<PAGE> 1
THE ONE(R) MULTI-MANAGER ANNUITY(SM)
PROSPECTUS
August 2, 1999
AMERICAN GENERAL ANNUITY
INSURANCE COMPANY
A.G. SEPARATE ACCOUNT A
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AMERICAN GENERAL ANNUITY INSURANCE COMPANY
UNITS OF INTEREST UNDER FLEXIBLE PREMIUM INDIVIDUAL FIXED AND
VARIABLE DEFERRED ANNUITY CONTRACTS
THE ONE(R) MULTI-MANAGER ANNUITY(SM)
A.G. SEPARATE ACCOUNT A
[FORMERLY AGA SEPARATE ACCOUNT A]
August 2, 1999
PROSPECTUS
Under the Flexible Premium Individual Fixed and Variable Deferred Annuity
Contracts (the "Contracts") described in this Prospectus, you may accumulate
Contract Value on a fixed or variable basis and receive annuity payments on a
fixed or variable basis. We designed the Contracts for use by individuals on a
Qualified or Non-Qualified basis.
The Contract permits you to invest in and receive retirement benefits in up to 3
Fixed Account Options and/or an array of up to 17 Variable Account Options
described in this prospectus.
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American General Annuity Insurance Company (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 August 2, 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 1-877-888-9859.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY
BANK ONE CORPORATION OR ANY OF ITS AFFILIATES OR CORRESPONDENTS, AND ARE NOT
FEDERALLY INSURED OR GUARANTEED 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.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
ABOUT THE PROSPECTUS............................... 1
FEE TABLE.......................................... 2
SUMMARY............................................ 4
Fixed and Variable Options..................... 4
Guaranteed Death Benefit....................... 6
Transfers...................................... 6
Fees and Charges............................... 6
Payout Options................................. 6
Federal Tax Information........................ 6
Purchase Requirements.......................... 6
SELECTED PURCHASE UNIT DATA........................ 7
GENERAL INFORMATION................................ 8
About the Contract............................. 8
About the Company.............................. 8
About A.G. Separate Account A.................. 8
Units of Interest.............................. 9
Distribution of the Contracts.................. 9
VARIABLE ACCOUNT OPTIONS........................... 10
Summary of Funds............................... 10
PURCHASE PERIOD.................................... 20
Purchase Payments.............................. 20
Right to Return................................ 20
Purchase Units................................. 20
Calculation of Purchase Unit Value............. 20
Choosing Investment Options.................... 21
Fixed Account Options..................... 21
Variable Account Options.................. 21
Stopping Purchase Payments..................... 21
TRANSFERS BETWEEN INVESTMENT OPTIONS............... 22
During the Purchase Period..................... 22
During the Payout Period....................... 22
Communicating Transfer or Reallocation
Instructions................................. 22
Effective Date of Transfer..................... 23
Reservation of Rights.......................... 23
Dollar Cost Averaging Program.................. 23
FEES AND CHARGES................................... 24
Surrender Charge............................... 24
Amount of Surrender Charge................ 24
10% Free Withdrawal....................... 24
Exceptions to Surrender Charge............ 24
Premium Tax Charge............................. 24
Separate Account Charges....................... 24
Fund Annual Expense Charges.................... 25
Other Tax Charges.............................. 25
PAYOUT PERIOD...................................... 26
Fixed Payout................................... 26
Variable Payout................................ 26
Combination Fixed and Variable Payout.......... 26
Payout Date.................................... 26
Payout Options................................. 26
Payout Information............................. 27
</TABLE>
<TABLE>
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SURRENDER OF ACCOUNT VALUE......................... 28
When Surrenders are Allowed.................... 28
Amount That May Be Surrendered................. 28
Partial Surrender.............................. 28
Systematic Withdrawal Program.................. 28
Distributions Required By Federal Tax Law...... 28
DEATH BENEFITS..................................... 29
Beneficiary Information........................ 29
Special Information for Individual Non-Tax
Qualified Contracts.......................... 29
Joint Owner Spousal Election Information....... 29
During the Purchase Period..................... 29
During the Payout Period....................... 29
HOW TO REVIEW INVESTMENT PERFORMANCE OF SEPARATE
ACCOUNT DIVISIONS................................ 30
Types of Investment Performance Information
Advertised................................... 30
Total Return Performance Information......... 30
Standard Average Annual Total Return......... 30
Nonstandard Average Annual Total Return...... 30
Cumulative Total Return...................... 30
Annual Change in Purchase Unit Value......... 31
Cumulative Change in Purchase Unit Value..... 31
Total Return Based on Different Investment
Amounts................................... 31
An Assumed Account Value of $15,000.......... 31
Yield Performance Information.................. 31
AGSPC MONEY MARKET DIVISION........................ 31
DIVISIONS OTHER THAN THE AGSPC MONEY MARKET
DIVISION......................................... 31
PERFORMANCE INFORMATION............................ 31
Average Annual Total Return, Cumulative Return
and Annual and Cumulative Change in Purchase
Unit Value Tables............................ 31
OTHER CONTRACT FEATURES............................ 35
Change of Beneficiary.......................... 35
Cancellation -- The 10 Day "Free Look"......... 35
We Reserve Certain Rights...................... 35
VOTING RIGHTS...................................... 36
Who May Give Voting Instructions............... 36
Determination of Fund Shares Attributable to
Your Account................................. 36
During Purchase Period......................... 36
During Payout Period or after a Death Benefit
Has Been Paid................................ 36
How Fund Shares Are Voted...................... 36
FEDERAL TAX MATTERS................................ 37
Type of Plans.................................. 37
Tax Consequences in General.................... 37
Effect of Tax-Deferred Accumulations........... 38
The Power of Tax-Deferred Growth............... 38
YEAR 2000.......................................... 39
Year 2000 Risks................................ 39
</TABLE>
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ABOUT THE PROSPECTUS
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Unless otherwise specified in this prospectus, the words we, our, Company, AGAIC
and American General Annuity 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 this 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.
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<S> <C>
Account Value.................. 22
A.G. Separate Account A........ 36
Annuitant...................... 26,29
Annuity Service Center......... 22
Assumed Investment Rate........ 26
Beneficiary.................... 29
Contract Anniversary........... 6,22,29
Contract Owner................. 36
Contract Year.................. 24
Divisions...................... 30
Fixed Account Options.......... 29
Mutual Fund or Fund............ 8
Payout Period.................. 22
Payout Unit.................... 26
Purchase Payments.............. 20,30
Purchase Period................ 22
Purchase Unit.................. 20
Variable Account Options....... 10,29
</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
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FEE TABLE
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CONTRACT OWNER EXPENSES(1)(2)
<TABLE>
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Maximum Surrender Charge.................................. 7.00%
</TABLE>
(as a percentage of the Purchase Payment withdrawn and based on the length of
time from when each Purchase Payment was received)
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of Average Account Value):
<TABLE>
<S> <C>
Mortality and Expense Risk Fee............................ 1.00%
Administration Fee........................................ .15%
-----
Total Separate Account Fee......................... 1.15%
</TABLE>
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(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 $25 for each
transfer. See the "Transfers Between Investment Options" section of this
prospectus.
FUND ANNUAL EXPENSES
(as a percentage of net assets):
<TABLE>
<CAPTION>
TOTAL
ANNUAL
PORTFOLIO
EXPENSES
MANAGEMENT (AFTER
FEES (AFTER 12B-1 OTHER FEE
FUND FEE WAIVER) FEES EXPENSES(2) WAIVER)
---- ----------- ------ ----------- ---------
<S> <C> <C> <C> <C>
AGSPC Money Market Fund 0.50% -- 0.04% 0.54%
AIM V.I. International Equity Fund(4) 0.75 -- 0.16 0.91
AIM V.I. Value Fund(4) 0.61 -- 0.05 0.66
Franklin Small Cap Investments Fund -- Class 2(4)(5)(6) 0.15 0.25% 0.85 1.25
One Group(R) Investment Trust Balanced Portfolio(3) 0.70 -- 0.30 1.00
One Group(R) Investment Trust Bond Portfolio(3)(7) 0.47 -- 0.28 0.75
One Group(R) Investment Trust Diversified Equity
Portfolio(3)(7) 0.70 -- 0.25 0.95
One Group(R) Investment Trust Diversified Mid Cap
Portfolio(3)(7) 0.73 -- 0.22 0.95
One Group(R) Investment Trust Equity Index Portfolio(3) 0.00 -- 0.55 0.55
One Group(R) Investment Trust Government Bond Portfolio(3) 0.42 -- 0.33 0.75
One Group(R) Investment Trust Large Cap Growth Portfolio(3) 0.65 -- 0.28 0.93
One Group(R) Investment Trust Mid Cap Growth Portfolio(3) 0.65 -- 0.32 0.97
One Group(R) Investment Trust Mid Cap Value Portfolio(3)(7) 0.71 -- 0.24 0.95
Oppenheimer High Income Fund/VA(3)(4) 0.74 -- 0.04 0.78
Templeton Development Markets Fund -- Class 2(4)(5) 1.25 0.25 0.41 1.91
Van Kampen Emerging Growth Portfolio(3)(4) 0.32 -- 0.53 0.85
Van Kampen Enterprise Portfolio(3)(4) 0.46 -- 0.14 0.60
</TABLE>
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(1) Premium taxes are not shown here, but may be charged by some states. See:
"Premium Tax Charge" in this prospectus.
(2) OTHER EXPENSES may include custody, accounting, reports to shareholders,
audit, legal, administrative or other miscellaneous expenses. See each
Fund's prospectus and statement of additional information which may contain
more detailed information on these fees.
(3) In the absence of management fee waiver, management fees, other expenses
and total annual portfolio operating expenses, respectively, would be: One
Group Investment Trust Balanced Portfolio, 0.70%, 0.30% and 1.00%; One
Group Investment Trust Bond Portfolio, 0.60%, 0.28% and 0.88%; One Group
Investment Trust Diversified Equity Portfolio, 0.74%, 0.25% and 0.99%; One
Group Investment Trust Diversified Mid Cap Portfolio, 0.74%, 0.22% and
0.96%; One Group Investment Trust Equity Index Portfolio, 0.30%, 0.83% and
1.13%; One Group Investment Trust Government Bond Portfolio, 0.45%, 0.33%
and 0.78%; One Group Investment Trust Large Cap Growth Portfolio, 0.65%,
0.28% and 0.93%; One Group Investment Trust Mid Cap Growth Portfolio,
0.65%, 0.32% and 0.97%; One Group Investment Trust Mid Cap Value Portfolio,
0.74%, 0.24% and 0.98%; Van Kampen Emerging Growth Portfolio, 0.70%, 0.53%
and 1.23%; and Van Kampen Enterprise Portfolio, 0.50%, 0.14% and 0.64%.
(4) 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.
(5) The Fund's Class 2 distribution plan or "Rule 12b-1 Plan" is described in
the Fund's prospectus.
(6) Figures reflect expenses from the Fund's inception on May 1, 1998, which
have been annualized for the Management Fees and estimated for Other
Expenses. The manager agrees in advance to limit management fees and
certain payments to reduce the Fund's expenses as necessary so that Total
Annual Portfolio Expenses did not exceed 1.25% of the Fund's Class 2 net
assets. The manager is contractually obligated to continue this arrangement
through 1999. Absent fee waivers, Management Fees, Other Expenses and Total
Annual Portfolio Expenses would be 0.75%, 1.00% and 2.00%, respectively.
(7) Figures reflect expenses which have been restated to reflect estimates of
current fees.
2
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EXAMPLE #1 -- If you do not surrender the Contract at the end of the period
shown or you receive Payout Payments under a Payout Option(1):
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Total Expenses. 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
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<S> <C> <C>
AGSPC Money Market Fund Division 26 $17 $53
AIM V.I. International Equity Fund Division 21 21 65
AIM V.I. Value Fund Division 20 18 57
Franklin Small Cap Investments Fund -- Class 2 Division 23 23 70
One Group Investment Trust Balanced Portfolio Division 9 22 67
One Group Investment Trust Bond Portfolio Division 8 19 60
One Group Investment Trust Diversified Equity Portfolio
Division 1 21 66
One Group Investment Trust Diversified Mid Cap Portfolio
Division 621 21 66
One Group Investment Trust Equity Index Portfolio Division 2 17 54
One Group Investment Trust Government Bond Portfolio
Division 7 19 60
One Group Investment Trust Large Cap Growth Portfolio
Division 3 21 65
One Group Investment Trust Mid Cap Growth Portfolio Division
5 22 66
One Group Investment Trust Mid Cap Value Portfolio Division
4 21 66
Oppenheimer High Income Fund/VA Division 25 20 61
Templeton Developing Markets Fund -- Class 2 Division 24 31 95
Van Kampen Emerging Growth Portfolio Division 22 20 63
Van Kampen Enterprise Portfolio Division 27 18 55
</TABLE>
EXAMPLE #2 -- If you surrender the Contract at the end of the period shown:
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Total Expenses. 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
------ -------
<S> <C> <C>
AGSPC Money Market Fund Division 26 $82 $103
AIM V.I. International Equity Fund Division 21 86 114
AIM V.I. Value Fund Division 20 83 106
Franklin Small Cap Investments Fund -- Class 2 Division 23 87 119
One Group Investment Trust Balanced Portfolio Division 9 87 116
One Group Investment Trust Bond Portfolio Division 8 84 109
One Group Investment Trust Diversified Equity Portfolio
Division 1 86 115
One Group Investment Trust Diversified Mid Cap Portfolio
Division 6 86 115
One Group Investment Trust Equity Index Portfolio Division 2 82 103
One Group Investment Trust Government Bond Portfolio
Division 7 84 109
One Group Investment Trust Large Cap Growth Portfolio
Division 3 86 114
One Group Investment Trust Mid Cap Growth Portfolio Division
5 86 115
One Group Investment Trust Mid Cap Value Portfolio Division
486 86 115
Oppenheimer High Income Fund/VA Division 25 85 110
Templeton Developing Markets Fund -- Class 2 Division 24 95 142
Van Kampen Emerging Growth Portfolio Division 22 85 112
Van Kampen Enterprise Portfolio Division 27 83 105
</TABLE>
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 and statements of additional information. Any
and all limitations on total charges and expenses are reflected in this Fee
Table.
