERS: [IRA Endorsement]
[TSA/403(b) Endorsement]
[Texas ORP Endorsement]
[Enhanced Death Benefit Endorsement]
[Persistency Bonus Endorsement]
[Unisex Rates Endorsement]
ANNUITY SERVICE OFFICE:
<TABLE>
<S> <C>
Western National Life Insurance Company Western National Life Insurance Company
Variable Annuity Service Center or Variable Annuity Service Center
P.O. Box 361 95 Bridge Street
Haddam, Connecticut 06438-0361 Haddam, Connecticut 06438-0361
(800) 910-4455
</TABLE>
7
<PAGE> 8
DEFINITIONS
ACCUMULATION PERIOD: The period during which Purchase Payments may be made prior
to the Annuity Date.
ACCUMULATION UNIT: A unit of measure used to determine the value of the Owner's
interest in a Sub-Account of the Separate Account during the Accumulation
Period.
ADJUSTED CONTRACT VALUE: The Contract Value less any applicable premium tax and
Contract Maintenance Charge. This amount is applied to the applicable Annuity
Tables to determine Annuity Payments.
AGE: The age of any Owner or Annuitant on his/her last birthday.
ANNUITANT: The natural person on whose life Annuity Payments are based. On or
after the Annuity Date, the Annuitant shall also include any Joint Annuitant.
ANNUITY DATE: The date on which Annuity Payments begin. The Annuity Date is
shown on the Contract Schedule.
ANNUITY OPTIONS: Options available for Annuity Payments.
ANNUITY PAYMENTS: The series of payments made to the Owner or any named payee
after the Annuity Date under the Annuity Option selected.
ANNUITY PERIOD: The period of time beginning with the Annuity Date during which
Annuity Payments are made.
ANNUITY SERVICE OFFICE: The office indicated on the Contract Schedule of this
Contract to which notices, requests and Purchase Payments must be sent. All sums
payable by the Company under this Contract are payable only at the Variable
Annuity Service Center.
ANNUITY UNIT: A unit of measure used to calculate Variable Annuity Payments
during the Annuity Period.
BENEFICIARY: The person(s) or entity(ies) who will receive the death benefit.
COMPANY: Western National Life Insurance Company.
CONTRACT ANNIVERSARY: An anniversary of the Issue Date.
CONTRACT VALUE: The sum of the Owner's interest in the General Account and the
Sub-Accounts of the Separate Account during the Accumulation Period.
CONTRACT YEAR: The first Contract Year is the annual period which begins on the
Issue Date. Subsequent Contract Years begin on each anniversary of the Issue
Date.
8
<PAGE> 9
FIXED ANNUITY: A series of payments made during the Annuity Period which are
guaranteed as to dollar amount by the Company.
GENERAL ACCOUNT: The Company's general investment account which contains all the
assets of the Company with the exception of the Separate Account and other
segregated asset accounts.
INVESTMENT OPTION: An investment entity shown on the Contract Schedule.
ISSUE DATE: The date on which the Contract became effective. The Issue Date is
shown on the Contract Schedule.
OWNER: The person or entity entitled to the ownership rights stated in this
Contract.
PORTFOLIO: A segment of an Investment Option which constitutes a separate and
distinct class of shares. Portfolios which are available for investment by the
Sub-Accounts under this Contract are shown on the Contract Schedule.
PURCHASE PAYMENT: A payment made by or on behalf of an Owner with respect to
this Contract.
SEPARATE ACCOUNT: The Company's Separate Account designated on the Contract
Schedule.
SUB-ACCOUNT: Separate Account assets are divided into Sub-Accounts which are
listed on the Contract Schedule. Assets of each Sub-Account will be invested in
shares of an Investment Option or a Portfolio of an Investment Option.
VALUATION DATE: Each day on which the Company and the New York Stock Exchange
("NYSE") are open for business.
VALUATION PERIOD: The period of time beginning at the close of business of the
NYSE on each Valuation Date and ending at the close of business for the next
succeeding Valuation Date.
VARIABLE ANNUITY: An annuity with payments which vary as to dollar amount in
relation to the investment performance of specified Sub-Accounts of the Separate
Account.
WRITTEN REQUEST: A request in writing, in a form satisfactory to the Company,
which is received by the Variable Annuity Service Center.
9
<PAGE> 10
PURCHASE PAYMENT PROVISIONS
ALLOCATION OF PURCHASE PAYMENTS: Purchase Payments are allocated to the General
Account and/or the Sub-Accounts of the Separate Account in accordance with the
selections made by the Owner. The allocation of the initial Purchase Payment is
made in accordance with the selection made by the Owner at the Issue Date and
subject to the Allocation Rules set forth on the Contract Schedule. Unless
otherwise changed by the Owner, subsequent Purchase Payments are allocated in
the same manner as the initial Purchase Payment. Allocation of the Purchase
Payments is subject to the terms and conditions imposed by the Company. The
Company has reserved the right to allocate initial Purchase Payments to the
Money Market Sub-Account until the expiration of the Right to Examine Contract
period.
PURCHASE PAYMENTS: The initial Purchase Payment is due on the Issue Date. The
minimum and maximum subsequent Purchase Payments are shown on the Contract
Schedule. The Company reserves the right to reject any forms required to issue
the Contract or Purchase Payment.
SUBSEQUENT PURCHASE PAYMENTS: Subject to the minimum and maximum shown on the
Contract Schedule, the Owner may make subsequent Purchase Payments and may
increase or decrease or change the frequency of such payments.
GENERAL ACCOUNT PROVISIONS
GENERAL ACCOUNT VALUE: The General Account value of the Contract at any time is
equal to:
1. the Purchase Payments allocated to the General Account; plus
2. the Contract Value transferred to the General Account; plus
3. interest credited to the Contract Value in the General Account;
less
4. any prior partial withdrawals and any Contingent Deferred Sales
Charge deducted from the General Account; less
5. any Contract Value transferred from the General Account; less
6. any applicable premium taxes, Contract Maintenance Charge or
Transfer Fees deducted from the General Account.
10
<PAGE> 11
INTEREST TO BE CREDITED: The Company guarantees that the interest rate credited
to the General Account will not be less than the Minimum Guaranteed Interest
Rate for the General Account shown on the Contract Schedule. The Company may
credit additional interest at its sole discretion.
SEPARATE ACCOUNT PROVISIONS
THE SEPARATE ACCOUNT: The Separate Account is designated on the Contract
Schedule and consists of assets set aside by the Company, which are kept
separate from the general assets and all other separate account assets of the
Company. The assets of the Separate Account equal to reserves and other
liabilities will not be charged with liabilities arising out of any other
business the Company may conduct.
The Separate Account assets are divided into Sub-Accounts. The Sub-Accounts
which are available under this Contract are listed on the Contract Schedule. The
assets of the Sub-Accounts are allocated to the Investment Option(s) and the
Portfolio(s), if any, within an Investment Option, shown on the Contract
Schedule. The Company may, from time to time, add additional Investment Options
or Portfolios and the related Sub-Accounts to those shown on the Contract
Schedule. The Owner may be permitted to transfer Contract Values or allocate
Purchase Payments to the additional Sub-Accounts. However, the right to make
such transfers or allocations will be limited by the terms and conditions
imposed by the Company.
Should the shares of any such Investment Option(s) or any Portfolio(s) within an
Investment Option become unavailable for investment by the Separate Account, or
the Company's Board of Directors deems further investment in these shares
inappropriate, the Company may limit further purchase of such shares or may
substitute shares of another Investment Option or Portfolio for shares already
purchased under this Contract.
VALUATION OF ASSETS: The assets of the Separate Account are valued at their fair
market value in accordance with the procedures of the Company.
ACCUMULATION UNITS: Accumulation Units shall be used to account for all amounts
allocated to or withdrawn from the Sub-Accounts of the Separate Account as a
result of Purchase Payments, withdrawals, transfers, or fees and charges. The
Company will determine the number of Accumulation Units of a Sub-Account
purchased or cancelled. This will be done by dividing the amount allocated to
(or the amount withdrawn from) the Sub-Account by the dollar value of one
Accumulation Unit of the Sub-Account as of the end of the Valuation Period
during which the request for the transaction is received at the Variable Annuity
Service Center.
ACCUMULATION UNIT VALUE: The Accumulation Unit Value for each Sub-Account was
set initially at $10. Subsequent Accumulation Unit Values for each Sub-Account
are determined by multiplying the Accumulation Unit Value for the immediately
preceding Valuation Period by the Net Investment Factor for the Sub-Account for
the current period.
NET INVESTMENT FACTOR: The Net Investment Factor for each Sub-Account is
determined by dividing A by B and subtracting C where:
11
<PAGE> 12
A is (i) the net asset value per share of the Investment Options or
Portfolios of an Investment Option held by the Sub-Account for
the current Valuation Period; plus
(ii) any dividend per share declared on behalf of such
Investment Option or Portfolio that has an ex-dividend date
within the current Valuation Period; less
(iii) the cumulative per share charge or credit for taxes
reserved which is determined by the Company to have resulted
from the operation or maintenance of the Sub-Account.
B is the net asset value per share of the Investment Option or
Portfolio of an Investment Option held by the Sub-Account for
the immediately preceding Valuation Period; plus or minus the
cumulative per share charge or credit for taxes reserved for the
immediately preceding Valuation Date.
C is the factor representing the cumulative per share charges for
the Mortality and Expense Risk Charge, for the Administrative
Charge and or the Enhanced Death Benefit Charge, if any, which
are shown on the Contract Schedule.
The Accumulation Unit Value may increase or decrease from Valuation Period to
Valuation Period.
MORTALITY AND EXPENSE RISK CHARGE: Each Valuation Period, the Company deducts a
Mortality and Expense Risk Charge from the Separate Account which is equal, on
an annual basis, to the amount shown on the Contract Schedule. The Mortality and
Expense Risk Charge compensates the Company for assuming the mortality and
expense risks under this Contract.
ADMINISTRATIVE CHARGE: Each Valuation Period, the Company deducts an
Administrative Charge from the Separate Account which is equal, on an annual
basis, to the amount shown on the Contract Schedule. The Administrative Charge
compensates the Company for the costs associated with the administration of this
Contract and the Separate Account.
ENHANCED DEATH BENEFIT CHARGE: If the Enhanced Death Benefit Endorsement has
been selected, each Valuation Period the Company deducts an Enhanced Death
Benefit Charge from the Separate Account which is equal, on an annual basis, to
the amount shown on the Contract Schedule. The Enhanced Death Benefit Charge
compensates the Company for assuming the mortality risks for the Enhanced Death
Benefit Endorsement attached to this Contract.
MORTALITY AND EXPENSE GUARANTEE: The Company guarantees that the dollar amount
of each Annuity Payment after the first Annuity Payment will not be affected by
variations in mortality or expense experience.
12
<PAGE> 13
CONTRACT MAINTENANCE CHARGE
DEDUCTION FOR CONTRACT MAINTENANCE CHARGE: The Contract Maintenance Charge is
shown on the Contract Schedule. On each Contract Anniversary the Company will
deduct a Contract Maintenance Charge from the Contract Value by subtracting
values from the General Account and/or by cancelling Accumulation Units from
each applicable Sub-Account to reimburse it for expenses relating to maintenance
of this Contract. The Contract Maintenance Charge will be deducted from the
General Account and the Sub-Accounts in the Separate Account in the same
proportion that the amount of Contract Value in the General Account and each
Sub-Account bears to the total Contract Value. However, during the Accumulation
Period, if no Purchase Payment has been received during a Contract Year, that
portion of the Contract Maintenance Charge that is deducted from the General
Account will be the lesser of the excess interest over the minimum guaranteed
interest credited to the General Account during the Contract Year and the
otherwise allocated portion of the Contract Maintenance Charge, not to exceed
the Contract Maintenance Charge shown on the Contract Schedule. During the
Accumulation Period the Contract Maintenance Charge will be deducted from the
Contract Value on each Contract Anniversary while this Contract is in force. If
a total withdrawal is made on other than a Contract Anniversary, the Contract
Maintenance Charge will be deducted at the time of withdrawal. During the
Annuity Period, the Contract Maintenance Charge will be deducted from Annuity
Payments and will result in a reduction of each Annuity Payment.
TRANSFERS
TRANSFERS PRIOR TO THE ANNUITY DATE: Subject to any limitations imposed by the
Company on the number of transfers, shown on the Contract Schedule, that can be
made during the Accumulation Period, the Owner may transfer all or part of the
Owner's Contract Value by Written Request without the imposition of any fee or
charge if there have been no more than the number of free transfers shown on the
Contract Schedule for the Contract Year. All transfers are subject to the
following:
1. If more than the number of free transfers, shown on the
Contract Schedule, have been made in a Contract Year, the Company will
deduct a Transfer Fee, shown on the Contract Schedule, for each
subsequent transfer permitted. The Transfer Fee will be deducted from
the amount which is transferred.
2. The minimum amount which can be transferred from a
Sub-Account or the General Account is shown on the Contract Schedule.
The minimum amount which must remain in a Sub-Account or the General
Account is shown on the Contract Schedule.
3. The maximum amount which can be transferred each Contract
Year from the General Account to the Separate Account is shown on the
Contract Schedule.
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<PAGE> 14
4. Transfers from any Sub-Account to the General Account may not
be made for the six month period following any transfer from the General
Account into one or more of the Sub-Accounts.
If the Owner elects to use this transfer privilege, the Company will not be
liable for transfers made in accordance with the Owner's instructions. All
amounts and Accumulation Units will be determined as of the end of the Valuation
Period during which the request for transfer is received at the Variable Annuity
Service Center.
TRANSFERS DURING THE ANNUITY PERIOD: During the Annuity Period, the Owner may
make transfers, by Written Request, as follows:
1. The Owner may make transfers of Contract Values between
Sub-Accounts, subject to any limitations imposed by the Company on the
number of transfers. If more than the number of free transfers, shown on
the Contract Schedule, have been made in a Contract Year, the Company
will deduct a Transfer Fee, shown on the Contract Schedule, for each
subsequent transfer permitted. The Transfer Fee will be deducted from
the amount which is transferred.
2. The Owner may, once each Contract Year, make a transfer from
one or more Sub-Accounts to the General Account. The Owner may not make
a transfer from the General Account to the Separate Account.
3. Transfers between Sub-Accounts will be made by converting the
number of Annuity Units being transferred to the number of Annuity Units
of the Sub-Account to which the transfer is made, so that the next
Annuity Payment if it were made at that time would be the same amount
that it would have been without the transfer. Thereafter, Annuity
Payments will reflect changes in the value of the new Annuity Units.
The amount transferred to the General Account from a Sub-Account
will be based on the annuity reserves for the Owner in that Sub-Account.
Transfers to the General Account will be made by converting the Annuity
Units being transferred to purchase fixed Annuity Payments under the
Annuity Option in effect and based on the Age of the Annuitant at the
time of the transfer.
4. The minimum amount which can be transferred from a
Sub-Account or the General Account is shown on the Contract Schedule.
The minimum amount which must remain in a Sub-Account or the General
Account is shown on the Contract Schedule.
If the Owner elects to use this transfer privilege, the Company will not be
liable for transfers made in accordance with the Owner's instructions. All
amounts and Annuity Unit Values will be determined as of the end of the
Valuation Period during which the request for transfer is received at the
Variable Annuity Service Center.
14
<PAGE> 15
WITHDRAWAL PROVISIONS
WITHDRAWALS: During the Accumulation Period, the Owner may, upon Written
Request, make a total or partial withdrawal of the Contract Withdrawal Value.
The Contract Withdrawal Value is:
1. the Contract Value as of the end of the Valuation Period during
which a Written Request for a withdrawal is received by the
Company; less
2. any applicable taxes not previously deducted; less
3. any applicable Contingent Deferred Sales Charge; less
4. the Contract Maintenance Charge, if any.
A withdrawal will result in the cancellation of Accumulation Units from each
applicable Sub-Account or a reduction in the Owner's General Account Contract
Value in the ratio that the Owner's interest in the Sub-Account and/or General
Account bears to the total Contract Value. The Owner must specify by Written
Request in advance which Sub-Account Units are to be cancelled or values are to
be reduced if other than the above method is desired.
The Company will pay the amount of any withdrawal from the Separate Account
within seven (7) days of receipt of a request in good order unless the
Suspension or Deferral of Payments Provision is in effect.
Each partial withdrawal must be for an amount which is not less than the Minimum
Partial Withdrawal amount shown on the Contract Schedule. The minimum Contract
Value which must remain in the Contract after a partial withdrawal is shown on
the Contract Schedule.
CONTINGENT DEFERRED SALES CHARGE: Upon a withdrawal of Contract Value a
Contingent Deferred Sales Charge as set forth on the Contract Schedule may be
assessed. The Contingent Deferred Sales Charge may be waived under certain
circumstances as set forth on the Contract Schedule under "Free Withdrawal."
