485BPOS 1 d383175d485bpos.txt 485BPOS AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 2017. FILE NOS. 002-32783 811-03240 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. [] Post-Effective Amendment No. 77 [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 237 [X] (CHECK APPROPRIATE BOX OR BOXES) ------------ THE VARIABLE ANNUITY LIFE INSURANCE COMPANY SEPARATE ACCOUNT A (Exact Name of Registrant) THE VARIABLE ANNUITY LIFE INSURANCE COMPANY (Name of Depositor) 2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019 (Address of Depositor's Principal Offices) (Zip Code) DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 831-3150 AMERICAN HOME ASSURANCE COMPANY (Name of Guarantor) 175 WATER STREET, NEW YORK, NY 10038 (Address of Guarantor's Principal Offices) (Zip Code) GUARANTOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 770-7000 MARK MATTHES, ESQ. THE VARIABLE ANNUITY LIFE INSURANCE COMPANY 2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019 (Name and Address of Agent for Service for Depositor, Registrant and Guarantor) Approximate Date of Proposed Public Offering: Continuous It is proposed that this filing will become effective: [ ] immediately upon filing pursuant to paragraph (b) of Rule 485 [X] on May 1, 2017 pursuant to paragraph (b) of Rule 485 [ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485 [ ] on (date) pursuant to paragraph (a)(1) of Rule 485. If appropriate, check the following box: [ ] This post-effective amendment designates a new effective date for a previously filed post-effective amendment. Title of Securities Being Registered: (i) Units of interest in The Variable Annuity Life Insurance Company Separate Account A of The Variable Annuity Life Insurance Company under variable annuity contracts and (ii) guarantee related to insurance obligations under certain variable annuity contracts. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE VARIABLE ANNUITY LIFE INSURANCE COMPANY SEPARATE ACCOUNT A CROSS REFERENCE SHEET PART A -- PROSPECTUS
ITEM NUMBER IN FORM N-4 CAPTION ---------------------------------------------------------------------------------- ------------------------------------------ 1. Cover Page.................................................................. Cover Page 2. Definitions................................................................. Glossary of Terms 3. Synopsis.................................................................... Fee Tables; Highlights 4. Condensed Financial Information............................................. Selected Purchase Unit Data 5. General Description of Registrant, Depositor and Portfolio Companies........ General Information; Fixed Account Option; Variable Account Option(s) 6. Deductions.................................................................. Fee Tables; Fees and Charges 7. General Description of Variable Annuity Contracts........................... Highlights; General Information; Purchase Period; Transfers Between Investment Options; Other Contract Features 8. Annuity Period.............................................................. Payout Period 9. Death Benefit............................................................... Death Benefits 10. Purchases and Contract Value................................................ Purchase Period; Surrender of Account Value 11. Redemptions................................................................. Surrender of Account Value 12. Taxes....................................................................... Federal Taxes Matters 13. Legal Proceedings........................................................... Legal Proceedings 14. Table of Contents of Statement of Additional Information.................... Table of Contents of Statement of Additional Information
PART B -- STATEMENT OF ADDITIONAL INFORMATION Certain information required in Part B of the Registration Statement has been included within the Prospectus forming part of this Registration Statement; the following cross-references suffixed with a "P" are made by reference to the captions in the Prospectus.
ITEM NUMBER IN FORM N-4 CAPTION --------------------------------------------------- ---------------------------------------- 15. Cover Page................................... Cover Page 16. Table of Contents............................ Table of Contents 17. General Information and History.............. General Information (P); Fixed Account Option (P); Variable Account Option(s) (P) 18. Services..................................... General Information (P); Experts 19. Purchase of Securities Being Offered......... Purchase Period (P) 20. Underwriters................................. Distribution of Variable Annuity Contracts; General Information (P) 21. Calculation of Performance Data.............. Not Applicable 22. Annuity Payments............................. Payout Period (P); Purchase Unit Value; Payout Payments 23. Financial Statements......................... General Information (P); Experts
PART C Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C of this Registration Statement. THE VARIABLE ANNUITY LIFE INSURANCE COMPANY SEPARATE ACCOUNT A UNITS OF INTEREST UNDER GROUP UNIT PURCHASE AND GROUP FIXED AND VARIABLE DEFERRED ANNUITY CONTRACTS GUP AND GTS-VA PROSPECTUS MAY 1, 2017 Group Unit Purchase Contracts, or GUP, and Group Variable Annuity Deferred Contracts, or GTS-VA (the "Contracts"), consist of flexible and single Purchase Payment group fixed and variable deferred annuity contracts that are offered by The Variable Annuity Life Insurance Company ("VALIC") to Participants in certain employer sponsored qualified retirement plans. The Contracts may be available to you when you participate in a retirement program that qualifies for deferral of federal income taxes. The Contracts described in this prospectus were formerly offered through Separate Account One and Separate Account Two of VALIC. The Contracts permit you to invest in and receive retirement benefits in the Fixed Account Option and the Variable Account Option described in this prospectus. The Variable Account Option invests in the Stock Index Fund, a separate portfolio of VALIC Company I. -------------------------------------------------------------------------------- This prospectus provides information employers and Participants should know before investing in the Contracts and will help Participants make decisions for selecting various investment options and benefits. Please read and retain this prospectus for future reference. A Statement of Additional Information ("SAI"), dated May 1, 2017, contains additional information about the Contracts and is part of this prospectus. For a free copy call 1-800-428-2542. The table of contents for the SAI is shown at the end of this prospectus. The SAI has been filed with the Securities and Exchange Commission ("SEC") and is available along with other related materials at the SEC's Internet web site (http://www.sec.gov). INVESTMENT IN THE CONTRACTS IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE SURRENDERED, THE VALUE MAY BE HIGHER OR LOWER THAN THE PURCHASE PAYMENTS. THE SEC 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. -------------------------------------------------------------------------------- TABLE OF CONTENTS --------------------------------------------------------------------------------
PAGE ---- GLOSSARY OF TERMS.......................................................... 1 FEE TABLES................................................................. 2 SELECTED PURCHASE UNIT DATA................................................ 3 SUMMARY.................................................................... 3 GENERAL INFORMATION........................................................ 5 About the Contracts..................................................... 5 About VALIC............................................................. 5 American Home Assurance Company......................................... 5 About VALIC Separate Account A.......................................... 6 Units of Interest....................................................... 6 Distribution of the Contracts........................................... 6 Administration of the Contracts......................................... 6 FIXED ACCOUNT OPTION....................................................... 7 VARIABLE ACCOUNT OPTION.................................................... 7 PURCHASE PERIOD............................................................ 8 Account Establishment................................................... 8 When Your Account Will be Credited...................................... 9 Purchase Units.......................................................... 9 Calculation of Value for Fixed Account Option........................... 9 Calculation of Value for Variable Account Option........................ 9 Stopping Purchase Payments.............................................. 10 TRANSFERS BETWEEN INVESTMENT OPTIONS....................................... 10 During the Purchase Period--Policy Against Market Timing and Frequent Transfers............................................................. 10 Communicating Transfer or Reallocation Instructions..................... 11 Effective Date of Transfer.............................................. 11 Transfers During the Payout Period...................................... 11 FEES AND CHARGES........................................................... 11 Sales and Administrative Charge......................................... 11 Premium Tax Charge...................................................... 12 Separate Account Charges................................................ 12 Other Charges........................................................... 12 Reduction from Total Expenses........................................... 13 PAYOUT PERIOD.............................................................. 13 Fixed Payout............................................................ 13 Assumed Investment Rate................................................. 13 Variable Payout......................................................... 14 Combination Fixed and Variable Payout................................... 14 Partial Annuitization................................................... 14 Payout Date............................................................. 14 Payout Options.......................................................... 15 Level Payments Option................................................... 15 Payout Information...................................................... 15 SURRENDER OF ACCOUNT VALUE................................................. 16 When Surrenders Are Allowed............................................. 16 Surrender Process....................................................... 16 Amount That May Be Surrendered.......................................... 17 Surrender Restrictions.................................................. 17 Partial Surrenders...................................................... 17 EXCHANGE PRIVILEGES........................................................ 17 DEATH BENEFITS............................................................. 17 The Process............................................................. 17 Beneficiary Information................................................. 18 During the Purchase Period.............................................. 18 During the Payout Period................................................ 18 OTHER CONTRACT FEATURES.................................................... 19 Changes That May Not Be Made............................................ 19 Change of Beneficiary................................................... 19 Cancellation - The "Free Look" Period................................... 19 We Reserve Certain Rights............................................... 19 Relationship to Employer's Plan......................................... 20 Assigning Your Contract................................................. 20 VOTING RIGHTS.............................................................. 20 Who May Give Voting Instructions........................................ 20 Determination of Fund Shares Attributable to Your Account............... 20 How Fund Shares Are Voted............................................... 20 FEDERAL TAX MATTERS........................................................ 21 Type of Plans........................................................... 21 Tax Consequences in General............................................. 21 U.S. Department of Labor Fiduciary Regulation........................... 23 LEGAL PROCEEDINGS.......................................................... 23 FINANCIAL STATEMENTS....................................................... 23 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION................... 24
GLOSSARY OF TERMS -------------------------------------------------------------------------------- Unless otherwise specified in this prospectus, the words "we," "us," "our," "Company," and "VALIC" mean The Variable Annuity Life Insurance Company and the words "you" and "your" mean the Participant. Other specific terms we use in this prospectus are: ACCOUNT VALUE - the total sum of your Fixed Account Option and/or Variable Account Option that has not yet been applied to your Payout Payments. ANNUITANT - the individual (in most cases, you) to whom Payout Payments will be paid. ASSUMED INVESTMENT RATE - the rate used to determine your first monthly Payout Payment per thousand dollars of account value in your Variable Account Option. BENEFICIARY - the individual designated to receive Payout Payments upon the death of the Annuitant. BUSINESS DAY - any weekday that the New York Stock Exchange ("NYSE") is open for trading. Normally, the NYSE is open Monday through Friday through 4:00 p.m. Eastern time ('Market Close"). On holidays or other days when the NYSE is closed, such as Good Friday, the Company is not open for business. CONTRACT OWNER - the individual or entity to whom the Contract is issued. For a group Contract, the Contract Owner will be the employer purchasing the Contract for a retirement plan. DIVISION - the portion of the Separate Account invested in a particular Mutual Fund. Each Division is a sub-account of VALIC Separate Account A. FIXED ACCOUNT OPTION - an account that is guaranteed to earn at least a minimum rate of interest while invested in VALIC's general account. HOME OFFICE - located at 2929 Allen Parkway, Houston, Texas 77019. MUTUAL FUND OR FUND - the investment portfolio(s) of a registered open-end management investment company, which serves as the underlying investment vehicle for each Division represented in VALIC Separate Account A. PARTICIPANT - the individual (in most cases, you) who makes Purchase Payments or for whom Purchase Payments are made. PARTICIPANT YEAR - a 12 month period starting with the issue date of a Participant's Contract certificate and each anniversary of that date. PAYOUT PAYMENTS - annuity payments withdrawn in a steady stream during the Payout Period. PAYOUT PERIOD - the time when you begin to withdraw your money in Payout Payments. This may also be called the "Annuity Period." PAYOUT UNIT - a measuring unit used to calculate Payout Payments from your Variable Account Option. Payout Units measure value, which is calculated just like the Purchase Unit value for each Variable Account Option except that the initial Payout Unit includes a factor for the Assumed Investment Rate selected. Payout Unit values will vary with the investment experience of the VALIC Separate Account A Division. PROOF OF DEATH - a certified copy of the death certificate, a certified copy of a decree of a court of competent jurisdiction as to death, a written statement by an attending physician, or any other proof satisfactory to VALIC. PURCHASE PAYMENTS - an amount of money you or your employer pay to VALIC to receive the benefits of a Contract. PURCHASE PERIOD - the accumulation period or time between your first Purchase Payment and the beginning of your Payout Period (or surrender). PURCHASE UNIT - a unit of interest owned by you in your Variable Account Option. SYSTEMATIC WITHDRAWALS - payments withdrawn on a regular basis during the Purchase Period. VALIC SEPARATE ACCOUNT A OR SEPARATE ACCOUNT - a segregated asset account established by VALIC under the Texas Insurance Code. The purpose of the VALIC Separate Account A is to receive and invest your Purchase Payments and Account Value in the Variable Account Option, if selected. VARIABLE ACCOUNT OPTION - investment options that correspond to Separate Account Divisions offered by the Contracts. 1 FEE TABLES -------------------------------------------------------------------------------- THE FOLLOWING TABLES DESCRIBE THE FEES AND EXPENSES THAT YOU MAY PAY WHEN BUYING, OWNING, AND SURRENDERING THE CONTRACT. THE FIRST TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY AT THE TIME THAT YOU BUY THE CONTRACT, SURRENDER THE CONTRACT, OR TRANSFER CASH VALUE BETWEEN INVESTMENT OPTIONS.
GUP GTS-VA CONTRACTS CONTRACTS --------- --------- CONTRACT OWNER/PARTICIPANT TRANSACTION EXPENSES Maximum Sales and Administrative Charge (as a percentage of Purchase Payments)............................................... 5.00% 5.00% Maximum Loan Application Fee (per loan).......................... $ 60 $ 60 State Premium Taxes (as a percentage of the amount annuitized)... 0-3.5% 0-3.5%
THE NEXT TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY PERIODICALLY DURING THE TIME THAT YOU OWN THE CONTRACT, NOT INCLUDING THE VARIABLE ACCOUNT OPTION FEES AND EXPENSES.
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average daily account value invested in the GUP GTS-VA Separate Account CONTRACTS CONTRACTS --------------------------------------------------------------- --------- --------- Mortality and Expense Risk Fee................................ 1.00% 0.70%/(1)/ Total Separate Account Expenses /(2)/......................... 1.00% 0.70%
/(1)/ The Mortality and Expense Risk Fee may vary depending upon the total assets attributable to the GTS-VA Contracts but will never exceed 0.70%. SEE FOOTNOTE (2) BELOW AND "FEES AND CHARGES- SEPARATE ACCOUNT CHARGES" FOR MORE INFORMATION. /(2)/ The Company has agreed to a permanent guaranteed expense limitation on the Total Separate Account Expenses for the GUP Contracts and the GTS-VA Contracts. Pursuant to the expense limitation, the Company will limit the Total Separate Account Expenses to the extent necessary so that the sum of the Mortality and Expense Risk Fee and the Total Annual Mutual Fund Operating Expenses of the VALIC Company I Stock Index Fund does not exceed the following annual rates: . For the GUP Contracts: 1.42% of total net assets in the Separate Account attributable to the GUP Contracts; and . For the GTS-VA Contracts: 0.70% of the total net assets in the Separate Account attributable to the GTS-VA Contracts. For the year ending December 31, 2016, the Total Separate Account Expenses after expense waivers for the GUP Contracts and GTS-VA Contracts were 1.00% and 0.35%, respectively, as a percentage of average net assets invested in the Separate Account. FOR ADDITIONAL INFORMATION, SEE "FEES AND CHARGES - REDUCTION FROM TOTAL EXPENSES." THE NEXT TABLE SHOWS THE TOTAL OPERATING EXPENSES CHARGED BY THE VALIC COMPANY I STOCK INDEX FUND FOR THE YEAR ENDED DECEMBER 31, 2016. EXPENSES MAY BE HIGHER OR LOWER IN FUTURE YEARS. MORE DETAIL CONCERNING THE FUND'S FEES AND EXPENSES IS CONTAINED IN THE PROSPECTUS FOR THE FUND. TOTAL ANNUAL MUTUAL FUND OPERATING EXPENSES (Expenses that are deducted from the assets of VALIC Company I Stock Index Fund, including management fees, distribution and/or service (12b-1) fees, and other expenses)................................................ 0.35%
EXAMPLE This example is intended to help you compare the cost of investing in the Contract with the cost of investing in other variable annuity contracts. These costs include Contract Owner transaction expenses, Contract fees, Separate Account annual expenses and the Variable Account Option fees and expenses. The example assumes that you invest a single Purchase Payment of $10,000 in the Contract for the time periods indicated, less the front end sales charge. The example also assumes that your investment has a 5% return each year and assumes the maximum fees and expenses for a Variable Account Option. The example does not include the effect of premium taxes upon annuitization, which, if reflected, would result in higher costs. Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 2 IF YOU SURRENDER, ANNUITIZE, OR DO NOT SURRENDER YOUR CONTRACT AT THE END OF THE APPLICABLE TIME PERIOD:
CONTRACT 1 YEAR 3 YEARS 5 YEARS 10 YEARS -------- ------ ------- ------- -------- GUP............................................ $581 $859 $1,157 $2,006 GTS-VA......................................... $518 $663 $ 821 $1,281
Note: This example should not be considered representative of past or future expenses for VALIC Separate Account A or for the Stock Index Fund. Actual expenses may be greater or less than those shown above. Similarly, the 5% annual rate of return assumed in the example is not an estimate or guarantee of future investment performance. SELECTED PURCHASE UNIT DATA -------------------------------------------------------------------------------- Purchase Units shown are for a Purchase Unit outstanding throughout the year.
NUMBER OF UNIT UNITS UNIT VALUE VALUE OUTSTANDING FUND NAME YEAR AT 1/1 AT 12/31 AT 12/31 -------------------------------------------- ---- ---------- -------- ----------- Stock Index Fund (Division 10A) (GUP Contracts) 2016 40.965 45.262 2,423,610 2015 40.946 40.965 2,696,973 2014 36.509 40.946 3,001,516 2013 27.954 36.509 3,396,561 2012 24.430 27.954 3,791,783 2011 24.234 24.430 4,311,896 2010 21.342 24.234 4,854,757 2009 17.086 21.342 5,426,129 2008 27.485 17.086 6,221,690 2007 26.409 27.485 7,438,170 Stock Index Fund (Division 10B) (GTS-VA Contracts) 2016 73.412 81.656 139,447 2015 72.887 73.412 150,565 2014 64.553 72.887 172,564 2013 48.562 64.553 190,252 2012 42.275 48.562 203,700 2011 41.470 42.275 226,142 2010 36.519 41.470 254,532 2009 29.065 36.519 283,500 2008 46.495 29.065 342,835 2007 44.399 46.495 393,539
SUMMARY -------------------------------------------------------------------------------- A summary of the Contracts' major features is presented below. For a more detailed discussion of the Contracts, please read the entire prospectus carefully. FIXED AND VARIABLE OPTIONS The Contracts offer a choice of one Variable Account Option and one Fixed Account Option. FIXED ACCOUNT OPTION Fixed Account Plus - invests in the general account assets of the Company. This account provides fixed-return investment growth for the long-term. It is credited with interest at rates set by VALIC. The account is guaranteed to earn at least a minimum rate of interest. There are limitations on transfers out of this option. VARIABLE ACCOUNT OPTION Stock Index Fund - seeks long-term capital growth through investments in common stocks that, as a group, are expected to provide investment results closely corresponding to the performance of the S&P 500(R) Index. Adviser: VALIC. Sub-adviser: SunAmerica Asset Management LLC ("SunAmerica"). SunAmerica is affiliated with VALIC due to common parent company ownership. Details about the investment objective and strategy of the Stock Index Fund can be found in the section of the prospectus entitled "Variable Account Option," and also in the current VALIC Company I prospectus, available at www.valic.com (or call 1-800-428-2542). GUARANTEED DEATH BENEFIT The Contract offers a death benefit upon death of the Annuitant during the Purchase Period equal to the greater of Account Value or Purchase Payments reduced by withdrawals. TRANSFERS There is no charge to transfer your money between the Variable Account Option and the Fixed Account Option during the Purchase Period. FOR MORE INFORMATION ON 3 ACCOUNT TRANSFERS, SEE THE "TRANSFERS BETWEEN INVESTMENT OPTIONS" SECTION IN THIS PROSPECTUS. FEES AND CHARGES SALES AND ADMINISTRATIVE CHARGES. Generally, a Sales and Administrative Charge of up to 5.00% will be deducted from Purchase Payments. SEE "FEES AND CHARGES - SALES AND ADMINISTRATIVE CHARGE." PREMIUM TAX CHARGE. Premium taxes ranging from zero to 3.5% are currently imposed by certain states and municipalities. For a detailed discussion on timing and deduction of premium taxes see the section of this prospectus entitled "Fees and Charges - Premium Tax Charge." SEPARATE ACCOUNT CHARGES. For GUP Contracts, if you choose the Variable Account Option you will incur a mortality and expense risk fee computed at an aggregate annualized rate of 1.00% on the average daily net asset value of VALIC Separate Account A. For GTS-VA Contracts, if you choose the Variable Account Option you will incur a mortality and expense risk fee at an annual rate which will vary based on the average daily net assets in your group's plan attributable to the Contracts. The Total Separate Account Expense for the Contracts also is subject to a contractual expense limitation. SEE "FEES AND CHARGES - SEPARATE ACCOUNT CHARGES" IN THIS PROSPECTUS. PAYOUT OPTIONS When you withdraw your money, you can select from several payout options: an annuity (which guarantees payment for as long as you live), periodic withdrawals and systematic withdrawals. More information on payout options can be found in the "Payout Period" section of this prospectus. FEDERAL TAX INFORMATION Although deferred annuity contracts such as these Contracts can be purchased with after-tax dollars, they are primarily used in connection with retirement programs that already receive favorable tax treatment under federal law. Annuities, custodial accounts and trusts used to fund tax-qualified retirement plans and programs (such as those established under Internal Revenue Code of 1986, as amended ("Code") sections 403(b) or 401(k) and individual retirement plans ("IRAs")) generally defer payment on taxes and earnings until withdrawal. If you are considering an annuity to fund a tax-qualified plan or program, you should know that an annuity generally does not provide additional tax deferral beyond the tax-qualified plan or program itself. Annuities, however, may provide other important features and benefits such as the income payout option, which means that you can choose to receive periodic payments for the rest of your life or for a certain number of years, and a minimum guaranteed death benefit, which protects your Beneficiaries if you die before you begin the income payout option. Mortality and expense risk fees are charged for these benefits, as described in the "Fees and Charges" section of this prospectus. Before purchasing a deferred annuity for use in a qualified retirement plan or program, you should seek tax advice from your own tax advisor. FOR A MORE DETAILED DISCUSSION OF THESE INCOME TAX PROVISIONS, SEE "FEDERAL TAX MATTERS." PURCHASE REQUIREMENTS FOR MORE INFORMATION ON PURCHASE PAYMENTS, REFER TO THE "PURCHASE PERIOD" SECTION OF THE PROSPECTUS. GUP CONTRACTS. Under the GUP Contracts, the minimum initial and subsequent Purchase Payments per a Participant in a group is $25 if the entire Purchase Payment is allocated to the Variable Account Option and $30 if the Purchase Payment is split between the Variable Account Option and the Fixed Account Option. In certain group plans, the minimum initial Purchase Payment must be at least $2,000, and subsequent Purchase Payments must be at least $5,000. Under certain plans, the minimum initial and subsequent Purchase Payment amounts for the GUP Contracts may differ or may be waived. SEE "PURCHASE PERIOD" IN THIS PROSPECTUS. GTS-VA CONTRACTS. Under the GTS-VA Contracts, the minimum initial and subsequent Purchase Payments is $10,000 per year. This amount may vary depending on the type of plan in which the GTS-VA Contract is offered. SEE "PURCHASE PERIOD" IN THIS PROSPECTUS. CANCELLATION - THE "FREE LOOK" PERIOD The Contract Owner of a group Contract (employer) or individual Contract Owner may cancel a Contract by returning it to the Company within 10 days after it is received. The free look does not apply to Participant certificates except in a limited number of states. To cancel the Contract, the Contract Owner must send a written request for cancellation and return the Contract to us at our Home Office before the end of the "Free Look" period. A refund will be made to the Contract Owner within seven days after receipt of the Contract as required. LOANS Certain Contracts may offer a tax-free loan provision for tax-qualified Contracts, other than IRAs, which gives you access to your money in the Fixed Account Option (subject to a minimum loan amount of $1,000). The 4 availability of loans is subject to federal and state government regulations, as well as your employer's plan provisions and VALIC policy. Generally, one loan per account will be allowed. Under certain, specific circumstances, a maximum of two loans per account may be allowed. VALIC reserves the right to change this limit. We may charge a loan application fee. Keep in mind that tax laws restrict withdrawals prior to age 59 1/2 and a tax penalty may apply (including on a loan that is not repaid). GENERAL INFORMATION -------------------------------------------------------------------------------- ABOUT THE CONTRACTS The Contracts were developed to help you save money for your retirement. A group Contract is a Contract that is purchased by an employer for a retirement plan. The employer and the plan documents will determine how contributions may be made to the Contracts. For example, the employer and plan documents may allow contributions to come from different sources, such as payroll deductions or money transfers. The amount, number, and frequency of your Purchase Payments may also be determined by the retirement plan for which your Contract was purchased. Likewise, the employer's plan may have limitations on partial or total withdrawals (surrenders), the start of annuity payments, and the type of annuity payout options you select. The Contracts offer one fixed and one variable investment option that you, as a Participant, may choose to invest in to help you reach your retirement savings goals. You should consider your personal risk tolerances and your retirement plan in choosing your investment options. The retirement savings process with the Contracts will involve two stages: the accumulation Purchase Period, and the annuity Payout Period. The accumulation period is when you make contributions into the Contracts called "Purchase Payments." The Payout Period begins when you decide to annuitize all or a portion of your Account Value. You can select from a wide array of payout options including both fixed and variable payments. For certain types of retirement plans, such as 403(b) plans, there may be statutory restrictions on withdrawals as disclosed in the plan documents. Please refer to your plan document for guidance and any rules or restrictions regarding the accumulation or annuitization periods. FOR MORE INFORMATION, SEE "PURCHASE PERIOD" AND "PAYOUT PERIOD." ABOUT VALIC We were originally organized on December 21, 1955 as The Variable Annuity Life Insurance Company of America Incorporated, located in Washington, D.C. We re-organized in the State of Texas on August 20, 1968, as Variable Annuity Life Insurance Company of Texas. The name was changed to The Variable Annuity Life Insurance Company on November 5, 1968. Our main business is issuing and offering fixed and variable retirement annuity contracts, like GUP and GTS-VA. Our principal offices are located at 2929 Allen Parkway, Houston, Texas 77019. We have regional offices throughout the United States. On August 29, 2001, SunAmerica Financial Group, Inc. ("SAFG") formerly AIG Life Holdings (US), Inc., a holding company and VALIC's indirect parent company, was acquired by American International Group, Inc. ("AIG"), a Delaware corporation. As a result, VALIC is an indirect, wholly owned subsidiary of AIG, a leading international insurance organization serving customers in more than 100 countries and jurisdictions. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange. More information about AIG may be found in the regulatory filings AIG files from time to time with the SEC at www.sec.gov. AMERICAN HOME ASSURANCE COMPANY The information below is applicable to you only if your Contract or Certificate was issued on or before December 29, 2006. Insurance obligations under Contracts issued by the Company are guaranteed by American Home Assurance Company ("American Home"), an affiliate of the Company. Insurance obligations include, without limitation, Contract value invested in any available fixed account option, death benefits and income options. The guarantee does not guarantee Contract value or the investment performance of the Variable Account Option available under the Contracts. The guarantee provides that the Company's Contract owners can enforce the guarantee directly. American Home Assurance Company provided notice of termination of the General Guarantee Agreement dated March 3, 2003 (the "Guarantee") with respect to contracts issued by VALIC. The Guarantee terminated on December 29, 2006 at 4:00 p.m. Eastern Time ("Point of 5 Termination"). Pursuant to its terms, the Guarantee will not apply to any group or individual contract or certificate issued after the Point of Termination. The Guarantee will remain in effect for any contract or certificate issued prior to the Point of Termination until all insurance obligations under such contracts or certificates are satisfied in full. As described in the prospectus, VALIC will continue to remain obligated under all of its contracts and certificates, regardless of issue date, in accordance with the terms of those contracts and certificates. American Home is a stock property-casualty insurance company incorporated under the laws of the State of New York on February 7, 1899. American Home's principal executive office is located at 175 Water Street, New York, New York 10038. American Home is licensed in all 50 states of the United States and the District of Columbia, as well as certain foreign jurisdictions, and engages in a broad range of insurance and reinsurance activities. American Home is an indirect wholly owned subsidiary of AIG. ABOUT VALIC SEPARATE ACCOUNT A When you direct money to the Contract's Variable Account Option, you will be sending that money through VALIC Separate Account A. You do not invest directly in the Stock Index Fund. VALIC Separate Account A invests in the Stock Index Fund on behalf of your account. VALIC acts as self-custodian for the Mutual Fund shares owned through the Separate Account. VALIC Separate Account A is made up of what we call "Divisions." Each Division invests in a different mutual fund. For example, Division Ten represents and invests in the (VALIC Company I) Stock Index Fund. The earnings (or losses) of each Division are credited to (or charged against) the assets of that Division, and do not affect the performance of the other Divisions of VALIC Separate Account A. VALIC established VALIC Separate Account A on July 25, 1979 under Texas insurance law. VALIC Separate Account A is registered with the SEC as a unit investment trust under the Investment Company Act of 1940, as amended, (the "1940 Act"). Units of interest in VALIC Separate Account A are registered as securities under the Securities Act of 1933, as amended (the "1933 Act"). VALIC 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 VALIC Separate Account A are credited to or charged against the assets held in that Division without regard to the income, capital gains or capital losses of any other Division or arising out of any other business the Company may conduct. In accordance with the terms of the Contracts, VALIC Separate Account A may not be charged with the liabilities of any other Company operation. As stated in the Contracts, the Texas Insurance Code requires that the assets of VALIC Separate Account A attributable to the Contracts be held exclusively for the benefit of the Contract Owner, Participants, Annuitants, and Beneficiaries of the Contracts. The commitments under the Contracts are VALIC's, and AIG and SAFG have no legal obligation to back these commitments. UNITS OF INTEREST Your investment in a Division of VALIC Separate Account A is represented by units of interest issued by VALIC Separate Account A. On a daily basis, the units of interest issued by VALIC Separate Account A are revalued to reflect that day's performance of the underlying mutual fund minus any applicable fees and charges to VALIC Separate Account A. DISTRIBUTION OF THE CONTRACTS The principal underwriter and distributor for VALIC Separate Account A is AIG Capital Services, Inc. ("ACS" or "Distributor"). ACS, an affiliate of the Company, is located at 21650 Oxnard Street, Suite 750, Woodland Hills, CA 91367-4997. FOR MORE INFORMATION ABOUT THE DISTRIBUTOR, SEE "DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS" IN THE SAI. The Contracts are no longer offered to new plans but may available to participants in plans with an existing Contract Previously, the Contracts were sold by licensed insurance agents who were registered representatives of broker-dealers, who were members of FINRA. FOR MORE INFORMATION ABOUT THE DISTRIBUTOR, SEE "DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS" IN THE SAI. VALIC no longer pays commissions to financial advisors for sales or subsequent Purchase Payments made into the Contracts. In addition, the Company and the Distributor no longer enter into marketing and/or sales agreements with broker-dealers regarding the promotion and marketing of the Contracts. ADMINISTRATION OF THE CONTRACTS VALIC is responsible for the administrative servicing of your contract. Please contact the Annuity Service Center at 1-800-448-2542, if you have any comments, questions or service requests. BUSINESS DISRUPTION AND CYBER SECURITY RISKS. VALIC relies heavily on interconnected computer systems and digital data to conduct its variable product business activities. Because VALIC's business is highly dependent upon the effective operation of its computer systems and 6 those of its business partners, VALIC's business is vulnerable to disruptions from physical disruptions and utility outages, and susceptible to operational and information security risks resulting from information systems failure (e.g., hardware and software malfunctions) and cyber-attacks. These risks include, among other things, the theft, misuse, corruption and destruction of data maintained online or digitally, interference with or denial of service attacks on websites and other operational disruption and unauthorized release of confidential customer information. Such systems failures and cyber-attacks affecting VALIC, the underlying Funds, intermediaries and other affiliated or third-party service providers may adversely affect VALIC and your Contract value. For instance, systems failures and cyber-attacks may interfere with the processing of Contract transactions, including the processing of orders from VALIC's website or with the underlying Funds, impact VALIC's ability to calculate Purchase Unit Values, cause the release and possible destruction of confidential customer or business information, impede order processing, subject VALIC and/or its service providers and intermediaries to regulatory fines and financial losses and/or cause reputational damage. Cyber security risks may also impact the issuers of securities in which the underlying Funds invest, which may cause the Funds underlying your Contract to lose value. There can be no assurance that VALIC or the underlying Funds or VALIC's service providers will avoid losses affecting your contract due to cyber-attacks or information security breaches in the future. FIXED ACCOUNT OPTION -------------------------------------------------------------------------------- The Contracts offer one Fixed Account Option ("Fixed Account Plus") that is a part of the general account assets of the Company. These assets are invested in accordance with applicable state regulations to provide fixed-rate earnings and guarantees safety of the principal. The guarantee is backed by the claims-paying ability of the Company, and not the Separate Account. This account is guaranteed to earn at least a minimum rate of interest, as disclosed in your Contract, and interest is paid at a declared rate. Certain limitations may also apply. SEE "TRANSFERS BETWEEN INVESTMENT OPTIONS." The Fixed Account Option is not subject to regulation under the 1940 Act and is not required to be registered under The Securities Act of 1933, as amended. As a result, the SEC has not reviewed data in this prospectus that relates to the Fixed Account Option. However, federal securities law does require such data to be accurate and complete. Money allocated to the Fixed Account Option goes into VALIC's general account. The general account consists of all of VALIC's assets, other than assets attributable to a separate account. All of the assets in the general account are chargeable with the claims of any VALIC contract holders as well as all of its creditors. The general account funds are invested as permitted under state insurance laws. Purchase Payments and interest earned on such amounts in your Fixed Account Option will be paid regardless of the investment results experienced by VALIC's general assets. Thus, we bear the entire investment risk for the Fixed Account Option. VARIABLE ACCOUNT OPTION -------------------------------------------------------------------------------- The Contracts enable you to participate in a Division that represents a Variable Account Option. Certain limitations may also apply. SEE "ABOUT VALIC SEPARATE ACCOUNT A" IN THIS PROSPECTUS. The Division represents and invests, through VALIC's Separate Account A, in a specific portfolio of VALIC Company I. VALIC Company I serves as the investment vehicle for the Contracts. VALIC Company I is registered as an open-end, management investment company and is regulated under the 1940 Act. For more detailed information about the Stock Index Fund option, including investment strategy and risks, you should refer to the VALIC Company I prospectus. Copies are available online at www.valic.com or you may call 1-800-428-2542. Please read the prospectus carefully before investing. STOCK INDEX FUND Investment objective: Seeks long-term capital growth through investment in common stocks that, as a group, are expected to provide investment results closely corresponding to the performance of the S&P 500(R) Index. Adviser: VALIC. Sub-adviser: SunAmerica. SunAmerica is affiliated with the adviser, VALIC, due to common ownership. "Standard & Poor's(R)," "S&P," and "S&P 500(R)" are trademarks of Standard & Poor's ("S&P"). The Stock Index Fund is not sponsored, endorsed, sold or promoted by S&P and S&P makes no representation regarding the advisability of investing in this Fund. -------------------------------------------------------------------------------- 7 PURCHASE PERIOD -------------------------------------------------------------------------------- The Purchase Period begins when your first Purchase Payment is made and continues until you begin your Payout Period. This period may also be called the accumulation period, as you save for retirement. Changes in the value of the Fixed and Variable Account Option are reflected in your overall Account Value. Thus, your investment choices and their performance will affect the total Account Value that will be available for the Payout Period. The amount, number, and frequency of Purchase Payments may be determined by the retirement plan for which the Contract was purchased. The Purchase Period will end upon death, upon surrender, or when you complete the process to begin the Payout Period. ACCOUNT ESTABLISHMENT You must establish an account through a financial advisor. Initial Purchase Payments must be received by VALIC either with, or after, a completed application. Your employer is usually responsible for remitting Purchase Payments to us. The employer is responsible for furnishing instructions to us (a premium flow report) as to the amount being applied to your account (see below). The maximum single payment that may be applied to any account without prior Home Office approval is $750,000.00. Minimum initial and subsequent Purchase Payments are as follows:
CONTRACT TYPE INITIAL PAYMENT SUBSEQUENT PAYMENT ------------------------------------- ------------------------------------- ------------------------------------- GUP Contracts issued under $2,000 $5,000 Section 401 of the Code All other GUP Contracts $30 (with a $12 minimum allocated to $30 (with a $12 minimum allocated to the Variable Account Option) or $25 the Variable Account Option) or $25 if the entire Purchase Payment amount if the entire Purchase Payment amount is to be allocated to the Variable is to be allocated to the Variable Account Option only Account Option only GTS-VA Contracts issued under $10,000 $10,000 Sections 401 and 403(b) of the Code All other GTS-VA Contracts No minimum No minimum
Purchase Payment minimums apply to each Purchase Payment made. For the GUP Contracts, VALIC may occasionally waive the Minimum Initial and Subsequent Purchase Payment amounts for group plans established for employers with 500 or more employees. When an initial Purchase Payment is accompanied by an application we will promptly: . Accept the application and establish your account. We will also apply your Purchase Payment by crediting the amount, on the date we accept your application, to the Fixed or Variable Account Option selected; . Reject the application and return the Purchase Payment; or . Request additional information to correct or complete the application. In the case of an individual variable annuity Contract, we will return the Purchase Payments within 5 Business Days if the requested information is not provided, unless you otherwise so specify. Once you provide us with the requested information, we will establish your account and apply your Purchase Payment, on the date we accept your application, by crediting the amount to the Fixed or Variable Account Option selected. If we receive Purchase Payments from your employer before we receive your completed application or enrollment form, we will not be able to establish a permanent account for you. If this occurs, we will take one of the following actions: . Return Purchase Payments. If we do not have your name, address or Social Security Number ("SSN"), we will return the Purchase Payment to your employer unless this information is immediately provided to us; or . Employer-Directed Account. If we have your name, address and SSN and we have an Employer-Directed Account Agreement with your employer, generally we will deposit your Purchase Payment in an "Employer-Directed" 8 account invested in the Fixed Account Option. You may not transfer these amounts until VALIC has received a completed application or enrollment form. If mandated under applicable law, we may be required to reject a Purchase Payment. We may also be required to block a Contract Owner's account and thereby refuse to pay any request for transfers, withdrawals, surrenders, loans or death benefits, until instructions are received from the appropriate regulator. WHEN YOUR ACCOUNT WILL BE CREDITED Depending on your retirement plan, Purchase Payments may be made by your employer for your account or by you for an IRA. It is the employer's or the individual's responsibility to ensure that the Purchase Payment can be promptly posted to the appropriate account(s). A Purchase Payment must be "in good order" before it can be posted to your account. "In good order" means that all required information and/or documentation has been supplied and that the funds (check, wire, or ACH) clearly identify the individual SSN or group number to which they are to be applied. To ensure efficient posting for Employer Directed accounts, Purchase Payment information must include complete instructions, including the group name and number, each employee's name and SSN, contribution amounts (balanced to the penny for the total purchase) and the source of the funds (for example, employee voluntary, employer mandatory, employer match, transfer, rollover or a contribution for a particular tax year). Purchase Payments for individual accounts must include the name, SSN, and the source of the funds (for example, transfer, rollover, or a contribution for a particular tax year). If the Purchase Payment is in good order as described and is received by our bank by Market Close, the appropriate account(s) will be credited the Business Day of receipt. Purchase Payments in good order received after Market Close will be credited the next Business Day. Please note that if the Purchase Payment is not in good order, the employer or individual will be notified promptly. No amounts will be posted to any accounts until all issues with the Purchase Payment have been resolved. If a Purchase Payment is not received in good order, the purchase amounts will be posted effective the date all required information is received. PURCHASE UNITS A Purchase Unit is a unit of interest owned by you in your Variable Account Option. Purchase Unit values are calculated each Business Day following the close of regular trading of the NYSE, normally Market Close. Purchase Units may be shown as "Number of Shares" and the Purchase Unit values may be shown as "Share Price" on some account statements. See "Purchase Unit Value" in the SAI for more information and an illustration of the calculation of the unit value. CALCULATION OF VALUE FOR THE FIXED ACCOUNT OPTION You may allocate all or a portion of your Purchase Payments to the Fixed Account Option listed in this prospectus as permitted by your retirement program. A complete discussion of the Fixed Account Option may be found in the "Fixed Account Option" section in this prospectus. The value of your Fixed Account Option is calculated on a given Business Day as shown below: The value of your Fixed Account Option = (EQUALS) All Purchase Payments made to the Fixed Account Option + (PLUS) Amounts transferred from the Variable Account Option to the Fixed Account Option + (PLUS) all interest earned - (MINUS) Amounts transferred or withdrawn from Fixed Account Option (including applicable fees and charges). CALCULATION OF VALUE FOR THE VARIABLE ACCOUNT OPTION You may allocate all or a portion of your Purchase Payments to the Variable Account Option listed in this prospectus as permitted by your retirement program. A complete discussion of the Variable Account Option may be found in the "Variable Account Option" section in this prospectus. Based upon the Variable Account Option's Purchase Unit value your account will be credited with the applicable number of Purchase Units. If the Purchase Payment is in good order as described and is received by Market Close, the appropriate account(s) will be credited the Business Day of receipt and will receive that Business Day's Purchase Unit value. Purchase Payments in good order received after Market Close will be credited the next Business Day and will receive the next Business Day's Purchase Unit value. The Purchase Unit value of the Variable Account Option will change each Business Day depending upon the investment performance of the Stock Index Fund (which may be positive or negative) and the deduction of the separate account charges. SEE "FEES AND CHARGES." Because Purchase Unit values change each Business Day, the number of Purchase Units your account will be credited with for subsequent Purchase Payments will vary. The Variable Account Option bears its own investment risk. Therefore, the 9 value of your account may be worth more or less at retirement or withdrawal. STOPPING PURCHASE PAYMENTS Purchase Payments may be stopped at any time. Purchase Payments may be resumed at any time during the Purchase Period. The value of the Purchase Units will continue to vary, and your Account Value will continue to be subject to charges. The Account Value will be considered surrendered when you begin the Payout Period. You may not make Purchase Payments during the Payout Period. If both your Account Value and Purchase Payments (less any withdrawals) fall below $300, and you do not make any Purchase Payments for at least a two year period, we may close the account and pay the Account Value to the Participant. We will not assess a surrender charge in this instance. Any such account closures will be subject to applicable distribution restrictions under the Contract and/or under your employer's plan. TRANSFERS BETWEEN INVESTMENT OPTIONS -------------------------------------------------------------------------------- You may transfer all or part of your Account Value between the various Fixed and Variable Account Options in the Contract without a charge. Transfers may be made during the Purchase Period or during the Payout Period, subject to certain restrictions. WE RESERVE THE RIGHT TO LIMIT THE NUMBER, FREQUENCY (MINIMUM PERIOD OF TIME BETWEEN TRANSFERS) OR DOLLAR AMOUNT OF TRANSFERS YOU CAN MAKE AND TO RESTRICT THE METHOD AND MANNER OF PROVIDING OR COMMUNICATING TRANSFERS OR REALLOCATION INSTRUCTIONS. You will be notified of any changes to this policy through newsletters or information posted online at www.valic.com. Your employer's plan may also limit your rights to transfer. DURING THE PURCHASE PERIOD - POLICY AGAINST MARKET TIMING AND FREQUENT TRANSFERS VALIC has a policy to discourage excessive trading and market timing. Our investment options are not designed to accommodate short-term trading or "market timing" organizations, or individuals engaged in certain trading strategies, such as programmed transfers, frequent transfers, or transfers that are large in relation to the total assets of a mutual fund. These trading strategies may be disruptive to mutual funds by diluting the value of the fund shares, negatively affecting investment strategies and increasing portfolio turnover. Excessive trading also raises fund expenses, such as recordkeeping and transaction costs, and harms fund performance. Further, excessive trading of any amount, including amounts less than $5,000, harms fund investors, as the excessive trader takes security profits intended for the entire fund, in effect forcing securities to be sold to meet redemption needs. The premature selling and disrupted investment strategy causes the fund's performance to suffer, and exerts downward pressure on the fund's price per share. Accordingly, VALIC implemented certain policies and procedures intended to hinder short-term trading. If the Contract Owner sells Purchases Units in a Variable Account Option valued at $5,000 or more, whether through an exchange, transfer, or any other redemption, the Contract Owner will not be able to make a purchase of $5,000 or more in that same Variable Account Option for 30 calendar days. This policy applies only to investor-initiated trades of $5,000 or more, and does not apply to the following: . Plan-level or employer-initiated transactions; . Purchase transactions involving transfers of assets or rollovers; . Retirement plan contributions, loans, and distributions (including hardship withdrawals); . Roth IRA conversions or IRA recharacterizations; . Systematic purchases or redemptions; . Systematic account rebalancing; or . Trades of less than $5,000. As described in a fund's prospectus and statement of additional information, in addition to the above, fund purchases, transfers and other redemptions may be subject to other investor trading policies, including redemption fees, if applicable. Certain Funds may set limits on transfers in and out of a Fund within a set time period in addition to or in lieu of the policy above. Also, an employer's benefit plan may limit an investor's rights to transfer. We intend to enforce these investor trading policies uniformly. We make no assurances that all the risks associated with frequent trading will be completely 10 eliminated by these policies and/or restrictions. If we are unable to detect or prevent market timing activity may result in additional transaction costs for the Variable Account Option and dilution of long-term performance returns. Thus a Contract Owner's account value may be lower due to the effect of the extra costs and resultant lower performance. We reserve the right to modify these policies at any time. The Fixed Account Option is subject to additional restrictions:
FIXED ACCOUNT OPTION % OF ACCOUNT VALUE FREQUENCY OTHER RESTRICTIONS -------------------- ------------------ --------- ------------------------------------------------ Fixed Account Plus: Up to 100% Any time Available if your Account Value is less than or equal to $500.