(1) Payout Payments under a Payout Option may not commence prior to the end of
the fourth Contract Year.
3
<PAGE> 8
SUMMARY
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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 17 Variable Account Options. The
Contract also offers three Fixed Account Options, two of which, the DCA One Year
Guarantee Period Option and the DCA Six Month Guarantee Period Option, are
available only for dollar cost averaging. See the "Dollar Cost Averaging
Program" section of this prospectus.
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<TABLE>
<S> <C> <C> <C> <C>
FIXED ACCOUNT
OPTIONS
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FIXED One Year Guarantee Guaranteed current interest income -- --
OPTIONS Period ("One Year
Fixed Account")
-----------------------------------------------------------------------------------------------------------
DCA One Year Guarantee Guaranteed current interest income -- --
Period ("DCA One Year
Fixed Account")
-----------------------------------------------------------------------------------------------------------
DCA Six Month Guaranteed current interest income -- --
Guarantee Period ("DCA
Six Month Fixed
Account")
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VARIABLE ACCOUNT INVESTMENT STRATEGY ADVISER SUB-ADVISER
OPTIONS
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EQUITY AIM V.I. International Long-term growth of capital through A I M Advisors, Inc. --
FUNDS Equity Fund** investments in international equity
securities
-----------------------------------------------------------------------------------------------------------
AIM V.I. Value Fund** Long-term growth of capital by investing A I M Advisors, Inc. --
primarily in equity securities
-----------------------------------------------------------------------------------------------------------
Franklin Small Cap Long-term capital growth. It seeks to Franklin Advisers, --
Investments Fund -- achieve this objective by investing Inc.
Class 2***** primarily in U.S. equity securities of
small capitalization growth companies
-----------------------------------------------------------------------------------------------------------
One Group Investment Total return while preserving capital by Banc One Investment --
Trust Balanced investing in a combination of stocks, Advisors Corporation
Portfolio**** fixed income securities and money market
instruments
-----------------------------------------------------------------------------------------------------------
One Group Investment Long term capital growth and growth of Banc One Investment --
Trust Diversified income with a secondary objective of Advisors Corporation
Equity Portfolio**** providing a moderate level of current
income. The Portfolio invests mainly in
common stocks of overlooked or undervalued
companies that have the potential for
earnings growth over time.
-----------------------------------------------------------------------------------------------------------
One Group Investment Long term capital growth by investing Banc One Investment --
Trust Diversified Mid primarily in equity securities of Advisors Corporation
Cap Portfolio**** companies with intermediate
capitalizations
-----------------------------------------------------------------------------------------------------------
One Group Investment Investment results that correspond to the Banc One Investment --
Trust Equity Index aggregate price and dividend performance Advisors Corporation
Portfolio**** in the Standard & Poor's 500 Composite
Stock Price Index through investment in
equity securities
-----------------------------------------------------------------------------------------------------------
One Group Investment Growth of capital and secondarily, current Banc One Investment --
Trust Mid Cap Growth income by investing primarily in equity Advisors Corporation
Portfolio**** securities
-----------------------------------------------------------------------------------------------------------
One Group Investment Long term capital appreciation and growth Banc One Investment --
Trust Large Cap Growth of income by investing primarily in equity Advisors Corporation
Portfolio**** securities
-----------------------------------------------------------------------------------------------------------
One Group Investment Capital appreciation with the secondary Banc One Investment --
Trust Mid Cap Value goal of achieving current income by Advisors Corporation
Portfolio**** investing primarily in equity securities
-----------------------------------------------------------------------------------------------------------
Templeton Developing Long-term capital appreciation. It seeks Templeton Asset --
Markets Fund -- Class to achieve this objective by investing Management, Ltd.
2***** primarily in emerging market equity
securities
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</TABLE>
4
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<TABLE>
<S> <C> <C> <C>
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VARIABLE ACCOUNT INVESTMENT STRATEGY ADVISER SUB-ADVISER
OPTIONS
- --------------------------------------------------------------------------------------------------------------------
Van Kampen Emerging Capital appreciation by investing in Van Kampen Asset --
Growth Portfolio****** equity securities of small and medium Management Inc.
sized companies in the early stages of
their life cycles
--------------------------------------------------------------------------------------------------------
Van Kampen Enterprise Capital appreciation through investments Van Kampen Asset --
Portfolio****** in common stocks believed to have above Management Inc.
average potential for capital appreciation
- --------------------------------------------------------------------------------------------------------------------
INCOME One Group Investment Total return by investing primarily in a Banc One Investment --
FUNDS Trust Bond diversified portfolio of intermediate and Advisors Corporation
Portfolio**** long term debt securities
--------------------------------------------------------------------------------------------------------
One Group Investment High current income with liquidity and Banc One Investment --
Trust Government Bond safety of principal. The Portfolio mainly Advisors Corporation
Portfolio**** invests in Government Bonds
--------------------------------------------------------------------------------------------------------
Oppenheimer High Income from investments in high yield Oppenheimer Funds, --
Income Fund/VA*** fixed income securities Inc.
- --------------------------------------------------------------------------------------------------------------------
MONEY AGSPC Money Market Income through investments in short-term VALIC --
MARKET Fund* money market securities
FUND
- --------------------------------------------------------------------------------------------------------------------
* A series of American General Series Portfolio Company ("AGSPC").
** A series of AIM Variable Insurance Funds, Inc.
*** A series of Oppenheimer Variable Account Funds.
**** A series of One Group Investment Trust.
***** A series of Templeton Variable Products Series Fund.
****** A series of Van Kampen Life Investment Trust.
</TABLE>
5
<PAGE> 10
SUMMARY -- (CONTINUED)
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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.
GUARANTEED DEATH BENEFIT
The Contract offers a death benefit equal to the greater of:
- - Net Purchase Payments (Purchase Payments less any partial surrenders);
- - Account Value as of the end of the Valuation Period immediately following
receipt of proof of death and the election of the death benefit payment; or
- - The greatest Account Value on any prior Seventh Contract Anniversary plus net
Purchase Payments made after such Contract Anniversary, less any partial
surrenders.
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 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 and between the Variable Account Options and
the One Year Fixed Account Option once each day. However, if you make a transfer
from the One Year Fixed Account Option into one or more Variable Account Options
you will be required to wait six months before you will be allowed to make a
transfer from one or more Variable Account Options back into the One Year 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 One Year Fixed Account Option.
Transfers can be made by calling the Company's toll-free transfer service at
1-877-888-9859. For more information on account transfers, see the "Transfers
Between Investment Options" section in this prospectus.
FEES AND CHARGES
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
7.0% 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 3.5% 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
1.00% and 0.15%, respectively, on the average daily net asset value of A.G.
Separate Account A.
FUND ANNUAL EXPENSE CHARGES
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 this prospectus.
FEDERAL TAX INFORMATION
Although deferred annuity contracts such as the Contract can be purchased with
after-tax dollars, they are also used to fund individual retirement accounts
("IRAs") which may receive favorable tax treatment under federal law.
PURCHASE REQUIREMENTS
The minimum initial Purchase Payment for Non-Qualified Contracts and for
Qualified Contracts is $15,000. The minimum subsequent Purchase Payment is
$1,000 for Non-Qualified Contracts and $250 for Qualified Contracts. The minimum
Purchase Payment requirements may be waived with prior approval by the Company.
The minimum amount per a preauthorized debit Purchase Payment under the
Automatic Check Option is $100. More information about the Automatic Check
Option can be found in the "Purchase Period" section of this prospectus.
More information on FEES
may be found in the
prospectus under the
headings "FEES AND
CHARGES" AND "FEE TABLE."
For a more detailed
discussion of these income
tax provisions, see the
"FEDERAL TAX MATTERS"
section of the prospectus and
of the Statement of Additional
Information.
CONTRACT ANNIVERSARY --the
date that the contract
is issued and each
yearly anniversary
of that date thereafter.
6
<PAGE> 11
Selected Purchase Unit Data
- --------------------------------------------------------------------------------
The Contract is a new variable annuity product; therefore, there is no Selected
Purchase Unit Data available at this time.
7
<PAGE> 12
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
for the Contracts is located at 2727-A Allen Parkway, Houston, Texas 77019. 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." 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 Five represents and invests in the One Group Investment Trust
Mid Cap Growth Portfolio. 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 SEC as a
unit investment trust under the Investment Company Act of 1940 (1940 Act). Units
of interest in A.G. Separate Account A are registered as securities under the
Securities Act of 1933 (1933 Act).
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 or arising
out of any other business the Company may conduct. In accordance with the terms
of
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 A.G.
Separate Account A.
For more information about
THE COMPANY, see the Statement
of Additional Information.
8
<PAGE> 13
- --------------------------------------------------------------------------------
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 interest 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
American General Distributors, Inc. ("Distributor"), an affiliate of the
Company, acts as the distributor for A.G. Separate Account A. Distributor was
formerly known as A.G. Distributors, 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 DISTRIBUTOR,
see the Statement of
Additional Information.
DISTRIBUTOR'S address
is 2929 Allen Parkway,
Houston, Texas 77019.
9
<PAGE> 14
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:
- - AIM Variable Insurance Funds, Inc. -- offers 2 funds for which A I M Advisors,
Inc. serves as investment adviser.
- - American General Series Portfolio Company ("AGSPC") -- offers 1 fund for which
The Variable Annuity Life Insurance Company ("VALIC") serves as investment
adviser.
- - One Group Investment Trust -- offers 9 funds, for which Banc One Investment
Advisors Corporation serves as investment adviser.
- - Oppenheimer Variable Account Funds -- offers 1 fund for which Oppenheimer
Funds, Inc. serves as investment adviser.
- - Templeton Variable Products Series Fund -- offers 2 funds for which Franklin
Advisers, Inc. and Templeton Asset Management Ltd. serve as investment
advisers.
- - Van Kampen Life Investment Trust -- offers 2 funds for which Van Kampen Asset
Management Inc. serves as investment adviser.
Each of these Funds is registered as a diversified open-end, management
investment company and is regulated under the 1940 Act. For more information
about each of these Funds, including charges and expenses, you should refer to
the prospectus and statement of additional information 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
$15,000 investment in each of the Divisions is shown in both table and graph
form. The Standard Average Annual Total Return for the Divisions for a 1, 5 and
10 year period will be shown when it becomes available. If Standard Average
Annual Total Return for a Division is not available for a stated period, we may
show the Standard Average Annual Total Return since inception. We will show the
Standard Average Annual Total Return for Divisions 1-9 and 20-27, 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 surrender charges and premium
taxes. These charges would further reduce your return. The Account Values shown
in the graphs reflect hypothetical 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 Divisions 1-9 and 20-27 reflect actual historical performance of
each Fund based on investment in a hypothetical contract from the date of the
Fund's inception. Hypothetical performance is based on the actual performance of
the underlying Fund reduced by Separate Account fees that would have been
incurred during the hypothetical period. Investment return and principal value
will fluctuate with market conditions, and for foreign investments, currencies
and the economic and political climates of the countries where investments are
made. Past performance cannot predict or guarantee future results.
The Standard Average Annual Total Return figures will show the average
percentage change in the value of an investment in a Division from Division
inception through the end of the period shown. The results shown are after all
charges and fees have been applied against the Division. This will include
surrender charges 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.
10
<PAGE> 15
AGSPC MONEY MARKET FUND
(Division 26)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on April 1, 1989 $ Value
- ------------------------------------ -------
<S> <C>
04/01/89 $15,000
03/31/90 16,105
03/31/91 17,112
03/31/92 17,745
03/31/93 18,065
03/31/94 18,345
03/31/95 18,952
03/31/96 19,747
03/31/97 20,494
03/31/98 21,321
03/31/99 22,124
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON APRIL 1, 1989
[CHART]
PERIOD ENDED MARCH 31
AIM V.I. INTERNATIONAL
EQUITY FUND
(Division 21)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital by investing in a diversified
portfolio of international equity securities whose issuers are considered to
have strong earnings momentum.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on May 5, 1993 $ Value
- ------------------------------------ -------
<S> <C>
05/05/93 $15,000
03/31/94 17,163
03/31/95 17,228
03/31/96 21,223
03/31/97 23,678
03/31/98 28,020
03/31/99 27,585
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON MAY 5, 1993
[CHART]
PERIOD ENDED MARCH 31
* The Division commenced operations on August 2, 1999. Accordingly, the
Standard Average Annual Total Return for the Division will be shown when it
becomes available.
11
<PAGE> 16
AIM V.I. VALUE FUND
(Division 20)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to achieve long-term growth of capital by investing primarily in equity
securities judged by the fund's investment advisor to be undervalued relative to
the investment advisor's appraisal of the current or projected earnings of the
companies issuing the securities, or relative to current market values of assets
owned by the companies issuing the securities or relative to the equity market
generally. Income is a secondary objective.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on May 5, 1993 $ Value
- ------------------------------------ -------
<S> <C>
05/05/93 $15,000
03/31/94 17,523
03/31/95 19,268
03/31/96 23,781
03/31/97 26,551
03/31/98 36,867
03/31/99 46,796
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON MAY 5, 1993
[CHART]
PERIOD ENDED MARCH 31
FRANKLIN SMALL CAP INVESTMENTS FUND -- CLASS 2
(Division 23)**
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth. The Fund seeks to achieve this objective by
investing primarily in equity securities of smaller capitalization growth
companies.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on May 1, 1998 $ Value
- ------------------------------------ -------
<S> <C>
05/01/98 $15,000
03/31/99 13,898
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON MAY 1, 1998
[CHART]
PERIOD ENDED MARCH 31
* The Division commenced operations on August 2, 1999. Accordingly, the
Standard Average Annual Total Return for the Division will be shown when it
becomes available.