PROCEEDS PAYABLE ON DEATH
DEATH OF OWNER DURING THE ACCUMULATION PERIOD: Upon the death of the Owner, or
the later surviving Joint Owner, during the Accumulation Period, the death
benefit will be paid to the Beneficiary(ies) designated by the Owner. Upon the
death of a Joint Owner, the surviving Joint Owner, if any, will be treated as
the primary Beneficiary. Any other Beneficiary designation on record at the time
of death will be treated as a contingent Beneficiary.
A Beneficiary may request that the death benefit be paid under one of the Death
Benefit Options below. If the Beneficiary is the spouse of the Owner he or she
may elect to continue the Contract at the then current Contract Value in his or
her own name and exercise all the Owner's rights under the Contract.
15
<PAGE> 16
DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PERIOD: For a death occurring prior
to the 80th birthday of the Owner, or the oldest Joint Owner, the death benefit
during the Accumulation Period will be the greater of:
1. the Purchase Payments, less any withdrawals including any
previously deducted Contingent Deferred Sales Charge; or
2. the Contract Value determined as of the end of the Valuation
Period during which the Company receives at its Variable Annuity
Service Center both due proof of death and an election of the
payment method; or
3. The highest Step-Up Value prior to the date of death. The
Step-Up Value is equal to the Contract Value on each seventh
Contract Anniversary plus any Purchase Payments made after such
Contract Anniversary less any withdrawals and Contingent
Deferred Sales Charge deducted after such Contract Anniversary.
For a death occurring on or after the 80th birthday of the Owner, or the oldest
Joint Owner, the death benefit during the Accumulation Period will be the
Contract Value determined as of the end of the Valuation Period during which the
Company receives at its Variable Annuity Service Center both due proof of death
and an election of the payment method.
DEATH BENEFIT OPTIONS DURING THE ACCUMULATION PERIOD: A non-spousal Beneficiary
must elect the death benefit to be paid under one of the following options in
the event of the death of the Owner during the Accumulation Period:
OPTION 1 - lump sum payment of the death benefit; or
OPTION 2 - the payment of the entire death benefit within 5 years of the
date of the death of the Owner; or
OPTION 3 - payment of the death benefit under an Annuity Option over the
lifetime of the Beneficiary or over a period not extending beyond the
life expectancy of the Beneficiary with distribution beginning within
one year of the date of death of the Owner or any Joint Owner.
Any portion of the death benefit not applied under Option 3 within one year of
the date of the Owners' death, must be distributed within five years of the date
of death.
A spousal Beneficiary may elect to continue the Contract in his or her own name
at the then current Contract Value, elect a lump sum payment of the death
benefit or apply the death benefit to an Annuity Option.
16
<PAGE> 17
If a lump sum payment is requested, the amount will be paid within seven (7)
days of receipt of proof of death and the election, unless the Suspension or
Deferral of Payments Provision is in effect.
Payment to the Beneficiary, other than in a single sum, may only be elected
during the sixty-day period beginning with the date of receipt of proof of
death.
DEATH OF OWNER DURING THE ANNUITY PERIOD: If the Owner, or a Joint Owner, who is
not the Annuitant, dies during the Annuity Period, any remaining payments under
the Annuity Option elected will continue at least as rapidly as under the method
of distribution in effect at such Owner's death. Upon the death of the Owner
during the Annuity Period, the Beneficiary becomes the Owner.
DEATH OF ANNUITANT: Upon the death of an Annuitant, who is not the Owner, during
the Accumulation Period, the Owner may designate a new Annuitant, subject to the
Company's underwriting rules then in effect. If no designation is made within 30
days of the death of the Annuitant, the Owner will become the Annuitant. If the
Owner is a non-natural person, the death of the Annuitant will be treated as the
death of the Owner and a new Annuitant may not be designated.
Upon the death of the Annuitant during the Annuity Period, the death benefit, if
any, will be as specified in the Annuity Option elected. Death benefits will be
paid at least as rapidly as under the method of distribution in effect at the
Annuitant's death.
PAYMENT OF DEATH BENEFIT: The Company will require due proof of death before any
death benefit is paid. Due proof of death will be:
1. a certified death certificate;
2. a certified decree of a court of competent jurisdiction as to
the finding of death; or
3. any other proof satisfactory to the Company.
All death benefits will be paid in accordance with applicable law or regulations
governing death benefit payments.
BENEFICIARY: The Beneficiary designation in effect on the Issue Date will remain
in effect until changed. The Beneficiary is entitled to receive the benefits to
be paid at the death of the Owner.
Unless the Owner provides otherwise, the death benefit will be paid in equal
shares to the survivor(s) as follows:
17
<PAGE> 18
1. to the Primary Beneficiary(ies) who survive the Owner's and/or
the Annuitant's death, as applicable; or if there are none
2. to the Contingent Beneficiary(ies) who survive the Owner's
and/or the Annuitant's death, as applicable; or if there are
none
3. to the estate of the Owner.
CHANGE OF BENEFICIARY: Subject to the rights of any irrevocable
Beneficiary(ies), the Owner may change the Primary Beneficiary(ies) or
Contingent Beneficiary(ies). Any change must be made by Written Request. The
change will take effect as of the date the Written Request is signed. The
Company will not be liable for any payment made or action taken before it
records the change.
SUSPENSION OR DEFERRAL OF PAYMENTS PROVISION
The Company reserves the right to suspend or postpone payments for a withdrawal
or transfer for any period when:
1. the New York Stock Exchange is closed (other than customary
weekend and holiday closings); weekend and holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of securities
held in the Separate Account is not reasonably practicable or it
is not reasonably practicable to determine the value of the
Separate Account's net assets; or
4. during any other period when the Securities and Exchange
Commission, by order, so permits for the protection of Owners;
provided that applicable rules and regulations of the Securities and Exchange
Commission will govern as to whether the conditions described in (2) and (3)
exist.
The Company further reserves the right to postpone payments from the General
Account for a period not to exceed six months.
18
<PAGE> 19
ANNUITANT, OWNERSHIP, ASSIGNMENT PROVISIONS
ANNUITANT: The Annuitant is the person on whose life Annuity Payments are based.
The Annuitant is the person designated by the Owner at the Issue Date, unless
changed prior to the Annuity Date. The Annuitant may not be changed in a
Contract which is owned by a non-natural person. Any change of Annuitant is
subject to the Company's underwriting rules then in effect.
OWNER: The Owner has all rights and may receive all benefits under this
Contract. The Owner is the person designated as such on the Issue Date, unless
changed.
The Owner may change owners at any time prior to the Annuity Date by Written
Request. A change of Owner will automatically revoke any prior designation of
Owner. The change will become effective as of the date the Written Request is
signed. A new designation of Owner will not apply to any payment made or action
taken by the Company prior to the time it was received.
JOINT OWNER: The Contract can be owned by Joint Owners. If Joint Owners are
named, any Joint Owner must be the spouse of the other Owner. Upon the death of
either Owner, the surviving spouse will be the Primary Beneficiary. Any other
Beneficiary designation will be treated as a Contingent Beneficiary unless
otherwise indicated in a Written Request.
ASSIGNMENT OF THE CONTRACT: A Written Request specifying the terms of an
assignment of this Contract must be provided to the Variable Annuity Service
Center. Until the Written Request is received, the Company will not be required
to take notice of or be responsible for any transfer of interest in this
Contract by assignment, agreement, or otherwise.
The Company will not be responsible for the validity or tax consequences of any
assignment. Any assignment made after the death benefit has become payable will
be valid only with Company consent.
If this Contract is assigned, the Owner's rights may only be exercised with the
consent of the assignee of record.
ANNUITY PROVISIONS
GENERAL: On the Annuity Date, the Adjusted Contract Value will be applied under
the Annuity Option selected by the Owner. Annuity Payments may be made on a
fixed or variable basis or both.
ANNUITY DATE: The Annuity Date is selected by the Owner at the Issue Date. The
Annuity Date is shown on the Contract Schedule. The Annuity Date must be the
first day of a calendar month and must be at least five years after the Issue
Date. The Annuity Date may not be later than that required under state law.
Prior to the Annuity Date, the Owner, subject to the above, may change the
Annuity Date by Written Request. Any change must be requested at least fifteen
(15) days prior to the new Annuity Date.
19
<PAGE> 20
SELECTION OF AN ANNUITY OPTION: An Annuity Option is selected by the Owner on
the forms provided by the Company. If no Annuity Option is selected, Option B
with 120 months guaranteed will automatically be applied. Prior to the Annuity
Date, the Owner can change the Annuity Option selected by Written Request. Any
change must be requested at least fifteen (15) days prior to the Annuity Date.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS: Annuity Payments may be paid in
monthly, quarterly, semi-annual or annual installments. The Adjusted Contract
Value is applied to the Annuity Table for the Annuity Options selected. If the
Adjusted Contract Value to be applied under an Annuity Option is less than
$2,000, the Company reserves the right to make a lump sum payment in lieu of
Annuity Payments. If the Annuity Payment would be or becomes less than $200
where only a Fixed Annuity Payment or a Variable Annuity is selected, or if the
Annuity Payment would be or becomes less than $100 on each basis when a
combination of Fixed and Variable Annuities is selected, the Company will reduce
the frequency of payments to an interval which will result in each payment being
at least $200, or $100 on each basis if a combination of Fixed and Variable
Annuities is selected.
ANNUITY OPTIONS: The following Annuity Options or any other Annuity Option
acceptable to the Company may be selected:
OPTION A. LIFE ANNUITY: Monthly Annuity Payments during the life of the
Annuitant.
20
<PAGE> 21
OPTION B. LIFE ANNUITY WITH PERIODS CERTAIN OF 60, 120, 180 OR 240
MONTHS: Monthly Annuity Payments during the lifetime of the Annuitant
and in any event for sixty (60), one hundred twenty (120), one hundred
eighty (180) or two hundred forty (240) months certain as selected.
OPTION C. JOINT AND SURVIVOR ANNUITY: Monthly Annuity Payments payable
during the joint lifetime of the Annuitant and a Joint Annuitant and
then during the lifetime of the survivor at the percentage (100%, 75%,
66 2/3% or 50%) selected.
Annuity Options A, B, and C are available on a Fixed Annuity basis, a Variable
Annuity basis or a combination of both. Election of a Fixed Annuity or a
Variable Annuity must be made no later than fifteen (15) days prior to the
Annuity Date. If no election is made, the Annuity will be paid to reflect the
allocation of the Contract Value on the Annuity Date between the Separate
Account and the General Account, if any.
ANNUITY: If the Owner selects a Fixed Annuity, the Adjusted Contract Value is
allocated to the General Account and the Annuity is paid as a Fixed Annuity. If
the Owner selects a Variable Annuity, the Adjusted Contract Value will be
allocated to the Sub-Accounts of the Separate Account in accordance with the
selection made by the Owner, and the Annuity will be paid as a Variable Annuity.
The Owner can also select a combination of a Fixed and Variable Annuity and the
Adjusted Contract Value will be allocated accordingly. Unless the Owner
specifies otherwise, the payee of the Annuity Payments shall be the Annuitant
and any Joint Annuitant.
The Adjusted Contract Value will be applied to the applicable Annuity Table
contained in the Contract based upon the Annuity Option selected by the Owner.
The amount of the first payment for each $1,000 of Adjusted Contract Value is
shown in the Annuity Tables. If, as of the Annuity Date, the current Annuity
Option rates applicable to this class of contracts provide an initial Annuity
Payment greater than that guaranteed under the same Annuity Option under this
Contract, the greater payment will be made.
FIXED ANNUITY: The Owner may elect to have the Adjusted Contract Value applied
to provide a Fixed Annuity. The dollar amount of each Fixed Annuity Payment
shall be determined in accordance with Annuity Tables contained in this Contract
which are based on the minimum guaranteed interest rate of 3% per year. After
the initial Fixed Annuity Payment, the payments will not change regardless of
investment, mortality or expense experience.
21
<PAGE> 22
VARIABLE ANNUITY: Variable Annuity Payments reflect the investment performance
of the Separate Account in accordance with the allocation of the Adjusted
Contract Value to the Sub-Accounts during the Annuity Period. Variable Annuity
Payments are not guaranteed as to dollar amount.
The dollar amount of the first Variable Annuity Payment is determined in
accordance with the description above. The dollar amount of Variable Annuity
Payments for each applicable Sub-Account after the first Variable Annuity
Payment is determined as follows:
1. The dollar amount of the first Variable Annuity Payment is
divided by the value of an Annuity Unit for each applicable Sub-Account
as of the Annuity Date. This sets the number of Annuity Units for each
monthly payment for the applicable Sub-Account. The number of Annuity
Units for each applicable Sub-Account remains fixed during the Annuity
Period;
2. The fixed number of Annuity Units per payment in each
Sub-Account is multiplied by the Annuity Unit Value for that Sub-Account
for the last Valuation Period of the month preceding the month for which
the payment is due. This result is the dollar amount of the payment for
each applicable Sub-Account.
The total dollar amount of each Variable Annuity Payment is the sum of all
Sub-Account Variable Annuity Payments reduced by the applicable portion of the
Contract Maintenance Charge.
ANNUITY UNIT: The value of any Annuity Unit for each Sub-Account of the Separate
Account was set initially at $10.
The Sub-Account Annuity Unit Value at the end of any subsequent Valuation Period
is determined as follows:
1. The Net Investment Factor for the current Valuation Period is
multiplied by the value of the Annuity Unit for the Sub-Account for the
immediately preceding Valuation Period.
2. The result in (1) is then divided by the Assumed Investment
Rate Factor which equals 1.00 plus the Assumed Investment Rate for the
number of days since the preceding Valuation Date. The Assumed
Investment Rate is equal on an annual basis to 3%.
The value of an Annuity Unit may increase or decrease from Valuation Period to
Valuation Period.
MORTALITY TABLES: The Annuity Tables contained in this Contract utilize an
Assumed Investment Rate of 3% for the determination of the initial Variable
Annuity Payment and a minimum guaranteed rate of 3% per year for the
determination of the monthly Fixed Annuity Payment.
22
<PAGE> 23
The mortality table used in determining the Annuity Purchase Rates for Options
A, B, and C is the 1983 Individual Annuity Mortality Tables with Projection
Scale G, age last birthday.
The dollar amount of an Annuity Payment for any Age or combination of Ages not
shown in the Tables or for any other form of Annuity Option agreed to by the
Company will be provided by the Company upon request.
GENERAL PROVISIONS
THE CONTRACT: The entire Contract consists of this Contract, the Application, if
any, and any riders or endorsements attached to this Contract.
This Contract may be changed or altered only by the President or Vice President
and the Secretary of the Company. A change or alteration must be made in
writing.
MISSTATEMENT OF AGE OR SEX: If the Age or sex of any Annuitant has been
misstated, any Annuity benefits payable will be the Annuity benefits provided by
the correct Age and sex. After Annuity Payments have begun, any underpayments
will be made up in one sum with the next Annuity Payment. Any overpayments will
be deducted from future Annuity Payments until the total is repaid.
INCONTESTABILITY: The Contract will not be contestable after it has been in
force for a period of two years from the Issue Date.
MODIFICATION: This Contract may be modified in order to maintain compliance with
applicable state and federal law.
NON-PARTICIPATING: This Contract will not share in any distribution of
dividends.
EVIDENCE OF SURVIVAL: The Company may require satisfactory evidence of the
continued survival of any person(s) on whose life Annuity Payments are based.
PROOF OF AGE: The Company may require evidence of Age of any Annuitant or Owner.
PROTECTION OF PROCEEDS: To the extent permitted by law, death benefits and
Annuity Payments shall be free from legal process and the claim of any creditor
if the person is entitled to them under this Contract. No payment and no amount
under this Contract can be taken or assigned in advance of its payment date
unless the Company receives the Owner's written consent.
REPORTS: At least once each calendar year, the Company will furnish the Owner
with a report showing the Contract Value as of a date not more than four months
prior to the date of mailing, and will provide any other information as may be
required by law. The Company will also furnish an annual report of the Separate
Account. Reports will be sent to the last known address of the Owner.
23
<PAGE> 24
TAXES: Any taxes paid to any governmental entity relating to this Contract will
be deducted from the Purchase Payment or Contract Value when incurred. The
Company will, in its sole discretion, determine when taxes have resulted from:
the investment experience of the Separate Account; receipt by the Company of the
Purchase Payments; or commencement of Annuity Payments. The Company may, in its
sole discretion, pay taxes when due and deduct that amount from the Contract
Value at a later date. Payment at an earlier date does not waive any right the
Company may have to deduct amounts at a later date. While the Company is not
currently maintaining a provision for federal income taxes with respect to the
Separate Account, the Company has reserved the right to establish a provision
for income taxes if it determines, in its sole discretion, that it will incur a
tax as a result of the operation of the Separate Account. The Company will
deduct for any income taxes incurred by it as a result of the operation of the
Separate Account whether or not there was a provision for taxes and whether or
not it was sufficient. The Company will deduct any withholding taxes required by
applicable law.