COMMUNICATING TRANSFER OR REALLOCATION INSTRUCTIONS Transfer instructions may be given by telephone, through the Internet (VALIC Online), using the self-service automated phone system (VALIC by Phone), or in writing. We encourage you to make transfers or reallocations using VALIC Online or VALIC by Phone for most efficient processing. We will send a confirmation of transactions to the Participant within five days from the date of transaction. It is your responsibility to verify the information shown and notify us of any errors within 30 calendar days of the transaction. Generally, no one may give us telephone instructions on your behalf without your written or recorded verbal consent. Financial advisors or authorized broker-dealer employees who have received client permission to perform a client-directed transfer of value via the telephone or Internet will follow prescribed verification procedures. When receiving instructions over the telephone or online, we follow appropriate procedures to provide reasonable assurance that the transactions executed are genuine. Thus, we are not responsible for any claim, loss or expense from any error resulting from instructions received over the telephone or online. If we fail to follow our procedures, we may be liable for any losses due to unauthorized or fraudulent instructions. We reserve the right to modify, suspend, waive or terminate these transfer provisions at any time. EFFECTIVE DATE OF TRANSFER The effective date of a transfer will be: . The date of receipt, if received in our Home Office before Market Close; otherwise, . The next date values are calculated. We will send a confirmation of transactions to the Participant within five days from the date of the transaction. It is your responsibility to verify the information shown and notify us of any errors within 30 calendar days of the transaction. TRANSFERS DURING THE PAYOUT PERIOD During the Payout Period, transfer instructions must be given in writing and mailed to our Home Office. Transfers may be made from Variable Account Option once every 365 days. Transfers are not permitted from the Fixed Account Option at any time during the Payout Period. FEES AND CHARGES -------------------------------------------------------------------------------- By investing in GUP or GTS-VA, you may be subject to four basic types of fees and charges, applied to the Fixed and Variable Account Option: . Sales and Administrative Charge . Premium Tax Charge . Separate Account Charges . Other Tax Charges These fees and charges are applied to the Fixed and Variable Account Options in proportion to the Account Value as explained below. Unless we state otherwise, we may profit from these fees and charges. FOR ADDITIONAL INFORMATION ABOUT THESE FEES AND CHARGES, SEE THE "FEE TABLES." SALES AND ADMINISTRATIVE CHARGE When you make a Purchase Payment to your account, you may be subject to a Sales and Administrative Charge that will be deducted from the amount of your Purchase Payment. The Sales and Administrative Charge will be deducted from the GUP Contracts as follows: 11
AGGREGATE GROSS DEDUCTION AS A PERCENTAGE OF DEDUCTION AS A PERCENTAGE OF PURCHASE PAYMENTS /(1)/ PURCHASE PAYMENTS /(2)/ NET PURCHASE PAYMENTS /(3)/ ---------------------- ---------------------------- ---------------------------- First $5,000 5.00% 5.26% Next $5,000 4.00% 4.17% Next $5,000 3.50% 3.36% Over $15,000 3.00% 3.09%
/(1)/ The Aggregate Gross Purchase Payments is the entire amount that you pay to the Company under a Contract. /(2)/ We will only deduct 2% (1.4% administrative expenses and 0.6% sales expenses) from single one-time Purchase Payments, except when the single one-time Purchase Payment is transferred from other Company annuity contracts for which no deduction is made. Any subsequent Purchase Payments made after a single one-time Purchase Payment will be subject to the deduction as described above with the lump sum included in the Aggregate Gross Purchase Payment. /(3)/ The Gross Purchase Payment amount minus the deduction for Sales and Administrative Expenses is the amount of the Net Purchase Payment. If you are a full-time sales representative of VALIC, and have been employed by VALIC for 90 days or more, then you may participate in a GUP Contract with no Sales and Administrative Charge. If your Contract is unallocated, then the Sales and Administrative Charge will be 2% for each Purchase Payment. PREMIUM TAX CHARGE Premium taxes are imposed by some states, cities, and towns. The rate will range from 0% to 3.5%, depending on whether the Contract is qualified or nonqualified. Such tax will be deducted from the Account Value when annuity payments are to begin. We will not profit from this charge. If you are in a GUP deposit administration contract, then your premium taxes will be added to payout rates when you are added to a group plan, and not deducted from Purchase Payments. SEPARATE ACCOUNT CHARGES There will be a mortality and expense risk fee applied to VALIC Separate Account A. For GUP Contracts, this is a daily charge at an annualized rate of 1.00% on the average daily net asset value of your investment in VALIC Separate Account A. For GTS-VA Contracts, this is a daily charge at an annualized rate, as follows: . 0.85% on the first $10,000,000, . 0.425% on the next $90,000,000, and . 0.21% on assets over $100,000,000, on the average daily net asset value of your plan's investment in VALIC Separate Account A. The mortality and risk fee for the GTS-VA Contracts may be reduced as a result of a guaranteed contractual expense limitation. See "FEES AND CHARGES - REDUCTION FROM TOTAL EXPENSES" BELOW. This charge is guaranteed and cannot be increased by the Company. The mortality and expense risk fee is to compensate the Company for assuming mortality and expense risks under the Contracts. The mortality risk that the Company assumes is the obligation to provide payments during the Payout Period for your life no matter how long that might be. In addition, the Company assumes the obligation to pay during the Purchase Period a death benefit which may be higher than your Account Value. FOR MORE INFORMATION ABOUT THE DEATH BENEFIT SEE THE "DEATH BENEFIT" SECTION OF THIS PROSPECTUS. The expense risk is our obligation to cover the cost of issuing and administering the Contracts, no matter how large the cost may be. Separate Account Charges are not applied to Variable Investment Options during the Payout Period. FOR MORE INFORMATION ABOUT THE MORTALITY AND EXPENSE RISK FEE, SEE THE FEE TABLES IN THIS PROSPECTUS. OTHER CHARGES We reserve the right to charge for certain taxes (in addition to premium taxes) that we may have to pay. This could include federal income taxes. Currently, no such charges are being made. Fees for plan services provided by parties other than VALIC or its affiliates maybe assessed to participant accounts upon the direction of authorization of a plan representative. Additional fees may be withdrawn from client accounts in accordance with a client's independent investment advisory contract. Such withdrawals will be identified on applicable participant account reports or client statements. Plan loans from the Fixed Account Option may be allowed by your employer's plan. Refer to your plan for a 12 description of charges and other information concerning plan loans. We reserve the right to charge a fee of up to $60 per loan, if permitted under state law, and to limit the number of outstanding loans. REDUCTION FROM TOTAL EXPENSES When the Company reorganized its separate accounts in 1987, merging VALIC Separate Account One and VALIC Separate Account Two into VALIC Separate Account A, the Company guaranteed that the fees and charges would not be greater as a result of this reorganization. Endorsements added to the Contracts provide that certain Annual Fund Operating Expenses and the Separate Account Annual Expenses will not be higher on the Contracts funded by VALIC Separate Account A, than they were when the Contracts were funded by VALIC Separate Account One and VALIC Separate Account Two. The Company, for VALIC Separate Account One and VALIC Separate Account Two, determined the ratio of certain Annual Fund Operating Expenses and Separate Account Annual Expenses to the total net assets of VALIC Separate Account One and VALIC Separate Account Two, called the Expense Ratio. On April 1, 1987, the Expense Ratio was calculated to determine the Maximum Expense Ratio. The Company guarantees that the amount of the Expense Ratio will never exceed the amount of the Maximum Expense Ratio. The Maximum Expense Ratio for the GUP Contracts is 1.4157% and for the GTS-VA Contracts is 0.6966% on the first $25,434,267, 0.50% on the next $74,565,733 and 0.25% of the excess over $100 million of the total of the total net assets in the Separate Account attributable to your plan. The Maximum Expense Ratio does not apply to extraordinary and non-recurring Fund Annual Expenses. These expenses may include certain liabilities and litigation associated with indemnification payments of VALIC Company I failing to qualify as a Regulated Investment Company under the Code. The Company believes that such expenses and liabilities, although possible, are unlikely to occur. We may, as described below, determine that the Sales and Administrative Charge or separate account charges for the Contracts may be reduced or waived. We may reduce or waive these charges if we determine that your retirement program will allow us to reduce or eliminate administrative or sales expenses that we usually incur for retirement programs. There are a number of factors we will review in determining whether your retirement program will allow us to reduce or eliminate these administrative or sales expenses: . The type of retirement program. Certain types of retirement programs, because of their stability, can result in lower administrative costs. . The nature of your retirement program. Certain types of retirement programs, due to the types of employees who participate, experience fewer account Surrenders, thus reducing administrative costs. . Other factors of which we are not presently aware which could reduce administrative costs. In no event will the reduction or waiver of fees and charges be permitted where the reduction or waiver will unfairly discriminate against any person. PAYOUT PERIOD -------------------------------------------------------------------------------- The Payout Period begins when you decide to retire or otherwise withdraw your money in a steady stream of payments. If your employer's plan permits, you may apply all or a portion of your Account Value to one of the types of payout options listed below. You may choose to have your payout option on a fixed, a variable, or a combination payout basis. FIXED PAYOUT Under fixed payout, you will receive payments that are fixed and guaranteed by the Company. The amount of these payments will depend on: . Type and duration of payout option chosen; . Your age or your age and the age of your survivor/(1)/; . Your gender or your gender and the gender of your survivor/(1)/ (IRAs); . The portion of your Account Value being applied; and . The payout rate being applied and the frequency of the payments. /(1)/ This applies only to joint and survivor payouts. If the benefit would be greater, the amount of your payments will be based on the current payout rate the Company uses for immediate annuity contracts. ASSUMED INVESTMENT RATE An "Assumed Investment Rate" or "AIR" is the rate used to determine your first monthly Payout Payment per 13 thousand dollars of account value in your Variable Account Option. When you decide to enter the Payout Period, you will select your Payout Option, your Annuity Date, and the AIR. You may choose an AIR ranging from 3.5% to 5% (as prescribed by state law). If you choose a higher AIR, the initial Annuity Payment will be higher, but later payments will increase more slowly during periods of good investment performance, and decrease faster during periods of poor investment performance. Your choice of AIR may affect the duration and frequency of payments, depending on the Payout Option selected. VARIABLE PAYOUT With a variable payout, you select your existing Variable Account Option. Your payments will vary accordingly. This is due to the varying investment results that will be experienced by the Variable Account Option. The Payout Unit value is calculated just like the Purchase Unit value for the Variable Account Option except that the Payout Unit value includes a factor for the AIR you select. For additional information on how Payout Payments and Payout Unit values are calculated, see the SAI. In determining the first Payout Payment, an AIR of 3.5% is used (unless you select a higher rate as allowed by state law) for all Contracts, except GTS-VA Contracts that are not sold under Section 403(b), which have an AIR of 3% (unless you select a higher rate as allowed by state law). If the net investment experience of the Variable Account Option exceeds the AIR, subsequent payments will be greater than your first payment. If the investment experience of the Variable Account Option is lower than the AIR, subsequent payments 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 Option (payment will vary); with a . Fixed payout (payment is fixed and guaranteed). PARTIAL ANNUITIZATION A Participant may choose to annuitize a portion of the Account Value. This will, in essence, divide your Account Value into two parts. The current non-annuitized part would continue as before, while the annuitized part would effectively be moved to a new Payout Payment account. Thus, the death benefit in such a situation would be reduced to the value of the amount remaining in the account minus the amount applied to Payout Payments. Depending on the payout option selected, there may also be a death benefit from the annuitized portion of the account, such as a payout for a guaranteed period. PAYOUT DATE The payout date is the date elected by you on which the annuity Payout Payments will start. The date elected must be the first of any month. A request to start payments must be received in our Home Office on a form approved by VALIC. This request must be received by VALIC by at least the 15th day of the month prior to the month you wish your annuity payments to start. Your account will be valued ten days prior to the beginning of the month in which the Payout Payments will start. The following additional rules also apply when determining the payout date: . The earliest payout date for a nonqualified contract, an IRA, or a Roth IRA, is established by the terms of the contract, and generally can be any time from age 50 to age 75, and may not be later than age 75 without VALIC's consent. . The earliest payout date for all other qualified contracts is generally subject to the terms of the employer-sponsored plan (including 403(b) plans and programs) under which the contract is issued and the federal tax rules governing such contracts and plans. . Distributions from qualified contracts issued under employer-sponsored retirement plans generally are not permitted until after you stop working for the employer sponsoring the plan, unless you have experienced a qualifying financial hardship (or in the case of a 457(b) plan, an unforeseeable emergency) or unless you have become disabled. . In certain cases, and frequently in the case of your voluntary deferrals to a 403(b) or a 401(k) plan, you may begin taking distributions when you attain age 59 1/2 even if you are still working for the employer sponsoring the plan. . Except in the case of nonqualified contracts, IRAs, and Roth IRAs, distributions generally 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, if later. Similar rules apply to IRAs, however distributions from those contracts may not be postponed until after retirement. . All contracts require distributions to commence within a prescribed period after the death of the owner/participant, subject to the specific rules which apply to the type of plan or arrangement under which the contract is issued. . The contract may also impose minimum amounts for annuity payments, either on an annual or on a more frequent periodic basis. 14 For additional information on plan-level distribution restrictions and on the minimum distribution rules that apply to payments under 403(b), 401, 403(a) and 457 plans, simplified employee plans ("SEPs") or IRAs, see "Federal Tax Matters" in this prospectus and in the SAI. PAYOUT OPTIONS You may specify the manner in which your Payout Payments are made. You may select one of the following options for a Fixed Annuity, a Variable Annuity, or a combination Fixed and Variable Annuity, except that Payment for a Designated Period is available only as a fixed payout. This choice is a one-time permanent choice. Your Payout Payment annuity option may not be changed later and it may not be exchanged for a cash payment. . 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 the Annuitant died prior to the date of the second payment, or two if the Annuitant died before the third payment. . LIFE WITH GUARANTEED PERIOD - payments are made to you during your lifetime, but if you die before the guaranteed period has expired, payments will continue to the Beneficiary for the rest of the guaranteed period, or take a lump-sum distribution. Under the GTS-VA Contracts, the Payout Payments must be at least $25 each. . LIFE WITH CASH OR UNIT REFUND -- payments are made to you during your lifetime. Upon your death, your Beneficiary may receive an additional payment. The payment under a Fixed Annuity, if any, is equal to the Fixed Annuity value of the Participant's Account at the time it was valued for the Payout Date, less the Payout Payments. The payment under a Variable Annuity, if any, is equal to the Variable Annuity value of the Participant's Account at the time it was valued for the Payout Date, less the Payout Payments. . JOINT AND SURVIVOR LIFE - payments are made to you during the joint lifetime of you and a second person. Upon the death of one, payments continue during the lifetime of the survivor. This option is designed primarily for couples who require maximum possible variable payouts during their joint lives and are not concerned with providing for Beneficiaries at death of the last survivor. For example, it would be possible under this option for the joint Annuitants to receive only one payment if both Annuitants died prior to the date of the second payment, or for the joint Annuitants to receive only one payment and the surviving Annuitant to receive only one payment if one Annuitant died prior to the date of the second payment and the surviving Annuitant dies prior to the date of the third payment. . PAYMENT OF A SPECIFIED AMOUNT - payments in equal annual, semi-annual, quarterly or monthly installments are made to you of a specified dollar amount until the remaining balance is less than the specified dollar amount, at which time, the remaining balance will be paid to you. . PAYMENT OF INVESTMENT INCOME - payments are made to you, out of your Account Value placed in the Fixed Account Option, on an annual, semi-annual, quarterly or monthly basis. Payments are calculated by the net investment rate for the period multiplied by the remaining Account Value. Upon your death, payments will continue to your Beneficiary until the remaining balance is paid out. At any time, you may elect to receive a lump sum payment equal to the remaining Account Value. . PAYMENT FOR A DESIGNATED PERIOD - payments are made to you for a select number of years between one and 20. Upon your death, payments will continue to your Beneficiary until the designated period is completed. Payment for a designated period is available as a fixed payout option only. LEVEL PAYMENTS OPTION The level payments enhancement is an option that can only be used if you have a GUP Contract and if you selected one of the first four payout options above. Under the level payments option, payments are made once each month during each payout year at a certain level determined for that year based on the investment performance of the Separate Account. The amount of the payments will be determined by dividing the payment amount by the current Payout Unit value to determine the number of Payout Units in each subsequent annual payment. FOR MORE INFORMATION ABOUT PAYOUT OPTIONS OR ENHANCEMENTS OF THOSE PAYOUT OPTIONS AVAILABLE UNDER THE CONTRACT, SEE THE SAI. PAYOUT INFORMATION Once your Payout Payments have begun, the option you have chosen may not be stopped or changed. The Variable Account Option may result in your receiving unequal payments during the Payout Period. If payments begin before age 59 1/2, you may suffer unfavorable tax consequences, in the form of a penalty tax, if you do not meet an exception under federal tax law. SEE "FEDERAL TAX MATTERS." 15 If a payout option selection is not made at least 30 days before the Payout Date, then: . Payments will be made under the life with guaranteed period option; . The payments will be guaranteed for a 10 year period; . The payments will be based on the allocation used for the Participant's Purchase Payments; . The Fixed Account Option will be used to distribute payments to the Participant on a fixed payout basis; and . The Variable Account Option will be used to distribute payments to the Participant on a variable payout basis. Under certain retirement plans, federal pension law may require that payments be made under the joint and survivor life payout option. Most Payout Payments are made monthly. The first Payout Payment must total at least $25, and the annual payment must be at least $100. If the amount of a payment is less than $25, we reserve the right to reduce the frequency of payments so that each payment is at least $25, subject to any limitations under the Contract or plan. SURRENDER OF ACCOUNT VALUE -------------------------------------------------------------------------------- WHEN SURRENDERS ARE ALLOWED You may withdraw all or part of your Account Value during the Purchase Period if: . allowed under federal and state law; and . allowed under your employer's plan. For Purchase Payments that are contributions made under your employer's plan, such as a 401(a) or (k) qualified cash or deferred arrangement or a 403(b) plan, surrenders are subject to the terms of the plan, in accordance with the Code. Qualified plans often require certain conditions to be met before a distribution or withdrawal may take place. SEE "SURRENDER RESTRICTIONS" BELOW. For an explanation of charges that may apply if you surrender your Account Value, see "Fees and Charges" in this prospectus. Additionally, you may incur a 10% federal tax penalty for partial or total surrenders made before age 59 1/2. DELAY REQUIRED UNDER APPLICABLE LAW. We may be required under applicable law to block a request for a surrender until we receive instructions from the appropriate regulator, due to the USA Patriot Act. In accordance with state law, payments may be deferred up to six months after we receive a request for a full and immediate surrender of the Contract or certificate, including amounts accumulated in the Fixed Account Options, if approved in writing by the insurance commissioner of the state where the individual Contract is issued or where the group contract is issued for the certificate. If payment is deferred, interest will accrue until the payment is made. VALIC may be required to suspend or postpone the payment of a withdrawal for any period of time when: (1) the NYSE is closed (other than a customary weekend and holiday closings); (2) trading with the NYSE is restricted; (3) an emergency exists such that disposal of or determination of the value of shares of the Variable Account Options is not reasonably practicable; or (4) the SEC, by order, so permits for the protection of Contract Owners. SURRENDER PROCESS If you are allowed to surrender all or a portion of your Account Value as noted above, then you must complete a surrender request form and mail it to our Home Office. We will mail the surrender value to you within seven calendar days after we receive your request if it is in good order. Good order means that all paperwork is complete and signed or approved by all required persons, and any necessary supporting legal documents or plan forms have been received in correct form. We may be required to suspend or postpone payments if redemption of the Stock Index Fund's shares have been suspended or postponed. See the VALIC Company I prospectus for a discussion of the reasons why the redemption of shares may be suspended or postponed. We may receive a surrender request for a Purchase Payment that has not cleared the banking system. We may delay payment of that portion of your surrender value until the check clears. We may defer payment of the surrender value in the Fixed Account Option for up to 6 months. Interest will be paid on such amounts if payment of Fixed Account Option Surrender Value is deferred for 30 calendar days or more. 16 AMOUNT THAT MAY BE SURRENDERED The amount that may be surrendered during the Purchase Period can be determined as follows: Allowed surrender value = (EQUALS) The Account Value next computed after your properly completed request for surrender is received in our Home Office. There is no guarantee that the surrender value in a Variable Account Option will ever equal or exceed the total amount of your Purchase Payments received by us. SURRENDER RESTRICTIONS Generally, Code section 403(b)(11) permits total or partial distributions from your voluntary contributions to a 403(b) contract only on account of hardship (employee contributions only without accrued interest), attainment of age 59 1/2, separation from service, death or disability. Similar restrictions apply to any amount transferred to a 403(b) contract from a 403(b)(7) custodial account. In addition, beginning for contracts issued on or after January 1, 2009, employer contributions and non-elective contributions to a 403(b) annuity contract are subject to restrictions specified in Treasury regulations as specifically imposed under the employer's plan. Under the TEXAS STATE OPTIONAL RETIREMENT PROGRAM, no surrender or partial surrender will be allowed except upon attainment of age 70 1/2, retirement or other termination of employment or death. Under the FLORIDA STATE OPTIONAL RETIREMENT PROGRAM, no surrender or partial surrender of Purchase Payments made by the employer will be allowed except upon termination of employment, retirement or death. Benefit payments based on payments from the employer may not be paid in a lump sum or for a period certain, but must be paid under a life contingency option, except for: . death benefits; and . certain small amounts approved by the State of Florida. Under the LOUISIANA STATE OPTIONAL RETIREMENT PLAN retirement benefits must be paid in the form of a lifetime income, and except for death benefits, single sum surrenders and partial surrenders out of the plan are not permitted unless they are rollovers to another qualified plan or IRA. Other employer-sponsored plans may also impose restrictions on the timing and form of surrenders from the Contract. PARTIAL SURRENDERS You may request a partial surrender of your Account Value at any time during the Purchase Period, subject to any applicable surrender restrictions. A partial surrender will reduce your Account Value. Partial surrenders will be paid from the Fixed Account Option and the Variable Account Option. The reduction in the number of Purchase Units credited to your Account Value will equal: The amount surrendered / (DIVIDED BY) Your Purchase Units next computed after the written request for surrender is received at our Home Office. EXCHANGE PRIVILEGES -------------------------------------------------------------------------------- From time to time, we may allow you to exchange an older variable annuity issued by VALIC for a newer product with more current features and benefits issued by VALIC. Such an exchange offer will be made in accordance with applicable state and federal securities and insurance rules and regulations. We will explain the specific terms and conditions of any such exchange offer at the time the offer is made. DEATH BENEFITS -------------------------------------------------------------------------------- The Contracts will pay death benefits during either the Purchase Period or the Payout Period. The death benefit provisions may vary from state to state. THE PROCESS VALIC requires that complete and acceptable documentation and paperwork be received from the Beneficiary in order to begin the death benefit payment process. First, Proof of Death is required. Proof of Death is defined as a certified copy of the death certificate, a certified copy of a decree of a court of competent jurisdiction as to death, a written statement by an attending physician, or any other proof satisfactory to VALIC. Additionally, the Beneficiary must include an election specifying the distribution method and any other form required by VALIC or a regulator to process the claim. The account will not be valued and any payments 17 will not be made until all paperwork is complete and in a form acceptable to VALIC. You may contact a VALIC financial advisor at 1-800-448-2542 with any questions about required documentation and paperwork. Death benefits are paid only once per Contract. BENEFICIARY INFORMATION The Beneficiary may receive death benefits: . In a lump sum; . 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; or . In a manner consistent with Code section 401(a)(9) or 72(s). Payment of any death benefits must be within the time limits set by federal tax law and by the plan, if any. SPOUSAL BENEFICIARIES A spousal Beneficiary may receive death benefits as shown above or, in the case of a qualified Contract, may either delay any distributions until the Annuitant would have reached age 70 1/2 or roll the funds over to an IRA or certain retirement plans in which the spousal Beneficiary participates. BENEFICIARIES OTHER THAN SPOUSES If the Beneficiary is not the spouse of the Annuitant, death benefits must be paid: . In full within 5 years after the year of the Annuitant's death; or . By payments beginning within 1 year after the year of the Annuitant's death under: 1. A life annuity; 2. A life annuity with payments guaranteed to be made for at least a specified fixed period; or 3. An annuity or other stream of payments for a designated period not exceeding the Beneficiary'slife expectancy. If the Annuitant dies before the beginning of the Annuity Period, the named Beneficiary may receive the payout. Payments for a designated or fixed period and guarantee periods for a life annuity cannot be for a greater period of time than the Beneficiary's life expectancy. After choosing a payment option, a Beneficiary may exercise many of the investment options and other rights that the Participant or Contract Owner had under the Contracts. DURING THE PURCHASE PERIOD If death occurs during the Purchase Period, the death benefit will be the greater of: . Your Account Value on the date all paperwork is complete and in a form acceptable to VALIC; OR . 100% of Purchase Payment (to the Fixed and/ or the Variable Account Option) - (MINUS) The amount of all prior withdrawals and any portion of Account Value applied under a payout option As indicated above, a Participant may elect to annuitize only a certain portion and leave the remaining value in the account. The death benefit in such situations would include the value of the amount remaining in the account minus the amount applied to Payout Payments. Depending on the payout option selected, there may also be a death benefit from the annuitized portion of the account. DURING THE PAYOUT PERIOD If death occurs during the Payout Period, the Beneficiary may receive a death benefit depending on the payout option selected. The amount of death benefit will also depend on the payout option selected. The payout options available are described in the "Payout Period" section of this prospectus. . If the life only option or joint and survivor life option was chosen, there will be no death benefit. . If the life with guaranteed period option, joint and survivor life with guaranteed periods option, life with cash or unit refund option or payment for a designated period option was chosen, and the entire amount guaranteed has not been paid, the Beneficiary may choose one of the following within 60 days after death benefits are payable: 1. Receive the present value of any remaining payments in a lump sum; 2. Receive the remaining payments under the same terms of the guaranteed period option chosen by the deceased Annuitant and be entitled to elect anytime thereafter to receive the present value of any remaining payments in a lump sum; OR 3. Receive the present value of any remaining payments applied under the payment for a designated period option for a period equal to or shorter than the period remaining. Spousal Beneficiaries may be entitled to more favorable treatment under federal tax law. 18 Death Benefits will not be provided during the Payout Period for certain unallocated GUP and GTS-VA Contracts. OTHER CONTRACT FEATURES -------------------------------------------------------------------------------- CHANGES THAT MAY NOT BE MADE The following terms in the Contracts may not be changed once your account has been established: . The Contract Owner; . The Participant; and . The Annuitant. CHANGE OF BENEFICIARY The Beneficiary (if not irrevocable) may usually be changed at any time. Under some retirement programs, the right to name a Beneficiary other than the spouse or change a Beneficiary is subject to approval by the spouse. Also, the right to name a Beneficiary other than the spouse may be subject to certain laws and regulations applicable to the plan. If the Annuitant dies, and there is no Beneficiary, any death benefit will be payable to the Annuitant's estate, except in the case of a nonqualified Contract where the Contract Owner and Annuitant are different, in which case the death benefit is paid to the Contract Owner, or the Contract 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. The Contract Owner may name a contingent owner under an individual nonqualified Contract. During the Purchase Period, the contingent owner may be changed. CANCELLATION - THE "FREE LOOK" PERIOD The Contract Owner of a group Contract (employer) or individual Contract Owner may cancel a Contract by returning it to the Company within 10 days after it is received. (A longer period will be allowed if required under state law.) The free look does not apply to Participant certificates except in a limited number of states. We will allocate Purchase Payments as instructed during the "free look" period. To cancel the Contract, the Contract Owner must send a written request for cancellation and return the Contract to us at our Home Office before the end of the "Free Look" period. A refund will be made to the Contract Owner within seven days after receipt of the Contract within the required period. The amount of the refund will be equal to all Purchase Payments received or, if more, the amount required under state law. The Contract will be void once we issue a refund. WE RESERVE CERTAIN RIGHTS We may amend the Contracts to comply with changes in federal tax, securities, or other laws. We may also make changes to the Variable Account Option offered under the Contracts. For example, we may add new Variable Account Options to expand the offerings for an asset class. We may move assets and re-direct future premium allocations from one Variable Account Option to another in accordance with federal and state law and, in some cases, with SEC approval. The new Variable Account Option offered may have different Fund fees and expenses. We will not make any changes to the Contracts without Contract Owner and Participant permission except as may be allowed by federal or state law. We may add endorsements to the Contracts that would apply only to new Contract Owners and Participants after the effective date of the changes. These changes would be subject to approval by the Company and may be subject to approval by the SEC. We reserve the right to: . Stop accepting new Participants under a group Contract, under certain circumstances; . Amend the GUP Contracts to increase all charges and annuity purchase rates (such change will not affect Participants already invested in a GUP Contract); . Amend the GUP Contracts (except where prohibited by the 1940 Act) for Participants whose total Purchase Payments are greater than 200% of the amount of first-year Purchase Payment(s) made on his/her behalf; . Amend GUP contracts issued under GUP contract form GVA-SA1 after five years of your participation in the Contract to change any terms of the Contract upon 90 days written notice to you (except where prohibited by the 1940 Act); . Amend GTS-VA Contracts issued under GTS-VA contract form GVA-SA2 in connection with certain 403(b) and 401 plans for self-employed individuals to increase the deduction for Sales and 19 Administrative Charge after the end of the first year of the Contract. Contract amendments may affect rates and Fund Annual Expenses adversely applicable to Participants for Purchase Payments at an annual rate of up to 200% of the first year Purchase Payment made for each such Participant; . Amend the Payout rate applicable to Purchase Payments after the tenth year of the Contract; Operate VALIC Separate Account A as a management investment company under the applicable securities laws, in consideration of an investment management fee or in any other form permitted by law; . Deregister VALIC Separate Account A under applicable securities laws, if registration is no longer required. RELATIONSHIP TO EMPLOYER'S PLAN If the Contract is being offered under a retirement plan through your employer, you should always refer to the terms and conditions in your employer's plan when reviewing the descriptions of the Contracts in this prospectus. ASSIGNING YOUR CONTRACT For most Contracts issued under qualified retirement plans or eligible deferred compensation plans of government employers, you will not be permitted to assign, sell or pledge your Contract to any person or organization, other than the Company, unless your contract is owned by a trustee or custodian and the trust or custodial accounts comply with applicable nontransferable requirements. GUP Contracts not issued under GUP contract form GVA-SA1 and GTS-VA Contracts that are issued under GTS-VA contract form GVA-SA2 are not assignable unless permitted under applicable law. GUP Contracts that are issued under GUP contract form GVA-SA1 are not assignable. VOTING RIGHTS -------------------------------------------------------------------------------- As discussed in the "About VALIC Separate Account A" section of this prospectus, VALIC Separate Account A holds on your behalf shares of the Fund that comprise the Variable Account Option. From time to time the Stock Index Fund may be required to hold a shareholder meeting to obtain approval from their shareholders for certain matters. WHO MAY GIVE VOTING INSTRUCTIONS During the Purchase Period, subject to any contrary provisions in the plan, Participants will have the right to give voting instructions for the shareholder meetings. Contract Owners will instruct VALIC 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 your Contract was issued in connection with a nonqualified unfunded deferred compensation plan. DETERMINATION OF FUND SHARES ATTRIBUTABLE TO YOUR ACCOUNT DURING THE 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 THE 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 Fund that comprises the Variable Account Option in the Contracts may have a number of shareholders including VALIC Separate Account A, other affiliated insurance company separate accounts and public shareholders. VALIC Separate Account A will vote all of the shares of the Fund it holds based on, and in the same proportion as, the instructions given by all Participants invested in the Fund entitled to give instructions at that shareholder meeting. VALIC Separate Account A will vote the shares of the Fund it holds for which it receives no voting instruction in the same proportion as the shares for which voting instructions have been received. In the future, we may decide how to vote the shares of VALIC Separate Account A in a different manner if permitted at that time under federal securities law. 20 FEDERAL TAX MATTERS -------------------------------------------------------------------------------- The Contracts provide tax-deferred accumulation over time, but may be subject to certain federal income and excise taxes, mentioned below. Refer to the SAI for further details. Section references are to the 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." Discussions regarding the tax treatment of any annuity contract or retirement plans and programs are intended for general purposes only and are not intended as tax advice, either general or individualized, nor should they be interpreted to provide any predictions or guarantees of a particular tax treatment. Such discussions generally are based upon the Company's understanding of current tax rules and interpretations, and may include areas of those rules that are more or less clear or certain. Tax laws are subject to legislative modification, and while many such modifications will have only a prospective application, it is important to recognize that a change could have retroactive effect as well. You should seek competent tax or legal advice, as you deem necessary or appropriate, regarding your own circumstances. TYPES OF PLANS Tax rules vary, depending on whether the Contract is offered under your employer's tax-qualified retirement program, an individual retirement plan, or is instead a nonqualified Contract. The Contracts are used under the following types of retirement arrangements: . Section 403(b) annuities for employees of public schools and section 501(c)(3) tax-exempt organizations; . Section 401(a), 403(a) and 401(k) qualified plans (including plans for self-employed individuals); . Section 408(b) traditional IRAs; . Section 408A Roth IRAs; . Section 457 deferred compensation plans of governmental and tax-exempt employers; . Section 408(k) SEPs and SARSEPs; and . Section 408(p) SIMPLE retirement accounts. Contributions under any of these retirement arrangements generally must be made to a qualifying annuity Contract or to a qualifying trust or custodial account, in order for the contributions to receive favorable tax treatment as pre-tax (or Roth) contributions. Contracts purchased under these retirement arrangements are "Qualified Contracts." Note that the specific terms of the governing employer plan may limit rights and options otherwise available under a Contract. In addition, changes in the applicable laws or regulations may impose additional limitations or may require changes to the contract to maintain its status as a Qualified Contract. 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 SAI, the documents (if any) controlling the retirement arrangement through which the Contract is offered, and your personal tax advisor. Purchase Payments under the Contracts can be made as contributions by employers or as pre-tax or after-tax contributions by employees, depending on the type of retirement program. Purchase Payments also can be made outside of an employer-sponsored retirement program. After-tax Purchase Payments, including after-tax employee contributions, generally constitute "investment in the Contract." All Qualified Contracts receive deferral of tax on the inside build-up of earnings on invested Purchase Payments, until a distribution occurs. SEE THE SAI FOR A DISCUSSION OF THE TAXATION OF DISTRIBUTIONS, INCLUDING UPON DEATH, AND SPECIAL RULES, INCLUDING THOSE APPLICABLE TO NON-NATURAL OWNERS OF NONQUALIFIED 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, VALIC can provide no assurance that such limitations would not be imposed on a retroactive basis to Contracts issued under this prospectus. However, VALIC has no present indications that the IRS intends to impose such limitations, or what the terms or scope of those limitations might be. In addition, based upon published guidance issued by the IRS in 1999, it appears likely that such limitations, if imposed, would only apply to nonqualified Contracts. Distributions are taxed differently depending on the program through which the Contracts are offered and the previous tax characterization of the contributions to which the distribution relates. Generally, the portion of a distribution that 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 21 might apply in certain situations. Non-periodic payments such as partial withdrawals and full surrenders during the Purchase Period are referred to as "amounts not received as an annuity" in the Code. These types of payments are generally taxed to the extent of any gain existing in the Contract at the time of withdrawal. Amounts subject to income tax may also incur excise or penalty taxes, under certain circumstances. Generally, as more fully discussed in the SAI, taxable distributions received before you attain age 59 1/2 are subject to a 10% penalty tax in addition to regular income tax, unless you make a rollover, in the case of a Qualified Contract, to another tax-deferred investment vehicle or meet certain exceptions. Note that a distribution from a 457(b) plan is not subject to the 10% tax penalty. And, if you have to report the distribution as ordinary income, you may need to make an estimated tax payment by the due date for the quarter in which you received the distribution, depending on the amount of federal tax withheld from the distribution. When calculating your tax liability to determine whether you need to make an estimated tax payment, your total tax for the year should also include the amount of the 10% additional tax on early distributions unless an exception applies. Amounts eligible for grandfathered status afforded to pre-1982 accounts might be exempt from the 10% early withdrawal penalty. The Pension Protection Act of 2006 created other distribution events and exemptions from the 10% early withdrawal penalty tax. These include payments to certain reservists called up for active duty after September 11, 2001 and payments up to $3,000 per year made directly to an insurer for health, life and accident insurance by certain retired public safety officers,. On March 30, 2010, the Health Care and Education Reconciliation Act ("Reconciliation Act") was signed into law. Among other provisions, the Reconciliation Act imposes a tax on net investment income, goes went effect in 2013, at the rate of 3.8% of investment income in excess of applicable thresholds for Modified Adjusted Gross Income ($250,000 for joint filers; $125,000 for married individuals filing separately; and, $200,000 for individual filers). An individual with MAGI in excess of the threshold will be required to pay this tax on net investment income in excess of the applicable MAGI threshold. For this purpose, net investment income generally will include taxable withdrawals from a Non-Qualified contract, as well as other taxable amounts including amounts taxed annually to an owner that is not a natural person (see final paragraph in this section). This tax generally does not apply to Qualified Contracts; however, taxable distributions from such contracts may be taken into account in determining the applicability of the MAGI thresholds. It is the understanding of VALIC, confirmed by IRS Revenue Procedure 99-44, that a Qualified Contract described in section 401(a), 403(a), 403(b), 408(b) or 408A of the Code does not lose its deferred tax treatment if Purchase Payments under the Contract are invested in publicly available Mutual Funds. It is also the understanding of VALIC that for each other type of Qualified Contract an independent exemption provides tax deferral regardless of how ownership of the Mutual Fund shares might be imputed for federal income tax purposes. Investment earnings on contributions to nonqualified Contracts that are owned by non-natural persons (except for trusts or other entities as agent for a natural person) will be taxed currently to the Contract Owner and such Contracts will not be treated as annuities for federal income tax purposes. IMPORTANT INFORMATION REGARDING 403(B) REGULATIONS On July 26, 2007, the Department of the Treasury published final 403(b) regulations that became largely effective on January 1, 2009. These comprehensive regulations include several rules and requirements, such as a requirement that employers maintain their 403(b) plans pursuant to a written plan. The final regulations, subsequent IRS guidance, and the terms of the written plan may impose restrictions on both new and existing contracts, including restrictions on the availability of loans, distributions, transfers and exchanges, regardless of when a contract was purchased. In general, certain contracts originally established by a 90-24 transfer prior to September 25, 2007 are exempt (or grandfathered) from some of the requirements of the final regulations; provided that no salary reduction or other contributions have ever been made to the contract, and that no additional transfers are made to made to the contract on or after September 25, 2007. Further, contracts that are not grandfathered were generally required to be part of, and subject to the requirements of an employer's 403(b) plan upon its establishment, but no later than by January 1, 2009. The rules in the final regulations generally do not affect a participant's ability to transfer some or all of a 403(b) account to a state-defined benefit plan to purchase service credits, where such a transfer is otherwise consistent with applicable rules and requirements and with the terms of the employer's plan. As a general matter, many Contracts that have received plan contributions after 2004, and all Contracts that have received plan contributions after 2008, are required to be included in the plan and in the plan's administrative coordination, even if the investment provider and the 22 Contract are no longer permitted to receive new contributions and/or transfers. However, IRS guidance generally permits a plan sponsor to exclude a Contract where the plan sponsor has otherwise made a good faith effort to include the Contract issued by a provider that ceased to receive contributions prior to January 1, 2009, as well as such Contracts maintained by certain former employees. You should be aware, however, that some rules governing contracts inside and outside of the plan after 2008 are subject to different interpretations, as well as possible additional IRS guidance. In addition, a Contract maintained under a plan subject to the requirements of Title I of Employee Retirement Income Security Act of 1974, as amended ("ERISA") may be required to be included in the plan regardless of whether it remains eligible to receive contributions after a specified date. The foregoing discussion is intended as a general discussion of the requirements only, and you may wish to discuss the requirements of the regulations and/or the general information above with your tax advisor. U.S. DEPARTMENT OF LABOR FIDUCIARY REGULATION On April 8, 2016, the United States Department of Labor published its final regulation defining fiduciary advice, along with related revisions to certain existing guidance, as well as a new exemption from specific ERISA prohibitions. The requirements under the regulation and related guidance apply primarily to ERISA plans and IRAs. While the new requirements generally will not impact your rights under the Contract, they may, however, affect recommendations made by your financial advisor and your financial advisor's ability to make those recommendations. More specifically, the regulation and related guidance generally will apply to recommendations to buy, sell or hold interests in the Contract, as well as recommendations for distributions and rollovers to or from the Contract where the Contract is in an ERISA plan or IRA. The original applicability date for the regulation and significant portions of the related guidance was April 10, 2017. In guidance released on April 5, 2017 this initial applicability date was delayed to June 9, 2017, as the DOL reviews the guidance in light of specific questions posed by the President in a memorandum issued to the DOL with regard to the 2016 regulation and the related guidance. In the absence of additional delays or revisions, full compliance with the regulation and the related by January 1, 2018. LEGAL PROCEEDINGS -------------------------------------------------------------------------------- The Company is currently defending a lawsuit filed in the Circuit Court of Kanawha County, West Virginia on November 12, 2009 by the West Virginia Investment Management Board and The West Virginia Consolidated Public Retirement Board (the "WV Boards").The WV Boards have asserted damages in excess of $100 million. In November 2014, the West Virginia Supreme Court reversed the trial court's grant of summary judgment in the Company's favor, and remanded the matter to the Business Court for further proceedings. The matter was arbitrated in March 2017 and a decision is expected by April 30, 2017. Various federal, state and other regulatory agencies may from time to time review, examine or inquire into the operations, practices and procedures of the Company, such as through financial examinations, market conduct exams or regulatory inquiries. Based on the current status of pending regulatory examinations and inquiries involving the Company, the Company believes it is not likely that these regulatory examinations or inquiries will have a material adverse effect on the financial position, results of operations or cash flows of the Company. Various other lawsuits against the Company have arisen in the ordinary course of business. As of April 21, 2017, the Company believes it is not likely that contingent liabilities arising from such lawsuits will have a material effect on the Company's statutory financial statements. FINANCIAL STATEMENTS -------------------------------------------------------------------------------- The financial statements of VALIC, the Separate Account and American Home can be found in the SAI. We have filed the SAI with the SEC and have incorporated it by reference into this prospectus. You may obtain a free copy of the SAI if you write us at VALIC Document Control, PO Box 15648, Amarillo, Texas, 79105 or call us at 1-800-448-2542. Information about the Separate Account, including the SAI, can also be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Inquiries on the operations of the Public Reference Room may be made by calling the SEC at 1-202-942-8090. Reports and other information about the Separate Account are available on the SEC's Internet site at http://www.sec.gov and copies of this information may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section of the SEC, 100 F Street N.E., Washington D.C. 20549-2102. 23 -------------------------------------------------------------------------------- TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION --------------------------------------------------------------------------------
PAGE General Information.......................................................... 2 Federal Tax Matters.......................................................... 2 Exchange Privilege........................................................... 11 Purchase Unit Value.......................................................... 12 Payout Payments.............................................................. 13 Distribution of Variable Annuity Contracts................................... 15 Experts...................................................................... 15 Comments on Financial Statements............................................. 15
(C) 2017 AMERICAN INTERNATIONAL GROUP, INC. All Rights Reserved. 24 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY SEPARATE ACCOUNT A UNITS OF INTEREST UNDER GROUP UNIT PURCHASE AND GROUP FIXED AND VARIABLE DEFERRED ANNUITY CONTRACTS (GUP AND GTS-VA CONTRACTS) -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION -------------------------------------------------------------------------------- FORM N-4 PART B May 1, 2017 This Statement of Additional Information ("SAI") is not a prospectus but contains information in addition to that set forth in the prospectus for the GUP and GTS-VA Contracts dated May 1, 2017 (the "Contracts") and should be read in conjunction with the prospectus. The terms used in this SAI have the same meaning as those set forth in the prospectus. A prospectus may be obtained by calling or writing VALIC Document Control, PO Box 15648, Amarillo, Texas, 79105 or call us at 1-800-428-2542. Prospectuses are also available on the internet at www.valic.com. -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- General Information............................................................. 2 Federal Tax Matters............................................................. 2 Tax Consequences of Purchase Payments........................................ 2 Tax Consequences of Distributions............................................ 5 Special Tax Consequences -- Early Distribution............................... 6 Special Tax Consequences -- Required Distributions........................... 7 Tax-Free Rollovers, Transfers and Exchanges.................................. 8 Effect of Tax-Deferred Accumulations......................................... 9 Foreign Account Tax Compliance Act........................................... 10 Other Withholding Tax........................................................ 10 Exchange Privilege.............................................................. 11 Exchanges From SA-1 and SA-2 Contracts....................................... 11 Purchase Unit Value............................................................. 12 Illustration of Calculation of Purchase Unit Value........................... 12 Illustration of Purchase of Purchase Units................................... 13 Payout Payments................................................................. 13 Assumed Investment Rate...................................................... 13 Amount of Payout Payments.................................................... 13 Payout Unit Value............................................................ 14 Illustration of Calculation of Payout Unit Value............................. 14 Illustration of Payout Payments.............................................. 14 Distribution of Variable Annuity Contracts...................................... 15 Experts......................................................................... 15 Comments on Financial Statements................................................ 15
-------------------------------------------------------------------------------- GENERAL INFORMATION -------------------------------------------------------------------------------- Flexible payment deferred annuity Contracts are offered in connection with the prospectus to which this SAI relates. Under flexible payment deferred annuity Contracts, Purchase Payments generally are made until retirement age is reached. However, no Purchase Payments are required to be made after the first payment. Purchase Payments are subject to any minimum payment requirements under the Contract. The Contracts are non-participating and will not share in any of the profits of the Company. -------------------------------------------------------------------------------- FEDERAL TAX MATTERS -------------------------------------------------------------------------------- Note: Discussions regarding the tax treatment of any annuity contract or retirement plan and program are intended for general purposes only and are not intended as tax advice, either general or individualized, nor should they be interpreted to provide any predictions or guarantees of a particular tax treatment. Such discussions generally are based upon the Company's understanding of current tax rules and interpretations, and may include areas of those rules that are more or less clear or certain. Tax laws are subject to legislative modification, and while many such modifications will have only a prospective application, it is important to recognize that a change could have retroactive effect as well. You should seek competent tax or legal advice, as you deem necessary or appropriate, regarding your own circumstances. We do not guarantee the tax status or treatment of your annuity. This section summarizes the major tax consequences of contributions, payments, and withdrawals under the Contracts, during life and after death. It is VALIC's understanding, confirmed by Internal Revenue Service ("IRS") Revenue Procedure 99-44, that a Qualified Contract described in section 401(a), 403(a), 403(b), 408(b) or 408A of the Internal Revenue Code of 1986, as amended ("Code" or "IRC") does not lose its deferred tax treatment if Purchase Payments under the contract are invested in publicly available mutual funds. It is also the understanding of VALIC that for each other type of Qualified Contract an independent exemption provides tax deferral regardless of how ownership of the Mutual Fund shares might be imputed for federal income tax purposes. For nonqualified Contracts, not all Variable Account Options are available within your contract. Variable Account Options that are invested in Mutual Funds available to the general public outside of annuity contracts or life insurance contracts generally are not offered under nonqualified Contracts. Investment earnings on contributions to nonqualified Contracts that are owned by non-natural persons will be taxed currently to the owner, and such contracts will not be treated as annuities for federal income tax purposes (except for trusts or other entities as agents for an individual). Tax Consequences of Purchase Payments 403(b) Annuities. Purchase Payments made by section 501(c)(3) tax-exempt organizations and public educational institutions toward Contracts for their employees are excludable from the gross income of employees, to the extent aggregate Purchase Payments do not exceed several competing tax law limitations on contributions. This gross income exclusion applies both to employer contributions and to your voluntary and nonelective salary reduction contributions. The exclusion does not apply to Roth 403(b) contributions, which are made on an after-tax basis; however, the contribution limits apply to such contributions. Roth 403(b) contributions will be referred to as elective deferrals, along with voluntary salary reduction contributions. For 2017, your elective deferrals are generally limited to $18,000, although additional age-based "catch-up" contributions (of up to $6,000) are permitted for individuals who will be age 50 at the end of the 2017 calendar year. Combined employer contributions, nonelective employee contributions and elective deferrals are generally limited to $54,000, or up to 100% of "includible compensation," as defined in the Code for 403(b) plans. In addition, after 1988, employer contributions for highly compensated employees may be further limited by applicable nondiscrimination rules. 401(a)/(k) and 403(a) Qualified Plans. Purchase Payments made by an employer (or a self-employed individual) under a qualified pension, profit-sharing or annuity plan are excluded from the gross income of the employee. 2 Purchase Payments made by an employee may be made on a pre-tax or an after-tax basis, depending on several factors, including whether the employer is eligible to establish a 401(k) or 414(h) contribution option, and whether the employer, if eligible to establish a 401(k) option, has established a Roth 401(k) option under the Plan. 408(b) Individual Retirement Annuities ("408(b) IRAs" or "Traditional IRAs"). For 2017, annual tax-deductible contributions for 408(b) IRA Contracts are limited to the lesser of $5,500 or 100% of compensation ($6,500 if you are age 50 or older), and are generally fully deductible in 2017 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, and 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 is less than $186,000; (iii) are active Participants in another retirement plan, are unmarried, and have adjusted gross income of less than $62,000; or (iv) are active Participants in another retirement plan, are married, and have adjusted gross income of less than $99,000. 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 non-working spouse who has no compensation, the annual tax-deductible Purchase Payments for both spouses'' Contracts cannot exceed the lesser of $11,000 or 100% of the working spouse's earned income, and no more than $5,500 may be contributed to either spouse's IRA for any year. The $11,000 limit increases to $13,000 if both spouses are age 50 or older ($1,000 for each spouse age 50 or older). You may be eligible to make nondeductible IRA contributions of an amount equal to the lesser of: (i) $5,500 ($6,500 if you are age 50 or older; $11,000 for you and your spouse's IRAs, or $13,000 if you are both age 50 or older) or 100% of compensation, or (ii) your applicable IRA deduction limit. You may also make contributions of eligible rollover amounts from other tax-qualified plans and contracts. See Tax-Free Rollovers, Transfers and Exchanges. 408A Roth Individual Retirement Annuities ("408A Roth IRAs" or "Roth IRAs"). For 2017, annual nondeductible contributions for 408A Roth IRA Contracts are limited to the lesser of $5,500 or 100% of compensation ($6,500 if you are age 50 or older), and a full contribution may be made only by individuals who: (i) are unmarried and have adjusted gross income of less than $118,000; or (ii) are married and filing jointly, and have adjusted gross income of less than $186,000 The available nondeductible 408A Roth IRA contribution is reduced proportionately to zero where modified AGI is between $186,000 and $196,000 for those who are married filing joint returns. No contribution may be made for those with modified AGI over $196,000. Similarly, the contribution is reduced for those who are single with modified AGI between $118,000 and $133,000, with no contribution for singles with modified AGI over $133,000. Similarly, individuals who are married and filing separate returns and whose modified AGI is over $10,000 may not make a contribution to a Roth IRA; a portion may be contributed for modified AGI between $0 and $10,000. All contributions to 408(b) traditional IRAs and 408A Roth IRAs must be aggregated for purposes of the annual contribution limit. 457 Plans. A unit of a state or local government may establish a deferred compensation program for individuals who perform services for the government unit if permitted by applicable state (and/or local) laws. In addition, a non- 3 governmental tax-exempt employer may establish a deferred compensation program for individuals who: (i) perform services for the employer, and (ii) belong to either a select group of management or highly compensated employees and/or are independent contractors. This type of program allows eligible individuals to defer the receipt of compensation (and taxes thereon) otherwise presently payable to them. For 2017, if the program is an eligible deferred compensation plan (an "EDCP"), you and your employer may contribute (and defer tax on) the lesser of $18,000 or 100% of your "includible" compensation (compensation from the employer currently includible in taxable income). Additionally, catch-up deferrals are permitted in the final three years before the year you reach normal retirement age under the plan and for governmental plans only, age-based catch-up deferrals up to $6,000 are also permitted for individuals age 50 or older. Generally, however, a participant cannot utilize both the catch-up in the three years before normal retirement age, and the age 50 catch-up, in the same year. The employer uses deferred amounts to purchase the Contracts offered by this prospectus. For plans maintained by a unit of a state or local government, the Contract is generally held for the exclusive benefit of plan Participants, (although certain Contracts remained subject to the claims of the employer's general creditors until 1999). For plans of non-governmental tax-exempt employers, the employee has no present ownership rights in the Contract and is entitled to payment only in accordance with the EDCP provisions. Simplified Employee Pension Plan ("SEP"). Employer contributions under a SEP are made to a separate individual retirement account or annuity established for each participating employee, and generally must be made at a rate representing a uniform percent of participating employees'' compensation. Employer contributions are excludable from employees'' taxable income. For 2017, the employer may contribute up to 25% of your compensation or $54,000, whichever is less. Through 1996, employees of certain small employers (other than tax-exempt organizations) were permitted to establish plans allowing employees to contribute pretax, on a salary reduction basis, to the SEP. Such plans if established by December 31, 1996, may still allow employees to make these contributions. In 2017, the limit is $18,000. Additionally, you may be able to make higher contributions if you are age 50 or older, subject to certain conditions. SIMPLE IRA. Employer and employee contributions under a SIMPLE IRA Plan are made to a separate individual retirement account or annuity for each employee. For 2017, employee salary reduction contributions cannot exceed $12,500. You may be able to make higher contributions if you are age 50 or older, subject to certain conditions. Employer contributions must be in the form of matching contribution or a nonelective contribution of a percentage of compensation 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. Nonqualified Contracts. Purchase Payments made under nonqualified Contracts, whether under an employer-sponsored plan or arrangement or independent of any such plan or arrangement, 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 nonqualified Contract resulting from the investment performance of VALIC Separate Account A is not taxable to the Contract Owner until received by him. Contract Owners that are not natural persons (except for trusts or other entities as agent for an individual) however, are currently taxable on any increase in the Purchase Unit value attributable to Purchase Payments made after February 28, 1986 to such Contracts. Unfunded Deferred Compensation Plans. Private for-profit employers may establish unfunded nonqualified deferred compensation plans for a select group of management or highly compensated employees and/or for independent contractors. Certain arrangements of nonprofit employers entered into prior to August 16, 1986, and not subsequently modified, are also subject to the rules discussed below. An unfunded deferred compensation plan is a bare contractual promise on the part of the employer to defer current wages to some future time. The assets invested in the Contract are owned by the employer and remains subject to the claims of the employer's general creditors. Private for-profit employers that are not natural persons are currently taxable on any increase in the Purchase Unit value attributable to Purchase Payments made on or after February 28, 1986 to such Contracts. Participants have no present right or vested interest in the Contract and are only entitled to payment in accordance with plan provisions. 4 Tax Consequences of Distributions 403(b) Annuities. Elective deferrals (including salary reduction amounts and Roth 403(b) contributions) accumulated after December 31, 1988, and earnings on such contributions, may not be distributed before one of the following: (1) attainment of age 59 1/2; (2) severance from employment; (3) death; (4) disability; (5) qualifying hardship (hardship distributions are limited to salary reduction contributions only, exclusive of earnings thereon); or (6) termination of the plan (if the plan sponsor meets the criteria of IRS guidance to terminate the plan). Similar restrictions will apply to all amounts transferred from a Code section 403(b)(7) custodial account other than certain rollover contributions, except that pre-1989 earnings included in such amounts generally will be eligible for a hardship distribution. As a general rule, distributions are taxed as ordinary income to the recipient in accordance with Code section 72. However, three important exceptions to this general rule are: (1) distributions of Roth 403(b) contributions; (2) qualified distributions of earnings on Roth 403(b) contributions; and (3) other after-tax amounts in the Contract. Distributions of Roth 403(b) contributions are tax-free. "Qualified" distributions of earnings on Roth 403(b) contributions made upon attainment of age 59 1/2, upon death or disability are tax-free as long as five or more years have passed since the first contribution to the Roth account or any Roth account under the employer's Plan. Distribution of earnings that are non-qualified are taxed in the same manner as pre-tax contributions and earnings under the Plan. Distributions of other after-tax amounts in the Contract are tax-free. 401(a)/(k) and 403(a) Qualified Plans. Distributions from Contracts purchased under qualified plans are taxable as ordinary income, except to the extent allocable to an employee's after-tax contributions (investment in the Contract). If you or your Beneficiary receive a "lump sum distribution" (legally defined term), the taxable portion may be eligible for special 10-year income averaging treatment. Ten-year income averaging uses tax rates in effect for 1986, allows 20% capital gains treatment for the taxable portion of a lump sum distribution attributable to years of service before 1974, and is available if you were 50 or older on January 1, 1986. The distribution restrictions for 401(k) elective deferrals in Qualified Plans are generally the same as described for elective deferrals to 403(b) annuities. The tax consequences of distributions from Qualified Plans are generally the same as described above for 403(b) annuities. 408(b) Traditional IRAs, SEPs and SIMPLE IRAs. Distributions are generally taxed as ordinary income to the recipient. Rollovers from a Traditional IRA to a Roth IRA, and conversions of a Traditional IRA to a Roth IRA, where permitted, are generally taxable in the year of the rollover or conversion. The taxable value of such a conversion may take into account the value of certain benefits under the Contract. Prior to 2010, individuals with adjusted gross income over $100,000 were generally ineligible for such conversions, regardless of marital status, as were married individuals who file separately. Beginning in 2010, such conversions are available without regard to income. 408A Roth IRAs. "Qualified" distributions upon attainment of age 59 1/2, upon death or disability or for qualifying 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. Qualified distributions may be subject to state income tax in some states. Nonqualified distributions are generally taxable to the extent that the distribution exceeds Purchase Payments. 457 Plans. Amounts received from an EDCP are includible in gross income for the taxable year in which they are paid or, if a non-governmental tax-exempt employer, otherwise made available to the recipient. 5 Unfunded Deferred Compensation Plans. Amounts received are includible in gross income for the taxable year in which the amounts are paid or otherwise made available to the recipient. Nonqualified Contracts. Partial redemptions from a nonqualified 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 nonqualified 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 nonqualified 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 VALIC (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, individuals generally are entitled to deduct the unrecovered amount on their final tax return. Special Tax Consequences -- Early Distribution 403(b) Annuities, 401(a)/(k) and 403(a) Qualified Plans, 408(b) Traditional IRAs, SEPs and SIMPLE IRAs. The taxable portion of distributions received before the recipient attains age 59 1/2 generally are subject to a 10% penalty tax in addition to regular income tax. Distributions on account of the following generally are excepted from this penalty tax: (1) death; (2) disability; (3) separation from service after a Participant reaches age 55 (only applies to 403(b), 401(a)/(k) and 403(a) plans); (4) separation from service at any age if the distribution is in the form of substantially equal periodic payments over the life (or life expectancy) of the Participant (or the Participant and Beneficiary) for a period that lasts the later of five years or until the Participant attains age 59 1/2; (5) distributions that do not exceed the employee's tax-deductible medical expenses for the taxable year of receipt; and (6) distributions to an alternate payee pursuant to a domestic relations order. Separation from service is not required for distributions from a Traditional IRA, SEP or SIMPLE IRA under (4) above. Certain distributions from a SIMPLE IRA within two years after first participating in the Plan may be subject to a 25% penalty, rather than a 10% penalty. Currently, distributions from 408(b) IRAs on account of the following additional reasons are also excepted from the 10% penalty tax: (1) distributions up to $10,000 (in the aggregate) to cover costs of acquiring, constructing or reconstructing the residence of a first-time homebuyer; (2) distributions to cover certain costs of higher education: tuition, fees, books, supplies and equipment for the IRA owner, a spouse, child or grandchild; and (3) 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 on amounts included in income as other IRAs. Distributions of 6 rollover or conversion contributions may be subject to a 10% penalty tax if the distribution of those contributions is made within five years of the rollover/conversion. 457 Plans. Distributions generally may be made under an EDCP prior to severance from employment only upon attainment of age 70 1/2, for unforeseeable emergencies or for amounts under $5,000 for inactive Participants, and are includible in the recipient's gross income in the year paid. Such distributions are not subject to the 10% early withdrawal penalty tax. Nonqualified Contracts. A 10% penalty tax applies to the taxable portion of a distribution received before age 59 1/2 under a nonqualified Contract, unless the distribution is: (1) to a Beneficiary on or after the Contract Owner's death; (2) upon the Contract Owner's disability; (3) part of a series of substantially equal annuity payments for the life or life expectancy of the Contract Owner, or the lives or joint life expectancy of the Contract Owner and Beneficiary for a period lasting the later of 5 years or until the Contract Owner attains age 59 1/2; (4) made under an immediate annuity contract; or (5) allocable to Purchase Payments made before August 14, 1982. Special Tax Consequences -- Required Distributions 403(b) Annuities. Generally, minimum required distributions are required from both pre-tax and Roth amounts accumulated under the Contract and must commence no later than April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70 1/2 or the calendar year in which the Participant retires. Required distributions must be made over a period no longer than the period determined under The IRS' Uniform Life Expectancy Table reflecting the joint life expectancy of the Participant and a Beneficiary 10 years younger than the Participant, or if the Participant's spouse is the sole Beneficiary and is more than 10 years younger than the Participant, their joint life expectancy. A penalty tax of 50% is imposed on the amount by which the minimum required distribution in any year exceeds the amount actually distributed in that year. Amounts accumulated under a Contract on December 31, 1986 may be paid in a manner that meets the above rule or, alternatively: (i) must begin to be paid when the Participant attains age 75 or retires, whichever is later; and (ii) the present value of payments expected to be made over the life of the Participant, (under the option chosen) must exceed 50% of the present value of all payments expected to be made (the "50% rule"). The 50% rule will not apply if a Participant's spouse is the joint Annuitant. Notwithstanding these pre-January 1, 1987 rules, the entire contract balance must meet the minimum distribution incidental benefit requirement of section 403(b)(10). At the Participant's death before payout has begun, Contract amounts generally either must be paid to the Beneficiary within 5 years, or must begin by December 31st of the year following the year of death and be paid over the single life expectancy of the Beneficiary. If death occurs after commencement of (but before full) payout, distributions generally must be made over a period that does not exceed the longer of the Participant's or the designated Beneficiary's life expectancy. Exceptions to this rule may apply in the case of a beneficiary who is also the participant's spouse. A Participant generally may aggregate his or her 403(b) Contracts and accounts for purposes of satisfying these requirements, and withdraw the required distribution in any combination from such Contracts or accounts, unless the plan, Contract, or account otherwise provides. 401(a)/(k) and 403(a) Qualified Plans. Minimum distribution requirements for qualified plans are generally the same as described for 403(b) Annuities, except that there is no exception for pre-1987 amounts, and multiple plans may not be aggregated to satisfy the requirement. 7 408(b) Traditional IRAs, SEPs and SIMPLE IRAs. Minimum distribution requirements are generally the same as described above for 403(b) Annuities, except that: (1) there is no exception for pre-1987 amounts; and (2) there is no available postponement past April 1 of the calendar year following the calendar year in which age 70 1/2 is attained. A Participant generally may aggregate his or her IRAs for purposes of satisfying these requirements, and withdraw the required distribution in any combination from such Contracts or accounts, unless the Contract or account otherwise provides. 408A Roth IRAs. Minimum distribution requirements generally applicable to 403(b) Annuities, 401(a)/(k) and 403(a) qualified plans, 408(b) IRAs, SEPs and 457 Plans do not apply to 408A Roth IRAs during the Contract Owner's lifetime, but generally do apply after the Contract 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. 457 Plans. Beginning January 1, 1989, the minimum distribution requirements for EDCPs are generally the same as described above for 403(b) Annuities except that there is no exception for pre-1987 amounts, and multiple plans may not be aggregated to satisfy the requirement. Distributions must satisfy the irrevocable election requirements applicable to non-governmental tax-exempt employer EDCPs. Nonqualified Contracts. Nonqualified Contracts do not require commencement of distributions at any particular time during the Contract Owner's lifetime, 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 in effect at the time of death. Similar distribution requirements will also apply if the Contract Owner is not a natural person, if the Annuitant dies or is changed. An exception to this rule may apply in the case of a beneficiary who is also the participant's spouse. Tax-Free Rollovers, Transfers and Exchanges 403(b) Annuities. Tax-free transfers between 403(b) annuity Contracts and/or 403(b)(7) custodial accounts and, with the exception of distributions to and from Roth 403(b) accounts, tax-free rollovers to or from 403(b) programs to 408(b) IRAs, other 403(b) programs, 401(a)/403(a) qualified plans and governmental EDCPs are permitted under certain circumstances. Funds in a 403(b) annuity contract may be rolled directly over to a Roth IRA. Distributions from Roth 403(b) accounts may be rolled over or transferred to another Roth 403(b) account or rolled over to a Roth IRA or a Roth 401(k) ) or eligible Roth 457(b) account. Roth 403(b) accounts may only receive rollover contributions from other Roth accounts. 401(a)/(k) and 403(a) Qualified Plans. The taxable portion of certain distributions, except for distributions from Roth accounts, may be rolled over tax-free to or from a 408(b) individual retirement account or annuity, another such plan, a 403(b) program, or a governmental EDCP. Funds in a qualified contract may be rolled directly over to a Roth IRA. The rollover/ transfer rules for Qualified plans are generally the same as described for 403(b) Annuities. 408(b) Traditional IRAs and SEPs. Funds may be rolled over tax-free to or from a 408(b) IRA Contract, from a 403(b) program, a 401(a)/(k) or 403(a) qualified plan, or a governmental EDCP under certain conditions. 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 12-month period. 408A Roth IRAs. Funds may be transferred tax-free from one 408A Roth IRA to another. Funds in a 408(b) IRA or eligible retirement plan (401(a)/(k), 403(b) or governmental 457(b)) may be rolled in a taxable transaction to a 408A Roth IRA. 8 Special, complicated rules governing holding periods and avoidance of the 10% penalty tax 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. 408(p) SIMPLE IRAs. Funds may generally be rolled over tax-free from a SIMPLE IRA to a 408(b) IRA. However, during the two-year period beginning on the date you first participate in any SIMPLE IRA plan of your employer, SIMPLE IRA funds may only be rolled to another SIMPLE IRA. 457 Plans. Tax-free transfer of EDCP amounts from tax-exempt employers are permitted only to another EDCP of a like employer. Tax-free rollovers to or from a governmental EDCP to other governmental EDCPs, 403(b) programs, 401(a)/401(k)/403(a) Qualified Plans, 408(b) IRAs are permitted under certain circumstances. Nonqualified Contracts. Certain of the nonqualified 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. A full or partial exchange of one annuity Contract for another is a tax-free transaction under section 1035, provided that the requirements of that section are satisfied. However, the exchange is reportable to the IRS. Effect of Tax-Deferred Accumulations The chart below compares the results from contributions made to: . A Contract issued to a tax-favored retirement program purchased with pre-tax contributions (Purchase Payments); . A nonqualified Contract purchased with after-tax contributions (Purchase Payments); and . Taxable accounts such as savings accounts. [CHART]
10 Years 20 Years 30 Years -------- -------- -------- Tax Account....................................... $13,978 $32,762 $58,007 Non-qualified Contract Tax-Deferred Annuity....... $14,716 $36,499 $68,743 Tax-Deferred Annuity.............................. $19,621 $48,665 $91,657
This hypothetical chart compares the results of (1) contributing $100 per month to a conventional, non-tax-deferred account (shown above as "Taxable Account"); (2) contributing $100 to a nonqualified, tax-deferred annuity (shown above as "Nonqualified Contract Tax-Deferred Annuity"); and (3) contributing $100 per month ($133.33 since contributions are made before tax) to an annuity purchased under a tax-deferred retirement program (shown above as "Tax-Deferred Annuity"). The chart assumes a 25% tax rate and a 4% annual rate of return. Variable options incur separate account charges and may also incur account maintenance charges and surrender charges, depending on the contract. The chart does not reflect the deduction of any such charges, and, if reflected, would reduce the amounts shown. Federal withdrawal restrictions and a 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 for any specific investment. Unlike taxable accounts, contributions made to tax-favored retirement programs and nonqualified Contracts generally provide tax-deferred treatment on earnings. In addition, pre-tax contributions made to tax-favored 9 retirement programs ordinarily are not subject to income tax until withdrawn. As shown above, investing in a tax-favored program may increase 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 25% federal tax bracket, an annual return (before the deduction of any fees or charges) of 4% under a tax-favored retirement program in which tax savings were reinvested has an equivalent after-tax annual return of 3% under a taxable program. The 4% return on the tax-deferred program will be reduced by the impact of income taxes upon withdrawal. The return will vary depending upon the timing of withdrawals. The previous chart represents (without factoring in fees or 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, regardless of which type of qualifying investment arrangement that is selected. 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 taxable account: Paycheck Comparison
Tax-Favored Retirement Taxable Program Account ----------- ------- Annual amount available for savings before federal taxes $2,400 $2,400 Current federal income tax due on Purchase Payments 0 $ (600) Net retirement plan Purchase Payments $2,400 $1,800
This chart assumes a 25% federal income tax rate. The $600 that is paid toward current federal income taxes reduces the actual amount saved in the taxable account to $1,800 while the full $2,400 is contributed to the tax-qualified program, subject to being taxed upon withdrawal. Stated otherwise, to reach an annual retirement savings goal of $2,400, the contribution to a tax-qualified retirement program results in a current out-of-pocket expense of $1,800 while the contribution to a taxable account requires the full $2,400 out-of-pocket expense. The tax-qualified retirement program represented in this chart is a plan type, such as one under section 403(b) of the Code, which allows participants to exclude contributions (within limits) from gross income. This chart is an example only and does not reflect the return of any specific investment. Foreign Account Tax Compliance Act ("FATCA") U.S. persons should be aware that FATCA, enacted in 2010, provides that a 30% withholding tax will be imposed on certain gross payments (which could include distributions from cash value life insurance or annuity products) made to a foreign entity holding accounts on behalf of U.S. persons if such entity fails to provide applicable certifications to the U.S. government. An entity, for this purpose, will be considered a foreign entity unless it provides an applicable certification to the contrary. Prospective purchasers with accounts in foreign financial institutions or foreign entities should consult with their tax advisor regarding the application of FATCA to their purchase. Other Withholding Tax A Contract Owner that is not exempt from United States federal withholding tax should consult its tax advisor as to the availability of an exemption from, or reduction of, such tax under an applicable income tax treaty, if any. 10 -------------------------------------------------------------------------------- EXCHANGE PRIVILEGE -------------------------------------------------------------------------------- From time to time, we may allow you to exchange an older variable annuity issued by VALIC into VALIC's Portfolio Director Plus Fixed and Variable Annuity Product ("Portfolio Director"), a newer product with more current features and benefits issued by VALIC. Such an exchange offer will be made in accordance with applicable state and federal securities and insurance rules and regulations. You may exchange the Contracts into Portfolio Director as discussed below. See the Portfolio Director prospectus for more details concerning the Portfolio Director investment options and associated fees. Exchanges From SA-1 and SA-2 Contracts (GUP-64, GUP-74, GTS-VA) Sales/Surrender Charges. Under the SA-1 and SA-2 Contracts a sales and administrative charge is deducted from each Purchase Payment. This charge ranges from 5% of the first $5,000 of Purchase Payments to 3% of Purchase Payments in excess of $15,000. If a SA-1 or SA-2 Contract is exchanged for Portfolio Director the surrender charge under Portfolio Director will not apply to the amount of Account Value applied to Portfolio Director ("Exchanged Amount"). Purchase Payments made to Portfolio Director, however, would be subject to a surrender charge. In the case of a partial surrender, all Purchase Payments to Portfolio Director will be deemed to be withdrawn before any Exchanged Amount is deemed to be withdrawn. No exchange pursuant to this offer will be allowed within 120 days of a transfer of fixed accumulations under a SA-1 or SA-2 Contract to the variable portion of such Contract. Under Portfolio Director, no sales charge is deducted at the time a Purchase Payment is made, but a surrender charge may be imposed on partial or total surrenders. The surrender charge may not exceed 5% of any Purchase Payments withdrawn within the most recent five years prior to the receipt of the surrender request by the Company at its Home Office. For purposes of this surrender charge, the most recent Purchase Payments are deemed to be withdrawn first. Other Charges. A charge of a percentage of each Purchase Payment is made for administrative expenses for SA-1 and SA-2 Contracts. The charge is generally 1.25% and is included in the above sales and administrative charge. An additional daily charge (at an annual rate of 1% of total net assets attributable to SA-1 Contracts and ranging from 0.21% to 0.85% of total net assets attributable to SA-2 Contracts) is made for mortality and expense risks assumed by the Company under the variable portion of the Contract. The total of these expenses and other charges is limited to a maximum of the rate imposed on SA-1 and SA-2 Contracts on April 1, 1987. (See prospectus for SA-1 and SA-2 contracts dated April 20, 1987.) For Portfolio Director, a quarterly account maintenance charge of $3.75 is assessed for each calendar quarter during the Purchase Period during which any Variable Account Option Account Value is credited to a Participant's Account. The fee is to reimburse the Company for some of the administrative expenses associated with the Variable Account Options. No fee is assessed for any calendar quarter if the Account Value is credited only to the Fixed Account Options throughout the quarter. Such fee begins immediately if an exchange is made into any Variable Account Option offered under Portfolio Director. The fee may also be reduced or waived by the Company on Portfolio Director if the administrative expenses are expected to be lower for that Contract. To cover expenses not covered by the account maintenance charge and to compensate the Company for assuming mortality risks and administration and distribution expenses under Portfolio Director, an additional daily charge with an annualized rate of 0.75% to 1.25% (or lower amounts during the Purchase Period for different series of Portfolio Director), depending upon the Variable Account Options selected, if any, on the average daily net asset value of the Separate Account is attributable to Portfolio Director. Investment Options. Under SA-1 and SA-2 Contracts only one Division of VALIC Separate Account A is available as a variable investment alternative. This Division invests in a portfolio of VALIC Company I, the Stock Index Fund. Under a "grandfathering" arrangement, the total advisory fees and certain other charges imposed against these Contracts are limited to a maximum of the rate charged on April 1, 1987. The maximum expense ratio for the GUP and GTS VA Contracts is 1.4157% and 0.6966%, respectively. (See the prospectus for these Contracts dated April 20, 1987.) Under Portfolio Director, over 60 Divisions of VALIC Separate Account A are available, which Divisions invest in different investment portfolios of VALIC Company I, VALIC Company II, and several other public mutual fund portfolios. Three fixed investment options are also available. Annuity Options. Annuity options under the SA-1 and SA-2 Contracts provide for payments on a fixed or variable basis, or a combination of both. The SA-1 Contract annuity payments under a designated period option are limited to 15 years on a fixed basis only. Under this Contract, the designated period option may, subject to adverse 11 tax consequences, be commuted at any time for its remaining value. SA-2 Contracts do not provide a designated period option nor do they provide for commutation. Portfolio Director permits Payout Payments for a designated period of between 5 and 30 years. The SA-1 and SA-2 Contracts make no provision for transfers from a separate account to a fixed annuity during the annuity period. This option, subject to certain conditions, is available under Portfolio Director. The SA-1 Contracts provide an option for monthly variable annuity payments to be made at a level payment basis during each year of the annuity period. Portfolio Director does not provide this option. SA-1 and Portfolio Director, but not SA-2 Contracts, both provide for "betterment of rates." Under this provision, Payout Payments for fixed annuities will be based on mortality tables then being used by the Company, if more favorable to the Annuitant than those included in the Contract. -------------------------------------------------------------------------------- PURCHASE UNIT VALUE -------------------------------------------------------------------------------- Purchase Unit value is discussed in the prospectus under "Purchase Period." The Purchase Unit value for a Division is calculated as shown below: Step 1: Calculate the gross investment rate: Gross Investment Rate = (equals) The Division's investment income and capital gains and losses (whether realized or unrealized) on that day from the assets attributable to the Division. / (divided by) The value of the Division for the immediately preceding day on which the values are calculated.
We calculate the gross investment rate as of 4:00 p.m. Eastern 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.
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.