** The Division commenced operations on August 2, 1999. Accordingly, the
Standard Average Annual Total Return for the Division will be shown when it
becomes available. Because Class 2 shares were not offered until July 30,
1998, performance shown for periods prior to that date represents the
historical results of Class 1 shares. Performance of Class 2 shares for
periods after July 30, 1998 reflect Class 2's higher annual fees and expenses
resulting from its Rule 12b-1 plan. Maximum annual plan expenses are 0.25%.
12
<PAGE> 17
ONE GROUP INVESTMENT TRUST BALANCED PORTFOLIO
(Division 9)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide total return while preserving capital.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on August 1, 1994 $ Value
- ------------------------------------ -------
<S> <C>
08/01/94 $15,000
03/31/95 15,452
03/31/96 17,909
03/31/97 19,549
03/31/98 25,437
03/31/99 28,308
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON AUGUST 1, 1994
[CHART]
PERIOD ENDED MARCH 31
ONE GROUP INVESTMENT TRUST BOND PORTFOLIO
(Division 8)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to maximize total return by investing primarily in diversified portfolio
of intermediate and long-term debt securities.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on May 1, 1997 $ Value
- ------------------------------------ -------
<S> <C>
05/01/97 $15,000
03/31/98 16,227
03/31/99 17,007
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON MAY 1, 1997
[CHART]
PERIOD ENDED MARCH 31
* The Division commenced operations on August 2, 1999. Accordingly, the
Standard Average Annual Total Return for the Division will be shown when it
becomes available.
13
<PAGE> 18
ONE GROUP INVESTMENT TRUST DIVERSIFIED EQUITY PORTFOLIO
(Division 1)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long term capital growth and growth of income with a secondary objective
of providing a moderate level of current income.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on March 30, 1995 $ Value
- ------------------------------------ -------
<S> <C>
03/30/95 $15,000
03/31/95 14,925
03/31/96 18,342
03/31/97 20,825
03/31/98 28,122
03/31/99 28,380
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON MARCH 30, 1995
[CHART]
PERIOD ENDED MARCH 31
ONE GROUP INVESTMENT TRUST DIVERSIFIED MID CAP PORTFOLIO
(Division 6)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long term capital growth by investing primarily in equity securities of
companies with intermediate capitalizations.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on March 30, 1995 $ Value
- ------------------------------------ -------
<S> <C>
03/30/95 $15,000
03/31/95 14,910
03/31/96 17,580
03/31/97 19,771
03/31/98 28,376
03/31/99 25,320
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON MARCH 30, 1995
[CHART]
PERIOD ENDED MARCH 31
* The Division commenced operations on August 2, 1999. Accordingly, the
Standard Average Annual Total Return for the Division will be shown when it
becomes available.
14
<PAGE> 19
ONE GROUP INVESTMENT TRUST EQUITY INDEX PORTFOLIO
(Division 2)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks investment results that correspond to the aggregate price and dividend
performance of securities in the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500 Index").**
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on May 1, 1998 $ Value
- ------------------------------------ -------
<S> <C>
05/01/98 $15,000
03/31/99 17,291
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON MAY 1, 1998
[CHART]
PERIOD ENDED MARCH 31
ONE GROUP INVESTMENT TRUST GOVERNMENT BOND PORTFOLIO
(Division 7)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks a high level of current income with liquidity and safety of principal.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on August 1, 1994 $ Value
- ------------------------------------ -------
<S> <C>
08/01/94 $15,000
03/31/95 15,483
03/31/96 16,669
03/31/97 17,124
03/31/98 19,009
03/31/99 19,781
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON AUGUST 1, 1994
[CHART]
PERIOD ENDED MARCH 31
* The Division commenced operations on August 2, 1999. Accordingly, the
Standard Average Annual Total Return for the Division will be shown when it
becomes available.
** "S&P 500" is a registered service mark of Standard & Poor's Corporation,
which does not sponsor and is in no way affiliated with One Group Investment
Trust, A.G. Separate Account A or the Company.
15
<PAGE> 20
ONE GROUP INVESTMENT TRUST LARGE CAP GROWTH PORTFOLIO
(Division 3)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital appreciation and growth of income by investing primarily
in equity securities.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on August 1, 1994 $ Value
- ------------------------------------ -------
<S> <C>
08/01/94 $15,000
03/31/95 16,028
03/31/96 19,078
03/31/97 21,720
03/31/98 31,759
03/31/99 42,013
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON AUGUST 1, 1994
[CHART]
PERIOD ENDED MARCH 31
ONE GROUP INVESTMENT TRUST MID CAP GROWTH PORTFOLIO
(Division 5)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks growth of capital and secondarily, current income by investing primarily
in equity securities.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on August 1, 1994 $ Value
- ------------------------------------ -------
<S> <C>
08/01/94 $15,000
03/31/95 15,288
03/31/96 18,987
03/31/97 19,701
03/31/98 29,712
03/31/99 34,005
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON AUGUST 1, 1994
[CHART]
PERIOD ENDED MARCH 31
* The Division commenced operations on August 2, 1999. Accordingly, the Standard
Average Annual Total Return for the Division will be shown when it becomes
available.
16
<PAGE> 21
ONE GROUP INVESTMENT TRUST MID CAP VALUE PORTFOLIO
(Division 4)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation with the secondary goal of achieving current income
by investing primarily in equity securities.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on May 1, 1997 $ Value
- ------------------------------------ -------
<S> <C>
05/01/97 $15,000
03/31/98 18,814
03/31/99 15,231
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON MAY 1, 1997
[CHART]
PERIOD ENDED MARCH 31
OPPENHEIMER HIGH INCOME FUND/VA
(Division 25)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide a high level of current income from investment in high yield
fixed-income securities.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on April 1, 1989 $ Value
- ------------------------------------ -------
<S> <C>
04/01/89 $15,000
03/31/90 15,266
03/31/91 17,919
03/31/92 22,547
03/31/93 26,907
03/31/94 29,987
03/31/95 30,539
03/31/96 36,092
03/31/97 39,829
03/31/98 45,746
03/31/99 45,170
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON APRIL 1, 1989
[CHART]
PERIOD ENDED MARCH 31
* The Division commenced operations on August 2, 1999. Accordingly, the
Standard Average Annual Total Return for the Division will be shown when it
becomes available.
17
<PAGE> 22
TEMPLETON DEVELOPING
MARKETS FUND -- CLASS 2
(Division 24)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long term capital appreciation. The Fund seeks to achieve this objective
by investing primarily in emerging market equity securities.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on March 4, 1996 $ Value
- ------------------------------------ -------
<S> <C>
03/04/96 $15,000
03/31/96 15,015
03/31/97 15,018
03/31/98 10,428
03/31/99 8,217
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON MARCH 4, 1996
[CHART]
PERIOD ENDED MARCH 31
VAN KAMPEN EMERGING GROWTH PORTFOLIO
(Division 22)**
- ---------------------------------------------------------------
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.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on July 3, 1995 $ Value
- ------------------------------------ -------
<S> <C>
07/03/95 $15,000
03/31/96 18,654
03/31/97 18,455
03/31/98 27,684
03/31/99 37,155
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON JULY 3, 1995
[CHART]
PERIOD ENDED MARCH 31
* The Division commenced operations of August 2, 1999. Accordingly, the
Standard Average Annual Total Return for the Division will be shown when it
becomes available. Because Class 2 shares of the Fund were not offered until
May 1, 1997, performance shown for periods prior to that date represents the
historical results of Class 1 shares. Performance of Class 2 shares for
periods after May 1, 1997 reflect Class 2's higher annual fees and expenses
resulting from its Rule 12b-1 plan. Maximum annual plan expenses are 0.25%.
Past expense reductions by the manager increased returns.
** The Division commenced operations on August 2, 1999. Accordingly, the
Standard Average Annual Total Return for the Division will be shown when it
becomes available.
18
<PAGE> 23
VAN KAMPEN ENTERPRISE
PORTFOLIO
(Division 27)*
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation growth through investments in common stocks believed
to have above average potential for capital appreciation.
<TABLE>
<CAPTION>
Annual Value of a $15,000 Investment
in a Hypothetical Contract made
on April 1, 1989 $ Value
- ------------------------------------ -------
<S> <C>
04/01/89 $15,000
03/31/90 17,382
03/31/91 18,849
03/31/92 21,747
03/31/93 24,632
03/31/94 24,810
03/31/95 27,058
03/31/96 35,828
03/31/97 40,990
03/31/98 60,902
03/31/99 67,745
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $15,000
INVESTMENT IN A HYPOTHETICAL CONTRACT MADE ON APRIL 1, 1989
[CHART]
PERIOD ENDED MARCH 31
* The Division commenced operations of August 2, 1999. Accordingly, the Standard
Average Annual Total Return for the Division will be shown when it becomes
available.
19
<PAGE> 24
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 is received.
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(1) $15,000 $1,000
Qualified Contract(1) $15,000 $ 250
</TABLE>
- ---------------
(1) These amounts may be lowered with prior Company approval.
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 $1,000,000.
You may select the Automatic Check Option. The Automatic Check Option allows you
to preauthorize debits against a bank account that you indicate. The minimum
amount per a preauthorized debit Purchase Payment under the Automatic Check
Option is $100.
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.
In certain states, where we are required by state law to refund an amount equal
to Purchase Payments, we invest your initial Purchase Payment and any additional
Purchase Payments in the Money Market Division 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 you have chosen. See "Right to Return," below.
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 adjusted to reflect
investment experience. (In certain states, we will return Purchase Payments 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 after you
receive it (may vary by state). The address for the Annuity Service Center is
located in the back of this prospectus.
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 at our Annuity Service Center before the close of the Exchange. If not,
they will be calculated and credited the next business day. Purchase Unit values
will vary depending on the net investment results of each of the Variable
Account Options. This means the value of your Variable Account Option will
fluctuate.
CALCULATION OF PURCHASE UNIT VALUE
The Purchase Unit value for a Division is calculated as shown below:
Step 1: Calculate the gross investment rate:
Gross Investment Rate
= (EQUALS)
The Division's investment income and capital gains and losses (whether
realized or unrealized) on that day from the assets attributable to the
Division.
/ (DIVIDED BY)
The value of the Division for the immediately preceding day on which the
values are calculated.
PURCHASE PAYMENTS -- an
amount of money you pay to
the Company to receive the
benefits of an annuity
offered by the Contract.
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.
20
<PAGE> 25
- --------------------------------------------------------------------------------
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 20 investment options offered under the Contract. This includes 3
Fixed Account Options and 17 Variable Account Options. The Funds that underlie
the Variable Account Options are registered as investment companies under and
are subject to regulation of the 1940 Act. The Fixed Account Options are not
subject to regulation under the 1940 Act and are not required to be registered
under the 1933 Act. 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 "Summary" appearing in this prospectus. The DCA One Year Fixed
Account Option and the DCA Six Month Fixed Account Option are 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 and in each Funds' 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.
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.
21
<PAGE> 26
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 among the Variable Account
Options and between the Variable Account Options and the One Year Fixed Account
Option free of charge. We reserve the right to impose a fee of $25 for each
transfer (which will be deducted from the amount transferred).
We currently permit transfers among the Variable Account Options and between the
Variable Account Options and the One Year Fixed Account Option once per day.
However, if you make a transfer from the One Year Fixed Account Option into one
or more Variable Account Options you will be required to wait six months before
you will be allowed to make a transfer from one or more Variable Account Options
back into the One Year Fixed Account Option. In addition, we may 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 One
Year Fixed Account Option from which the transfer is made. If a transfer request
would reduce your Account Value in a Variable Account Option or the One Year
Fixed Account Option below $500, we will transfer your entire Account Value in
that Variable Account Option or the One Year Fixed Account Option.
Transfers from the One Year Fixed Account Option to a Variable Account Option
are limited to a maximum of 25% of the Account Value of the One Year Fixed
Account Option, per a year.
We currently do not permit transfers from the Variable Account Options to the
DCA Fixed Account Options. Transfers from the DCA Fixed Account Options may only
be made under the Dollar Cost Averaging Program or by transferring the entire
Account Value in the respective DCA Fixed Account Option. 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 One Year 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 $25 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
Variable Account to be transferred is
Options(1). Once per $250 or the entire
year if the transfer amount in the
is made to the One Variable Account
Year Guarantee Option if less. The
Period Fixed Account minimum amount which
Option. 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) The Company may change the number of transfers permitted to no more than six
(6) transfers per year during the Payout Period.
(2) Currently, no transfer fee is imposed on transfers. The Company reserves the
right to impose a fee of $25.
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
1-877-888-9859. 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, 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
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 for the
Contracts is located at
2727-A Allen Parkway,
Houston, Texas 77019
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.
22
<PAGE> 27
- --------------------------------------------------------------------------------
reasonably believe to be genuine will be your responsibility. This includes
losses from errors in communication. Telephone transfer instructions may not be
made during the Payout Period. We reserve the right to stop telephone transfers
at any time.
EFFECTIVE DATE OF TRANSFER
The effective date of a transfer will be:
- - The date of receipt, if received 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 One Year Fixed Account Option or
a 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 One Year Fixed Account Option 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 Money Market
Division to one or more Variable Account Options not including the Money Market
Division. 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 three Fixed Account
Options, two of which, the DCA One Year Fixed Account and the DCA Six Month
Fixed Account, are available only for dollar cost averaging. The One Year Fixed
Account Option may also be used for dollar cost averaging over a maximum of 60
months with a maximum of 25% of Account Value allowed to be transferred per a
year.
We determine the amount of transfers from a Fixed Account Option or the Money
Market Division by dividing the Purchase Payments allocated to that Fixed
Account Option or the Money Market Division by a factor based on the number of
months remaining in the term. Transfers from a Fixed Account Option or the Money
Market Division are only available on a monthly basis. We require that you
specify each allocation to a Variable Account Option, not including the Money
Market Division, in whole percentages.