REGULATORY REQUIREMENTS: All values payable under the Contract, including any
paid-up annuity, cash withdrawal or death benefits that may be available, will
not be less than the minimum benefits required by the laws and regulations of
the state in which the Contract is delivered.
24
<PAGE> 25
WESTERN NATIONAL LIFE INSURANCE COMPANY
The following tables show the monthly income payable for each $1,000
applied under option A, B or C.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
OPTION A TABLE OPTION B TABLE - Monthly Installments for Life with Guaranteed Period
Attained Age
- -------------------------- of Payee When ----------------------------------------------------------------------------------------
Life Only First 5 Years Certain 10 Years Certain 15 Years Certain 20 Years Certain
- -------------------------- Installment ----------------------------------------------------------------------------------------
Male Female is Payable Male Female Male Female Male Female Male Female
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.30 3.94 50 4.29 3.93 4.26 3.92 4.20 3.89 4.11 3.85
4.38 4.00 51 4.37 3.99 4.33 3.98 4.27 3.95 4.17 3.90
4.47 4.07 52 4.45 4.06 4.41 4.04 4.34 4.01 4.23 3.96
4.56 4.14 53 4.54 4.13 4.49 4.11 4.41 4.07 4.29 4.02
4.65 4.21 54 4.63 4.21 4.58 4.18 4.49 4.14 4.35 4.07
- ----------------------------------------------------------------------------------------------------------------------------------
4.75 4.29 55 4.73 4.29 4.67 4.26 4.57 4.21 4.42 4.14
4.86 4.38 56 4.83 4.37 4.77 4.34 4.65 4.28 4.48 4.20
4.97 4.47 57 4.94 4.46 4.87 4.42 4.74 4.36 4.55 4.26
5.09 4.56 58 5.06 4.55 4.97 4.51 4.82 4.44 4.61 4.33
5.22 4.67 59 5.18 4.65 5.09 4.61 4.92 4.52 4.68 4.40
- ----------------------------------------------------------------------------------------------------------------------------------
5.35 4.77 60 5.32 4.76 5.20 4.71 5.01 4.61 4.74 4.47
5.50 4.89 61 5.46 4.87 5.33 4.81 5.11 4.70 4.81 4.54
5.65 5.01 62 5.61 4.99 5.46 4.92 5.20 4.80 4.87 4.61
5.82 5.14 63 5.77 5.12 5.59 5.04 5.31 4.90 4.93 4.69
6.00 5.28 64 5.94 5.25 5.73 5.16 5.41 5.00 4.99 4.76
- ----------------------------------------------------------------------------------------------------------------------------------
6.19 5.43 65 6.12 5.40 5.88 5.29 5.51 5.10 5.05 4.83
6.40 5.59 66 6.31 5.55 6.04 5.43 5.61 5.21 5.11 4.90
6.61 5.76 67 6.51 5.71 6.19 5.57 5.71 5.32 5.16 4.97
6.85 5.94 68 6.72 5.89 6.36 5.72 5.81 5.43 5.20 5.03
7.10 6.14 69 6.95 6.08 6.52 5.88 5.91 5.54 5.25 5.09
- ----------------------------------------------------------------------------------------------------------------------------------
7.36 6.36 70 7.19 6.28 6.70 6.05 6.01 5.66 5.29 5.15
7.65 6.59 71 7.44 6.50 6.87 6.22 6.10 5.77 5.32 5.20
7.95 6.84 72 7.71 6.73 7.05 6.40 6.19 5.88 5.35 5.25
8.28 7.11 73 7.99 6.98 7.23 6.59 6.27 5.99 5.38 5.30
8.63 7.41 74 8.29 7.25 7.40 6.79 6.34 6.09 5.41 5.34
9.00 7.72 75 8.60 7.54 7.58 6.98 6.42 6.19 5.43 5.37
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OPTION C - JOINT AND FULL SURVIVOR ANNUITY
Monthly Income Per $1,000 Applied
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Age Life Only Age Life Only Age Life Only
- ------------------------------- ----------------------------- -----------------------------
Male Female Male Female Male Female
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 45 3.45 59 54 3.89 68 63 4.64
50 50 3.59 59 59 4.12 68 68 5.04
50 55 3.74 59 64 4.35 68 73 5.45
- ----------------------------------------------------------------------------------------------------------------------------------
51 46 3.48 60 55 3.96 69 64 4.75
51 51 3.63 60 60 4.20 69 69 5.18
51 56 3.78 60 65 4.44 69 74 5.62
- ----------------------------------------------------------------------------------------------------------------------------------
52 47 3.52 61 56 4.03 70 65 4.87
52 52 3.68 61 61 4.28 70 70 5.33
52 57 3.83 61 66 4.54 70 75 5.80
- ----------------------------------------------------------------------------------------------------------------------------------
53 48 3.57 62 57 4.10 71 66 5.00
53 53 3.73 62 62 4.37 71 71 5.49
53 58 3.90 62 67 4.65 71 76 6.00
- ----------------------------------------------------------------------------------------------------------------------------------
54 49 3.62 63 58 4.17 72 67 5.13
54 54 3.79 63 63 4.46 72 72 5.66
54 59 3.96 63 68 4.76 72 77 6.21
- ----------------------------------------------------------------------------------------------------------------------------------
55 50 3.67 64 59 4.25 73 68 5.28
55 55 3.85 64 64 4.56 73 73 5.85
55 60 4.03 64 69 4.88 73 78 6.43
- ----------------------------------------------------------------------------------------------------------------------------------
56 51 3.72 65 60 4.34 74 69 5.43
56 56 3.91 65 65 4.67 74 74 6.05
56 61 4.10 65 70 5.01 74 79 6.68
- ----------------------------------------------------------------------------------------------------------------------------------
57 52 3.77 66 61 4.43 75 70 5.60
57 57 3.98 66 66 4.78 75 75 6.26
57 62 4.18 66 71 5.14 75 80 6.94
- ----------------------------------------------------------------------------------------------------------------------------------
58 53 3.83 67 62 4.53
58 58 4.05 67 67 4.91
58 63 4.26 67 72 5.29
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other ages and combinations can be supplied on request.
25
<PAGE> 1
EXHIBIT 4(ii)
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
HOME OFFICE: 205 E. 10TH AVENUE, AMARILLO, TEXAS 79101
TELEPHONE: (800) 424-4990
ANNUAL STEP-UP DEATH BENEFIT ENDORSEMENT
This Endorsement modifies the Contract to which it is attached. The effective
date of the Endorsement is the Issue Date shown on the Contract Schedule. The
Charge for this benefit is shown on the Contract Schedule. In case of conflict
with any provision in the Contract, the provisions of this Endorsement will
control. The following hereby amends and supersedes the section of the Contract
captioned "Proceeds Payable on Death Death Benefit Amount During the
Accumulation Period":
PROCEEDS PAYABLE ON DEATH
DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PERIOD
DEATH BENEFIT AMOUNT DURING THE ACCUMULATION PERIOD: For a death occurring prior
to the 75th birthday of the Owner, or the oldest Joint Owner, the death benefit
during the Accumulation Period will be the greater of:
1. The Purchase Payments, less any withdrawals and previously
deducted Contingent Deferred Sales Charge; or
2. The Contract Value determined as of the end of the Valuation
Period during which the Company receives at its Annuity Service
Office both due proof of death and an election of the payment
method; or
3. The highest Step-Up Value prior to the date of death. The
Step-Up Value is equal to the Contract Value on any Contract
Anniversary plus any Purchase Payments made after such Contract
Anniversary less any withdrawals and Contingent Deferred Sales
Charge deducted after such Contract Anniversary.
For a death occurring on or after the 75th birthday of the Owner, or the oldest
Joint Owner, the death benefit during the Accumulation Period will be as
provided in the Contract to which this Endorsement is attached.
Signed for American General Annuity Insurance Company by:
/s/ CYNTHIA TOLES /s/ JOHN A. GRAF
SECRETARY PRESIDENT
<PAGE> 1
EXHIBIT 8(i)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.
AMERICAN GENERAL ANNUITY INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
AGA BROKERAGE SERVICES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
Section 1. Available Funds ..................................... 2
1.1 Availability ........................................... 2
1.2 Addition, Deletion or Modification of Funds ............ 2
1.3 No Sales to the General Public ......................... 2
Section 2. Processing Transactions ............................. 2
2.1 Timely Pricing and Orders .............................. 2
2.2 Timely Payments ........................................ 3
2.3 Applicable Price ....................................... 3
2.4 Dividends and Distributions ............................ 4
2.5 Book Entry ............................................. 4
Section 3. Costs and Expenses .................................. 4
3.1 General ................................................ 4
3.2 Parties To Cooperate ................................... 4
Section 4. Legal Compliance .................................... 4
4.1 Tax Laws ............................................... 4
4.2 Insurance and Certain Other Laws ....................... 7
4.3 Securities Laws ........................................ 7
4.4 Notice of Certain Proceedings and Other Circumstances... 8
4.5 AGAIC To Provide Documents; Information
About AVIF ............................................. 9
4.6 AVIF To Provide Documents; Information About
AGAIC ........................................... 10
Section 5. Mixed and Shared Funding ............................ 12
5.1 General ................................................ 12
5.2 Disinterested Directors ................................ 12
5.3 Monitoring for Material Irreconcilable Conflicts ....... 13
5.4 Conflict Remedies ...................................... 13
5.5 Notice to AGAIC ................................. 14
5.6 Information Requested by Board of Directors ............ 14
5.7 Compliance with SEC Rules .............................. 14
5.8 Other Requirements ..................................... 14
Section 6. Termination ......................................... 14
6.1 Events of Termination .................................. 14
6.2 Notice Requirement for Termination ..................... 15
6.3 Funds To Remain Available .............................. 16
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
6.4 Survival of Warranties and Indemnifications ............. 16
6.5 Continuance of Agreement for Certain Purposes ........... 16
Section 7. Parties To Cooperate Respecting Termination ......... 16
Section 8. Assignment .......................................... 17
Section 9. Notices ............................................. 17
Section 10. Voting Procedures ................................... 18
Section 11. Foreign Tax Credits ................................. 18
Section 12. Indemnification ..................................... 18
12.1 Of AVIF and AIM by AGAIC and UNDERWRITER ................ 18
12.2 Of AGAIC and UNDERWRITER by AVIF and AIM ................ 20
12.3 Effect of Notice ........................................ 23
12.4 Successors .............................................. 23
Section 13. Applicable Law ...................................... 23
Section 14. Execution in Counterparts ........................... 23
Section 15. Severability ........................................ 23
Section 16. Rights Cumulative ................................... 24
Section 17. Headings ............................................ 24
Section 18. Confidentiality ..................................... 24
Section 19. Trademarks and Fund Names ........................... 25
Section 20. Parties to Cooperate ................................ 26
</TABLE>
ii
<PAGE> 4
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 23rd day of November,
1998 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation ("AIM")
American General Annuity Insurance Company, a Texas life insurance company
("AGAIC"), on behalf of itself and each of its segregated asset accounts listed
in Schedule A hereto, as the parties hereto may amend from time to time (each,
an "Account," and collectively, the "Accounts"); and AGA Brokderage Services,
Inc., an affiliate of AGAIC and the principal underwriter of the Contracts
("UNDERWRITER") (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of thirteen separate series
("Series"), shares ("Shares") of each of which are registered under the
Securities Act of 1933, as amended (the "1933 Act") and are currently sold to
one or more separate accounts of life insurance companies to fund benefits under
variable annuity contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend from time to time (each a "Fund";
reference herein to "AVIF" includes reference to each Fund, to the extent the
context requires) available for purchase by the Accounts; and
WHEREAS, AGAIC will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth on
Schedule A hereto, as the Parties hereto may amend from time to time, which
Contracts (hereinafter collectively, the "Contracts"), if required by applicable
law, will be registered under the 1933 Act; and
WHEREAS, AGAIC will fund the Contracts through the Accounts,
each of which may be divided into two or more subaccounts ("Subaccounts";
reference herein to an "Account" includes reference to each Subaccount thereof
to the extent the context requires); and
WHEREAS, AGAIC will serve as the depositor of the Accounts, each
of which is registered as a unit investment trust investment company under the
1940 Act (or exempt therefrom), and the security interests deemed to be issued
by the Accounts under the Contracts will be registered as securities under the
1933 Act (or exempt therefrom); and
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<PAGE> 5
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, AGAIC intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under
the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD");
WHEREAS, AIM is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to AGAIC for
purchase and redemption at net asset value and with no sales charges, subject to
the terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or
will be sold to the general public.
2
<PAGE> 6
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to provide
AGAIC with the net asset value per Share for each Fund by 5:30 p.m.
Central Time on each Business Day. As used herein, "Business Day" shall mean any
day on which (i) the New York Stock Exchange is open for regular trading, (ii)
AVIF calculates the Fund's net asset value, and (iii) AGAIC is open for
business.
(b) AGAIC will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. AGAIC will perform such Account processing the same Business Day,
and will place corresponding orders to purchase or redeem Shares with AVIF by
9:00 a.m. Central Time the following Business Day; provided, however, that AVIF
shall provide additional time to AGAIC in the event that AVIF is unable
to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such
additional time shall be equal to the additional time that AVIF takes to make
the net asset values available to AGAIC.
(c) With respect to payment of the purchase price by AGAIC and
of redemption proceeds by AVIF, AGAIC and AVIF shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), AGAIC shall be entitled
to an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share. Any material error in the calculation or
reporting of net asset value per Share, dividend or capital gain information
shall be reported promptly upon discovery to AGAIC.
2.2 TIMELY PAYMENTS.
AGAIC will wire payment for net purchases to a custodial account
designated by AVIF on the same day as the order for Shares is placed, to the
extent practicable. AVIF will wire payment for net redemptions to an account
designated by AGAIC on the same day as the Order is placed, to the extent
practicable, but in any event within five (5) calendar days after the date the
order is placed in order to enable AGAIC to pay redemption proceeds within the
time specified in Section 22(e) of the 1940 Act or such shorter period of time
as may be required by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract transactions") and that AGAIC receives
prior to the close of regular trading on the New York Stock Exchange on a
Business Day will be executed at the net asset values of the appropriate
3
<PAGE> 7
Funds next computed after receipt by AVIF or its designated agent of the orders.
For purposes of this Section 2.3(a), AGAIC shall be the designated agent of AVIF
for receipt of orders relating to Contract transactions on each Business Day and
receipt by such designated agent, in proper form, shall constitute receipt by
AVIF; provided that AVIF receives notice of such orders by 9:00 a.m. Central
Time on the next following Business Day or such later time as computed in
accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by AGAIC will
be effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to AGAIC of any income dividends
or capital gain distributions payable on the Shares of any Fund. AGAIC hereby
elects to reinvest all dividends and capital gains distributions in additional
Shares of the corresponding Fund at the ex-dividend date net asset values until
AGAIC otherwise notifies AVIF in writing, it being agreed by the Parties that
the ex-dividend date and the payment date with respect to any dividend or
distribution will be the same Business Day. AGAIC reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to AGAIC. Shares ordered from AVIF will
be recorded in an appropriate title for AGAIC, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided in Schedule C, attached
hereto and made a part hereof, each Party will bear, or arrange for others to
bear, all expenses incident to its performance under this Agreement.
3.2 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
4
<PAGE> 8
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently qualified
as a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and represents that it will use
its best efforts to qualify and to maintain qualification of each Fund as a RIC.
AVIF will notify AGAIC immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
(b) AVIF represents that it will use its best efforts to comply and to
maintain each Fund's compliance with the diversification requirements set forth
in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under
the Code. AVIF will notify AGAIC immediately upon having a reasonable
basis for believing that a Fund has ceased to so comply or that a Fund might not
so comply in the future. In the event of a breach of this Section 4.1(b) by
AVIF, it will take all reasonable steps to adequately diversify the Fund so as
to achieve compliance within the grace period afforded by Section 1.817-5 of the
regulations under the Code.