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 1. Purchase Unit value, beginning of period..................................... $ 1.800000 2. Value of Fund share, beginning of period..................................... 21.200000 3. Change in value of Fund share................................................ .500000 4. Gross investment return (3)/(2).............................................. .023585 5. Daily separate account fee................................................... $ .000027 ---------- 6. Net investment return (4)-(5)................................................ .023558 ---------- 7. Net investment factor 1.000000+(6)........................................... $ 1.023558 ---------- 8. Purchase Unit value, end of period (1)X(7)................................... $ 1.842404 ----------
12 Illustration of Purchase of Purchase Units (Assuming No State Premium Tax) 1. First Periodic Purchase Payment.............................................. $ 100.00 2. Purchase Unit value on effective date of purchase (see example above)........ $1.800000 3. Number of Purchase Units purchased (1)/(2)................................... 55.556 4. Purchase Unit value for valuation date following purchase (See example above) $1.842404 --------- 5. Value of Purchase Units in account for valuation date following purchase (3)X(4)....................................................................... $ 102.36 ---------
-------------------------------------------------------------------------------- PAYOUT PAYMENTS -------------------------------------------------------------------------------- Assumed Investment Rate The discussion concerning the amount of payout payments which follows this section is based on an Assumed Investment Rate of 3 1/2% per annum (3% for GTS-VA Contracts sold in connection with section 403(b) plans). However, the Company will permit each Annuitant choosing a variable payout option to select an Assumed Investment Rate permitted by state law or regulations other than the 3 1/2% (or 3%) rate described in the Prospectus. The foregoing Assumed Investment Rates are used merely in order to determine the first monthly payment per thousand dollars of value. It should not be inferred that such rates will bear any relationship to the actual net investment experience of VALIC Separate Account A. Amount of Payout Payments The amount of the first variable Payout Payment to the Annuitant will depend on the amount of the Account Value applied to effect the variable payout as of the tenth day immediately preceding the date Payout Payments commence, the amount of any premium tax owed, the payout option selected, and the age of the Annuitant. The Contracts contain tables indicating the dollar amount of the first payout payment under each payout option for each $1,000 of Account Value (after the deduction for any premium tax) at various ages. These tables are based upon the Progressive Annuity Tables for GUP Contracts. GTS-VA Contracts use the 1949 male annuity mortality tables at 3% for Contracts sold in connection with section 403(b) plans and the Progressive Annuity Table (assuming all births in 1915) at 3 1/2% for all other Contracts. The portion of the first monthly variable payout payment derived from a Division of VALIC Separate Account A is divided by the Payout Unit value for that Division (calculated ten days prior to the date of the first monthly payment) to determine the number of Payout Units in each Division represented by the payment. The number of such units will remain fixed during the Payout Period, assuming the Annuitant makes no transfers of Payout Units to provide Payout Units under another Division or to provide a fixed 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 Units 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 Assumed Investment Rate referred to above. For example, a factor of .999919 is applied to Contracts containing a 3% Assumed Investment Rate and a factor of .999906 is applied to Contracts containing a 3.5% Assumed Investment Rate. (Calculation of the net investment factor is discussed in the Prospectus under "Purchase Period -- Purchase Unit Value.") This is true for all annuity options except the sixth payout option described in the Prospectus (see "Payout Period"). Under the sixth payout option, the amount of subsequent payments remains fixed, but the number of payments varies with the experience of Divisions 10A and 10B for GUP and GTS-VA, respectively. Therefore, the dollar amount of variable payout payments after the first year will vary with the amount by which the net investment return is greater or less than 3 1/2% per annum. For example, if a Division has a cumulative net investment return of 5% over a one year period, the first payout payment in the next year will be approximately 1 1/2 percentage points greater than the payment on the same date in the preceding year, and subsequent payments will continue to vary with the investment experience of the Division. If such net investment return is 1% over a one year period, the first payout payment in the next year will be approximately 2 1/2 percentage points less than the payment 13 on the same date in the preceding year, and subsequent payments will continue to vary with the investment experience of the applicable Division. Each deferred Contract provides that, when fixed payout payments are to be made under one of the first four payout options, the monthly payment to the Annuitant will not be less than the monthly payment produced by the then current settlement option rates, which will not be less than the rates used for a currently issued single payment immediate annuity contract. The purpose of this provision is to assure the Annuitant that, at retirement, if the fixed payout purchase rates then required by the Company for new single payment immediate annuity contracts are significantly more favorable than the annuity rates guaranteed by a Contract, the Annuitant will be given the benefit of the new annuity rates. Payout Unit Value The value of a Payout Unit is calculated at the same time that the value of 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 the Payout Unit value for any period is determined by multiplying the Payout Unit value for the immediately preceding period by the net investment factor for the date for which the Payout Unit value is being calculated. (The net investment factor used is the net investment factor used to calculate the Purchase Unit value described in the Prospectus under "Purchase Period.") In order to avoid the crediting of "double interest," the result is then multiplied by a factor to neutralize the Assumed Investment Rate built into the annuity table contained in the Contract. For example, a factor of .999919 is applied to Contracts containing a 3% Assumed Investment Rate, and a factor of .999906 is applied to Contracts containing a 3 1/2% rate. The following illustrations show, by use of hypothetical examples, the method of determining the Payout Unit value and the amount of variable annuity payments. Illustration of Calculation of Payout Unit Value 1. Payout Unit value, beginning of period....................................... $1.000000 2. Net investment factor for period............................................. 1.019991 3. Daily adjustment for 3.5% Assumed Investment Rate............................ .999906 4. (2)X(3)...................................................................... 1.019895 5. Payout Unit value, end of period (1)X(4)..................................... $1.019895
Illustration of Payout Payments Any Annuitant age 65, Life Annuity with 120 Payments Certain 1. Number of Purchase Units at Payout Date...................................... 10,000.00 2. Purchase Unit value.......................................................... $ 1.000000 3. Purchase Value of Contract (1)X(2)........................................... $10,000.00 4. First monthly annuity payment per $1,000 of Accumulation Value............... $ 5.63 5. First monthly annuity payment (3)X(4)/1,000.................................. $ 56.30 6. Payout Unit value............................................................ $ 1.000000 7. Number of Payout Units (5)/(6)............................................... 56.30 8. Assume Payout Unit value for second month equal to........................... $ .997000 9. Second monthly Payout Payment (7)X(8)........................................ $ 56.13 10. Assume Payout Unit value for third month equal to........................... $ .980000 11. Third monthly Payout Payment (7)X(10)....................................... $ 55.17
14 -------------------------------------------------------------------------------- DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS -------------------------------------------------------------------------------- The Company has qualified or intends to qualify the Contracts for sale in all fifty states and the District of Columbia. The Contracts are no longer offered to new plans but may available to participants in plans with an existing Contract. Previously, the Contracts were sold in a continuous offering by licensed insurance agents who are registered representatives of broker-dealers that are members of the Financial Industry Regulatory Authority ("FINRA"). AIG Capital Services, Inc. ("Distributor") is the distributor for VALIC Separate Account A. Distributor, an affiliate of the Company, is located at 21650 Oxnard Street, Suite 750, Woodland Hills, CA 91367. The Distributor is a Delaware corporation and a member of FINRA. VALIC no longer pays commissions to financial advisors for sales or subsequent Purchase Payments made into the Contracts. The commissions, which were paid by the Company, did not result in any charge to Contract Owners or to VALIC Separate Account A, in addition to the charges described under "Fees and Charges" in the prospectus. Pursuant to its underwriting agreement with the Distributor and VALIC Separate Account A, the Company reimburses the Distributor for reasonable sales expenses, including overhead expenses. The Company has not paid any sales commissions with respect to sales of the Contract for the past three fiscal years ended December 31. -------------------------------------------------------------------------------- EXPERTS -------------------------------------------------------------------------------- PricewaterhouseCoopers LLP, located at 1000 Louisiana Street, Suite 5800, Houston, TX 77002, serves as the independent registered public accounting firm for The Variable Annuity Life Insurance Company Separate Account A, The Variable Annuity Life Insurance Company ("VALIC"), and American Home Assurance Company. You may obtain a free copy of these financial statements if you write us at our Home Office, located at 2929 Allen Parkway, Houston, Texas, 77019 or call us at 1-800-448-2542. The financial statements have also been filed with the SEC and can be obtained through its website at http://www.sec.gov. The following financial statements are included in the Statement of Additional Information in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting: - Audited Financial Statements of The Variable Annuity Life Insurance Company Separate Account A for the year ended December 31, 2016; - Audited Consolidated Financial Statements of The Variable Annuity Life Insurance Company for the years ended December 31, 2016, 2015 and 2014; and - Audited Statutory Financial Statements of American Home Assurance Company for the years ended December 31, 2016, 2015 and 2014. -------------------------------------------------------------------------------- COMMENTS ON FINANCIAL STATEMENTS -------------------------------------------------------------------------------- The financial statements of The Variable Annuity Life Insurance Company should be considered only as bearing upon the ability of the Company to meet its obligations under the Contracts, which include death benefits, and its assumption of the mortality and expense risks. Divisions 10A and 10B are the only Divisions available under the Contracts described in the prospectus. You should only consider the statutory financial statements of American Home that we include in this SAI as bearing on the ability of American Home, as guarantor, to meet its obligations under the guarantee with respect to Contracts with a date of issue of December 29, 2006 or earlier. (C) 2017 American International Group, Inc. All Rights Reserved. 15 Separate Account A The Variable Annuity Life Insurance Company 2016 Annual Report December 31, 2016 Report of Independent Registered Public Accounting Firm To the Board of Directors of The Variable Annuity Life Insurance Company and the Contract Owners of The Variable Annuity Life Insurance Company Separate Account A In our opinion, the accompanying statement of assets and liabilities, including the schedule of portfolio investments, and the related statements of operations and changes in net assets present fairly, in all material respects, the financial position of each of the sub-accounts of The Variable Annuity Life Insurance Company Separate Account A sponsored by The Variable Annuity Life Insurance Company, as indicated in Note 1, as of December 31, 2016, the results of each of their operations and changes in net assets for each of the periods indicated in Note 1, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the management of The Variable Annuity Life Insurance Company. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities as of December 31, 2016 by correspondence with the mutual fund companies and transfer agents, provide a reasonable basis for our opinions. /s/ PricewaterhouseCoopers LLP Houston, Texas April 24, 2017 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES December 31, 2016 --------------------------------------------------------------------------------
Contract Contract Net Assets Due from (to) Owners - Owners - Attributable to Investments at General Annuity Accumulation Contract Owner Sub-accounts Fair Value Account, Net Net Assets Reserves Reserves Reserves ------------ -------------- ------------- ------------ -------- ------------ --------------- American Beacon Holland Large Cap Growth Fund I Investor $ 57,405,527 $ (3,460) $ 57,402,067 $ 9,813 $ 57,392,254 $ 57,402,067 AST Capital Appreciation Portfolio Class 3 868,788 -- 868,788 -- 868,788 868,788 AST Government and Quality Bond Portfolio Class 3 1,428,187 -- 1,428,187 -- 1,428,187 1,428,187 AST SA BlackRock Multi-Asset Income Portfolio Class 3 95,603 -- 95,603 -- 95,603 95,603 AST Natural Resources Portfolio Class 3 13,477 -- 13,477 -- 13,477 13,477 Ariel Appreciation Fund Investor Class 415,598,586 (38,284) 415,560,302 371,235 415,189,067 415,560,302 Ariel Fund Investor Class 438,287,084 (45,608) 438,241,476 181,032 438,060,444 438,241,476 FTVIP Franklin Founding Funds Allocation VIP Fund Class 2 3,499 -- 3,499 -- 3,499 3,499 FTVIP Franklin Income VIP Fund Class 2 645,658 -- 645,658 -- 645,658 645,658 Goldman Sachs VIT Government Money Market Fund Service Class 175,364 -- 175,364 -- 175,364 175,364 Invesco V.I. Balanced-Risk Commodity Strategy Fund Class R5 195,156,787 (40,497) 195,116,290 43,576 195,072,714 195,116,290 Invesco V.I. Comstock Fund Series II 931,540 -- 931,540 -- 931,540 931,540 Invesco V.I. Growth and Income Fund Series II 1,088,719 -- 1,088,719 -- 1,088,719 1,088,719 Lord Abbett Fund Growth and Income Portfolio Class VC 91,268 -- 91,268 -- 91,268 91,268 SST Allocation Balanced Portfolio Class 3 491,121 -- 491,121 -- 491,121 491,121 SST Allocation Growth Portfolio Class 3 506,053 -- 506,053 -- 506,053 506,053 SST Allocation Moderate Growth Portfolio Class 3 739,763 -- 739,763 -- 739,763 739,763 SST Allocation Moderate Portfolio Class 3 803,369 -- 803,369 -- 803,369 803,369 SST Real Return Portfolio Class 3 515,635 -- 515,635 -- 515,635 515,635 SunAmerica 2020 High Watermark Fund Class I 7,335,005 (2,227) 7,332,778 -- 7,332,778 7,332,778 SAST Aggressive Growth Portfolio Class 3 74,893 -- 74,893 -- 74,893 74,893 SAST SA AB Growth Portfolio Class 3 222,745 -- 222,745 -- 222,745 222,745 SAST American Funds Asset Allocation Portfolio Class 3 2,808,498 -- 2,808,498 -- 2,808,498 2,808,498 SAST American Funds Global Growth Portfolio Class 3 617,828 -- 617,828 -- 617,828 617,828 SAST American Funds Growth Portfolio Class 3 520,813 -- 520,813 -- 520,813 520,813 SAST American Funds Growth-Income Portfolio Class 3 967,240 -- 967,240 -- 967,240 967,240 SAST Balanced Portfolio Class 3 595,830 -- 595,830 -- 595,830 595,830 SAST BlackRock VCP Global Multi-Asset Portfolio Class 3 11,580,535 -- 11,580,535 -- 11,580,535 11,580,535 SAST Blue Chip Growth Portfolio Class 3 518,139 -- 518,139 -- 518,139 518,139 SAST Capital Growth Portfolio Class 3 420,253 -- 420,253 -- 420,253 420,253 SAST Corporate Bond Portfolio Class 3 2,115,527 -- 2,115,527 -- 2,115,527 2,115,527 SAST Dogs of Wall Street Portfolio Class 3 1,320,918 -- 1,320,918 -- 1,320,918 1,320,918 SAST Dynamic Allocation Portfolio Class 3 43,002,007 -- 43,002,007 -- 43,002,007 43,002,007 SAST Dynamic Strategy Portfolio Class 3 35,910,454 -- 35,910,454 -- 35,910,454 35,910,454 SAST Emerging Markets Portfolio Class 3 189,777 -- 189,777 -- 189,777 189,777 SAST Equity Opportunities Portfolio Class 3 889,133 -- 889,133 -- 889,133 889,133 SAST Foreign Value Portfolio Class 3 408,274 -- 408,274 -- 408,274 408,274 SAST Global Bond Portfolio Class 3 938,530 -- 938,530 -- 938,530 938,530 SAST Global Equities Portfolio Class 3 1,800 -- 1,800 -- 1,800 1,800 SAST Growth Opportunities Portfolio Class 3 28,621 -- 28,621 -- 28,621 28,621 SAST Growth-Income Portfolio Class 3 1,066,113 -- 1,066,113 -- 1,066,113 1,066,113 SAST High-Yield Bond Portfolio Class 3 330,929 -- 330,929 -- 330,929 330,929 SAST International Diversified Equities Portfolio Class 3 508,712 -- 508,712 -- 508,712 508,712 SAST International Growth and Income Portfolio Class 3 91,918 -- 91,918 -- 91,918 91,918 SAST SA MFS Massachusetts Investors Trust Portfolio Class 3 981,427 -- 981,427 -- 981,427 981,427 SAST SA MFS Total Return Bond Portfolio Class 3 480,060 -- 480,060 -- 480,060 480,060 SAST Mid-Cap Growth Portfolio Class 3 67,576 -- 67,576 -- 67,576 67,576 SAST Real Estate Portfolio Class 3 53,937 -- 53,937 -- 53,937 53,937 SAST SA Janus Focused Growth Portfolio Class 3 256,997 -- 256,997 -- 256,997 256,997 SAST SA JPMorgan MFS Core Bond Portfolio Class 3 2,067,602 -- 2,067,602 -- 2,067,602 2,067,602 SAST SA Legg Mason BW Large Cap Value Portfolio Class 3 636,897 -- 636,897 -- 636,897 636,897 SAST Schroder's VCP Global Allocation Portfolio Class 3 6,003,699 -- 6,003,699 -- 6,003,699 6,003,699 SAST Small & Mid Cap Value Portfolio Class 3 342,554 -- 342,554 -- 342,554 342,554 SAST Small Company Value Portfolio Class 3 257,984 -- 257,984 -- 257,984 257,984 SAST SA T. Rowe Price VCP Balanced Portfolio Class 3 9,423,063 -- 9,423,063 -- 9,423,063 9,423,063 SAST Technology Portfolio Class 3 66,469 -- 66,469 -- 66,469 66,469 SAST Telecom Utility Portfolio Class 3 39,868 -- 39,868 -- 39,868 39,868 SAST Ultra Short Bond Portfolio Class 3 209,133 (2) 209,131 -- 209,131 209,131 SAST VCP Managed Asset Allocation SAST Portfolio Class 3 20,214,005 -- 20,214,005 -- 20,214,005 20,214,005 SAST VCP Total Return Balanced Portfolio Class 3 14,441,076 -- 14,441,076 -- 14,441,076 14,441,076 SAST VCP Value Portfolio Class 3 9,879,362 -- 9,879,362 -- 9,879,362 9,879,362 T. Rowe Price Retirement 2015 Advisor Class 5,915,331 (252) 5,915,079 -- 5,915,079 5,915,079 T. Rowe Price Retirement 2020 Advisor Class 13,545,462 (911) 13,544,551 -- 13,544,551 13,544,551 T. Rowe Price Retirement 2025 Advisor Class 10,234,131 (1,393) 10,232,738 -- 10,232,738 10,232,738 T. Rowe Price Retirement 2030 Advisor Class 10,377,800 (1,444) 10,376,356 -- 10,376,356 10,376,356 T. Rowe Price Retirement 2035 Advisor Class 8,105,738 (1,504) 8,104,234 -- 8,104,234 8,104,234 T. Rowe Price Retirement 2040 Advisor Class 7,648,046 (1,235) 7,646,811 -- 7,646,811 7,646,811 T. Rowe Price Retirement 2045 Advisor Class 4,520,609 (1,521) 4,519,088 -- 4,519,088 4,519,088
-------------------------------------------------------------------------------- 2 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES December 31, 2016 --------------------------------------------------------------------------------
Due from (to) Contract Contract Net Assets Company's Owners - Owners - Attributable to Investments at General Annuity Accumulation Contract Owner Sub-accounts Fair Value Account, Net Net Assets Reserves Reserves Reserves ------------ -------------- ------------- ------------- --------- ------------- --------------- T. Rowe Price Retirement 2050 Advisor Class 3,066,228 (845) 3,065,383 -- 3,065,383 3,065,383 T. Rowe Price Retirement 2055 Advisor Class 1,194,789 (468) 1,194,321 -- 1,194,321 1,194,321 T. Rowe Price Retirement 2060 Advisor Class 742,926 (276) 742,650 -- 742,650 742,650 Vanguard LifeStrategy Conservative Growth Fund Inv Shares 87,075,581 (11,090) 87,064,491 -- 87,064,491 87,064,491 Vanguard LifeStrategy Growth Fund Inv Shares 218,372,189 (28,104) 218,344,085 11,965 218,332,120 218,344,085 Vanguard LifeStrategy Moderate Growth Fund Inv Shares 226,296,617 (32,235) 226,264,382 9,296 226,255,086 226,264,382 Vanguard Long-Term Investment-Grade Fund Inv Shares 293,384,242 (21,586) 293,362,656 6,812 293,355,844 293,362,656 Vanguard Long-Term Treasury Fund Inv Shares 241,641,008 (32,451) 241,608,557 53,542 241,555,015 241,608,557 Vanguard Wellington Fund Inv Shares 1,819,119,626 (172,774) 1,818,946,852 9,658,165 1,809,288,687 1,818,946,852 Vanguard Windsor II Fund Inv Shares 1,694,896,986 (180,982) 1,694,716,004 533,113 1,694,182,891 1,694,716,004 VALIC Company I Asset Allocation Fund 160,443,065 (23,120) 160,419,945 98,766 160,321,179 160,419,945 VALIC Company I Blue Chip Growth Fund 556,884,210 (74,451) 556,809,759 49,301 556,760,458 556,809,759 VALIC Company I Broad Cap Value Fund 46,791,482 (3,788) 46,787,694 -- 46,787,694 46,787,694 VALIC Company I Capital Conservation Fund 144,474,866 (15,643) 144,459,223 152,250 144,306,973 144,459,223 VALIC Company I Core Equity Fund 237,016,393 (58,265) 236,958,128 205,147 236,752,981 236,958,128 VALIC Company I Dividend Value Fund 675,670,151 (72,356) 675,597,795 134,857 675,462,938 675,597,795 VALIC Company I Dynamic Allocation Fund 241,278,262 (9,939) 241,268,323 -- 241,268,323 241,268,323 VALIC Company I Emerging Economies Fund 614,932,260 (88,376) 614,843,884 62,511 614,781,373 614,843,884 VALIC Company I Foreign Value Fund 752,865,615 (105,731) 752,759,884 81,168 752,678,716 752,759,884 VALIC Company I Global Real Estate Fund 327,704,584 (52,654) 327,651,930 2,857 327,649,073 327,651,930 VALIC Company I Global Social Awareness Fund 382,728,214 (42,859) 382,685,355 298,279 382,387,076 382,685,355 VALIC Company I Global Strategy Fund 406,497,906 (42,583) 406,455,323 156,424 406,298,899 406,455,323 VALIC Company I Government Money Market I Fund 324,122,172 (117,247) 324,004,925 17,355 323,987,570 324,004,925 VALIC Company I Government Securities Fund 109,572,786 11,080 109,583,866 92,166 109,491,700 109,583,866 VALIC Company I Growth & Income Fund 105,075,666 (15,371) 105,060,295 62,539 104,997,756 105,060,295 VALIC Company I Growth Fund 867,033,980 (130,124) 866,903,856 279,895 866,623,961 866,903,856 VALIC Company I Health Sciences Fund 671,883,695 (70,749) 671,812,946 121,292 671,691,654 671,812,946 VALIC Company I Inflation Protected Fund 412,343,451 (45,826) 412,297,625 110,601 412,187,024 412,297,625 VALIC Company I International Equities Index Fund 871,211,793 (71,366) 871,140,427 115,907 871,024,520 871,140,427 VALIC Company I International Government Bond Fund 181,862,703 (16,736) 181,845,967 29,918 181,816,049 181,845,967 VALIC Company I International Growth Fund 368,142,136 (47,135) 368,095,001 360,597 367,734,404 368,095,001 VALIC Company I Large Cap Core Fund 142,999,073 (26,247) 142,972,826 9,936 142,962,890 142,972,826 VALIC Company I Large Capital Growth Fund 368,116,668 (74,683) 368,041,985 99,962 367,942,023 368,041,985 VALIC Company I Mid Cap Index Fund 3,198,726,668 (277,980) 3,198,448,688 1,576,778 3,196,871,910 3,198,448,688 VALIC Company I Mid Cap Strategic Growth Fund 230,137,000 (43,417) 230,093,583 47,911 230,045,672 230,093,583 VALIC Company I Nasdaq-100 Index Fund 299,042,701 (28,023) 299,014,678 49,600 298,965,078 299,014,678 VALIC Company I Science & Technology Fund 920,532,883 (157,997) 920,374,886 743,607 919,631,279 920,374,886 VALIC Company I Small Cap Aggressive Growth Fund 106,763,668 (11,668) 106,752,000 9,795 106,742,205 106,752,000 VALIC Company I Small Cap Fund 315,062,948 (42,613) 315,020,335 254,486 314,765,849 315,020,335 VALIC Company I Small Cap Index Fund 1,057,008,030 (134,361) 1,056,873,669 610,702 1,056,262,967 1,056,873,669 VALIC Company I Small Cap Special Values Fund 245,488,547 (20,839) 245,467,708 95,756 245,371,952 245,467,708 VALIC Company I Small Mid Growth Fund 99,392,886 (12,792) 99,380,094 9,692 99,370,402 99,380,094 VALIC Company I Stock Index Fund 3,985,623,401 (325,452) 3,985,297,949 4,706,673 3,980,591,276 3,985,297,949 VALIC Company I Value Fund 91,309,137 (8,857) 91,300,280 4,139 91,296,141 91,300,280 VALIC Company II Aggressive Growth Lifestyle Fund 530,559,662 (72,643) 530,487,019 64,881 530,422,138 530,487,019 VALIC Company II Capital Appreciation Fund 36,512,318 (3,152) 36,509,166 -- 36,509,166 36,509,166 VALIC Company II Conservative Growth Lifestyle Fund 323,785,078 (36,710) 323,748,368 384,432 323,363,936 323,748,368 VALIC Company II Core Bond Fund 892,839,589 (42,095) 892,797,494 10,704 892,786,790 892,797,494 VALIC Company II Government Money Market II Fund 134,171,318 (18,308) 134,153,010 26,034 134,126,976 134,153,010 VALIC Company II High Yield Bond Fund 449,327,380 (42,855) 449,284,525 14,172 449,270,353 449,284,525 VALIC Company II International Opportunities Fund 504,194,939 (68,645) 504,126,294 69,391 504,056,903 504,126,294 VALIC Company II Large Cap Value Fund 204,011,141 (31,124) 203,980,017 -- 203,980,017 203,980,017 VALIC Company II Mid Cap Growth Fund 100,702,141 (25,191) 100,676,950 14,937 100,662,013 100,676,950 VALIC Company II Mid Cap Value Fund 919,421,721 (75,034) 919,346,687 155,636 919,191,051 919,346,687 VALIC Company II Moderate Growth Lifestyle Fund 843,044,442 (109,073) 842,935,369 51,651 842,883,718 842,935,369 VALIC Company II Small Cap Growth Fund 75,443,738 (8,479) 75,435,259 7,677 75,427,582 75,435,259 VALIC Company II Small Cap Value Fund 502,317,010 (62,652) 502,254,358 154,153 502,100,205 502,254,358 VALIC Company II Socially Responsible Fund 734,153,070 (60,660) 734,092,410 40,945 734,051,465 734,092,410 VALIC Company II Strategic Bond Fund 585,313,522 (50,473) 585,263,049 140,542 585,122,507 585,263,049
-------------------------------------------------------------------------------- 3 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2016 --------------------------------------------------------------------------------
Net Asset Value per Shares at Fair Cost of Shares Sub-accounts Shares Share Value Held Level* ------------ ---------- --------- -------------- -------------- ------ American Beacon Holland Large Cap Growth Fund I Investor 2,371,149 $24.21 $ 57,405,527 $ 53,589,940 1 AST Capital Appreciation Portfolio Class 3 24,219 35.87 868,788 939,401 1 AST Government and Quality Bond Portfolio Class 3 96,299 14.83 1,428,187 1,477,194 1 AST SA BlackRock Multi-Asset Income Portfolio Class 3 15,416 6.20 95,603 106,966 1 AST Natural Resources Portfolio Class 3 741 18.19 13,477 12,115 1 Ariel Appreciation Fund Investor Class 8,835,004 47.04 415,598,586 395,844,520 1 Ariel Fund Investor Class 6,813,106 64.33 438,287,084 314,762,875 1 FTVIP Franklin Founding Funds Allocation VIP Fund Class 2 494 7.08 3,499 3,417 1 FTVIP Franklin Income VIP Fund Class 2 41,980 15.38 645,658 604,798 1 Goldman Sachs VIT Government Money Market Fund Service Class 175,364 1.00 175,364 175,364 1 Invesco V.I. Balanced-Risk Commodity Strategy Fund Class R5 28,699,527 6.80 195,156,787 241,741,507 1 Invesco V.I. Comstock Fund Series II 50,029 18.62 931,540 882,593 1 Invesco V.I. Growth and Income Fund Series II 51,794 21.02 1,088,719 1,041,398 1 Lord Abbett Fund Growth and Income Portfolio Class VC 2,486 36.72 91,268 78,826 1 SST Allocation Balanced Portfolio Class 3 47,369 10.37 491,121 521,100 1 SST Allocation Growth Portfolio Class 3 39,810 12.71 506,053 499,012 1 SST Allocation Moderate Growth Portfolio Class 3 68,867 10.74 739,763 862,223 1 SST Allocation Moderate Portfolio Class 3 75,196 10.68 803,369 833,821 1 SST Real Return Portfolio Class 3 53,604 9.62 515,635 513,750 1 SunAmerica 2020 High Watermark Fund Class I 840,085 8.73 7,335,005 7,986,289 1 SAST Aggressive Growth Portfolio Class 3 4,474 16.74 74,893 64,630 1 SAST SA AB Growth Portfolio Class 3 6,226 35.77 222,745 241,449 1 SAST American Funds Asset Allocation Portfolio Class 3 214,437 13.10 2,808,498 2,911,267 1 SAST American Funds Global Growth Portfolio Class 3 55,430 11.15 617,828 686,562 1 SAST American Funds Growth Portfolio Class 3 45,115 11.54 520,813 583,308 1 SAST American Funds Growth-Income Portfolio Class 3 78,991 12.24 967,240 1,014,840 1 SAST Balanced Portfolio Class 3 31,516 18.91 595,830 600,625 1 SAST BlackRock VCP Global Multi-Asset Portfolio Class 3 1,109,931 10.43 11,580,535 11,685,225 1 SAST Blue Chip Growth Portfolio Class 3 49,239 10.52 518,139 509,501 1 SAST Capital Growth Portfolio Class 3 31,207 13.47 420,253 415,657 1 SAST Corporate Bond Portfolio Class 3 160,025 13.22 2,115,527 2,145,167 1 SAST Dogs of Wall Street Portfolio Class 3 97,834 13.50 1,320,918 1,305,667 1 SAST Dynamic Allocation Portfolio Class 3 3,517,575 12.22 43,002,007 42,506,247 1 SAST Dynamic Strategy Portfolio Class 3 2,909,775 12.34 35,910,454 35,224,091 1 SAST Emerging Markets Portfolio Class 3 28,926 6.56 189,777 188,482 1 SAST Equity Opportunities Portfolio Class 3 44,439 20.01 889,133 841,701 1 SAST Foreign Value Portfolio Class 3 28,632 14.26 408,274 414,366 1 SAST Global Bond Portfolio Class 3 88,300 10.63 938,530 987,572 1 SAST Global Equities Portfolio Class 3 95 18.90 1,800 1,745 1 SAST Growth Opportunities Portfolio Class 3 3,993 7.17 28,621 31,542 1 SAST Growth-Income Portfolio Class 3 32,812 32.49 1,066,113 1,015,357 1 SAST High-Yield Bond Portfolio Class 3 57,932 5.71 330,929 326,015 1 SAST International Diversified Equities Portfolio Class 3 57,910 8.78 508,712 517,781 1 SAST International Growth and Income Portfolio Class 3 10,040 9.16 91,918 91,129 1 SAST SA MFS Massachusetts Investors Trust Portfolio Class 3 48,497 20.24 981,427 999,138 1 SAST SA MFS Total Return Bond Portfolio Class 3 25,549 18.79 480,060 464,765 1 SAST Mid-Cap Growth Portfolio Class 3 4,718 14.32 67,576 81,362 1 SAST Real Estate Portfolio Class 3 3,605 14.96 53,937 54,551 1 SAST SA Janus Focused Growth Portfolio Class 3 23,598 10.89 256,997 279,096 1 SAST SA JPMorgan MFS Core Bond Portfolio Class 3 239,967 8.74 2,067,602 2,122,787 1 SAST SA Legg Mason BW Large Cap Value Portfolio Class 3 32,464 19.62 636,897 696,759 1 SAST Schroder's VCP Global Allocation Portfolio Class 3 554,839 10.82 6,003,699 5,971,109 1 SAST Small & Mid Cap Value Portfolio Class 3 18,290 18.73 342,554 306,653 1 SAST Small Company Value Portfolio Class 3 10,506 24.56 257,984 240,467 1 SAST SA T. Rowe Price VCP Balanced Portfolio Class 3 882,234 10.68 9,423,063 9,333,181 1 SAST Technology Portfolio Class 3 11,703 5.68 66,469 55,674 1 SAST Telecom Utility Portfolio Class 3 2,922 13.64 39,868 40,834 1 SAST Ultra Short Bond Portfolio Class 3 20,286 10.31 209,133 209,591 1 SAST VCP Managed Asset Allocation SAST Portfolio Class 3 1,571,087 12.87 20,214,005 19,580,323 1 SAST VCP Total Return Balanced Portfolio Class 3 1,298,237 11.12 14,441,076 13,931,563 1 SAST VCP Value Portfolio Class 3 792,501 12.47 9,879,362 9,140,496 1 T. Rowe Price Retirement 2015 Advisor Class 418,636 14.13 5,915,331 5,941,591 1 T. Rowe Price Retirement 2020 Advisor Class 667,922 20.28 13,545,462 13,639,642 1 T. Rowe Price Retirement 2025 Advisor Class 663,262 15.43 10,234,131 10,225,883 1 T. Rowe Price Retirement 2030 Advisor Class 464,331 22.35 10,377,800 10,505,441 1 T. Rowe Price Retirement 2035 Advisor Class 499,737 16.22 8,105,738 8,176,551 1 T. Rowe Price Retirement 2040 Advisor Class 332,235 23.02 7,648,046 7,595,285 1
-------------------------------------------------------------------------------- 4 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY SCHEDULE OF PORTFOLIO INVESTMENTS December 31, 2016 --------------------------------------------------------------------------------
Net Asset Value per Shares at Fair Cost of Shares Sub-accounts Shares Share Value Held Level* ------------ ----------- --------- -------------- -------------- ------ T. Rowe Price Retirement 2045 Advisor Class 290,901 15.54 4,520,609 4,495,866 1 T. Rowe Price Retirement 2050 Advisor Class 235,140 13.04 3,066,228 3,086,683 1 T. Rowe Price Retirement 2055 Advisor Class 91,205 13.10 1,194,789 1,186,697 1 T. Rowe Price Retirement 2060 Advisor Class 73,484 10.11 742,926 718,409 1 Vanguard LifeStrategy Conservative Growth Fund Inv Shares 4,722,103 18.44 87,075,581 83,433,304 1 Vanguard LifeStrategy Growth Fund Inv Shares 7,563,983 28.87 218,372,189 162,638,612 1 Vanguard LifeStrategy Moderate Growth Fund Inv Shares 9,370,460 24.15 226,296,617 184,665,626 1 Vanguard Long-Term Investment-Grade Fund Inv Shares 29,163,149 10.06 293,384,242 306,892,685 1 Vanguard Long-Term Treasury Fund Inv Shares 20,582,709 11.74 241,641,008 259,066,415 1 Vanguard Wellington Fund Inv Shares 46,572,443 39.06 1,819,119,626 1,377,218,449 1 Vanguard Windsor II Fund Inv Shares 48,232,697 35.14 1,694,896,986 1,185,878,991 1 VALIC Company I Asset Allocation Fund 14,746,605 10.88 160,443,065 161,714,061 1 VALIC Company I Blue Chip Growth Fund 34,503,359 16.14 556,884,210 374,350,831 1 VALIC Company I Broad Cap Value Fund 2,993,697 15.63 46,791,482 39,681,231 1 VALIC Company I Capital Conservation Fund 14,652,623 9.86 144,474,866 145,585,143 1 VALIC Company I Core Equity Fund 10,952,698 21.64 237,016,393 108,296,626 1 VALIC Company I Dividend Value Fund 52,745,523 12.81 675,670,151 607,673,515 1 VALIC Company I Dynamic Allocation Fund 21,756,381 11.09 241,278,262 243,911,248 1 VALIC Company I Emerging Economies Fund 90,564,398 6.79 614,932,260 678,984,244 1 VALIC Company I Foreign Value Fund 77,855,803 9.67 752,865,615 596,707,829 1 VALIC Company I Global Real Estate Fund 41,481,593 7.90 327,704,584 336,544,790 1 VALIC Company I Global Social Awareness Fund 17,492,149 21.88 382,728,214 269,462,082 1 VALIC Company I Global Strategy Fund 36,391,934 11.17 406,497,906 393,491,638 1 VALIC Company I Government Money Market I Fund 324,122,172 1.00 324,122,172 324,122,171 1 VALIC Company I Government Securities Fund 10,269,240 10.67 109,572,786 111,715,788 1 VALIC Company I Growth & Income Fund 5,282,839 19.89 105,075,666 63,371,191 1 VALIC Company I Growth Fund 61,754,557 14.04 867,033,980 723,036,444 1 VALIC Company I Health Sciences Fund 34,884,927 19.26 671,883,695 624,695,777 1 VALIC Company I Inflation Protected Fund 38,144,630 10.81 412,343,451 425,789,586 1 VALIC Company I International Equities Index Fund 137,632,195 6.33 871,211,793 868,475,058 1 VALIC Company I International Government Bond Fund 16,369,280 11.11 181,862,703 194,334,017 1 VALIC Company I International Growth Fund 32,236,614 11.42 368,142,136 318,963,172 1 VALIC Company I Large Cap Core Fund 12,643,596 11.31 142,999,073 146,208,451 1 VALIC Company I Large Capital Growth Fund 29,855,366 12.33 368,116,668 295,789,366 1 VALIC Company I Mid Cap Index Fund 114,526,555 27.93 3,198,726,668 2,091,003,446 1 VALIC Company I Mid Cap Strategic Growth Fund 17,395,087 13.23 230,137,000 180,486,293 1 VALIC Company I Nasdaq-100 Index Fund 27,921,821 10.71 299,042,701 203,381,404 1 VALIC Company I Science & Technology Fund 40,409,696 22.78 920,532,883 534,582,972 1 VALIC Company I Small Cap Aggressive Growth Fund 9,431,419 11.32 106,763,668 115,498,298 1 VALIC Company I Small Cap Fund 25,824,832 12.20 315,062,948 223,306,454 1 VALIC Company I Small Cap Index Fund 49,788,414 21.23 1,057,008,030 658,427,977 1 VALIC Company I Small Cap Special Values Fund 17,107,216 14.35 245,488,547 144,236,252 1 VALIC Company I Small Mid Growth Fund 8,914,160 11.15 99,392,886 94,446,816 1 VALIC Company I Stock Index Fund 111,454,793 35.76 3,985,623,401 2,642,077,697 1 VALIC Company I Value Fund 5,639,848 16.19 91,309,137 53,317,649 1 VALIC Company II Aggressive Growth Lifestyle Fund 50,100,063 10.59 530,559,662 482,207,728 1 VALIC Company II Capital Appreciation Fund 2,309,445 15.81 36,512,318 27,118,185 1 VALIC Company II Conservative Growth Lifestyle Fund 27,486,000 11.78 323,785,078 333,560,781 1 VALIC Company II Core Bond Fund 81,167,235 11.00 892,839,589 894,767,260 1 VALIC Company II Government Money Market II Fund 134,171,318 1.00 134,171,318 134,171,312 1 VALIC Company II High Yield Bond Fund 58,582,448 7.67 449,327,380 442,563,304 1 VALIC Company II International Opportunities Fund 32,889,429 15.33 504,194,939 389,359,707 1 VALIC Company II Large Cap Value Fund 10,200,557 20.00 204,011,141 122,966,851 1 VALIC Company II Mid Cap Growth Fund 11,959,874 8.42 100,702,141 108,642,492 1 VALIC Company II Mid Cap Value Fund 42,565,820 21.60 919,421,721 729,772,450 1 VALIC Company II Moderate Growth Lifestyle Fund 59,705,697 14.12 843,044,442 789,266,450 1 VALIC Company II Small Cap Growth Fund 5,242,789 14.39 75,443,738 77,694,997 1 VALIC Company II Small Cap Value Fund 32,055,967 15.67 502,317,010 416,569,070 1 VALIC Company II Socially Responsible Fund 37,041,023 19.82 734,153,070 395,877,042 1 VALIC Company II Strategic Bond Fund 52,400,494 11.17 585,313,522 572,644,504 1
* Represents the level within the fair value hierarchy under which the portfolio is classified as defined in ASC 820 and described in Note 3 to the financial statements. -------------------------------------------------------------------------------- 5 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
American AST SA Beacon AST BlackRock Holland Large AST Capital Government Multi-Asset AST Natural Cap Growth Appreciation and Quality Income Resources Fund I Portfolio Bond Portfolio Portfolio Portfolio Investor Class 3 Class 3 Class 3 Class 3 ------------- ------------ -------------- ----------- ----------- FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ -- $ -- $ 11,015 $ 3,133 $ 486 Mortality and expense risk and administrative charges (686,604) (10,035) (11,410) (555) (90) Reimbursements of expenses 147,556 -- -- -- -- ----------- -------- ---------- -------- ------- Net investment income (loss) (539,048) (10,035) (395) 2,578 396 Net realized gain (loss) 2,766,089 (53,231) 135 (88) 124 Capital gain distribution from mutual funds 1,472,119 116,842 6,414 8,576 -- Change in unrealized appreciation (depreciation) of investments (3,259,048) (41,072) (36,244) (11,363) 1,362 ----------- -------- ---------- -------- ------- Increase (decrease) in net assets from operations 440,112 12,504 (30,090) (297) 1,882 ----------- -------- ---------- -------- ------- From contract transactions: Payments received from contract owners 1,427,523 495,957 789,834 95,576 12,975 Payments for contract benefits or terminations (4,614,537) (5,718) (16,193) -- (150) Transfers between sub-accounts (including fixed account), net (3,921,475) (52,832) 365,305 587 (1,230) Contract maintenance charges (74,863) (364) (2,354) (263) -- Adjustments to net assets allocated to contracts in payout period (128) -- -- -- -- ----------- -------- ---------- -------- ------- Increase (decrease) in net assets from contract transactions (7,183,480) 437,043 1,136,592 95,900 11,595 ----------- -------- ---------- -------- ------- Increase (decrease) in net assets (6,743,368) 449,547 1,106,502 95,603 13,477 Net assets at beginning of period 64,145,435 419,241 321,685 -- -- ----------- -------- ---------- -------- ------- Net assets at end of period $57,402,067 $868,788 $1,428,187 $ 95,603 $13,477 =========== ======== ========== ======== ======= Beginning units 36,402,733 18,110 26,489 -- -- Units issued 919,900 26,158 93,963 8,457 1,774 Units redeemed (5,056,403) (7,356) (3,123) (24) (170) ----------- -------- ---------- -------- ------- Ending units 32,266,230 36,912 117,329 8,433 1,604 =========== ======== ========== ======== ======= FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ -- $ -- $ 2,478 $ -- $ -- Mortality and expense risk and administrative charges (768,243) (1,974) (1,741) -- -- Reimbursements of expenses 165,033 -- -- -- -- ----------- -------- ---------- -------- ------- Net investment income (loss) (603,210) (1,974) 737 -- -- Net realized gain (loss) 4,149,707 (5,097) (249) -- -- Capital gain distribution from mutual funds 6,662,809 33,153 704 -- -- Change in unrealized appreciation (depreciation) of investments (6,646,112) (29,541) (2,313) -- -- ----------- -------- ---------- -------- ------- Increase (decrease) in net assets from operations 3,563,194 (3,459) (1,121) -- -- ----------- -------- ---------- -------- ------- From contract transactions: Payments received from contract owners 1,849,491 421,640 320,561 -- -- Payments for contract benefits or terminations (6,018,761) (699) (1,232) -- -- Transfers between sub-accounts (including fixed account), net (2,360,905) 1,759 3,630 -- -- Contract maintenance charges (78,405) -- (153) -- -- Adjustments to net assets allocated to contracts in payout period 65 -- -- -- -- ----------- -------- ---------- -------- ------- Increase (decrease) in net assets from contract transactions (6,608,515) 422,700 322,806 -- -- ----------- -------- ---------- -------- ------- Increase (decrease) in net assets (3,045,321) 419,241 321,685 -- -- Net assets at beginning of period 67,190,756 -- -- -- -- ----------- -------- ---------- -------- ------- Net assets at end of period $64,145,435 $419,241 $ 321,685 $ -- $ -- =========== ======== ========== ======== ======= Beginning units 40,202,025 -- -- -- -- Units issued 1,749,425 19,333 28,787 -- -- Units redeemed (5,548,717) (1,223) (2,298) -- -- ----------- -------- ---------- -------- ------- Ending units 36,402,733 18,110 26,489 -- -- =========== ======== ========== ======== =======
-------------------------------------------------------------------------------- 6 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
FTVIP Goldman Franklin Sachs VIT Ariel Founding FTVIP Government Appreciation Funds Franklin Money Market Fund Investor Ariel Fund Allocation VIP Income VIP Fund Service Class Investor Class Fund Class 2 Fund Class 2 Class ------------- -------------- -------------- ------------ ------------ FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 2,649,339 $ 1,248,998 $ 124 $ 28,426 $ 62 Mortality and expense risk and administrative charges (4,569,049) (4,777,557) (29) (7,979) (1,855) Reimbursements of expenses 954,239 1,018,274 -- -- -- ------------- ------------- ------ -------- ---------- Net investment income (loss) (965,471) (2,510,285) 95 20,447 (1,793) Net realized gain (loss) 29,861,642 35,775,324 (1) 261 -- Capital gain distribution from mutual funds 28,179,327 26,110,362 105 -- -- Change in unrealized appreciation (depreciation) of investments (14,278,808) (2,674,305) 82 49,106 -- ------------- ------------- ------ -------- ---------- Increase (decrease) in net assets from operations 42,796,690 56,701,096 281 69,814 (1,793) ------------- ------------- ------ -------- ---------- From contract transactions: Payments received from contract owners 16,365,142 12,866,684 3,211 52,482 1,057,859 Payments for contract benefits or terminations (32,100,346) (31,562,540) -- (23,357) -- Transfers between sub-accounts (including fixed account), net 14,040,496 (18,699,543) 7 76,480 (880,469) Contract maintenance charges (123,805) (295,488) -- (20) (233) Adjustments to net assets allocated to contracts in payout period (14,414) 518 -- -- -- ------------- ------------- ------ -------- ---------- Increase (decrease) in net assets from contract transactions (1,832,927) (37,690,369) 3,218 105,585 177,157 ------------- ------------- ------ -------- ---------- Increase (decrease) in net assets 40,963,763 19,010,727 3,499 175,399 175,364 Net assets at beginning of period 374,596,539 419,230,749 -- 470,259 -- ------------- ------------- ------ -------- ---------- Net assets at end of period $ 415,560,302 $ 438,241,476 $3,499 $645,658 $ 175,364 ============= ============= ====== ======== ========== Beginning units 126,206,611 139,623,723 -- 37,745 -- Units issued 16,470,981 5,418,702 269 10,764 146,556 Units redeemed (17,156,897) (17,295,338) (3) (2,367) (128,865) ------------- ------------- ------ -------- ---------- Ending units 125,520,695 127,747,087 266 46,142 17,691 ============= ============= ====== ======== ========== FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 4,127,048 $ 2,894,869 $ -- $ -- $ -- Mortality and expense risk and administrative charges (5,170,715) (5,434,552) -- (2,160) -- Reimbursements of expenses 1,082,352 1,158,085 -- -- -- ------------- ------------- ------ -------- ---------- Net investment income (loss) 38,685 (1,381,598) -- (2,160) -- Net realized gain (loss) 49,979,679 38,333,656 -- (75) -- Capital gain distribution from mutual funds 37,427,270 57,058,040 -- -- -- Change in unrealized appreciation (depreciation) of investments (116,938,796) (116,023,634) -- (8,245) -- ------------- ------------- ------ -------- ---------- Increase (decrease) in net assets from operations (29,493,162) (22,013,536) -- (10,480) -- ------------- ------------- ------ -------- ---------- From contract transactions: Payments received from contract owners 21,562,902 16,657,097 -- 398,030 -- Payments for contract benefits or terminations (35,410,952) (39,453,326) -- (3,625) -- Transfers between sub-accounts (including fixed account), net (51,147,692) (18,444,278) -- 86,334 -- Contract maintenance charges (124,411) (255,612) -- -- -- Adjustments to net assets allocated to contracts in payout period (17,454) 2,561 -- -- -- ------------- ------------- ------ -------- ---------- Increase (decrease) in net assets from contract transactions (65,137,607) (41,493,558) -- 480,739 -- ------------- ------------- ------ -------- ---------- Increase (decrease) in net assets (94,630,769) (63,507,094) -- 470,259 -- Net assets at beginning of period 469,227,308 482,737,843 -- -- -- ------------- ------------- ------ -------- ---------- Net assets at end of period $ 374,596,539 $ 419,230,749 $ -- $470,259 $ -- ============= ============= ====== ======== ========== Beginning units 146,499,455 151,989,478 -- -- -- Units issued 4,974,729 3,752,312 -- 38,033 -- Units redeemed (25,267,573) (16,118,067) -- (288) -- ------------- ------------- ------ -------- ---------- Ending units 126,206,611 139,623,723 -- 37,745 -- ============= ============= ====== ======== ==========
-------------------------------------------------------------------------------- 7 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Invesco V.I. Balanced- Lord Abbett SST Risk Invesco V.I. Fund Growth Allocation Commodity Invesco V.I. Growth and and Income Balanced Strategy Fund Comstock Income Fund Portfolio Portfolio Class R5 Fund Series II Series II Class VC Class 3 ------------- -------------- ------------ ----------- ---------- FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 5,198,492 $ 8,790 $ 6,837 $ 1,355 $ 4,773 Mortality and expense risk and administrative charges (2,243,393) (7,651) (8,704) (884) (1,977) ------------- -------- ---------- ------- -------- Net investment income (loss) 2,955,099 1,139 (1,867) 471 2,796 Net realized gain (loss) (51,836,980) (3,165) (14,889) 771 (237) Capital gain distribution from mutual funds -- 52,842 72,350 1,163 23,700 Change in unrealized appreciation (depreciation) of investments 76,649,699 62,386 87,633 12,443 (23,853) ------------- -------- ---------- ------- -------- Increase (decrease) in net assets from operations 27,767,818 113,202 143,227 14,848 2,406 ------------- -------- ---------- ------- -------- From contract transactions: Payments received from contract owners 15,992,049 444,295 539,787 60,911 322,901 Payments for contract benefits or terminations (20,504,024) (9,944) (12,650) -- (53) Transfers between sub-accounts (including fixed account), net (73,721,564) 119,225 124,637 5,397 107,620 Contract maintenance charges (88,942) (541) (650) (35) (50) Adjustments to net assets allocated to contracts in payout period (1,316) -- -- -- -- ------------- -------- ---------- ------- -------- Increase (decrease) in net assets from contract transactions (78,323,797) 553,035 651,124 66,273 430,418 ------------- -------- ---------- ------- -------- Increase (decrease) in net assets (50,555,979) 666,237 794,351 81,121 432,824 Net assets at beginning of period 245,672,269 265,303 294,368 10,147 58,297 ------------- -------- ---------- ------- -------- Net assets at end of period $ 195,116,290 $931,540 $1,088,719 $91,268 $491,121 ============= ======== ========== ======= ======== Beginning units 420,762,909 18,575 20,145 799 4,272 Units issued 16,270,077 41,541 47,130 5,737 30,162 Units redeemed (135,630,085) (3,777) (4,283) (382) (18) ------------- -------- ---------- ------- -------- Ending units 301,402,901 56,339 62,992 6,154 34,416 ============= ======== ========== ======= ======== FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ -- $ 3,305 $ 5,685 $ 129 $ 778 Mortality and expense risk and administrative charges (2,502,474) (1,375) (1,540) (38) (349) ------------- -------- ---------- ------- -------- Net investment income (loss) (2,502,474) 1,930 4,145 91 429 Net realized gain (loss) (6,043,524) (3,430) (10,068) (1) (11) Capital gain distribution from mutual funds -- 546 33,265 551 4,006 Change in unrealized appreciation (depreciation) of investments (40,164,147) (13,439) (40,311) (419) (6,127) ------------- -------- ---------- ------- -------- Increase (decrease) in net assets from operations (48,710,145) (14,393) (12,969) 222 (1,703) ------------- -------- ---------- ------- -------- From contract transactions: Payments received from contract owners 19,791,890 274,997 302,346 9,978 60,000 Payments for contract benefits or terminations (23,756,474) (1,169) (1,354) -- -- Transfers between sub-accounts (including fixed account), net 46,868,296 5,868 6,345 (53) -- Contract maintenance charges (94,079) -- -- -- -- Adjustments to net assets allocated to contracts in payout period (63) -- -- -- -- ------------- -------- ---------- ------- -------- Increase (decrease) in net assets from contract transactions 42,809,570 279,696 307,337 9,925 60,000 ------------- -------- ---------- ------- -------- Increase (decrease) in net assets (5,900,575) 265,303 294,368 10,147 58,297 Net assets at beginning of period 251,572,844 -- -- -- -- ------------- -------- ---------- ------- -------- Net assets at end of period $ 245,672,269 $265,303 $ 294,368 $10,147 $ 58,297 ============= ======== ========== ======= ======== Beginning units 356,396,959 -- -- -- -- Units issued 81,858,805 20,334 22,116 804 4,272 Units redeemed (17,492,855) (1,759) (1,971) (5) -- ------------- -------- ---------- ------- -------- Ending units 420,762,909 18,575 20,145 799 4,272 ============= ======== ========== ======= ========
-------------------------------------------------------------------------------- 8 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
SST SST Allocation SST Allocation Moderate Allocation SST Real SunAmerica Growth Growth Moderate Return 2020 High Portfolio Portfolio Portfolio Portfolio Watermark Class 3 Class 3 Class 3 Class 3 Fund Class I ---------- ---------- ---------- --------- ------------ FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 8,089 $ 10,799 $ 7,847 $ -- $ 217,155 Mortality and expense risk and administrative charges (5,210) (9,190) (5,161) (4,726) (94,401) -------- -------- -------- -------- ----------- Net investment income (loss) 2,879 1,609 2,686 (4,726) 122,754 Net realized gain (loss) (230) (1,761) (583) (166) 10,496 Capital gain distribution from mutual funds 11,088 82,475 46,048 -- -- Change in unrealized appreciation (depreciation) of investments 12,013 (58,715) (27,114) 7,391 (100,075) -------- -------- -------- -------- ----------- Increase (decrease) in net assets from operations 25,750 23,608 21,037 2,499 33,175 -------- -------- -------- -------- ----------- From contract transactions: Payments received from contract owners 246,714 137,777 655,597 248,538 37,308 Payments for contract benefits or terminations -- -- -- (4,253) (506,221) Transfers between sub-accounts (including fixed account), net 39,724 93,877 92,312 138,180 (238,674) Contract maintenance charges (49) (75) (25) (1,012) (3,685) -------- -------- -------- -------- ----------- Increase (decrease) in net assets from contract transactions 286,389 231,579 747,884 381,453 (711,272) -------- -------- -------- -------- ----------- Increase (decrease) in net assets 312,139 255,187 768,921 383,952 (678,097) Net assets at beginning of period 193,914 484,576 34,448 131,683 8,010,875 -------- -------- -------- -------- ----------- Net assets at end of period $506,053 $739,763 $803,369 $515,635 $ 7,332,778 ======== ======== ======== ======== =========== Beginning units 13,530 36,024 2,515 11,926 7,110,998 Units issued 20,417 16,630 53,725 34,153 1,172 Units redeemed (5) (6) (4) (594) (619,560) -------- -------- -------- -------- ----------- Ending units 33,942 52,648 56,236 45,485 6,492,610 ======== ======== ======== ======== =========== FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 2,785 $ 6,715 $ 450 $ 4,473 $ 233,757 Mortality and expense risk and administrative charges (760) (3,161) (155) (694) (109,048) -------- -------- -------- -------- ----------- Net investment income (loss) 2,025 3,554 295 3,779 124,709 Net realized gain (loss) (27) (181) (7) (99) 138,628 Capital gain distribution from mutual funds -- 38,967 2,395 -- -- Change in unrealized appreciation (depreciation) of investments (4,972) (63,745) (3,337) (5,505) (240,016) -------- -------- -------- -------- ----------- Increase (decrease) in net assets from operations (2,974) (21,405) (654) (1,825) 23,321 -------- -------- -------- -------- ----------- From contract transactions: Payments received from contract owners 184,367 490,502 -- 132,843 600 Payments for contract benefits or terminations -- -- -- (347) (966,453) Transfers between sub-accounts (including fixed account), net 12,521 15,479 35,102 1,078 (810,650) Contract maintenance charges -- -- -- (66) (4,254) -------- -------- -------- -------- ----------- Increase (decrease) in net assets from contract transactions 196,888 505,981 35,102 133,508 (1,780,757) -------- -------- -------- -------- ----------- Increase (decrease) in net assets 193,914 484,576 34,448 131,683 (1,757,436) Net assets at beginning of period -- -- -- -- 9,768,311 -------- -------- -------- -------- ----------- Net assets at end of period $193,914 $484,576 $ 34,448 $131,683 $ 8,010,875 ======== ======== ======== ======== =========== Beginning units -- -- -- -- 8,674,835 Units issued 13,530 36,026 2,515 12,719 312 Units redeemed -- (2) -- (793) (1,564,149) -------- -------- -------- -------- ----------- Ending units 13,530 36,024 2,515 11,926 7,110,998 ======== ======== ======== ======== ===========
-------------------------------------------------------------------------------- 9 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
SAST SAST SAST American American SAST Aggressive SAST SA AB Funds Asset Funds Global American Growth Growth Allocation Growth Funds Growth Portfolio Portfolio Portfolio Portfolio Portfolio Class 3 Class 3 Class 3 Class 3 Class 3 ---------- ---------- ----------- ------------ ------------ FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ -- $ -- $ 31,003 $ 7,881 $ 1,248 Mortality and expense risk and administrative charges (917) (1,712) (15,163) (4,954) (4,856) ------- -------- ---------- -------- -------- Net investment income (loss) (917) (1,712) 15,840 2,927 (3,608) Net realized gain (loss) 1,224 (1,248) (32) (10,671) (2,213) Capital gain distribution from mutual funds -- 23,173 113,333 69,469 102,032 Change in unrealized appreciation (depreciation) of investments 10,264 (17,698) (62,006) (58,149) (57,212) ------- -------- ---------- -------- -------- Increase (decrease) in net assets from operations 10,571 2,515 67,135 3,576 38,999 ------- -------- ---------- -------- -------- From contract transactions: Payments received from contract owners 70,123 138,048 2,540,529 358,626 180,040 Payments for contract benefits or terminations (5,973) (7,802) (11,240) (6,648) (1,302) Transfers between sub-accounts (including fixed account), net 172 19,156 125,727 96,668 111,253 Contract maintenance charges -- (104) (3,404) (326) (11) ------- -------- ---------- -------- -------- Increase (decrease) in net assets from contract transactions 64,322 149,298 2,651,612 448,320 289,980 ------- -------- ---------- -------- -------- Increase (decrease) in net assets 74,893 151,813 2,718,747 451,896 328,979 Net assets at beginning of period -- 70,932 89,751 165,932 191,834 ------- -------- ---------- -------- -------- Net assets at end of period $74,893 $222,745 $2,808,498 $617,828 $520,813 ======= ======== ========== ======== ======== Beginning units -- 3,638 6,262 10,098 11,930 Units issued 6,160 8,441 175,930 29,454 18,524 Units redeemed (450) (776) (1,377) (1,669) (307) ------- -------- ---------- -------- -------- Ending units 5,710 11,303 180,815 37,883 30,147 ======= ======== ========== ======== ======== FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ -- $ -- $ 1,180 $ 734 $ 1,015 Mortality and expense risk and administrative charges -- (38) (717) (766) (827) ------- -------- ---------- -------- -------- Net investment income (loss) -- (38) 463 (32) 188 Net realized gain (loss) -- -- (230) (3,566) (2,075) Capital gain distribution from mutual funds -- -- 6,492 12,763 9,657 Change in unrealized appreciation (depreciation) of investments -- (1,005) (8,143) (10,585) (5,283) ------- -------- ---------- -------- -------- Increase (decrease) in net assets from operations -- (1,043) (1,418) (1,420) 2,487 ------- -------- ---------- -------- -------- From contract transactions: Payments received from contract owners -- 71,855 87,058 165,592 188,839 Payments for contract benefits or terminations -- -- -- (519) (352) Transfers between sub-accounts (including fixed account), net -- 120 4,111 2,279 860 ------- -------- ---------- -------- -------- Increase (decrease) in net assets from contract transactions -- 71,975 91,169 167,352 189,347 ------- -------- ---------- -------- -------- Increase (decrease) in net assets -- 70,932 89,751 165,932 191,834 Net assets at beginning of period -- -- -- -- -- ------- -------- ---------- -------- -------- Net assets at end of period $ -- $ 70,932 $ 89,751 $165,932 $191,834 ======= ======== ========== ======== ======== Beginning units -- -- -- -- -- Units issued -- 3,638 6,368 11,166 13,254 Units redeemed -- -- (106) (1,068) (1,324) ------- -------- ---------- -------- -------- Ending units -- 3,638 6,262 10,098 11,930 ======= ======== ========== ======== ========
-------------------------------------------------------------------------------- 10 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
SAST American SAST Funds BlackRock Growth- SAST VCP Global SAST Blue SAST Capital Income Balanced Multi-Asset Chip Growth Growth Portfolio Portfolio Portfolio Portfolio Portfolio Class 3 Class 3 Class 3 Class 3 Class 3 --------- --------- ----------- ----------- ------------ FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 7,608 $ 6,665 $ 6,583 $ 1,395 $ -- Mortality and expense risk and administrative charges (5,273) (4,025) (55,447) (3,947) (3,448) -------- -------- ----------- -------- -------- Net investment income (loss) 2,335 2,640 (48,864) (2,552) (3,448) Net realized gain (loss) (3,825) (49) 476 (790) (696) Capital gain distribution from mutual funds 95,076 20,472 89,353 11,804 1,281 Change in unrealized appreciation (depreciation) of investments (46,703) (3,881) (104,690) 10,837 6,709 -------- -------- ----------- -------- -------- Increase (decrease) in net assets from operations 46,883 19,182 (63,725) 19,299 3,846 -------- -------- ----------- -------- -------- From contract transactions: Payments received from contract owners 163,861 441,570 10,141,644 321,763 227,308 Payments for contract benefits or terminations (3,215) (10,627) (37,115) (4,976) (4,624) Transfers between sub-accounts (including fixed account), net 665,196 34,669 1,577,148 73,657 67,591 Contract maintenance charges (205) (859) (37,417) (282) (270) -------- -------- ----------- -------- -------- Increase (decrease) in net assets from contract transactions 825,637 464,753 11,644,260 390,162 290,005 -------- -------- ----------- -------- -------- Increase (decrease) in net assets 872,520 483,935 11,580,535 409,461 293,851 Net assets at beginning of period 94,720 111,895 -- 108,678 126,402 -------- -------- ----------- -------- -------- Net assets at end of period $967,240 $595,830 $11,580,535 $518,139 $420,253 ======== ======== =========== ======== ======== Beginning units 6,245 7,276 -- 6,778 8,464 Units issued 52,821 30,334 1,121,525 24,915 20,379 Units redeemed (1,018) (891) (8,089) (1,069) (1,031) -------- -------- ----------- -------- -------- Ending units 58,048 36,719 1,113,436 30,624 27,812 ======== ======== =========== ======== ======== FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 296 $ -- $ -- $ 125 $ -- Mortality and expense risk and administrative charges (373) (62) -- (514) (640) -------- -------- ----------- -------- -------- Net investment income (loss) (77) (62) -- (389) (640) Net realized gain (loss) (1,081) (3) -- (440) (559) Capital gain distribution from mutual funds 2,245 -- -- 1,187 3,578 Change in unrealized appreciation (depreciation) of investments (898) (914) -- (2,200) (2,113) -------- -------- ----------- -------- -------- Increase (decrease) in net assets from operations 189 (979) -- (1,842) 266 -------- -------- ----------- -------- -------- From contract transactions: Payments received from contract owners 93,872 113,010 -- 97,150 124,501 Payments for contract benefits or terminations (173) -- -- (347) (532) Transfers between sub-accounts (including fixed account), net 832 (136) -- 13,717 2,167 -------- -------- ----------- -------- -------- Increase (decrease) in net assets from contract transactions 94,531 112,874 -- 110,520 126,136 -------- -------- ----------- -------- -------- Increase (decrease) in net assets 94,720 111,895 -- 108,678 126,402 Net assets at beginning of period -- -- -- -- -- -------- -------- ----------- -------- -------- Net assets at end of period $ 94,720 $111,895 $ -- $108,678 $126,402 ======== ======== =========== ======== ======== Beginning units -- -- -- -- -- Units issued 6,915 7,285 -- 7,244 9,212 Units redeemed (670) (9) -- (466) (748) -------- -------- ----------- -------- -------- Ending units 6,245 7,276 -- 6,778 8,464 ======== ======== =========== ======== ========