We will transfer your entire Account Value in a DCA Fixed Account Option by the
expiration of its term. The minimum amount to be transferred under the Dollar
Cost Averaging Program is $250. Any transfers of Account Value from a DCA Fixed
Account Option, which are not made under the Dollar Cost Averaging Program, must
be for 100% of the Account Value in the DCA Fixed Account Option from which the
transfer is made. We currently do not permit transfers to either DCA Fixed
Account Option from the Variable Account Options or the One Year Fixed Account
Option.
You may enroll in the Dollar Cost Averaging Program for the DCA Fixed Account
Options only when you make your initial or additional Purchase Payments.
However, you may enroll in the Dollar Cost Averaging Program for the Money
Market Division and the One Year Fixed Account Option at any time. If you choose
the Money Market Division for dollar cost averaging, it must be for at least a
12 month period. There is no charge for the Dollar Cost Averaging Program. We do
not take into account transfers made pursuant to the Dollar Cost Averaging
Program in assessing any transfer fee.
The chart below explains the different Account Options you may choose if you
elect to participate in the Dollar Cost Averaging Program offered by the
Contract:
<TABLE>
<CAPTION>
FREQUENCY OTHER
ACCOUNT OPTION OF TRANSFERS RESTRICTIONS
- --------------------- ------------------ ------------------
<S> <C> <C>
- - DCA One Year Fixed Monthly, for a 12 You may only
Account Option month period participate at the
time that Purchase
Payments are
made.(1)
- - DCA Six Month Fixed Monthly, for a 6 You may only
Account Option month period participate at the
time that Purchase
Payments are
made.(1)
- - One Year Fixed Monthly You may only use
Account Option this account
option for the
Dollar Cost
Averaging Program
for a maximum of
60 months and you
may only transfer
up to 25% of your
Account Value per
a year.
- - Money Market Monthly You must remain in
Division this account
option for the
Dollar Cost
Averaging Program
for at least a 12
month period.
</TABLE>
- ---------------
(1) You will not be permitted to transfer Account Value into a DCA Fixed Account
Option once the entire Account Value has been transferred out of a DCA Fixed
Account Option.
23
<PAGE> 28
FEES AND CHARGES
- --------------------------------------------------------------------------------
By investing in the Contract, you may be subject to five basic types of fees and
charges:
- - Surrender Charge
- - Premium Tax Charge
- - Separate Account Charges
- - Fund Annual Expense Charges
- - 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.
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 7%
2 7%
3 5%
4 5%
5 4%
6 2%
7+ 0%
</TABLE>
10% Free Withdrawal
For each Contract Year after the first Contract Year, up to 10% of the Account
Value may be withdrawn each Contract Year without a surrender charge. During the
First Contract Year, up to 10% of the Account Value may be withdrawn without a
surrender charge only under the systematic withdrawal option, see the "Surrender
of Account Value" section of this prospectus. 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 date of the first withdrawal during the Contract Year, just prior to
the withdrawal.
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 made after the fourth Contract Year; 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 1.00%
and 0.15%, respectively, on the average daily net asset value of A.G. Separate
Account A. Each charge is guaranteed and cannot be increased by the Company. The
mortality and expense risk fee is to compensate the Company for assuming
mortality and expense risks under the 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 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
CONTRACT YEAR -- the first
twelve month period and
then each yearly anniversary
of that period following the
issue date of the contract.
24
<PAGE> 29
- --------------------------------------------------------------------------------
limited to enrollment and Contract Owner education).
The Company may make a profit on the mortality and expense risk fee and on the
administration fee.
For more information about the mortality and expense risk fee and administration
fee, see the Fee Table in this prospectus.
FUND ANNUAL EXPENSE CHARGES
Investment management charges based on a percentage of each Fund's average daily
net assets are payable by each Fund. Depending on the Variable Account Option
selected, the charges will be paid by each Fund to its investment adviser. These
charges and other Fund charges and expenses are described in the prospectuses
and statements of additional information for the Funds and in this prospectus.
These charges indirectly cost you because they lower your return.
OTHER TAX CHARGES
We reserve the right to charge for certain taxes (other than premium taxes) that
we may have to pay. This could include federal income taxes. Currently, no such
charges are being made.
25
<PAGE> 30
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(2);
- 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. The Payout Date must be at least four
years after the date that the Contract is issued. You may change the Payout Date
subject to our approval. 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. Non-qualified annuities do not
have a specific date. For additional information on the minimum distribution
rules that apply to payments under IRA 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.
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.
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).
26
<PAGE> 31
- --------------------------------------------------------------------------------
- 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.
- 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 One Year 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, semiannual 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".
27
<PAGE> 32
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.
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 = (EQUALS) Any Applicable
Surrender
Charge and any
applicable taxes
</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 5 business 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.
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 One
Year Fixed Account Option for up to six months. We currently do not permit
partial surrenders from the DCA Fixed Account Options.
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. See the "Fees and Charges" 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.
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.
28
<PAGE> 33
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 Payout Period.
If the Annuitant dies before the Payout 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
If death occurs prior to your 86th 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 Payment
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 attained age of 86 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>
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.
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 three Fixed
Account Options: the One Year
Fixed Account Option; the DCA
Six Month Fixed Account Option;
and the DCA One Year Fixed
Account Option. The One Year
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 may 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.
29
<PAGE> 34
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.
Some of the Divisions (and underlying Funds) offered in this prospectus were
previously or currently are available through other annuity or life insurance
contracts. We may therefore, advertise investment performance since the
inception of the underlying Funds. In each case, we will use the charges and
fees imposed by the Contract in calculating the Division's investment
performance.
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 $15,000
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 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, 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. 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. For Divisions 1-9 and 20-27, which recently commenced operations, only
Nonstandard Average Annual Total Returns are shown. Accordingly, the Standard
Average Annual Total Return for each of these Divisions will be shown when it
becomes available.
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, 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
$15,000. The Cumulative Return will be calculated without deduction of surrender
charges or premium taxes.
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.
30
<PAGE> 35
- --------------------------------------------------------------------------------
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.
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. 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 $15,000
We may show annual values based on an initial investment of $15,000. This will
not reflect any deduction for surrender charges and premium taxes.
YIELD PERFORMANCE INFORMATION
We may advertise Yield Performance, at a given point in time. A Division's yield
is one way of showing the rate of income the Division is earning as a percentage
of the Division's Purchase Unit Value.
AGSPC MONEY MARKET DIVISION
We may advertise the AGSPC Money Market Division's Current Yield and Effective
Yield.
The Current Yield refers to the income produced by an investment in the AGSPC
Money Market Division over a given 7-day period. The Current Yield does not take
into account surrender charges or premium taxes. The income produced over a 7
day period is then "annualized." This means we are assuming the amount of income
produced during the 7-day period will continue to be produced each week for an
entire year. The annualized amount is shown as a percentage of the investment.
The Effective Yield is calculated in a manner similar to the Current Yield. But,
when the yield is annualized the income earned is assumed to be reinvested. The
compounding effect will cause the Effective Yield to be higher than the Current
Yield.
DIVISIONS OTHER THAN THE AGSPC MONEY MARKET DIVISION
We may advertise the standardized yield performance for each Division other than
the AGSPC Money Market Division. The yield for each Division will be determined
as follows:
- We will divide the average daily net investment income per Purchase Unit by
the Purchase Unit Value on the last day of the period; and
- We will annualize the result.
PERFORMANCE INFORMATION:
AVERAGE ANNUAL TOTAL RETURN, CUMULATIVE RETURN AND ANNUAL AND CUMULATIVE CHANGE
IN PURCHASE UNIT VALUE TABLES.
In the sections above we have described a number of ways we may advertise
information about the investment performance of A.G. Separate Account A
Divisions. Certain performance information for each A.G. Separate Account A
Division is printed in the three 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.
31
<PAGE> 36
TABLE I
AVERAGE ANNUAL TOTAL RETURN OF AN INVESTMENT
IN A HYPOTHETICAL CONTRACT* WITH SURRENDER CHARGE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO MARCH 31, 1999)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION DATE INCEPTION 10 YEARS 5 YEARS 1 YEAR
----------------- --------- --------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
AGSPC Money Market Fund (Division 26)....................... 01/16/86 -- 3.96% 3.12% (2.77)%
AIM V.I. International Equity Fund (Division 21)............ 05/05/93 10.82% -- 9.83 (7.75)
AIM V.I. Value Fund (Division 20)........................... 05/05/93 20.98 -- 21.34 19.93
Franklin Small Cap Investments Fund -- Class 2 (Division
23)(1).................................................... 05/01/98 (13.18) -- -- --
One Group Investment Trust Balanced Portfolio (Division
9)........................................................ 08/01/94 13.92 -- -- 4.29
One Group Investment Trust Bond Portfolio (Division 7)(2)... 05/01/97 3.28 -- -- (1.80)
One Group Investment Trust Diversified Equity Portfolio
(Division 1)(2)........................................... 03/30/95 16.63 -- -- (5.44)
One Group Investment Trust Diversified Mid Cap Portfolio
(Division 6)(2)........................................... 03/30/95 13.11 -- -- (16.39)
One Group Investment Trust Equity Index Portfolio (Division
2)........................................................ 05/01/98 8.27 -- -- --
One Group Investment Trust Government Bond Portfolio
(Division 7).............................................. 08/01/94 5.23 -- -- (2.49)
One Group Investment Trust Large Cap Growth Portfolio
(Division 3).............................................. 08/01/94 24.22 -- -- 25.29
One Group Investment Trust Mid Cap Growth Portfolio
(Division 5).............................................. 08/01/94 18.61 -- -- 7.45
One Group Investment Trust Mid Cap Value Portfolio (Division
4)(2)..................................................... 05/01/97 (2.57) -- -- (24.15)
Oppenheimer High Income Fund/VA (Division 25)............... 04/30/86 -- 11.65 7.96 (7.48)
Templeton Developing Markets Fund Class 2 (Division
24)(3).................................................... 03/04/96 (19.00) -- -- (26.17)
Van Kampen Emerging Growth Portfolio (Division 22).......... 07/03/95 26.71 -- -- 27.21
Van Kampen Enterprise Portfolio (Division 27)............... 04/07/86 -- 16.27 21.89 4.24
</TABLE>
- ---------------
* The performance figures in the Table reflect the investment performance for
the Funds for the stated periods and should not be used to infer that future
performance will be the same. The Table reflects the historical performance
of each Fund based on investment in a hypothetical Contract from the date of
the Fund's inception. Hypothetical performance is based on the actual
performance of the underlying Fund reduced by Separate Account fees that
would have been incurred during the hypothetical period. The Standard
Average Annual Total Return for Divisions 1-9 and 20-27 will be shown when
it becomes available.
(1) Because Class 2 shares were not offered until July 30, 1998, performance
shown for periods prior to that date represents the historical results of
Class 1 shares. Performance of Class 2 shares for periods after July 30,
1998 reflect Class 2's higher annual fees and expenses resulting from its
Rule 12b-1 plan. Maximum annual plan expenses are 0.25%.
(2) The performance information and inception dates reflect that certain One
Group Investment Trust Portfolios inherited the financial history of certain
Pegasus Variable Funds. Specifically, One Group Investment Trust Bond
Portfolio, One Group Investment Trust Diversified Equity Portfolio, One
Group Investment Trust Diversified Mid Cap Portfolio and One Group
Investment Trust Mid Cap Value Portfolio inherited the financial history of
Pegasus Variable Bond Fund, Pegasus Variable Growth and Value Fund, Pegasus
Variable Mid-Cap Opportunity Fund and Pegasus Variable Intrinsic Value Fund,
respectively.
(3) Because Class 2 shares were not offered until May 1, 1997, performance shown
for the periods prior to that date represents the historical results of
Class 1 shares. Performance of Class 2 shares for periods after May 1, 1997
reflect Class 2's higher annual fees and expenses resulting from its Rule
12b-1 plan. Maximum annual plan expenses are 0.25%. Past expense reductions
by the manager increased returns.
32
<PAGE> 37
TABLE II
AVERAGE ANNUAL TOTAL RETURN OF AN INVESTMENT
IN A HYPOTHETICAL CONTRACT* WITH NO SURRENDER CHARGE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO MARCH 31, 1999)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION DATE INCEPTION 10 YEARS 5 YEARS 1 YEAR
----------------- --------- --------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
AGSPC Money Market Fund (Division 26)....................... 01/16/86 -- 3.96% 3.82% 3.77%
AIM V.I. International Equity Fund (Division 21)............ 05/05/93 11.22% -- 10.37 (1.55)
AIM V.I. Value Fund (Division 20)........................... 05/05/93 21.24 -- 21.71 26.93
Franklin Small Cap Investments Fund -- Class 2 (Division
23)(1).................................................... 05/01/98 (7.35) -- -- --
One Group Investment Trust Balanced Portfolio (Division
9)........................................................ 08/01/94 14.58 -- -- 11.29
One Group Investment Trust Bond Portfolio (Division 7)(2)... 05/01/97 6.78 -- -- 4.81
One Group Investment Trust Diversified Equity Portfolio
(Division 1)(2)........................................... 03/30/95 17.26 -- -- 0.92
One Group Investment Trust Diversified Mid Cap Portfolio
(Division 6)(2)........................................... 03/30/95 13.96 -- -- (10.77)
One Group Investment Trust Equity Index Portfolio (Division
2)........................................................ 05/01/98 15.27 -- -- --
One Group Investment Trust Government Bond Portfolio
(Division 7).............................................. 08/01/94 6.11 -- -- 4.06
One Group Investment Trust Large Cap Growth Portfolio
(Division 3).............................................. 08/01/94 24.70 -- -- 32.29
One Group Investment Trust Mid Cap Growth Portfolio
(Division 5).............................................. 08/01/94 19.17 -- -- 21.44
One Group Investment Trust Mid Cap Value Portfolio (Division
4)(2)..................................................... 05/01/97 0.80 -- -- (19.04)
Oppenheimer High Income Fund/VA (Division 25)............... 04/30/86 -- 11.65 8.54 (1.26)
Templeton Developing Markets Fund Class 2 (Division
24)(3).................................................... 03/04/96 (17.78) -- -- (21.20)
Van Kampen Emerging Growth Portfolio (Division 22).......... 07/03/95 27.40 -- -- 34.21
Van Kampen Enterprise Portfolio (Division 27)............... 04/07/86 -- 16.27 22.25 11.24
</TABLE>
- ---------------
* The performance figures in the Table reflect the investment performance for
the Funds for the stated periods and should not be used to infer that future
performance will be the same. The Table reflects the historical performance
of each Fund based on investment in a hypothetical Contract from the date of
the Fund's inception. Hypothetical performance is based on the actual
performance of the underlying Fund reduced by Separate Account fees that
would have been incurred during the hypothetical period. The Standard
Average Annual Total Return for Divisions 1-9 and 20-27 will be shown when
it becomes available.