(c) AGAIC agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of AGAIC
or, to AGAIC's knowledge, of any Participant, that any Fund has failed to
comply with the diversification requirements of Section 817(h) of the Code or
AGAIC otherwise becomes aware of any facts that could give rise to any claim
against AVIF or its affiliates as a result of such a failure or alleged
failure:
(i) AGAIC shall promptly notify AVIF of such
assertion or potential claim (subject to the
Confidentiality provisions of Section 18 as to any
Participant);
(ii) AGAIC shall consult with AVIF as to how to
minimize any liability that may arise as a result
of such failure or alleged failure;
(iii) AGAIC shall use its best efforts to
minimize any liability of AVIF or its affiliates
resulting from such failure, including, without
limitation, demonstrating, pursuant to Treasury
Regulations Section 1.817-5(a)(2), to the
Commissioner of the IRS that such failure was
inadvertent;
(iv) AGAIC shall permit AVIF, its affiliates and
their legal and accounting advisors to participate
in any conferences, settlement discussions or
other administrative or judicial proceeding or
contests (including judicial appeals thereof) with
the IRS, any Participant or any other claimant
regarding any claims that could give rise to
liability to AVIF or its affiliates as a result of
such a failure or alleged failure; provided,
however, that AGAIC will retain control of the
conduct of such conferences discussions,
proceedings, contests or appeals;
5
<PAGE> 9
(v) any written materials to be submitted by AGAIC
to the IRS, any Participant or any other claimant
in connection with any of the foregoing
proceedings or contests (including, without
limitation, any such materials to be submitted to
the IRS pursuant to Treasury Regulations Section
1.817-5(a)(2)), (a) shall be provided by AGAIC to
AVIF (together with any supporting information or
analysis); subject to the confidentiality
provisions of Section 18, at least ten (10)
business days or such shorter period to which the
Parties hereto agree prior to the day on which
such proposed materials are to be submitted, and
(b) shall not be submitted by AGAIC to any such
person without the express written consent of AVIF
which shall not be unreasonably withheld;
(vi) AGAIC shall provide AVIF or its affiliates
and their accounting and legal advisors with such
cooperation as AVIF shall reasonably request
(including, without limitation, by permitting AVIF
and its accounting and legal advisors to review
the relevant books and records of AGAIC) in
order to facilitate review by AVIF or its advisors
of any written submissions provided to it pursuant
to the preceding clause or its assessment of the
validity or amount of any claim against its
arising from such a failure or alleged failure;
(vii) AGAIC shall not with respect to any claim
of the IRS or any Participant that would give rise
to a claim against AVIF or its affiliates (a)
compromise or settle any claim, (b) accept any
adjustment on audit, or (c) forego any allowable
administrative or judicial appeals, without the
express written consent of AVIF or its affiliates,
which shall not be unreasonably withheld, provided
that AGAIC shall not be required, after
exhausting all administrative penalties, to appeal
any adverse judicial decision unless AVIF or its
affiliates shall have provided an opinion of
independent counsel to the effect that a
reasonable basis exists for taking such appeal;
and provided further that the costs of any such
appeal shall be borne equally by the Parties
hereto; and
(viii) AVIF and its affiliates shall have no liability
as a result of such failure or alleged failure if
AGAIC fails to comply with any of the
foregoing clauses (i) through (vii), and such
failure could be shown to have materially
contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written consent
to any compromise or settlement of any claim or liability hereunder, AGAIC may,
in its discretion, authorize AVIF or its affiliates to act in the name of AGAIC
in, and to control the conduct of, such conferences, discussions, proceedings,
contests or appeals and all administrative or judicial appeals thereof, and in
that event AVIF or its affiliates shall bear the fees and expenses associated
with the conduct of the proceedings that it is so authorized to control;
provided, that in no event shall AGAIC have any liability resulting from AVIF's
refusal to accept the proposed settlement or compromise with
6
<PAGE> 10
respect to any failure caused by AVIF. As used in this Agreement, the term
"affiliates" shall have the same meaning as "affiliated person" as defined in
Section 2(a)(3) of the 1940 Act.
(d) AGAIC represents and warrants that the Contracts currently
are and will be treated as annuity contracts or life insurance contracts under
the provisions of Section 817 of the Code and the regulations thereunder and
that it will use its best efforts to maintain such treatment; AGAIC will
notify AVIF immediately upon having a reasonable basis for believing that any
of the Contracts have ceased to be so treated or that they might not be so
treated in the future.
(e) AGAIC represents and warrants that each Account is a
"segregated asset account" and that interests in each Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. AGAIC will use its best efforts to continue to
meet such definitional requirements, and it will notify AVIF immediately upon
having a reasonable basis for believing that such requirements have ceased to be
met or that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by AGAIC, including, the furnishing of information not otherwise
available to AGAIC which is required by state insurance law to enable
AGAIC to obtain the authority needed to issue the Contracts in any
applicable state.
(b) AGAIC represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of Texas and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under Texas Insurance Law and the
regulations thereunder, and (iii) the Contracts comply in all material respects
with all other applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) AGAIC represents and warrants that (i) interests in each Account
pursuant to the Contracts will be registered under the 1933 Act to the extent
required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and
Texas law, (iii) each Account is and will remain registered under the 1940 Act,
to the extent required by the 1940 Act, (iv) each Account does and will comply
in all material respects with the
7
<PAGE> 11
requirements of the 1940 Act and the rules thereunder, to the extent required,
(v) each Account's 1933 Act registration statement relating to the Contracts,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder, (vi)
AGAIC will amend the registration statement for its Contracts under the 1933 Act
and for its Accounts under the 1940 Act from time to time as required in order
to effect the continuous offering of its Contracts or as may otherwise be
required by applicable law, and (vii) each Account Prospectus will at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to this
Agreement will be registered under the 1933 Act to the extent required by the
1933 Act and duly authorized for issuance and sold in compliance with Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF will amend the registration statement for
its Shares under the 1933 Act and itself under the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIF's 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules thereunder, and (vi)
AVIF's Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for sale
in accordance with the laws of any state or other jurisdiction if and to the
extent reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having access to
the funds and/or securities of the Fund are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify AGAIC of (i) the issuance by
any court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to AVIF's registration statement under the 1933 Act
or AVIF Prospectus, (ii) any request by the SEC for any
8
<PAGE> 12
amendment to such registration statement or AVIF Prospectus that may affect the
offering of Shares of AVIF, (iii) the initiation of any proceedings for that
purpose or for any other purpose relating to the registration or offering of
AVIF's Shares, or (iv) any other action or circumstances that may prevent the
lawful offer or sale of Shares of any Fund in any state or jurisdiction,
including, without limitation, any circumstances in which (a) such Shares are
not registered and, in all material respects, issued and sold in accordance with
applicable state and federal law, or (b) such law precludes the use of such
Shares as an underlying investment medium of the Contracts issued or to be
issued by AGAIC. AVIF will make every reasonable effort to prevent the issuance,
with respect to any Fund, of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
(b) AGAIC will immediately notify AVIF of (i) the issuance by
any court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. AGAIC will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
4.5 AGAIC TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) AGAIC will provide to AVIF or its designated agent at least
one (1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) AGAIC will provide to AVIF or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least fifteen (15)
Business Days prior to its use or such shorter period as the Parties hereto
may, from time to time, agree upon. No such material shall be used if AVIF or
its designated agent objects to such use within ten (10) Business Days after
receipt of such material or such shorter period as the Parties hereto may, from
time to time, agree upon. AVIF hereby designates AIM as the entity to receive
such sales literature, until such time as AVIF appoints another designated agent
by giving notice to AGAIC in the manner required by Section 9 hereof.
(c) Neither AGAIC nor any of its affiliates, will give any
information or make any representations or statements on behalf of or concerning
AVIF or its affiliates in connection with
9
<PAGE> 13
the sale of the Contracts other than (i) the information or representations
contained in the registration statement, including the AVIF Prospectus contained
therein, relating to Shares, as such registration statement and AVIF Prospectus
may be amended from time to time; or (ii) in reports or proxy materials for
AVIF; or (iii) in published reports for AVIF that are in the public domain and
approved by AVIF for distribution; or (iv) in sales literature or other
promotional material approved by AVIF, except with the express written
permission of AVIF.
(d) AGAIC shall adopt and implement procedures reasonably
designed to ensure that information concerning AVIF and its affiliates that is
intended for use only by brokers or agents selling the Contracts (i.e.,
information that is not intended for distribution to Participants) ("broker only
materials") is so used, and neither AVIF nor any of its affiliates shall be
liable for any losses, damages or expenses relating to the improper use of such
broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT AGAIC.
(a) AVIF will provide to AGAIC at least one (1) complete copy of
all SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to AGAIC a camera ready copy of all AVIF
prospectuses and printed copies, in an amount specified by AGAIC, of AVIF
statements of additional information, proxy materials, periodic reports to
shareholders and other materials required by law to be sent to Participants who
have allocated any Contract value to a Fund. AVIF will provide such copies to
AGAIC in a timely manner so as to enable AGAIC, as the case may be, to print and
distribute such materials within the time required by law to be furnished to
Participants.
(c) AVIF will provide to AGAIC or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which AGAIC, or any of its respective affiliates is named,
or that refers to the Contracts, at least fifteen (15) Business Days prior to
its use or such shorter period as the Parties hereto may, from time to time,
agree upon.
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<PAGE> 14
No such material shall be used if AGAIC or its designated agent objects to such
use within ten (10) Business Days after receipt of such material or such shorter
period as the Parties hereto may, from time to time, agree upon. AGAIC shall
receive all such sales literature until such time as it appoints a designated
agent by giving notice to AVIF in the manner required by Section 9 hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning AGAIC,
each Account, or the Contracts other than (i) the information or representations
contained in the registration statement, including each Account Prospectus
contained therein, relating to the Contracts, as such registration statement and
Account Prospectus may be amended from time to time; or (ii) in published
reports for the Account or the Contracts that are in the public domain and
approved by AGAIC for distribution; or (iii) in sales literature or other
promotional material approved by AGAIC or its affiliates, except with the
express written permission of AGAIC.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning AGAIC, and
its respective affiliates that is intended for use only by brokers or agents
selling the Contracts (i.e., information that is not intended for distribution
to Participants) ("broker only materials") is so used, and neither AGAIC, nor
any of its respective affiliates shall be liable for any losses, damages or
expenses relating to the improper use of such broker only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g.,
on-line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with AGAIC,
and trustees of qualified pension and retirement plans (collectively, "Mixed
and Shared Funding").
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<PAGE> 15
The Parties recognize that the SEC has imposed terms and conditions for such
orders that are substantially identical to many of the provisions of this
Section 5. Sections 5.2 through 5.8 below shall apply pursuant to such an
exemptive order granted to AVIF. AVIF hereby notifies AGAIC that, in the event
that AVIF implements Mixed and Shared Funding, it may be appropriate to include
in the prospectus pursuant to which a Contract is offered disclosure regarding
the potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board;(b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). AGAIC agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other regulatory
authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant
proceeding;
(d) the manner in which the investments of any Fund are being
managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
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<PAGE> 16
(f) a decision by a Participating Insurance Company to disregard
the voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, AGAIC will assist
the Board of Directors in carrying out its responsibilities by providing the
Board of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by AGAIC to disregard voting instructions of Participants. AGAIC's
responsibilities in connection with the foregoing shall be carried out with a
view only to the interests of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the members
of the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, AGAIC will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all
of the Accounts from AVIF or any Fund and reinvesting
such assets in a different investment medium,
including another Fund of AVIF, or submitting the
question whether such segregation should be
implemented to a vote of all affected Participants
and, as appropriate, segregating the assets of any
particular group (e.g., annuity Participants, life
insurance Participants or all Participants) that
votes in favor of such segregation, or offering to
the affected Participants the option of making such a
change; and
(ii) establishing a new registered investment company
of the type defined as a "management company" in
Section 4(3) of the 1940 Act or a new separate
account that is operated as a management company.
(b) If the material irreconcilable conflict arises because of
AGAIC's decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, AGAIC may be
required, at AVIF's election, to withdraw each Account's investment in AVIF or
any Fund. No charge or penalty will be imposed as a result of such withdrawal.
Any such withdrawal must take place within six (6) months after AVIF gives
notice to AGAIC that this provision is being implemented, and until such
withdrawal AVIF shall continue to accept and implement orders by AGAIC for the
purchase and redemption of Shares of AVIF.
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<PAGE> 17
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to AGAIC conflicts with
the majority of other state regulators, then AGAIC will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs AGAIC that it has determined that such decision has
created a material irreconcilable conflict, and until such withdrawal AVIF shall
continue to accept and implement orders by AGAIC for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) AGAIC agrees that any remedial action taken by it in
resolving any material irreconcilable conflict will be carried out at its
expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts.
AGAIC will not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so has been declined by vote of a
majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 NOTICE TO AGAIC.
AVIF will promptly make known in writing to AGAIC the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
AGAIC and AVIF (or its investment adviser) will at least
annually submit to the Board of Directors of AVIF such reports, materials or
data as the Board of Directors may reasonably request so that the Board of
Directors may fully carry out the obligations imposed upon it by the provisions
hereof or any exemptive order granted by the SEC to permit Mixed and Shared
Funding, and said reports, materials and data will be submitted at any
reasonable time deemed appropriate by the Board of Directors. All reports
received by the Board of Directors of potential or existing conflicts, and all
Board of Directors actions with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and Participating Plans of
a conflict, and determining whether any proposed action adequately remedies a
conflict, will be properly recorded in the minutes of the Board of Directors or
other appropriate records, and such minutes or other records will be made
available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to Mixed and Shared Funding, AVIF agrees that
14
<PAGE> 18
it will comply with the terms and conditions thereof and that the terms of this
Section 5 shall be deemed modified if and only to the extent required in order
also to comply with the terms and conditions of such exemptive relief that is
afforded by any of said rules that are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
(a) at the option of any party, with or without cause with respect to
the Fund, upon six (6) months advance written notice to the other parties, or,
if later, upon receipt of any required exemptive relief from the SEC, unless
otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings
against AGAIC or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding AGAIC's obligations
under this Agreement or related to the sale of the Contracts, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of AGAIC upon institution of formal
proceedings against AVIF, its principal underwriter, or its investment adviser
by the NASD, the SEC, or any state insurance regulator or any other regulatory
body regarding AVIF's obligations under this Agreement or related to the
operation or management of AVIF or the purchase of AVIF Shares, if, in each
case, AGAIC reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on AGAIC, or the Subaccount corresponding
to the Fund with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable federal or state law, or (ii) such law precludes the use of
such Shares as an underlying investment medium of the Contracts issued or to be
issued by AGAIC; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
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<PAGE> 19
(f) at the option of AGAIC if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions, or
if AGAIC reasonably believes that the Fund may fail to so qualify; or
(g) at the option of AGAIC if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if AGAIC
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by AGAIC cease
to qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the Fund's noncompliance with Section 817(h) or
Subchapter M of the Code) or if interests in an Account under the Contracts are
not registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible within twenty-four (24) hours after
the terminating Party learns of the event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the
option of AGAIC, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not
16
<PAGE> 20
apply to any terminations under Section 5 and the effect of such terminations
will be governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares of
that Fund that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date as
of which an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") six (6) months following the Initial Termination Date, except
that AGAIC may, by written notice shorten said six (6) month period in
the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to
one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
may include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof
will be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
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<PAGE> 21
A I M VARIABLE INSURANCE FUNDS, INC.
A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
AGA BROKERAGE SERVICES, INC.
2929 Allen Parkway
Houston, Texas 77019
Facsimile: (713) 831-5931
Attn: Nori L. Gabert, Esq.
UNDERWRITER
Street Address
City, State, Zip Code
Facsimile:
Attn: [NAME OF PERSON]
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, AGAIC will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. AGAIC will vote Shares
in accordance with timely instructions received from Participants. AGAIC will
vote Shares that are (a) not attributable to Participants to whom pass-through
voting privileges are extended, or (b) attributable to Participants, but for
which no timely instructions have been received, in the same proportion as
Shares for which said instructions have been received from Participants, so
long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for Participants. Neither AGAIC nor any
of its affiliates will in any way recommend action in connection with or oppose
or interfere with the solicitation of proxies for the Shares held for such
Participants. AGAIC reserves the right to vote shares held in any Account in its
own right, to the extent permitted by law. AGAIC shall be responsible for
assuring that each of its Accounts holding Shares calculates voting privileges
in a manner consistent with that of other Participating Insurance Companies or
in the manner required by the Mixed and Shared Funding exemptive order obtained
by AVIF. AVIF will notify AGAIC of any changes of interpretations or amendments
to Mixed and Shared Funding exemptive order it has obtained. AVIF will comply
with all provisions of the 1940 Act requiring voting by shareholders, and in
particular, AVIF either will provide for annual meetings (except insofar as the
SEC may interpret Section 16 of the 1940 Act not to require such meetings) or
will comply with Section 16(c) of the 1940 Act (although AVIF is not one of the
trusts described in Section 16(c) of that Act) as well as with Sections 16(a)
and, if and when applicable, 16(b). Further, AVIF will act in accordance with
the SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the SEC may promulgate
with respect thereto.