-------------------------------------------------------------------------------- 11 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
SAST SAST SAST SAST SAST Dogs of Dynamic Dynamic Emerging Corporate Wall Street Allocation Strategy Markets Bond Portfolio Portfolio Portfolio Portfolio Portfolio Class 3 Class 3 Class 3 Class 3 Class 3 -------------- ------------ ----------- ----------- --------- FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 47,983 $ 14,788 $ 562,869 $ 456,307 $ 2,312 Mortality and expense risk and administrative charges (13,274) (7,402) (433,399) (367,142) (1,545) ---------- ---------- ----------- ----------- -------- Net investment income (loss) 34,709 7,386 129,470 89,165 767 Net realized gain (loss) (359) (389) (63,337) (51,531) 35 Capital gain distribution from mutual funds -- 37,900 -- -- -- Change in unrealized appreciation (depreciation) of investments (14,023) 21,212 1,237,347 1,261,097 7,197 ---------- ---------- ----------- ----------- -------- Increase (decrease) in net assets from operations 20,327 66,109 1,303,480 1,298,731 7,999 ---------- ---------- ----------- ----------- -------- From contract transactions: Payments received from contract owners 1,200,814 1,000,839 18,076,997 13,826,593 107,265 Payments for contract benefits or terminations (28,139) (5,269) (442,850) (377,305) (2,549) Transfers between sub-accounts (including fixed account), net 585,691 86,312 3,205,706 2,682,405 21,977 Contract maintenance charges (2,182) (319) (369,169) (319,993) (111) ---------- ---------- ----------- ----------- -------- Increase (decrease) in net assets from contract transactions 1,756,184 1,081,563 20,470,684 15,811,700 126,582 ---------- ---------- ----------- ----------- -------- Increase (decrease) in net assets 1,776,511 1,147,672 21,774,164 17,110,431 134,581 Net assets at beginning of period 339,016 173,246 21,227,843 18,800,023 55,196 ---------- ---------- ----------- ----------- -------- Net assets at end of period $2,115,527 $1,320,918 $43,002,007 $35,910,454 $189,777 ========== ========== =========== =========== ======== Beginning units 21,890 9,124 1,807,599 1,617,157 6,195 Units issued 107,812 51,946 1,933,551 1,525,955 14,315 Units redeemed (2,812) (1,359) (191,747) (167,051) (1,052) ---------- ---------- ----------- ----------- -------- Ending units 126,890 59,711 3,549,403 2,976,061 19,458 ========== ========== =========== =========== ======== FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 9,944 $ 1,851 $ 121,206 $ 89,734 $ 680 Mortality and expense risk and administrative charges (1,967) (785) (75,256) (71,624) (304) ---------- ---------- ----------- ----------- -------- Net investment income (loss) 7,977 1,066 45,950 18,110 376 Net realized gain (loss) (883) (1,518) (853) (918) (1,391) Capital gain distribution from mutual funds 835 7,240 96,855 13,666 -- Change in unrealized appreciation (depreciation) of investments (15,617) (5,962) (741,531) (574,705) (5,903) ---------- ---------- ----------- ----------- -------- Increase (decrease) in net assets from operations (7,688) 826 (599,579) (543,847) (6,918) ---------- ---------- ----------- ----------- -------- From contract transactions: Payments received from contract owners 344,361 170,948 21,007,469 18,474,355 60,816 Payments for contract benefits or terminations (1,213) (530) (38,846) (32,625) (309) Transfers between sub-accounts (including fixed account), net 3,711 2,002 898,429 944,910 1,607 Contract maintenance charges (155) -- (39,630) (42,770) -- ---------- ---------- ----------- ----------- -------- Increase (decrease) in net assets from contract transactions 346,704 172,420 21,827,422 19,343,870 62,114 ---------- ---------- ----------- ----------- -------- Increase (decrease) in net assets 339,016 173,246 21,227,843 18,800,023 55,196 Net assets at beginning of period -- -- -- -- -- ---------- ---------- ----------- ----------- -------- Net assets at end of period $ 339,016 $ 173,246 $21,227,843 $18,800,023 $ 55,196 ========== ========== =========== =========== ======== Beginning units -- -- -- -- -- Units issued 24,878 10,448 1,823,479 1,627,250 6,973 Units redeemed (2,988) (1,324) (15,880) (10,093) (778) ---------- ---------- ----------- ----------- -------- Ending units 21,890 9,124 1,807,599 1,617,157 6,195 ========== ========== =========== =========== ========
-------------------------------------------------------------------------------- 12 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
SAST Equity SAST Foreign SAST Global SAST Growth Opportunities Value SAST Global Equities Opportunities Portfolio Portfolio Bond Portfolio Portfolio Portfolio Class 3 Class 3 Class 3 Class 3 Class 3 ------------- ------------ -------------- ----------- ------------- FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 3,830 $ 4,934 $ 451 $ 11 $ -- Mortality and expense risk and administrative charges (8,402) (3,160) (6,214) (7) (304) -------- -------- -------- ------ ------- Net investment income (loss) (4,572) 1,774 (5,763) 4 (304) Net realized gain (loss) 24 (2,620) 911 -- (69) Capital gain distribution from mutual funds 22,580 5,684 -- -- 2,301 Change in unrealized appreciation (depreciation) of investments 48,094 3,673 (47,986) 56 (1,079) -------- -------- -------- ------ ------- Increase (decrease) in net assets from operations 66,126 8,511 (52,838) 60 849 -------- -------- -------- ------ ------- From contract transactions: Payments received from contract owners 306,511 228,937 549,755 -- -- Payments for contract benefits or terminations (22,490) (4,521) (7,213) -- -- Transfers between sub-accounts (including fixed account), net 75,915 67,476 303,905 1,740 7,049 Contract maintenance charges (386) (277) (1,767) -- -- -------- -------- -------- ------ ------- Increase (decrease) in net assets from contract transactions 359,550 291,615 844,680 1,740 7,049 -------- -------- -------- ------ ------- Increase (decrease) in net assets 425,676 300,126 791,842 1,800 7,898 Net assets at beginning of period 463,457 108,148 146,688 -- 20,723 -------- -------- -------- ------ ------- Net assets at end of period $889,133 $408,274 $938,530 $1,800 $28,621 ======== ======== ======== ====== ======= Beginning units 29,518 10,671 12,116 -- 1,178 Units issued 24,708 31,299 68,181 141 413 Units redeemed (2,638) (1,773) (2,003) -- -- -------- -------- -------- ------ ------- Ending units 51,588 40,197 78,294 141 1,591 ======== ======== ======== ====== ======= FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 1,532 $ 1,541 $ -- $ -- $ -- Mortality and expense risk and administrative charges (1,793) (578) (714) -- (72) -------- -------- -------- ------ ------- Net investment income (loss) (261) 963 (714) -- (72) Net realized gain (loss) (940) (1,652) 120 -- (9) Capital gain distribution from mutual funds 18,150 -- 514 -- 1,634 Change in unrealized appreciation (depreciation) of investments (663) (9,765) (1,055) -- (1,842) -------- -------- -------- ------ ------- Increase (decrease) in net assets from operations 16,286 (10,454) (1,135) -- (289) -------- -------- -------- ------ ------- From contract transactions: Payments received from contract owners 445,225 116,180 145,321 -- 20,158 Payments for contract benefits or terminations (704) (480) (352) -- -- Transfers between sub-accounts (including fixed account), net 2,650 2,902 2,854 -- 854 -------- -------- -------- ------ ------- Increase (decrease) in net assets from contract transactions 447,171 118,602 147,823 -- 21,012 -------- -------- -------- ------ ------- Increase (decrease) in net assets 463,457 108,148 146,688 -- 20,723 Net assets at beginning of period -- -- -- -- -- -------- -------- -------- ------ ------- Net assets at end of period $463,457 $108,148 $146,688 $ -- $20,723 ======== ======== ======== ====== ======= Beginning units -- -- -- -- -- Units issued 30,473 11,704 12,750 -- 1,178 Units redeemed (955) (1,033) (634) -- -- -------- -------- -------- ------ ------- Ending units 29,518 10,671 12,116 -- 1,178 ======== ======== ======== ====== =======
-------------------------------------------------------------------------------- 13 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
SAST SAST SAST International International SAST SA MFS Growth- SAST High- Diversified Growth and Massachusetts Income Yield Bond Equities Income Investors Trust Portfolio Portfolio Portfolio Portfolio Portfolio Class 3 Class 3 Class 3 Class 3 Class 3 ---------- ---------- ------------- ------------- --------------- FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 13,129 $ 16,916 $ 3,302 $ 651 $ 4,615 Mortality and expense risk and administrative charges (8,360) (2,896) (3,343) (270) (8,274) ---------- -------- -------- ------- -------- Net investment income (loss) 4,769 14,020 (41) 381 (3,659) Net realized gain (loss) (1,490) (688) (2,163) (5) (4,816) Capital gain distribution from mutual funds 25,986 -- -- -- 63,540 Change in unrealized appreciation (depreciation) of investments 62,008 11,829 (2,948) 789 (3,919) ---------- -------- -------- ------- -------- Increase (decrease) in net assets from operations 91,273 25,161 (5,152) 1,165 51,146 ---------- -------- -------- ------- -------- From contract transactions: Payments received from contract owners 580,443 164,706 336,993 90,450 490,978 Payments for contract benefits or terminations (11,932) (13,075) (5,127) (272) (10,806) Transfers between sub-accounts (including fixed account), net 129,330 70,004 81,586 575 162,805 Contract maintenance charges (642) (179) (299) -- (576) ---------- -------- -------- ------- -------- Increase (decrease) in net assets from contract transactions 697,199 221,456 413,153 90,753 642,401 ---------- -------- -------- ------- -------- Increase (decrease) in net assets 788,472 246,617 408,001 91,918 693,547 Net assets at beginning of period 277,641 84,312 100,711 -- 287,880 ---------- -------- -------- ------- -------- Net assets at end of period $1,066,113 $330,929 $508,712 $91,918 $981,427 ========== ======== ======== ======= ======== Beginning units 18,540 6,644 9,898 -- 17,316 Units issued 47,204 17,089 43,621 10,710 39,824 Units redeemed (3,364) (1,142) (2,004) (39) (2,149) ---------- -------- -------- ------- -------- Ending units 62,380 22,591 51,515 10,671 54,991 ========== ======== ======== ======= ======== FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 3,116 $ 2,949 $ 1,308 $ -- $ 1,226 Mortality and expense risk and administrative charges (1,422) (416) (531) -- (1,476) ---------- -------- -------- ------- -------- Net investment income (loss) 1,694 2,533 777 -- (250) Net realized gain (loss) (2,227) (829) (1,230) -- (2,159) Capital gain distribution from mutual funds 7,631 -- -- -- 9,783 Change in unrealized appreciation (depreciation) of investments (11,252) (6,916) (6,120) -- (13,792) ---------- -------- -------- ------- -------- Increase (decrease) in net assets from operations (4,154) (5,212) (6,573) -- (6,418) ---------- -------- -------- ------- -------- From contract transactions: Payments received from contract owners 278,162 87,925 105,657 -- 290,104 Payments for contract benefits or terminations (1,218) (333) (495) -- (1,214) Transfers between sub-accounts (including fixed account), net 4,851 1,932 2,122 -- 5,408 ---------- -------- -------- ------- -------- Increase (decrease) in net assets from contract transactions 281,795 89,524 107,284 -- 294,298 ---------- -------- -------- ------- -------- Increase (decrease) in net assets 277,641 84,312 100,711 -- 287,880 Net assets at beginning of period -- -- -- -- -- ---------- -------- -------- ------- -------- Net assets at end of period $ 277,641 $ 84,312 $100,711 $ -- $287,880 ========== ======== ======== ======= ======== Beginning units -- -- -- -- -- Units issued 20,272 7,668 10,949 -- 18,853 Units redeemed (1,732) (1,024) (1,051) -- (1,537) ---------- -------- -------- ------- -------- Ending units 18,540 6,644 9,898 -- 17,316 ========== ======== ======== ======= ========
-------------------------------------------------------------------------------- 14 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
SAST SA SAST SA Janus SAST SA MFS Total SAST Mid- SAST Real Focused JPMorgan Return Bond Cap Growth Estate Growth MFS Core Portfolio Portfolio Portfolio Portfolio Bond Portfolio Class 3 Class 3 Class 3 Class 3 Class 3 ----------- ---------- --------- --------- -------------- FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 7,286 $ -- $ 680 $ -- $ 26,400 Mortality and expense risk and administrative charges (3,005) (915) (348) (2,520) (17,068) -------- ------- ------- -------- ---------- Net investment income (loss) 4,281 (915) 332 (2,520) 9,332 Net realized gain (loss) 994 (677) (445) (1,864) (14) Capital gain distribution from mutual funds 20,788 8,353 1,652 20,471 -- Change in unrealized appreciation (depreciation) of investments (16,512) (7,005) (173) (17,472) (40,912) -------- ------- ------- -------- ---------- Increase (decrease) in net assets from operations 9,551 (244) 1,366 (1,385) (31,594) -------- ------- ------- -------- ---------- From contract transactions: Payments received from contract owners 426,260 3,210 32,882 117,673 1,114,386 Payments for contract benefits or terminations (36,618) (739) (336) (2,489) (25,740) Transfers between sub-accounts (including fixed account), net 25,494 11,343 7,763 34,943 429,243 Contract maintenance charges (807) (9) (32) (111) (2,835) -------- ------- ------- -------- ---------- Increase (decrease) in net assets from contract transactions 414,329 13,805 40,277 150,016 1,515,054 -------- ------- ------- -------- ---------- Increase (decrease) in net assets 423,880 13,561 41,643 148,631 1,483,460 Net assets at beginning of period 56,180 54,015 12,294 108,366 584,142 -------- ------- ------- -------- ---------- Net assets at end of period $480,060 $67,576 $53,937 $256,997 $2,067,602 ======== ======= ======= ======== ========== Beginning units 3,990 2,747 1,039 6,677 43,211 Units issued 29,968 839 3,685 10,131 110,992 Units redeemed (4,664) (105) (452) (525) (3,629) -------- ------- ------- -------- ---------- Ending units 29,294 3,481 4,272 16,283 150,574 ======== ======= ======= ======== ========== FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 224 $ -- $ 96 $ -- $ 4,480 Mortality and expense risk and administrative charges (104) (366) (43) (555) (2,771) -------- ------- ------- -------- ---------- Net investment income (loss) 120 (366) 53 (555) 1,709 Net realized gain (loss) (9) (855) (9) (1,001) (332) Capital gain distribution from mutual funds -- 4,046 594 3,563 11,406 Change in unrealized appreciation (depreciation) of investments (223) (6,780) (441) (4,629) (18,649) -------- ------- ------- -------- ---------- Increase (decrease) in net assets from operations (112) (3,955) 197 (2,622) (5,866) -------- ------- ------- -------- ---------- From contract transactions: Payments received from contract owners 32,416 53,910 10,192 109,391 585,888 Payments for contract benefits or terminations -- -- -- (519) (1,751) Transfers between sub-accounts (including fixed account), net 23,876 4,060 1,905 2,116 6,025 Contract maintenance charges -- -- -- -- (154) -------- ------- ------- -------- ---------- Increase (decrease) in net assets from contract transactions 56,292 57,970 12,097 110,988 590,008 -------- ------- ------- -------- ---------- Increase (decrease) in net assets 56,180 54,015 12,294 108,366 584,142 Net assets at beginning of period -- -- -- -- -- -------- ------- ------- -------- ---------- Net assets at end of period $ 56,180 $54,015 $12,294 $108,366 $ 584,142 ======== ======= ======= ======== ========== Beginning units -- -- -- -- -- Units issued 4,034 3,356 1,048 7,354 47,525 Units redeemed (44) (609) (9) (677) (4,314) -------- ------- ------- -------- ---------- Ending units 3,990 2,747 1,039 6,677 43,211 ======== ======= ======= ======== ==========
-------------------------------------------------------------------------------- 15 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
SAST SA SAST SAST SA T. Legg Mason Schroder's SAST Small & SAST Small Rowe Price BW Large VCP Global Mid Cap Company VCP Cap Value Allocation Value Value Balanced Portfolio Portfolio Portfolio Portfolio Portfolio Class 3 Class 3 Class 3 Class 3 Class 3 ---------- ---------- ------------ ---------- ---------- FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 2,871 $ -- $ 353 $ 795 $ 31,618 Mortality and expense risk and administrative charges (5,184) (24,986) (3,055) (2,076) (44,251) -------- ---------- -------- -------- ---------- Net investment income (loss) (2,313) (24,986) (2,702) (1,281) (12,633) Net realized gain (loss) (13,116) 739 (2,416) (384) 396 Capital gain distribution from mutual funds 117,156 77,170 13,477 19,493 -- Change in unrealized appreciation (depreciation) of investments (39,993) 32,590 47,347 24,832 89,882 -------- ---------- -------- -------- ---------- Increase (decrease) in net assets from operations 61,734 85,513 55,706 42,660 77,645 -------- ---------- -------- -------- ---------- From contract transactions: Payments received from contract owners 327,194 4,729,157 180,861 129,597 8,080,205 Payments for contract benefits or terminations (6,417) (17,087) (4,973) (4,238) (27,360) Transfers between sub-accounts (including fixed account), net 84,999 1,222,742 34,332 11,388 1,321,767 Contract maintenance charges (389) (16,626) (126) (134) (29,194) -------- ---------- -------- -------- ---------- Increase (decrease) in net assets from contract transactions 405,387 5,918,186 210,094 136,613 9,345,418 -------- ---------- -------- -------- ---------- Increase (decrease) in net assets 467,121 6,003,699 265,800 179,273 9,423,063 Net assets at beginning of period 169,776 -- 76,754 78,711 -- -------- ---------- -------- -------- ---------- Net assets at end of period $636,897 $6,003,699 $342,554 $257,984 $9,423,063 ======== ========== ======== ======== ========== Beginning units 11,953 -- 4,448 5,641 -- Units issued 29,876 561,661 12,823 9,664 897,617 Units redeemed (2,212) (7,977) (1,181) (995) (7,587) -------- ---------- -------- -------- ---------- Ending units 39,617 553,684 16,090 14,310 890,030 ======== ========== ======== ======== ========== FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 280 $ -- $ 176 $ 38 $ -- Mortality and expense risk and administrative charges (862) -- (415) (402) -- -------- ---------- -------- -------- ---------- Net investment income (loss) (582) -- (239) (364) -- Net realized gain (loss) (2,153) -- (2,219) (968) -- Capital gain distribution from mutual funds 18,313 -- 8,062 4,764 -- Change in unrealized appreciation (depreciation) of investments (19,868) -- (11,446) (7,315) -- -------- ---------- -------- -------- ---------- Increase (decrease) in net assets from operations (4,290) -- (5,842) (3,883) -- -------- ---------- -------- -------- ---------- From contract transactions: Payments received from contract owners 171,567 -- 81,095 79,255 -- Payments for contract benefits or terminations (695) -- (331) (329) -- Transfers between sub-accounts (including fixed account), net 3,194 -- 1,832 3,668 -- -------- ---------- -------- -------- ---------- Increase (decrease) in net assets from contract transactions 174,066 -- 82,596 82,594 -- -------- ---------- -------- -------- ---------- Increase (decrease) in net assets 169,776 -- 76,754 78,711 -- Net assets at beginning of period -- -- -- -- -- -------- ---------- -------- -------- ---------- Net assets at end of period $169,776 $ -- $ 76,754 $ 78,711 $ -- ======== ========== ======== ======== ========== Beginning units -- -- -- -- -- Units issued 12,975 -- 5,565 6,144 -- Units redeemed (1,022) -- (1,117) (503) -- -------- ---------- -------- -------- ---------- Ending units 11,953 -- 4,448 5,641 -- ======== ========== ======== ======== ==========
-------------------------------------------------------------------------------- 16 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
SAST VCP Managed SAST Asset SAST VCP SAST Telecom SAST Ultra Allocation Total Return Technology Utility Short Bond SAST Balanced Portfolio Portfolio Portfolio Portfolio Portfolio Class 3 Class 3 Class 3 Class 3 Class 3 ---------- --------- ----------- ----------- ------------ FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ -- $ 905 $ -- $ 97,612 $ -- Mortality and expense risk and administrative charges (713) (327) (4,195) (151,432) (109,576) ------- ------- ----------- ----------- ----------- Net investment income (loss) (713) 578 (4,195) (53,820) (109,576) Net realized gain (loss) 977 31 (525) 6,727 899 Capital gain distribution from mutual funds -- 700 -- 137,530 -- Change in unrealized appreciation (depreciation) of investments 10,829 (1,047) (457) 633,700 582,989 ------- ------- ----------- ----------- ----------- Increase (decrease) in net assets from operations 11,093 262 (5,177) 724,137 474,312 ------- ------- ----------- ----------- ----------- From contract transactions: Payments received from contract owners 1,487 4,888 1,918,128 11,775,833 8,462,738 Payments for contract benefits or terminations (181) (151) (1,171) (269,920) (171,867) Transfers between sub-accounts (including fixed account), net 26,441 33,289 (1,752,732) 2,991,166 2,045,913 Contract maintenance charges (16) -- (1,139) (113,024) (88,569) ------- ------- ----------- ----------- ----------- Increase (decrease) in net assets from contract transactions 27,731 38,026 163,086 14,384,055 10,248,215 ------- ------- ----------- ----------- ----------- Increase (decrease) in net assets 38,824 38,288 157,909 15,108,192 10,722,527 Net assets at beginning of period 27,645 1,580 51,222 5,105,813 3,718,549 ------- ------- ----------- ----------- ----------- Net assets at end of period $66,469 $39,868 $ 209,131 $20,214,005 $14,441,076 ======= ======= =========== =========== =========== Beginning units 1,568 103 5,360 434,059 344,855 Units issued 2,155 2,320 229,122 1,258,684 964,984 Units redeemed (440) (90) (212,285) (66,913) (38,887) ------- ------- ----------- ----------- ----------- Ending units 3,283 2,333 22,197 1,625,830 1,270,952 ======= ======= =========== =========== =========== FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Mortality and expense risk and administrative charges (37) (1) (320) (19,195) (13,385) ------- ------- ----------- ----------- ----------- Net investment income (loss) (37) (1) (320) (19,195) (13,385) Net realized gain (loss) (452) -- (1) (2,229) (397) Capital gain distribution from mutual funds -- -- -- -- 502 Change in unrealized appreciation (depreciation) of investments (35) 81 (91) (12,201) (73,464) ------- ------- ----------- ----------- ----------- Increase (decrease) in net assets from operations (524) 80 (412) (33,625) (86,744) ------- ------- ----------- ----------- ----------- From contract transactions: Payments received from contract owners 26,534 1,500 52,752 4,679,045 3,602,749 Payments for contract benefits or terminations -- -- -- (24,453) (14,585) Transfers between sub-accounts (including fixed account), net 1,635 -- (963) 494,649 225,023 Contract maintenance charges -- -- (155) (9,803) (7,894) ------- ------- ----------- ----------- ----------- Increase (decrease) in net assets from contract transactions 28,169 1,500 51,634 5,139,438 3,805,293 ------- ------- ----------- ----------- ----------- Increase (decrease) in net assets 27,645 1,580 51,222 5,105,813 3,718,549 Net assets at beginning of period -- -- -- -- -- ------- ------- ----------- ----------- ----------- Net assets at end of period $27,645 $ 1,580 $ 51,222 $ 5,105,813 $ 3,718,549 ======= ======= =========== =========== =========== Beginning units -- -- -- -- -- Units issued 1,973 103 5,526 442,091 347,450 Units redeemed (405) -- (166) (8,032) (2,595) ------- ------- ----------- ----------- ----------- Ending units 1,568 103 5,360 434,059 344,855 ======= ======= =========== =========== ===========
-------------------------------------------------------------------------------- 17 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
SAST VCP T. Rowe Price T. Rowe Price T. Rowe Price T. Rowe Price Value Retirement Retirement Retirement Retirement Portfolio 2015 Advisor 2020 Advisor 2025 Advisor 2030 Advisor Class 3 Class Class Class Class ---------- ------------- ------------- ------------- ------------- FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 47,389 $ 91,061 $ 202,064 $ 139,028 $ 136,487 Mortality and expense risk and administrative charges (91,375) (34,286) (92,931) (73,703) (68,818) ---------- ----------- ----------- ----------- ----------- Net investment income (loss) (43,986) 56,775 109,133 65,325 67,669 Net realized gain (loss) 750 (14,242) (113,836) (65,732) (94,147) Capital gain distribution from mutual funds 831 87,267 227,322 195,903 264,169 Change in unrealized appreciation (depreciation) of investments 827,923 79,976 326,666 297,025 227,443 ---------- ----------- ----------- ----------- ----------- Increase (decrease) in net assets from operations 785,518 209,776 549,285 492,521 465,134 ---------- ----------- ----------- ----------- ----------- From contract transactions: Payments received from contract owners 3,467,804 4,878,433 4,449,020 4,041,947 3,848,058 Payments for contract benefits or terminations (191,510) (768,534) (780,408) (149,980) (814,910) Transfers between sub-accounts (including fixed account), net 1,484,899 (389,842) 2,644,487 938,942 1,946,656 Contract maintenance charges (80,526) (747) (4,357) (1,400) (1,691) ---------- ----------- ----------- ----------- ----------- Increase (decrease) in net assets from contract transactions 4,680,667 3,719,310 6,308,742 4,829,509 4,978,113 ---------- ----------- ----------- ----------- ----------- Increase (decrease) in net assets 5,466,185 3,929,086 6,858,027 5,322,030 5,443,247 Net assets at beginning of period 4,413,177 1,985,993 6,686,524 4,910,708 4,933,109 ---------- ----------- ----------- ----------- ----------- Net assets at end of period $9,879,362 $ 5,915,079 $13,544,551 $10,232,738 $10,376,356 ========== =========== =========== =========== =========== Beginning units 388,539 2,030,235 6,826,146 5,003,166 5,022,682 Units issued 485,164 5,627,580 7,694,727 6,076,538 6,081,592 Units redeemed (71,473) (1,953,492) (1,488,824) (1,263,026) (1,175,750) ---------- ----------- ----------- ----------- ----------- Ending units 802,230 5,704,323 13,032,049 9,816,678 9,928,524 ========== =========== =========== =========== =========== FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 5,094 $ 30,892 $ 103,600 $ 67,436 $ 65,071 Mortality and expense risk and administrative charges (17,001) (11,444) (27,474) (17,756) (20,229) ---------- ----------- ----------- ----------- ----------- Net investment income (loss) (11,907) 19,448 76,126 49,680 44,842 Net realized gain (loss) (2,747) (30,489) (7,079) (4,514) 3,536 Capital gain distribution from mutual funds -- 54,061 186,157 136,339 172,123 Change in unrealized appreciation (depreciation) of investments (89,042) (106,236) (420,847) (288,777) (355,085) ---------- ----------- ----------- ----------- ----------- Increase (decrease) in net assets from operations (103,696) (63,216) (165,643) (107,272) (134,584) ---------- ----------- ----------- ----------- ----------- From contract transactions: Payments received from contract owners 4,328,497 3,739,061 4,125,765 3,161,068 3,260,743 Payments for contract benefits or terminations (30,188) (766,385) (97,793) (10,409) 19,760 Transfers between sub-accounts (including fixed account), net 230,554 (923,382) 2,825,392 1,867,702 1,787,550 Contract maintenance charges (11,990) (85) (1,197) (381) (360) ---------- ----------- ----------- ----------- ----------- Increase (decrease) in net assets from contract transactions 4,516,873 2,049,209 6,852,167 5,017,980 5,067,693 ---------- ----------- ----------- ----------- ----------- Increase (decrease) in net assets 4,413,177 1,985,993 6,686,524 4,910,708 4,933,109 Net assets at beginning of period -- -- -- -- -- ---------- ----------- ----------- ----------- ----------- Net assets at end of period $4,413,177 $ 1,985,993 $ 6,686,524 $ 4,910,708 $ 4,933,109 ========== =========== =========== =========== =========== Beginning units -- -- -- -- -- Units issued 398,590 4,103,978 7,209,556 5,407,376 5,132,210 Units redeemed (10,051) (2,073,743) (383,410) (404,210) (109,528) ---------- ----------- ----------- ----------- ----------- Ending units 388,539 2,030,235 6,826,146 5,003,166 5,022,682 ========== =========== =========== =========== ===========
-------------------------------------------------------------------------------- 18 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
T. Rowe Price T. Rowe Price T. Rowe Price T. Rowe Price T. Rowe Price Retirement Retirement Retirement Retirement Retirement 2035 Advisor 2040 Advisor 2045 Advisor 2050 Advisor 2055 Advisor Class Class Class Class Class ------------- ------------- ------------- ------------- ------------- FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 94,776 $ 81,519 $ 46,894 $ 30,821 $ 12,463 Mortality and expense risk and administrative charges (53,392) (56,429) (30,284) (17,981) (7,878) ---------- ----------- ---------- ---------- ---------- Net investment income (loss) 41,384 25,090 16,610 12,840 4,585 Net realized gain (loss) (19,322) (106,632) (62,289) (21,263) (16,519) Capital gain distribution from mutual funds 222,724 244,557 137,924 89,160 30,712 Change in unrealized appreciation (depreciation) of investments 160,219 291,816 144,256 57,708 41,082 ---------- ----------- ---------- ---------- ---------- Increase (decrease) in net assets from operations 405,005 454,831 236,501 138,445 59,860 ---------- ----------- ---------- ---------- ---------- From contract transactions: Payments received from contract owners 3,400,508 4,027,781 2,414,513 1,867,126 706,486 Payments for contract benefits or terminations (343,225) (196,016) (116,256) (225,267) (98,174) Transfers between sub-accounts (including fixed account), net 1,434,748 (171,716) 56,770 226,067 (8,273) Contract maintenance charges (1,520) (1,235) (1,521) (1,089) (1,253) ---------- ----------- ---------- ---------- ---------- Increase (decrease) in net assets from contract transactions 4,490,511 3,658,814 2,353,506 1,866,837 598,786 ---------- ----------- ---------- ---------- ---------- Increase (decrease) in net assets 4,895,516 4,113,645 2,590,007 2,005,282 658,646 Net assets at beginning of period 3,208,718 3,533,166 1,929,081 1,060,101 535,675 ---------- ----------- ---------- ---------- ---------- Net assets at end of period $8,104,234 $ 7,646,811 $4,519,088 $3,065,383 $1,194,321 ========== =========== ========== ========== ========== Beginning units 3,261,843 3,590,937 1,960,919 1,077,585 544,450 Units issued 4,790,564 5,189,027 3,211,409 2,053,710 876,560 Units redeemed (303,966) (1,469,260) (856,145) (203,820) (280,054) ---------- ----------- ---------- ---------- ---------- Ending units 7,748,441 7,310,704 4,316,183 2,927,475 1,140,956 ========== =========== ========== ========== ========== FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 36,840 $ 39,127 $ 19,097 $ 11,496 $ 5,670 Mortality and expense risk and administrative charges (12,378) (11,901) (6,739) (4,651) (2,464) ---------- ----------- ---------- ---------- ---------- Net investment income (loss) 24,462 27,226 12,358 6,845 3,206 Net realized gain (loss) 2,461 3,223 (15,091) (13,284) (624) Capital gain distribution from mutual funds 117,889 150,713 72,455 38,702 16,820 Change in unrealized appreciation (depreciation) of investments (231,031) (239,055) (119,514) (78,164) (32,991) ---------- ----------- ---------- ---------- ---------- Increase (decrease) in net assets from operations (86,219) (57,893) (49,792) (45,901) (13,589) ---------- ----------- ---------- ---------- ---------- From contract transactions: Payments received from contract owners 1,920,812 2,428,361 1,515,654 1,034,213 287,897 Payments for contract benefits or terminations 10,803 (52,775) 5,791 (84,647) (4,052) Transfers between sub-accounts (including fixed account), net 1,363,638 1,215,661 457,703 156,749 265,982 Contract maintenance charges (316) (188) (275) (313) (563) ---------- ----------- ---------- ---------- ---------- Increase (decrease) in net assets from contract transactions 3,294,937 3,591,059 1,978,873 1,106,002 549,264 ---------- ----------- ---------- ---------- ---------- Increase (decrease) in net assets 3,208,718 3,533,166 1,929,081 1,060,101 535,675 Net assets at beginning of period -- -- -- -- -- ---------- ----------- ---------- ---------- ---------- Net assets at end of period $3,208,718 $ 3,533,166 $1,929,081 $1,060,101 $ 535,675 ========== =========== ========== ========== ========== Beginning units -- -- -- -- -- Units issued 3,369,457 3,838,073 2,256,103 1,316,372 571,863 Units redeemed (107,614) (247,136) (295,184) (238,787) (27,413) ---------- ----------- ---------- ---------- ---------- Ending units 3,261,843 3,590,937 1,960,919 1,077,585 544,450 ========== =========== ========== ========== ==========
-------------------------------------------------------------------------------- 19 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Vanguard Vanguard Vanguard T. Rowe Price LifeStrategy Vanguard LifeStrategy Long-Term Retirement Conservative LifeStrategy Moderate Investment- 2060 Advisor Growth Fund Growth Fund Growth Fund Grade Fund Class Inv Shares Inv Shares Inv Shares Inv Shares ------------- ------------ ------------ ------------ ------------ FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 7,163 $ 1,896,558 $ 4,781,102 $ 4,991,283 $ 12,914,456 Mortality and expense risk and administrative charges (5,454) (1,033,345) (2,539,934) (2,707,328) (3,809,168) Reimbursements of expenses -- -- -- -- 780,645 --------- ----------- ------------ ------------ ------------ Net investment income (loss) 1,709 863,213 2,241,168 2,283,955 9,885,933 Net realized gain (loss) 1,166 1,520,607 6,849,433 7,836,112 (4,165,666) Capital gain distribution from mutual funds 11,461 182,621 25,424 97,237 5,131,145 Change in unrealized appreciation (depreciation) of investments 27,281 1,246,126 5,254,904 2,406,235 2,559,513 --------- ----------- ------------ ------------ ------------ Increase (decrease) in net assets from operations 41,617 3,812,567 14,370,929 12,623,539 13,410,925 --------- ----------- ------------ ------------ ------------ From contract transactions: Payments received from contract owners 410,418 10,410,562 20,101,589 23,609,349 17,557,851 Payments for contract benefits or terminations (53,058) (8,168,448) (15,220,615) (21,159,492) (30,186,391) Transfers between sub-accounts (including fixed account), net (93,171) (1,860,492) (6,272,934) (9,771,243) 59,161,906 Contract maintenance charges (1,510) (52,173) (133,881) (178,206) (414,398) Adjustments to net assets allocated to contracts in payout period -- 244 (2,990) (55) (19) --------- ----------- ------------ ------------ ------------ Increase (decrease) in net assets from contract transactions 262,679 329,693 (1,528,831) (7,499,647) 46,118,949 --------- ----------- ------------ ------------ ------------ Increase (decrease) in net assets 304,296 4,142,260 12,842,098 5,123,892 59,529,874 Net assets at beginning of period 438,354 82,922,231 205,501,987 221,140,490 233,832,782 --------- ----------- ------------ ------------ ------------ Net assets at end of period $ 742,650 $87,064,491 $218,344,085 $226,264,382 $293,362,656 ========= =========== ============ ============ ============ Beginning units 445,270 42,527,347 97,409,481 106,333,540 73,061,910 Units issued 552,555 5,730,461 6,143,125 6,126,071 33,665,923 Units redeemed (288,856) (5,589,911) (6,849,738) (9,687,226) (20,966,987) --------- ----------- ------------ ------------ ------------ Ending units 708,969 42,667,897 96,702,868 102,772,385 85,760,846 ========= =========== ============ ============ ============ FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 4,039 $ 1,805,443 $ 4,401,309 $ 4,744,710 $ 13,057,629 Mortality and expense risk and administrative charges (1,385) (1,045,564) (2,613,577) (2,797,553) (3,709,133) Reimbursements of expenses -- -- -- -- 758,098 --------- ----------- ------------ ------------ ------------ Net investment income (loss) 2,654 759,879 1,787,732 1,947,157 10,106,594 Net realized gain (loss) (22,310) 2,275,524 7,896,883 7,622,301 3,306,216 Capital gain distribution from mutual funds 2,693 833,106 4,651,085 3,657,097 4,683,747 Change in unrealized appreciation (depreciation) of investments (2,765) (5,087,430) (19,317,371) (17,332,440) (29,209,634) --------- ----------- ------------ ------------ ------------ Increase (decrease) in net assets from operations (19,728) (1,218,921) (4,981,671) (4,105,885) (11,113,077) --------- ----------- ------------ ------------ ------------ From contract transactions: Payments received from contract owners 148,073 10,538,829 20,410,319 29,327,829 20,306,868 Payments for contract benefits or terminations (9,168) (9,738,254) (17,485,030) (23,027,032) (27,162,534) Transfers between sub-accounts (including fixed account), net 319,320 (1,109,121) (6,414,360) (5,491,681) (77,293,063) Contract maintenance charges (143) (52,256) (139,818) (176,188) (419,696) Adjustments to net assets allocated to contracts in payout period -- 504 (2,951) 35 (29,422) --------- ----------- ------------ ------------ ------------ Increase (decrease) in net assets from contract transactions 458,082 (360,298) (3,631,840) 632,963 (84,597,847) --------- ----------- ------------ ------------ ------------ Increase (decrease) in net assets 438,354 (1,579,219) (8,613,511) (3,472,922) (95,710,924) Net assets at beginning of period -- 84,501,450 214,115,498 224,613,412 329,543,706 --------- ----------- ------------ ------------ ------------ Net assets at end of period $ 438,354 $82,922,231 $205,501,987 $221,140,490 $233,832,782 ========= =========== ============ ============ ============ Beginning units -- 42,734,912 99,085,412 106,092,172 100,256,578 Units issued 770,048 5,595,048 6,001,114 9,395,277 8,431,260 Units redeemed (324,778) (5,802,613) (7,677,045) (9,153,909) (35,625,928) --------- ----------- ------------ ------------ ------------ Ending units 445,270 42,527,347 97,409,481 106,333,540 73,061,910 ========= =========== ============ ============ ============
-------------------------------------------------------------------------------- 20 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Vanguard VALIC Long-Term Vanguard Vanguard Company I VALIC Treasury Wellington Windsor II Asset Company I Fund Inv Fund Inv Fund Inv Allocation Blue Chip Shares Shares Shares Fund Growth Fund ------------ -------------- -------------- ------------ ------------ FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 6,634,970 $ 45,972,661 $ 40,412,716 $ 3,308,717 $ -- Mortality and expense risk and administrative charges (3,132,051) (20,899,349) (19,390,711) (1,558,377) (5,416,466) Reimbursements of expenses 650,377 -- -- -- -- ------------ -------------- -------------- ------------ ------------ Net investment income (loss) 4,153,296 25,073,312 21,022,005 1,750,340 (5,416,466) Net realized gain (loss) 606,522 48,280,237 82,496,949 1,848,215 31,952,184 Capital gain distribution from mutual funds 5,704,409 33,459,053 88,851,675 18,228,811 70,896,864 Change in unrealized appreciation (depreciation) of investments (11,913,278) 56,490,570 (4,897,236) (12,137,467) (98,771,042) ------------ -------------- -------------- ------------ ------------ Increase (decrease) in net assets from operations (1,449,051) 163,303,172 187,473,393 9,689,899 (1,338,460) ------------ -------------- -------------- ------------ ------------ From contract transactions: Payments received from contract owners 12,808,386 121,598,886 67,209,026 9,026,159 44,192,485 Payments for contract benefits or terminations (24,382,503) (157,642,452) (140,125,919) (13,446,645) (50,870,268) Transfers between sub-accounts (including fixed account), net 20,090,111 (44,817,219) (75,892,347) (9,485,241) (28,927,600) Contract maintenance charges (236,576) (1,014,837) (861,335) (139,716) (722,932) Adjustments to net assets allocated to contracts in payout period 845 (2,317,052) (22,982) 4,381 (944) ------------ -------------- -------------- ------------ ------------ Increase (decrease) in net assets from contract transactions 8,280,263 (84,192,674) (149,693,557) (14,041,062) (36,329,259) ------------ -------------- -------------- ------------ ------------ Increase (decrease) in net assets 6,831,212 79,110,498 37,779,836 (4,351,163) (37,667,719) Net assets at beginning of period 234,777,345 1,739,836,354 1,656,936,168 164,771,108 594,477,478 ------------ -------------- -------------- ------------ ------------ Net assets at end of period $241,608,557 $1,818,946,852 $1,694,716,004 $160,419,945 $556,809,759 ============ ============== ============== ============ ============ Beginning units 71,630,465 458,029,060 471,076,938 22,848,552 315,722,066 Units issued 10,842,826 14,441,455 2,740,349 943,591 12,722,175 Units redeemed (8,886,405) (32,949,863) (42,621,502) (2,921,161) (31,462,837) ------------ -------------- -------------- ------------ ------------ Ending units 73,586,886 439,520,652 431,195,785 20,870,982 296,981,404 ============ ============== ============== ============ ============ FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 6,950,830 $ 46,048,453 $ 38,215,220 $ 3,608,630 $ -- Mortality and expense risk and administrative charges (3,031,373) (21,545,552) (21,281,080) (1,696,832) (5,567,851) Reimbursements of expenses 629,358 -- -- -- -- ------------ -------------- -------------- ------------ ------------ Net investment income (loss) 4,548,815 24,502,901 16,934,140 1,911,798 (5,567,851) Net realized gain (loss) 2,539,932 46,661,295 76,541,969 3,811,329 25,697,399 Capital gain distribution from mutual funds 6,161,628 62,926,768 86,651,691 10,527,957 51,262,709 Change in unrealized appreciation (depreciation) of investments (19,530,896) (154,742,332) (256,859,923) (18,499,201) (17,800,225) ------------ -------------- -------------- ------------ ------------ Increase (decrease) in net assets from operations (6,280,521) (20,651,368) (76,732,123) (2,248,117) 53,592,032 ------------ -------------- -------------- ------------ ------------ From contract transactions: Payments received from contract owners 11,709,401 116,290,256 76,894,652 12,665,432 43,130,877 Payments for contract benefits or terminations (23,903,099) (173,708,607) (165,062,484) (13,438,695) (50,697,348) Transfers between sub-accounts (including fixed account), net (11,273,176) (10,872,018) (23,047,553) (7,440,118) 6,607,687 Contract maintenance charges (234,888) (1,048,738) (894,323) (140,358) (743,429) Adjustments to net assets allocated to contracts in payout period 3,182 (325,033) (4,702) (2,979) (848) ------------ -------------- -------------- ------------ ------------ Increase (decrease) in net assets from contract transactions (23,698,580) (69,664,140) (112,114,410) (8,356,718) (1,703,061) ------------ -------------- -------------- ------------ ------------ Increase (decrease) in net assets (29,979,101) (90,315,508) (188,846,533) (10,604,835) 51,888,971 Net assets at beginning of period 264,756,446 1,830,151,862 1,845,782,701 175,375,943 542,588,507 ------------ -------------- -------------- ------------ ------------ Net assets at end of period $234,777,345 $1,739,836,354 $1,656,936,168 $164,771,108 $594,477,478 ============ ============== ============== ============ ============ Beginning units 79,135,119 475,391,229 501,441,264 23,983,803 316,697,102 Units issued 4,684,223 11,895,612 6,586,292 1,375,538 20,745,433 Units redeemed (12,188,877) (29,257,781) (36,950,618) (2,510,789) (21,720,469) ------------ -------------- -------------- ------------ ------------ Ending units 71,630,465 458,029,060 471,076,938 22,848,552 315,722,066 ============ ============== ============== ============ ============
-------------------------------------------------------------------------------- 21 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
VALIC VALIC VALIC Company I VALIC VALIC Company I Company I Capital Company I Company I Dynamic Broad Cap Conservation Core Equity Dividend Allocation Value Fund Fund Fund Value Fund Fund ----------- ------------ ------------ ------------- ------------ FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 643,372 $ 3,157,000 $ 2,547,519 $ 12,695,605 $ 4,911,915 Mortality and expense risk and administrative charges (451,686) (1,496,247) (2,178,511) (5,684,704) (2,555,465) ----------- ------------ ------------ ------------- ------------ Net investment income (loss) 191,686 1,660,753 369,008 7,010,901 2,356,450 Net realized gain (loss) 2,753,569 1,151,069 14,918,867 17,892,872 525,787 Capital gain distribution from mutual funds 2,947,537 341,952 -- 57,332,811 9,740,651 Change in unrealized appreciation (depreciation) of investments (303,940) (388,156) 9,735,334 2,808,750 (3,526,008) ----------- ------------ ------------ ------------- ------------ Increase (decrease) in net assets from operations 5,588,852 2,765,618 25,023,209 85,045,334 9,096,880 ----------- ------------ ------------ ------------- ------------ From contract transactions: Payments received from contract owners 2,353,787 9,139,520 4,026,531 34,483,269 4,703,611 Payments for contract benefits or terminations (3,985,319) (17,989,063) (19,222,007) (53,729,321) (14,806,071) Transfers between sub-accounts (including fixed account), net (2,962,666) (12,667,197) (8,881,878) 87,223,496 (5,696,110) Contract maintenance charges (90,875) (122,664) (112,925) (839,938) (2,684,022) Adjustments to net assets allocated to contracts in payout period -- (38,789) (14,448) 7,704 -- ----------- ------------ ------------ ------------- ------------ Increase (decrease) in net assets from contract transactions (4,685,073) (21,678,193) (24,204,727) 67,145,210 (18,482,592) ----------- ------------ ------------ ------------- ------------ Increase (decrease) in net assets 903,779 (18,912,575) 818,482 152,190,544 (9,385,712) Net assets at beginning of period 45,883,915 163,371,798 236,139,646 523,407,251 250,654,035 ----------- ------------ ------------ ------------- ------------ Net assets at end of period $46,787,694 $144,459,223 $236,958,128 $ 675,597,795 $241,268,323 =========== ============ ============ ============= ============ Beginning units 27,164,348 43,743,787 71,810,755 199,846,204 221,754,558 Units issued 2,961,983 5,668,338 266,271 53,269,729 5,021,868 Units redeemed (5,554,505) (10,896,659) (7,505,071) (29,542,628) (21,020,393) ----------- ------------ ------------ ------------- ------------ Ending units 24,571,826 38,515,466 64,571,955 223,573,305 205,756,033 =========== ============ ============ ============= ============ FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 833,847 $ 3,417,885 $ 2,460,948 $ 12,841,824 $ -- Mortality and expense risk and administrative charges (481,004) (1,617,167) (2,462,961) (5,755,065) (2,749,394) ----------- ------------ ------------ ------------- ------------ Net investment income (loss) 352,843 1,800,718 (2,013) 7,086,759 (2,749,394) Net realized gain (loss) 3,990,173 1,231,223 17,333,667 55,452,192 2,291,321 Capital gain distribution from mutual funds 1,544,379 -- -- 39,041,697 -- Change in unrealized appreciation (depreciation) of investments (6,767,955) (4,230,513) (24,146,103) (108,933,557) (14,400,057) ----------- ------------ ------------ ------------- ------------ Increase (decrease) in net assets from operations (880,560) (1,198,572) (6,814,449) (7,352,909) (14,858,130) ----------- ------------ ------------ ------------- ------------ From contract transactions: Payments received from contract owners 3,829,742 8,812,165 4,767,827 41,003,516 12,487,897 Payments for contract benefits or terminations (5,102,350) (19,934,025) (20,477,895) (49,481,995) (12,887,868) Transfers between sub-accounts (including fixed account), net (1,436,793) (1,318,956) (11,795,059) (100,444,662) (1,810,076) Contract maintenance charges (84,091) (126,324) (119,655) (790,969) (2,425,695) Adjustments to net assets allocated to contracts in payout period -- (199,621) 6,746 (3,822) -- ----------- ------------ ------------ ------------- ------------ Increase (decrease) in net assets from contract transactions (2,793,492) (12,766,761) (27,618,036) (109,717,932) (4,635,742) ----------- ------------ ------------ ------------- ------------ Increase (decrease) in net assets (3,674,052) (13,965,333) (34,432,485) (117,070,841) (19,493,872) Net assets at beginning of period 49,557,967 177,337,131 270,572,131 640,478,092 270,147,907 ----------- ------------ ------------ ------------- ------------ Net assets at end of period $45,883,915 $163,371,798 $236,139,646 $ 523,407,251 $250,654,035 =========== ============ ============ ============= ============ Beginning units 28,660,184 47,679,527 79,935,818 240,335,035 225,671,419 Units issued 4,014,916 4,463,047 350,133 10,078,672 13,311,519 Units redeemed (5,510,752) (8,398,787) (8,475,196) (50,567,503) (17,228,380) ----------- ------------ ------------ ------------- ------------ Ending units 27,164,348 43,743,787 71,810,755 199,846,204 221,754,558 =========== ============ ============ ============= ============
-------------------------------------------------------------------------------- 22 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
VALIC VALIC Company I VALIC VALIC Company I VALIC Emerging Company I Company I Global Social Company I Economies Foreign Value Global Real Awareness Global Fund Fund Estate Fund Fund Strategy Fund ------------- ------------- ------------ ------------- ------------- FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 14,494,385 $ 16,425,097 $ 10,847,353 $ 6,947,853 $ 25,857,183 Mortality and expense risk and administrative charges (5,186,374) (7,023,857) (3,444,614) (3,321,856) (3,938,365) ------------- ------------- ------------ ------------ ------------ Net investment income (loss) 9,308,011 9,401,240 7,402,739 3,625,997 21,918,818 Net realized gain (loss) 168,328 27,705,531 681,920 10,438,511 5,703,134 Capital gain distribution from mutual funds -- -- 15,479,413 -- 30,472,900 Change in unrealized appreciation (depreciation) of investments 45,019,663 42,551,854 (18,571,038) 6,844,961 (41,888,658) ------------- ------------- ------------ ------------ ------------ Increase (decrease) in net assets from operations 54,496,002 79,658,625 4,993,034 20,909,469 16,206,194 ------------- ------------- ------------ ------------ ------------ From contract transactions: Payments received from contract owners 37,250,874 38,186,760 24,196,597 16,055,687 18,474,712 Payments for contract benefits or terminations (47,838,510) (68,150,640) (33,122,496) (30,246,945) (35,161,851) Transfers between sub-accounts (including fixed account), net 69,446,740 (30,999,514) (31,859,321) 24,242,319 (39,842,307) Contract maintenance charges (278,849) (617,031) (257,436) (166,184) (392,201) Adjustments to net assets allocated to contracts in payout period (12,693) (1,858) (1,570) (8,856) (3,456) ------------- ------------- ------------ ------------ ------------ Increase (decrease) in net assets from contract transactions 58,567,562 (61,582,283) (41,044,226) 9,876,021 (56,925,103) ------------- ------------- ------------ ------------ ------------ Increase (decrease) in net assets 113,063,564 18,076,342 (36,051,192) 30,785,490 (40,718,909) Net assets at beginning of period 501,780,320 734,683,542 363,703,122 351,899,865 447,174,232 ------------- ------------- ------------ ------------ ------------ Net assets at end of period $ 614,843,884 $ 752,759,884 $327,651,930 $382,685,355 $406,455,323 ============= ============= ============ ============ ============ Beginning units 660,910,371 629,024,693 275,159,684 63,101,430 246,487,329 Units issued 132,952,450 18,877,175 12,977,092 5,971,109 4,136,513 Units redeemed (60,704,929) (66,880,562) (43,424,468) (4,499,303) (35,714,389) ------------- ------------- ------------ ------------ ------------ Ending units 733,157,892 581,021,306 244,712,308 64,573,236 214,909,453 ============= ============= ============ ============ ============ FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 12,933,124 $ 22,917,266 $ 10,408,207 $ 8,156,084 $ 13,495,609 Mortality and expense risk and administrative charges (5,471,298) (8,036,775) (3,934,273) (3,587,908) (4,646,800) ------------- ------------- ------------ ------------ ------------ Net investment income (loss) 7,461,826 14,880,491 6,473,934 4,568,176 8,848,809 Net realized gain (loss) 11,623,317 27,609,717 15,485,855 27,412,862 12,983,423 Capital gain distribution from mutual funds -- -- 10,493,453 -- 15,821,652 Change in unrealized appreciation (depreciation) of investments (107,532,624) (105,274,526) (36,379,545) (34,986,568) (64,880,406) ------------- ------------- ------------ ------------ ------------ Increase (decrease) in net assets from operations (88,447,481) (62,784,318) (3,926,303) (3,005,530) (27,226,522) ------------- ------------- ------------ ------------ ------------ From contract transactions: Payments received from contract owners 41,466,994 44,504,550 33,645,138 16,571,936 23,350,738 Payments for contract benefits or terminations (49,657,320) (80,765,163) (34,628,776) (32,854,555) (47,629,312) Transfers between sub-accounts (including fixed account), net 1,585,027 (8,642,804) (38,362,130) (33,465,644) (7,545,844) Contract maintenance charges (238,120) (648,689) (284,704) (174,060) (417,716) Adjustments to net assets allocated to contracts in payout period (8,051) (1,541) 43 (6,792) (10,690) ------------- ------------- ------------ ------------ ------------ Increase (decrease) in net assets from contract transactions (6,851,470) (45,553,647) (39,630,429) (49,929,115) (32,252,824) ------------- ------------- ------------ ------------ ------------ Increase (decrease) in net assets (95,298,951) (108,337,965) (43,556,732) (52,934,645) (59,479,346) Net assets at beginning of period 597,079,271 843,021,507 407,259,854 404,834,510 506,653,578 ------------- ------------- ------------ ------------ ------------ Net assets at end of period $ 501,780,320 $ 734,683,542 $363,703,122 $351,899,865 $447,174,232 ============= ============= ============ ============ ============ Beginning units 665,527,599 662,436,645 305,179,712 71,601,453 263,440,548 Units issued 71,475,890 23,534,859 19,675,021 1,203,702 5,714,219 Units redeemed (76,093,118) (56,946,811) (49,695,049) (9,703,725) (22,667,438) ------------- ------------- ------------ ------------ ------------ Ending units 660,910,371 629,024,693 275,159,684 63,101,430 246,487,329 ============= ============= ============ ============ ============
-------------------------------------------------------------------------------- 23 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
VALIC VALIC VALIC Company I Company I VALIC Company I Government Government Company I VALIC Health Money Market I Securities Growth & Company I Sciences Fund Fund Income Fund Growth Fund Fund -------------- ------------ ------------ ------------- ------------- FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 32,447 $ 2,578,090 $ 1,313,843 $ 5,868,376 $ -- Mortality and expense risk and administrative charges (3,038,051) (1,046,282) (995,924) (8,454,678) (7,386,083) ------------ ------------ ------------ ------------- ------------- Net investment income (loss) (3,005,604) 1,531,808 317,919 (2,586,302) (7,386,083) Net realized gain (loss) -- 369,128 7,854,623 98,388,109 100,386,666 Capital gain distribution from mutual funds -- -- 4,859,974 145,286,067 113,022,837 Change in unrealized appreciation (depreciation) of investments -- (1,918,748) (3,057,284) (209,033,566) (306,007,197) ------------ ------------ ------------ ------------- ------------- Increase (decrease) in net assets from operations (3,005,604) (17,812) 9,975,232 32,054,308 (99,983,777) ------------ ------------ ------------ ------------- ------------- From contract transactions: Payments received from contract owners 119,109,479 5,180,346 4,721,985 26,302,972 49,118,248 Payments for contract benefits or terminations (39,805,279) (11,315,945) (9,922,396) (72,956,921) (60,307,292) Transfers between sub-accounts (including fixed account), net (73,460,322) 13,386,839 (6,474,668) (90,347,788) (124,867,884) Contract maintenance charges (165,226) (88,384) (139,059) (513,061) (367,428) Adjustments to net assets allocated to contracts in payout period (549) (1,990) (1,647) (3,286) 7,411 ------------ ------------ ------------ ------------- ------------- Increase (decrease) in net assets from contract transactions 5,678,103 7,160,866 (11,815,785) (137,518,084) (136,416,945) ------------ ------------ ------------ ------------- ------------- Increase (decrease) in net assets 2,672,499 7,143,054 (1,840,553) (105,463,776) (236,400,722) Net assets at beginning of period 321,332,426 102,440,812 106,900,848 972,367,632 908,213,668 ------------ ------------ ------------ ------------- ------------- Net assets at end of period $324,004,925 $109,583,866 $105,060,295 $ 866,903,856 $ 671,812,946 ============ ============ ============ ============= ============= Beginning units 161,057,840 28,530,544 30,787,070 563,317,952 198,619,038 Units issued 37,812,727 7,810,264 3,453,424 31,508,431 5,911,683 Units redeemed (34,873,756) (4,929,046) (6,748,967) (110,953,798) (38,755,190) ------------ ------------ ------------ ------------- ------------- Ending units 163,996,811 31,411,762 27,491,527 483,872,585 165,775,531 ============ ============ ============ ============= ============= FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 32,457 $ 2,495,469 $ 1,070,810 $ 5,906,799 $ -- Mortality and expense risk and administrative charges (3,072,531) (1,029,143) (1,071,041) (9,380,538) (8,555,937) ------------ ------------ ------------ ------------- ------------- Net investment income (loss) (3,040,074) 1,466,326 (231) (3,473,739) (8,555,937) Net realized gain (loss) -- 146,970 6,053,796 63,683,389 23,457,831 Capital gain distribution from mutual funds -- -- -- 110,663,368 105,211,129 Change in unrealized appreciation (depreciation) of investments -- (1,723,826) (7,195,457) (150,508,745) (35,909,487) ------------ ------------ ------------ ------------- ------------- Increase (decrease) in net assets from operations (3,040,074) (110,530) (1,141,892) 20,364,273 84,203,536 ------------ ------------ ------------ ------------- ------------- From contract transactions: Payments received from contract owners 119,712,890 5,212,984 5,037,880 35,884,299 68,538,931 Payments for contract benefits or terminations (31,429,244) (11,362,356) (8,694,531) (79,167,781) (64,524,269) Transfers between sub-accounts (including fixed account), net (95,398,338) (8,851,051) (807,713) 19,163,641 79,056,504 Contract maintenance charges (161,685) (77,737) (99,852) (603,362) (424,018) Adjustments to net assets allocated to contracts in payout period (547) (1,134) 6,617 (10,698) 11,792 ------------ ------------ ------------ ------------- ------------- Increase (decrease) in net assets from contract transactions (7,276,924) (15,079,294) (4,557,599) (24,733,901) 82,658,940 ------------ ------------ ------------ ------------- ------------- Increase (decrease) in net assets (10,316,998) (15,189,824) (5,699,491) (4,369,628) 166,862,476 Net assets at beginning of period 331,649,424 117,630,636 112,600,339 976,737,260 741,351,192 ------------ ------------ ------------ ------------- ------------- Net assets at end of period $321,332,426 $102,440,812 $106,900,848 $ 972,367,632 $ 908,213,668 ============ ============ ============ ============= ============= Beginning units 164,765,549 32,589,746 32,066,742 577,668,720 180,846,975 Units issued 36,799,255 4,526,967 4,399,196 46,123,567 25,852,170 Units redeemed (40,506,964) (8,586,169) (5,678,868) (60,474,335) (8,080,107) ------------ ------------ ------------ ------------- ------------- Ending units 161,057,840 28,530,544 30,787,070 563,317,952 198,619,038 ============ ============ ============ ============= =============