(1) Because Class 2 shares were not offered until July 30, 1998, performance
shown for periods prior to that date represents the historical results of
Class 1 shares. Performance of Class 2 shares for periods after July 30,
1998 reflect Class 2's higher annual fees and expenses resulting from its
Rule 12b-1 plan. Maximum annual plan expenses are 0.25%.
(2) The performance information and inception dates reflect that certain One
Group Investment Trust Portfolios inherited the financial history of certain
Pegasus Variable Funds. Specifically, One Group Investment Trust Bond
Portfolio, One Group Investment Trust Diversified Equity Portfolio, One
Group Investment Trust Diversified Mid Cap Portfolio and One Group
Investment Trust Mid Cap Value Portfolio inherited the financial history of
Pegasus Variable Bond Fund, Pegasus Variable Growth and Value Fund, Pegasus
Variable Mid-Cap Opportunity Fund and Pegasus Variable Intrinsic Value Fund,
respectively.
(3) Because Class 2 shares were not offered until May 1, 1997, performance shown
for the periods prior to that date represents the historical results of
Class 1 shares. Performance of Class 2 shares for periods after May 1, 1997
reflect Class 2's higher annual fees and expenses resulting from its Rule
12b-1 plan. Maximum annual plan expenses are 0.25%. Past expense reductions
by the manager increased returns.
33
<PAGE> 38
TABLE III
CUMULATIVE RETURN OF AN INVESTMENT
IN A HYPOTHETICAL CONTRACT* WITH NO SURRENDER CHARGE IMPOSED
(FROM UNDERLYING FUND INCEPTION TO MARCH 31, 1999)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION DATE INCEPTION 10 YEARS 5 YEARS 1 YEAR
----------------- --------- --------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
AGSPC Money Market Fund (Division 26)....................... 01/16/86 -- 47.49% 20.60% 3.77%
AIM V.I. International Equity Fund (Division 21)............ 05/05/93 87.42% -- 63.80 (1.55)
AIM V.I. Value Fund (Division 20)........................... 05/05/93 211.97 -- 167.05 26.93
Franklin Small Cap Investments Fund -- Class 2 (Division
23)(1).................................................... 05/01/98 (7.35) -- -- --
One Group Investment Trust Balanced Portfolio (Division
9)........................................................ 08/01/94 88.72 -- -- 11.29
One Group Investment Trust Bond Portfolio (Division 7)(2)... 05/01/97 13.38 -- -- 4.81
One Group Investment Trust Diversified Equity Portfolio
(Division 1)(2)........................................... 03/30/95 89.20 -- -- 0.92
One Group Investment Trust Diversified Mid Cap Portfolio
(Division 6)(2)........................................... 03/30/95 68.80 -- -- (10.77)
One Group Investment Trust Equity Index Portfolio (Division
2)........................................................ 05/01/98 15.27 -- -- --
One Group Investment Trust Government Bond Portfolio
(Division 7).............................................. 08/01/94 31.87 -- -- 4.06
One Group Investment Trust Large Cap Growth Portfolio
(Division 3).............................................. 08/01/94 180.09 -- -- 32.29
One Group Investment Trust Mid Cap Growth Portfolio
(Division 5).............................................. 08/01/94 126.70 -- -- 14.45
One Group Investment Trust Mid Cap Value Portfolio (Division
4)(2)..................................................... 05/01/97 1.54 -- -- (19.04)
Oppenheimer High Income Fund/VA (Division 25)............... 04/30/86 -- 201.13 50.63 (1.26)
Templeton Developing Markets Fund Class 2 (Division
24)(3).................................................... 03/04/96 (45.22) -- -- (21.20)
Van Kampen Emerging Growth Portfolio (Division 22).......... 07/03/95 147.70 -- -- 34.21
Van Kampen Enterprise Portfolio (Division 27)............... 04/07/86 -- 351.64 173.06 11.24
</TABLE>
- ---------------
* The performance figures in the Table reflect the investment performance for
the Funds for the stated periods and should not be used to infer that future
performance will be the same. The Table reflects the historical performance
of each Fund based on investment in a hypothetical Contract from the date of
the Fund's inception. Hypothetical performance is based on the actual
performance of the underlying Fund reduced by Separate Account fees that
would have been incurred during the hypothetical period. The Standard
Average Annual Total Return for Divisions 1-9 and 20-27 will be shown when
it becomes available.
(1) Because Class 2 shares were not offered until July 30, 1998, performance
shown for periods prior to that date represents the historical results of
Class 1 shares. Performance of Class 2 shares for periods after July 30,
1998 reflect Class 2's higher annual fees and expenses resulting from its
Rule 12b-1 plan. Maximum annual plan expenses are 0.25%.
(2) The performance information and inception dates reflect that certain One
Group Investment Trust Portfolios inherited the financial history of certain
Pegasus Variable Funds. Specifically, One Group Investment Trust Bond
Portfolio, One Group Investment Trust Diversified Equity Portfolio, One
Group Investment Trust Diversified Mid Cap Portfolio and One Group
Investment Trust Mid Cap Value Portfolio inherited the financial history of
Pegasus Variable Bond Fund, Pegasus Variable Growth and Value Fund, Pegasus
Variable Mid-Cap Opportunity Fund and Pegasus Variable Intrinsic Value Fund,
respectively.
(3) Because Class 2 shares were not offered until May 1, 1997, performance shown
for the periods prior to that date represents the historical results of
Class 1 shares. Performance of Class 2 shares for periods after May 1, 1997
reflect Class 2's higher annual fees and expenses resulting from its Rule
12b-1 plan. Maximum annual plan expenses are 0.25%. Past expense reductions
by the manager increased returns.
34
<PAGE> 39
OTHER CONTRACT FEATURES
- --------------------------------------------------------------------------------
CHANGE OF BENEFICIARY
The Beneficiary (if not irrevocable) may usually be changed at any time.
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 5 business days after receipt of the Contract within
the required period. The refund amount will be your Purchase Payment, which,
depending on state law, will be adjusted to reflect investment experience. See
"Purchase Period -- Right to Return," in this prospectus.
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
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.
35
<PAGE> 40
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, other unaffiliated insurance 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.
36
<PAGE> 41
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 a Section
408(b) IRA or is instead a nonqualified Contract. The Contract is used under the
following types of retirement arrangements:
Section 408(b) individual retirement annuities are "Qualified Contracts."
Certain series of the Contract may also be available through a nondeductible
Section 408A "Roth" individual retirement annuity.
In addition, the Contract is also available through "Non-Qualified Contracts."
Such Non-Qualified Contracts include 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 pre-tax or after-tax
contributions by individuals, depending on the type of retirement program.
After-tax contributions constitute "investment in the Contract." A Qualified
Contract receives 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. 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 that 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.
37
<PAGE> 42
- --------------------------------------------------------------------------------
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The chart below compares the results of
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 408(b)
individual retirement 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 surrender charges. The dotted
lines represent the amounts remaining after withdrawal and payment of taxes and
any surrender charge. An additional 10% tax penalty may apply to withdrawals
before age 59 1/2. This information is for illustrative purposes only and is not
a guarantee of future return.
Unlike savings accounts, Premium Payments made to tax-favored retirement
programs and Non-Qualified Contracts generally provide tax deferred treatment on
earnings. In addition, Premium Payments made to tax-favored retirement programs
ordinarily are not subject to income tax until withdrawn. As shown above,
investing in a tax-favored program increases the accumulation power of savings
over time. The more taxes saved and reinvested in the program, the more the
accumulation power effectively grows over the years.
To further illustrate the advantages of tax-deferred savings using a 28% Federal
tax bracket, an annual fixed yield (BEFORE THE DEDUCTION OF ANY FEES OR CHARGES)
of 8% under a tax-favored retirement program in which tax savings were
reinvested has an equivalent after-tax annual fixed yield of 5.76% under a
conventional savings program. THE 8% YIELD ON THE TAX-FAVORED PROGRAM WILL BE
REDUCED BY THE IMPACT OF INCOME TAXES UPON WITHDRAWAL. The yield will vary
depending upon the timing of withdrawals. The previous chart represents (without
factoring in fees and charges) after-tax amounts that would be received.
By taking into account the current deferral of taxes, contributions to
tax-favored retirement programs increase the amount available for savings by
decreasing the relative current out-of-pocket cost (referring to the effect on
annual net take-home pay) of the investment. The chart below illustrates this
principle by comparing a pre-tax contribution to a tax-favored retirement plan
with an after-tax contribution to a conventional savings account:
PAYCHECK COMPARISON
<TABLE>
<CAPTION>
TAX-FAVORED CONVENTIONAL
RETIREMENT SAVINGS
PROGRAM ACCOUNT
----------- ------------
<S> <C> <C>
Annual amount available
for savings before
federal taxes......... $2,000 $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-favored program, subject to being taxed upon withdrawal. Stated otherwise,
to reach an annual retirement savings goal of $2,000, the contribution to a tax-
favored retirement program results in a current
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-favored
retirement program represented in this chart is a Section 408(b) individual
retirement annuity, which allows the Contract Owner to exclude contributions
within limits, from gross income.
38
<PAGE> 43
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 critical 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; (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.
Contingency plans were substantially completed 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 or
A.G. Separate Account A. In addition, third party Year 2000 Problems and any
Year 2000 problems associated with investments in foreign markets, may have a
significant impact on the Company and/or A.G. Separate Account A.
Through May, 1999, the Company has incurred and expensed over $1.4 million
(pretax) related to Year 2000 readiness. The Company currently anticipates that
it will incur future costs of approximately $118,000 (pretax), to maintain Year
2000 readiness, and complete Year 2000 work on non-critical systems and third
party relationships. In addition, the Company accelerated the planned
replacement of certain systems as part of the Company's Year 2000 plans.
39
<PAGE> 44
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<PAGE> 45
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
1-877-888-9859.
................................................................................
THE CONTRACTS
Please send me a free copy of the Statement of Additional Information for A.G.
Separate Account A (The One Multi-Manager Annuity).
(Please Print or Type)
Name: ______________________________________ Policy # ________________________
Address: ___________________________________
____________________________________________
Social Security Number: __________________________
<PAGE> 46
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<PAGE> 47
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information.............................. 3
The Company...................................... 3
Marketing Information............................ 3
Endorsements and Published Ratings............... 4
Types of Variable Annuity Contracts.............. 5
Variable Annuity Contract General Provisions..... 5
Federal Tax Matters.............................. 6
Tax Consequences of Purchase Payments........ 6
Tax Consequences of Distributions............ 7
Special Tax Consequences -- Early
Distribution.............................. 7
Special Tax Consequences -- Required
Distributions............................. 8
Tax Free Rollovers, Transfers and
Exchanges................................. 8
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......................... 11
AGSPC Money Market Division Yields........... 11
Illustration of Calculation of Current Yield
for AGSPC Money Market Division
Twenty-Six................................ 11
Illustration of Calculation of Effective
Yield for AGSPC Money Market Division
Twenty-Six................................ 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 $15,000 Account Value and
Cumulative Return as Compared to Benchmark
Tables.................................... 14
Performance Compared to Market Indices....... 14
AGSPC Money Market Fund Division Twenty-Six.. 16
AIM V.I. International Equity Fund Division
Twenty-One................................ 16
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AIM V.I. Value Fund Division Twenty.......... 17
Franklin Small Cap Investments Fund -- Class
2 Division Twenty-Three................... 17
One Group Investment Trust Balanced Portfolio
Performance Division Nine................. 18
One Group Investment Trust Bond Portfolio
Division Eight............................ 18
One Group Investment Trust Diversified Equity
Portfolio Division One.................... 19
One Group Investment Trust Diversified Mid
Cap Portfolio Division Six................ 19
One Group Investment Trust Equity Index
Portfolio Division Two.................... 20
One Group Investment Trust Government Bond
Portfolio Division Seven.................. 20
One Group Investment Trust Large Cap Growth
Portfolio Division Three.................. 21
One Group Investment Trust Mid Cap Growth
Portfolio Division Five................... 21
One Group Investment Trust Mid Cap Value
Portfolio Division Four................... 22
Oppenheimer High Income Fund/VA Division
Twenty-Five............................... 22
Templeton Developing Markets Fund -- Class 2
Division Twenty-Four...................... 23
Van Kampen Emerging Growth Portfolio Division
Twenty-Two................................ 23
Van Kampen Enterprise Portfolio Division
Twenty-Seven.............................. 24
Payout Payments.............................. 25
Assumed Investment Rate...................... 25
Amount of Payout Payments.................... 25
Payout Unit Value............................ 25
Illustration of Calculation of Payout Unit
Value..................................... 26
Illustration of Payout Payments.............. 26
Distribution of Variable Annuity Contracts....... 27
Experts.......................................... 27
Comments on Financial Statements................. 27
</TABLE>
<PAGE> 48
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<PAGE> 49
(This page intentionally left blank)
<PAGE> 50
(This page intentionally left blank)
<PAGE> 51
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FOR ADDITIONAL INFORMATION ABOUT THE CONTRACTS
CONTACT THE ANNUITY SERVICE CENTER:
<TABLE>
<S> <C> <C>
P.O. Box 4342 2727-A Allen Parkway
Houston, Texas 77210-4342 or Houston, Texas 77019
1-877-888-9859
</TABLE>
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
1-877-888-9859
FOR UNIT VALUE INFORMATION CALL: 1-877-888-9859
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-877-888-9859
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 52
- --AMERCAN GENERAL LOGO--
AMERICAN GENERAL ANNUITY
INSURANCE COMPANY
Executive Offices: Houston, Texas
Annuity Service Center:
2727-A Allen Parkway
Houston, Texas 77019
1-877-888-9859
<PAGE> 53
AMERICAN GENERAL ANNUITY INSURANCE COMPANY
A.G. SEPARATE ACCOUNT A
UNITS OF INTEREST UNDER FLEXIBLE PREMIUM
INDIVIDUAL FIXED AND VARIABLE DEFERRED ANNUITY CONTRACTS
THE ONE(R) MULTI-MANAGER ANNUITY(SM)
--------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------------------------------
FORM N-4 PART B
AUGUST 2, 1999
This Statement of Additional Information is not a prospectus but contains
information in addition to that set forth in the prospectus for the Flexible
Premium Individual Fixed and Variable Deferred Annuity Contracts dated August 2,
1999 (the "Contracts") and should be read in conjunction with the prospectus.