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SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with AGAIC concerning any decision to
elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF AND AIM BY AGAIC AND UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, AGAIC and UNDERWRITER agree to indemnify and hold harmless AVIF,
AIM or their its affiliates, and each person, if any, who controls AVIF, AIM or
their or its affiliates within the meaning of Section 15 of the 1933 Act and
each of their respective directors and officers, (collectively, the
"Indemnified Parties" for purposes of this Section 12.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of AGAIC and UNDERWRITER) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise; provided, the Account owns shares of the Fund and
insofar as such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in any Account's 1933 Act registration
statement, any Account Prospectus, the Contracts, or
sales literature or advertising for the Contracts (or
any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make
the statements therein not misleading; provided, that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission of
such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to AGAIC or UNDERWRITER by or on behalf of
AVIF or AIM for use in any Account's 1933 Act
registration statement, any Account Prospectus, the
Contracts, or sales literature or advertising or
otherwise for use in connection with the sale of
Contracts or Shares (or any amendment or supplement
to any of the foregoing); or
(ii) arise out of or as a result of any other statements
or representations (other than statements or
representations contained in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales
literature or advertising of AVIF, or any amendment
or supplement to any of the foregoing, not supplied
for use therein by or on behalf of AGAIC, UNDERWRITER
or their respective affiliates and on which such
persons have reasonably relied) or the negligent,
illegal or fraudulent conduct of AGAIC,
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UNDERWRITER or their respective affiliates or
persons under their control (including, without
limitation, their employees and "persons associated
with a member," as that term is defined in paragraph
(q) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the
Contracts or Shares; or
(iii) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in AVIF's 1933 Act registration statement,
AVIF Prospectus, sales literature or advertising of
AVIF, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein
not misleading if such a statement or omission was
made in reliance upon and in conformity with
information furnished to AVIF, AIM or their
affiliates by or on behalf of AGAIC, UNDERWRITER or
their respective affiliates for use in AVIF's 1933
Act registration statement, AVIF Prospectus, sales
literature or advertising of AVIF, or any amendment
or supplement to any of the foregoing; or
(iv) arise as a result of any failure by AGAIC or
UNDERWRITER to perform the obligations, provide the
services and furnish the materials required of them
under the terms of this Agreement, or any material
breach of any representation and/or warranty made by
AGAIC or UNDERWRITER in this Agreement or arise out
of or result from any other material breach of this
Agreement by AGAIC or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued
by AGAIC to qualify as annuity contracts or life
insurance contracts under the Code, otherwise than
by reason of any Fund's failure to comply with
Subchapter M or Section 817(h) of the Code.
(b) Neither AGAIC nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any losses, claims, damages, liabilities or actions
to which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii) to
AVIF or AIM.
(c) Neither AGAIC nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless
AVIF or AIM shall have notified AGAIC and UNDERWRITER in writing within
a reasonable time after the summons or other first legal process giving
information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify AGAIC
and UNDERWRITER of any such action shall not relieve AGAIC and
UNDERWRITER from any liability which they may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
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<PAGE> 24
12.1. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, AGAIC and UNDERWRITER shall be entitled to
participate, at their own expense, in the defense of such action and also shall
be entitled to assume the defense thereof, with counsel approved by the
Indemnified Party named in the action, which approval shall not be unreasonably
withheld. After notice from AGAIC or UNDERWRITER to such Indemnified Party of
AGAIC's or UNDERWRITER's election to assume the defense thereof, the Indemnified
Party will cooperate fully with AGAIC and UNDERWRITER and shall bear the fees
and expenses of any additional counsel retained by it, and neither AGAIC nor
UNDERWRITER will be liable to such Indemnified Party under this Agreement for
any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
12.2 OF AGAIC AND UNDERWRITER BY AVIF AND AIM.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF and AIM agree to indemnify and hold harmless AGAIC,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
AGAIC, UNDERWRITER or their respective affiliates within the meaning of Section
15 of the 1933 Act and each of their respective directors and officers,
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of AVIF and/or AIM) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law, or otherwise; provided, the Account owns shares of the Fund and
insofar as such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material
fact contained in AVIF's 1933 Act registration
statement, AVIF Prospectus or sales literature or
advertising of AVIF (or any amendment or supplement
to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein
not misleading; provided, that this agreement to
indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged
statement or omission was made in reliance upon and
in conformity with information furnished to AVIF or
its affiliates by or on behalf of AGAIC, UNDERWRITER
or their respective affiliates for use in AVIF's 1933
Act registration statement, AVIF Prospectus, or in
sales literature or advertising or otherwise for use
in connection with the sale of Contracts or Shares
(or any amendment or supplement to any of the
foregoing); or
(ii) arise out of or as a result of any other
statements or representations (other than statements
or representations contained in any Account's 1933
Act registration statement, any Account Prospectus,
sales literature or advertising for the Contracts, or
any amendment or supplement to any of
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<PAGE> 25
the foregoing, not supplied for use therein by or on
behalf of AVIF or its affiliates and on which such
persons have reasonably relied) or the negligent,
illegal or fraudulent conduct of AVIF, AIM or their
affiliates or persons under its control (including,
without limitation, their employees and "persons
associated with a member" as that term is defined in
Section (q) of Article I of the NASD By-Laws), in
connection with the sale or distribution of AVIF
Shares; or
(iii) arise out of or are based upon any untrue
statement or alleged untrue statement of any material
fact contained in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature
or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing, or
the omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading, if such statement or omission was made in
reliance upon and in conformity with information
furnished to AGAIC, UNDERWRITER or their
respective affiliates by or on behalf of AVIF for use
in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising
covering the Contracts, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF to
perform the obligations, provide the services and
furnish the materials required of it under the terms
of this Agreement, or any material breach of any
representation and/or warranty made by AVIF in this
Agreement or arise out of or result from any other
material breach of this Agreement by AVIF.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the
Indemnified Parties from and against any and all losses, claims, damages,
liabilities (including amounts paid in settlement thereof with, the written
consent of AVIF and/or AIM) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses) to which the Indemnified Parties
may become subject directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Fund to
operate as a regulated investment company in compliance with (i) Subchapter M of
the Code and regulations thereunder, or (ii) Section 817(h) of the Code and
regulations thereunder, including, without limitation, any income taxes and
related penalties, rescission charges, liability under state law to Participants
asserting liability against AGAIC pursuant to the Contracts, the costs of any
ruling and closing agreement or other settlement with the IRS, and the cost of
any substitution by AGAIC of Shares of another investment company or portfolio
for those of any adversely affected Fund as a funding medium for each Account
that AGAIC reasonably deems necessary or appropriate as a result of the
noncompliance.
(c) Neither AVIF nor AIM shall not be liable under this Section 12.2
with respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be
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subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance by that Indemnified Party of its duties or by reason of such
Indemnified Party's reckless disregard of its obligations and duties (i) under
this Agreement, or (ii) to AGAIC, UNDERWRITER, each Account or Participants.
(d) Neither AVIF nor AIM shall not be liable under this Section 12.2
with respect to any action against an Indemnified Party unless the Indemnified
Party shall have notified AVIF and/or AIM in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AVIF and/or AIM of any such action shall not
relieve AVIF and/or AIM from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
Section 12.2. Except as otherwise provided herein, in case any such action is
brought against an Indemnified Party, AVIF and/or AIM will be entitled to
participate, at its own expense, in the defense of such action and also shall be
entitled to assume the defense thereof (which shall include, without limitation,
the conduct of any ruling request and closing agreement or other settlement
proceeding with the IRS), with counsel approved by the Indemnified Party named
in the action, which approval shall not be unreasonably withheld. After notice
from AVIF and/or AIM to such Indemnified Party of AVIF's or AIM election to
assume the defense thereof, the Indemnified Party will cooperate fully with AVIF
and/or AIM and shall bear the fees and expenses of any additional counsel
retained by it, and AVIF and AIM will not be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
(e) In no event shall AVIF or AIM be liable under the indemnification
provisions contained in this Agreement to any individual or entity, including,
without limitation, AGAIC, UNDERWRITER or any other Participating Insurance
Company or any Participant, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a breach of any
representation, warranty, and/or covenant made by AGAIC or UNDERWRITER hereunder
or by any Participating Insurance Company under an agreement containing
substantially similar representations, warranties and covenants; (ii) the
failure by AGAIC or any Participating Insurance Company to maintain its
segregated asset account (which invests in any Fund) as a legally and validly
established segregated asset account under applicable state law and as a duly
registered unit investment trust under the provisions of the 1940 Act (unless
exempt therefrom); or (iii) the failure by AGAIC or any Participating Insurance
Company to maintain its variable annuity or life insurance contracts (with
respect to which any Fund serves as an underlying funding vehicle) as annuity
contracts or life insurance contracts under applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or
23
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responsibility, and the indemnifying Party will remain free to contest liability
with respect to the claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of AGAIC
or any of its affiliates (collectively, the "AGAIC Protected Parties" for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
AGAIC Protected Parties or any of their employees or agents in
24
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connection with AGAIC's performance of its duties under this Agreement are the
valuable property of the AGAIC Protected Parties. AVIF agrees that if it comes
into possession of any list or compilation of the identities of or other
information about the AGAIC Protected Parties' customers, or any other
information or property of the AGAIC Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the AGAIC Protected Parties' customers who also
maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with AGAIC's prior written
consent; or (b) as required by law or judicial process. AGAIC acknowledges that
the identities of the customers of AVIF or any of its affiliates (collectively,
the "AVIF Protected Parties" for purposes of this Section 18), information
maintained regarding those customers, and all computer programs and procedures
or other information developed by the AVIF Protected Parties or any of their
employees or agents in connection with AVIF's performance of its duties under
this Agreement are the valuable property of the AVIF Protected Parties. AGAIC
agrees that if it comes into possession of any list or compilation of the
identities of or other information about the AVIF Protected Parties' customers
or any other information or property of the AVIF Protected Parties, other than
such information as may be independently developed or compiled by AGAIC from
information supplied to it by the AVIF Protected Parties' customers who also
maintain accounts directly with AGAIC, AGAIC will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with AVIF's prior written
consent; or (b) as required by law or judicial process. Each party acknowledges
that any breach of the agreements in this Section 18 would result in immediate
and irreparable harm to the other parties for which there would be no adequate
remedy at law and agree that in the event of such a breach, the other parties
will be entitled to equitable relief by way of temporary and permanent
injunctions, as well as such other relief as any court of competent jurisdiction
deems appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) Except as may otherwise be provided in a License Agreement among
A I M Management Group, Inc., AGAIC and UNDERWRITER, neither AGAIC nor
UNDERWRITER or any of their respective affiliates, shall use any trademark,
trade name, service mark or logo of AVIF, AIM or any of their respective
affiliates, or any variation of any such trademark, trade name, service mark or
logo, without AVIF's or AIM's prior written consent, the granting of which
shall be at AVIF's or AIM's sole option.
(b) Except as may otherwise expressly provided in this Agreement,
neither AVIF, its investment adviser, its principal underwriter, or any
affiliates thereof shall use any trademark, trade name, service mark or logo of
AGAIC or any of its affiliates, or any variation of any such trademark, trade
name, service mark or logo, without AGAIC's prior written consent, the granting
of which shall be at AGAIC's sole option.
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SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
--------------------------------
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<PAGE> 30
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------ ------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title Assistant Secretary Title: President
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO
------------------------ ------------------------
Name: Nancy L. Martin Name: Michael J. Cemo
Title Assistant Secretary Title: President
AMERICAN GENERAL ANNUITY INSURANCE
COMPANY, on behalf of itself and
its separate accounts
Attest: /s/ CYNTHIA A. TOLES By: /s/ THOMAS C. WEST, JR.
------------------------ ------------------------
Name: Cynthia A. Toles Name: Thomas C. West, Jr.
Title: Senior Vice President, General Title: Chief Executive Officer and
Counsel and Secretary Chairman of the Board
AGA BROKERAGE SERVICES, INC.
Attest: /s/ DWIGHT CRAMER By: /s/ KURT FREDLAND
------------------------ ------------------------
Name: Dwight Cramer Name: Kurt Fredland
Title: Vice President and Secretary Title: President
27
<PAGE> 1
EXHIBIT 8(ii)
PARTICIPATION AGREEMENT
AMONG TEMPLETON VARIABLE PRODUCTS SERIES FUND,
FRANKLIN TEMPLETON DISTRIBUTORS, INC. AND
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
THIS AGREEMENT made as of November 23, 1998, among Templeton Variable
Products Series Fund (the "Trust"), an open-end management investment company
organized as a business trust under Massachusetts law, Franklin Templeton
Distributors, Inc., a California corporation, the Trust's principal underwriter
("Underwriter"), and American General Annuity Insurance Company, a life
insurance company organized as a corporation under Texas law (the "Company"),
on its own behalf and on behalf of each segregated asset account of the Company
set forth in Schedule A, as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Underwriter desire that Trust shares be used as
an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets, and certain of those series, named in
Schedule B, (the "Portfolios") are to be made available for purchase by the
Company for the Accounts; and
WHEREAS, the Trust has received an order from the SEC, dated November 16,
1993 (File No. 812-8546), granting Participating Insurance Companies and their
separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act, and Rules 6e-2 (b) (15) and 6e-3 (T) (b) (15)
thereunder, to the extent necessary to permit shares of the Trust to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Shared Funding Exemptive Order");
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WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised; and has registered
or will register certain variable annuity contracts and variable life insurance
policies, listed on Schedule C attached hereto, under which the portfolios are
to be made available as investment vehicles (the "Contracts") under the 1933 Act
unless such interests under the Contracts in the Accounts are exempt from
registration under the 1933 Act and the Trust has been so advised;
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such account on Schedule A hereto, to set aside
and invest assets attributable to one or more Contracts; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, each investment adviser listed on Schedule B (each, an "Adviser")
is duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended ("Advisers Act") and any applicable state securities laws;
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Contracts and the Underwriter
is authorized to sell such shares to unit investment trusts such as each Account
at net asset value;
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE I.
PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
1.1. For purposes of this Article I, the Company shall be the Trust's agent
for receipt of purchase orders and requests for redemption relating to each
Portfolio from each Account, provided that the Company notifies the Trust of
such purchase orders and requests for redemption by 10:00 a.m. Eastern time on
the next following Business Day, as defined in Section 1.3.
1.2. The Trust agrees to make shares of the Portfolios available to the
Accounts for purchase at the net asset value per share next computed after
receipt of a purchase order by the Trust (or its agent) in proper form, as
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<PAGE> 3
established in accordance with the provisions of the then current prospectus of
the Trust describing Portfolio purchase procedures on those days on which the
Trust calculates its net asset value pursuant to rules of the SEC, and the Trust
shall use its best efforts to calculate such net asset value on each day on
which the New York Stock Exchange ("NYSE") is open for trading. The Company will
transmit orders from time to time to the Trust for the purchase of shares of the
Portfolios. The Trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or if, in the sole discretion of the Trustees acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, such action is deemed in the best interests of the shareholders of
such Portfolio. With respect to purchase orders received by the Company from
Contract Owners, "proper form" means that amounts to be invested or redeemed are
identified on the Company's computer system by Participant, Contract and Fund in
accordance with the Company's standard procedures for processing transactions.
1.3 The Company shall submit payment for the purchase of shares of a
Portfolio on behalf of an Account no later than the close of business on the
next Business Day after the Trust receives the purchase order. Payment shall be
made in federal funds transmitted by wire to the Trust or its designated
custodian. Upon receipt by the Trust of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust for this purpose. "Business Day" shall mean any day
on which the NYSE is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the SEC.
1.4 The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust describing Portfolio redemption procedures.
The Trust shall make payment for such shares in the manner established from time
to time by the Trust. Redemption with respect to a Portfolio will normally be
paid to the Company for an Account in federal funds transmitted by wire to the
Company before the close of business on the next Business Day after the receipt
of the request for redemption. Such payment may be delayed if, for example, the
Portfolio's cash position so requires or if extraordinary market conditions
exist, but in no event shall payment be delayed for a greater period than is
permitted by the 1940 Act.
1.5 Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 may be netted against one another on any
3
<PAGE> 4
Business Day for the purpose of determining the amount of any wire transfer on
that Business Day.
1.6 Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the Account.
Portfolio Shares purchased from the Trust will be recorded in the appropriate
title for each Account or the appropriate subaccount of each Account.