-------------------------------------------------------------------------------- 24 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
VALIC VALIC VALIC Company I Company I Company I VALIC VALIC Inflation International International Company I Company I Protected Equities Index Government International Large Cap Fund Fund Bond Fund Growth Fund Core Fund ------------ -------------- ------------- ------------- ------------ FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 5,166,945 $ 23,205,767 $ 4,201,528 $ 5,858,409 $ 5,121,591 Mortality and expense risk and administrative charges (4,214,692) (7,957,766) (1,887,416) (3,745,945) (1,413,058) ------------ ------------ ------------ ------------ ------------ Net investment income (loss) 952,253 15,248,001 2,314,112 2,112,464 3,708,533 Net realized gain (loss) 7,348,001 7,918,777 (3,792,949) 13,717,388 6,599,346 Capital gain distribution from mutual funds 785,489 -- 599,012 32,277,845 26,931,165 Change in unrealized appreciation (depreciation) of investments 3,147,472 (20,992,338) 4,217,334 (63,495,526) (26,447,900) ------------ ------------ ------------ ------------ ------------ Increase (decrease) in net assets from operations 12,233,215 2,174,440 3,337,509 (15,387,829) 10,791,144 ------------ ------------ ------------ ------------ ------------ From contract transactions: Payments received from contract owners 22,295,366 53,755,141 8,711,638 16,255,580 10,264,713 Payments for contract benefits or terminations (46,601,780) (75,446,634) (18,908,567) (32,817,762) (14,155,161) Transfers between sub-accounts (including fixed account), net (11,386,667) 25,817,425 41,552,201 (45,066,954) (18,368,788) Contract maintenance charges (732,255) (840,839) (301,791) (361,258) (179,602) Adjustments to net assets allocated to contracts in payout period (7,358) 1,518 (430) (6,277) (30,317) ------------ ------------ ------------ ------------ ------------ Increase (decrease) in net assets from contract transactions (36,432,694) 3,286,611 31,053,051 (61,996,671) (22,469,155) ------------ ------------ ------------ ------------ ------------ Increase (decrease) in net assets (24,199,479) 5,461,051 34,390,560 (77,384,500) (11,678,011) Net assets at beginning of period 436,497,104 865,679,376 147,455,407 445,479,501 154,650,837 ------------ ------------ ------------ ------------ ------------ Net assets at end of period $412,297,625 $871,140,427 $181,845,967 $368,095,001 $142,972,826 ============ ============ ============ ============ ============ Beginning units 349,403,515 479,975,167 51,940,666 161,609,345 70,024,026 Units issued 28,834,100 49,742,783 20,393,252 5,196,228 3,251,583 Units redeemed (57,205,487) (47,751,337) (10,232,137) (27,959,468) (13,078,636) ------------ ------------ ------------ ------------ ------------ Ending units 321,032,128 481,966,613 62,101,781 138,846,105 60,196,973 ============ ============ ============ ============ ============ FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 8,510,455 $ 31,716,243 $ 4,172,576 $ 7,492,288 $ 1,745,236 Mortality and expense risk and administrative charges (4,278,552) (8,780,241) (1,552,573) (4,566,734) (1,556,976) ------------ ------------ ------------ ------------ ------------ Net investment income (loss) 4,231,903 22,936,002 2,620,003 2,925,554 188,260 Net realized gain (loss) 7,682,766 47,612,545 (4,181,697) 29,125,585 10,498,403 Capital gain distribution from mutual funds 847,131 -- 445,297 3,322,272 24,579,298 Change in unrealized appreciation (depreciation) of investments (30,157,547) (90,424,129) (5,856,702) (39,570,797) (31,615,999) ------------ ------------ ------------ ------------ ------------ Increase (decrease) in net assets from operations (17,395,747) (19,875,582) (6,973,099) (4,197,386) 3,649,962 ------------ ------------ ------------ ------------ ------------ From contract transactions: Payments received from contract owners 25,657,747 61,447,682 7,969,456 21,857,687 10,773,893 Payments for contract benefits or terminations (44,335,736) (80,004,265) (14,793,943) (45,934,255) (14,140,224) Transfers between sub-accounts (including fixed account), net 25,993,890 26,465,184 (9,576,961) (33,779,048) (14,001,347) Contract maintenance charges (768,791) (955,323) (242,240) (401,141) (180,560) Adjustments to net assets allocated to contracts in payout period (7,505) 2,638 (3,674) (8,137) 1,824 ------------ ------------ ------------ ------------ ------------ Increase (decrease) in net assets from contract transactions 6,539,605 6,955,916 (16,647,362) (58,264,894) (17,546,414) ------------ ------------ ------------ ------------ ------------ Increase (decrease) in net assets (10,856,142) (12,919,666) (23,620,461) (62,462,280) (13,896,452) Net assets at beginning of period 447,353,246 878,599,042 171,075,868 507,941,781 168,547,289 ------------ ------------ ------------ ------------ ------------ Net assets at end of period $436,497,104 $865,679,376 $147,455,407 $445,479,501 $154,650,837 ============ ============ ============ ============ ============ Beginning units 343,815,581 477,197,431 57,426,985 181,601,799 77,828,281 Units issued 41,907,919 90,573,796 9,232,637 7,036,998 3,644,755 Units redeemed (36,319,985) (87,796,060) (14,718,956) (27,029,452) (11,449,010) ------------ ------------ ------------ ------------ ------------ Ending units 349,403,515 479,975,167 51,940,666 161,609,345 70,024,026 ============ ============ ============ ============ ============
-------------------------------------------------------------------------------- 25 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
VALIC VALIC VALIC VALIC Company I VALIC Company I Company I Company I Mid Mid Cap Company I Science & Large Capital Cap Index Strategic Nasdaq-100 Technology Growth Fund Fund Growth Fund Index Fund Fund ------------- -------------- ------------ ------------ ------------- FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 3,321,314 $ 35,969,923 $ -- $ 1,919,367 $ -- Mortality and expense risk and administrative charges (3,575,884) (27,421,775) (2,178,496) (2,770,576) (8,498,681) ------------ -------------- ------------ ------------ ------------- Net investment income (loss) (254,570) 8,548,148 (2,178,496) (851,209) (8,498,681) Net realized gain (loss) 13,159,704 134,123,857 11,547,605 18,521,561 54,351,724 Capital gain distribution from mutual funds 17,162,984 274,465,538 31,887,211 11,796,784 161,411,132 Change in unrealized appreciation (depreciation) of investments (11,072,287) 102,074,943 (22,227,055) (12,881,535) (151,944,762) ------------ -------------- ------------ ------------ ------------- Increase (decrease) in net assets from operations 18,995,831 519,212,486 19,029,265 16,585,601 55,319,413 ------------ -------------- ------------ ------------ ------------- From contract transactions: Payments received from contract owners 10,987,872 124,288,766 7,273,727 24,318,566 25,205,960 Payments for contract benefits or terminations (30,405,079) (239,138,917) (19,297,600) (22,457,282) (67,493,444) Transfers between sub-accounts (including fixed account), net (11,695,433) (41,571,805) (12,964,899) (8,228,875) (27,229,319) Contract maintenance charges (187,432) (2,109,601) (100,009) (135,553) (320,457) Adjustments to net assets allocated to contracts in payout period (21,006) (48,064) (1,145) 607 (14,754) ------------ -------------- ------------ ------------ ------------- Increase (decrease) in net assets from contract transactions (31,321,078) (158,579,621) (25,089,926) (6,502,537) (69,852,014) ------------ -------------- ------------ ------------ ------------- Increase (decrease) in net assets (12,325,247) 360,632,865 (6,060,661) 10,083,064 (14,532,601) Net assets at beginning of period 380,367,232 2,837,815,823 236,154,244 288,931,614 934,907,487 ------------ -------------- ------------ ------------ ------------- Net assets at end of period $368,041,985 $3,198,448,688 $230,093,583 $299,014,678 $ 920,374,886 ============ ============== ============ ============ ============= Beginning units 225,298,744 171,943,269 122,905,459 230,783,788 193,307,934 Units issued 2,034,308 7,378,171 860,218 19,445,063 3,322,818 Units redeemed (20,019,816) (15,859,974) (13,500,772) (24,365,062) (17,536,107) ------------ -------------- ------------ ------------ ------------- Ending units 207,313,236 163,461,466 110,264,905 225,863,789 179,094,645 ============ ============== ============ ============ ============= FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 2,214,623 $ 31,770,840 $ -- $ 2,470,182 $ -- Mortality and expense risk and administrative charges (3,811,238) (29,722,666) (2,475,582) (2,667,738) (8,899,897) ------------ -------------- ------------ ------------ ------------- Net investment income (loss) (1,596,615) 2,048,174 (2,475,582) (197,556) (8,899,897) Net realized gain (loss) 15,030,674 157,514,199 21,459,298 12,966,838 61,454,342 Capital gain distribution from mutual funds 71,093,272 173,202,309 38,376,225 2,969,410 95,878,690 Change in unrealized appreciation (depreciation) of investments (87,883,368) (433,385,402) (65,576,678) 5,495,966 (85,700,551) ------------ -------------- ------------ ------------ ------------- Increase (decrease) in net assets from operations (3,356,037) (100,620,720) (8,216,737) 21,234,658 62,732,584 ------------ -------------- ------------ ------------ ------------- From contract transactions: Payments received from contract owners 11,120,001 143,835,706 8,345,570 24,638,376 26,328,449 Payments for contract benefits or terminations (31,156,322) (267,055,847) (22,471,505) (21,727,485) (72,319,888) Transfers between sub-accounts (including fixed account), net (10,369,468) (68,693,043) (16,465,104) 8,780,129 (23,689,759) Contract maintenance charges (191,158) (2,342,283) (113,571) (134,641) (329,557) Adjustments to net assets allocated to contracts in payout period 3,233 (24,843) (1,244) (6) (14,521) ------------ -------------- ------------ ------------ ------------- Increase (decrease) in net assets from contract transactions (30,593,714) (194,280,310) (30,705,854) 11,556,373 (70,025,276) ------------ -------------- ------------ ------------ ------------- Increase (decrease) in net assets (33,949,751) (294,901,030) (38,922,591) 32,791,031 (7,292,692) Net assets at beginning of period 414,316,983 3,132,716,853 275,076,835 256,140,583 942,200,179 ------------ -------------- ------------ ------------ ------------- Net assets at end of period $380,367,232 $2,837,815,823 $236,154,244 $288,931,614 $ 934,907,487 ============ ============== ============ ============ ============= Beginning units 242,825,241 181,983,085 138,081,014 221,062,156 207,052,424 Units issued 2,837,453 5,274,594 3,458,558 28,056,742 3,981,832 Units redeemed (20,363,950) (15,314,410) (18,634,113) (18,335,110) (17,726,322) ------------ -------------- ------------ ------------ ------------- Ending units 225,298,744 171,943,269 122,905,459 230,783,788 193,307,934 ============ ============== ============ ============ =============
-------------------------------------------------------------------------------- 26 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
VALIC VALIC Company I VALIC VALIC Company I VALIC Small Cap Company I Company I Small Cap Company I Aggressive Small Cap Small Cap Special Small Mid Growth Fund Fund Index Fund Values Fund Growth Fund ------------ ------------ -------------- ------------ ------------ FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ -- $ 603,870 $ 11,792,739 $ 3,108,533 $ -- Mortality and expense risk and administrative charges (973,765) (2,846,675) (8,659,845) (1,935,056) (997,091) ------------ ------------ -------------- ------------ ------------ Net investment income (loss) (973,765) (2,242,805) 3,132,894 1,173,477 (997,091) Net realized gain (loss) (1,963,397) 17,036,437 54,546,868 12,977,845 9,866,303 Capital gain distribution from mutual funds 15,059,977 47,613,903 67,586,386 20,764,804 11,644,947 Change in unrealized appreciation (depreciation) of investments (11,984,323) (22,533,588) 48,779,765 18,317,466 (22,090,544) ------------ ------------ -------------- ------------ ------------ Increase (decrease) in net assets from operations 138,492 39,873,947 174,045,913 53,233,592 (1,576,385) ------------ ------------ -------------- ------------ ------------ From contract transactions: Payments received from contract owners 7,921,050 5,779,410 45,287,561 7,437,869 3,520,381 Payments for contract benefits or terminations (9,281,514) (23,440,027) (73,534,636) (16,789,896) (8,246,637) Transfers between sub-accounts (including fixed account), net (7,330,093) (9,900,391) (5,251,812) 10,394,727 (14,627,647) Contract maintenance charges (57,751) (124,494) (645,270) (67,635) (50,065) Adjustments to net assets allocated to contracts in payout period (31) (554) 4,543 483 (277) ------------ ------------ -------------- ------------ ------------ Increase (decrease) in net assets from contract transactions (8,748,339) (27,686,056) (34,139,614) 975,548 (19,404,245) ------------ ------------ -------------- ------------ ------------ Increase (decrease) in net assets (8,609,847) 12,187,891 139,906,299 54,209,140 (20,980,630) Net assets at beginning of period 115,361,847 302,832,444 916,967,370 191,258,568 120,360,724 ------------ ------------ -------------- ------------ ------------ Net assets at end of period $106,752,000 $315,020,335 $1,056,873,669 $245,467,708 $ 99,380,094 ============ ============ ============== ============ ============ Beginning units 53,883,079 69,598,178 168,425,599 124,945,522 75,232,723 Units issued 5,500,627 1,041,480 13,101,629 13,902,257 1,037,627 Units redeemed (9,966,104) (7,281,939) (20,244,995) (14,061,645) (13,736,231) ------------ ------------ -------------- ------------ ------------ Ending units 49,417,602 63,357,719 161,282,233 124,786,134 62,534,119 ============ ============ ============== ============ ============ FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ -- $ -- $ 10,854,892 $ 2,057,855 $ -- Mortality and expense risk and administrative charges (1,104,118) (3,277,460) (9,687,891) (1,992,115) (1,203,328) ------------ ------------ -------------- ------------ ------------ Net investment income (loss) (1,104,118) (3,277,460) 1,167,001 65,740 (1,203,328) Net realized gain (loss) 4,789,490 25,742,971 78,835,894 15,770,860 7,412,354 Capital gain distribution from mutual funds 22,125,679 53,006,575 55,921,291 16,341,316 27,361,029 Change in unrealized appreciation (depreciation) of investments (26,401,769) (93,632,225) (188,166,067) (42,592,990) (35,241,086) ------------ ------------ -------------- ------------ ------------ Increase (decrease) in net assets from operations (590,718) (18,160,139) (52,241,881) (10,415,074) (1,671,031) ------------ ------------ -------------- ------------ ------------ From contract transactions: Payments received from contract owners 8,005,846 6,868,788 51,587,233 7,455,027 4,525,702 Payments for contract benefits or terminations (9,128,006) (29,618,056) (86,614,504) (20,446,123) (10,518,411) Transfers between sub-accounts (including fixed account), net 10,957,571 (15,816,773) (46,279,244) (7,507,914) 7,390,728 Contract maintenance charges (64,209) (130,280) (685,867) (63,637) (100,461) Adjustments to net assets allocated to contracts in payout period (34) (5,972) (11,399) 1,987 (267) ------------ ------------ -------------- ------------ ------------ Increase (decrease) in net assets from contract transactions 9,771,168 (38,702,293) (82,003,781) (20,560,660) 1,297,291 ------------ ------------ -------------- ------------ ------------ Increase (decrease) in net assets 9,180,450 (56,862,432) (134,245,662) (30,975,734) (373,740) Net assets at beginning of period 106,181,397 359,694,876 1,051,213,032 222,234,302 120,734,464 ------------ ------------ -------------- ------------ ------------ Net assets at end of period $115,361,847 $302,832,444 $ 916,967,370 $191,258,568 $120,360,724 ============ ============ ============== ============ ============ Beginning units 49,888,671 77,943,885 181,699,697 137,726,181 74,225,207 Units issued 11,855,042 457,255 9,234,680 2,728,825 8,480,333 Units redeemed (7,860,634) (8,802,962) (22,508,778) (15,509,484) (7,472,817) ------------ ------------ -------------- ------------ ------------ Ending units 53,883,079 69,598,178 168,425,599 124,945,522 75,232,723 ============ ============ ============== ============ ============
-------------------------------------------------------------------------------- 27 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
VALIC VALIC VALIC VALIC Company II Company II Company II Company I VALIC Aggressive Capital Conservative Stock Index Company I Growth Appreciation Growth Fund Value Fund Lifestyle Fund Fund Lifestyle Fund -------------- ------------ -------------- ------------ -------------- FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 95,898,589 $ 1,343,902 $ 10,688,347 $ 145,257 $ 8,904,462 Mortality and expense risk and administrative charges (36,434,620) (841,396) (4,946,739) (362,728) (3,113,588) Reimbursements of expenses -- -- 1,275,837 93,779 791,444 -------------- ------------ ------------ ----------- ------------ Net investment income (loss) 59,463,969 502,506 7,017,445 (123,692) 6,582,318 Net realized gain (loss) 166,142,690 7,405,494 16,094,166 3,294,883 1,423,041 Capital gain distribution from mutual funds 280,466,344 -- 36,688,904 3,632,730 12,929,029 Change in unrealized appreciation (depreciation) of investments (120,717,633) 2,324,681 (19,690,191) (6,304,450) (2,735,836) -------------- ------------ ------------ ----------- ------------ Increase (decrease) in net assets from operations 385,355,370 10,232,681 40,110,324 499,471 18,198,552 -------------- ------------ ------------ ----------- ------------ From contract transactions: Payments received from contract owners 144,479,617 4,094,780 56,739,603 1,766,736 35,814,347 Payments for contract benefits or terminations (330,421,918) (9,926,320) (40,445,348) (3,518,920) (34,528,775) Transfers between sub-accounts (including fixed account), net (76,049,813) (3,340,353) (34,107,131) (1,930,898) (11,234,573) Contract maintenance charges (2,189,029) (122,074) (1,195,191) (51,830) (284,860) Adjustments to net assets allocated to contracts in payout period (138,870) 35 5,602 -- (27,518) -------------- ------------ ------------ ----------- ------------ Increase (decrease) in net assets from contract transactions (264,320,013) (9,293,932) (19,002,465) (3,734,912) (10,261,379) -------------- ------------ ------------ ----------- ------------ Increase (decrease) in net assets 121,035,357 938,749 21,107,859 (3,235,441) 7,937,173 Net assets at beginning of period 3,864,262,592 90,361,531 509,379,160 39,744,607 315,811,195 -------------- ------------ ------------ ----------- ------------ Net assets at end of period $3,985,297,949 $ 91,300,280 $530,487,019 $36,509,166 $323,748,368 ============== ============ ============ =========== ============ Beginning units 469,712,564 46,550,338 186,171,483 23,015,325 122,366,806 Units issued 15,280,933 2,017,285 7,891,137 1,233,438 6,829,379 Units redeemed (46,330,470) (6,676,983) (14,588,665) (3,384,996) (10,734,115) -------------- ------------ ------------ ----------- ------------ Ending units 438,663,027 41,890,640 179,473,955 20,863,767 118,462,070 ============== ============ ============ =========== ============ FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 67,339,107 $ 1,485,792 $ 8,383,526 $ 130,988 $ 7,237,648 Mortality and expense risk and administrative charges (38,883,131) (934,054) (5,105,938) (390,459) (3,232,436) Reimbursements of expenses -- -- 1,315,686 101,171 822,148 -------------- ------------ ------------ ----------- ------------ Net investment income (loss) 28,455,976 551,738 4,593,274 (158,300) 4,827,360 Net realized gain (loss) 216,295,785 7,250,076 14,972,290 3,972,526 4,333,467 Capital gain distribution from mutual funds 151,509,894 -- 37,795,753 -- 14,559,242 Change in unrealized appreciation (depreciation) of investments (390,410,486) (11,797,452) (65,614,192) (1,793,478) (30,505,695) -------------- ------------ ------------ ----------- ------------ Increase (decrease) in net assets from operations 5,851,169 (3,995,638) (8,252,875) 2,020,748 (6,785,626) -------------- ------------ ------------ ----------- ------------ From contract transactions: Payments received from contract owners 165,719,775 4,212,522 69,858,059 2,163,813 47,973,058 Payments for contract benefits or terminations (353,182,016) (10,131,688) (38,842,956) (4,252,604) (36,086,173) Transfers between sub-accounts (including fixed account), net (168,495,897) (3,695,108) (27,303,611) (2,281,438) (13,978,676) Contract maintenance charges (2,340,794) (130,717) (1,219,879) (53,822) (270,191) Adjustments to net assets allocated to contracts in payout period (457,178) 28 449 -- (29,311) -------------- ------------ ------------ ----------- ------------ Increase (decrease) in net assets from contract transactions (358,756,110) (9,744,963) 2,492,062 (4,424,051) (2,391,293) -------------- ------------ ------------ ----------- ------------ Increase (decrease) in net assets (352,904,941) (13,740,601) (5,760,813) (2,403,303) (9,176,919) Net assets at beginning of period 4,217,167,533 104,102,132 515,139,973 42,147,910 324,988,114 -------------- ------------ ------------ ----------- ------------ Net assets at end of period $3,864,262,592 $ 90,361,531 $509,379,160 $39,744,607 $315,811,195 ============== ============ ============ =========== ============ Beginning units 509,445,145 51,425,430 185,272,756 25,635,001 123,317,312 Units issued 10,081,182 1,441,837 13,397,103 1,289,657 11,251,545 Units redeemed (49,813,763) (6,316,929) (12,498,376) (3,909,333) (12,202,051) -------------- ------------ ------------ ----------- ------------ Ending units 469,712,564 46,550,338 186,171,483 23,015,325 122,366,806 ============== ============ ============ =========== ============
-------------------------------------------------------------------------------- 28 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
VALIC VALIC VALIC Company II VALIC Company II VALIC Company II Government Company II International Company II Core Bond Money Market High Yield Opportunities Large Cap Fund II Fund Bond Fund Fund Value Fund ------------- ------------ ------------ ------------- ------------ FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 19,002,296 $ 15,447 $ 16,266,115 $ 6,111,143 $ 2,083,167 Mortality and expense risk and administrative charges (9,185,669) (1,447,742) (3,684,867) (5,375,377) (1,800,665) Reimbursements of expenses 2,365,187 380,964 940,893 1,385,185 452,439 ------------- ------------ ------------ ------------ ------------ Net investment income (loss) 12,181,814 (1,051,331) 13,522,141 2,120,951 734,941 Net realized gain (loss) 6,229,891 -- 1,789,035 42,966,968 19,521,104 Capital gain distribution from mutual funds 2,634,321 1 -- -- -- Change in unrealized appreciation (depreciation) of investments 4,565,184 1 26,942,861 (50,777,451) 9,290,853 ------------- ------------ ------------ ------------ ------------ Increase (decrease) in net assets from operations 25,611,210 (1,051,329) 42,254,037 (5,689,532) 29,546,898 ------------- ------------ ------------ ------------ ------------ From contract transactions: Payments received from contract owners 64,133,524 40,272,667 19,444,775 35,758,424 10,384,461 Payments for contract benefits or terminations (102,802,534) (24,077,172) (38,958,189) (51,401,411) (17,403,348) Transfers between sub-accounts (including fixed account), net (24,720,314) (50,313,062) 69,012,863 (71,240,880) 6,451,175 Contract maintenance charges (751,608) (83,564) (386,832) (245,807) (266,583) Adjustments to net assets allocated to contracts in payout period 354 94 (2,822) (2,298) (1,312) ------------- ------------ ------------ ------------ ------------ Increase (decrease) in net assets from contract transactions (64,140,578) (34,201,037) 49,109,795 (87,131,972) (835,607) ------------- ------------ ------------ ------------ ------------ Increase (decrease) in net assets (38,529,368) (35,252,366) 91,363,832 (92,821,504) 28,711,291 Net assets at beginning of period 931,326,862 169,405,376 357,920,693 596,947,798 175,268,726 ------------- ------------ ------------ ------------ ------------ Net assets at end of period $ 892,797,494 $134,153,010 $449,284,525 $504,126,294 $203,980,017 ============= ============ ============ ============ ============ Beginning units 478,175,881 137,896,669 151,445,812 268,732,142 65,553,811 Units issued 77,665,403 39,867,445 37,025,885 3,139,284 13,126,951 Units redeemed (106,469,448) (67,896,990) (19,698,019) (42,082,223) (12,329,124) ------------- ------------ ------------ ------------ ------------ Ending units 449,371,836 109,867,124 168,773,678 229,789,203 66,351,638 ============= ============ ============ ============ ============ FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 16,142,480 $ 15,865 $ 16,557,431 $ 7,370,676 $ 2,507,491 Mortality and expense risk and administrative charges (7,758,434) (1,503,651) (3,469,656) (5,664,457) (1,804,372) Reimbursements of expenses 1,998,806 392,962 884,435 1,461,572 463,299 ------------- ------------ ------------ ------------ ------------ Net investment income (loss) 10,382,852 (1,094,824) 13,972,210 3,167,791 1,166,418 Net realized gain (loss) 1,890,603 (1) 8,970,044 22,003,132 11,552,631 Change in unrealized appreciation (depreciation) of investments (21,669,904) 1 (39,944,300) 18,360,482 (19,181,678) ------------- ------------ ------------ ------------ ------------ Increase (decrease) in net assets from operations (9,396,449) (1,094,824) (17,002,046) 43,531,405 (6,462,629) ------------- ------------ ------------ ------------ ------------ From contract transactions: Payments received from contract owners 59,176,917 41,637,953 23,285,131 38,845,057 11,193,060 Payments for contract benefits or terminations (83,814,427) (18,564,817) (37,764,726) (54,900,662) (19,295,807) Transfers between sub-accounts (including fixed account), net 251,995,659 (11,178,121) 51,461,745 23,521,008 (4,302,318) Contract maintenance charges (718,792) (83,255) (391,535) (277,653) (248,868) Adjustments to net assets allocated to contracts in payout period 405 526 41 884 (299) ------------- ------------ ------------ ------------ ------------ Increase (decrease) in net assets from contract transactions 226,639,762 11,812,286 36,590,656 7,188,634 (12,654,232) ------------- ------------ ------------ ------------ ------------ Increase (decrease) in net assets 217,243,313 10,717,462 19,588,610 50,720,039 (19,116,861) Net assets at beginning of period 714,083,549 158,687,914 338,332,083 546,227,759 194,385,587 ------------- ------------ ------------ ------------ ------------ Net assets at end of period $ 931,326,862 $169,405,376 $357,920,693 $596,947,798 $175,268,726 ============= ============ ============ ============ ============ Beginning units 362,992,296 129,017,658 136,270,181 264,766,357 70,147,074 Units issued 138,922,831 54,162,097 32,237,025 25,945,784 3,384,850 Units redeemed (23,739,246) (45,283,086) (17,061,394) (21,979,999) (7,978,113) ------------- ------------ ------------ ------------ ------------ Ending units 478,175,881 137,896,669 151,445,812 268,732,142 65,553,811 ============= ============ ============ ============ ============
-------------------------------------------------------------------------------- 29 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
VALIC VALIC VALIC Company II VALIC VALIC Company II Company II Moderate Company II Company II Mid Cap Mid Cap Growth Small Cap Small Cap Growth Fund Value Fund Lifestyle Fund Growth Fund Value Fund ------------ ------------- -------------- ------------ ------------- FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ -- $ 2,298,750 $ 17,980,092 $ -- $ 5,083,574 Mortality and expense risk and administrative charges (1,051,066) (8,087,610) (7,873,697) (696,290) (4,189,301) Reimbursements of expenses 269,122 2,113,322 2,015,643 180,764 1,093,165 ------------ ------------- ------------ ------------ ------------- Net investment income (loss) (781,944) (3,675,538) 12,122,038 (515,526) 1,987,438 Net realized gain (loss) 11,070,636 41,278,223 17,026,119 1,149,494 32,878,792 Capital gain distribution from mutual funds 8,072,064 118,242,843 43,943,409 7,477,742 51,118,111 Change in unrealized appreciation (depreciation) of investments (15,329,003) (45,943,365) (13,069,401) (3,520,771) 31,557,022 ------------ ------------- ------------ ------------ ------------- Increase (decrease) in net assets from operations 3,031,753 109,902,163 60,022,165 4,590,939 117,541,363 ------------ ------------- ------------ ------------ ------------- From contract transactions: Payments received from contract owners 6,513,156 43,046,267 101,786,623 3,904,499 23,832,609 Payments for contract benefits or terminations (10,359,103) (79,494,106) (70,120,057) (6,903,148) (41,501,637) Transfers between sub-accounts (including fixed account), net (28,039,758) 13,874,720 (42,117,281) (7,964,284) (23,533,242) Contract maintenance charges (79,141) (644,360) (886,353) (46,262) (217,022) Adjustments to net assets allocated to contracts in payout period (241) 609 190 (699) (2,417) ------------ ------------- ------------ ------------ ------------- Increase (decrease) in net assets from contract transactions (31,965,087) (23,216,870) (11,336,878) (11,009,894) (41,421,709) ------------ ------------- ------------ ------------ ------------- Increase (decrease) in net assets (28,933,334) 86,685,293 48,685,287 (6,418,955) 76,119,654 Net assets at beginning of period 129,610,284 832,661,394 794,250,082 81,854,214 426,134,704 ------------ ------------- ------------ ------------ ------------- Net assets at end of period $100,676,950 $ 919,346,687 $842,935,369 $ 75,435,259 $ 502,254,358 ============ ============= ============ ============ ============= Beginning units 70,382,216 164,205,676 284,833,140 31,398,820 127,729,895 Units issued 1,732,703 10,712,511 14,372,050 2,261,609 9,799,461 Units redeemed (19,519,618) (14,831,493) (18,361,419) (6,623,994) (20,853,986) ------------ ------------- ------------ ------------ ------------- Ending units 52,595,301 160,086,694 280,843,771 27,036,435 116,675,370 ============ ============= ============ ============ ============= FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ -- $ 1,758,921 $ 14,632,312 $ -- $ 2,930,214 Mortality and expense risk and administrative charges (1,300,629) (8,236,004) (7,937,970) (844,252) (4,689,922) Reimbursements of expenses 333,212 2,156,022 2,031,923 219,459 1,222,315 ------------ ------------- ------------ ------------ ------------- Net investment income (loss) (967,417) (4,321,061) 8,726,265 (624,793) (537,393) Net realized gain (loss) 7,652,053 43,670,463 15,916,403 2,551,231 50,361,086 Capital gain distribution from mutual funds 19,505,006 84,703,647 46,004,251 9,489,334 64,706,200 Change in unrealized appreciation (depreciation) of investments (28,658,393) (143,229,008) (84,298,061) (13,118,410) (148,437,088) ------------ ------------- ------------ ------------ ------------- Increase (decrease) in net assets from operations (2,468,751) (19,175,959) (13,651,142) (1,702,638) (33,907,195) ------------ ------------- ------------ ------------ ------------- From contract transactions: Payments received from contract owners 11,263,171 46,143,062 125,612,435 4,864,937 30,340,412 Payments for contract benefits or terminations (11,281,523) (85,407,620) (68,052,123) (8,033,063) (47,115,589) Transfers between sub-accounts (including fixed account), net 982,528 25,247,825 (45,653,220) (5,409,797) (54,455,105) Contract maintenance charges (86,994) (572,292) (891,552) (50,840) (216,938) Adjustments to net assets allocated to contracts in payout period (625) 1,614 96 (774) (1,998) ------------ ------------- ------------ ------------ ------------- Increase (decrease) in net assets from contract transactions 876,557 (14,587,411) 11,015,636 (8,629,537) (71,449,218) ------------ ------------- ------------ ------------ ------------- Increase (decrease) in net assets (1,592,194) (33,763,370) (2,635,506) (10,332,175) (105,356,413) Net assets at beginning of period 131,202,478 866,424,764 796,885,588 92,186,389 531,491,117 ------------ ------------- ------------ ------------ ------------- Net assets at end of period $129,610,284 $ 832,661,394 $794,250,082 $ 81,854,214 $ 426,134,704 ============ ============= ============ ============ ============= Beginning units 70,016,818 167,438,142 281,014,873 34,657,295 147,595,203 Units issued 8,269,928 11,175,317 20,963,764 3,587,133 8,452,959 Units redeemed (7,904,530) (14,407,783) (17,145,497) (6,845,608) (28,318,267) ------------ ------------- ------------ ------------ ------------- Ending units 70,382,216 164,205,676 284,833,140 31,398,820 127,729,895 ============ ============= ============ ============ =============
-------------------------------------------------------------------------------- 30 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS --------------------------------------------------------------------------------
VALIC Company II VALIC Socially Company II Responsible Strategic Fund Bond Fund ------------ ------------ FOR THE YEAR ENDED DECEMBER 31, 2016 From operations: Dividends $ 10,123,979 $ 23,275,089 Mortality and expense risk and administrative charges (6,877,656) (5,633,993) Reimbursements of expenses 1,782,837 1,444,136 ------------ ------------ Net investment income (loss) 5,029,160 19,085,232 Net realized gain (loss) 40,779,902 10,935,837 Capital gain distribution from mutual funds 44,390,105 1,823,580 Change in unrealized appreciation (depreciation) of investments (22,592,689) 9,883,515 ------------ ------------ Increase (decrease) in net assets from operations 67,606,478 41,728,164 ------------ ------------ From contract transactions: Payments received from contract owners 47,037,083 35,770,041 Payments for contract benefits or terminations (67,673,126) (53,815,189) Transfers between sub-accounts (including fixed account), net (42,574,071) 830,358 Contract maintenance charges (549,095) (1,188,543) Adjustments to net assets allocated to contracts in payout period 294 (20,076) ------------ ------------ Increase (decrease) in net assets from contract transactions (63,758,915) (18,423,409) ------------ ------------ Increase (decrease) in net assets 3,847,563 23,304,755 Net assets at beginning of period 730,244,847 561,958,294 ------------ ------------ Net assets at end of period $734,092,410 $585,263,049 ============ ============ Beginning units 292,339,882 216,272,613 Units issued 3,983,124 15,365,405 Units redeemed (27,956,056) (21,560,251) ------------ ------------ Ending units 268,366,950 210,077,767 ============ ============ FOR THE YEAR ENDED DECEMBER 31, 2015 From operations: Dividends $ 8,096,840 $ 21,451,902 Mortality and expense risk and administrative charges (7,071,149) (5,834,553) Reimbursements of expenses 1,833,731 1,495,442 ------------ ------------ Net investment income (loss) 2,859,422 17,112,791 Net realized gain (loss) 21,766,367 10,344,323 Capital gain distribution from mutual funds -- 5,446,655 Change in unrealized appreciation (depreciation) of investments (22,178,422) (48,177,389) ------------ ------------ Increase (decrease) in net assets from operations 2,447,367 (15,273,620) ------------ ------------ From contract transactions: Payments received from contract owners 47,135,468 43,269,120 Payments for contract benefits or terminations (71,125,684) (62,761,757) Transfers between sub-accounts (including fixed account), net 36,314,259 (9,679,985) Contract maintenance charges (569,216) (1,136,799) Adjustments to net assets allocated to contracts in payout period (206) (6,827) ------------ ------------ Increase (decrease) in net assets from contract transactions 11,754,621 (30,316,248) ------------ ------------ Increase (decrease) in net assets 14,201,988 (45,589,868) Net assets at beginning of period 716,042,859 607,548,162 ------------ ------------ Net assets at end of period $730,244,847 $561,958,294 ============ ============ Beginning units 287,490,736 227,800,046 Units issued 19,578,469 8,796,618 Units redeemed (14,729,323) (20,324,051) ------------ ------------ Ending units 292,339,882 216,272,613 ============ ============
-------------------------------------------------------------------------------- 31 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION The Variable Annuity Life Insurance Company Separate Account A (the Separate Account) is a segregated investment account established by The Variable Annuity Life Insurance Company (the Company) to receive and invest premium payments from variable annuity contracts issued by the Company. The Company is a wholly owned subsidiary of AGC Life Insurance Company, an indirect, wholly owned subsidiary of American International Group, Inc. (AIG). The Separate Account includes the following variable annuity products: Equity Director Polaris Choice Elite Group Fixed and Variable Annuity Polaris Platinum Elite (GTS-VA) Group Unit Purchase (GUP) Portfolio Director IMPACT Portfolio Director Group Unallocated VA Independence Plus Potentia The Separate Account contracts are sold through the Company's exclusive sales force. The distributor of the Separate Account is AIG Capital Services, Inc., an affiliate of the Company; however, all commissions are paid by the Company. No underwriting fees are paid in connection with the distribution of these contracts. The Separate Account is registered with the Securities and Exchange Commission as a Unit Investment Trust under the Investment Company Act of 1940, as amended. The Separate Account consists of various sub-accounts. Each sub-account invests all its investible assets in a corresponding eligible mutual fund, which is registered under the 1940 Act as open-ended management investment companies. The names in bold in the table below are the diversified, open-ended investment companies and the names below them are the names of the sub-accounts/corresponding eligible mutual funds. Collectively, all of the mutual funds are referred to as "Funds" throughout these financial statements. For each sub-account, the financial statements are comprised of a statement of assets and liabilities as of December 31, 2016 and related statements of operations and changes in net assets for each of the years in the period then ended, all periods to reflect a full twelve month period, except as noted below. AMERICAN BEACON ADVISORS, INC. American Beacon Holland Large Cap Growth Fund I Investor ANCHOR SERIES TRUST (AST)/(A)/ AST Capital Appreciation Portfolio AST Natural Resources Portfolio Class 3/(o)/ Class 3/(o)/ AST Government and Quality Bond AST Strategic Multi-Asset Portfolio Portfolio Class 3/(o)/ Class 3/(c)/ AST SA BlackRock Multi-Asset Income Portfolio Class 3/(b)(o)/ ARIEL FUND Ariel Appreciation Fund Investor Class Ariel Fund Investor Class FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST (FTVIP) FTVIP Franklin Founding Funds FTVIP Templeton Global Asset Allocation VIP Fund Class 2/(o)/ Allocation Fund FTVIP Franklin Income VIP Fund Class 2/(d)(o)/ GOLDMAN SACHS VARIABLE INSURANCE TRUST (GOLDMAN SACHS VIT) Goldman Sachs VIT Government Money Market Fund Service Class/(o)/ INVESCO VARIABLE INSURANCE FUNDS (INVESCO V.I.) Invesco V.I. Balanced-Risk Commodity Invesco V.I. Growth and Income Fund Strategy Fund Class R5 Series II/(o)/ Invesco V.I. Comstock Fund Series II/(o)/ LORD ABBETT SERIES FUND, INC. (LORD ABBETT FUND) Lord Abbett Fund Growth and Income Portfolio Class VC/(o)/ NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST (NEUBERGER BERMAN AMT) Neuberger Berman AMT Guardian Trust -------------------------------------------------------------------------------- 32 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) SEASONS SERIES TRUST (SST)/(A)/ SST Allocation Balanced Portfolio SST Allocation Moderate Portfolio Class 3/(o)/ Class 3/(o)/ SST Allocation Growth Portfolio SST Asset Allocation Diversified Class 3/(o)/ Growth Portfolio Class 3/(c)/ SST Allocation Moderate Growth Portfolio Class 3/(o)/ SST Real Return Portfolio Class 3/(o)/ SUNAMERICA MUTUAL FUNDS (SUNAMERICA)/(A)/ SunAmerica 2020 High Watermark Fund Class I SUNAMERICA SERIES TRUST (SAST)/(A)/ SAST Aggressive Growth Portfolio SAST High-Yield Bond Portfolio Class 3/(o)/ Class 3/(o)/ SAST SA AB Growth Portfolio SAST International Diversified Class 3/(e)(o)/ Equities Portfolio Class 3/(o)/ SAST American Funds Asset Allocation SAST International Growth and Income Portfolio Class 3/(o)/ Portfolio Class 3/(o)/ SAST American Funds Global Growth SAST SA MFS Massachusetts Investors Portfolio Class 3/(o)/ Trust Portfolio Class 3/(f)(o)/ SAST American Funds Growth Portfolio SAST SA MFS Total Return Bond Class 3/(o)/ Portfolio Class 3/(g)(o)/ SAST American Funds Growth-Income SAST Mid-Cap Growth Portfolio Portfolio Class 3/(o)/ Class 3/(o)/ SAST Real Estate Portfolio SAST Balanced Portfolio Class 3/(o)/ Class 3/(o)/ SAST BlackRock VCP Global Multi-Asset SAST SA Janus Focused Growth Portfolio Class 3/(o)/ Portfolio Class 3/(h)(o)/ SAST Blue Chip Growth Portfolio SAST SA JPMorgan MFS Core Bond Class 3/(o)/ Portfolio Class 3/(i)(o)/ SAST Capital Growth Portfolio SAST SA Legg Mason BW Large Cap Value Class 3/(o)/ Portfolio Class 3/(o)/ SAST Corporate Bond Portfolio SAST Schroder's VCP Global Allocation Class 3/(o)/ Portfolio Class 3/(o)/ SAST Dogs of Wall Street Portfolio SAST Small & Mid Cap Value Portfolio Class 3/(o)/ Class 3/(o)/ SAST Dynamic Allocation Portfolio SAST Small Company Value Portfolio Class 3/(o)/ Class 3/(o)/ SAST Dynamic Strategy Portfolio SAST SA T. Rowe Price VCP Balanced Class 3/(o)/ Portfolio Class 3/(o)/ SAST Emerging Markets Portfolio Class 3/(o)/ SAST Technology Portfolio Class 3/(o)/ SAST Equity Opportunities Portfolio SAST Telecom Utility Portfolio Class 3/(o)/ Class 3/(o)/ SAST Foreign Value Portfolio SAST Ultra Short Bond Portfolio Class 3/(o)/ Class 3/(j)(o)/ SAST Global Bond Portfolio SAST VCP Managed Asset Allocation Class 3/(o)/ SAST Portfolio Class 3/(k)(o)/ SAST Global Equities Portfolio SAST VCP Total Return Balanced Class 3/(o)/ Portfolio Class 3/(o)/ SAST Growth Opportunities Portfolio Class 3/(o)/ SAST VCP Value Portfolio Class 3/(o)/ SAST Growth-Income Portfolio Class 3 T. ROWE PRICE EQUITY SERIES, INC. (T. ROWE PRICE) T. Rowe Price Retirement 2015 Advisor T. Rowe Price Retirement 2040 Advisor Class Class T. Rowe Price Retirement 2020 Advisor T. Rowe Price Retirement 2045 Advisor Class Class T. Rowe Price Retirement 2025 Advisor T. Rowe Price Retirement 2050 Advisor Class Class T. Rowe Price Retirement 2030 Advisor T. Rowe Price Retirement 2055 Advisor Class Class T. Rowe Price Retirement 2035 Advisor T. Rowe Price Retirement 2060 Advisor Class Class THE VANGUARD GROUP (VANGUARD) Vanguard LifeStrategy Conservative Vanguard Long-Term Treasury Fund Inv Growth Fund Inv Shares Shares Vanguard LifeStrategy Growth Fund Inv Shares Vanguard Wellington Fund Inv Shares Vanguard LifeStrategy Moderate Growth Fund Inv Shares Vanguard Windsor II Fund Inv Shares Vanguard Long-Term Investment-Grade Fund Inv Shares VALIC COMPANY I/(L)/ VALIC Company I Inflation Protected VALIC Company I Asset Allocation Fund Fund VALIC Company I International VALIC Company I Blue Chip Growth Fund Equities Index Fund VALIC Company I International VALIC Company I Broad Cap Value Fund Government Bond Fund VALIC Company I Capital Conservation VALIC Company I International Growth Fund Fund VALIC Company I Core Equity Fund VALIC Company I Large Cap Core Fund VALIC Company I Large Capital Growth VALIC Company I Dividend Value Fund Fund VALIC Company I Dynamic Allocation Fund VALIC Company I Mid Cap Index Fund VALIC Company I Emerging Economies VALIC Company I Mid Cap Strategic Fund Growth Fund VALIC Company I Foreign Value Fund VALIC Company I Nasdaq-100 Index Fund VALIC Company I Global Real Estate VALIC Company I Science & Technology Fund Fund VALIC Company I Global Social VALIC Company I Small Cap Aggressive Awareness Fund Growth Fund VALIC Company I Global Strategy Fund VALIC Company I Small Cap Fund VALIC Company I Government Money Market I Fund/(m)/ VALIC Company I Small Cap Index Fund VALIC Company I Government Securities VALIC Company I Small Cap Special Fund Values Fund VALIC Company I Growth & Income Fund VALIC Company I Small Mid Growth Fund VALIC Company I Growth Fund VALIC Company I Stock Index Fund VALIC Company I Health Sciences Fund VALIC Company I Value Fund -------------------------------------------------------------------------------- 33 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) VALIC COMPANY II/(L)/ VALIC Company II Aggressive Growth Lifestyle Fund VALIC Company II Mid Cap Growth Fund VALIC Company II Capital Appreciation Fund VALIC Company II Mid Cap Value Fund VALIC Company II Conservative Growth VALIC Company II Moderate Growth Lifestyle Fund Lifestyle Fund VALIC Company II Core Bond Fund VALIC Company II Small Cap Growth Fund VALIC Company II Government Money Market II Fund/(n)/ VALIC Company II Small Cap Value Fund VALIC Company II Socially Responsible VALIC Company II High Yield Bond Fund Fund VALIC Company II International Opportunities Fund VALIC Company II Strategic Bond Fund VALIC Company II Large Cap Value Fund (a) These are affiliated investment companies. SunAmerica Asset Management Corp., an affiliate of the Company, serves as the investment advisor to Anchor Series Trust, Season Series Trust, SunAmerica Mutual Funds and SunAmerica Series Trust. (b) Formerly AST Multi-Asset Income Portfolio. (c) For the period September 26, 2016 (commencement of operations) to December 31, 2016. (d) Formerly Franklin Income Securities Fund. (e) Formerly SAST Alliance Growth Portfolio. (f) Formerly SAST MFS Massachusetts Investors Trust Portfolio. (g) Formerly SAST MFS Total Return Portfolio. (h) Formerly SAST Marsico Focused Growth Portfolio. (i) Formerly SAST Total Return Bond Portfolio. (j) Formerly SAST Cash Management Portfolio. (k) Formerly Protected Asset Allocation SAST Portfolio. (l) These are affiliated investment companies. The Company serves as the investment adviser to the VALIC Company I and II series. VALIC Retirement Services Company, a direct, wholly owned subsidiary of the Company, serves as the transfer agent and accounting services agent to the VALIC Company I and II series. SunAmerica Asset Management LLC (SAAMCO), an affiliate of the Company, serves as investment sub-adviser to certain underlying mutual funds of each series. (m) Formerly Money Market I Fund. (n) Formerly Money Market II Fund. (o) For the period May 1, 2015 (commencement of operations) to December 31, 2016. In addition to the sub-accounts above, a contract owner may allocate contract funds to a fixed account, which is part of the Company's general account. Contract owners should refer to the product prospectus for the available Funds and fixed account. The assets of the Separate Account are segregated from the Company's assets. The operations of the Separate Account are part the Company. Net premiums from the contracts are allocated to the sub-accounts and invested in the Funds in accordance with contract owner instructions and are recorded as contract transactions in the Statements of Operations and Changes in Net Assets. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICY The financial statements of the Separate Account have been prepared in conformity with accounting principles generally accepted in the United States (GAAP). The following is a summary of significant accounting policies consistently followed by the Separate Account in the preparation of its financial statements. USE OF ESTIMATES: The preparation of financial statements in conformity with ---------------- GAAP requires the application of accounting policies that often involve a significant degree of judgment. These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of estimation. To the extent actual experience differs from assumptions used, the financial statements of the Separate Account could be materially affected. INVESTMENTS: Investments in mutual funds are valued at their closing net asset ----------- value per share as determined by the respective mutual funds, which value their securities at fair value. Purchases and sales of shares of the Funds are made at the net asset values of such Funds. Transactions are recorded on a trade date basis. Realized gains and losses on the sales of investments are recognized at the date of sale and are determined on a first-in, first-out basis. Dividends and capital gain distributions from the Funds are recorded on the ex-dividend date and reinvested upon receipt. -------------------------------------------------------------------------------- 34 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) RESERVES FOR ANNUITY CONTRACTS IN PAYOUT: Net assets allocated to contracts in ---------------------------------------- the payout period are based on industry standard mortality tables depending on the calendar year of annuitization as well as other assumptions, including provisions for the risk of adverse deviation from assumptions. Participants are able to elect assumed interest rates between 3.00 and 6.00 percent in determining annuity payments for all contracts. At each reporting period, the assumptions must be evaluated based on current experience, and the reserves must be adjusted accordingly. To the extent additional reserves are established due to mortality risk experience, the Company makes payments to the Separate Account. If there are excess reserves remaining at the time annuity payments cease, the assets supporting those reserves are transferred from the Separate Account to the General Account. Transfers between the General Account and the Separate Account are disclosed as adjustments to net assets allocated to contracts in payout period in the Statements of Operations and Changes in Net Assets. Annuity benefit payments are recorded as payments for contract benefits or terminations in the Statements of Operations and Changes in Net Assets. ACCUMULATION UNIT: This is the basic valuation unit used to calculate the ----------------- contract owner's interest. Such units are valued daily to reflect investment performance and the prorated daily deduction for expense charges. INCOME TAXES: The operations of the Separate Account are included in the ------------ federal income tax return of the Company, which is taxed as a life insurance company under the provision of the Internal Revenue Code (the Code). Under the current provisions of the Code, the Company does not expect to incur federal income taxes on the earnings of the Separate Account to the extent that the earnings are credited under the contracts. As a result, no charge is currently made to the Separate Account for federal income taxes. The Separate Account is not treated as a regulated investment company under the Code. The Company will periodically review changes in the tax law. A charge may be made in future years for any federal income taxes that would be attributable to the contracts. 3. FAIR VALUE MEASUREMENTS Assets recorded at fair value in the Separate Account's Statement of Assets and Liabilities are measured and classified in a hierarchy for disclosure purposes consisting of three "levels" based on the observability of valuation inputs: . Level 1-- Fair value measurements based on quoted prices (unadjusted) in active markets that the Separate Account has the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. The Separate Account does not adjust the quoted price for such instruments. . Level 2-- Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other that quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals . Level 3-- Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair value positions in Level 3. The circumstances in which there is little, if any, market activity for the asset or liability. Therefore, the Separate Account makes certain assumptions about the inputs a hypothetical market participant would use to value that asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Separate Account assets measured at fair value as of December 31, 2016 consist of investments in registered mutual funds that generally trade daily and are measured at fair value using quoted prices in active markets for identical assets, which are classified as Level 1 throughout the year as such there were no transfers between fair value hierarchy levels had occurred during the year. See the Schedule of Portfolio Investments for the table -------------------------------------------------------------------------------- 35 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) presenting information about assets measured at fair value on a recurring basis at December 31, 2016, and respective hierarchy levels. 4. EXPENSES Expense charges are applied against the current value of the Separate Account and are paid as follows: SEPARATE ACCOUNT ANNUAL CHARGES: Deductions for the mortality and expense risk ------------------------------- charges are calculated daily, at an annual rate, on the actual prior day's net asset value of the underlying Funds comprising the sub-accounts attributable to the contract owners and are paid to the Company. The mortality risk charge represents compensation to the Company for the mortality risks assumed under the contract, which is the obligation to provide payments during the payout period for the life of the contract and to provide the standard death benefit. The expense risk charge represents compensation to the Company for assuming the risk that the current contract administration charges will be insufficient to cover the cost of administering the contract in the future. These charges are included on the mortality and expense risk and administrative charges line in the Statements of Operations and Changes in Net Assets. The exact rate depends on the particular product issued and funds selected. Expense charges for each product are as follows: Products Separate Account Annual Charges -------- ------------------------------------- Equity Director 1.60% - 2.10% GTS-VA 0.85% on the first $10 million 0.425% on the next $90 million 0.21% on the excess over $100 million GUP 1.00% IMPACT 0.15% - 1.00% Independence Plus 0.15% - 1.00% Polaris Choice Elite 1.30% - 1.90% Polaris Platinum Elite 1.30% - 1.55% Portfolio Director 0.15% - 1.25% Portfolio Director Group Unallocated 0.00% VA Potentia 0.95% - 1.45% Mortality and expense risk charges of the Separate Account products (as defined to include underlying Fund expenses) are limited to the following rates based on average daily net assets: Products Expense Limitations -------- ------------------------------------- GTS-VA 0.6966% on the first $25,434,267 0.50% on the first $74,565,733 0.25% on the excess over $100 million GUP 1.4157% on the first $359,065,787 1.36% on the next $40,934,213 1.32% on the excess over $400 million CONTRACT MAINTENANCE CHARGE: During the accumulation phase, an annual contract --------------------------- maintenance charge is assessed by the Company on the contract anniversary. In the event a full surrender, a contract maintenance charge is assessed at the date of surrender and deducted from the withdrawal proceeds. The contract maintenance charge represents a reimbursement of administrative expenses incurred by the Company related to the establishment and maintenance of the record keeping function for the Sub-accounts. These charges are included as part of the contract maintenance charges line in the Statements of Operations and Changes in Net Assets. A contract maintenance charge of $3.75 is assessed on each contract (except those relating to GUP and GTS- VA, contracts within the Impact product are assessed a $30 annual maintenance charge and contracts within the Polaris Platinum Elite product are assessed a $50 annual maintenance charge) by the Company on the last day of the -------------------------------------------------------------------------------- 36 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) calendar quarter in which the Company receives the first purchase payment, and in quarterly installments thereafter during the accumulation period. WITHDRAWAL CHARGE: A withdrawal charge is applicable to certain contract ----------------- withdrawals pursuant to the contract and is payable to the Company. The withdrawal charges are included as part of the payments for contract benefits or terminations line in the Statements of Operations and Changes in Net Assets. SEPARATE ACCOUNT EXPENSE REIMBURSEMENTS OR CREDITS: Certain of the Funds or -------------------------------------------------- their affiliates have an agreement with the Company to pay the Company for administrative and shareholder services provided to the underlying Fund. The Company applied these payments to reduce its charges to the sub-account investing in that Fund. In addition, the Company currently reimburses or credits certain sub-accounts a portion of the Company's mortality and expense risk charges. Such crediting arrangements are voluntary, and may be changed by the Company at any time. The reimbursements are included on the reimbursement of expenses line of the Statements of Operations and Changes in Net Assets. The expense reimbursements are credited at the annual rate of 0.25 percent. SALES AND ADMINISTRATIVE CHARGE: Certain purchase payments to certain products ------------------------------- are subject to a sales and administrative charge. The percentage rate charged is based on the amount of purchase payment received. These charges are included as part of the payments received from contract owners line in the Statements of Operations and Changes in Net Assets. PREMIUM TAX CHARGE: Certain states charge taxes on purchase payments up to a ------------------ maximum of 3.50 percent. Some states assess premium taxes at the time of purchase payments, while some other states assess premium taxes when annuity payments begin or upon surrender. There are certain states that do not assess premium taxes. If the law of the state requires premium taxes to be paid when purchase payments are made, the Company will deduct the tax from such payments prior to depositing the payments into the separate account. Otherwise, such tax will be deducted from the account value when annuity payments are to begin. Premium taxes are included as part of the payments received from contract owners line in the Statements of Operations and Changes in Net Assets. GUARANTEED MINIMUM WITHDRAWAL BENEFIT (GMWB) CHARGE: Daily charges for the GMWB --------------------------------------------------- rider are assessed through the daily unit value calculation on all policies that have elected this option. These charges are included as part of the contract maintenance charges line in the Statements of Operations and Changes in Net Assets. The annualized GMWB charge is 0.65 percent. -------------------------------------------------------------------------------- 37 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. PURCHASES AND SALES OF INVESTMENTS For the year ended December 31, 2016, the aggregate cost of purchases and proceeds from the sales of investments were:
Sub-accounts Cost of Purchases Proceeds from Sales ------------ ----------------- ------------------- American Beacon Holland Large Cap Growth Fund I Investor $ 2,877,418 $ 9,132,616 AST Capital Appreciation Portfolio Class 3 711,576 167,724 AST Government and Quality Bond Portfolio Class 3 1,174,441 21,381 AST SA BlackRock Multi-Asset Income Portfolio Class 3 107,855 801 AST Natural Resources Portfolio Class 3 13,459 1,469 Ariel Appreciation Fund Investor Class 81,385,552 55,991,681 Ariel Fund Investor Class 42,911,793 56,999,835 FTVIP Franklin Founding Funds Allocation VIP Fund Class 2 3,485 67 FTVIP Franklin Income VIP Fund Class 2 164,993 38,960 Goldman Sachs VIT Government Money Market Fund Service Class 1,459,584 1,284,220 Invesco V.I. Balanced-Risk Commodity Strategy Fund Class R5 14,090,114 89,435,988 Invesco V.I. Comstock Fund Series II 658,432 51,416 Invesco V.I. Growth and Income Fund Series II 780,675 59,068 Lord Abbett Fund Growth and Income Portfolio Class VC 74,005 6,515 SST Allocation Balanced Portfolio Class 3 458,894 1,980 SST Allocation Growth Portfolio Class 3 305,487 5,130 SST Allocation Moderate Growth Portfolio Class 3 324,716 9,052 SST Allocation Moderate Portfolio Class 3 801,319 4,702 SST Real Return Portfolio Class 3 383,846 7,119 SunAmerica 2020 High Watermark Fund Class I 217,202 803,224 SAST Aggressive Growth Portfolio Class 3 70,323 6,918 SAST SA AB Growth Portfolio Class 3 185,856 15,095 SAST American Funds Asset Allocation Portfolio Class 3 2,842,982 29,575 SAST American Funds Global Growth Portfolio Class 3 547,659 26,943 SAST American Funds Growth Portfolio Class 3 396,268 7,864 SAST American Funds Growth-Income Portfolio Class 3 942,098 19,051 SAST Balanced Portfolio Class 3 503,403 15,538 SAST BlackRock VCP Global Multi-Asset Portfolio Class 3 11,696,446 11,696 SAST Blue Chip Growth Portfolio Class 3 416,476 17,062 SAST Capital Growth Portfolio Class 3 302,979 15,141 SAST Corporate Bond Portfolio Class 3 1,829,361 38,468 SAST Dogs of Wall Street Portfolio Class 3 1,151,966 25,118 SAST Dynamic Allocation Portfolio Class 3 21,562,038 961,827 SAST Dynamic Strategy Portfolio Class 3 17,203,731 1,302,839 SAST Emerging Markets Portfolio Class 3 137,209 9,860 SAST Equity Opportunities Portfolio Class 3 418,228 40,672 SAST Foreign Value Portfolio Class 3 315,619 16,546 SAST Global Bond Portfolio Class 3 853,867 14,949 SAST Global Equities Portfolio Class 3 1,751 7 SAST Growth Opportunities Portfolio Class 3 9,337 290 SAST Growth-Income Portfolio Class 3 771,828 43,875 SAST High-Yield Bond Portfolio Class 3 251,431 15,955 SAST International Diversified Equities Portfolio Class 3 430,839 17,726 SAST International Growth and Income Portfolio Class 3 91,721 587 SAST SA MFS Massachusetts Investors Trust Portfolio Class 3 736,365 34,083 SAST SA MFS Total Return Bond Portfolio Class 3 479,693 72,325 SAST Mid-Cap Growth Portfolio Class 3 24,103 2,860 SAST Real Estate Portfolio Class 3 47,877 5,617 SAST SA Janus Focused Growth Portfolio Class 3 176,487 8,520 SAST SA JPMorgan MFS Core Bond Portfolio Class 3 1,557,415 37,405 SAST SA Legg Mason BW Large Cap Value Portfolio Class 3 548,376 28,146 SAST Schroder's VCP Global Allocation Portfolio Class 3 5,987,882 17,513 SAST Small & Mid Cap Value Portfolio Class 3 243,587 22,717 SAST Small Company Value Portfolio Class 3 167,807 12,982 SAST SA T. Rowe Price VCP Balanced Portfolio Class 3 9,347,692 14,908 SAST Technology Portfolio Class 3 36,255 9,238 SAST Telecom Utility Portfolio Class 3 41,008 1,704 SAST Ultra Short Bond Portfolio Class 3 1,915,031 1,756,228 SAST VCP Managed Asset Allocation SAST Portfolio Class 3 14,849,061 393,479 SAST VCP Total Return Balanced Portfolio Class 3 10,226,482 87,832 SAST VCP Value Portfolio Class 3 5,048,435 410,908 T. Rowe Price Retirement 2015 Advisor Class 5,864,149 2,000,571 T. Rowe Price Retirement 2020 Advisor Class 8,131,489 1,485,482