The terms used in this Statement of Additional Information have the same meaning
as those set forth in the prospectus. A prospectus may be obtained by calling or
writing the Company, at 2727-A Allen Parkway, Houston, Texas 77019;
1-877-888-9859. Prospectuses are also available from registered sales
representatives.
1
<PAGE> 54
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information.............................. 3
The Company...................................... 3
Marketing Information............................ 3
Endorsements and Published Ratings............... 4
Types of Variable Annuity Contracts.............. 5
Variable Annuity Contract General Provisions..... 5
Federal Tax Matters.............................. 6
Tax Consequences of Purchase Payments........ 6
Tax Consequences of Distributions............ 7
Special Tax Consequences -- Early
Distribution.............................. 7
Special Tax Consequences -- Required
Distributions............................. 8
Tax Free Rollovers, Transfers and
Exchanges................................. 8
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......................... 11
AGSPC Money Market Division Yields........... 11
Illustration of Calculation of Current Yield
for AGSPC Money Market Division
Twenty-Six................................ 11
Illustration of Calculation of Effective
Yield for AGSPC Money Market Division
Twenty-Six................................ 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 $15,000 Account Value and
Cumulative Return as Compared to Benchmark
Tables.................................... 14
Performance Compared to Market Indices....... 14
AGSPC Money Market Fund Division Twenty-Six.. 16
AIM V.I. International Equity Fund Division
Twenty-One................................ 16
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AIM V.I. Value Fund Division Twenty.......... 17
Franklin Small Cap Investments Fund -- Class
2 Division Twenty-Three................... 17
One Group Investment Trust Balanced Portfolio
Performance Division Nine................. 18
One Group Investment Trust Bond Portfolio
Division Eight............................ 18
One Group Investment Trust Diversified Equity
Portfolio Division One.................... 19
One Group Investment Trust Diversified Mid
Cap Portfolio Division Six................ 19
One Group Investment Trust Equity Index
Portfolio Division Two.................... 20
One Group Investment Trust Government Bond
Portfolio Division Seven.................. 20
One Group Investment Trust Large Cap Growth
Portfolio Division Three.................. 21
One Group Investment Trust Mid Cap Growth
Portfolio Division Five................... 21
One Group Investment Trust Mid Cap Value
Portfolio Division Four................... 22
Oppenheimer High Income Fund/VA Division
Twenty-Five............................... 22
Templeton Developing Markets Fund -- Class 2
Division Twenty-Four...................... 23
Van Kampen Emerging Growth Portfolio Division
Twenty-Two................................ 23
Van Kampen Enterprise Portfolio Division
Twenty-Seven.............................. 24
Payout Payments.............................. 25
Assumed Investment Rate...................... 25
Amount of Payout Payments.................... 25
Payout Unit Value............................ 25
Illustration of Calculation of Payout Unit
Value..................................... 26
Illustration of Payout Payments.............. 26
Distribution of Variable Annuity Contracts....... 27
Experts.......................................... 27
Comments on Financial Statements................. 27
</TABLE>
2
<PAGE> 55
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 certain 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, ("EAFE") 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 refer from time-to-time to
portfolio rebalancing and or asset allocation for certain Divisions of A.G.
Separate Account A.
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), a
wholly owned subsidiary of A I M Management Group (AIM Management), as
investment adviser to the AIM V.I. International Equity Fund (underlying
Division Twenty-One) and the AIM V.I. Value Fund (underlying Division Twenty).
AIM has acted as an investment advisor since its organization in 1976. Today,
AIM, together with its subsidiaries, advises or manages over 110 investment
portfolios encompassing a broad range of investment objectives.
The Company may from time-to-time refer to One Group(R) Investment Trust
and/or Banc One Investment Advisors Corporation as investment adviser to One
Group Investment Trust Balanced Portfolio (underlying Division Nine), One Group
Investment Trust Bond Portfolio (underlying Division Eight), One Group
Investment Trust Diversified Equity Portfolio (underlying Division One), One
Group Investment Trust Diversified Mid Cap Portfolio (underlying Division Six),
One Group Investment Trust Equity Index Portfolio (underlying Division Two), One
Group Investment Trust Government Bond Portfolio (underlying Division Eight),
One Group Investment Trust Large Cap Growth Portfolio (underlying Division
Three), One Group Investment Trust Mid Cap Growth Portfolio (underlying Division
Five) and One Group Investment Trust Mid Cap Value Portfolio (underlying
Division Four). Banc One Investment Advisors has served as investment advisor to
One Group Investment Trust since its inception. In addition, Banc One Investment
Advisors serves as investment advisor to other mutual funds and individual
corporate, charitable, and retirement accounts. As of December 31, 1998, Banc
One Investment Advisors, an indirect wholly-owned subsidiary of BANK ONE
CORPORATION, managed over $59 billion in assets.
The Company may, from time-to-time refer to OppenheimerFunds, Inc.
(OppenheimerFunds) as investment adviser to the Oppenheimer High Income Fund/VA
(underlying Division Twenty-Five). 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 more than
million mutual fund accounts as of August 1,
3
<PAGE> 56
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 Franklin Advisers, Inc., as
investment adviser to the Franklin Small Cap Investments Fund -- Class 2
(underlying Division Twenty-Three) and Templeton Asset Management Ltd., as
investment advisor to the Templeton Developing Markets Fund -- Class 2
(underlying Division Twenty-Four). FranklinTempleton(R) has served investors for
more than fifty years, having grown from a small family of funds to a global
financial services leader. Today, FranklinTempleton serves more than 7 million
shareholders, who, as of June 30, 1999, have entrusted FranklinTempleton with
more than $228 billion in assets.
The Company may, from time-to-time refer to Van Kampen Asset Management
Inc. (Van Kampen) as investment adviser to the Van Kampen Emerging Growth
Portfolio (underlying Division Twenty-Two) and Van Kampen Enterprise Portfolio
(underlying Division Twenty-Seven). Van Kampen is a recognized leader in global
investing. Van Kampen is an affiliate of Morgan Stanley Dean Witter & Co., which
has 40 offices and nearly 12,000 employees worldwide. Furthermore, Van Kampen
has an unparalleled global infrastructure that supports its services in 65
countries. This broad network enables Van Kampen to recognize opportunities as
they arise and, more importantly, to act on them quickly.
The Company may, from time-to-time refer to The Variable Annuity Life
Insurance Company (VALIC) as investment adviser to the American General Series
Portfolio Company (AGSPC) Money Market Fund (underlying Division Twenty-Six).
VALIC, a stock life insurance company, has been in the investment advisory
business since 1960. VALIC as of June 30, 1998, had over $8.5 billion in assets
under management. VALIC, along with the Company, is a member of the American
General Corporation group of companies.
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.
The Company may, from time to time, refer to The Variable Annuity Research
& Data Services (VARDS) Report. The VARDS Report offers
4
<PAGE> 57
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.
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 Contracts will be sold to individuals in the
Non-Qualified market. A smaller number of these contracts will be sold in the
Qualified market through 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.
MINIMUM CONTRACT VALUE: If the minimum Contract Value falls below the
minimum Contract Value shown in the Contract, then the Company reserves the
right to surrender the Contract and pay the Contract Value to the Owner.
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.
INCONTESTABILITY: The Contract is incontestable.
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.
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
5
<PAGE> 58
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
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 unmarried, and
have adjusted gross income of $30,000 or less ($25,000 or less prior to
1998; adjusted upward for inflation after 1998); or
(iv) are active participants in another retirement plan, are married, and have
adjusted gross income of $50,000 or less ($40,000 or less prior to 1998;
adjusted upward for inflation after 1998).
Active participants in other retirement plans whose adjusted gross income
exceeds the limits in (ii), (iii) or (iv) by less than $10,000 are entitled to
make deductible 408(b) IRA contributions in proportionately reduced amounts. If
a 408(b) IRA is established for a nonworking spouse who has no compensation, the
annual tax-deductible Purchase Payments for both spouses' Contracts cannot
exceed the lesser of $4,000 or 100% of the working spouse's earned income, and
no more than $2,000 may be contributed to either spouse's IRA for any year.
You may be eligible to make nondeductible IRA contributions of an amount
equal to the excess of:
(i) the lesser of $2,000 ($4,000 for you and your spouse's IRA) or 100% of
compensation, over
(ii) your applicable IRA deduction limit.
You may also make 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
less than $15,000, or the limit in (ii) by less than $10,000. 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 percentage 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 pre tax, 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> 59
may still allow employees to make these contributions.
SIMPLE IRA. Employer and employee 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
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 the 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 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
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 at any age if the distribution is in the form of
substantially equal periodic payments over the life (or life expectancy) of
the Contract Owner (or the Contract Owner and Beneficiary); and
(4) distributions which do not exceed the employee's tax-deductible medical
expenses for the taxable year of receipt.
7
<PAGE> 60
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:
(5) distributions up to $10,000 (in the aggregate) to cover costs of acquiring,
constructing or reconstructing the residence of a first-time homebuyer;
(6) distributions to cover certain costs of higher education, such as tuition,
fees, books, supplies and equipment, for the IRA owner, a spouse, child or
grandchild; and
(7) 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 and exceptions as other IRAs.
SPECIAL TAX CONSEQUENCES -- REQUIRED
DISTRIBUTIONS
408(b) IRAs, SEPs and SIMPLE IRAs. Generally, minimum required
distributions must commence no later than April 1 of the calendar year following
the calendar year in which the owner attains age 70 1/2. Required distributions
must be made over a period that does not exceed the life or life expectancies of
the owner (or lives or joint life expectancies of the owner 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.
At the owner'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
owner and in effect at the time of death.
A Contract Owner 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
408(b) IRAs, SEPs and Simple IRAs 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 Contract Owner'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 Contract Owner's at the time of death.
TAX-FREE ROLLOVERS, TRANSFERS AND EXCHANGES
408(b) IRAs. Funds may be rolled over tax-free to a 408(b) IRA Contract,
from a 403(b) Annuity or 401(a) or 403(a) Qualified Plan, under certain
conditions. These amounts may subsequently be rolled over on a tax-free basis to
another 403(b) Annuity or 401(a) or 403(a) Qualified Plan 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.
8
<PAGE> 61
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 IRA only to another
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.
9
<PAGE> 62
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.
<TABLE>
<CAPTION>
DATE TRANSACTIONS AMOUNT
---- ------------ ------
<S> <C> <C>
2/1/92.......................... Purchase Payment $15,000
2/1/93.......................... Purchase Payment 5,000
2/1/94.......................... Purchase Payment 15,000
2/1/95.......................... Purchase Payment 2,000
2/1/96.......................... Purchase Payment 3,000
2/1/97.......................... Purchase Payment 4,000
7/1/97.......................... Total Purchase Payments (Assumes
Account Value is $50,000) 44,000
</TABLE>
Assume the Account Value at the time of full withdrawal is $50,000
(7/1/97). 10% of $50,000 ($5,000) is not subject to Surrender Charge.
The total Surrender Charge is:
(15,000 - 5,000) * 2% + 5,000 * 4% + 15,000 * 5% + 2,000 * 5% + 3,000 * 7%
+ 4,000 * 7% = $1,740.
ILLUSTRATION OF SURRENDER CHARGE ON A 10% PARTIAL SURRENDER FOLLOWED BY A
FULL SURRENDER
Example 2. Assumes No Interest Earned.
<TABLE>
<CAPTION>
DATE TRANSACTIONS AMOUNT
---- ------------ ------
<S> <C> <C>
2/1/92.......................... Purchase Payment $15,000
2/1/93.......................... Purchase Payment 5,000
2/1/94.......................... Purchase Payment 15,000
2/1/95.......................... Purchase Payment 2,000
2/1/96.......................... Purchase Payment 3,000
2/1/97.......................... Purchase Payment 4,000
7/1/97.......................... 10% Partial Surrender 3,900
(Assumes Account Value is $39,000)
8/1/97.......................... Full Surrender
</TABLE>
a. Since this is the first partial surrender in this contract year, calculate
free withdrawal amount (10% of the value as of the date of withdrawal)
10% * $44,000 = $4,400 (no charge on this 10% withdrawal)
b. The Account Value upon which Surrender Charge on the Full Surrender may be
calculated is
$44,000 - $4,400 = $39,600
c. The Surrender Charge is
(15,000 - 4,400) * 2% + 5,000 * 4% + 15,000 * 5% + 2,000 * 5% + 3,000 * 7% +
4,000 * 7% = $1,752.
10
<PAGE> 63
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>
PERFORMANCE CALCULATIONS
AGSPC MONEY MARKET DIVISION YIELDS
ILLUSTRATION OF CALCULATION OF CURRENT YIELD FOR AGSPC MONEY MARKET DIVISION
TWENTY-SIX
Example 5.
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. The 7-Day Current Yield for
the AGSPC Money Market Division Twenty-Six will be shown when it becomes
available.
11
<PAGE> 64
ILLUSTRATION OF CALCULATION OF EFFECTIVE YIELD FOR AGSPC MONEY MARKET DIVISION
TWENTY-SIX
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
The 7-Day Effective Yield for the AGSPC Money Market Division Twenty-Six
will be shown when it becomes available.