1.7 The Trust shall furnish, on or before the ex-dividend date, notice to
the Company of any income dividends or capital gain distributions payable on the
shares of any Portfolio of the Trust. The Company hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. The Trust shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.8 The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net asset
value per share for each Portfolio available to the Company or its designated
agent on a daily basis as soon as reasonably practical after the net asset value
per share is calculated (normally by 6:30 p.m. Eastern time).
1.9 The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Shared
Funding Exemptive Order. No shares of any Portfolio will be sold directly to the
general public. The Company agrees that it will use Trust shares only for the
purposes of funding the Contracts through the Accounts listed in Schedule A, as
amended from time to time.
1.10 The Company agrees that all net amounts available under the Contracts
shall be invested in the Trust, in such other Funds advised by an Adviser or its
affiliates as may be mutually agreed to in writing by the parties hereto, or in
the Company's general account, provided that such amounts may also be invested
in an investment company other than the Trust if: (a) such other investment
company, or series thereof, has investment objectives or policies that are
substantially different from the investment objectives and policies of the
Portfolios; or (b) the Company gives the Trust and the Underwriter 45 days
written notice of its intention to make such other investment company available
as a funding vehicle for the Contracts; or (c) such other investment company is
available as a funding vehicle for the Contracts at the date of this Agreement
and the Company so informs the Trust and the Underwriter prior to their signing
this Agreement (a list of such investment companies appearing on Schedule D to
this Agreement); or (d) the Trust or Underwriter consents to the use of such
other investment company.
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<PAGE> 5
1.11 The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in Section 2.10 and Article IV of
this Agreement.
1.12 Each party to this Agreement shall have the right to rely on
information or confirmations provided by any other party (or by any affiliate of
any other party), and shall not be liable in the event that an error results
from any incorrect information or confirmations supplied by any other party. If
an error is made in reliance upon incorrect information or confirmations, any
amount required to make a Contract owner's account whole shall be borne by the
party who provided the incorrect information or confirmation.
ARTICLE II.
OBLIGATIONS OF THE PARTIES; FEES AND EXPENSES
2.1 The Trust shall prepare and be responsible for filing with the SEC and
any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of the Trust.
The Trust shall bear the costs of registration and qualification of its shares
of the Portfolios, preparation and filing of the documents listed in this
Section 2.1 and all taxes to which an issuer is subject on the issuance and
transfer of its shares.
2.2 At the option of the Company, the Trust or the Underwriter shall either
(a) provide the Company with as many copies of portions of the Trust's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
pertaining specifically to the Portfolios as the Company shall reasonably
request; or (b) provide the Company with a camera ready copy of such documents
in a form suitable for printing and from which information relating to series of
the Trust other than the Portfolios has been deleted to the extent practicable.
The Trust or the Underwriter shall provide the Company with a copy of its
current statement of additional information, including any amendments or
supplements, in a form suitable for duplication by the Company. Expenses of
furnishing such documents for marketing purposes shall be borne by the Company
and expenses of furnishing such documents for current contract owners invested
in the Trust shall be borne by the Trust or the Underwriter.
2.3 The Trust (at its expense) shall provide the Company with copies of any
Trust-sponsored proxy materials in such quantity as the Company shall reasonably
require for distribution to Contract owners. The Company shall bear the costs of
distributing proxy materials (or similar materials such as voting solicitation
instructions), prospectuses and statements of additional information
5
<PAGE> 6
to Contract owners. The Company assumes sole responsibility for ensuring that
such materials are delivered to Contract owners in accordance with applicable
federal and state securities laws.
2.4 If and to the extent required by law, the Company shall: (i) solicit
voting instructions from Contract owners; (ii) vote the Trust shares in
accordance with the instructions received from Contract owners; and (iii) vote
Trust shares for which no instructions have been received in the same proportion
as Trust shares of such Portfolio for which instructions have been received; so
long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The Company
reserves the right to vote Trust shares held in any segregated asset account in
its own right, to the extent permitted by law.
2.5 Except as provided in section 2.6, the Company shall not use any
designation comprised in whole or part of the names or marks "Franklin" or
"Templeton" or any other Trademark relating to the Trust or Underwriter without
prior written consent, and upon termination of this Agreement for any reason,
the Company shall cease all use of any such name or mark as soon as reasonably
practicable.
2.6 The Company shall furnish, or cause to be furnished to the Trust or its
designee, at least one complete copy of each registration statement, prospectus,
statement of additional information, retirement plan disclosure information or
other disclosure documents or similar information, as applicable (collectively
"disclosure documents"), as well as any report, solicitation for voting
instructions, sales literature and other promotional materials, and all
amendments to any of the above that relate to the Contracts or the Accounts
prior to its first use. The Company shall furnish, or shall cause to be
furnished, to the Trust or its designee each piece of sales literature or other
promotional material in which the Trust or an Adviser is named, at least 15
Business Days prior to its use. No such material shall be used if the Trust or
its designee reasonably objects to such use within five Business Days after
receipt of such material. For purposes of this paragraph, "sales literature or
other promotional material" includes, but is not limited to, portions of the
following that use any Trademark related to the Trust or Underwriter or refer to
the Trust or affiliates of the Trust: advertisements (such as material published
or designed for use in a newspaper, magazine or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures or electronic communication or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts or
any other advertisement, sales literature or published article or electronic
communication), educational or training materials or other communications
6
<PAGE> 7
distributed or made generally available to some or all agents or employees, and
disclosure documents, shareholder reports and proxy materials.
2.7 The Company and its agents shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
the Underwriter or an Adviser in connection with the sale of the Contracts other
than information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
annual and semi-annual reports of the Trust, Trust-sponsored proxy statements,
or in sales literature or other promotional material approved by the Trust or
its designee, except as required by legal process or regulatory authorities or
with the written permission of the Trust or its designee.
2.8 The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and each
Adviser, in such form as the Company may reasonably require, as the Company
shall reasonably request in connection with the preparation of disclosure
documents and annual and semi-annual reports pertaining to the Contracts.
2.9 The Trust shall not give any information or make any representations or
statements on behalf of the Company or concerning the Company, the Accounts or
the Contracts other than information or representations contained in and
accurately derived from disclosure documents for the Contracts (as such
disclosure documents may be amended or supplemented from time to time), or in
materials approved by the Company for distribution including sales literature or
other promotional materials, except as required by legal process or regulatory
authorities or with the written permission of the Company.
2.10 So long as, and to the extent that, the SEC interprets the 1940 Act to
require pass-through voting privileges for Contract owners, the Company will
provide pass-through voting privileges to Contract owners whose Contract values
are invested, through the registered Accounts, in shares of one or more
Portfolios of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each registered Account,
the Company will vote shares of each Portfolio of the Trust held by a registered
Account and for which no timely voting instructions from Contract owners are
received in the same proportion as those shares held by that registered Account
for which voting instructions are received. The Company and its agents will in
no way recommend or oppose or interfere with the solicitation of proxies for
Portfolio shares held to fund the Contracts without the prior written consent of
the Trust, which consent may be withheld in the Trust's sole discretion.
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<PAGE> 8
2.11 The Trust and Underwriter shall pay no fee or other compensation to
the Company under this Agreement except as provided on Schedule E, if attached.
Nevertheless, the Trust or the Underwriter or an affiliate may make payments
(other than pursuant to a Rule 12b-1 Plan) to the Company or its affiliates or
to the Contracts' underwriter in amounts agreed to by the Underwriter in writing
and such payments may be made out of fees otherwise payable to the Underwriter
or its affiliates, profits of the Underwriter or its affiliates, or other
resources available to the Underwriter or its affiliates.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of its state of incorporation
and that it has legally and validly established each Account as a segregated
asset account under such law as of the date set forth in Schedule A.
3.2 The Company represents and warrants that, with respect to each Account,
(1) the Company has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated asset account for
the Contracts, or (2) if the Account is exempt from registration as an
investment company under Section 3(c) of the 1940 Act, the Company will make
every effort to maintain such exemption and will notify the Trust and the
Adviser immediately upon having a reasonable basis for believing that such
exemption no longer applies or might not apply in the future.
3.3 The Company represents and warrants that, with respect to each
Contract, (1) the Contract will be registered under the 1933 Act, or (2) if the
Contract is exempt from registration under Section 3(a)(2) of the 1933 Act or
under Section 4(2) and Regulation D of the 1933 Act, the Company will make every
effort to maintain such exemption and will notify the Trust and the Adviser
immediately upon having a reasonable basis for believing that such exemption no
longer applies or might not apply in the future. The Company further represents
and warrants that the Contracts will be sold by broker-dealers, or their
registered representatives, who are registered with the SEC under the 1934 Act
and who are members in good standing of the NASD; the Contracts will be issued
and sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
with state insurance suitability requirements.
For any unregistered Accounts which are exempt from registration under the
`40 Act in reliance upon Sections 3(c)(1) or 3(c)(7) thereof, the Company
represents and warrants that:
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(a) each Account and sub-account thereof has a principal underwriter which
is registered as a broker-dealer under the Securities Exchange Act of
1934, as amended;
(b) Trust shares are and will continue to be the only investment
securities held by the corresponding Account sub-accounts; and
(c) with regard to each Portfolio, the Company, on behalf of the
corresponding sub-account, will:
(1) seek instructions from all Contract owners with regard to the
voting of all proxies with respect to Trust shares and vote such
proxies only in accordance with such instructions or vote such
shares held by it in the same proportion as the vote of all other
holders of such shares; and
(2) refrain from substituting shares of another security for such
shares unless the SEC has approved such substitution in the
manner provided in Section 26 of the `40 Act.
3.4 The Trust represents and warrants that it is duly organized and validly
existing under the laws of the State of Massachusetts and that it does and will
comply in all material respects with the 1940 Act and the rules and regulations
thereunder.
3.5 The Trust represents and warrants that the Portfolio shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust or the
Underwriter.
3.6 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for variable
annuity, endowment or life insurance contracts set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended ("Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply and will
in that
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event immediately take all reasonable steps to adequately diversify the
Portfolio to achieve compliance within the grace period afforded by Regulation
1.817-5.
3.7 The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it will make
every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
3.8 The Trust represents and warrants that should it ever desire to make
any payments to finance distribution expenses pursuant to Rule 12b-1 under the
1940 Act, the Trustees, including a majority who are not "interested persons" of
the Trust under the 1940 Act ( "disinterested Trustees" ), will formulate and
approve any plan under Rule 12b-1 to finance distribution expenses.
3.9 The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less that the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.10 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Trust are and shall be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Trust, in an amount not less than $5 million. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. The Company agrees to make all reasonable efforts to see that
this bond or another bond containing these provisions is always in effect, and
agrees to notify the Trust and the Underwriter in the event that such coverage
no longer applies.
3.11 The Underwriter represents that each Adviser is duly organized and
validly existing under applicable corporate law and that it is registered and
will during the term of this Agreement remain registered as an investment
adviser under the Advisers Act.
3.12 The Trust currently intends for one or more Classes to make payments
to finance its distribution expenses, including service fees, pursuant to a Plan
adopted under Rule 12b-1 under the 1940 Act ("Rule 12b-1"), although it may
determine to discontinue such practice in the future. To the extent that any
Class of the Trust finances its distribution expenses pursuant to a Plan adopted
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under Rule 12b-1, the Trust undertakes to comply with any then current SEC and
SEC staff interpretations concerning Rule 12b-1 or any successor provisions.
ARTICLE IV.
POTENTIAL CONFLICTS
4.1 The parties acknowledge that a Portfolio's shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. An irreconcilable material conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trust shall promptly inform the Company of any determination by the Trustees
that an irreconcilable material conflict exists and of the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard Contract
owner voting instructions. All communications from the Company to the Trustees
may be made in care of the Trust.
4.3 If it is determined by a majority of the Trustees, or a majority of the
disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its own expense and to the extent reasonably practicable (as determined by
the Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such withdrawal should be implemented to a vote of all affected
Contract owners and, as appropriate, withdrawal of the assets of any
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appropriate group (i.e., annuity contract owners, life insurance policy owners,
or variable contract owners of one or more Participating Insurance Companies)
that votes in favor of such withdrawal, or offering to the affected Contract
owners the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with a
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Trust be required to establish a new funding medium for the Contracts. In
the event that the Trustees determine that any proposed action does not
adequately remedy any irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
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Trustees may fully carry out the duties imposed upon them by the Shared Funding
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if reasonably deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
ARTICLE V.
INDEMNIFICATION
5.1 Indemnification By the Company
(a) The Company agrees to indemnify and hold harmless the
Underwriter, the Trust and each of its Trustees, officers, employees
and agents and each person, if any, who controls the Trust within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually the "Indemnified Party" for purposes of this
Article V) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company, which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal
counsel fees incurred in connection therewith) (collectively,
"Losses"), to which the Indemnified Parties may become subject under
any statute or regulation, or at common law or otherwise, insofar as
such Losses are related to the sale or acquisition of Trust Shares or
the Contracts and
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
disclosure document for the Contracts or in the Contracts
themselves or in sales literature generated or approved by the
Company on behalf of the Contracts or Accounts (or any amendment
or supplement to any of the foregoing) (collectively, "Company
Documents" for the purposes of this Article V), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be
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stated therein or necessary to make the statements therein
not misleading, provided that this indemnity shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and was
accurately derived from written information furnished to the
Company by or on behalf of the Trust for use in Company Documents
or otherwise for use in connection with the sale of the Contracts
or Trust shares; or
(ii) arise out of or result from statements or
representations (other than statements or representations
contained in and accurately derived from Trust Documents as
defined in Section 5.2 (a)(i)) or wrongful conduct of the Company
or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(iii) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a)(i) or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance
upon and accurately derived from written information furnished to
the Trust by or on behalf of the Company; or
(iv) arise out of or result from any failure by the Company
to provide the services or furnish the materials required under
the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company.
(b) The Company shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party
would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this
Agreement or to the Trust or Underwriter, whichever is applicable. The
Company shall also not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons
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or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the Company of any such
claim shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the
Company shall be entitled to participate, at its own expense, in the
defense of such action. The Company also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under
this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
(c) The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Trust shares or the
Contracts or the operation of the Trust.
5.2 Indemnification By The Underwriter
(a) The Underwriter agrees to indemnify and hold harmless the Company,
the underwriter of the Contracts and each of its directors and officers and
each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" and
individually an "Indemnified Party" for purposes of this Section 5.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter, which
consent shall not be unreasonably withheld) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses") to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as such Losses are related to the sale or acquisition of the
Trust's Shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement, prospectus or sales literature of the Trust (or
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<PAGE> 16
any amendment or supplement to any of the foregoing) (collectively,
the "Trust Documents") or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission of such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Underwriter or Trust by
or on behalf of the Company for use in the Registration Statement or
prospectus for the Trust or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the disclosure
documents or sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of the
Trust, Adviser or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or Trust shares;
or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a disclosure document or sales
literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
to the Company by or on behalf of the Trust; or
(iv) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the qualification representation specified
in Section 3.7 of this Agreement and the diversification requirements
specified in Section 3.6 of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Underwriter; as limited by and in accordance
with the provisions of Sections 5.2(b) and 5.2(c) hereof.
(b) The Underwriter shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
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otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure
to notify the Underwriter of any such claim shall not relieve the
Underwriter from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Underwriter will be entitled to participate, at
its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under
this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Contracts or the operation of each Account.
5.3 Indemnification By The Trust
(a) The Trust agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 5.3) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Trust, which consent shall not
be unreasonably withheld) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
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settlements result from the gross negligence, bad faith or willful
misconduct of the Board or any member thereof, are related to the
operations of the Trust, and arise out of or result from any material
breach of any representation and/or warranty made by the Trust in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Trust; as limited by and in accordance with the provisions
of Section 5.3(b) and 5.3(c) hereof. It is understood and expressly
stipulated that neither the holders of shares of the Trust nor any Trustee,
officer, agent or employee of the Trust shall be personally liable
hereunder, nor shall any resort to be had to other private property for the
satisfaction of any claim or obligation hereunder, but the Trust only shall
be liable.
(b) The Trust shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against any Indemnified Party as such may arise from
such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company, the Trust, the Underwriter
or each Account, whichever is applicable.
(c) The Trust shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Trust in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Trust of any such claim shall not relieve the Trust from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties, the Trust
will be entitled to participate, at its own expense, in the defense
thereof. The Trust also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice
from the Trust to such party of the Trust's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Trust will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
(d) The Company and the Underwriter agree promptly to notify the Trust
of the commencement of any litigation or proceedings against it or
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any of its respective officers or directors in connection with this
Agreement, the issuance or sale of the Contracts, with respect to the
operation of either the Account, or the sale or acquisition of share of the
Trust.
ARTICLE VI.
TERMINATION
6.1 This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios or any reason by sixty (60) days advance
written notice delivered to the other parties, and shall terminate immediately
in the event of its assignment, as that term is used in the 1940 Act.