-------------------------------------------------------------------------------- 38 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Sub-accounts Cost of Purchases Proceeds from Sales ------------ ----------------- ------------------- T. Rowe Price Retirement 2025 Advisor Class 6,389,914 1,297,957 T. Rowe Price Retirement 2030 Advisor Class 6,477,761 1,166,548 T. Rowe Price Retirement 2035 Advisor Class 5,069,680 313,719 T. Rowe Price Retirement 2040 Advisor Class 5,408,838 1,479,124 T. Rowe Price Retirement 2045 Advisor Class 3,365,016 855,624 T. Rowe Price Retirement 2050 Advisor Class 2,171,035 201,504 T. Rowe Price Retirement 2055 Advisor Class 918,412 283,892 T. Rowe Price Retirement 2060 Advisor Class 561,992 285,890 Vanguard LifeStrategy Conservative Growth Fund Inv Shares 13,116,035 11,736,863 Vanguard LifeStrategy Growth Fund Inv Shares 16,745,347 16,002,117 Vanguard LifeStrategy Moderate Growth Fund Inv Shares 17,187,818 22,297,348 Vanguard Long-Term Investment-Grade Fund Inv Shares 133,452,146 72,335,667 Vanguard Long-Term Treasury Fund Inv Shares 50,599,176 32,453,885 Vanguard Wellington Fund Inv Shares 112,656,735 138,457,091 Vanguard Windsor II Fund Inv Shares 135,745,955 175,536,923 VALIC Company I Asset Allocation Fund 28,145,395 22,209,498 VALIC Company I Blue Chip Growth Fund 90,045,513 60,910,108 VALIC Company I Broad Cap Value Fund 8,353,448 9,901,575 VALIC Company I Capital Conservation Fund 23,817,076 43,492,422 VALIC Company I Core Equity Fund 3,311,966 27,105,580 VALIC Company I Dividend Value Fund 214,359,582 82,907,009 VALIC Company I Dynamic Allocation Fund 19,870,051 26,251,053 VALIC Company I Emerging Economies Fund 121,051,258 53,135,209 VALIC Company I Foreign Value Fund 35,211,433 87,374,520 VALIC Company I Global Real Estate Fund 42,745,409 60,902,200 VALIC Company I Global Social Awareness Fund 40,842,499 27,327,378 VALIC Company I Global Strategy Fund 63,294,172 67,839,740 VALIC Company I Government Money Market I Fund 72,351,617 69,597,383 VALIC Company I Government Securities Fund 27,075,689 18,402,801 VALIC Company I Growth & Income Fund 18,296,036 24,919,967 VALIC Company I Growth Fund 205,757,154 200,561,921 VALIC Company I Health Sciences Fund 135,437,352 166,211,552 VALIC Company I Inflation Protected Fund 41,128,743 75,866,480 VALIC Company I International Equities Index Fund 107,047,197 88,611,407 VALIC Company I International Government Bond Fund 65,396,482 31,443,719 VALIC Company I International Growth Fund 51,418,466 79,032,432 VALIC Company I Large Cap Core Fund 38,999,802 30,828,083 VALIC Company I Large Capital Growth Fund 23,539,592 37,912,104 VALIC Company I Mid Cap Index Fund 417,605,863 293,234,607 VALIC Company I Mid Cap Strategic Growth Fund 33,315,945 28,672,518 VALIC Company I Nasdaq-100 Index Fund 36,585,895 32,136,921 VALIC Company I Science & Technology Fund 173,705,836 90,550,455 VALIC Company I Small Cap Aggressive Growth Fund 25,900,751 20,562,507 VALIC Company I Small Cap Fund 52,788,344 35,085,911 VALIC Company I Small Cap Index Fund 152,805,257 116,199,603 VALIC Company I Small Cap Special Values Fund 47,732,451 24,811,037 VALIC Company I Small Mid Growth Fund 13,048,101 21,815,677 VALIC Company I Stock Index Fund 491,535,485 415,999,252 VALIC Company I Value Fund 5,264,197 14,068,348 VALIC Company II Aggressive Growth Lifestyle Fund 68,056,856 43,361,704 VALIC Company II Capital Appreciation Fund 5,775,552 5,998,748 VALIC Company II Conservative Growth Lifestyle Fund 39,144,596 29,892,860 VALIC Company II Core Bond Fund 167,617,697 217,047,680 VALIC Company II Government Money Market II Fund 48,284,446 83,533,695 VALIC Company II High Yield Bond Fund 110,753,066 48,131,414 VALIC Company II International Opportunities Fund 12,209,906 97,207,386 VALIC Company II Large Cap Value Fund 36,077,587 36,183,935 VALIC Company II Mid Cap Growth Fund 11,025,301 35,692,991 VALIC Company II Mid Cap Value Fund 175,028,539 83,680,041 VALIC Company II Moderate Growth Lifestyle Fund 100,786,656 56,042,616 VALIC Company II Small Cap Growth Fund 13,011,130 17,054,349 VALIC Company II Small Cap Value Fund 90,822,643 79,118,259 VALIC Company II Socially Responsible Fund 61,541,849 75,915,944 VALIC Company II Strategic Bond Fund 64,029,329 61,594,318
-------------------------------------------------------------------------------- 39 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. FINANCIAL HIGHLIGHTS The summary of unit values and units outstanding for sub-accounts, investment income ratios, total return and expense ratios, excluding expenses of the underlying mutual funds, for each of the five years in the period ended December 31, 2016, follows:
December 31, 2016 ---------------------------------------------- Unit Value ($)/(a)/ ------------------- Net Sub-accounts Units Lowest Highest Assets ($)/(b)/ ------------ ----------- ------ ------- -------------- American Beacon Holland Large Cap Growth Fund I Investor 32,266,230 1.59 1.87 57,402,067 AST Capital Appreciation Portfolio Class 3 36,912 22.35 23.74 868,788 AST Government and Quality Bond Portfolio Class 3 117,329 11.61 12.25 1,428,187 AST SA BlackRock Multi-Asset Income Portfolio Class 3 8,433 11.34 95,603 AST Natural Resources Portfolio Class 3 1,604 8.40 13,477 Ariel Appreciation Fund Investor Class 125,520,695 1.65 1.92 415,560,302 Ariel Fund Investor Class 127,747,087 1.70 1.81 438,241,476 FTVIP Franklin Founding Funds Allocation VIP Fund Class 2 266 13.16 3,499 FTVIP Franklin Income VIP Fund Class 2 46,142 13.38 14.17 645,658 Goldman Sachs VIT Government Money Market Fund Service Class 17,691 9.90 9.92 175,364 Invesco V.I. Balanced-Risk Commodity Strategy Fund Class R5 301,402,901 0.62 0.66 195,116,290 Invesco V.I. Comstock Fund Series II 56,339 15.82 16.70 931,540 Invesco V.I. Growth and Income Fund Series II 62,992 16.53 17.46 1,088,719 Lord Abbett Fund Growth and Income Portfolio Class VC 6,154 14.58 14.86 91,268 SST Allocation Balanced Portfolio Class 3 34,416 14.14 14.40 491,121 SST Allocation Growth Portfolio Class 3 33,942 14.70 14.98 506,053 SST Allocation Moderate Growth Portfolio Class 3 52,648 13.96 14.39 739,763 SST Allocation Moderate Portfolio Class 3 56,236 14.24 14.49 803,369 SST Real Return Portfolio Class 3 45,485 10.98 11.46 515,635 SunAmerica 2020 High Watermark Fund Class I 6,492,610 1.13 1.18 7,332,778 SAST Aggressive Growth Portfolio Class 3 5,710 13.05 13.34 74,893 SAST SA AB Growth Portfolio Class 3 11,303 19.08 19.74 222,745 SAST American Funds Asset Allocation Portfolio Class 3 180,815 14.96 15.81 2,808,498 SAST American Funds Global Growth Portfolio Class 3 37,883 15.53 16.41 617,828 SAST American Funds Growth Portfolio Class 3 30,147 16.52 17.43 520,813 SAST American Funds Growth-Income Portfolio Class 3 58,048 16.22 16.70 967,240 SAST Balanced Portfolio Class 3 36,719 15.92 16.24 595,830 SAST BlackRock VCP Global Multi-Asset Portfolio Class 3 1,113,436 10.37 10.40 11,580,535 SAST Blue Chip Growth Portfolio Class 3 30,624 16.11 17.05 518,139 SAST Capital Growth Portfolio Class 3 27,812 14.39 15.26 420,253 SAST Corporate Bond Portfolio Class 3 126,890 15.97 16.88 2,115,527 SAST Dogs of Wall Street Portfolio Class 3 59,711 21.04 22.29 1,320,918 SAST Dynamic Allocation Portfolio Class 3 3,549,403 11.77 12.12 43,002,007 SAST Dynamic Strategy Portfolio Class 3 2,976,061 11.75 12.07 35,910,454 SAST Emerging Markets Portfolio Class 3 19,458 9.28 9.83 189,777 SAST Equity Opportunities Portfolio Class 3 51,588 16.39 17.33 889,133 SAST Foreign Value Portfolio Class 3 40,197 9.72 10.24 408,274 SAST Global Bond Portfolio Class 3 78,294 11.40 12.02 938,530 SAST Global Equities Portfolio Class 3 141 12.75 1,800 SAST Growth Opportunities Portfolio Class 3 1,591 17.99 28,621 SAST Growth-Income Portfolio Class 3 62,380 16.38 17.23 1,066,113 SAST High-Yield Bond Portfolio Class 3 22,591 14.13 15.01 330,929 SAST International Diversified Equities Portfolio Class 3 51,515 9.41 9.96 508,712 SAST International Growth and Income Portfolio Class 3 10,671 8.41 8.69 91,918 SAST SA MFS Massachusetts Investors Trust Portfolio Class 3 54,991 16.99 18.04 981,427 SAST SA MFS Total Return Bond Portfolio Class 3 29,294 15.02 15.32 480,060 SAST Mid-Cap Growth Portfolio Class 3 3,481 19.16 19.73 67,576 SAST Real Estate Portfolio Class 3 4,272 12.41 12.65 53,937 SAST SA Janus Focused Growth Portfolio Class 3 16,283 15.05 15.94 256,997 SAST SA JPMorgan MFS Core Bond Portfolio Class 3 150,574 11.65 13.90 2,067,602 SAST SA Legg Mason BW Large Cap Value Portfolio Class 3 39,617 15.38 16.23 636,897 SAST Schroder's VCP Global Allocation Portfolio Class 3 553,684 10.82 10.84 6,003,699 SAST Small & Mid Cap Value Portfolio Class 3 16,090 20.38 21.51 342,554 SAST Small Company Value Portfolio Class 3 14,310 17.22 18.16 257,984 SAST SA T. Rowe Price VCP Balanced Portfolio Class 3 890,030 10.55 10.59 9,423,063 SAST Technology Portfolio Class 3 3,283 19.91 20.30 66,469 SAST Telecom Utility Portfolio Class 3 2,333 16.74 17.18 39,868 SAST Ultra Short Bond Portfolio Class 3 22,197 8.69 8.96 209,131
For the Year Ended December 31, 2016 ------------------------------------------- Expense Total Investment Ratio (%)/(d)/ Return (%)/(e)/ Income -------------- -------------- Sub-accounts Ratio (%)/(c)/ Lowest Highest Lowest Highest ------------ ------------- ------ ------- ------ ------- American Beacon Holland Large Cap Growth Fund I Investor 0.00 0.60 1.85 0.01 1.27 AST Capital Appreciation Portfolio Class 3 0.00 1.30 1.90 -0.18 0.42 AST Government and Quality Bond Portfolio Class 3 1.26 1.30 1.90 -2.67 -0.09 AST SA BlackRock Multi-Asset Income Portfolio Class 3 3.28 1.30 4.90 AST Natural Resources Portfolio Class 3 3.61 1.30 27.97 Ariel Appreciation Fund Investor Class 0.67 0.40 1.85 10.60 12.22 Ariel Fund Investor Class 0.29 0.40 1.85 13.45 15.10 FTVIP Franklin Founding Funds Allocation VIP Fund Class 2 3.54 1.30 11.72 FTVIP Franklin Income VIP Fund Class 2 5.09 1.30 1.90 11.88 12.55 Goldman Sachs VIT Government Money Market Fund Service Class 0.04 1.30 1.55 -1.00 -0.84 Invesco V.I. Balanced-Risk Commodity Strategy Fund Class R5 2.36 0.60 1.85 9.91 11.29 Invesco V.I. Comstock Fund Series II 1.47 1.30 1.90 14.79 15.48 Invesco V.I. Growth and Income Fund Series II 0.99 1.30 1.90 17.19 17.89 Lord Abbett Fund Growth and Income Portfolio Class VC 2.67 1.30 1.55 15.32 15.61 SST Allocation Balanced Portfolio Class 3 1.74 1.30 1.55 3.62 3.88 SST Allocation Growth Portfolio Class 3 2.31 1.30 1.55 4.12 4.38 SST Allocation Moderate Growth Portfolio Class 3 1.76 1.30 1.65 3.93 4.29 SST Allocation Moderate Portfolio Class 3 1.87 1.30 1.55 3.95 4.21 SST Real Return Portfolio Class 3 0.00 1.30 1.90 1.75 2.36 SunAmerica 2020 High Watermark Fund Class I 2.83 0.85 1.25 0.27 0.67 SAST Aggressive Growth Portfolio Class 3 0.00 1.30 1.55 5.47 5.73 SAST SA AB Growth Portfolio Class 3 0.00 1.30 1.65 0.88 1.24 SAST American Funds Asset Allocation Portfolio Class 3 2.14 1.30 1.90 7.69 7.77 SAST American Funds Global Growth Portfolio Class 3 2.01 1.30 1.90 -1.54 -0.95 SAST American Funds Growth Portfolio Class 3 0.35 1.30 1.90 7.13 7.77 SAST American Funds Growth-Income Portfolio Class 3 1.43 1.30 1.65 9.39 9.78 SAST Balanced Portfolio Class 3 1.88 1.30 1.55 5.26 5.52 SAST BlackRock VCP Global Multi-Asset Portfolio Class 3 0.06 1.30 1.65 3.67 4.01 SAST Blue Chip Growth Portfolio Class 3 0.45 1.30 1.90 4.09 4.72 SAST Capital Growth Portfolio Class 3 0.00 1.30 1.90 0.18 0.78 SAST Corporate Bond Portfolio Class 3 3.91 1.30 1.90 4.29 7.08 SAST Dogs of Wall Street Portfolio Class 3 1.98 1.30 1.90 15.43 16.12 SAST Dynamic Allocation Portfolio Class 3 1.75 1.30 1.90 2.55 3.16 SAST Dynamic Strategy Portfolio Class 3 1.67 1.30 1.90 3.18 3.80 SAST Emerging Markets Portfolio Class 3 1.89 1.30 1.90 8.36 9.01 SAST Equity Opportunities Portfolio Class 3 0.57 1.30 1.90 9.29 9.95 SAST Foreign Value Portfolio Class 3 1.91 1.30 1.90 -0.74 -0.15 SAST Global Bond Portfolio Class 3 0.08 1.30 1.90 -0.95 -0.25 SAST Global Equities Portfolio Class 3 0.61 1.30 4.04 SAST Growth Opportunities Portfolio Class 3 0.00 1.30 2.32 SAST Growth-Income Portfolio Class 3 1.95 1.30 1.90 13.10 13.78 SAST High-Yield Bond Portfolio Class 3 8.15 1.30 1.90 13.00 16.44 SAST International Diversified Equities Portfolio Class 3 1.08 1.30 1.90 -4.04 -3.46 SAST International Growth and Income Portfolio Class 3 0.71 1.30 1.65 -0.40 -0.05 SAST SA MFS Massachusetts Investors Trust Portfolio Class 3 0.73 1.30 1.90 6.33 6.97 SAST SA MFS Total Return Bond Portfolio Class 3 2.72 1.30 1.55 7.13 7.40 SAST Mid-Cap Growth Portfolio Class 3 0.00 1.30 1.65 -1.68 -1.34 SAST Real Estate Portfolio Class 3 2.05 1.30 1.55 6.70 6.96 SAST SA Janus Focused Growth Portfolio Class 3 0.00 1.30 1.90 -3.54 -2.96 SAST SA JPMorgan MFS Core Bond Portfolio Class 3 1.99 1.30 1.90 1.18 1.79 SAST SA Legg Mason BW Large Cap Value Portfolio Class 3 0.71 1.30 1.90 12.17 12.84 SAST Schroder's VCP Global Allocation Portfolio Class 3 0.00 1.30 1.55 8.19 8.45 SAST Small & Mid Cap Value Portfolio Class 3 0.17 1.30 1.90 22.31 23.04 SAST Small Company Value Portfolio Class 3 0.47 1.30 1.90 28.11 28.88 SAST SA T. Rowe Price VCP Balanced Portfolio Class 3 0.34 1.30 1.65 6.72 6.82 SAST Technology Portfolio Class 3 0.00 1.30 1.55 14.75 15.04 SAST Telecom Utility Portfolio Class 3 4.37 1.30 1.55 8.60 8.87 SAST Ultra Short Bond Portfolio Class 3 0.00 1.30 1.65 -1.97 -1.63
-------------------------------------------------------------------------------- 40 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2016 ---------------------------------------------- Unit Value ($)/(a)/ ------------------- Net Sub-accounts Units Lowest Highest Assets ($)/(b)/ ------------ ----------- ------ ------- -------------- SAST VCP Managed Asset Allocation SAST Portfolio Class 3 1,625,830 12.27 12.44 20,214,005 SAST VCP Total Return Balanced Portfolio Class 3 1,270,952 11.22 11.37 14,441,076 SAST VCP Value Portfolio Class 3 802,230 12.21 12.32 9,879,362 T. Rowe Price Retirement 2015 Advisor Class 5,704,323 1.04 1.05 5,915,079 T. Rowe Price Retirement 2020 Advisor Class 13,032,049 1.04 1.05 13,544,551 T. Rowe Price Retirement 2025 Advisor Class 9,816,678 1.04 1.05 10,232,738 T. Rowe Price Retirement 2030 Advisor Class 9,928,524 1.04 1.06 10,376,356 T. Rowe Price Retirement 2035 Advisor Class 7,748,441 1.05 8,104,234 T. Rowe Price Retirement 2040 Advisor Class 7,310,704 1.05 1.06 7,646,811 T. Rowe Price Retirement 2045 Advisor Class 4,316,183 1.05 1.06 4,519,088 T. Rowe Price Retirement 2050 Advisor Class 2,927,475 1.05 1.06 3,065,383 T. Rowe Price Retirement 2055 Advisor Class 1,140,956 1.05 1.06 1,194,321 T. Rowe Price Retirement 2060 Advisor Class 708,969 1.05 1.06 742,650 Vanguard LifeStrategy Conservative Growth Fund Inv Shares 42,667,897 1.21 2.19 87,064,491 Vanguard LifeStrategy Growth Fund Inv Shares 96,702,868 1.37 2.42 218,344,085 Vanguard LifeStrategy Moderate Growth Fund Inv Shares 102,772,385 1.30 2.36 226,264,382 Vanguard Long-Term Investment-Grade Fund Inv Shares 85,760,846 1.37 1.84 293,362,656 Vanguard Long-Term Treasury Fund Inv Shares 73,586,886 1.30 1.71 241,608,557 Vanguard Wellington Fund Inv Shares 439,520,652 1.50 1.66 1,818,946,852 Vanguard Windsor II Fund Inv Shares 431,195,785 1.49 1.69 1,694,716,004 VALIC Company I Asset Allocation Fund 20,870,982 1.34 8.95 160,419,945 VALIC Company I Blue Chip Growth Fund 296,981,404 1.85 2.00 556,809,759 VALIC Company I Broad Cap Value Fund 24,571,826 1.71 1.99 46,787,694 VALIC Company I Capital Conservation Fund 38,515,466 1.08 4.19 144,459,223 VALIC Company I Core Equity Fund 64,571,955 1.52 1.69 236,958,128 VALIC Company I Dividend Value Fund 223,573,305 1.59 1.80 675,597,795 VALIC Company I Dynamic Allocation Fund 205,756,033 1.14 1.19 241,268,323 VALIC Company I Emerging Economies Fund 733,157,892 0.62 0.81 614,843,884 VALIC Company I Foreign Value Fund 581,021,306 0.97 1.07 752,759,884 VALIC Company I Global Real Estate Fund 244,712,308 1.29 1.38 327,651,930 VALIC Company I Global Social Awareness Fund 64,573,236 1.30 1.46 382,685,355 VALIC Company I Global Strategy Fund 214,909,453 1.27 1.97 406,455,323 VALIC Company I Government Money Market I Fund 163,996,811 0.90 1.00 324,004,925 VALIC Company I Government Securities Fund 31,411,762 1.05 4.02 109,583,866 VALIC Company I Growth & Income Fund 27,491,527 1.63 4.17 105,060,295 VALIC Company I Growth Fund 483,872,585 1.60 1.65 866,903,856 VALIC Company I Health Sciences Fund 165,775,531 2.61 4.30 671,812,946 VALIC Company I Inflation Protected Fund 321,032,128 1.03 1.34 412,297,625 VALIC Company I International Equities Index Fund 481,966,613 1.03 2.00 871,140,427 VALIC Company I International Government Bond Fund 62,101,781 0.97 1.26 181,845,967 VALIC Company I International Growth Fund 138,846,105 1.09 2.88 368,095,001 VALIC Company I Large Cap Core Fund 60,196,973 1.81 2.48 142,972,826 VALIC Company I Large Capital Growth Fund 207,313,236 1.43 1.47 368,041,985 VALIC Company I Mid Cap Index Fund 163,461,466 1.77 1.98 3,198,448,688 VALIC Company I Mid Cap Strategic Growth Fund 110,264,905 1.39 230,093,583 VALIC Company I Nasdaq-100 Index Fund 225,863,789 1.40 2.05 299,014,678 VALIC Company I Science & Technology Fund 179,094,645 1.78 1.94 920,374,886 VALIC Company I Small Cap Aggressive Growth Fund 49,417,602 1.57 2.25 106,752,000 VALIC Company I Small Cap Fund 63,357,719 1.65 1.79 315,020,335 VALIC Company I Small Cap Index Fund 161,282,233 1.67 1.77 1,056,873,669 VALIC Company I Small Cap Special Values Fund 124,786,134 1.80 2.05 245,467,708 VALIC Company I Small Mid Growth Fund 62,534,119 1.42 1.65 99,380,094 VALIC Company I Stock Index Fund 438,663,027 1.77 81.66 3,985,297,949 VALIC Company I Value Fund 41,890,640 1.64 2.30 91,300,280 VALIC Company II Aggressive Growth Lifestyle Fund 179,473,955 1.43 3.17 530,487,019 VALIC Company II Capital Appreciation Fund 20,863,767 1.68 1.87 36,509,166 VALIC Company II Conservative Growth Lifestyle Fund 118,462,070 1.25 2.94 323,748,368 VALIC Company II Core Bond Fund 449,371,836 1.11 1.47 892,797,494 VALIC Company II Government Money Market II Fund 109,867,124 0.91 1.30 134,153,010 VALIC Company II High Yield Bond Fund 168,773,678 1.27 2.87 449,284,525 VALIC Company II International Opportunities Fund 229,789,203 1.10 2.35 504,126,294 VALIC Company II Large Cap Value Fund 66,351,638 1.73 3.34 203,980,017 VALIC Company II Mid Cap Growth Fund 52,595,301 1.33 2.05 100,676,950 VALIC Company II Mid Cap Value Fund 160,086,694 1.63 1.68 919,346,687 VALIC Company II Moderate Growth Lifestyle Fund 280,843,771 1.37 3.22 842,935,369
For the Year Ended December 31, 2016 ------------------------------------------- Expense Total Investment Ratio (%)/(d)/ Return (%)/(e)/ Income -------------- -------------- Sub-accounts Ratio (%)/(c)/ Lowest Highest Lowest Highest ------------ ------------- ------ ------- ------ ------- SAST VCP Managed Asset Allocation SAST Portfolio Class 3 0.77 1.30 1.65 5.26 5.62 SAST VCP Total Return Balanced Portfolio Class 3 0.00 1.30 1.65 5.04 5.40 SAST VCP Value Portfolio Class 3 0.66 1.30 1.55 8.16 8.43 T. Rowe Price Retirement 2015 Advisor Class 2.31 0.40 1.00 5.97 6.61 T. Rowe Price Retirement 2020 Advisor Class 2.00 0.40 1.00 6.09 6.72 T. Rowe Price Retirement 2025 Advisor Class 1.84 0.40 1.00 6.18 6.82 T. Rowe Price Retirement 2030 Advisor Class 1.78 0.40 1.00 6.35 6.99 T. Rowe Price Retirement 2035 Advisor Class 1.68 0.60 1.00 6.29 6.71 T. Rowe Price Retirement 2040 Advisor Class 1.46 0.40 1.00 6.27 6.91 T. Rowe Price Retirement 2045 Advisor Class 1.45 0.40 1.00 6.41 7.04 T. Rowe Price Retirement 2050 Advisor Class 1.49 0.40 1.00 6.39 7.03 T. Rowe Price Retirement 2055 Advisor Class 1.44 0.40 1.00 6.39 7.03 T. Rowe Price Retirement 2060 Advisor Class 1.21 0.80 1.00 6.38 7.02 Vanguard LifeStrategy Conservative Growth Fund Inv Shares 2.23 0.85 2.10 3.71 5.01 Vanguard LifeStrategy Growth Fund Inv Shares 2.26 0.85 2.10 6.08 7.41 Vanguard LifeStrategy Moderate Growth Fund Inv Shares 2.23 0.85 2.10 4.91 6.23 Vanguard Long-Term Investment-Grade Fund Inv Shares 4.90 0.40 1.85 5.84 7.38 Vanguard Long-Term Treasury Fund Inv Shares 2.79 0.40 1.85 -0.66 0.79 Vanguard Wellington Fund Inv Shares 2.58 0.65 2.10 8.71 10.30 Vanguard Windsor II Fund Inv Shares 2.41 0.65 2.10 11.06 12.68 VALIC Company I Asset Allocation Fund 2.03 0.60 1.85 5.35 6.67 VALIC Company I Blue Chip Growth Fund 0.00 0.60 1.85 -0.99 0.25 VALIC Company I Broad Cap Value Fund 1.39 0.60 1.85 11.76 13.17 VALIC Company I Capital Conservation Fund 2.05 0.60 1.85 0.40 1.66 VALIC Company I Core Equity Fund 1.08 0.40 1.85 10.65 12.26 VALIC Company I Dividend Value Fund 2.12 0.40 1.85 14.58 16.25 VALIC Company I Dynamic Allocation Fund 2.00 0.60 1.85 2.93 4.22 VALIC Company I Emerging Economies Fund 2.60 0.40 1.85 9.44 11.03 VALIC Company I Foreign Value Fund 2.21 0.40 1.85 10.05 11.65 VALIC Company I Global Real Estate Fund 3.14 0.60 1.85 0.40 1.66 VALIC Company I Global Social Awareness Fund 1.89 0.40 1.85 4.99 6.52 VALIC Company I Global Strategy Fund 6.06 0.60 1.85 3.37 4.66 VALIC Company I Government Money Market I Fund 0.01 0.40 1.85 -1.82 -0.39 VALIC Company I Government Securities Fund 2.43 0.60 1.85 -0.63 0.62 VALIC Company I Growth & Income Fund 1.24 0.60 1.85 9.19 10.56 VALIC Company I Growth Fund 0.64 0.40 1.85 2.87 4.37 VALIC Company I Health Sciences Fund 0.00 0.60 1.85 -12.13 -11.03 VALIC Company I Inflation Protected Fund 1.22 0.60 1.85 1.90 3.18 VALIC Company I International Equities Index Fund 2.67 0.60 1.85 -0.59 0.65 VALIC Company I International Government Bond Fund 2.55 0.40 1.85 1.81 3.29 VALIC Company I International Growth Fund 1.44 0.60 1.85 -4.53 -3.33 VALIC Company I Large Cap Core Fund 3.44 0.60 1.85 6.63 7.96 VALIC Company I Large Capital Growth Fund 0.89 0.40 1.85 4.21 5.72 VALIC Company I Mid Cap Index Fund 1.19 0.40 1.85 18.42 20.14 VALIC Company I Mid Cap Strategic Growth Fund 0.00 0.40 1.85 7.68 9.25 VALIC Company I Nasdaq-100 Index Fund 0.65 0.60 1.85 4.82 6.13 VALIC Company I Science & Technology Fund 0.00 0.40 1.85 5.37 6.90 VALIC Company I Small Cap Aggressive Growth Fund 0.00 0.60 1.85 -0.07 1.19 VALIC Company I Small Cap Fund 0.20 0.40 1.85 13.18 14.83 VALIC Company I Small Cap Index Fund 1.19 0.40 1.85 18.96 20.70 VALIC Company I Small Cap Special Values Fund 1.42 0.60 1.85 27.47 29.07 VALIC Company I Small Mid Growth Fund 0.00 0.60 1.85 -1.61 -0.37 VALIC Company I Stock Index Fund 2.44 0.33 1.85 9.56 11.23 VALIC Company I Value Fund 1.48 0.60 1.85 11.24 12.63 VALIC Company II Aggressive Growth Lifestyle Fund 2.06 0.35 1.60 7.06 8.40 VALIC Company II Capital Appreciation Fund 0.38 0.35 1.60 0.44 1.70 VALIC Company II Conservative Growth Lifestyle Fund 2.78 0.35 1.60 4.95 6.27 VALIC Company II Core Bond Fund 2.08 0.15 1.60 1.80 3.29 VALIC Company II Government Money Market II Fund 0.01 0.35 1.60 -1.58 -0.34 VALIC Company II High Yield Bond Fund 4.03 0.35 1.60 11.11 12.50 VALIC Company II International Opportunities Fund 1.11 0.35 1.60 -2.13 -0.90 VALIC Company II Large Cap Value Fund 1.10 0.35 1.60 15.22 16.66 VALIC Company II Mid Cap Growth Fund 0.00 0.35 1.60 3.02 4.31 VALIC Company II Mid Cap Value Fund 0.26 0.15 1.60 12.26 13.89 VALIC Company II Moderate Growth Lifestyle Fund 2.20 0.35 1.60 6.69 8.02
-------------------------------------------------------------------------------- 41 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2016 ---------------------------------------------- Unit Value ($)/(a)/ ------------------- Net Sub-accounts Units Lowest Highest Assets ($)/(b)/ ------------ ----------- ------ ------- -------------- VALIC Company II Small Cap Growth Fund 27,036,435 1.54 2.99 75,435,259 VALIC Company II Small Cap Value Fund 116,675,370 1.69 1.85 502,254,358 VALIC Company II Socially Responsible Fund 268,366,950 1.86 2.94 734,092,410 VALIC Company II Strategic Bond Fund 210,077,767 1.18 3.01 585,263,049
For the Year Ended December 31, 2016 ------------------------------------------- Expense Total Investment Ratio (%)/(d)/ Return (%)/(e)/ Income -------------- -------------- Sub-accounts Ratio (%)/(c)/ Lowest Highest Lowest Highest ------------ ------------- ------ ------- ------ ------- VALIC Company II Small Cap Growth Fund 0.00 0.35 1.60 6.13 7.46 VALIC Company II Small Cap Value Fund 1.10 0.15 1.60 28.01 29.88 VALIC Company II Socially Responsible Fund 1.38 0.35 1.60 8.90 10.27 VALIC Company II Strategic Bond Fund 4.06 0.35 1.60 6.46 7.79
December 31, 2015 ---------------------------------------------- Unit Value ($)/(a)/ ------------------- Net Sub-accounts Units Lowest Highest Assets ($)/(b)/ ------------ ----------- ------ ------- -------------- American Beacon Holland Large Cap Growth Fund I Investor 36,402,733 1.59 1.85 64,145,435 AST Capital Appreciation Portfolio Class 3 18,110 22.39 23.64 419,241 AST Government and Quality Bond Portfolio Class 3 26,489 11.72 12.26 321,685 Ariel Appreciation Fund Investor Class 126,206,611 1.49 1.71 374,596,539 Ariel Fund Investor Class 139,623,723 1.50 1.57 419,230,749 FTVIP Franklin Income VIP Fund Class 2 37,745 11.95 12.59 470,259 Invesco V.I. Balanced-Risk Commodity Strategy Fund Class R5 420,762,909 0.56 0.59 245,672,269 Invesco V.I. Comstock Fund Series II 18,575 13.79 14.46 265,303 Invesco V.I. Growth and Income Fund Series II 20,145 14.10 14.81 294,368 Lord Abbett Fund Growth and Income Portfolio Class VC 799 12.64 12.85 10,147 SST Allocation Balanced Portfolio Class 3 4,272 13.65 58,297 SST Allocation Growth Portfolio Class 3 13,530 14.11 14.35 193,914 SST Allocation Moderate Growth Portfolio Class 3 36,024 13.43 13.79 484,576 SST Allocation Moderate Portfolio Class 3 2,515 13.70 34,448 SST Real Return Portfolio Class 3 11,926 10.79 11.19 131,683 SunAmerica 2020 High Watermark Fund Class I 7,110,998 1.12 1.17 8,010,875 SAST SA AB Growth Portfolio Class 3 3,638 19.49 70,932 SAST American Funds Asset Allocation Portfolio Class 3 6,262 14.29 14.68 89,751 SAST American Funds Global Growth Portfolio Class 3 10,098 15.78 16.57 165,932 SAST American Funds Growth Portfolio Class 3 11,930 15.42 16.17 191,834 SAST American Funds Growth-Income Portfolio Class 3 6,245 14.82 15.21 94,720 SAST Balanced Portfolio Class 3 7,276 15.12 15.39 111,895 SAST Blue Chip Growth Portfolio Class 3 6,778 15.48 16.28 108,678 SAST Capital Growth Portfolio Class 3 8,464 14.37 15.14 126,402 SAST Corporate Bond Portfolio Class 3 21,890 15.32 15.77 339,016 SAST Dogs of Wall Street Portfolio Class 3 9,124 18.23 19.19 173,246 SAST Dynamic Allocation Portfolio Class 3 1,807,599 11.47 11.75 21,227,843 SAST Dynamic Strategy Portfolio Class 3 1,617,157 11.38 11.63 18,800,023 SAST Emerging Markets Portfolio Class 3 6,195 8.57 9.02 55,196 SAST Equity Opportunities Portfolio Class 3 29,518 15.00 15.77 463,457 SAST Foreign Value Portfolio Class 3 10,671 9.79 10.26 108,148 SAST Global Bond Portfolio Class 3 12,116 11.51 12.05 146,688 SAST Growth Opportunities Portfolio Class 3 1,178 17.59 20,723 SAST Growth-Income Portfolio Class 3 18,540 14.48 15.14 277,641 SAST High-Yield Bond Portfolio Class 3 6,644 12.51 12.89 84,312 SAST International Diversified Equities Portfolio Class 3 9,898 9.81 10.32 100,711 SAST SA MFS Massachusetts Investors Trust Portfolio Class 3 17,316 15.98 16.87 287,880 SAST SA MFS Total Return Bond Portfolio Class 3 3,990 14.02 14.26 56,180 SAST Mid-Cap Growth Portfolio Class 3 2,747 19.49 20.00 54,015 SAST Real Estate Portfolio Class 3 1,039 11.63 11.83 12,294 SAST SA Janus Focused Growth Portfolio Class 3 6,677 15.60 16.43 108,366 SAST SA JPMorgan MFS Core Bond Portfolio Class 3 43,211 13.15 13.66 584,142 SAST SA Legg Mason BW Large Cap Value Portfolio Class 3 11,953 13.71 14.38 169,776 SAST Small & Mid Cap Value Portfolio Class 3 4,448 16.66 17.48 76,754 SAST Small Company Value Portfolio Class 3 5,641 13.44 14.09 78,711 SAST Technology Portfolio Class 3 1,568 17.35 17.65 27,645 SAST Telecom Utility Portfolio Class 3 103 15.42 1,580 SAST Ultra Short Bond Portfolio Class 3 5,360 9.11 51,222 SAST VCP Managed Asset Allocation SAST Portfolio Class 3 434,059 11.65 11.78 5,105,813 SAST VCP Total Return Balanced Portfolio Class 3 344,855 10.68 10.78 3,718,549 SAST VCP Value Portfolio Class 3 388,539 11.25 11.36 4,413,177 T. Rowe Price Retirement 2015 Advisor Class 2,030,235 0.98 1,985,993 T. Rowe Price Retirement 2020 Advisor Class 6,826,146 0.98 6,686,524 T. Rowe Price Retirement 2025 Advisor Class 5,003,166 0.98 0.99 4,910,708 T. Rowe Price Retirement 2030 Advisor Class 5,022,682 0.98 0.99 4,933,109
For the Year Ended December 31 2015 ------------------------------------------- Expense Total Investment Ratio (%)/(d)/ Return (%)/(e)/ Income -------------- -------------- Sub-accounts Ratio (%)/(c)/ Lowest Highest Lowest Highest ------------ ------------- ------ ------- ------ ------- American Beacon Holland Large Cap Growth Fund I Investor 0.00 0.40 1.85 4.40 5.71 AST Capital Appreciation Portfolio Class 3 0.00 1.30 1.90 123.85 136.42 AST Government and Quality Bond Portfolio Class 3 1.54 1.30 1.90 22.58 31.52 Ariel Appreciation Fund Investor Class 0.98 0.40 1.85 -7.94 -6.59 Ariel Fund Investor Class 0.64 0.40 1.85 -5.86 -4.48 FTVIP Franklin Income VIP Fund Class 2 0.00 1.30 1.90 19.55 25.90 Invesco V.I. Balanced-Risk Commodity Strategy Fund Class R5 0.00 0.40 1.85 -18.00 -16.97 Invesco V.I. Comstock Fund Series II 2.49 1.30 1.90 37.85 44.64 Invesco V.I. Growth and Income Fund Series II 3.86 1.30 1.90 41.05 48.07 Lord Abbett Fund Growth and Income Portfolio Class VC 0.00 1.30 1.90 26.42 28.51 SST Allocation Balanced Portfolio Class 3 2.67 1.30 1.90 36.48 SST Allocation Growth Portfolio Class 3 2.87 1.30 1.90 41.14 43.47 SST Allocation Moderate Growth Portfolio Class 3 2.77 1.30 1.90 34.35 37.94 SST Allocation Moderate Portfolio Class 3 2.61 1.30 1.90 36.99 SST Real Return Portfolio Class 3 6.79 1.30 1.90 7.88 11.91 SunAmerica 2020 High Watermark Fund Class I 2.63 0.65 1.25 0.02 0.43 SAST SA AB Growth Portfolio Class 3 0.00 1.30 1.90 94.95 SAST American Funds Asset Allocation Portfolio Class 3 2.63 1.30 1.90 42.85 46.77 SAST American Funds Global Growth Portfolio Class 3 0.88 1.30 1.90 57.78 65.68 SAST American Funds Growth Portfolio Class 3 1.06 1.30 1.90 54.21 61.69 SAST American Funds Growth-Income Portfolio Class 3 0.63 1.30 1.90 48.24 52.12 SAST Balanced Portfolio Class 3 0.00 1.30 1.90 51.22 53.86 SAST Blue Chip Growth Portfolio Class 3 0.23 1.30 1.90 54.77 62.81 SAST Capital Growth Portfolio Class 3 0.00 1.30 1.90 43.67 51.39 SAST Corporate Bond Portfolio Class 3 5.87 1.30 1.90 28.68 57.66 SAST Dogs of Wall Street Portfolio Class 3 2.14 1.30 1.90 82.27 91.95 SAST Dynamic Allocation Portfolio Class 3 1.14 1.30 1.90 14.73 17.49 SAST Dynamic Strategy Portfolio Class 3 0.95 1.30 1.90 13.85 16.29 SAST Emerging Markets Portfolio Class 3 2.46 1.30 1.90 -14.34 -9.84 SAST Equity Opportunities Portfolio Class 3 0.66 1.30 1.90 50.01 57.65 SAST Foreign Value Portfolio Class 3 2.85 1.30 1.90 -2.11 2.58 SAST Global Bond Portfolio Class 3 0.00 1.30 1.90 20.51 53.25 SAST Growth Opportunities Portfolio Class 3 0.00 1.30 1.90 75.86 SAST Growth-Income Portfolio Class 3 2.24 1.30 1.90 44.79 51.42 SAST High-Yield Bond Portfolio Class 3 7.00 1.30 1.90 25.09 28.93 SAST International Diversified Equities Portfolio Class 3 2.60 1.30 1.90 -1.93 3.17 SAST SA MFS Massachusetts Investors Trust Portfolio Class 3 0.85 1.30 1.90 59.78 68.67 SAST SA MFS Total Return Bond Portfolio Class 3 0.80 1.30 1.90 40.21 42.60 SAST Mid-Cap Growth Portfolio Class 3 0.00 1.30 1.90 94.85 99.98 SAST Real Estate Portfolio Class 3 1.56 1.30 1.90 16.32 18.29 SAST SA Janus Focused Growth Portfolio Class 3 0.00 1.30 1.90 55.98 64.29 SAST SA JPMorgan MFS Core Bond Portfolio Class 3 1.53 1.30 1.90 15.13 36.56 SAST SA Legg Mason BW Large Cap Value Portfolio Class 3 0.33 1.30 1.90 37.13 43.80 SAST Small & Mid Cap Value Portfolio Class 3 0.46 1.30 1.90 66.63 74.78 SAST Small Company Value Portfolio Class 3 0.10 1.30 1.90 34.43 40.91 SAST Technology Portfolio Class 3 0.00 1.30 1.90 73.47 76.48 SAST Telecom Utility Portfolio Class 3 0.00 1.30 1.90 54.18 SAST Ultra Short Bond Portfolio Class 3 0.00 1.30 1.90 -8.88 SAST VCP Managed Asset Allocation SAST Portfolio Class 3 0.00 1.30 1.90 16.53 17.81 SAST VCP Total Return Balanced Portfolio Class 3 0.00 1.30 1.90 6.84 7.84 SAST VCP Value Portfolio Class 3 0.23 1.30 1.90 12.54 13.60 T. Rowe Price Retirement 2015 Advisor Class 3.11 0.60 1.00 -1.99 -1.95 T. Rowe Price Retirement 2020 Advisor Class 3.10 0.60 1.00 -1.83 -1.65 T. Rowe Price Retirement 2025 Advisor Class 2.75 0.60 1.00 -1.58 -1.46 T. Rowe Price Retirement 2030 Advisor Class 2.64 0.60 1.00 -1.50 -1.40
-------------------------------------------------------------------------------- 42 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2015 ---------------------------------------------- Unit Value ($)/(a)/ ------------------- Net Sub-accounts Units Lowest Highest Assets ($)/(b)/ ------------ ----------- ------ ------- -------------- T. Rowe Price Retirement 2035 Advisor Class 3,261,843 0.98 0.99 3,208,718 T. Rowe Price Retirement 2040 Advisor Class 3,590,937 0.98 0.99 3,533,166 T. Rowe Price Retirement 2045 Advisor Class 1,960,919 0.98 0.99 1,929,081 T. Rowe Price Retirement 2050 Advisor Class 1,077,585 0.98 0.99 1,060,101 T. Rowe Price Retirement 2055 Advisor Class 544,450 0.98 0.99 535,675 T. Rowe Price Retirement 2060 Advisor Class 445,270 0.98 0.99 438,354 Vanguard LifeStrategy Conservative Growth Fund Inv Shares 42,527,347 1.17 2.08 82,922,231 Vanguard LifeStrategy Growth Fund Inv Shares 97,409,481 1.29 2.25 205,501,987 Vanguard LifeStrategy Moderate Growth Fund Inv Shares 106,333,540 1.24 2.22 221,140,490 Vanguard Long-Term Investment-Grade Fund Inv Shares 73,061,910 1.30 1.71 233,832,782 Vanguard Long-Term Treasury Fund Inv Shares 71,630,465 1.31 1.70 234,777,345 Vanguard Wellington Fund Inv Shares 458,029,060 0.97 1.38 1,739,836,354 Vanguard Windsor II Fund Inv Shares 471,076,938 1.32 1.52 1,656,936,168 VALIC Company I Asset Allocation Fund 22,848,552 1.27 8.39 164,771,108 VALIC Company I Blue Chip Growth Fund 315,722,066 1.03 1.87 594,477,478 VALIC Company I Broad Cap Value Fund 27,164,348 1.53 1.76 45,883,915 VALIC Company I Capital Conservation Fund 43,743,787 1.07 4.12 163,371,798 VALIC Company I Core Equity Fund 71,810,755 1.36 1.53 236,139,646 VALIC Company I Dividend Value Fund 199,846,204 1.37 1.57 523,407,251 VALIC Company I Dynamic Allocation Fund 221,754,558 1.10 1.15 250,654,035 VALIC Company I Emerging Economies Fund 660,910,371 0.56 0.74 501,780,320 VALIC Company I Foreign Value Fund 629,024,693 0.82 0.97 734,683,542 VALIC Company I Global Real Estate Fund 275,159,684 1.29 1.36 363,703,122 VALIC Company I Global Social Awareness Fund 63,101,430 1.22 1.39 351,899,865 VALIC Company I Global Strategy Fund 246,487,329 1.23 1.88 447,174,232 VALIC Company I Government Money Market I Fund 161,057,840 0.91 1.00 321,332,426 VALIC Company I Government Securities Fund 28,530,544 1.06 4.00 102,440,812 VALIC Company I Growth & Income Fund 30,787,070 1.50 3.77 106,900,848 VALIC Company I Growth Fund 563,317,952 1.56 1.58 972,367,632 VALIC Company I Health Sciences Fund 198,619,038 2.97 4.84 908,213,668 VALIC Company I Inflation Protected Fund 349,403,515 0.82 1.01 436,497,104 VALIC Company I International Equities Index Fund 479,975,167 1.03 1.99 865,679,376 VALIC Company I International Government Bond Fund 51,940,666 0.96 1.22 147,455,407 VALIC Company I International Growth Fund 161,609,345 1.15 2.98 445,479,501 VALIC Company I Large Cap Core Fund 70,024,026 1.70 2.29 154,650,837 VALIC Company I Large Capital Growth Fund 225,298,744 1.35 1.41 380,367,232 VALIC Company I Mid Cap Index Fund 171,943,269 1.49 1.65 2,837,815,823 VALIC Company I Mid Cap Strategic Growth Fund 122,905,459 1.27 1.29 236,154,244 VALIC Company I Nasdaq-100 Index Fund 230,783,788 1.32 1.95 288,931,614 VALIC Company I Science & Technology Fund 193,308,732 1.69 1.81 934,907,487 VALIC Company I Small Cap Aggressive Growth Fund 53,883,079 1.57 2.22 115,361,847 VALIC Company I Small Cap Fund 69,598,178 1.46 1.56 302,832,444 VALIC Company I Small Cap Index Fund 168,425,599 1.40 1.47 916,967,370 VALIC Company I Small Cap Special Values Fund 124,945,522 1.41 1.58 191,258,568 VALIC Company I Small Mid Growth Fund 75,232,723 1.45 1.66 120,360,724 VALIC Company I Stock Index Fund 469,712,564 1.62 73.41 3,864,262,592 VALIC Company I Value Fund 46,550,338 1.47 2.04 90,361,531 VALIC Company II Aggressive Growth Lifestyle Fund 186,171,483 1.34 2.92 509,379,160 VALIC Company II Capital Appreciation Fund 23,015,325 1.67 1.84 39,744,607 VALIC Company II Conservative Growth Lifestyle Fund 122,366,806 1.19 2.76 315,811,195 VALIC Company II Core Bond Fund 478,175,881 0.99 1.09 931,326,862 VALIC Company II Government Money Market II Fund 137,896,669 0.92 1.31 169,405,376 VALIC Company II High Yield Bond Fund 151,445,812 1.14 2.55 357,920,693 VALIC Company II International Opportunities Fund 268,732,142 1.13 2.37 596,947,798 VALIC Company II Large Cap Value Fund 65,553,811 1.50 2.87 175,268,726 VALIC Company II Mid Cap Growth Fund 70,382,216 1.29 1.97 129,610,284 VALIC Company II Mid Cap Value Fund 164,205,676 1.45 1.48 832,661,394 VALIC Company II Moderate Growth Lifestyle Fund 284,833,140 1.28 2.98 794,250,082 VALIC Company II Small Cap Growth Fund 31,398,820 1.45 2.78 81,854,214 VALIC Company II Small Cap Value Fund 127,729,895 1.32 1.42 426,134,704 VALIC Company II Socially Responsible Fund 292,339,882 1.70 2.49 730,244,847 VALIC Company II Strategic Bond Fund 216,272,613 1.11 2.79 561,958,294
For the Year Ended December 31 2015 ------------------------------------------- Expense Total Investment Ratio (%)/(d)/ Return (%)/(e)/ Income -------------- -------------- Sub-accounts Ratio (%)/(c)/ Lowest Highest Lowest Highest ------------ ------------- ------ ------- ------ ------- T. Rowe Price Retirement 2035 Advisor Class 2.30 0.60 1.00 -1.31 -1.24 T. Rowe Price Retirement 2040 Advisor Class 2.21 0.60 1.00 -1.26 -1.23 T. Rowe Price Retirement 2045 Advisor Class 1.98 0.60 1.00 -1.29 -1.24 T. Rowe Price Retirement 2050 Advisor Class 2.17 0.60 1.00 -1.23 T. Rowe Price Retirement 2055 Advisor Class 2.12 0.60 1.00 -1.24 -1.23 T. Rowe Price Retirement 2060 Advisor Class 1.84 0.60 1.00 -1.23 -0.66 Vanguard LifeStrategy Conservative Growth Fund Inv Shares 2.16 0.65 2.10 -2.25 -1.02 Vanguard LifeStrategy Growth Fund Inv Shares 2.10 0.65 2.10 -3.23 -2.01 Vanguard LifeStrategy Moderate Growth Fund Inv Shares 2.13 0.65 2.10 -2.64 -1.41 Vanguard Long-Term Investment-Grade Fund Inv Shares 4.64 0.40 1.85 -4.00 -2.60 Vanguard Long-Term Treasury Fund Inv Shares 2.78 0.40 1.85 -3.35 -1.93 Vanguard Wellington Fund Inv Shares 2.58 0.00 2.10 -2.02 -0.59 Vanguard Windsor II Fund Inv Shares 2.18 0.65 2.10 -5.23 -3.84 VALIC Company I Asset Allocation Fund 2.12 0.40 1.85 -2.28 -1.05 VALIC Company I Blue Chip Growth Fund 0.00 0.00 1.85 2.90 9.00 VALIC Company I Broad Cap Value Fund 1.75 0.40 1.85 -3.14 -1.92 VALIC Company I Capital Conservation Fund 2.01 0.40 1.85 -1.64 -0.40 VALIC Company I Core Equity Fund 0.97 0.40 1.85 -3.65 -2.24 VALIC Company I Dividend Value Fund 2.21 0.40 1.85 -2.48 -1.05 VALIC Company I Dynamic Allocation Fund 0.00 0.40 1.85 -6.32 -5.14 VALIC Company I Emerging Economies Fund 2.35 0.40 1.85 -16.11 -14.88 VALIC Company I Foreign Value Fund 2.91 0.00 1.85 -17.70 -9.01 VALIC Company I Global Real Estate Fund 2.70 0.40 1.85 -1.82 -0.58 VALIC Company I Global Social Awareness Fund 2.16 0.40 1.85 -2.16 -0.73 VALIC Company I Global Strategy Fund 2.83 0.40 1.85 -6.50 -5.33 VALIC Company I Government Money Market I Fund 0.01 0.40 1.85 -1.82 -0.39 VALIC Company I Government Securities Fund 2.27 0.40 1.85 -1.04 0.21 VALIC Company I Growth & Income Fund 0.98 0.40 1.85 -1.92 -0.69 VALIC Company I Growth Fund 0.61 0.40 1.85 1.20 2.67 VALIC Company I Health Sciences Fund 0.00 0.40 1.85 10.59 11.98 VALIC Company I Inflation Protected Fund 1.93 0.00 1.85 -17.70 -4.79 VALIC Company I International Equities Index Fund 3.64 0.40 1.85 -2.82 -1.60 VALIC Company I International Government Bond Fund 2.62 0.40 1.85 -5.10 -3.71 VALIC Company I International Growth Fund 1.57 0.40 1.85 -2.31 -1.08 VALIC Company I Large Cap Core Fund 1.08 0.40 1.85 1.16 2.43 VALIC Company I Large Capital Growth Fund 0.56 0.40 1.85 -1.84 -0.41 VALIC Company I Mid Cap Index Fund 1.06 0.40 1.85 -4.29 -2.89 VALIC Company I Mid Cap Strategic Growth Fund 0.00 0.40 1.85 -4.41 -3.01 VALIC Company I Nasdaq-100 Index Fund 0.91 0.40 1.85 7.19 8.54 VALIC Company I Science & Technology Fund 0.00 0.40 1.85 5.90 7.45 VALIC Company I Small Cap Aggressive Growth Fund 0.00 0.40 1.85 -0.36 0.89 VALIC Company I Small Cap Fund 0.00 0.40 1.85 -6.53 -5.16 VALIC Company I Small Cap Index Fund 1.10 0.40 1.85 -6.23 -4.86 VALIC Company I Small Cap Special Values Fund 1.00 0.40 1.85 -5.98 -4.80 VALIC Company I Small Mid Growth Fund 0.00 0.40 1.85 -2.46 -1.23 VALIC Company I Stock Index Fund 1.62 0.33 1.85 -0.80 0.72 VALIC Company I Value Fund 1.53 0.40 1.85 -4.95 -3.76 VALIC Company II Aggressive Growth Lifestyle Fund 1.64 0.15 1.60 -2.47 -1.24 VALIC Company II Capital Appreciation Fund 0.32 0.15 1.60 4.12 5.43 VALIC Company II Conservative Growth Lifestyle Fund 2.26 0.15 1.60 -2.92 -1.70 VALIC Company II Core Bond Fund 1.96 0.00 1.60 -1.78 -1.47 VALIC Company II Government Money Market II Fund 0.01 0.15 1.60 -1.58 -0.34 VALIC Company II High Yield Bond Fund 4.76 0.15 1.60 -5.19 -4.00 VALIC Company II International Opportunities Fund 1.29 0.15 1.60 6.76 8.10 VALIC Company II Large Cap Value Fund 1.36 0.15 1.60 -4.33 -3.12 VALIC Company II Mid Cap Growth Fund 0.00 0.15 1.60 -2.51 -1.28 VALIC Company II Mid Cap Value Fund 0.21 0.15 1.60 -2.98 -1.56 VALIC Company II Moderate Growth Lifestyle Fund 1.84 0.15 1.60 -2.52 -1.30 VALIC Company II Small Cap Growth Fund 0.00 0.15 1.60 -2.80 -1.57 VALIC Company II Small Cap Value Fund 0.61 0.15 1.60 -8.00 -6.66 VALIC Company II Socially Responsible Fund 1.12 0.00 1.60 -0.49 0.36 VALIC Company II Strategic Bond Fund 3.67 0.15 1.60 -3.49 -2.28
-------------------------------------------------------------------------------- 43 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2014 ---------------------------------------------- Unit Value ($)/(a)/ ------------------- Net Sub-accounts Units Lowest Highest Assets ($)/(b)/ ------------ ----------- ------ ------- -------------- American Beacon Holland Large Cap Growth Fund I Investor 40,202,025 1.52 1.75 67,190,756 Ariel Appreciation Fund Investor Class 146,499,455 1.62 1.83 469,227,308 Ariel Fund Investor Class 151,989,478 1.59 1.65 482,737,843 Invesco V.I. Balanced-Risk Commodity Strategy Fund Class R5 356,396,959 0.69 0.71 251,572,844 SunAmerica 2020 High Watermark Fund Class I 8,674,835 1.12 1.17 9,768,311 Vanguard LifeStrategy Conservative Growth Fund Inv Shares 42,734,912 1.19 2.10 84,501,450 Vanguard LifeStrategy Growth Fund Inv Shares 99,085,412 1.33 2.30 214,115,498 Vanguard LifeStrategy Moderate Growth Fund Inv Shares 106,092,172 1.27 2.25 224,613,412 Vanguard Long-Term Investment-Grade Fund Inv Shares 100,256,578 1.35 1.76 329,543,706 Vanguard Long-Term Treasury Fund Inv Shares 79,135,119 1.35 1.73 264,756,446 Vanguard Wellington Fund Inv Shares 475,391,229 1.41 1.52 1,830,151,862 Vanguard Windsor II Fund Inv Shares 501,441,264 1.37 1.60 1,845,782,701 VALIC Company I Asset Allocation Fund 23,983,803 1.30 8.48 175,375,943 VALIC Company I Blue Chip Growth Fund 316,697,102 1.72 1.80 542,588,507 VALIC Company I Broad Cap Value Fund 28,660,184 1.58 1.79 49,557,967 VALIC Company I Capital Conservation Fund 47,679,527 1.09 4.14 177,337,132 VALIC Company I Core Equity Fund 79,935,818 1.39 1.59 270,572,131 VALIC Company I Dividend Value Fund 240,335,035 1.38 1.61 640,478,092 VALIC Company I Dynamic Allocation Fund 225,671,419 1.18 1.21 270,147,907 VALIC Company I Emerging Economies Fund 665,527,599 0.66 0.88 597,079,271 VALIC Company I Foreign Value Fund 662,436,645 0.94 1.07 843,021,507 VALIC Company I Global Real Estate Fund 305,179,712 1.31 1.37 407,259,854 VALIC Company I Global Social Awareness Fund 71,601,453 1.23 1.42 404,834,510 VALIC Company I Global Strategy Fund 263,440,548 1.31 1.99 506,653,578 VALIC Company I Government Money Market I Fund 164,765,549 0.93 1.00 331,649,424 VALIC Company I Government Securities Fund 32,589,746 1.07 3.99 117,630,636 VALIC Company I Growth & Income Fund 32,066,742 1.52 3.80 112,600,339 VALIC Company I Growth Fund 577,668,720 1.54 976,737,260 VALIC Company I Health Sciences Fund 180,846,975 2.69 4.32 741,351,192 VALIC Company I Inflation Protected Fund 343,815,581 1.06 1.35 447,353,246 VALIC Company I International Equities Index Fund 477,197,431 1.06 2.02 878,599,042 VALIC Company I International Government Bond Fund 57,426,985 1.01 1.27 171,075,868 VALIC Company I International Growth Fund 181,601,799 1.17 3.01 507,941,781 VALIC Company I Large Cap Core Fund 77,828,281 1.68 2.24 168,547,289 VALIC Company I Large Capital Growth Fund 242,825,241 1.36 1.44 414,316,983 VALIC Company I Mid Cap Index Fund 181,983,085 1.56 1.70 3,132,716,853 VALIC Company I Mid Cap Strategic Growth Fund 138,081,014 1.31 1.35 275,076,835 VALIC Company I Nasdaq-100 Index Fund 221,062,156 1.22 1.82 256,140,583 VALIC Company I Science & Technology Fund 207,052,424 1.60 1.69 942,200,179 VALIC Company I Small Cap Aggressive Growth Fund 49,888,671 1.58 2.20 106,181,397 VALIC Company I Small Cap Fund 77,943,885 1.56 1.64 359,694,876 VALIC Company I Small Cap Index Fund 181,699,697 1.50 1.55 1,051,213,032 VALIC Company I Small Cap Special Values Fund 137,726,181 1.50 1.66 222,234,302 VALIC Company I Small Mid Growth Fund 74,225,207 1.48 1.68 120,734,464 VALIC Company I Stock Index Fund 509,445,145 1.48 72.89 4,217,167,533 VALIC Company I Value Fund 51,425,430 1.55 2.12 104,102,132 VALIC Company II Aggressive Growth Lifestyle Fund 185,272,756 1.37 2.96 515,139,973 VALIC Company II Capital Appreciation Fund 25,635,001 1.60 1.74 42,147,910 VALIC Company II Conservative Growth Lifestyle Fund 123,317,312 1.23 2.81 324,988,114 VALIC Company II Core Bond Fund 362,992,296 1.11 1.42 714,083,549 VALIC Company II Government Money Market II Fund 129,017,658 0.94 1.31 158,687,914 VALIC Company II High Yield Bond Fund 136,270,181 1.21 2.66 338,332,083 VALIC Company II International Opportunities Fund 264,766,357 1.06 2.19 546,227,759 VALIC Company II Large Cap Value Fund 70,147,074 1.57 2.96 194,385,587 VALIC Company II Mid Cap Growth Fund 70,016,818 1.33 1.99 131,202,478 VALIC Company II Mid Cap Value Fund 167,438,142 1.49 1.50 866,424,764 VALIC Company II Moderate Growth Lifestyle Fund 281,014,873 1.31 3.02 796,885,588 VALIC Company II Small Cap Growth Fund 34,657,295 1.49 2.83 92,186,389 VALIC Company II Small Cap Value Fund 147,595,203 1.43 1.52 531,491,117 VALIC Company II Socially Responsible Fund 287,490,736 1.71 2.65 716,042,859 VALIC Company II Strategic Bond Fund 227,800,046 1.15 2.86 607,548,162
For the Year Ended December 31 2014 ------------------------------------------- Expense Total Investment Ratio (%)/(d)/ Return (%)/(e)/ Income -------------- -------------- Sub-accounts Ratio (%)/(c)/ Lowest Highest Lowest Highest ------------ ------------- ------ ------- ------ ------- American Beacon Holland Large Cap Growth Fund I Investor 0.00 0.40 1.85 5.03 6.35 Ariel Appreciation Fund Investor Class 0.70 0.40 1.85 6.17 7.72 Ariel Fund Investor Class 0.55 0.40 1.85 8.92 10.51 Invesco V.I. Balanced-Risk Commodity Strategy Fund Class R5 0.00 0.40 1.85 -17.33 -16.29 SunAmerica 2020 High Watermark Fund Class I 2.63 0.65 1.25 2.93 3.34 Vanguard LifeStrategy Conservative Growth Fund Inv Shares 2.14 0.65 2.10 4.73 6.05 Vanguard LifeStrategy Growth Fund Inv Shares 2.13 0.65 2.10 4.95 6.27 Vanguard LifeStrategy Moderate Growth Fund Inv Shares 2.11 0.65 2.10 4.85 6.16 Vanguard Long-Term Investment-Grade Fund Inv Shares 4.29 0.40 1.85 16.00 17.69 Vanguard Long-Term Treasury Fund Inv Shares 3.07 0.40 1.85 22.98 24.77 Vanguard Wellington Fund Inv Shares 2.53 0.65 2.10 7.54 9.11 Vanguard Windsor II Fund Inv Shares 2.22 0.65 2.10 8.85 10.44 VALIC Company I Asset Allocation Fund 1.74 0.40 1.85 3.43 4.73 VALIC Company I Blue Chip Growth Fund 0.17 0.40 1.85 7.14 8.49 VALIC Company I Broad Cap Value Fund 1.19 0.40 1.85 5.56 6.89 VALIC Company I Capital Conservation Fund 2.82 0.40 1.85 4.05 5.36 VALIC Company I Core Equity Fund 1.16 0.40 1.85 9.48 11.08 VALIC Company I Dividend Value Fund 1.79 0.40 1.85 7.21 8.78 VALIC Company I Dynamic Allocation Fund 1.58 0.40 1.85 2.33 3.61 VALIC Company I Emerging Economies Fund 1.47 0.40 1.85 -7.30 -5.94 VALIC Company I Foreign Value Fund 2.03 0.40 1.85 -13.25 -11.99 VALIC Company I Global Real Estate Fund 4.68 0.40 1.85 10.01 11.39 VALIC Company I Global Social Awareness Fund 1.42 0.40 1.85 5.99 7.54 VALIC Company I Global Strategy Fund 3.35 0.40 1.85 -0.03 1.23 VALIC Company I Government Money Market I Fund 0.01 0.40 1.85 -1.82 -0.39 VALIC Company I Government Securities Fund 2.41 0.40 1.85 3.59 4.89 VALIC Company I Growth & Income Fund 0.73 0.40 1.85 12.04 13.45 VALIC Company I Growth Fund 0.83 0.40 1.85 8.70 10.29 VALIC Company I Health Sciences Fund 0.00 0.40 1.85 29.16 30.79 VALIC Company I Inflation Protected Fund 1.87 0.40 1.85 1.09 2.36 VALIC Company I International Equities Index Fund 2.63 0.40 1.85 -7.18 -6.01 VALIC Company I International Government Bond Fund 1.90 0.40 1.85 -0.49 0.96 VALIC Company I International Growth Fund 1.87 0.40 1.85 -5.23 -4.04 VALIC Company I Large Cap Core Fund 0.92 0.40 1.85 11.19 12.59 VALIC Company I Large Capital Growth Fund 0.46 0.40 1.85 9.41 11.00 VALIC Company I Mid Cap Index Fund 1.09 0.40 1.85 7.41 8.97 VALIC Company I Mid Cap Strategic Growth Fund 0.51 0.40 1.85 1.33 2.81 VALIC Company I Nasdaq-100 Index Fund 0.71 0.40 1.85 16.51 17.98 VALIC Company I Science & Technology Fund 0.12 0.40 1.85 12.33 13.97 VALIC Company I Small Cap Aggressive Growth Fund 0.00 0.40 1.85 7.89 9.25 VALIC Company I Small Cap Fund 0.32 0.40 1.85 2.10 3.59 VALIC Company I Small Cap Index Fund 1.22 0.40 1.85 2.84 4.34 VALIC Company I Small Cap Special Values Fund 0.72 0.40 1.85 5.01 6.33 VALIC Company I Small Mid Growth Fund 0.03 0.40 1.85 9.04 10.41 VALIC Company I Stock Index Fund 1.59 0.33 1.85 12.83 12.91 VALIC Company I Value Fund 1.61 0.40 1.85 9.36 10.73 VALIC Company II Aggressive Growth Lifestyle Fund 0.92 0.15 1.60 2.64 3.94 VALIC Company II Capital Appreciation Fund 0.44 0.15 1.60 6.88 8.22 VALIC Company II Conservative Growth Lifestyle Fund 1.93 0.15 1.60 2.01 3.29 VALIC Company II Core Bond Fund 1.90 0.15 1.60 3.77 5.28 VALIC Company II Government Money Market II Fund 0.01 0.15 1.60 -1.58 -0.34 VALIC Company II High Yield Bond Fund 4.88 0.15 1.60 1.22 2.49 VALIC Company II International Opportunities Fund 1.27 0.15 1.60 -6.72 -5.54 VALIC Company II Large Cap Value Fund 1.12 0.15 1.60 8.98 10.35 VALIC Company II Mid Cap Growth Fund 0.07 0.15 1.60 0.59 1.85 VALIC Company II Mid Cap Value Fund 0.30 0.15 1.60 5.03 6.56 VALIC Company II Moderate Growth Lifestyle Fund 1.29 0.15 1.60 2.61 3.91 VALIC Company II Small Cap Growth Fund 0.00 0.15 1.60 -1.57 -0.33 VALIC Company II Small Cap Value Fund 0.90 0.15 1.60 3.87 5.38 VALIC Company II Socially Responsible Fund 1.30 0.15 1.60 13.70 15.13 VALIC Company II Strategic Bond Fund 3.69 0.15 1.60 2.30 3.58
-------------------------------------------------------------------------------- 44 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2013 ---------------------------------------------- Unit Value ($)/(a)/ Net ------------------- -------------- Sub-accounts Units Lowest Highest Assets ($)/(b)/ ------------ ----------- ------ ------- -------------- American Beacon Holland Large Cap Growth Fund I Investor 45,990,000 1.45 1.64 72,347,000 Ariel Appreciation Fund Investor Class 151,676,000 1.53 1.70 453,673,000 Ariel Fund Investor Class 164,454,000 1.46 1.49 476,196,000 Invesco V.I. Balanced-Risk Commodity Strategy Fund Class R5 286,965,000 0.83 0.85 242,808,000 SunAmerica 2020 High Watermark Fund Class I 10,588,000 1.09 1.13 11,583,000 Vanguard LifeStrategy Conservative Growth Fund Inv Shares 42,663,000 1.14 1.98 79,830,000 Vanguard LifeStrategy Growth Fund Inv Shares 99,330,000 1.27 2.16 202,733,000 Vanguard LifeStrategy Moderate Growth Fund Inv Shares 106,715,000 1.21 2.12 213,624,000 Vanguard Long-Term Investment-Grade Fund Inv Shares 81,579,000 1.17 1.50 228,921,000 Vanguard Long-Term Treasury Fund Inv Shares 86,023,000 1.10 1.39 231,479,000 Vanguard Wellington Fund Inv Shares 492,356,000 1.31 1.39 1,746,521,000 Vanguard Windsor II Fund Inv Shares 518,076,000 1.24 1.47 1,736,698,000 VALIC Company I Asset Allocation Fund 24,528,000 1.25 8.10 173,219,000 VALIC Company I Blue Chip Growth Fund 335,064,000 1.60 1.66 530,958,000 VALIC Company I Broad Cap Value Fund 25,690,000 1.50 1.68 41,756,000 VALIC Company I Capital Conservation Fund 47,155,000 1.05 3.93 166,143,000 VALIC Company I Core Equity Fund 87,739,000 1.25 1.45 268,685,000 VALIC Company I Dividend Value Fund 221,351,000 1.27 1.50 545,977,000 VALIC Company I Dynamic Allocation Fund 168,660,000 1.15 1.17 195,707,000 VALIC Company I Emerging Economies Fund 614,097,000 0.70 0.95 588,736,000 VALIC Company I Foreign Value Fund 667,927,000 1.07 1.23 971,586,000 VALIC Company I Global Real Estate Fund 255,138,000 1.19 1.23 306,864,000 VALIC Company I Global Social Awareness Fund 76,200,000 1.14 1.34 402,746,000 VALIC Company I Global Strategy Fund 281,255,000 1.31 1.96 536,276,000 VALIC Company I Government Money Market I Fund 174,678,000 0.95 1.01 353,206,000 VALIC Company I Government Securities Fund 37,427,000 1.03 3.80 129,265,000 VALIC Company I Growth & Income Fund 32,540,000 1.36 3.35 101,061,000 VALIC Company I Growth Fund 605,498,000 1.40 1.42 933,492,000 VALIC Company I Health Sciences Fund 169,471,000 2.08 3.30 533,127,000 VALIC Company I Inflation Protected Fund 321,428,000 1.05 1.32 410,166,000 VALIC Company I International Equities Index Fund 524,216,000 1.14 2.15 1,030,145,000 VALIC Company I International Government Bond Fund 58,726,000 1.01 1.26 176,097,000 VALIC Company I International Growth Fund 201,213,000 1.24 3.14 586,844,000 VALIC Company I Large Cap Core Fund 88,578,000 1.51 1.99 170,580,000 VALIC Company I Large Capital Growth Fund 262,881,000 1.22 1.31 406,386,000 VALIC Company I Mid Cap Index Fund 193,124,000 1.45 1.56 3,077,255,000 VALIC Company I Mid Cap Strategic Growth Fund 152,807,000 1.27 1.34 298,156,000 VALIC Company I Nasdaq-100 Index Fund 205,690,000 1.03 1.57 202,625,000 VALIC Company I Science & Technology Fund 220,087,000 1.42 1.48 884,907,000 VALIC Company I Small Cap Aggressive Growth Fund 56,587,000 1.46 2.02 110,639,000 VALIC Company I Small Cap Fund 86,577,000 1.53 1.58 387,730,000 VALIC Company I Small Cap Index Fund 193,566,000 1.46 1.48 1,087,389,000 VALIC Company I Small Cap Special Values Fund 152,559,000 1.43 1.57 232,376,000 VALIC Company I Small Mid Growth Fund 86,006,000 1.36 1.52 127,108,000 VALIC Company I Stock Index Fund 543,134,000 1.31 64.55 2,146,977,000 VALIC Company I Value Fund 58,431,000 1.42 1.92 107,189,000 VALIC Company II Aggressive Growth Lifestyle Fund 170,127,000 1.34 2.84 456,690,000 VALIC Company II Capital Appreciation Fund 27,282,000 1.50 1.61 41,604,000 VALIC Company II Conservative Growth Lifestyle Fund 110,543,000 1.21 2.72 283,012,000 VALIC Company II Core Bond Fund 358,358,000 1.07 1.35 673,167,000 VALIC Company II Government Money Market II Fund 146,653,000 0.95 1.31 181,686,000 VALIC Company II High Yield Bond Fund 129,320,000 1.19 2.59 313,222,000 VALIC Company II International Opportunities Fund 260,892,000 1.13 2.32 571,456,000 VALIC Company II Large Cap Value Fund 75,961,000 1.44 2.68 191,301,000 VALIC Company II Mid Cap Growth Fund 74,465,000 1.32 1.96 137,360,000 VALIC Company II Mid Cap Value Fund 176,026,000 1.41 1.42 859,834,000 VALIC Company II Moderate Growth Lifestyle Fund 250,904,000 1.28 2.91 687,344,000 VALIC Company II Small Cap Growth Fund 38,766,000 1.52 2.84 103,555,000 VALIC Company II Small Cap Value Fund 148,027,000 1.38 1.44 508,084,000 VALIC Company II Socially Responsible Fund 295,532,000 1.51 2.30 640,726,000 VALIC Company II Strategic Bond Fund 227,491,000 1.12 2.76 589,850,000
For the Year Ended December 31 2013 ------------------------------------------- Expense Total Investment Ratio (%)/(d)/ Return (%)/(e)/ Income -------------- -------------- Sub-accounts Ratio (%)/(c)/ Lowest Highest Lowest Highest ------------ ------------- ------ ------- ------ ------- American Beacon Holland Large Cap Growth Fund I Investor 0.00 0.40 1.85 29.79 31.42 Ariel Appreciation Fund Investor Class 0.91 0.40 1.85 43.53 45.63 Ariel Fund Investor Class 0.64 0.40 1.85 42.03 44.10 Invesco V.I. Balanced-Risk Commodity Strategy Fund Class R5 0.00 0.40 1.85 -15.49 -14.42 SunAmerica 2020 High Watermark Fund Class I 2.50 0.65 1.25 -7.00 -6.63 Vanguard LifeStrategy Conservative Growth Fund Inv Shares 2.00 0.65 2.10 6.81 8.15 Vanguard LifeStrategy Growth Fund Inv Shares 2.08 0.65 2.10 18.68 20.17 Vanguard LifeStrategy Moderate Growth Fund Inv Shares 2.02 0.65 2.10 12.66 14.07 Vanguard Long-Term Investment-Grade Fund Inv Shares 4.74 0.40 1.85 -7.59 -6.24 Vanguard Long-Term Treasury Fund Inv Shares 3.11 0.40 1.85 -14.62 -13.37 Vanguard Wellington Fund Inv Shares 2.54 0.65 2.10 17.18 18.89 Vanguard Windsor II Fund Inv Shares 2.12 0.65 2.10 27.98 29.84 VALIC Company I Asset Allocation Fund 0.00 0.40 1.85 13.84 15.27 VALIC Company I Blue Chip Growth Fund 0.00 0.40 1.85 38.60 40.34 VALIC Company I Broad Cap Value Fund 0.00 0.40 1.85 33.97 35.65 VALIC Company I Capital Conservation Fund 0.00 0.40 1.85 -4.16 -2.96 VALIC Company I Core Equity Fund 0.00 0.40 1.85 32.40 34.33 VALIC Company I Dividend Value Fund 0.00 0.40 1.85 27.69 29.55 VALIC Company I Dynamic Allocation Fund 0.00 0.40 1.85 15.34 16.81 VALIC Company I Emerging Economies Fund 0.00 0.40 1.85 -4.55 -3.15 VALIC Company I Foreign Value Fund 0.00 0.40 1.85 23.89 25.69 VALIC Company I Global Real Estate Fund 0.00 0.40 1.85 2.63 3.92 VALIC Company I Global Social Awareness Fund 0.00 0.40 1.85 26.51 28.36 VALIC Company I Global Strategy Fund 0.00 0.40 1.85 16.62 18.08 VALIC Company I Government Money Market I Fund 0.01 0.40 1.85 -1.82 -0.39 VALIC Company I Government Securities Fund 0.00 0.40 1.85 -5.98 -4.80 VALIC Company I Growth & Income Fund 0.00 0.40 1.85 30.23 31.87 VALIC Company I Growth Fund 0.00 0.40 1.85 28.70 30.58 VALIC Company I Health Sciences Fund 0.00 0.40 1.85 48.27 50.13 VALIC Company I Inflation Protected Fund 0.00 0.40 1.85 -8.68 -7.53 VALIC Company I International Equities Index Fund 0.00 0.40 1.85 16.81 18.28 VALIC Company I International Government Bond Fund 0.00 0.40 1.85 -7.34 -5.99 VALIC Company I International Growth Fund 0.00 0.40 1.85 18.54 20.03 VALIC Company I Large Cap Core Fund 0.00 0.40 1.85 33.55 35.23 VALIC Company I Large Capital Growth Fund 0.00 0.40 1.85 29.16 31.04 VALIC Company I Mid Cap Index Fund 0.00 0.40 1.85 30.67 32.58 VALIC Company I Mid Cap Strategic Growth Fund 0.00 0.40 1.85 36.08 38.06 VALIC Company I Nasdaq-100 Index Fund 0.00 0.40 1.85 33.74 35.42 VALIC Company I Science & Technology Fund 0.00 0.40 1.85 39.88 41.92 VALIC Company I Small Cap Aggressive Growth Fund 0.00 0.40 1.85 46.99 48.83 VALIC Company I Small Cap Fund 0.00 0.40 1.85 37.85 39.86 VALIC Company I Small Cap Index Fund 0.00 0.40 1.85 36.10 38.09 VALIC Company I Small Cap Special Values Fund 0.00 0.40 1.85 36.42 38.14 VALIC Company I Small Mid Growth Fund 0.00 0.40 1.85 32.29 33.95 VALIC Company I Stock Index Fund 0.00 0.33 1.85 31.39 32.93 VALIC Company I Value Fund 0.00 0.40 1.85 28.73 30.35 VALIC Company II Aggressive Growth Lifestyle Fund 0.00 0.15 1.60 20.03 21.54 VALIC Company II Capital Appreciation Fund 0.00 0.15 1.60 33.92 35.60 VALIC Company II Conservative Growth Lifestyle Fund 0.00 0.15 1.60 7.61 8.96 VALIC Company II Core Bond Fund 0.00 0.15 1.60 -3.37 -1.96 VALIC Company II Government Money Market II Fund 0.01 0.15 1.60 -1.58 -0.34 VALIC Company II High Yield Bond Fund 0.00 0.15 1.60 3.51 4.81 VALIC Company II International Opportunities Fund 0.00 0.15 1.60 19.22 20.72 VALIC Company II Large Cap Value Fund 0.00 0.15 1.60 33.22 34.89 VALIC Company II Mid Cap Growth Fund 0.00 0.15 1.60 28.95 30.57 VALIC Company II Mid Cap Value Fund 0.00 0.15 1.60 32.26 34.19 VALIC Company II Moderate Growth Lifestyle Fund 0.00 0.15 1.60 14.75 16.20 VALIC Company II Small Cap Growth Fund 0.00 0.15 1.60 45.35 47.18 VALIC Company II Small Cap Value Fund 0.00 0.15 1.60 34.05 36.01 VALIC Company II Socially Responsible Fund 0.00 0.15 1.60 33.28 34.96 VALIC Company II Strategic Bond Fund 0.00 0.15 1.60 -1.33 -0.09