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:
YIELD = 2 [( a - b + 1)6 - 1]
-----
cd
Where:
<TABLE>
<S> <C> <C>
a = net investment income earned during the period by the Fund
attributable to shares owned by the Division
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of 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> 65
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return quotations for the 1, 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, 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, 5 or 10 year periods
of a hypothetical $1,000 Purchase Payment made at the
beginning of the 1, 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, 5 or 10 year
period and deduction of all nonrecurring charges at the end of each such period.
13
<PAGE> 66
PERFORMANCE INFORMATION
HYPOTHETICAL $15,000 ACCOUNT VALUE AND CUMULATIVE RETURN AS COMPARED TO
BENCHMARKS TABLES.
The following tables show the Hypothetical $15,000 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 $15,000 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 $15,000 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 indices 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 AGSPC Money Market Fund Division Twenty-Six may be
compared to the Certificate of Deposit Primary Offering by New York City Banks,
30 Day Index.
The performance of the AIM V.I. International Equity Fund Division Sixteen
may be compared to the Morgan Stanley Capital International ("MSCI") EAFE Index.
The performance of the AIM V.I. Value Fund Division Twenty may be compared
to the Standard & Poor's(R) Corporation ("S&P(R)")* Composite Stock Price Index
("S&P(R) 500 Index").
The performance of the Franklin Small Cap Investments Fund Division
Twenty-Three may be compared to S&P 500 Index and the Russell 2500** Index.
- ---------------
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)" and S&P MidCap 400(R)" are
trademarks of Standard and Poor's ("S&P").
** The "Russell 2500(R) Index", the "Russell 2000(R) Index" and the "Russell
1000(R) Index" are trademark/service marks of the Frank Russell Trust
Company. Russell(TM) is a trademark of the Frank Russell Trust Company.
14
<PAGE> 67
The performance of the One Group Investment Trust Balanced Portfolio
Division Nine may be compared to the S&P 500 Index, the Lehman Brothers
Intermediate Government/Corporate Bond Index and a blended index of the S&P 500
Index (60%) and the Lipper Intermediate U.S. Government Bond Index (40%).
The performance of the One Group Investment Trust Bond Portfolio Division
Eight may be compared to the Lehman Brothers Aggregate Bond Index.
The performance of the One Group Investment Trust Diversified Equity
Portfolio Division One may be compared to the S&P 500 Index.
The performance of the One Group Investment Trust Diversified Mid Cap
Portfolio Division Six may be compared to the Russell 2500 Index and the S&P 400
Mid Cap Index.
The performance of the One Group Investment Trust Equity Index Portfolio
Division Two may be compared to the S&P 500 Index.
The performance of the One Group Investment Trust Government Bond Portfolio
Division Seven may be compared to the Salomon Brothers 3-7 Year Treasury Index.
The performance of the One Group Investment Trust Large Cap Growth Division
Three may be compared to the S&P 500 Index and the S&P/BARRA 500 Growth Index.
The performance of the One Group Investment Trust Mid Cap Growth Portfolio
Division Five may be compared to the Russell 2000 Index and the S&P/BARRA Mid
Cap 400 Growth Index.
The performance of the One Group Investment Trust Mid Cap Value Portfolio
Division Four may be compared to the S&P 500 Index and the S&P/BARRA Mid Cap
400 Value Index.
The performance of the Oppenheimer High Income Fund/VA Division Twenty-Five
may be compared to the Merrill Lynch High Yield Master Index.
The performance of the Templeton Developing Markets Fund Division
Twenty-Four may be compared to the MSCI World Index.
The performance of the Van Kampen Emerging Growth Portfolio Division
Twenty-Two may be compared to the Russell 2000 Stock Index and the S&P 400
Mid-Cap Index.
The performance of the Van Kampen Enterprise Portfolio Division
Twenty-Seven may be compared to the S&P 500 Index.
The Account Value of an assumed $15,000 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 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> 68
AGSPC MONEY MARKET FUND DIVISION TWENTY-SIX PERFORMANCE COMPARED TO CERTIFICATE
OF DEPOSIT PRIMARY OFFERING BY NEW YORK CITY BANKS, 30 DAY INDEX (PRIMARY CD
INDEX)
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE APRIL 1, 1989
<TABLE>
<CAPTION>
AGSPC MONEY MARKET FUND PRIMARY
DIVISION TWENTY-SIX CD INDEX
- --------------------------------------------------------------------- --------
<S> <C> <C>
04/01/89.................................................... $15,000 $15,000
03/31/90.................................................... 16,105 16,263
03/31/91.................................................... 17,112 17,509
03/31/92.................................................... 17,745 18,336
03/31/93.................................................... 18,065 18,872
03/31/94.................................................... 18,345 19,365
03/31/95.................................................... 18,952 20,168
03/31/96.................................................... 19,747 21,139
03/31/97.................................................... 20,494 22,104
03/31/98.................................................... 21,321 23,169
03/31/99.................................................... 22,124 24,225
</TABLE>
CUMULATIVE RETURN
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 1 YEAR
-------- ------- ------
<S> <C> <C> <C>
Investment Division*
AGSPC Money Market Fund Division Twenty-Six.............. 47.49% 20.60% 3.77%
Benchmark Comparison Primary CD Index.................... 61.50% 25.10% 4.56%
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the Standard
Average Annual Total Return for the Division will be shown when it becomes
available.
AIM V.I. INTERNATIONAL EQUITY FUND DIVISION TWENTY-ONE PERFORMANCE COMPARED TO
MSCI EAFE INDEX.
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE MAY 5, 1993
<TABLE>
<CAPTION>
AIM V.I. INTERNATIONAL EQUITY FUND MSCI EAFE
DIVISION TWENTY-ONE INDEX
- --------------------------------------------------------------------- ---------
<S> <C> <C>
05/05/93.................................................... $15,000 $15,000
03/31/94.................................................... 17,163 16,738
03/31/95.................................................... 17,228 17,755
03/31/96.................................................... 21,223 19,944
03/31/97.................................................... 23,678 20,234
03/31/98.................................................... 28,020 23,999
03/31/99.................................................... 27,585 25,455
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
SINCE
INCEPTION 5 YEARS 1 YEAR
--------- ------- ------
<S> <C> <C> <C>
Investment Division*
AIM V.I. International Equity Fund Division
Twenty-One........................................... 87.42% 63.80% 1.55%
Benchmark Comparison
MSCI EAFE Index......................................... 69.70% 52.08% 6.06%
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the Standard
Average Annual Total Return for the Division will be shown when it becomes
available.
16
<PAGE> 69
AIM V.I. VALUE FUND DIVISION TWENTY PERFORMANCE COMPARED TO THE S&P 500 INDEX.
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE MAY 5, 1993
<TABLE>
<CAPTION>
AIM V.I. VALUE FUND S&P 500
DIVISION TWENTY INDEX
- --------------------------------------------------------------------- -------
<S> <C> <C>
05/05/93.................................................... $15,000 $15,000
03/31/94.................................................... 17,523 15,545
03/31/95.................................................... 19,268 17,966
03/31/96.................................................... 23,781 23,732
03/31/97.................................................... 26,551 28,441
03/31/98.................................................... 36,867 42,086
03/31/99.................................................... 46,796 49,860
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
SINCE
INCEPTION 5 YEARS 1 YEAR
--------- ------- ------
<S> <C> <C> <C>
Investment Division*
AIM V.I. Value Fund Division Twenty................... 211.97% 167.05% 26.93%
Benchmark Comparison
S&P 500 Index......................................... 232.40% 220.74% 18.47%
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the Standard
Average Annual Total Return for the Division will be shown when it becomes
available.
FRANKLIN SMALL CAP INVESTMENTS FUND -- CLASS 2 DIVISION TWENTY-THREE PERFORMANCE
COMPARED TO THE S&P 500 INDEX AND THE RUSSELL 2500 INDEX
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE MAY 1, 1998
<TABLE>
<CAPTION>
RUSSELL
FRANKLIN SMALL CAP INVESTMENTS FUND S&P 500 2500
DIVISION TWENTY-THREE INDEX INDEX
- ----------------------------------------------------------------- ------- -------
<S> <C> <C> <C>
05/01/98(1)............................................. $15,000 $15,000 $15,000
03/31/99................................................ 13,898 17,594 13,644
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
SINCE
INCEPTION
---------
<S> <C>
Investment Division*
Franklin Small Cap Investments Fund -- Class 2 Division
Twenty-Three........................................... (7.35)%
Benchmark Comparison
S&P 500 Index............................................. 17.29 %
Russell 2500 Index........................................ (9.04)%
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the
Standard Average Annual Total Return for the Division will be shown when it
becomes available.
(1) Because Class 2 shares were not offered until July 30, 1998, performance
shown for periods prior to that date represents the historical results of
Class 1 shares. Performance of Class 2 shares for periods after July 30,
1998 reflect Class 2's higher annual fees and expenses resulting from its
Rule 12b-1 plan. Maximum annual plan expenses are 0.25%.
17
<PAGE> 70
ONE GROUP INVESTMENT TRUST BALANCED PORTFOLIO PERFORMANCE DIVISION NINE COMPARED
TO THE S&P 500 INDEX, LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND
INDEX AND A BLENDED INDEX OF THE S&P 500 INDEX (60%) AND LIPPER INTERMEDIATE
U.S. GOVERNMENT BOND INDEX (40%).
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE AUGUST 1, 1994
<TABLE>
<CAPTION>
ONE GROUP INVESTMENT TRUST BALANCED PORTFOLIO S&P 500 LEHMAN BLENDED
DIVISION NINE INDEX INTERMEDIATE INDEX**
- ------------------------------------------------------ ------- ------------ -------
<S> <C> <C> <C> <C>
08/01/94..................................... $15,000 $15,000 $15,000 $15,000
03/31/95..................................... 15,452 16,714 15,545 16,257
03/31/96..................................... 17,909 22,079 17,031 19,672
03/31/97..................................... 19,549 26,460 17,849 22,347
03/31/98..................................... 25,437 39,153 19,576 29,708
03/31/99..................................... 28,308 46,385 20,863 33,932
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
SINCE
INCEPTION 1 YEAR
--------- ------
<S> <C> <C>
Investment Division*
One Group Investment Trust Balanced Portfolio Division
Nine................................................... 88.72% 11.29%
Benchmark Comparison
S&P 500 Index............................................. 209.24% 18.47%
Lehman Brothers Intermediate Government Corp. Bond
Index.................................................. 39.08% 6.57%
Blended Index**........................................... 126.21% 14.22%
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the
Standard Average Annual Total Return for the Division will be shown when it
becomes available.
** The Blended Index consists of: 60% in the S&P 500 Index and 40% in the Lipper
Intermediate U.S. Government Bond Index.
ONE GROUP INVESTMENT TRUST BOND PORTFOLIO (1) DIVISION EIGHT PERFORMANCE
COMPARED TO THE LEHMAN BROTHERS AGGREGATE BOND INDEX.
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE MAY 1, 1997
<TABLE>
<CAPTION>
ONE GROUP INVESTMENT TRUST BOND PORTFOLIO LEHMAN
DIVISION EIGHT INDEX
- --------------------------------------------------------------------- -------
<S> <C> <C>
05/01/97.................................................... $15,000 $15,000
03/31/98.................................................... 16,227 16,552
03/31/99.................................................... 17,007 17,624
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
SINCE
INCEPTION 1 YEAR
--------- ------
<S> <C> <C>
Investment Division*
One Group Investment Trust Bond Portfolio Division
Eight.................................................. 13.38% 4.81%
Benchmark Comparison
Lehman Brothers Aggregate Bond Index...................... 17.49% 6.48%
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the Standard
Average Annual Total Return for the Division will be shown when it becomes
available.
(1) The performance information and inception dates reflect that the One Group
Investment Trust Bond Portfolio inherited the financial history of Pegasus
Variable Bond Fund.
18
<PAGE> 71
ONE GROUP INVESTMENT TRUST DIVERSIFIED EQUITY PORTFOLIO (1) DIVISION ONE
PERFORMANCE COMPARED TO THE S&P 500 INDEX.
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE MARCH 30, 1995
<TABLE>
<CAPTION>
ONE GROUP INVESTMENT TRUST DIVERSIFIED EQUITY PORTFOLIO S&P 500
DIVISION ONE INDEX
- --------------------------------------------------------------------- -------
<S> <C> <C>
03/30/95.................................................... $15,000 $15,000
03/31/95.................................................... 14,925 15,029
03/31/96.................................................... 18,342 19,815
03/31/97.................................................... 20,825 23,746
03/31/98.................................................... 28,122 35,138
03/31/99.................................................... 28,380 41,629
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
SINCE
INCEPTION 1 YEAR
--------- ------
<S> <C> <C>
Investment Division*
One Group Investment Trust Diversified Equity Portfolio
Division One........................................... 89.20% .92%
Benchmark Comparison
S&P 500 Index............................................. 178.06% 18.47%
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the Standard
Average Annual Total Return for the Division will be shown when it becomes
available.
(1) The performance information and inception dates reflect that the One Group
Investment Trust Diversified Equity Portfolio inherited the financial
history of Pegasus Variable Growth and Value Fund.
ONE GROUP INVESTMENT TRUST DIVERSIFIED MID CAP PORTFOLIO (1) DIVISION SIX
PERFORMANCE COMPARED TO THE RUSSELL 2500 INDEX AND THE S&P 400 MID CAP INDEX
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE MARCH 30, 1995
<TABLE>
<CAPTION>
RUSSELL S&P 400
ONE GROUP INVESTMENT TRUST DIVERSIFIED MID CAP PORTFOLIO 2500 MID CAP
DIVISION SIX INDEX INDEX
- ----------------------------------------------------------------- ------- --------
<S> <C> <C> <C>
03/30/95................................................ $15,000 $15,000 $15,000
03/31/95................................................ 14,910 15,038 15,017
03/31/96................................................ 17,580 19,762 19,294
03/31/97................................................ 19,771 19,553 21,353
03/31/98................................................ 28,376 27,108 31,815
03/31/99................................................ 25,320 24,881 31,954
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
SINCE
INCEPTION 1 YEAR
--------- --------
<S> <C> <C>
Investment Division*
One Group Investment Trust Diversified Mid Cap Portfolio
Division Six........................................... 68.80% (10.77)%
Benchmark Comparison
Russell 2500 Index........................................ 66.29% (8.22)%
S&P 400 Mid Cap Index..................................... 113.03% 0.44 %
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the Standard
Average Annual Total Return for the Division will be shown when it becomes
available.