6.2 This Agreement may be terminated immediately by either the Trust or the
Underwriter following consultation with the Trustees upon written notice to the
Company if:
(a) the Company notifies the Trust or the Underwriter that the
exemption from registration under Section 3(c) of the 1940 Act no longer
applies, or might not apply in the future, to the unregistered Accounts, or
that the exemption from registration under Section 4(2) or Regulation D
promulgated under the 1933 Act no longer applies or might not apply in the
future, to interests under the unregistered Contracts; or
(b) either one or both of the Trust or the Underwriter respectively,
shall determine, in their sole judgment exercised in good faith, that the
Company has suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(c) the Company gives the Trust and the Underwriter the written notice
specified in Section 1.10 hereof and at the same time such notice was given
there was no notice of termination outstanding under any other provision of
this Agreement; provided, however, that any termination under this Section
6.2(c) shall be effective forty-five (45) days after the notice specified
in Section 1.10 was given; or
6.3 If this Agreement is terminated for any reason, except under Article IV
(Potential Conflicts) above, the Trust shall, at the option of the Company,
continue to make available additional shares of any Portfolio and redeem shares
of any Portfolio pursuant to all of the terms and conditions of this Agreement
for all Contracts in effect on the effective
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date of termination of this Agreement. If this Agreement is terminated pursuant
to Article IV, the provisions of Article IV shall govern.
6.4 The provisions of Articles II (Representations and Warranties) and V
(Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 6.3, except that the Trust and the Underwriter shall
have no further obligation to sell Trust shares with respect to Contracts issued
after termination.
6.5 The Company shall not redeem Trust shares attributable to the Contracts
(as opposed to Trust shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Trust and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Trust and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Trust or
the Underwriter 90 days notice of its intention to do so.
ARTICLE VII.
NOTICES.
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust or the Underwriter:
Templeton Variable Products Series Fund or
Franklin Templeton Distributors, Inc.
500 E. Broward Boulevard
Fort Lauderdale, FL 33394-3091
Attention: Barbara J. Green, Trust Secretary
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WITH A COPY TO
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404
Attention:Karen L. Skidmore, Senior Corporate Counsel
If to the Company:
American General Annuity Insurance Company
2919 Allen Parkway
Houston, TX 77019
Attention: Nori Gabert, Esq.
ARTICLE VIII.
MISCELLANEOUS
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Florida. It shall also be
subject to the provisions of the federal securities laws and the rules and
regulations thereunder and to any orders of the SEC granting exemptive relief
therefrom and the conditions of such orders. Copies of any such orders shall be
promptly forwarded by the Trust to the Company.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD, and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
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8.7 Each party hereto shall treat as confidential the names and addresses
of the Contract owners and all information reasonably identified as confidential
in writing by any other party hereto, and, except as permitted by this Agreement
or as required by legal process or regulatory authorities, shall not disclose,
disseminate, or utilize such names and addresses and other confidential
information until such time as they may come into the public domain, without the
express written consent of the affected party. Without limiting the foregoing,
no party hereto shall disclose any information that such party has been advised
is proprietary, except such information that such party is required to disclose
by any appropriate governmental authority (including, without limitation, the
SEC, the NASD, and state securities and insurance regulators).
8.8 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.9 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect, except as provided in Section 1.10.
8.10 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.11 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
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IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
The Company:
American General Annuity
By its authorized officer
By: /s/ CRAIG RODBY
------------------------------------
Name: Craig Rodby
Title: Vice Chairman
The Trust:
Templeton Variable Products Series Fund
By its authorized officer
By: /s/ KAREN L. SKIDMORE
------------------------------------
Name: Karen L. Skidmore
Title: Assistant Vice President, Assistant Secretary
The Underwriter:
Franklin Templeton Distributors, Inc.
By its authorized officer
By: /s/ DEBORAH R. GATZEK
------------------------------------
Name: Deborah R. Gatzek
Title: Senior Vice President, Assistant Secretary
23
<PAGE> 24
SCHEDULE A
SEPARATE ACCOUNTS OF
AMERICAN GENERAL ANNUITY
1. American General Annuity Separate Account A
Date Established: 11/9/94
SEC Registration Number: 811-08862
24
<PAGE> 25
SCHEDULE B
TRUST PORTFOLIOS AND CLASSES AVAILABLE
<TABLE>
<CAPTION>
Templeton Variable Products Series Adviser
- ---------------------------------- -------
<S> <C>
Templeton Developing Markets Fund Templeton Asset Management Ltd.
-Class 2
Templeton International Fund Templeton Investment Counsel, Inc.
-Class 2
</TABLE>
25
<PAGE> 26
SCHEDULE C
VARIABLE ANNUITY CONTRACTS
ISSUED BY AMERICAN GENERAL ANNUITY
<TABLE>
<CAPTION>
REPRESENTATIVE
CONTRACT FORM NUMBER
- -------- --------------
<S> <C>
1. American General Annuity Separate Account A VA61-94
Title: Elite Plus Bonus Variable Annuity VA61-T5-94
SEC Registration Number: VA63-94
VA63-T5-94
VA64-T5-94
2. American General Annuity Separate Account A
Title: Elite Plus Bonus Variable Annuity
SEC Registration Number:
</TABLE>
26
<PAGE> 27
SCHEDULE D
OTHER PORTFOLIOS AVAILABLE UNDER THE CONTRACTS
AGA Series Trust
Credit Suisse Growth and Income Portfolio
Credit Suisse International Equity Portfolio
EliteValue Portfolio
State Street Global Advisors Growth Equity Portfolio
State Street Global Advisors Money Market Portfolio
Salomon Brothers U.S. Government Securities Portfolio
Van Kampen Emerging Growth Portfolio
AIM Variable Insurance Funds, Inc.
AIM V.I. Diversified Income Fund
AIM V.I. Capital Appreciation Fund
Oppenheimer Variable Account Funds
Oppenheimer High Income Fund
Oppenheimer Growth Fund
Oppenheimer Small Cap Growth Fund
Oppenheimer Growth & Income Fund
27
<PAGE> 28
SCHEDULE E
RULE 12B-1 PLANS
COMPENSATION SCHEDULE
Each Portfolio named below shall pay the following amounts pursuant to the terms
and conditions referenced below under its Class 2 Rule 12b-1 Distribution Plan,
stated as a percentage per year of Class 2's average daily net assets
represented by shares of Class 2.
<TABLE>
<CAPTION>
Portfolio Name Maximum Annual Payment Rate
- -------------- ---------------------------
<S> <C>
TEMPLETON DEVELOPING MARKETS FUND 0.25%
TEMPLETON INTERNATIONAL FUND 0.25%
</TABLE>
Agreement Provisions
If the Company, of behalf of any Account, purchases Trust Portfolio shares
("Eligible Shares") which are subject to a Rule 12b-1 Plan adopted under the
1940 Act (the "Plan"), the Company may participate in the Plan.
To the extent the Company or its affiliates, agents or designees
(collectively "you") you provide administrative and other services which assist
in the promotion and distribution of Eligible Shares or Variable Contracts
offering Eligible Shares, the Underwriter, the Trust or their affiliates
(collectively, "we") may pay you a Rule 12b-1 fee. "Administrative and other
services" may include, but are not limited to, furnishing personal services to
owners of Contracts which may invest in Eligible Shares ("Contract Owners"),
answering routine inquiries regarding a Portfolio, coordinating responses to
Contract Owner inquiries regarding the Portfolios, maintaining such accounts or
providing such other enhanced services as a Trust Portfolio or Contract may
require, maintaining customer accounts and records, or providing other services
eligible for service fees as defined under NASD rules. Your acceptance of such
compensation is your acknowledgment that eligible services have been rendered.
All Rule 12b-1 fees, shall be based on the value of Eligible Shares owned by the
Company on behalf of its Accounts, and shall be calculated on the basis and at
the rates set forth in the Compensation Schedule stated above. The aggregate
annual fees paid pursuant to each Plan shall not exceed the amounts stated as
the "annual maximums" in the Portfolio's prospectus, unless an increase is
approved by shareholders as provided in the Plan. These maximums shall be a
specified percent of the value of a Portfolio's net assets attributable to
Eligible Shares owned by
28
<PAGE> 29
the Company on behalf of its Accounts (determined in the same manner as the
Portfolio uses to compute its net assets as set forth in its effective
Prospectus).
You shall furnish us with such information as shall reasonably be requested
by the Trust's Boards of Trustees ("Trustees") with respect to the Rule 12b-1
fees paid to you pursuant to the Plans. We shall furnish to the Trustees, for
their review on a quarterly basis, a written report of the amounts expended
under the Plans and the purposes for which such expenditures were made.
The Plans and provisions of any agreement relating to such Plans must be
approved annually by a vote of the Trustees, including the Trustees who are not
interested persons of the Trust and who have no financial interest in the Plans
or any related agreement ("Disinterested Trustees"). Each Plan may be terminated
at any time by the vote of a majority of the Disinterested Trustees, or by a
vote of a majority of the outstanding shares as provided in the Plan, on sixty
(60) days' written notice, without payment of any penalty. The Plans may also be
terminated by any act that terminates the Underwriting Agreement between the
Underwriter and the Trust, and/or the management or administration agreement
between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and the Trust. Continuation of the Plans is also conditioned on
Disinterested Trustees being ultimately responsible for selecting and nominating
any new Disinterested Trustees. Under Rule 12b-1, the Trustees have a duty to
request and evaluate, and persons who are party to any agreement related to a
Plan have a duty to furnish, such information as may reasonably be necessary to
an informed determination of whether the Plan or any agreement should be
implemented or continued. Under Rule 12b-1, the Trust is permitted to implement
or continue Plans or the provisions of any agreement relating to such Plans from
year-to-year only if, based on certain legal considerations, the Trustees are
able to conclude that the Plans will benefit each affected Trust Portfolio and
class. Absent such yearly determination, the Plans must be terminated as set
forth above. In the event of the termination of the Plans for any reason, the
provisions of this Schedule E relating to the Plans will also terminate.
Any obligation assumed by the Trust pursuant to this Agreement shall be
limited in all cases to the assets of the Trust and no person shall seek
satisfaction thereof from shareholders of the Trust. You agree to waive payment
of any amounts payable to you by Underwriter under a Plan until such time as the
Underwriter has received such fee from the Fund.
29
<PAGE> 30
The provisions of the Plans shall control over the provisions of the
Participation Agreement, including this Schedule E, in the event of any
inconsistency.
You agree to provide complete disclosure as required by all applicable statutes,
rules and regulations of all rule 12b-1 fees received from us in the prospectus
of the contracts.
30
<PAGE> 1
EXHIBIT 8(iii)
PARTICIPATION AGREEMENT
Among
OPPENHEIMER VARIABLE ACCOUNT FUNDS,
OPPENHEIMERFUNDS, INC.
and
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
THIS AGREEMENT (the "Agreement"), made and entered into as of
the 23rd day of November, 1998 by and among American General Annuity Insurance
Company (hereinafter the "Company"), on its own behalf and on behalf of each
separate account of the Company named in Schedule 1 to this Agreement, as may be
amended from time to time by mutual consent (hereinafter collectively the
"Accounts"), Oppenheimer Variable Account Funds (hereinafter the "Fund") and
OppenheimerFunds, Inc. (hereinafter the "Adviser").
WHEREAS, the Fund is an open-end management investment company
and is available to act as the investment vehicle for separate accounts now in
existence or to be established at any date hereafter for variable life insurance
policies and variable annuity contracts (collectively, the "Variable Insurance
Products") offered by insurance companies (hereinafter "Participating Insurance
Companies");
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares, each designated a "Portfolio", and each representing
the interests in a particular managed pool of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities
and Exchange Commission, dated July 16, 1986 (File No. 812-6324) granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of
<PAGE> 2
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Mixed and Shared Funding Exemptive Order")
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act");
WHEREAS, the Adviser is duly registered as an investment
adviser under the federal Investment Advisers Act of 1940;
WHEREAS, the Company has registered or will register certain
variable annuity and/or life insurance contracts under the 1933 Act (hereinafter
"Contracts") (unless an exemption from registration is available);
WHEREAS, the Accounts are or will be duly organized, validly
existing segregated asset accounts, established by resolution of the Board of
Directors of the Company, to set aside and invest assets attributable to the
aforesaid variable contracts (the Contract(s) and the Account(s) covered by the
Agreement are specified in Schedule 2 attached hereto, as may be modified by
mutual consent from time to time);
WHEREAS, the Company has registered or will register the
Accounts as unit investment trusts under the 1940 Act (unless an exemption from
registration is available);
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intends to purchase shares in the Portfolios (the
Portfolios covered by this Agreement are specified in Schedule 2 attached hereto
as may be modified by mutual consent from time to time), on behalf of the
Accounts to fund the Contracts named in Schedule 3, as may be amended from time
to time by mutual consent, and the Fund is authorized to sell such shares to
unit investment trusts such as the Accounts at net asset value; and
-2-
<PAGE> 3
NOW, THEREFORE, in consideration of their mutual promises, the
Fund, the Adviser and the Company agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to the Company those shares of
the Fund which the Company orders on behalf of the Account, executing such
orders on a daily basis at the net asset value next computed after receipt by
the Fund or its designee in proper form of the order for the shares of the Fund.
For purposes of this Section 1.1, the Company shall be the designee of the Fund
for receipt of such orders from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives written (or
facsimile) notice of such order by 9:30 a.m. New York time on the next following
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the SEC. "Proper form" means that amounts to be
invested or redeemed are identified on the Company's computer system by
Participant, Contract and Fund in accordance with the Company's standard
procedures for processing transactions. The Company agrees to provide the Fund
and the Adviser with at least ten Business Days' notice of any change in the
Company's standard procedure for processing transactions.
1.2. If the Company requests the purchase of Fund shares, the
Company shall pay for such purchase by wiring federal Funds to the Fund or its
designated account or as otherwise instructed by the Fund's treasurer, on the
day the order is transmitted by the Company. If the Company requests a net
redemption resulting in a payment of redemption proceeds to the Company, the
Fund shall wire the redemption proceeds to the Company on the day the order is
transmitted by the Company, unless doing so would require the Fund to dispose of
portfolio securities or otherwise incur additional costs, but in such event,
proceeds shall be wired to the Company within three business days and the Fund
shall notify the person designated in writing by the Company as the receipt for
such notice of such delay by 3:00 p.m. Eastern time the same Business Day that
the Company transmits the redemption order to the Fund. If the Company's order
requests the application of redemption proceeds term the redemption of shares
of one Portfolio to the purchase of shares of another Portfolio, the Fund shall
so apply such proceeds the same Business Day that the Company transmits such
order to the Fund.
-3-
<PAGE> 4
1.3. The Fund shall make the Portfolio's net asset value per
share available to the Company on a daily basis as soon as reasonably practical
after the net asset value per share is calculated but shall use its best efforts
to make such net asset value available by 6:30 p.m. Eastern time. If the Fund
provides the Company with the incorrect share net asset value information
through no fault of the Company, the Company on behalf of the Separate Accounts,
shall be entitled to an adjustment to the number of shares purchased or redeemed
to reflect the correct share net asset value. Any error in the calculation of
net asset value, dividend and capital gain information greater than or equal to
$.01 per share of that Portfolio, shall be reported immediately upon discovery
to The Company. Any error of a lesser amount shall be corrected in net asset
value per share of that Portfolio or the next Business Day after discovery by
the Fund.
1.4. The Fund agrees to redeem, upon the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption in proper form. For
purposes of this Section 1.4, the Company shall be the designee of the Fund for
receipt of requests for redemption and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives written (or
facsimile) notice of such request for redemption by 9:30 a.m. New York time on
the next following Business Day. Payment shall be made within the time period
specified in the Fund's prospectus or statement of additional information, in
federal funds transmitted by wire to the Company's account as designated by the
Company in writing from time to time.
-4-
<PAGE> 5
1.5. The Company agree to purchase and redeem the shares of
the Portfolios named in Schedule 2 offered by the then current prospectus and
statement of additional information of the Fund in accordance with the
provisions of such prospectus and statement of additional information. The
Company shall not permit any person other than a Contract owner to give
instructions to the Company which would require the Company to redeem or
exchange shares of the Fund.
1.6 Issuance and transfer of Fund Shares will be by book
entry only. Stock certificates will not be issued to the Company. Shares
ordered from the Fund will be recorded in an appropriate title for the
Company, on behalf of its Account.