(1) The performance information and inception dates reflect that the One Group
Investment Trust diversified Mid Cap Portfolio inherited the financial
history of Pegasus Variable Mid-Cap Opportunity Fund.
19
<PAGE> 72
ONE GROUP INVESTMENT TRUST EQUITY INDEX PORTFOLIO DIVISION TWO PERFORMANCE
COMPARED TO THE S&P 500 INDEX
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE MAY 1, 1998
<TABLE>
<CAPTION>
ONE GROUP INVESTMENT TRUST EQUITY INDEX PORTFOLIO S&P 500
DIVISION TWO INDEX
- --------------------------------------------------------------------- -------
<S> <C> <C>
05/01/98.................................................... $15,000 $15,000
03/31/99.................................................... 17,291 17,594
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
SINCE
INCEPTION
---------
<S> <C>
Investment Division*
One Group Investment Trust Equity Index Portfolio Division
Two.................................................... 15.27%
Benchmark Comparison
S&P 500 Index............................................. 17.29%
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the Standard
Average Annual Total Return for the Division will be shown when it becomes
available.
ONE GROUP INVESTMENT TRUST GOVERNMENT BOND PORTFOLIO DIVISION SEVEN PERFORMANCE
COMPARED TO THE SALOMON BROTHERS 3-7 YEAR TREASURY INDEX
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE AUGUST 1, 1994
<TABLE>
<CAPTION>
ONE GROUP INVESTMENT TRUST GOVERNMENT BOND PORTFOLIO SALOMON
DIVISION SEVEN INDEX
- --------------------------------------------------------------------- -------
<S> <C> <C>
08/01/94.................................................... $15,000 $15,000
03/31/95.................................................... 15,483 15,520
03/31/96.................................................... 16,669 17,071
03/31/97.................................................... 17,124 17,805
03/31/98.................................................... 19,009 19,673
03/31/99.................................................... 19,781 21,033
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
SINCE
INCEPTION 1 YEAR
--------- ------
<S> <C> <C>
Investment Division*
One Group Investment Trust Government Bond Portfolio
Division Seven......................................... 31.87% 4.06%
Benchmark Comparison
Salomon Brothers 3-7 Year Treasury Index.................. 40.22% 6.91%
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the Standard
Average Annual Total Return for the Division will be shown when it becomes
available.
20
<PAGE> 73
ONE GROUP INVESTMENT TRUST LARGE CAP GROWTH PORTFOLIO DIVISION THREE PERFORMANCE
COMPARED TO THE S&P 500 INDEX AND THE S&P/BARRA 500 GROWTH INDEX
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE AUGUST 1, 1994
<TABLE>
<CAPTION>
S&P/BARRA
ONE GROUP INVESTMENT TRUST LARGE CAP GROWTH PORTFOLIO S&P 500 500 GROWTH
DIVISION THREE INDEX INDEX
- -------------------------------------------------------------- ------- ----------
<S> <C> <C> <C>
08/01/94............................................. $15,000 $15,000 $15,000
03/31/95............................................. 16,028 16,714 17,223
03/31/96............................................. 19,078 22,079 22,600
03/31/97............................................. 21,720 26,460 27,814
03/31/98............................................. 31,759 39,153 42,625
03/31/99............................................. 42,013 46,385 55,707
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
SINCE
INCEPTION 1 YEAR
--------- ------
<S> <C> <C>
Investment Division*
One Group Investment Trust Large Cap Growth Portfolio
Division Three......................................... 180.09% 32.29%
Benchmark Comparison
S&P 500 Index............................................. 209.24% 18.47%
S&P/BARRA 500 Growth Index................................ 271.38% 30.69%
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the Standard
Average Annual Total Return for the Division will be shown when it becomes
available.
ONE GROUP INVESTMENT TRUST MID CAP GROWTH PORTFOLIO DIVISION FIVE PERFORMANCE
COMPARED TO THE RUSSELL 2000 INDEX AND THE S&P/BARRA MID CAP 400 GROWTH INDEX
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE AUGUST 1, 1994
<TABLE>
<CAPTION>
S&P/BARRA
RUSSELL 2000 MID CAP 400
ONE GROUP INVESTMENT TRUST MID CAP GROWTH PORTFOLIO DIVISION FIVE INDEX GROWTH INDEX
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C> <C>
08/01/94............................................ $15,000 $15,000 $15,000
03/31/95............................................ 15,288 16,206 16,743
03/31/96............................................ 18,987 20,914 21,132
03/31/97............................................ 19,701 21,982 22,701
03/31/98............................................ 29,712 31,217 34,097
03/31/99............................................ 34,005 26,143 39,085
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
SINCE
INCEPTION 1 YEAR
--------- --------
<S> <C> <C>
Investment Division*
One Group Investment Trust Mid Cap Growth Portfolio
Division Five.......................................... 126.70% 14.45%
Benchmark Comparison
Russell 2000 Index........................................ 74.28% (16.26)%
S&P/BARRA Mid Cap 400 Growth Index........................ 160.57% 14.63%
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the Standard
Average Annual Total Return for the Division will be shown when it becomes
available.
21
<PAGE> 74
ONE GROUP INVESTMENT TRUST MID CAP VALUE PORTFOLIO(1) DIVISION FOUR PERFORMANCE
COMPARED TO THE S&P 500 INDEX AND THE S&P/BARRA MID CAP 400 VALUE INDEX.
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE MAY 1, 1997
<TABLE>
<CAPTION>
S&P/BARRA
ONE GROUP INVESTMENT TRUST MID CAP VALUE PORTFOLIO S&P 500 MID CAP 400
DIVISION FOUR INDEX VALUE INDEX
- --------------------------------------------------------------- ------- -----------
<S> <C> <C> <C>
05/01/97.............................................. $15,000 $15,000 $15,000
03/31/98.............................................. 18,814 20,947 21,658
03/31/99.............................................. 15,231 24,816 18,977
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
SINCE
INCEPTION 1 YEAR
--------- --------
<S> <C> <C>
Investment Division*
One Group Investment Trust Mid Cap Value Portfolio
Division Four.......................................... 1.54% (19.04)%
Benchmark Comparison
S&P 500 Index............................................. 65.44% 18.47 %
S&P/BARRA Mid Cap 400 Value Index......................... 26.51% (12.38)%
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the Standard
Average Annual Total Return for the Division will be shown when it becomes
available.
(1) The performance information and inception dates reflect that the One Group
Investment Trust Mid Cap Value Portfolio inherited the financial history of
Pegasus Variable Intrinsic Value Fund.
OPPENHEIMER HIGH INCOME FUND/VA DIVISION TWENTY-FIVE PERFORMANCE COMPARED TO
MERRILL LYNCH HIGH YIELD MASTER INDEX
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE APRIL 1, 1989
<TABLE>
<CAPTION>
MERRILL LYNCH
OPPENHEIMER HIGH INCOME FUND/VA HIGH YIELD
DIVISION TWENTY-FIVE MASTER INDEX
- --------------------------------------------------------------------- -------------
<S> <C> <C>
04/01/89.................................................... $15,000 $15,000
03/31/90.................................................... 15,266 14,997
03/31/91.................................................... 17,919 16,645
03/31/92.................................................... 22,547 21,201
03/31/93.................................................... 26,907 24,741
03/31/94.................................................... 29,987 27,061
03/31/95.................................................... 30,539 28,606
03/31/96.................................................... 36,092 32,822
03/31/97.................................................... 39,829 36,373
03/31/98.................................................... 45,746 41,668
03/31/99.................................................... 45,170 42,477
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 1 YEAR
-------- ------- -------
<S> <C> <C> <C>
Investment Division*
Oppenheimer High Income Fund/VA Division
Twenty-Five........................................ 201.13% 50.63% (1.26)%
Benchmark Comparison
Merrill Lynch High Yield Master Index................. 183.18% 56.97% 1.94 %
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the Standard
Average Annual Total Return for the Division will be shown when it becomes
available.
22
<PAGE> 75
TEMPLETON DEVELOPING MARKETS FUND -- CLASS 2 DIVISION TWENTY-FOUR PERFORMANCE
COMPARED TO THE MSCI WORLD INDEX
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE MARCH 4, 1996
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING MARKETS FUND MSCI WORLD
DIVISION TWENTY-FOUR INDEX
- --------------------------------------------------------------------- ----------
<S> <C> <C>
03/04/96(1)................................................. $15,000 $15,000
03/31/96.................................................... 15,015 15,222
03/31/97.................................................... 15,018 16,646
03/31/98.................................................... 10,428 21,967
03/31/99.................................................... 8,217 24,744
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
SINCE
INCEPTION 1 YEAR
--------- --------
<S> <C> <C>
Investment Division*
Templeton Developing Markets Fund -- Class 2 Division
Twenty-Four............................................ (45.22)% (21.20)%
Benchmark Comparison
MSCI World Index.......................................... 64.96 % 12.64 %
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the
Standard Average Annual Total Return for the Division will be shown when it
becomes available.
(1) Because Class 2 shares were not offered until May 1, 1997, performance
shown for the periods prior to that date represents the historical results
of Class 1 shares. Performance of Class 2 shares for periods after May 1,
1997 reflect Class 2's higher annual fees and expenses resulting from its
Rule 12b-1 plan. Maximum annual plan expenses are 0.25%. Past expense
reductions by the manager increased returns.
VAN KAMPEN EMERGING GROWTH PORTFOLIO DIVISION TWENTY-TWO PERFORMANCE COMPARED TO
THE RUSSELL 2000 STOCK INDEX AND THE S&P 400 MID CAP INDEX
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE JULY 3, 1995
<TABLE>
<CAPTION>
RUSSELL S&P 400
VAN KAMPEN EMERGING GROWTH 2000 STOCK MID CAP
DIVISION TWENTY-TWO INDEX INDEX
- ---------------------------------------------------------------- ---------- -------
<S> <C> <C> <C>
07/03/95............................................... $15,000 $15,000 $15,000
03/31/96............................................... 18,654 17,632 17,669
03/31/97............................................... 18,455 18,533 19,555
03/31/98............................................... 27,684 26,319 29,137
03/31/99............................................... 37,155 22,041 29,264
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
INCEPTION 1 YEAR
--------- --------
<S> <C> <C>
Investment Division*
Van Kampen Emerging Growth................................ 147.70% 34.21 %
Growth Portfolio Division Twenty-Two......................
Benchmark Comparison
Russell 2000 Stock Index.................................. 46.94% (16.26)%
S&P 400 Mid Cap Index..................................... 95.09% 0.44 %
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the
Standard Average Annual Total Return for the Division will be shown when it
becomes available.
23
<PAGE> 76
VAN KAMPEN ENTERPRISE PORTFOLIO DIVISION TWENTY-SEVEN PERFORMANCE COMPARED TO
THE S&P 500 INDEX.
HYPOTHETICAL $15,000 ACCOUNT VALUE
ANNUAL VALUE OF A $15,000 STIPULATED PAYMENT MADE APRIL 1, 1989
<TABLE>
<CAPTION>
VAN KAMPEN ENTERPRISE PORTFOLIO S&P 500
DIVISION TWENTY-SEVEN INDEX
- --------------------------------------------------------------------- -------
<S> <C> <C>
04/01/89.................................................... $15,000 $15,000
03/31/90.................................................... 17,382 17,890
03/31/91.................................................... 18,849 20,469
03/31/92.................................................... 21,747 22,729
03/31/93.................................................... 24,632 26,190
03/31/94.................................................... 24,810 26,576
03/31/95.................................................... 27,058 30,713
03/31/96.................................................... 35,828 40,571
03/31/97.................................................... 40,990 48,622
03/31/98.................................................... 60,902 71,947
03/31/99.................................................... 67,745 85,237
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED MARCH 31, 1999)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 1 YEAR
-------- ------- ------
<S> <C> <C> <C>
Investment Division*
Van Kampen Enterprise Portfolio Division
Twenty-Seven....................................... 351.64% 173.06% 11.24%
Benchmark Comparison
S&P 500 Index......................................... 468.25% 220.74% 18.47%
</TABLE>
- ---------------
* The Division commenced operations on August 2, 1999. Accordingly, the Standard
Average Annual Total Return for the Division will be shown when it becomes
available.
24
<PAGE> 77
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."
25
<PAGE> 78
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>
26
<PAGE> 79
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company has qualified or intends to qualify the Contracts for sale in
13 states 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 American General Distributors, Inc.
("Distributor"). Distributor was formerly known as A.G. Distributors, Inc.
Distributor's address is 2929 Allen Parkway, Houston, Texas 77019. Distributor
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 7% 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 Distributor and A.G. Separate
Account A, the Company reimburses Distributor 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.
Distributor 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, 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, all of which are included in this Statement of
Additional Information, have been included herein in reliance on such report of
Ernst & Young LLP, independent auditors, given on the authority of such 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 this
Statement of Additional Information, 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 financial statements of the Separate Account are not included in this
Statement of Additional Information because none of the Divisions offered under
the Contract were available as of December 31, 1998.
27
<PAGE> 80
[THIS PAGE INTENTIONALLY LEFT BLANK]
28
<PAGE> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
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> 104
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> 105
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> 106
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> 107
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> 108
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> 109
--AMERCAN GENERAL LOGO--
AMERICAN GENERAL ANNUITY
INSURANCE COMPANY
PRINTED IN U.S.A. 8/99
Recycled Paper --RECYCLED PAPER LOGO--