1.7 The Fund shall furnish same day notice (by wire,
telecopier, or telephone, and if by telephone, followed by confirmation in
writing or by telecopier) to the Company of any income, dividends or capital
gain distributions payable on the Fund's shares. The Company hereby elects to
receive all such income, dividends and capital gain distributions of the Fund in
the form of additional shares of that the Fund. The Company reserves the right
to revoke this election and to receive all such income, dividends and capital
gain distributions in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
ARTICLE II. Sales Material, Prospectuses and Other Reports
2.1. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee, each piece of sales literature or other
promotional material in which the Fund or the Adviser is named, at least ten
Business Days prior to its use. No such material shall be used if the Fund or
its designee reasonably object to such use within ten Business Days after
receipt of such material. "Business Day" shall mean any day in which the New
York Stock Exchange is open for trading and in which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
2.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from
-5-
<PAGE> 6
time to time or in reports or proxy statements for the Fund, or in sale
literature or other promotional material approved by the Fund or its designee,
except with the permission of the Fund.
2.3. For purposes of this Article II, the phrase "sales
literature or other promotional material" means advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, telephone or tape recording, videotape display, signs or
billboard or electronic media), and sales literature (such as brochures,
circulars, market letters and form letters), distributed or made generally
available to customers or the public.
2.4. The Fund shall provide a copy of its current prospectus
within a reasonable period of its filing date, and provide other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus for the Fund is supplemented or amended) to have
the prospectus for the Contracts and the Fund's prospectus printed together in
one document (such printing to be at the Company's expense). The Adviser shall
be permitted to review and approve the typeset form of the Fund's Prospectus
prior to such printing.
2.5. The Fund or the Adviser shall provide the Company with
either: (i) a copy of the Fund's proxy material, reports to shareholders, other
information relating to the Fund necessary to prepare financial reports, and
other communications to shareholders for printing and distribution to Contract
owners at the Company's expense, or (ii) camera ready and/or printed copies, if
appropriate, of such material for distribution to Contract owners at the
Company' expense, within a reasonable period of the filing date for definitive
copies of such material. The Adviser shall be permitted to review and approve
the typeset form of such proxy material and shareholder reports prior to such
printing provided such materials have been provided within a reasonable period.
-6-
<PAGE> 7
ARTICLE III. Fees and Expenses
3.1. The Fund and Adviser shall pay no fee or other
compensation to the Company under this agreement, and the Company shall pay no
fee or other compensation to the Fund or Adviser, except as provided herein.
3.2. All expenses incident to performance by each party of its
respective duties under this Agreement shall be paid by that party. The Fund
shall see to it that all its shares are registered and authorized for issuance
in accordance with applicable federal law and, if and to the extent advisable by
the Fund, in accordance with applicable state laws prior to their sale. The Fund
shall bear the expenses for the cost of registration and qualification of the
Fund's shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, and the preparation of all statements
and notices required by any federal or state law.
3.3. The Company shall bear the expenses of typesetting,
printing and distributing the Fund's prospectus, proxy materials and reports to
owners of Contracts issued by the Company.
3.4. In the event the Fund adds one or more additional
Portfolios and the parties desire to make such Portfolios available to the
respective Contract owners as an underlying investment medium, a new Schedule 3
or an amendment to this Agreement shall be executed by the parties authorizing
the issuance of shares of the new Portfolios to the particular Account. The
amendment may also provide for the sharing of expenses for the establishment of
new Portfolios among Participating Insurance Companies desiring to invest in
such Portfolios and the provision of funds as the initial investment in the new
Portfolios.
ARTICLE IV. Potential Conflicts
4.1. The Board of Trustees of the Fund (the "Board") will
monitor the Fund for the existence of any material irreconcilable conflict
between the interests of the Contract owners of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable
-7-
<PAGE> 8
federal or state insurance, tax, or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Portfolio are being managed; (e) a difference
in voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by an insurer to disregard the
voting instructions of Contract owners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and
the implications thereof.
4.2. The Company has reviewed a copy of the Mixed and Shared
Funding Exemptive Order, and in particular, has reviewed the conditions to the
requested relief set forth therein. The Company agrees to be bound by the
responsibilities of a participating insurance companies as set forth in the
Mixed and Shared Funding Exemptive Order, including without limitation the
requirement that the Company report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities in monitoring such conflicts under the Mixed and Shared Funding
Exemptive Order, by providing the Board in a timely manner with all information
reasonably necessary for the Board to consider any issues raised. This includes,
but is not limited to, an obligation by the Company to inform the Board whenever
Contract owner voting instructions are disregarded and by confirming in writing,
at the Fund's request, that the Company are unaware of any such potential or
existing material irreconcilable conflicts.
4.3. If it is determined by a majority of the Board, or a
majority of its disinterested Trustees, that a material irreconcilable conflict
exists, the Company shall, at its expense and to the extent reasonably
practicable (as determined by a majority of the disinterested trustees), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to an including: (1) withdrawing the assets allocable to some or
all of the separate accounts from the Fund or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be implemented to
-8-
<PAGE> 9
a vote of all affected Contract owners and, as appropriate, segregating the
assets of any appropriate group (i.e., annuity contract owners, life insurance
contract owners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to
the affected Contract owners the option of making such a change; and (2)
establishing a new registered management investment company or managed separate
account.
4.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement; provided, however, that
such withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Any such withdrawal and termination must
take place within six (6) months after the Fund gives written notice that this
provision is being implemented, and until the end of the six month period the
Fund shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Fund.
4.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the Account's investment in the Fund and terminate this Agreement
within six months after the Board informs the Company in writing that it has
determined that such decision has created an irreconcilable material conflict;
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Until the end of the
foregoing six month period, the Fund shall continue to accept and implement
orders by the Company for the purchase and redemption of shares of the Fund,
subject to applicable regulatory limitation.
-9-
<PAGE> 10
4.6. For purposes of Sections 4.3 through 4.6 of this
Agreement, a majority of the disinterested members of the Board shall determine
whether any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund be required to establish a new funding
medium for the Contracts. The Company shall not be required by Section 4.3 to
establish a new funding medium for Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict. In the event that the Board determines
that any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the particular Account's investment in
the Fund and terminate this Agreement within six (6) months after the Board
informs the Company in writing of the foregoing determination, provided,
however, that such withdrawal and termination shall be limited to the extent
required by any such material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.
ARTICLE V. Applicable Law
5.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the State of New
York.
5.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Mixed and Shared Funding Exemptive Order) and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE VI. Termination
6.1 This Agreement shall terminate with respect to some or all
Portfolios:
(a) at the option of any party upon three month's
advance written notice to the other parties;
-10-
<PAGE> 11
(b) at the option of the Company to the extent that
shares of Portfolios are not reasonably available to meet the requirements of
its Contracts or are not appropriate funding vehicles for the Contracts, as
determined by the Company reasonably and in good faith. Prompt notice of the
election to terminate for such cause and an explanation of such cause shall be
furnished by the Company and termination shall be effective ten days after the
Fund's receipt of said notice unless the Fund makes available a sufficient
number of shares to meet the requirements of the Contracts with said ten-day
period; or
(c) as provided in Article IV
6.2. It is understood and agreed that the right of any party
hereto to terminate this Agreement pursuant to Section 6.1(a) may be exercised
for cause or for no cause.
ARTICLE VII. Notices
Any notice shall be sufficiently given when sent by registered
or certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify to
the other party.
If to the Fund:
Oppenheimer Variable Account Funds
c/o OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0203
Attn: Legal Department
If to the Adviser:
OppenheimerFunds, Inc.
2 World Trade Center
New York, NY 10048-0203
Attn: General Counsel
If to the Company:
American General Annuity Insurance Company
2929 Allen Parkway
Houston, TX 77019
Attn: Cynthia A. Toles, Esq.
-11-
<PAGE> 12
ARTICLE VIII. Miscellaneous
8.1. Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as confidential the names
and addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information without the express
written consent of the affected party until such time as it may come into the
public domain.
8.2. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
8.3. This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one and the
same instrument.
8.4. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
8.5. Each party hereto shall cooperate with, and promptly
notify each other party and all appropriate governmental authorities (including
without limitation the Securities and Exchange Commission, the National
Association of Securities Dealers, Inc. and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
8.6. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
-12-
<PAGE> 13
8.7. It is understood by the parties that this Agreement is
not an exclusive arrangement in any respect.
8.8. The Company and the Adviser each understand and agree
that the obligations of the Fund under this Agreement are not binding upon any
shareholder of the Fund personally, but bind only the Fund and the Fund's
property; the Company and the Adviser each represent that it has notice of the
provisions of the Declaration of Trust of the Fund disclaiming shareholder
liability for acts or obligations of the Fund.
8.9. This Agreement shall not be assigned by any party hereto
without the prior written consent of all the parties.
8.10. This Agreement sets forth the entire agreement between
the parties and supercedes all prior communications, agreements and
understandings, oral or written, between the parties regarding the subject
matter hereof.
-13-
<PAGE> 14
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed as of the date specified
below.
AMERICAN GENERAL ANNUITY LIFE INSURANCE COMPANY
By: /s/ CRAIG RODBY
----------------------------------
Title: Vice Chairman
-------------------------------
Date: November 30, 1998
--------------------------------
OPPENHEIMER VARIABLE ACCOUNT
FUNDS
By: /s/ ANDREW J. DONOHUE
----------------------------------
Title: Vice President and Secretary
-------------------------------
Date: November 23, 1998
--------------------------------
OPPENHEIMERFUNDS, INC.
By: /s/ ANDREW J. DONOHUE
----------------------------------
Title: Executive Vice President
-------------------------------
Date: November 23, 1998
--------------------------------
-14-
<PAGE> 15
SCHEDULE 1
AGA Separate Account A
-15-
<PAGE> 16
SCHEDULE 2
American Geneal ElitePlus Bonus Variable Annuity
-16-
<PAGE> 17
SCHEDULE 3
Portolios of Oppenheimer Variable Account Funds.
o Oppenheimer High Income Fund
o Oppenheimer Growth Fund
o Oppenheimer Small Cap Growth Fund
o Oppenheimer Growth & Income Fund
-17-
<PAGE> 1
EXHIBIT 8(iv)
FIRST AMENDMENT
TO
PARTICIPATION AGREEMENT
AMONG
OPPENHEIMER VARIABLE ACCOUNT FUNDS,
OPPENHEIMERFUNDS, INC.
AND
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
THIS FIRST AMENDMENT TO PARTICIPATION AGREEMENT ("Amendment") dated as
of November 25, 1998, amends the Participation Agreement dated as of November
23, 1998 (the "Agreement"), among, American General Annuity Insurance Company
(the "Company"), on its own behalf and on behalf of each separate account of the
Company named in Schedule 1 of the Agreement, as may be amended from time to
time by mutual consent (the "Account"), Oppenheimer Variable Account Funds (the
"Fund") and OppenheimerFunds, Inc. (the "Adviser").
WHEREAS, the Fund, the Adviser and the Company desire to describe with
more specificity Indemnification in the Agreement; and
WHEREAS, the Agreement may only be amended from time to time by mutual
consent of the Fund, the Adviser and the Company thereto.
NOW THEREFORE, in consideration of their mutual promises, the Fund, the
Adviser and the Company amend the Agreement as follows:
1. ARTICLE IX, as set forth below, shall be added to the Agreement.
ARTICLE IX. Indemnification
9.1 Indemnification By The Company
9.1(a) The Company agrees to indemnify and hold harmless the Fund and
each director of the Board and officers (collectively, the ?Indemnified Parties?
for purposes of this Section 9.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund?s shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement or prospectus for the Contracts or
contained in the Contracts or advertisements or sales
literature for the Contracts (or any amendment or
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supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged amazon to state therein
a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the
Fund for use in the Registration Statement or prospectus for
the Contracts or in the Contracts or advertisements or sales
literature (or any amendment or supplement) or otherwise for
use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the
Fund not supplied by the Company, or persons under its
control) or wrongful conduct of the Company or persons under
its control, with respect to the sale or distribution of the
Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, advertisements or sales literature of the Fund or
any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on
behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as limited by and in
accordance with the provisions of Sections 9.1 (b) and 9.1 (c)
hereof.
9.1(b) The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or dudes under this Agreement or to
the Fund, whichever is applicable.
9.1(c) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or
2
<PAGE> 3
other first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but failure
to notify the Company of any such claim shall not relieve the Company from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Company shall be
entitled to participate. at its own expense, in the defense of such action. The
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Company to
such party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
9.1(d) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
9.2 Indemnification by the Adviser
9.2(a) The Adviser agrees to indemnify and hold harmless the Company
and the principal underwriter for the Contracts and each of their respective
directors and officers and the principal underwriter for the Contracts and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
9.2) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Adviser) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement or prospectus or advertisements or
sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Adviser or Fund by or on behalf
of the Company for use in the Registration Statement or
prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
3
<PAGE> 4
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature for the
Contracts not supplied by the Adviser or persons under its
control) or wrongful conduct of the Fund, Adviser or Adviser
or persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, advertisements or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Section 817(h) of the Internal
Revenue Code (the "Code") and Treasury Regulation 1.817-5 and
any amendments or other modifications to such Section or
Regulation, or to qualify as a regulated investment company
under Subchapter M of the Code); or
(v) arise out of or result from any material breach of any
representation or warranty made by the Fund or the Adviser in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Fund or the Adviser;
as limited by and in accordance with the provisions of Section
9.2(b) and 9.2(c) hereof.
9.2(b) The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
9.2(c) The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
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<PAGE> 5
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Adviser to such party of the Adviser?s election to assume
the defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Adviser will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
9.2(d) The Company agrees promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
9.3 Indemnification By the Fund
9.3(a) The Fund agrees to indemnify and hold harmless the Company and the
principal underwriter for Contracts and each of their respective directors and
officers and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act (collectively, the ?Indemnified Parties? for purposes
of this Section 9.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Fund) or
litigation (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements result from the gross negligence, bad faith or willful
misconduct of the Board or any member thereof, are related to the operations of
the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Section 817(h) of the Code and
Treasury Regulation 1.817-5 and any amendments or other
modifications to such Section or Regulation, or to qualify as
a regulated investment company under Subchapter M of the
Code); or
(ii) arise out of or result from any material breach of any
representations or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of
this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 9.3(b) and
9.3(c) hereof.
9.3(b) The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against
5
<PAGE> 6
on Indemnified Party as such may arise from such Indemnified Party?s willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party?s duties or by reason of such Indemnified Party?s reckless
disregard of obligations and duties under this Agreement or to the Company, the
Fund, the Adviser or each Account, whichever is applicable.
9.3(c) The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent). but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
9.3(d) The Company agrees promptly to notify the Fund of the
commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Fund.
6
<PAGE> 7
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to the Agreement to be executed in its name and on its behalf by its
duly authorized representative on the 25th day of November, 1998.
AMERICAN GENERAL ANNUITY
INSURANCE COMPANY
By: /s/ ILLEGIBLE
---------------------------------
Title: Vice President
------------------------------
Date: 3/8/99
-------------------------------
OPPENHEIMER VARIABLE ACCOUNT
FUNDS
By: /s/ ILLEGIBLE
---------------------------------
Title: Vice President & Secretary
------------------------------
Date: 3/12/99
-------------------------------
OPPENHEIMERFUNDS, INC.
By: /s/ ILLEGIBLE
---------------------------------
Title: Executive Vice President
------------------------------
Date: 3/12/99
-------------------------------
7
<PAGE> 1
EXHIBIT 10(i)
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 22, 1999 as to the American General
Annuity Insurance Company (formerly know as Western National Life Insurance
Company) and February 15, 1999 as to AGA Separate Account A in Post-Effective
Amendment No. 7 to the Registration Statement (Form N-4, Nos. 33-86464/811-8862)
of the AGA Separate Account A.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, Texas
April 26, 1999
<PAGE> 1
EXHIBIT 10(ii)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post Effective Amendment No. 7 to the
Registration Statement on Form N-4 of AGA Separate Account A, formerly WNL
Separate Account A,(File No. 33-86464) of our report dated February 5, 1997 on
our audit of the financial statements and financial statement schedule of
Western National Life Insurance Company. We also consent to the reference to our
firm under the caption "Experts".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Houston, Texas
April 27, 1999
<PAGE> 1
EXHIBIT 16(i)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of American General Annuity 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 "AGAIC
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 AGAIC
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 AGAIC Securities for sale and to
register or license said corporation or any subsidiary thereof as a broker
or dealer in said AGAIC 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 AGAIC 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 AGAIC 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 American General 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 "AGAIC
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 AGAIC
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 AGAIC Securities for sale and to
register or license said corporation or any subsidiary thereof as a broker
or dealer in said AGAIC 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 AGAIC 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 AGAIC 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 American General 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 "AGAIC
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 AGAIC
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 AGAIC Securities for sale and to
register or license said corporation or any subsidiary thereof as a broker
or dealer in said AGAIC 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 AGAIC 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 AGAIC 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