-------------------------------------------------------------------------------- 45 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2012 ---------------------------------------------- Unit Value ($)/(a)/ ------------------- Net Sub-accounts Units Lowest Highest Assets ($)/(b)/ ------------ ----------- ------ ------- -------------- American Beacon Holland Large Cap Growth Fund I Investor 51,966,000 1.12 1.25 62,551,000 Ariel Appreciation Fund Investor Class 139,223,000 1.07 2.20 287,615,000 Ariel Fund Investor Class 172,615,000 1.03 2.18 349,450,000 Invesco V.I. Balanced-Risk Commodity Strategy Fund Class R5 215,787,000 0.98 1.00 214,139,000 SunAmerica 2020 High Watermark Fund Class I 13,367,000 1.17 1.21 15,716,000 Vanguard LifeStrategy Conservative Growth Fund Inv Shares 42,752,000 1.07 1.83 74,254,000 Vanguard LifeStrategy Growth Fund Inv Shares 97,744,000 1.07 1.80 166,668,000 Vanguard LifeStrategy Moderate Growth Fund Inv Shares 106,449,000 1.07 1.86 187,532,000 Vanguard Long-Term Investment-Grade Fund Inv Shares 107,229,000 1.26 3.40 324,948,000 Vanguard Long-Term Treasury Fund Inv Shares 104,316,000 1.29 3.46 328,115,000 Vanguard Wellington Fund Inv Shares 511,573,000 1.12 3.46 1,537,119,000 Vanguard Windsor II Fund Inv Shares 550,354,000 0.96 2.95 1,431,448,000 VALIC Company I Asset Allocation Fund 24,967,000 1.10 7.03 154,635,000 VALIC Company I Blue Chip Growth Fund 359,500,000 1.13 1.18 407,535,000 VALIC Company I Broad Cap Value Fund 26,193,000 1.12 1.24 31,467,000 VALIC Company I Capital Conservation Fund 54,326,000 1.09 4.05 201,474,000 VALIC Company I Core Equity Fund 95,915,000 0.93 2.46 219,871,000 VALIC Company I Dividend Value Fund 215,635,000 0.98 2.11 414,565,000 VALIC Company I Dynamic Allocation Fund 1,000 1.00 9,981,000 VALIC Company I Emerging Economies Fund 589,559,000 0.72 1.03 586,649,000 VALIC Company I Foreign Value Fund 744,687,000 0.85 1.19 867,033,000 VALIC Company I Global Real Estate Fund 281,040,000 1.16 1.18 326,429,000 VALIC Company I Global Social Awareness Fund 65,030,000 0.89 4.50 267,576,000 VALIC Company I Global Strategy Fund 273,255,000 1.13 1.66 442,647,000 VALIC Company I Government Money Market I Fund 181,065,000 0.96 2.30 370,398,000 VALIC Company I Government Securities Fund 31,983,000 1.10 3.99 115,432,000 VALIC Company I Growth & Income Fund 34,018,000 0.95 2.54 80,380,000 VALIC Company I Growth Fund 665,111,000 1.07 1.22 789,736,000 VALIC Company I Health Sciences Fund 149,863,000 1.40 2.20 315,416,000 VALIC Company I Inflation Protected Fund 298,846,000 1.15 1.43 413,284,000 VALIC Company I International Equities Index Fund 520,838,000 0.98 1.82 870,642,000 VALIC Company I International Government Bond Fund 56,985,000 1.09 3.52 182,727,000 VALIC Company I International Growth Fund 235,242,000 1.04 2.62 573,397,000 VALIC Company I Large Cap Core Fund 95,261,000 1.13 1.47 136,137,000 VALIC Company I Large Capital Growth Fund 289,231,000 0.93 1.22 343,216,000 VALIC Company I Mid Cap Index Fund 206,475,000 1.11 14.69 2,515,665,000 VALIC Company I Mid Cap Strategic Growth Fund 164,490,000 0.92 1.47 233,684,000 VALIC Company I Nasdaq-100 Index Fund 212,283,000 0.73 1.17 154,991,000 VALIC Company I Science & Technology Fund 241,647,000 0.66 3.17 690,337,000 VALIC Company I Small Cap Aggressive Growth Fund 55,949,000 1.00 1.35 73,916,000 VALIC Company I Small Cap Fund 96,923,000 1.11 3.48 312,090,000 VALIC Company I Small Cap Index Fund 205,976,000 1.07 4.62 846,828,000 VALIC Company I Small Cap Special Values Fund 170,518,000 1.05 1.13 188,728,000 VALIC Company I Small Mid Growth Fund 91,849,000 1.03 1.14 101,706,000 VALIC Company I Stock Index Fund 575,726,000 1.00 48.56 1,747,315,000 VALIC Company I Value Fund 64,658,000 1.10 1.47 91,345,000 VALIC Company II Aggressive Growth Lifestyle Fund 151,965,000 1.11 2.34 336,975,000 VALIC Company II Capital Appreciation Fund 30,004,000 0.81 1.19 33,868,000 VALIC Company II Conservative Growth Lifestyle Fund 92,004,000 1.12 2.50 216,627,000 VALIC Company II Core Bond Fund 239,177,000 1.10 2.05 459,847,000 VALIC Company II Government Money Market II Fund 137,930,000 0.97 1.32 172,581,000 VALIC Company II High Yield Bond Fund 129,786,000 1.15 2.48 300,387,000 VALIC Company II International Opportunities Fund 275,156,000 0.95 1.92 501,215,000 VALIC Company II Large Cap Value Fund 80,659,000 1.08 1.99 151,544,000 VALIC Company II Mid Cap Growth Fund 83,075,000 1.02 1.50 117,917,000 VALIC Company II Mid Cap Value Fund 190,393,000 1.05 3.96 700,450,000 VALIC Company II Moderate Growth Lifestyle Fund 210,641,000 1.11 2.50 498,521,000 VALIC Company II Small Cap Growth Fund 40,783,000 0.97 1.93 74,470,000 VALIC Company II Small Cap Value Fund 165,403,000 1.03 2.71 420,658,000 VALIC Company II Socially Responsible Fund 332,810,000 1.13 1.70 536,742,000 VALIC Company II Strategic Bond Fund 231,898,000 1.14 2.76 603,911,000
For the Year Ended December 31 2012 ------------------------------------------- Expense Total Investment Ratio (%)/(d)/ Return (%)/(e)/ Income -------------- -------------- Sub-accounts Ratio (%)/(c)/ Lowest Highest Lowest Highest ------------ ------------- ------ ------- ------ ------- American Beacon Holland Large Cap Growth Fund I Investor 0.06 0.40 1.85 10.12 11.51 Ariel Appreciation Fund Investor Class 0.83 0.40 1.85 17.16 18.87 Ariel Fund Investor Class 0.96 0.40 1.85 18.11 19.84 Invesco V.I. Balanced-Risk Commodity Strategy Fund Class R5 2.46 0.40 1.85 -1.77 -3.01 SunAmerica 2020 High Watermark Fund Class I 2.31 0.65 1.25 2.96 3.37 Vanguard LifeStrategy Conservative Growth Fund Inv Shares 2.35 0.65 2.10 6.92 8.26 Vanguard LifeStrategy Growth Fund Inv Shares 2.39 0.65 2.10 11.99 13.40 Vanguard LifeStrategy Moderate Growth Fund Inv Shares 2.36 0.65 2.10 9.44 10.81 Vanguard Long-Term Investment-Grade Fund Inv Shares 4.67 0.40 1.85 9.61 11.21 Vanguard Long-Term Treasury Fund Inv Shares 2.76 0.40 1.85 1.56 3.05 Vanguard Wellington Fund Inv Shares 2.86 0.65 2.10 10.23 11.84 Vanguard Windsor II Fund Inv Shares 2.33 0.65 2.10 14.28 15.96 VALIC Company I Asset Allocation Fund 2.16 0.40 1.85 11.24 12.64 VALIC Company I Blue Chip Growth Fund 5.00 0.40 1.85 15.96 17.42 VALIC Company I Broad Cap Value Fund 0.70 0.40 1.85 11.89 13.30 VALIC Company I Capital Conservation Fund 2.50 0.40 1.85 4.12 5.43 VALIC Company I Core Equity Fund 1.49 0.40 1.85 12.10 13.74 VALIC Company I Dividend Value Fund 1.85 0.40 1.85 10.51 12.12 VALIC Company I Dynamic Allocation Fund 0.00 0.40 1.85 -0.24 VALIC Company I Emerging Economies Fund 0.73 0.40 1.85 16.71 18.42 VALIC Company I Foreign Value Fund 3.20 0.40 1.85 16.59 18.30 VALIC Company I Global Real Estate Fund 1.74 0.40 1.85 28.60 30.22 VALIC Company I Global Social Awareness Fund 1.83 0.40 1.85 16.12 16.83 VALIC Company I Global Strategy Fund 5.69 0.40 1.85 17.35 18.83 VALIC Company I Government Money Market I Fund 0.01 0.40 1.85 -1.83 -0.39 VALIC Company I Government Securities Fund 2.46 0.40 1.85 1.80 3.08 VALIC Company I Growth & Income Fund 0.91 0.40 1.85 11.27 12.68 VALIC Company I Growth Fund 0.72 0.40 1.85 12.80 14.46 VALIC Company I Health Sciences Fund 0.00 0.40 1.85 29.31 30.94 VALIC Company I Inflation Protected Fund 2.77 0.40 1.85 6.05 7.38 VALIC Company I International Equities Index Fund 2.88 0.40 1.85 14.88 16.32 VALIC Company I International Government Bond Fund 3.20 0.40 1.85 6.64 8.21 VALIC Company I International Growth Fund 1.60 0.40 1.85 17.98 19.46 VALIC Company I Large Cap Core Fund 1.02 0.40 1.85 16.49 17.95 VALIC Company I Large Capital Growth Fund 0.21 0.40 1.85 10.37 11.98 VALIC Company I Mid Cap Index Fund 1.01 0.40 1.85 15.36 17.05 VALIC Company I Mid Cap Strategic Growth Fund 0.00 0.40 1.85 7.22 8.79 VALIC Company I Nasdaq-100 Index Fund 0.50 0.40 1.85 15.78 17.23 VALIC Company I Science & Technology Fund 0.00 0.40 1.85 10.08 11.69 VALIC Company I Small Cap Aggressive Growth Fund 0.00 0.40 1.85 12.96 14.38 VALIC Company I Small Cap Fund 0.07 0.40 1.85 13.72 15.15 VALIC Company I Small Cap Index Fund 1.28 0.40 1.85 13.93 15.59 VALIC Company I Small Cap Special Values Fund 0.60 0.40 1.85 4.84 13.82 VALIC Company I Small Mid Growth Fund 0.00 0.40 1.85 2.86 10.94 VALIC Company I Stock Index Fund 1.78 0.33 1.85 14.87 15.12 VALIC Company I Value Fund 2.12 0.40 1.85 14.80 16.24 VALIC Company II Aggressive Growth Lifestyle Fund 1.53 0.15 1.60 13.38 14.80 VALIC Company II Capital Appreciation Fund 0.47 0.15 1.60 16.07 17.53 VALIC Company II Conservative Growth Lifestyle Fund 2.30 0.15 1.60 10.11 11.49 VALIC Company II Core Bond Fund 3.00 0.15 1.60 5.68 7.22 VALIC Company II Government Money Market II Fund 0.01 0.15 1.60 -1.58 -0.34 VALIC Company II High Yield Bond Fund 6.16 0.15 1.60 11.94 13.35 VALIC Company II International Opportunities Fund 2.04 0.15 1.60 20.10 21.61 VALIC Company II Large Cap Value Fund 1.33 0.15 1.60 15.07 16.52 VALIC Company II Mid Cap Growth Fund 0.10 0.15 1.60 9.54 10.92 VALIC Company II Mid Cap Value Fund 0.44 0.15 1.60 19.84 21.59 VALIC Company II Moderate Growth Lifestyle Fund 1.83 0.15 1.60 11.89 13.30 VALIC Company II Small Cap Growth Fund 0.00 0.15 1.60 10.58 11.98 VALIC Company II Small Cap Value Fund 0.53 0.15 1.60 13.23 14.89 VALIC Company II Socially Responsible Fund 1.46 0.15 1.60 13.40 14.83 VALIC Company II Strategic Bond Fund 4.18 0.15 1.60 10.62 12.01
(a) Because the unit values are presented as a range of lowest to highest, based on the product grouping representing the minimum and maximum expense ratio amounts, some individual contract unit values are not within the ranges presented. (b) These amounts represent the net asset value before adjustments allocated to the contracts in payout period. -------------------------------------------------------------------------------- 46 SEPARATE ACCOUNT A THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (CONTINUED) (c) These amounts represent the dividends, excluding distributions of capital gains, received by the sub-account from the Funds, net of management fees assessed by the portfolio manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that are assessed against contract owner accounts either through reductions in the unit values or the redemption of units. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the Funds in which the sub-account invests. The average net assets are calculated using the net asset balances at the beginning and end of the year. (d) These amounts represent the annualized contract expenses of the sub-account, consisting of distribution, mortality and expense charges, for each period indicated. The ratios include only those expenses that result in direct reduction to unit values. Charges made directly to contract owners account through the redemption of units and expenses of the Funds have been excluded. For additional information on charges and deductions, see Note 4. (e) These amounts represent the total return for the periods indicated, including changes in the value of the Funds, and expenses assessed through the reduction of unit values. These expenses do not include any expenses assessed through redemption of units. The total return is calculated for each of the periods indicated or from the effective date through the end of the reporting period. Because the total return is presented as a range of minimum and maximum values, based on the product grouping representing the minimum and maximum expense ratios, some individual contract total returns are not within the ranges presented. 7. SUBSEQUENT EVENTS Management considered Separate Accounts related events and transactions that occurred after the date of the Statement of Assets and Liabilities, but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that required additional disclosures. Management has evaluated events through April 24, 2017, the date the financial statements were issued. -------------------------------------------------------------------------------- 47 The Variable Annuity Life Insurance Company Audited GAAP Financial Statements At December 31, 2016 and 2015 and for each of the three years ended December 31, 2016 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY TABLE OF CONTENTS
Page ---- CONSOLIDATED FINANCIAL STATEMENTS Independent Auditor's Report 2 Consolidated Balance Sheets at December 31, 2016 and 2015 3 Consolidated Statements of Income for each of the years ended December 31, 2016, 2015 and 2014 4 Consolidated Statements of Comprehensive Income (Loss) for each of the years ended December 31, 2016, 2015 and 2014 5 Consolidated Statements of Equity for each of the years ended December 31, 2016, 2015 and 2014 6 Consolidated Statements of Cash Flows for each of the years ended December 31, 2016, 2015 and 2014 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation 8 2. Summary of Significant Accounting Policies 9 3. Fair Value Measurements 14 4. Investments 30 5. Lending Activities 41 6. Reinsurance 43 7. Derivatives and Hedge Accounting 43 8. Deferred Policy Acquisition Costs and Deferred Sales Inducements 45 9. Variable Interest Entities 48 10. Insurance Liabilities 50 11. Variable Annuity Contracts 50 12. Debt 53 13. Commitments and Contingencies 54 14. Equity 55 15. Statutory Financial Data and Restrictions 57 16. Benefit Plans 57 17. Income Taxes 58 18. Related Party Transactions 61 19. Subsequent Events 61
1 Report of Independent Auditors To the Board of Directors of The Variable Annuity Life Insurance Company We have audited the accompanying consolidated financial statements of The Variable Annuity Life Insurance Company and its subsidiaries (the "Company"), an indirect, wholly owned subsidiary of American International Group, Inc., which comprise the consolidated balance sheets as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2016. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Variable Annuity Life Insurance Company and its subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in accordance with accounting principles generally accepted in the United States of America. /s/ PricewaterhouseCoopers LLP April 24, 2017 2 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS
December 31, --------------- (in millions, except for share data) 2016 2015 ------------------------------------ ------- ------- Assets: Investments: Fixed maturity securities: Bonds available for sale, at fair value (amortized cost: 2016 - $33,657; 2015 - $32,212) $34,591 $33,133 Other bond securities, at fair value 1,778 1,214 Equity securities: Common and preferred stock, available for sale, at fair value (cost: 2016 - $4; 2015 - $4) 5 4 Mortgage and other loans receivable, net of allowance 6,083 5,718 Other invested assets (portion measured at fair value: 2016 - $528; 2015 - $1,105) 1,233 2,379 Short-term investments (portion measured at fair value: 2016 - $767; 2015 - $560) 818 603 ------- ------- Total investments 44,508 43,051 Cash 106 82 Accrued investment income 458 464 Amounts due from related parties 114 31 Premiums and other receivables - net of allowance 81 66 Deferred policy acquisition costs 955 964 Deferred income taxes 17 -- Other assets (including restricted cash of $3 in 2016 and $14 in 2015) 454 459 Separate account assets, at fair value 32,469 31,536 ------- ------- Total assets $79,162 $76,653 ======= ======= Liabilities: Future policy benefits for life and accident and health insurance contracts $ 785 $ 748 Policyholder contract deposits (portion measured at fair value: 2016 - $209; 2015 - $197) 39,593 37,874 Other policyholder funds 4 7 Current income tax payable 10 4 Deferred income taxes -- 46 Notes payable - to affiliates (portion measured at fair value: 2016 - $183; 2015 - $143) 183 143 Notes payable - to third parties 50 50 Amounts due to related parties 148 101 Securities lending payable 245 169 Other liabilities 590 534 Separate account liabilities 32,469 31,536 ------- ------- Total liabilities 74,077 71,212 ------- ------- Commitments and contingencies (see Note 13) The Variable Annuity Life Insurance Company (VALIC) shareholder's equity: Common stock, $1 par value; 5,000,000 shares authorized, 3,575,000 shares issued and outstanding 4 4 Additional paid-in capital 4,103 4,515 Retained earnings (accumulated deficit) 106 -- Accumulated other comprehensive income 872 908 ------- ------- Total VALIC shareholder's equity 5,085 5,427 Noncontrolling interests -- 14 ------- ------- Total equity 5,085 5,441 ------- ------- Total liabilities and equity $79,162 $76,653 ======= =======
See accompanying Notes to Consolidated Financial Statements. 3 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, ----------------------- (in millions) 2016 2015 2014 ------------- ------ ------ ------ Revenues: Premiums $ 27 $ 21 $ 44 Policy fees 383 401 405 Net investment income 2,045 2,077 2,356 Net realized capital gains (losses): Total other-than-temporary impairments on available-for-sale securities (68) (48) (38) Portion of other-than-temporary impairments on available-for-sale fixed maturity securities recognized in other comprehensive income (loss) (5) (6) -- ------ ------ ------ Net other-than-temporary impairments on available-for-sale securities recognized in net income (73) (54) (38) Other realized capital (losses) gains (54) 128 172 ------ ------ ------ Total net realized capital (losses) gains (127) 74 134 Other income 340 417 447 ------ ------ ------ Total revenues 2,668 2,990 3,386 ------ ------ ------ Benefits and expenses: Policyholder benefits 58 60 114 Interest credited to policyholder account balances 1,134 1,117 1,142 Amortization of deferred policy acquisition costs 135 20 71 General operating and other expenses 680 687 657 ------ ------ ------ Total benefits and expenses 2,007 1,884 1,984 ------ ------ ------ Income before income tax expense 661 1,106 1,402 Income tax expense (benefit): Current 201 243 262 Deferred (57) 87 152 ------ ------ ------ Income tax expense 144 330 414 ------ ------ ------ Net income 517 776 988 Less: Net income attributable to noncontrolling interests -- 1 1 ------ ------ ------ Net income attributable to VALIC $ 517 $ 775 $ 987 ====== ====== ======
See accompanying Notes to Consolidated Financial Statements. 4 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended December 31, ------------------------ (in millions) 2016 2015 2014 ------------- ------ ------ -------- Net income $ 517 $ 776 $ 988 ------ ------ -------- Other comprehensive income (loss), net of tax Change in unrealized depreciation of fixed maturity investments on which other-than-temporary credit impairments were recognized (29) (49) (21) Change in unrealized appreciation (depreciation) of all other investments (24) (938) 854 Adjustments to deferred policy acquisition costs and deferred sales inducements 34 82 (83) Change in unrealized insurance loss recognition (17) 54 (49) Change in foreign currency translation adjustments -- (1) (2) ------ ------ -------- Other comprehensive income (loss) (36) (852) 699 ------ ------ -------- Comprehensive income (loss) 481 (76) 1,687 Comprehensive income attributable to noncontrolling interests -- 1 1 ------ ------ -------- Comprehensive income (loss) attributable to VALIC $ 481 $ (77) $ 1,686 ====== ====== ========
See accompanying Notes to Consolidated Financial Statements. 5 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF EQUITY
Accumulated Total VALIC Additional Other Share- Non- Common Paid-in Retained Comprehensive holder's controlling Total (in millions) Stock Capital Earnings Income Equity Interests Equity ------------- ------ ---------- -------- ------------- ----------- ----------- ------- Balance, January 1, 2014 $ 4 $5,789 $ 1,118 $1,061 $ 7,972 $ -- $ 7,972 --- ------ ------- ------ ------- ---- ------- Net income attributable to VALIC or other noncontrolling interests -- -- 987 -- 987 1 988 Dividends -- -- (2,105) -- (2,105) -- (2,105) Other comprehensive income -- -- -- 699 699 -- 699 Capital contributions from Parent -- 38 -- -- 38 -- 38 Return of capital -- (522) -- -- (522) -- (522) Other -- -- -- -- -- 12 12 --- ------ ------- ------ ------- ---- ------- Balance, December 31, 2014 $ 4 $5,305 $ -- $1,760 $ 7,069 $ 13 $ 7,082 === ====== ======= ====== ======= ==== ======= Net income attributable to VALIC or other noncontrolling interests -- -- 775 -- 775 1 776 Dividends -- -- (775) -- (775) -- (775) Other comprehensive loss -- -- -- (852) (852) -- (852) Capital contributions from Parent -- 15 -- -- 15 -- 15 Return of capital -- (805) -- -- (805) -- (805) --- ------ ------- ------ ------- ---- ------- Balance, December 31, 2015 $ 4 $4,515 $ -- $ 908 $ 5,427 $ 14 $ 5,441 === ====== ======= ====== ======= ==== ======= Net income attributable to VALIC or other noncontrolling interests -- -- 517 -- 517 -- 517 Dividends -- -- (411) -- (411) -- (411) Other comprehensive loss -- -- -- (36) (36) -- (36) Capital contributions from Parent -- 1 -- -- 1 -- 1 Return of capital -- (413) -- -- (413) -- (413) Net decrease due to deconsolidation -- -- -- -- -- (14) (14) Other -- -- -- -- -- -- -- --- ------ ------- ------ ------- ---- ------- Balance, December 31, 2016 $ 4 $4,103 $ 106 $ 872 $ 5,085 $ -- $ 5,085 === ====== ======= ====== ======= ==== =======
See accompanying Notes to Consolidated Financial Statements. 6 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------- (in millions) 2016 2015 2014 ------------- ------- ------- ------- Cash flows from operating activities: Net income $ 517 $ 776 $ 988 ------- ------- ------- Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to policyholder account balances 1,134 1,117 1,142 Amortization of deferred policy acquisition costs 135 20 71 Fees charged for policyholder contract deposits (333) (349) (338) Net realized capital losses (gains) 127 (74) (134) Unrealized losses (gains) in earnings, net 10 25 (49) Equity in income of partnerships and other invested assets (34) (32) (102) Accretion of net premium/discount on investments (207) (189) (224) Capitalized interest (8) (10) (14) Provision for deferred income taxes (57) 87 152 Changes in operating assets and liabilities: Accrued investment income 6 18 20 Amounts due to/from related parties (36) (54) 89 Deferred policy acquisition costs (80) (78) (66) Current income tax receivable/payable 88 18 47 Future policy benefits 8 (11) 29 Other, net 30 101 102 ------- ------- ------- Total adjustments 783 589 725 ------- ------- ------- Net cash provided by operating activities 1,300 1,365 1,713 ======= ======= ======= Cash flows from investing activities: Proceeds from (payments for) Sales or distribution of: Available-for-sale investments 3,447 2,405 1,996 Other investments, excluding short-term investments 1,220 716 481 Redemption and maturities of fixed maturity securities available for sale 3,464 3,239 3,103 Principal payments received on sales and maturities of mortgage and other loans receivable 1,078 930 1,268 Redemption and maturities of other investments, excluding short-term investments 86 84 71 Purchases of: Available-for-sale investments (8,638) (5,107) (4,121) Mortgage and other loans receivable (1,613) (1,488) (1,125) Other investments, excluding short-term investments (699) (649) (655) Net change in restricted cash 10 191 (105) Net change in short-term investments (215) (160) 719 Other, net 16 2 83 ------- ------- ------- Net cash provided by (used in) investing activities (1,844) 163 1,715 ======= ======= ======= Cash flows from financing activities: Policyholder contract deposits 3,293 2,635 2,232 Policyholder contract withdrawals (3,178) (3,570) (3,519) Net exchanges to/from separate accounts 852 484 394 Change in repurchase agreements 1 -- -- Repayment of notes payable -- (68) (53) Change in securities lending payable 76 169 (732) Dividends and return of capital paid (476) (1,206) (1,685) ------- ------- ------- Net cash provided by (used in) financing activities 568 (1,556) (3,363) ======= ======= ======= Net increase (decrease) in cash 24 (28) 65 Cash at beginning of year 82 110 45 ------- ------- ------- Cash at end of year $ 106 $ 82 $ 110 ======= ======= ======= Supplementary Disclosure of Consolidated Cash Flow Information Cash paid during the period for: Interest $ 9 $ 2 $ 3 Taxes 103 214 208 Non-cash investing/financing activities: Sales inducements credited to policyholder contract deposits 11 9 10 Non-cash dividends and return of capital and dividend payable 349 473 942 Settlement of non-cash dividend payable -- 702 -- Non-cash contributions from Parent 1 15 38
See accompanying Notes to Consolidated Financial Statements. 7 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The Variable Annuity Life Insurance Company, including its wholly owned subsidiaries, is a wholly owned subsidiary of AGC Life Insurance Company (AGC Life or the Parent), an indirect, wholly owned subsidiary of American International Group, Inc. (AIG Parent). Unless the context indicates otherwise, the terms "VALIC," "the Company," "we," "us" or "our" mean The Variable Annuity Life Insurance Company and its consolidated subsidiaries, and the term "AIG Parent" means American International Group, Inc. and not any of its consolidated subsidiaries. We are a Texas-domiciled life insurance company and a leading provider of defined contribution retirement savings plans sponsored by education, not-for-profit and government organizations. Our primary products include fixed and variable annuities, mutual funds and plan administrative and compliance services. We utilize career financial advisors and independent financial advisors to provide retirement plan participants with enrollment support and comprehensive financial planning services. No annual deposits for any individual advisor in 2016 or 2015 represented more than 10 percent of total annuity deposits. Our operations are influenced by many factors, including general economic conditions, financial condition of AIG Parent, monetary and fiscal policies of the United States federal government and policies of state and other regulatory authorities. The level of sales of our insurance and financial products is influenced by many factors, including general market rates of interest, the strength, weakness and volatility of equity markets and terms and conditions of competing products. We are exposed to the risks normally associated with a portfolio of fixed income securities, which include interest rate, option, liquidity and credit risks. We control our exposure to these risks by, among other things, closely monitoring and managing the duration and cash flows of our assets and liabilities, monitoring and limiting prepayments and extension risk in our portfolio, maintaining a large percentage of our portfolio in highly liquid securities, engaging in a disciplined process of underwriting, and reviewing and monitoring credit risk. We are also exposed to market risk, policyholder behavior risk and mortality/longevity risk. Market volatility and other equity market conditions may affect our exposure to risks related to guaranteed death benefits and guaranteed living benefits on variable annuity products, and may reduce fee income on variable product assets held in separate accounts. Such guaranteed benefits are sensitive to equity and interest rate market conditions. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). All significant intercompany accounts and transactions have been eliminated. Certain prior period items have been reclassified to conform to the current period's presentation. The consolidated financial statements include the accounts of the Company, our controlled subsidiaries (generally through a greater than 50 percent ownership of voting rights and voting interests), and variable interest entities (VIEs) of which we are the primary beneficiary. Equity investments in entities that we do not consolidate, including corporate entities in which we have significant influence, and partnership and partnership-like entities in which we have more than minor influence over the operating and financial policies, are accounted for under the equity method unless we have elected the fair value option. Out of Period Adjustments In 2015, we recorded out of period adjustments to correct errors related to prior periods, which resulted in a $20 million decrease to consolidated net income and comprehensive income. The out of period adjustments were primarily related to deferred policy acquisition cost amortization and net investment income. We have evaluated the effect of the errors on prior years and their correction in 2015, taking into account both qualitative and quantitative factors. Management believes these errors and their corrections are not material to the current or any previously issued financial statements. 8 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Use of Estimates The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment. Accounting policies that we believe are most dependent on the application of estimates and assumptions are considered our critical accounting estimates and are related to the determination of: . income tax assets and liabilities, including recoverability of our net deferred tax asset and the predictability of future tax operating profitability of the character necessary to realize the net deferred tax asset; . reinsurance assets; . valuation of future policy benefit liabilities and timing and extent of loss recognition; . valuation of liabilities for guaranteed benefit features of variable annuity products; . estimated gross profits (EGP) to value deferred policy acquisition costs (DAC) for investment-oriented products; . impairment charges, including other-than-temporary impairments on available-for-sale securities and impairment on other invested assets; . liability for legal contingencies; and . fair value measurements of certain financial assets and liabilities. These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our consolidated financial condition, results of operations and cash flows could be materially affected. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following table identifies our significant accounting policies presented in other Notes to these Consolidated Financial Statements, with a reference to the Note where a detailed description can be found: Note 3. Fair Value Measurements . Short-term investments Note 4. Investments . Fixed maturity and equity securities . Other invested assets . Net investment income . Net realized capital gains (losses) . Other-than-temporary impairments Note 5. Lending Activities . Mortgage and other loans receivable - net of allowance Note 6. Reinsurance . Reinsurance assets, net of allowance Note 7. Derivatives and Hedge Accounting . Derivative assets and liabilities, at fair value Note 8. Deferred Policy Acquisition Costs and Deferred Sales Inducements . Deferred policy acquisition costs . Amortization of deferred policy acquisition costs . Deferred sales inducements Note 9. Variable Interest Entities Note 10. Insurance Liabilities . Future policy benefits . Policyholder contract deposits 9 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) . Other policyholder funds Note 11. Variable Life and Annuity Contracts Note 12. Debt . Long-term debt Note 13. Commitments and Contingencies . Legal contingencies Note 17. Income Taxes Other significant accounting policies Premiums for life contingent annuities are recognized as revenues when due. Estimates for premiums due but not yet collected are accrued. For limited-payment contracts, net premiums are recorded as revenue. The difference between the gross premium received and the net premium is deferred and recognized in policyholder benefits in the Consolidated Statements of Income. Policy fees represent fees recognized from investment-type products consisting of policy charges for cost of insurance or mortality and expense charges, policy administration charges, surrender charges and amortization of unearned revenue reserves. Policy fees are recognized as revenues in the period in which they are assessed against policyholders, unless the fees are designed to compensate us for services to be provided in the future. Fees deferred as unearned revenue are amortized in relation to the incidence of EGP to be realized over the estimated lives of the contracts, similar to DAC. Other income primarily includes brokerage commissions, advisory fee income and income from legal settlements. Cash represents cash on hand and non-interest bearing demand deposits. Short-term investments consist of interest-bearing cash equivalents, time deposits, securities purchased under agreements to resell, and investments, such as commercial paper, with original maturities within one year from the date of purchase. Premiums and other receivables - net of allowance include premium balances receivable, amounts due from agents and brokers and policyholders, and other receivables. Other assets consist of prepaid expenses, deposits, other deferred charges, real estate, other fixed assets, capitalized software costs, deferred sales inducements, restricted cash and freestanding derivative assets. Separate accounts represent funds for which investment income and investment gains and losses accrue directly to the contract holders who bear the investment risk. Each account has specific investment objectives and the assets are carried at fair value. The assets of each account are legally segregated and are not subject to claims that arise from any of our other businesses. The liabilities for these accounts are equal to the account assets. For a more detailed discussion of separate accounts, see Note 11. Other liabilities include other funds on deposit, other payables, securities sold under agreements to repurchase and freestanding derivative liabilities. Accounting Standards Adopted During 2016 Amendments to the Consolidation Analysis In February 2015, the FASB issued an accounting standard that affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; eliminate the presumption that a general partner should consolidate a limited partnership; affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and provide a scope exception from consolidation guidance for reporting entities with interests in legal 10 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. We adopted the standard prospectively on its required effective date of January 1, 2016. The adoption of this standard did not have a material effect on our consolidated financial condition, results of operations or cash flows. Simplifying the Presentation of Debt Issuance Costs In April 2015, the FASB issued an accounting standard that amends the guidance for debt issuance costs by requiring such costs to be presented as a deduction to the corresponding debt liability, rather than as an asset, and for the amortization of such costs to be reported as interest expense. The amendments are intended to simplify the presentation of debt issuance costs and make it consistent with the presentation of debt discounts or premiums. The amendments, however, do not change the recognition and measurement guidance applicable to debt issuance costs. We adopted the standard retrospectively on its required effective date of January 1, 2016. Because the new standard did not affect accounting recognition or measurement of debt issuance costs, the adoption of the standard did not have a material effect on our consolidated financial condition, results of operations or cash flows. Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent) In May 2015, the FASB amended the standard on fair value disclosures for investments for which fair value is measured using the net asset value (NAV) per share (or its equivalent) as a practical expedient. The amendments in this update remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share practical expedient. In addition, the amendment removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share as a practical expedient. We adopted the standard retrospectively on its required effective date of January 1, 2016. The adoption of this standard did not have a material effect on our consolidated financial condition, results of operations or cash flows. Disclosures of Uncertainties about an Entity's Ability to Continue as a Going Concern In August 2014, the FASB issued an accounting standard that requires management to evaluate and disclose if there are conditions or events that raise substantial doubt about an entity's ability to continue as a going concern even if the entity's liquidation is not imminent. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but this new standard requires an evaluation to determine whether to disclose information about the relevant conditions and events. Currently under U.S. GAAP there is no guidance about management's responsibility under this standard. U.S. auditing standards and federal securities law require that an auditor evaluate whether there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time not to exceed one year beyond the date of the financial statements being audited. We adopted the standard on its required effective date of December 31, 2016. The adoption of this standard did not have an effect on our consolidated financial condition, results of operations or cash flows. Future Application of Accounting Standards Revenue Recognition In May 2014, the FASB issued an accounting standard that supersedes most existing revenue recognition guidance. The standard excludes from its scope the accounting for insurance contracts, leases, financial instruments, and certain other agreements that are governed under other GAAP guidance, but could affect the revenue recognition for certain of our other activities. The standard is effective on January 1, 2018 and may be applied retrospectively or through a cumulative effect adjustment to retained earnings at the date of adoption. Early adoption is permitted as of January 1, 2017, including 11 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) interim periods. We are currently evaluating the impact to our revenue sources that are in scope of the standard. However, as the majority of our revenue sources are not in scope of the standard, we do not expect the adoption of the standard to have a material effect on our reported consolidated financial condition, results of operations or cash flows. Recognition and Measurement of Financial Assets and Financial Liabilities In January 2016, the FASB issued an accounting standard that will require equity investments that do not follow the equity method of accounting or are not subject to consolidation to be measured at fair value with changes in fair value recognized in earnings, while financial liabilities for which fair value option accounting has been elected, changes in fair value due to instrument-specific credit risk will be presented separately in other comprehensive income. The standard allows the election to record equity investments without readily determinable fair values at cost, less impairment, adjusted for subsequent observable price changes with changes in the carrying value of the equity investments recorded in earnings. The standard also updates certain fair value disclosure requirements for financial instruments carried at amortized cost. The standard is effective on January 1, 2018, with early adoption of certain provisions permitted. We are assessing the impact of the standard on our reported consolidated financial condition, results of operations and cash flows. Leases In February 2016, the FASB issued an accounting standard that will require lessees with lease terms of more than 12 months to recognize a right of use asset and a corresponding lease liability on their balance sheets. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating leases or finance leases. The standard is effective on January 1, 2019, with early adoption permitted using a modified retrospective approach. We are assessing the impact of the standard on our reported consolidated financial condition, results of operations and cash flows. We are currently quantifying the expected gross up of our balance sheet for a right to use asset and a lease liability as required by the standard. Derivative Contract Novations In March 2016, the FASB issued an accounting standard that clarifies that a change in the counterparty (novation) to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. We will adopt the standard on its January 1, 2017 effective date, and do not expect the adoption of the standard will have a material effect on our reported consolidated financial condition, results of operations or cash flows. Contingent Put and Call Options in Debt Instruments In March 2016, the FASB issued an accounting standard that clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The standard requires an evaluation of embedded call (put) options solely on a four-step decision sequence that requires an entity to consider whether (1) the amount paid upon settlement is adjusted based on changes in an index, (2) the amount paid upon settlement is indexed to an underlying other than interest rates or credit risk, (3) the debt involves a substantial premium or discount and (4) the put or call option is contingently exercisable. We will adopt the standard on its January 1, 2017 effective date, and do not expect the adoption of the standard will have a material effect on our reported consolidated financial condition, results of operations or cash flows. Simplifying the Transition to the Equity Method of Accounting In March 2016, the FASB issued an accounting standard that eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, 12 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods during which the investment had been held. We will adopt the standard on its January 1, 2017 effective date, and do not expect the adoption of the standard will have a material effect on our reported consolidated financial condition, results of operations or cash flows. Financial Instruments - Credit Losses In June 2016, the FASB issued an accounting standard that will change how entities account for credit losses for most financial assets. The standard will replace the existing incurred loss impairment model with a new "current expected credit loss model" and will apply to financial assets subject to credit losses, those measured at amortized cost and certain off-balance sheet credit exposures. The impairment for available-for-sale debt securities will be measured in a similar manner, except that losses will be recognized as allowances rather than reductions in the amortized cost of the securities. The standard will also require additional information to be disclosed in the footnotes. The standard is effective on January 1, 2020, with early adoption permitted on January 1, 2019. We are assessing the impact of the standard on our reported consolidated financial condition, results of operations and cash flows, but we expect an increase in our allowances for credit losses. The amount of the increase will be impacted by our portfolio composition and quality at the adoption date as well as economic conditions and forecasts at that time. Classification of Certain Cash Receipts and Cash Payments In August 2016, the FASB issued an accounting standard that addresses diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide clarity on the treatment of eight specifically defined types of cash inflows and outflows. The standard is effective on January 1, 2018, with early adoption permitted as long as all amendments are included in the same period. The standard addresses presentation in the Statement of Cash Flows only and will have no effect on our reported consolidated financial condition or results of operations. Intra-Entity Transfers of Assets Other than Inventory In October 2016, the FASB issued an accounting standard that will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset is sold to a third party. The standard is effective on January 1, 2018, with early adoption permitted. We are assessing the impact of the standard on our reported consolidated financial condition, results of operations and cash flows. Interest Held through Related Parties that are under Common Control In October 2016, the FASB issued an accounting standard that amends the consolidation analysis for a reporting entity that is the single decision maker of a VIE. The new guidance will require the decision maker's evaluation of its interests held through related parties that are under common control on a proportionate basis (rather than in their entirety) when determining whether it is the primary beneficiary of that VIE. The amendment does not change the characteristics of a primary beneficiary. We will adopt the standard on its January 1, 2017 effective date, and do not expect the impact of the standard to have a material effect on our reported consolidated financial condition, results of operations or cash flows. Restricted Cash In November 2016, the FASB issued an accounting standard that provides guidance on the presentation of restricted cash in the Statement of Cash Flows. Entities will be required to explain the changes during a reporting period in the 13 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents in the statement of cash flows. The standard is effective on January 1, 2018, with early adoption permitted. The standard addresses presentation of restricted cash in the Statement of Cash Flows only and will have no effect on our reported consolidated financial condition or results of operations. Clarifying the Definition of a Business In January 2017, the FASB issued an accounting standard that changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The new standard will require an entity to evaluate if substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar assets; if so, the set of transferred assets and activities is not a business. At a minimum, a set must include an input and a substantive process that together significantly contribute to the ability to create output. The standard is effective on January 1, 2018, with early adoption permitted. We are assessing the impact of early-adopting the standard on our reported consolidated financial condition, results of operations and cash flows. Because the standard requires prospective adoption, the impact is dependent on future acquisitions and dispositions. 3. FAIR VALUE MEASUREMENTS Fair Value Measurements on a Recurring Basis We carry certain of our financial instruments at fair value. We define the fair value of a financial instrument as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are responsible for the determination of the value of the investments carried at fair value and the supporting methodologies and assumptions. The degree of judgment used in measuring the fair value of financial instruments generally inversely correlates with the level of observable valuation inputs. We maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments for which no quoted prices are available have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction, liquidity and general market conditions. Fair Value Hierarchy Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are measured and classified in accordance with a fair value hierarchy consisting of three "levels" based on the observability of valuation inputs: . Level 1: Fair value measurements based on quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. We do not adjust the quoted price for such instruments. . Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. . Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. 14 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we must make certain assumptions about the inputs a hypothetical market participant would use to value that asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The following is a description of the valuation methodologies used for instruments carried at fair value. These methodologies are applied to assets and liabilities across the levels discussed above, and it is the observability of the inputs used that determines the appropriate level in the fair value hierarchy for the respective asset or liability. Valuation Methodologies of Financial Instruments Measured at Fair Value Incorporation of Credit Risk in Fair Value Measurements Our Own Credit Risk. Fair value measurements for certain derivative liabilities incorporate our own credit risk by determining the explicit cost for each counterparty to protect against its net credit exposure to us at the balance sheet date by reference to observable AIG credit default swap (CDS) or cash bond spreads. We calculate the effect of credit spread changes using discounted cash flow techniques that incorporate current market interest rates. A derivative counterparty's net credit exposure to us is determined based on master netting agreements, when applicable, which take into consideration all derivative positions with us, as well as collateral we post with the counterparty at the balance sheet date. For a description of how we incorporate our own credit risk in the valuation of embedded derivatives related to certain annuity and life insurance products, see Embedded Derivatives within Policyholder Contract Deposits, below. Counterparty Credit Risk. Fair value measurements for freestanding derivatives incorporate counterparty credit by determining the explicit cost for us to protect against our net credit exposure to each counterparty at the balance sheet date by reference to observable counterparty CDS spreads, when available. When not available, other directly or indirectly observable credit spreads will be used to derive the best estimates of the counterparty spreads. Our net credit exposure to a counterparty is determined based on master netting agreements, which take into consideration all derivative positions with the counterparty, as well as collateral posted by the counterparty at the balance sheet date. Fair values for fixed maturity securities based on observable market prices for identical or similar instruments implicitly incorporate counterparty credit risk. Fair values for fixed maturity securities based on internal models incorporate counterparty credit risk by using discount rates that take into consideration cash issuance spreads for similar instruments or other observable information. For fair values measured based on internal models, the cost of credit protection is determined under a discounted present value approach considering the market levels for single name CDS spreads for each specific counterparty, the mid-market value of the net exposure (reflecting the amount of protection required) and the weighted average life of the net exposure. CDS spreads are provided to us by an independent third party. We utilize an interest rate based on the benchmark London Interbank Offered Rate (LIBOR) curve to derive our discount rates. While this approach does not explicitly consider all potential future behavior of the derivative transactions or potential future changes in valuation inputs, we believe this approach provides a reasonable estimate of the fair value of the assets and liabilities, including consideration of the impact of non-performance risk. Fixed Maturity Securities Whenever available, we obtain quoted prices in active markets for identical assets at the balance sheet date to measure fixed maturity securities at fair value. Market price data is generally obtained from dealer markets. We employ independent third-party valuation service providers to gather, analyze, and interpret market information to derive fair value estimates for individual investments, based upon market-accepted methodologies and assumptions. The methodologies used by these independent third-party valuation service providers are reviewed and understood by 15 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) management, through periodic discussion with and information provided by the independent third-party valuation service providers. In addition, as discussed further below, control processes are applied to the fair values received from independent third-party valuation service providers to ensure the accuracy of these values. Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of market-accepted valuation methodologies, which may utilize matrix pricing, financial models, accompanying model inputs and various assumptions, provide a single fair value measurement for individual securities. The inputs used by the valuation service providers include, but are not limited to, market prices from completed transactions for identical securities and transactions for comparable securities, benchmark yields, interest rate yield curves, credit spreads, prepayment rates, default rates, recovery assumptions, currency rates, quoted prices for similar securities and other market-observable information, as applicable. If fair value is determined using financial models, these models generally take into account, among other things, market observable information as of the measurement date as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector, and when applicable, collateral quality and other security or issuer-specific information. When market transactions or other market observable data is limited, the extent to which judgment is applied in determining fair value is greatly increased. We have control processes designed to ensure that the fair values received from independent third-party valuation service providers are accurately recorded, that their data inputs and valuation techniques are appropriate and consistently applied and that the assumptions used appear reasonable and consistent with the objective of determining fair value. We assess the reasonableness of individual security values received from independent third-party valuation service providers through various analytical techniques, and have procedures to escalate related questions internally and to the independent third-party valuation service providers for resolution. To assess the degree of pricing consensus among various valuation service providers for specific asset types, we conduct comparisons of prices received from available sources. We use these comparisons to establish a hierarchy for the fair values received from independent third-party valuation service providers to be used for particular security classes. We also validate prices for selected securities through reviews by members of management who have relevant expertise and who are independent of those charged with executing investing transactions. When our independent third-party valuation service providers are unable to obtain sufficient market observable information upon which to estimate the fair value for a particular security, fair value is determined either by requesting brokers who are knowledgeable about these securities to provide a price quote, which is generally non-binding, or by employing market accepted valuation models. Broker prices may be based on an income approach, which converts expected future cash flows to a single present value amount, with specific consideration of inputs relevant to particular security types. For structured securities, such inputs may include ratings, collateral types, geographic concentrations, underlying loan vintages, loan delinquencies and defaults, loss severity assumptions, prepayments, and weighted average coupons and maturities. When the volume or level of market activity for a security is limited, certain inputs used to determine fair value may not be observable in the market. Broker prices may also be based on a market approach that considers recent transactions involving identical or similar securities. Fair values provided by brokers are subject to similar control processes to those noted above for fair values from independent third-party valuation service providers, including management reviews. For those corporate debt instruments (for example, private placements) that are not traded in active markets or that are subject to transfer restrictions, valuations reflect illiquidity and non-transferability, based on available market evidence. When observable price quotations are not available, fair value is determined based on discounted cash flow models using discount rates based on credit spreads, yields or price levels of comparable securities, adjusted for illiquidity and structure. Fair values determined internally are also subject to management review to ensure that valuation models and related inputs are reasonable. The methodology above is relevant for all fixed maturity securities including residential mortgage backed securities (RMBS), commercial mortgage backed securities (CMBS), collateralized debt obligations (CDO), other asset-backed securities (ABS) and fixed maturity securities issued by government sponsored entities and corporate entities. Equity Securities Traded in Active Markets Whenever available, we obtain quoted prices in active markets for identical assets at the balance sheet date to measure equity securities at fair value. Market price data is generally obtained from exchange or dealer markets. 16 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Mortgage and Other Loans Receivable We estimate the fair value of mortgage and other loans receivable that are measured at fair value by using dealer quotations, discounted cash flow analyses and/or internal valuation models. The determination of fair value considers inputs such as interest rate, maturity, the borrower's creditworthiness, collateral, subordination, guarantees, past-due status, yield curves, credit curves, prepayment rates, market pricing for comparable loans and other relevant factors. Other Invested Assets We initially estimate the fair value of investments in certain hedge funds, private equity funds and other investment partnerships by reference to the transaction price. Subsequently, we generally obtain the fair value of these investments from net asset value information provided by the general partner or manager of the investments, the financial statements of which are generally audited annually. We consider observable market data and perform certain control procedures to validate the appropriateness of using the net asset value as a fair value measurement. The fair values of other investments carried at fair value, such as direct private equity holdings, are initially determined based on transaction price and are subsequently estimated based on available evidence such as market transactions in similar instruments, other financing transactions of the issuer and other available financial information for the issuer, with adjustments made to reflect illiquidity as appropriate. Short-term Investments For short-term investments that are measured at amortized cost, the carrying amounts of these assets approximate fair values because of the relatively short period of time between origination and expected realization, and their limited exposure to credit risk. Securities purchased under agreements to resell (reverse repurchase agreements) are generally treated as collateralized receivables. We report certain receivables arising from securities purchased under agreements to resell as Short-term investments in the Consolidated Balance Sheets. When these receivables are measured at fair value, we use market-observable interest rates to determine fair value. Separate Account Assets Separate account assets are composed primarily of registered and unregistered open-end mutual funds that generally trade daily and are measured at fair value in the manner discussed above for equity securities traded in active markets. Freestanding Derivatives Derivative assets and liabilities can be exchange-traded or traded over-the-counter (OTC). We generally value exchange-traded derivatives such as futures and options using quoted prices in active markets for identical derivatives at the balance sheet date. OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, model calibration to market clearing transactions, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. When models are used, the selection of a particular model to value an OTC derivative depends on the contractual terms of, and specific risks inherent in the instrument, as well as the availability of pricing information in the market. We generally use similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices and rates, yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs. For OTC derivatives that trade in liquid markets, such as generic forwards, swaps and options, model inputs can generally be corroborated by observable market data by correlation or other means, and model selection does not involve significant management judgment. For certain OTC derivatives that trade in less liquid markets, where we generally do not have corroborating market evidence to support significant model inputs and cannot verify the model to market transactions the transaction price may provide the best estimate of fair value. Accordingly, when a pricing model is used to value such an instrument, the model is adjusted so the model value at inception equals the transaction price. We will update valuation inputs in these models only when corroborated by evidence such as similar market transactions, independent third-party valuation service providers and/or broker or dealer quotations, or other empirical market data. When appropriate, valuations are 17 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) adjusted for various factors such as liquidity, bid/offer spreads and credit considerations. Such adjustments are generally based on available market evidence. In the absence of such evidence, management's best estimate is used. Embedded Derivatives within Policyholder Contract Deposits Certain variable annuity and equity-indexed annuity and life contracts contain embedded derivatives that we bifurcate from the host contracts and account for separately at fair value, with changes in fair value recognized in earnings. These embedded derivatives are classified within Policyholder contract deposits. We have concluded these contracts contain either (i) a written option that guarantees a minimum accumulation value at maturity, (ii) a written option that guarantees annual withdrawals regardless of underlying market performance for a specific period or for life, or (iii) equity-indexed written options that meet the criteria of derivatives and must be bifurcated. The fair value of embedded derivatives contained in certain variable annuity and equity-indexed annuity and life contracts is measured based on actuarial and capital market assumptions related to projected cash flows over the expected lives of the contracts. These discounted cash flow projections primarily include benefits and related fees assessed, when applicable. In some instances, the projected cash flows from fees may exceed projected cash flows related to benefit payments and therefore, at a point in time, the carrying value of the embedded derivative may be in a net asset position. The projected cash flows incorporate best estimate assumptions for policyholder behavior (including mortality, lapses, withdrawals and benefit utilization), along with an explicit risk margin to reflect a market participant's estimates of projected cash flows and policyholder behavior. Estimates of future policyholder behavior are subjective and based primarily on our historical experience. Because of the dynamic and complex nature of the projected cash flows with respect to embedded derivatives in our variable annuity contracts, risk neutral valuations are used, which are calibrated to observable interest rate and equity option prices. Estimating the underlying cash flows for these products involves judgments regarding expected market rates of return, market volatility, credit spreads, correlations of certain market variables, fund performance, discount rates and policyholder behavior. The portion of fees attributable to the fair value of expected benefit payments are included within the fair value measurement of these embedded derivatives, and related fees are classified in net realized capital gains (losses) as earned, consistent with other changes in the fair value of these embedded policy derivatives. Any portion of the fees not attributed to the embedded derivatives are excluded from the fair value measurement and classified in policy fees as earned. With respect to embedded derivatives in our equity-indexed annuity and life contracts, option pricing models are used to estimate fair value, taking into account assumptions for future equity index growth rates, volatility of the equity index, future interest rates, and our ability to adjust the participation rate and the cap on equity-indexed credited rates in light of market conditions and policyholder behavior assumptions. Projected cash flows are discounted using the interest rate swap curve (swap curve), which is commonly viewed as being consistent with the credit spreads for highly-rated financial institutions (S&P AA-rated or above). A swap curve shows the fixed-rate leg of a non-complex swap against the floating rate (for example, LIBOR) leg of a related tenor. We also incorporate our own risk of non-performance in the valuation of the embedded derivatives associated with variable annuity and equity-indexed annuity and life contracts. The non-performance risk adjustment reflects a market participant's view of our claims-paying ability by incorporating an additional spread to the swap curve used to discount projected benefit cash flows in the valuation of these embedded derivatives. The non-performance risk adjustment is calculated by constructing forward rates based on a weighted average of observable corporate credit indices to approximate our claims-paying ability rating. Notes Payable Certain VIEs that we consolidate have each elected the fair value option for certain tranches of their structured securities, which are included in notes payable - to affiliates. The fair value of the structured securities is determined using a mark-to-model approach, discounting cash flows produced by an internally validated model. Cash flows are discounted based on current market spreads for U.S. collateralized loan obligations (CLOs), adjusted for structural specific attributes. The market spreads are adjusted to include a spread premium to compensate for the complexity and perceived illiquidity of the structured securities. The spread premiums were derived on the respective issuance dates of 18 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) the structured securities, with reference to the issuance spread on tranches of structured securities issued by the same entities that were purchased by independent, non-affiliated third parties. Other Liabilities Other liabilities measured at fair value include certain securities sold under agreements to repurchase and certain securities sold but not yet purchased. Liabilities arising from securities sold under agreements to repurchase are generally treated as collateralized borrowings. We estimate the fair value of liabilities arising under these agreements by using market-observable interest rates. This methodology considers such factors as the coupon rate, yield curves and other relevant factors. Fair values for securities sold but not yet purchased are based on current market prices. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table presents information about assets and liabilities measured at fair value on a recurring basis, and indicates the level of the fair value measurement based on the observability of the inputs used:
December 31, 2016 Counterparty Cash (in millions) Level 1 Level 2 Level 3 Netting * Collateral Total ----------------- ------- ------- ------- ------------ ---------- ------- Assets: Bonds available for sale: U.S. government and government sponsored entities $ -- $ 345 $ -- $-- $ -- $ 345 Obligations of states, municipalities and political subdivisions -- 881 42 -- -- 923 Non-U.S. governments -- 988 -- -- -- 988 Corporate debt -- 19,638 180 -- -- 19,818 RMBS -- 3,204 2,133 -- -- 5,337 CMBS -- 4,137 314 -- -- 4,451 CDO/ABS -- 970 1,759 -- -- 2,729 ------- ------- ------ --- ----- ------- Total bonds available for sale -- 30,163 4,428 -- -- 34,591 ------- ------- ------ --- ----- ------- Other bond securities: Non-U.S. governments -- 7 -- -- -- 7 Corporate debt -- 224 -- -- -- 224 RMBS -- 175 507 -- -- 682 CMBS -- 119 35 -- -- 154 CDO/ABS -- 5 706 -- -- 711 ------- ------- ------ --- ----- ------- Total other bond securities -- 530 1,248 -- -- 1,778 ------- ------- ------ --- ----- ------- Equity securities available for sale: Common stock 1 -- -- -- -- 1 Preferred stock 4 -- -- -- -- 4 ------- ------- ------ --- ----- ------- Total equity securities available for sale 5 -- -- -- -- 5 ------- ------- ------ --- ----- ------- Other invested assets/(a)/ -- -- 12 -- -- 12 Short-term investments 385 382 -- -- -- 767 Derivative assets: Interest rate contracts -- 122 -- -- -- 122 Foreign exchange contracts -- 96 -- -- -- 96 Equity contracts 15 13 -- -- -- 28 Counterparty netting and cash collateral -- -- -- (7) (191) (198) ------- ------- ------ --- ----- ------- Total derivative assets 15 231 -- (7) (191) 48 ------- ------- ------ --- ----- ------- Separate account assets 32,298 171 -- -- -- 32,469 ------- ------- ------ --- ----- ------- Total $32,703 $31,477 $5,688 $(7) $(191) $69,670 ======= ======= ====== === ===== ======= Liabilities: Policyholder contract deposits $ -- $ -- $ 209 $-- $ -- $ 209 Notes payable - to affiliates -- -- 183 -- -- 183 Derivative liabilities: Foreign exchange contracts -- 7 -- -- -- 7 Counterparty netting and cash collateral -- -- -- (7) -- (7) ------- ------- ------ --- ----- ------- Total derivative liabilities -- 7 -- (7) -- -- ------- ------- ------ --- ----- ------- Total $ -- $ 7 $ 392 $(7) $ -- $ 392 ======= ======= ====== === ===== =======
19 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2015 Counterparty Cash (in millions) Level 1 Level 2 Level 3 Netting * Collateral Total ----------------- ------- ------- ------- ------------ ---------- ------- Assets: Bonds available for sale: U.S. government and government sponsored entities $ -- $ 346 $ -- $ -- $ -- $ 346 Obligations of states, municipalities and political subdivisions -- 764 48 -- -- 812 Non-U.S. governments -- 820 -- -- -- 820 Corporate debt -- 19,624 218 -- -- 19,842 RMBS -- 2,696 1,918 -- -- 4,614 CMBS -- 3,453 537 -- -- 3,990 CDO/ABS -- 1,141 1,568 -- -- 2,709 ------- ------- ------ ---- ---- ------- Total bonds available for sale -- 28,844 4,289 -- -- 33,133 ------- ------- ------ ---- ---- ------- Other bond securities: Non-U.S. governments -- 6 -- -- -- 6 Corporate debt -- 217 -- -- -- 217 RMBS -- 58 105 -- -- 163 CMBS -- 93 15 -- -- 108 CDO/ABS -- 5 715 -- -- 720 ------- ------- ------ ---- ---- ------- Total other bond securities -- 379 835 -- -- 1,214 ------- ------- ------ ---- ---- ------- Equity securities available for sale: Preferred stock 4 -- -- -- -- 4 ------- ------- ------ ---- ---- ------- Total equity securities available for sale 4 -- -- -- -- 4 ------- ------- ------ ---- ---- ------- Other invested assets/(a)/ -- -- 14 -- -- 14 Short-term investments 324 236 -- -- -- 560 Derivative assets: Interest rate contracts -- 84 -- -- -- 84 Foreign exchange contracts -- 61 -- -- -- 61 Equity contracts 39 4 -- -- -- 43 Counterparty netting and cash collateral -- -- -- (25) (86) (111) ------- ------- ------ ---- ---- ------- Total derivative assets 39 149 -- (25) (86) 77 ------- ------- ------ ---- ---- ------- Separate account assets 31,350 186 -- -- -- 31,536 ------- ------- ------ ---- ---- ------- Total $31,717 $29,794 $5,138 $(25) $(86) $66,538 ======= ======= ====== ==== ==== ======= Liabilities: Policyholder contract deposits $ -- $ -- $ 197 $ -- $ -- $ 197 Notes payable - to affiliates -- -- 143 -- -- 143 Derivative liabilities: Interest rate contracts -- 23 -- -- -- 23 Foreign exchange contracts -- 2 -- -- -- 2 Counterparty netting and cash collateral -- -- -- (25) -- (25) ------- ------- ------ ---- ---- ------- Total derivative liabilities -- 25 -- (25) -- -- ------- ------- ------ ---- ---- ------- Total $ -- $ 25 $ 340 $(25) $ -- $ 340 ======= ======= ====== ==== ==== =======
(a)Excludes investments that are measured at fair value using the NAV per share (or its equivalent), which totaled $516 million and $1,091 million as of December 31, 2016 and December 31, 2015, respectively. * Represents netting of derivative exposures covered by qualifying master netting agreements. Transfers of Level 1 and Level 2 Assets and Liabilities Our policy is to record transfers of assets and liabilities between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. Assets are transferred out of Level 1 when they are no longer transacted with sufficient frequency and volume in an active market. Conversely, assets are transferred from Level 2 to Level 1 when transaction volume and frequency are indicative of an active market. We had no significant transfers from Level 1 to Level 2 as well as transfers from Level 2 to Level 1 during 2016 and 2015. 20 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Changes in Level 3 Recurring Fair Value Measurements The following tables present changes during the years ended December 31, 2016 and 2015 in Level 3 assets and liabilities measured at fair value on a recurring basis, and the realized and unrealized gains (losses) related to the Level 3 assets and liabilities in the Consolidated Balance Sheets at December 31, 2016 and 2015:
Net Changes in Realized Unrealized and Purchases, Gains (Losses) Unrealized Sales, Included in Gains Issuances Income on Fair Value (Losses) Other and Gross Gross Fair Value Instruments Beginning Included in Comprehensive Settlements, Transfers Transfers End of Held at End of (in millions) of Year Income Income (Loss) Net In Out Year Year ------------- ---------- ----------- ------------- ------------ --------- --------- ---------- -------------- December 31, 2016 Assets: Bonds available for sale: Obligations of states, municipalities and political subdivisions $ 48 $ -- $ 1 $ -- $ -- $ (7) $ 42 $ -- Corporate debt 218 (5) (14) (14) 192 (197) 180 -- RMBS 1,918 87 9 87 36 (4) 2,133 -- CMBS 537 39 (50) (83) 2 (131) 314 -- CDO/ABS 1,568 8 (29) 223 -- (11) 1,759 -- ------ ---- ----- ----- ---- ----- ------ ---- Total bonds available for sale 4,289 129 (83) 213 230 (350) 4,428 -- ------ ---- ----- ----- ---- ----- ------ ---- Other bond securities: U.S government and government Obligations of states, municipalities RMBS 105 12 -- 390 -- -- 507 7 CMBS 15 -- -- 31 -- (11) 35 -- CDO/ABS 715 23 -- (32) -- -- 706 17 ------ ---- ----- ----- ---- ----- ------ ---- Total other bond securities 835 35 -- 389 -- (11) 1,248 24 ------ ---- ----- ----- ---- ----- ------ ---- Other invested assets 14 -- (2) -- -- -- 12 -- ------ ---- ----- ----- ---- ----- ------ ---- Total $5,138 $164 $ (85) $ 602 $230 $(361) $5,688 $ 24 ====== ==== ===== ===== ==== ===== ====== ==== Liabilities: Policyholder contract deposits $ (197) $ 9 $ -- $ (21) $ -- $ -- $ (209) $ -- Notes payable - to affiliates (143) (40) -- -- -- -- (183) -- ------ ---- ----- ----- ---- ----- ------ ---- Total $ (340) $(31) $ -- $ (21) $ -- $ -- $ (392) $ -- ====== ==== ===== ===== ==== ===== ====== ==== December 31, 2015 Assets: Bonds available for sale: Obligations of states, municipalities and political subdivisions $ 51 $ -- $ (3) $ -- $ -- $ -- $ 48 $ -- Corporate debt 291 2 (19) (41) 255 (270) 218 -- RMBS 1,788 96 (31) 65 -- -- 1,918 -- CMBS 628 23 (35) (50) -- (29) 537 -- CDO/ABS 1,683 24 (42) (97) -- -- 1,568 -- ------ ---- ----- ----- ---- ----- ------ ---- Total bonds available for sale 4,441 145 (130) (123) 255 (299) 4,289 -- ------ ---- ----- ----- ---- ----- ------ ---- Other bond securities: RMBS 71 9 -- 25 -- -- 105 6 CMBS 39 (1) -- (23) -- -- 15 -- CDO/ABS 851 (12) -- (124) -- -- 715 (18) ------ ---- ----- ----- ---- ----- ------ ---- Total other bond securities 961 (4) -- (122) -- -- 835 (12) ------ ---- ----- ----- ---- ----- ------ ---- Equity securities available for sale: Other invested assets 14 -- -- -- -- -- 14 -- ------ ---- ----- ----- ---- ----- ------ ---- Total $5,416 $141 $(130) $(245) $255 $(299) $5,138 $(12) ====== ==== ===== ===== ==== ===== ====== ==== Liabilities: Policyholder contract deposits $ (236) $ 73 $ -- $ (34) $ -- $ -- $ (197) $ -- Notes payable - to affiliates (149) 6 -- -- -- -- (143) -- ------ ---- ----- ----- ---- ----- ------ ---- Total $ (385) $ 79 $ -- $ (34) $ -- $ -- $ (340) $ -- ====== ==== ===== ===== ==== ===== ====== ====
Net realized and unrealized gains and losses included in income related to Level 3 assets and liabilities shown above were reported in the Consolidated Statements of Income as follows:
Net Net Realized Investment Capital Gains Other (in millions) Income (Losses) Income Total ------------- ---------- ------------- ------ ----- December 31, 2016 Bonds available for sale $145 $(16) $-- $129 Other bond securities 33 2 -- 35 Policyholder contract deposits -- 9 -- 9 Notes payable - to affiliates (40) -- -- (40) December 31, 2015 Bonds available for sale $157 $(12) $-- $145 Other bond securities (1) (3) -- (4) Policyholder contract deposits -- 73 -- 73 Notes payable - to affiliates -- -- 6 6
21 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the gross components of purchases, sales, issues and settlements, net, shown above:
Purchases, Sales, Issuances (in millions) Purchases Sales Settlements and Settlements, Net* ------------- --------- ----- ----------- --------------------- December 31, 2016 Assets: Bonds available for sale: Corporate debt $ 10 $ -- $ (24) $ (14) RMBS 495 -- (408) 87 CMBS 26 (31) (78) (83) CDO/ABS 417 (38) (156) 223 ------ ----- ----- ----- Total bonds available for sale 948 (69) (666) 213 ------ ----- ----- ----- Other bond securities: U.S government and government Obligations of states, municipalities RMBS 424 (7) (27) 390 CMBS 33 -- (2) 31 CDO/ABS 13 -- (45) (32) ------ ----- ----- ----- Total other bond securities 470 (7) (74) 389 ------ ----- ----- ----- Equity securities available for sale: Total assets $1,418 $ (76) $(740) $ 602 ====== ===== ===== ===== Liabilities: Policyholder contract deposits $ -- $ (59) $ 38 $ (21) ------ ----- ----- ----- Total liabilities $ -- $ (59) $ 38 $ (21) ====== ===== ===== ===== Purchases, Sales, Issuances (in millions) Purchases Sales Settlements and Settlements, Net ------------- --------- ----- ----------- --------------------- December 31, 2015 Assets: Bonds available for sale: Corporate debt $ 52 $ (3) $ (90) $ (41) RMBS 452 (59) (328) 65 CMBS 13 (7) (56) (50) CDO/ABS 547 (338) (306) (97) ------ ----- ----- ----- Total bonds available for sale 1,064 (407) (780) (123) ------ ----- ----- ----- Other bond securities: RMBS 111 (74) (12) 25 CMBS -- (1) (22) (23) CDO/ABS -- (63) (61) (124) ------ ----- ----- ----- Total other bond securities 111 (138) (95) (122) ------ ----- ----- ----- Total assets $1,175 $(545) $(875) $(245) ====== ===== ===== ===== Policyholder contract deposits $ -- $ -- $ (34) $ (34) ------ ----- ----- ----- Total liabilities $ -- $ -- $ (34) $ (34) ====== ===== ===== =====
* There were no issuances in 2016 and 2015. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3 in the tables above. As a result, the unrealized gains (losses) on instruments held at December 31, 2016 and 2015 may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable inputs (e.g., changes in unobservable long-dated volatilities). Transfers of Level 3 Assets and Liabilities We record transfers of assets and liabilities into or out of Level 3 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. The net realized and unrealized gains (losses) included in income (loss) or other comprehensive income (loss) and as shown in the table above excludes $43 million of net losses related to assets transferred into Level 3 in 2016 and includes $44 million of net losses related to assets transferred out of Level 3 in 2016. The net realized and unrealized gains (losses) included in income (loss) or other comprehensive income (loss) and as shown in the table above excludes $5 million of net losses related to assets transferred into Level 3 in 2015 and includes $9 million of net losses related to assets transferred out of Level 3 in 2015. Transfers of Level 3 Assets During the years ended December 31, 2016 and 2015, transfers into Level 3 assets primarily included certain investments in private placement corporate debt, RMBS, CMBS, and CDO/ABS. Transfers of private placement 22 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) corporate debt and certain ABS into Level 3 assets were primarily the result of limited market pricing information that required us to determine fair value for these securities based on inputs that are adjusted to better reflect our own assumptions regarding the characteristics of a specific security or associated market liquidity. The transfers of investments in RMBS, CMBS and CDO and certain ABS into Level 3 assets were due to decreases in market transparency and liquidity for individual security types. During the years ended December 31, 2016 and 2015, transfers out of Level 3 assets primarily included private placement and other corporate debt, CMBS, CDO/ABS, RMBS and certain investments in municipal securities. Transfers of certain investments in municipal securities, corporate debt, RMBS, CMBS and CDO/ABS out of Level 3 assets were based on consideration of market liquidity as well as related transparency of pricing and associated observable inputs for these investments. Transfers of certain investments in private placement corporate debt and certain ABS out of Level 3 assets were primarily the result of using observable pricing information that reflects the fair value of those securities without the need for adjustment based on our own assumptions regarding the characteristics of a specific security or the current liquidity in the market. Transfers of Level 3 Liabilities There were no significant transfers of derivative or other liabilities into or out of Level 3 for the years ended December 31, 2016 and 2015. Quantitative Information about Level 3 Fair Value Measurements The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level 3 instruments, and includes only those instruments for which information about the inputs is reasonably available to us, such as data from independent third-party valuation service providers and from internal valuation models. Because input information from third-parties with respect to certain Level 3 instruments (primarily CDO/ABS) may not be reasonably available to us, balances shown below may not equal total amounts reported for such Level 3 assets and liabilities:
Fair Value at December 31, (in millions) 2016 Valuation Technique Unobservable Input/(b)/ Range (Weighted Average) ------------- ------------- --------------------- ----------------------------------- ------------------------ Assets: Obligations of states, municipalities and political subdivisions $ 42 Discounted cash flow Yield 4.09% - 4.41% (4.25%) Corporate debt 33 Discounted cash flow Yield 3.64% - 9.35% (6.50%) RMBS/(a)/ 2,495 Discounted cash flow Constant prepayment rate 1.21% - 9.52% (5.37%) Loss severity 48.91% - 79.57% (64.24%) Constant default rate 3.12% - 9.89% (6.51%) Yield 2.85% - 6.35% (4.60%) CMBS 10 Discounted cash flow Yield 2.02% - 2.04% (2.03%) CDO/ABS/(a)/ 602 Discounted cash flow Yield 4.46% - 6.22% (5.34%) Liabilities: Embedded derivatives within Policyholder contract deposits: GMWB $ 165 Discounted cash flow Equity volatility 13.00% - 50.00% Base lapse rate 0.50% - 20.00% Dynamic lapse rate 30.00% - 170.00% Mortality multiplier/(c)/ 42.00% - 161.00% Utilization rate 100.00% Equity / interest-rate correlation 20.00% - 40.00% Index annuities 44 Discounted cash flow Lapse rate 1.00% - 66.00% Mortality multiplier/(c)/ 50.00% - 75.00%
23 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value at December 31, (in millions) 2015 Valuation Technique Unobservable Input/(b)/ Range (Weighted Average) ------------- ------------- --------------------- ----------------------------------- ------------------------ Assets: Obligations of states, municipalities and political subdivisions $ 48 Discounted cash flow Yield 4.20% - 4.84% (4.52%) Corporate debt 99 Discounted cash flow Yield 9.92% - 12.87% (11.40%) RMBS/(a)/ 1,901 Discounted cash flow Constant prepayment rate 0.82% - 10.97% (5.89%) Loss severity 46.31% - 77.35% (61.83%) Constant default rate 3.20% - 8.91% (6.05%) Yield 3.02% - 6.86% (4.94%) CMBS 320 Discounted cash flow Yield 0.00% - 18.45% (8.93%) CDO/ABS/(a)/ 738 Discounted cash flow Yield 3.36% - 4.91% (4.13%) Liabilities: Embedded derivatives within Policyholder contract deposits: GMWB $ 131 Discounted cash flow Equity volatility 15.00% - 50.00% Base lapse rate 8.00% Dynamic lapse rate 1.60% - 12.00% Mortality multiplier/(d)/ 80.00% Utilization rate 1.00% - 70.00% Equity / interest rate correlation 20.00% - 40.00% Index annuities 66 Discounted cash flow Lapse rate 0.75% - 66.00% Mortality multiplier/(d)/ 80.00%
(a)Information received from third-party valuation service providers. The ranges of the unobservable inputs for constant prepayment rate, loss severity and constant default rate relate to each of the individual underlying mortgage loans that comprise the entire portfolio of securities in the RMBS and CDO securitization vehicles and not necessarily to the securitization vehicle bonds (tranches) purchased by us. The ranges of these inputs do not directly correlate to changes in the fair values of the tranches purchased by us, because there are other factors relevant to the fair values of specific tranches owned by us including, but not limited to, purchase price, position in the waterfall, senior versus subordinated position and attachment points. (b)Represents discount rates, estimates and assumptions that we believe would be used by market participants when valuing these assets and liabilities. (c)Mortality inputs are shown as multipliers of the 2012 Individual Annuity Mortality Basic table for Guaranteed Minimum Withdrawal Benefits (GMWB). (d)Mortality inputs are shown as multipliers of the 2012 Individual Annuity Mortality Basic table for GMWB, and the 1975-1980 Modified Basic Table for index annuities. The ranges of reported inputs for Obligations of states, municipalities and political subdivisions, Corporate debt, RMBS, CDO/ABS, and CMBS valued using a discounted cash flow technique consist of one standard deviation in either direction from the value-weighted average. The preceding table does not give effect to our risk management practices that might offset risks inherent in these Level 3 assets and liabilities. Sensitivity to Changes in Unobservable Inputs We consider unobservable inputs to be those for which market data is not available and that are developed using the best information available to us about the assumptions that market participants would use when pricing the asset or liability. Relevant inputs vary depending on the nature of the instrument being measured at fair value. The following paragraphs provide a general description of sensitivities of significant unobservable inputs along with interrelationships between and among the significant unobservable inputs and their impact on the fair value measurements. The effect of a change in a particular assumption in the sensitivity analysis below is considered independently of changes in any other assumptions. In practice, simultaneous changes in assumptions may not always have a linear effect on the inputs discussed below. Interrelationships may also exist between observable and unobservable inputs. Such relationships have not been included in the discussion below. For each of the individual relationships described below, the inverse relationship would also generally apply. 24 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Obligations of States, Municipalities and Political Subdivisions The significant unobservable input used in the fair value measurement of certain investments in obligations of states, municipalities and political subdivisions is yield. In general, increases in the yield would decrease the fair value of investments in obligations of states, municipalities and political subdivisions. Corporate Debt Corporate debt securities included in Level 3 are primarily private placement issuances that are not traded in active markets or that are subject to transfer restrictions. Fair value measurements consider illiquidity and non-transferability. When observable price quotations are not available, fair value is determined based on discounted cash flow models using discount rates based on credit spreads, yields or price levels of publicly-traded debt of the issuer or other comparable securities, considering illiquidity and structure. The significant unobservable input used in the fair value measurement of corporate debt is the yield. The yield is affected by the market movements in credit spreads and U.S. Treasury yields. In addition, the migration in credit quality of a given security generally has a corresponding effect on the fair value measurement of the security. For example, a downward migration of credit quality would increase spreads. Holding U.S. Treasury rates constant, an increase in corporate credit spreads would decrease the fair value of corporate debt. RMBS and CDO/ABS The significant unobservable inputs used in fair value measurements of RMBS and certain CDO/ABS valued by third-party valuation service providers are constant prepayment rates (CPR), loss severity, constant default rates (CDR), and yield. A change in the assumptions used for the probability of default will generally be accompanied by a corresponding change in the assumption used for the loss severity and an inverse change in the assumption used for prepayment rates. In general, increases in CPR, loss severity, CDR and yield, in isolation, would result in a decrease in the fair value measurement. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship between the directional change of each input is not usually linear. CMBS The significant unobservable input used in fair value measurements for CMBS is the yield. Prepayment assumptions for each mortgage pool are factored into the yield. CMBS generally feature a lower degree of prepayment risk than RMBS because commercial mortgages generally contain a penalty for prepayment. In general, increases in the yield would decrease the fair value of CMBS. Embedded derivatives within Policyholder contract deposits Embedded derivatives reported within policyholder contract deposits include guaranteed minimum withdrawal benefits (GMWB) within variable annuity products and certain enhancements to interest crediting rates based on market indices within index annuities. For any given contract, assumptions for unobservable inputs vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. The following unobservable inputs are used for valuing embedded derivatives measured at fair value: . Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. Increases in assumed volatility will generally increase the fair value of both the projected cash flows from rider fees as well as the projected cash flows related to benefit payments. Therefore, the net change in the fair value of the liability may either decrease or increase, depending on the relative changes in projected rider fees and projected benefit payments. . Equity / interest rate correlation estimates the relationship between changes in equity returns and interest rates in the economic scenario generator used to value our GMWB embedded derivatives. In general, a higher positive correlation assumes that equity markets and interest rates move in a more correlated fashion, which generally increases the fair value of the liability. 25 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) . Base lapse rate assumptions are determined by company experience and are adjusted at the contract level using a dynamic lapse function, which reduces the base lapse rate when the contract is in-the-money (when the contract holder's guaranteed value is worth more than their underlying account value). Lapse rates are also generally assumed to be lower in periods when a surrender charge applies. Increases in assumed lapse rates will generally decrease the fair value of the liability, as fewer policyholders would persist to collect guaranteed withdrawal amounts, but in certain scenarios, increases in assumed lapse rates may increase the fair value of the liability. . Mortality rate assumptions, which vary by age and gender, are based on company experience and include a mortality improvement assumption. Increases in assumed mortality rates will decrease the fair value of the liability, while lower mortality rate assumptions will generally increase the fair value of the liability, because guaranteed payments will be made for a longer period of time. . Utilization assumptions estimate the timing when policyholders with a GMWB will elect to utilize their benefit and begin taking withdrawals. The assumptions may vary by the type of guarantee, tax-qualified status, the contract's withdrawal history and the age of the policyholder. Utilization assumptions are based on company experience, which includes partial withdrawal behavior. In 2016, we implemented a 100 percent utilization assumption which reflects an expectation that all policyholders who remain active in the contract (i.e., do not lapse or die) will utilize their GMWB guarantee by commencing systematic withdrawals under the terms of their contract. In 2015, we used as a utilization rate assumption representing the probability of first partial withdrawal, which varied by issue age and duration for different contract types. The impact of changes in utilization assumptions on the fair value of the liability may vary, depending on the expected timing as well as the overall rate of assumed utilization. 26 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Investments in Certain Entities Carried at Fair Value Using Net Asset Value per Share The following table includes information related to our investments in certain other invested assets, including private equity funds, hedge funds and other alternative investments that calculate net asset value per share (or its equivalent). For these investments, which are measured at fair value on a recurring basis, we use the net asset value per share to measure fair value.
December 31, 2016 December 31, 2015 --------------------------- --------------------------- Fair Value Fair Value Using Net Using Net Asset Value Asset Value Per Share (or Unfunded Per Share (or Unfunded (in millions) Investment Category Includes its equivalent) Commitments its equivalent) Commitments ------------- ------------------------------ --------------- ----------- --------------- ----------- Investment Category Private equity funds: Leveraged buyout Debt and/or equity investments made as part of a transaction in which assets of mature companies are acquired from the current shareholders, typically with the use of financial leverage $112 $57 $139 $34 Real Estate / Investments in real estate Infrastructure properties and infrastructure positions, including power plants and other energy generating facilities 12 4 18 4 Venture capital Early-stage, high-potential, growth companies expected to generate a return through an eventual realization event, such as an initial public offering or sale of the company 8 16 5 20 Distressed Securities of companies that are in default, under bankruptcy protection, or troubled 2 1 15 3 Other Includes multi-strategy, mezzanine, and other strategies -- -- 18 10 ---- --- ------- --- Total private equity funds 134 78 195 71 ---- --- ------- --- Hedge funds:/*/ Event-driven Securities of companies undergoing material structural changes, including mergers, acquisitions and other reorganizations 162 -- 246 -- Long-short Securities that the manager believes are undervalued, with corresponding short positions to hedge market risk 154 -- 444 -- Distressed Securities of companies that are in default, under bankruptcy protection or troubled 65 -- 148 -- Emerging markets Investments in the financial markets of developing countries -- -- 58 -- Other Includes investments held in funds that are less liquid, as well as other strategies which allow for broader allocation between public and private investments 1 -- -- -- ---- --- ------- --- Total hedge funds 382 -- 896 -- ---- --- ------- --- Total $516 $78 $1,091 $71 ==== === ======= ===
* Certain hedge funds for the year ended December 31, 2016 were reclassified into different strategies to better align with the investments in those funds. Private equity fund investments included above are not redeemable, because distributions from the funds will be received when underlying investments of the funds are liquidated. Private equity funds are generally expected to have 10-year lives at their inception, but these lives may be extended at the fund manager's discretion, typically in one or two-year increments. 27 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The hedge fund investments included above, which are carried at fair value, are generally redeemable monthly, quarterly, semi-annually and annually, as shown below, with redemption notices ranging from one day to 180 days. Certain hedge fund investments have partial contractual redemption restrictions. These partial redemption restrictions are generally related to one or more investments held in the hedge funds that the fund manager deemed to be illiquid. The majority of these contractual restrictions, which may have been put in place at the fund's inception or thereafter, have pre-defined end dates. The majority of these restrictions are generally expected to be lifted by the end of 2017. The following table presents information regarding the expected remaining lives of our investments in private equity funds, assuming average original expected lives of 10 years for the funds, and information regarding redemptions and contractual restrictions related to our hedge fund investments:
December 31, 2016 ------------ ---- Percentage of private equity fund investments with remaining lives of: Three years or less 90% Between seven and 10 years 10 --- Total 100% === Percentage of hedge fund investments redeemable: Monthly 21% Quarterly 45 Semi-annually 29 Annually 5 --- Total 100% === Percentage of hedge fund investments' fair value subject to contractual partial restrictions 99% ===
Fair Value Option Under the fair value option, we may elect to measure at fair value financial assets and financial liabilities that are not otherwise required to be carried at fair value. Subsequent changes in fair value for designated items are reported in earnings. We elect the fair value option for certain hybrid securities given the complexity of bifurcating the economic components associated with the embedded derivatives. Refer to Note 7 for additional information related to embedded derivatives. Additionally, we elect the fair value option for certain alternative investments when such investments are eligible for this election. We believe this measurement basis is consistent with the applicable accounting guidance used by the respective investment company funds themselves. Refer to Note 4 for additional information on securities and other invested assets for which we have elected the fair value option. Certain VIEs, which are securitization vehicles that we consolidate, have elected the fair value option for a tranche of their structured securities, which are included in notes payable - to affiliates. Refer to Notes 9 and 18 for additional information on these VIEs. The following table presents the difference between fair values and the aggregate contractual principal amounts of notes payable for which the fair value option was elected:
December 31, 2016 December 31, 2015 -------------------------------- -------------------------------- Outstanding Outstanding Principal Principal (in millions) Fair Value Amount Difference Fair Value Amount Difference ------------- ---------- ----------- ---------- ---------- ----------- ---------- Liabilities: Notes payable - to affiliates. $183 $365 $(182) $143 $365 $(222) ==== ==== ===== ==== ==== =====
28 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the gains or losses recorded related to the eligible instruments for which we elected the fair value option:
Gain (Loss) Years Ended December 31, ---------------- (in millions) 2016 2015 2014 ------------- ---- ---- ---- Assets: Other bond securities - certain hybrid securities $ 92 $ 33 $ 58 Alternative investments/(a)/ (1) (29) 45 ---- ---- ---- Liabilities: Notes payable - to affiliates (40) 6 (24) ---- ---- ---- Total gain $ 51 $ 10 $ 79 ---- ---- ----
(a)Includes certain hedge funds, private equity funds and other investment partnerships. Interest income, dividend income and net unrealized gains (losses) on assets measured under the fair value option are recognized and included in net investment income in the Consolidated Statements of Income. Interest on liabilities measured under the fair value option is recognized in other income in the Consolidated Statements of Income. See Note 4 herein for additional information about our policies for recognition, measurement, and disclosure of interest, dividend and other income. FAIR VALUE MEASUREMENTS ON A NON-RECURRING BASIS We measure the fair value of certain assets on a non-recurring basis, generally quarterly, annually, or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include cost and equity-method investments and mortgage and other loans. See Notes 4 and 5 herein for additional information about how we test various asset classes for impairment. Impairments for other invested assets primarily relate to hedge funds and private equity funds that are held for sale. The following table presents assets measured at fair value on a non-recurring basis at the time of impairment and the related impairment charges recorded during the periods presented:
Assets at Fair Value Impairment Charges ----------------------------- ------------------ Non-Recurring Basis December 31, ----------------------------- ------------------ (in millions) Level 1 Level 2 Level 3 Total 2016 2015 2014 ------------- ------- ------- ------- ----- ---- ---- ---- December 31, 2016 Other invested assets $-- $-- $-- $-- $-- $9 $-- === === === === === == === December 31, 2015 Other invested assets $-- $-- $98 $98 === === === ===
FAIR VALUE INFORMATION ABOUT FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR VALUE Information regarding the estimation of fair value for financial instruments not carried at fair value (excluding insurance contracts) is discussed below. . Mortgage and other loans receivable: Fair values of loans on real estate and other loans receivable were estimated for disclosure purposes using discounted cash flow calculations based on discount rates that we believe market participants would use in determining the price that they would pay for such assets. For certain loans, our current incremental lending rates for similar types of loans are used as the discount rates, because we believe this rate approximates the rates market participants would use. Fair values of residential mortgage loans are generally determined based on market prices, using market based adjustments for credit and servicing as appropriate. The fair values of policy loans are generally estimated based on unpaid principal amount as of each reporting date. No consideration is given to credit risk because policy loans are effectively collateralized by the cash surrender value of the policies. . Other invested assets: that are not measured at fair value represent our investments in Federal Home Loan Bank common stock. These investments are carried at amortized cost, which approximates fair value. 29 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) . Cash and short-term investments: The carrying amounts of these assets approximate fair values because of the relatively short period of time between origination and expected realization, and their limited exposure to credit risk. . Policyholder contract deposits associated with investment-type contracts: Fair values for policyholder contract deposits associated with investment-type contracts not accounted for at fair value are estimated using discounted cash flow calculations based on interest rates currently being offered for similar contracts with maturities consistent with those of the contracts being valued. When no similar contracts are being offered, the discount rate is the appropriate swap rate (if available) or current risk-free interest rate consistent with the currency in which the cash flows are denominated. To determine fair value, other factors include current policyholder account values and related surrender charges and other assumptions include expectations about policyholder behavior and an appropriate risk margin. . Notes Payable: Fair values of these obligations were estimated based on discounted cash flow calculations using a discount rate that is indicative of the current market for securities with similar risk characteristics. The following table presents the carrying amounts and estimated fair values of our financial instruments not measured at fair value, and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the observability of the inputs used:
Estimated Fair Value ------------------------------- Carrying (in millions) Level 1 Level 2 Level 3 Total Value ------------- ------- ------- ------- ------- -------- December 31, 2016 Assets: Mortgage and other loans receivable $ -- $42 $ 6,181 $ 6,223 $ 6,083 Other invested assets -- 9 -- 9 9 Short-term investments -- 51 -- 51 51 Cash 106 -- -- 106 106 Liabilities: Policyholder contract deposits/*/ -- -- 45,417 45,417 39,560 Note payable - to third parties, net -- -- 50 50 50 December 31, 2015 Assets: Mortgage and other loans receivable $ -- $44 $ 5,861 $ 5,905 $ 5,718 Other invested assets -- 7 -- 7 7 Short-term investments -- 43 -- 43 43 Cash 82 -- -- 82 82 Liabilities: Policyholder contract deposits/*/ -- -- 43,623 43,623 37,646 Note payable - to third parties, net -- 25 25 50 50
* Excludes embedded policy derivatives which are carried at fair value on a recurring basis. 4. INVESTMENTS Fixed Maturity and Equity Securities Bonds held to maturity are carried at amortized cost when we have the ability and positive intent to hold these securities until maturity. When we do not have the ability or positive intent to hold bonds until maturity, these securities are classified as available-for-sale or are measured at fair value at our election. None of our fixed maturity securities met the criteria for held-to-maturity classification at December 31, 2016 or 2015. Fixed maturity and equity securities classified as available-for-sale are carried at fair value. Unrealized gains and losses from available-for-sale investments in fixed maturity and equity securities are reported as a separate component of accumulated other comprehensive income (AOCI), net of DAC, deferred sales inducements and deferred income taxes, in shareholder's equity. Realized and unrealized gains and losses from fixed maturity and equity securities measured at fair value at our election are reflected in net investment income. Investments in fixed maturity and equity securities are recorded on a trade-date basis. 30 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Premiums and discounts arising from the purchase of bonds classified as available-for-sale are treated as yield adjustments over their estimated holding periods, until maturity, or call date, if applicable. For investments in certain RMBS, CMBS and CDO/ABS, (collectively, structured securities), recognized yields are updated based on current information regarding the timing and amount of expected undiscounted future cash flows. For high credit quality structured securities, effective yields are recalculated based on actual payments received and updated prepayment expectations, and the amortized cost is adjusted to the amount that would have existed had the new effective yield been applied since acquisition with a corresponding charge or credit to net investment income. For structured securities that are not high credit quality, effective yields are recalculated and adjusted prospectively based on changes in expected undiscounted future cash flows. For purchased credit impaired (PCI) securities, at acquisition, the difference between the undiscounted expected future cash flows and the recorded investment in the securities represents the initial accretable yield, which is to be accreted into net investment income over the securities' remaining lives on an effective level-yield basis. Subsequently, effective yields recognized on PCI securities are recalculated and adjusted prospectively to reflect changes in the contractual benchmark interest rates on variable rate securities and any significant increases in undiscounted expected future cash flows arising due to reasons other than interest rate changes. Other Bond Securities and Other Common and Preferred Stock Securities for which we have elected the fair value option are carried at fair value and reported in other bond securities or other common and preferred stocks in the Consolidated Balance Sheets. Changes in fair value of these assets are reported in net investment income. Interest income and dividend income on assets measured under the fair value option are recognized and included in net investment income. See Note 3 for additional information on financial assets designated under the fair value option. 31 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Securities Available for Sale The following table presents the amortized cost or cost and fair value of our available-for-sale securities:
Other-Than- Amortized Gross Gross Temporary Cost or Unrealized Unrealized Impairments (in millions) Cost Gains Losses Fair Value in AOCI/(a)/ ------------- --------- ---------- ---------- ---------- ----------- December 31, 2016 Bonds available for sale: U.S. government and government sponsored entities $ 285 $ 60 $ -- $ 345 $ -- Obligations of states, municipalities and political subdivisions 880 53 (10) 923 -- Non-U.S. governments 1,000 25 (37) 988 -- Corporate debt 19,287 823 (292) 19,818 (7) Mortgage-backed, asset-backed and collateralized: RMBS 5,099 317 (79) 5,337 163 CMBS 4,382 128 (59) 4,451 21 CDO/ABS 2,724 38 (33) 2,729 11 ------- ------ ----- ------- ---- Total mortgage-backed, asset-backed and collateralized 12,205 483 (171) 12,517 195 ------- ------ ----- ------- ---- Total bonds available for sale/(b)/ 33,657 1,444 (510) 34,591 188 ------- ------ ----- ------- ---- Equity securities available for sale: Common stock -- 1 -- 1 -- Preferred stock 4 -- -- 4 -- ------- ------ ----- ------- ---- Total equity securities available for sale 4 1 -- 5 -- ------- ------ ----- ------- ---- Total $33,661 $1,445 $(510) $34,596 $188 ======= ====== ===== ======= ==== December 31, 2015 Bonds available for sale: U.S. government and government sponsored entities $ 279 $ 67 $ -- $ 346 $ -- Obligations of states, municipalities and political subdivisions 766 50 (4) 812 -- Non-U.S. governments 847 22 (49) 820 -- Corporate debt 19,465 873 (496) 19,842 (19) Mortgage-backed, asset-backed and collateralized: RMBS 4,320 337 (43) 4,614 171 CMBS 3,854 176 (40) 3,990 70 CDO/ABS 2,681 54 (26) 2,709 10 ------- ------ ----- ------- ---- Total mortgage-backed, asset-backed and collateralized 10,855 567 (109) 11,313 251 ------- ------ ----- ------- ---- Total bonds available for sale/(b)/ 32,212 1,579 (658) 33,133 232 ------- ------ ----- ------- ---- Equity securities available for sale: Preferred stock 4 -- -- 4 -- ------- ------ ----- ------- ---- Total equity securities available for sale 4 -- -- 4 -- ------- ------ ----- ------- ---- Total $32,216 $1,579 $(658) $33,137 $232 ======= ====== ===== ======= ====
(a)Represents the amount of other-than-temporary impairments recognized in accumulated other comprehensive income. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date. (b)At December 31, 2016 and 2015, bonds available for sale held by us that were below investment grade or not rated totaled $4.7 billion and $4.4 billion, respectively. 32 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Securities Available for Sale in a Loss Position The following table summarizes the fair value and gross unrealized losses on our available-for-sale securities, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position:
Less than 12 Months 12 Months or More Total --------------------- --------------------- --------------------- Gross Gross Gross Unrealized Unrealized Unrealized (in millions) Fair Value Losses Fair Value Losses Fair Value Losses ------------- ---------- ---------- ---------- ---------- ---------- ---------- December 31, 2016 Bonds available for sale: U.S. government and government sponsored entities $ 16 $ -- $ -- $ -- $ 16 $ -- Obligations of states, municipalities and political subdivisions 259 10 -- -- 259 10 Non-U.S. governments 447 22 61 15 508 37 Corporate debt 4,588 163 902 129 5,490 292 RMBS 1,574 53 464 26 2,038 79 CMBS 1,674 54 64 5 1,738 59 CDO/ABS 1,059 20 337 13 1,396 33 ------ ---- ------- ---- ------- ---- Total bonds available for sale $9,617 $322 $$1,828 $188 $11,445 $510 ====== ==== ======= ==== ======= ==== December 31, 2015 Bonds available for sale: U.S. government and government sponsored entities $ 16 $ -- $ -- $ -- $ 16 $ -- Obligations of states, municipalities and political subdivisions 113 3 23 1 136 4 Non-U.S. governments 385 24 90 25 475 49 Corporate debt 4,924 309 560 187 5,484 496 RMBS 803 16 433 27 1,236 43 CMBS 1,825 38 25 2 1,850 40 CDO/ABS 1,107 17 310 9 1,417 26 ------ ---- ------- ---- ------- ---- Total bonds available for sale $9,173 $407 $ 1,441 $251 $10,614 $658 ====== ==== ======= ==== ======= ====
At December 31, 2016, we held 1,562 individual fixed maturity securities that were in an unrealized loss position, of which 303 individual fixed maturity securities were in a continuous unrealized loss position for 12 months or more. We did not recognize the unrealized losses in earnings on these fixed maturity securities at December 31, 2016 because we neither intend to sell the securities nor do we believe that it is more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. For fixed maturity securities with significant declines, we performed fundamental credit analyses on a security-by-security basis, which included consideration of credit enhancements, expected defaults on underlying collateral, review of relevant industry analyst reports and forecasts and other available market data. Contractual Maturities of Fixed Maturity Securities Available for Sale The following table presents the amortized cost and fair value of fixed maturity securities available for sale by contractual maturity:
Total Fixed Maturity Securities Fixed Maturity Securities in a Loss Available for Sale Position Available for Sale ------------------------------- ----------------------------------- (in millions) Amortized Cost Fair Value Amortized Cost Fair Value ------------- -------------- ---------- -------------- ---------- December 31, 2016 Due in one year or less $ 933 $ 953 $ 45 $ 43 Due after one year through five years 8,014 8,499 666 640 Due after five years through ten years 7,596 7,580 3,639 3,451 Due after ten years 4,909 5,042 2,261 2,139 Mortgage-backed, asset-backed and collateralized 12,205 12,517 5,344 5,172 ------- ------- ------- ------- Total $33,657 $34,591 $11,955 $11,445 ======= ======= ======= =======
Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties. 33 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the gross realized gains and gross realized losses from sales or maturities of our available-for-sale securities:
Years Ended December 31, ----------------------------------------------------- 2016 2015 2014 ----------------- ----------------- ----------------- Gross Gross Gross Gross Gross Gross Realized Realized Realized Realized Realized Realized (in millions) Gains Losses Gains Losses Gains Losses ------------- -------- -------- -------- -------- -------- -------- Fixed maturity securities $133 $130 $53 $50 $114 $29 Equity securities -- -- 1 -- -- -- ---- ---- --- --- ---- --- Total $133 $130 $54 $50 $114 $29 ==== ==== === === ==== ===
In 2016, 2015, and 2014, the aggregate fair value of available-for-sale securities sold was $3.5 billion, $6.8 billion and $2.0 billion, respectively. Other Securities Measured at Fair Value The following table presents the fair value of other securities measured at fair value based on our election of the fair value option:
December 31, 2016 December 31, 2015 -------------------------- -------------------------- (in millions) Fair Value Percent of Total Fair Value Percent of Total ------------- ---------- ---------------- ---------- ---------------- Non-U.S. governments $ 7 -- % $ 6 1% Corporate debt 224 13 217 18 Mortgage-backed, asset-backed and collateralized: RMBS 682 38 163 13 CMBS 154 9 108 9 CDO/ABS 711 40 720 59 ------ --- ------ --- Total other bond securities $1,778 100% $1,214 100% ====== === ====== ===
Other Invested Assets The following table summarizes the carrying amounts of other invested assets:
December 31, ------------- (in millions) 2016 2015 ------------- ------ ------ Alternative investments/(a)(b)/ $1,170 $2,265 Investment real estate/(c)/ 39 90 Federal Home Loan Bank (FHLB) common stock 9 7 All other investments 15 17 ------ ------ Total $1,233 $2,379 ====== ======
(a)At December 31, 2016, includes hedge funds of $ 550 million, and private equity funds of $ 620 million. At December 31, 2015, includes hedge funds of $ 1,614 million, and private equity funds of $ 651 million. (b)Approximately 58 percent and 23 percent of our hedge fund portfolio is available for redemption in 2017 and 2018, respectively, an additional 16 percent will be available between 2019 and 2024. (c)Net of accumulated depreciation of $2 million and $3 million at December 31, 2016 and 2015, respectively. Other Invested Assets Carried at Fair Value Certain hedge funds, private equity funds and other investment partnerships for which we have elected the fair value option are reported at fair value with changes in fair value recognized in net investment income. Other investments in hedge funds, private equity funds and other investment partnerships in which AIG's insurance operations do not hold aggregate interests sufficient to exercise more than minor influence over the respective partnerships are reported at fair value with changes in fair value recognized as a component of accumulated other comprehensive income. These investments are subject to other-than-temporary impairment evaluations (see discussion below on evaluating equity investments for other-than-temporary impairment). 34 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The gross unrealized loss recorded in accumulated other comprehensive income on such investments was $1 million at December 31, 2016 and 2015, respectively, the majority of which pertains to investments in private equity funds and hedge funds that have been in continuous unrealized loss positions for less than 12 months. Other Invested Assets - Equity Method Investments We account for hedge funds, private equity funds and other investment partnerships using the equity method of accounting unless our interest is so minor that we may have virtually no influence over partnership operating and financial policies, or we have elected the fair value option. Under the equity method of accounting, our carrying amount generally is our share of the net asset value of the funds or the partnerships, and changes in our share of the net asset values are recorded in net investment income. In applying the equity method of accounting, we consistently use the most recently available financial information provided by the general partner or manager of each of these investments, which is one to three months prior to the end of our reporting period. The financial statements of these investees are generally audited annually. Summarized Financial Information of Equity Method Investees The following is the aggregated summarized financial information of our equity method investees, including those for which the fair value option has been elected:
Years ended December 31, ----------------------- (in millions) 2016 2015 2014 ------------- ----- ------- ------- Operating results: Total revenues $ 94 $ 2,067 $ 5,484 Total expenses (552) (628) (815) ----- ------- ------- Net income $(458) $ 1,439 $ 4,669 ===== ======= ======= December 31, ---------------- (in millions) 2016 2015 ------------- ------- ------- Balance sheet: Total assets $23,601 $29,315 Total liabilities (2,551) (3,040) ======= =======
The following table presents the carrying amount and ownership percentage of equity method investments at December 31, 2016 and 2015:
2016 2015 ------------------------- ------------------------- (in millions, except Ownership Ownership percentages) Carrying Value Percentage Carrying Value Percentage -------------------- -------------- ---------- -------------- ---------- Equity method investments $880 Various $1,694 Various ==== ======= ====== =======
Summarized financial information for these equity method investees may be presented on a lag, due to the unavailability of information for the investees at our respective balance sheet dates, and is included for the periods in which we held an equity method ownership interest. Other Investments Also included in other invested assets are real estate held for investment or held for sale, based on management's intent. Real estate held for investment is carried at cost, less accumulated depreciation and subject to impairment review. Properties acquired through foreclosure and held for sale are carried at the lower of carrying amount or fair value less estimated costs to sell the property. We are a member of the FHLB of Dallas and such membership requires members to own stock in the FHLB. Our FHLB stock is carried at amortized cost, which approximates fair value, and is included in other invested assets. 35 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Net Investment Income Net investment income represents income primarily from the following sources: . Interest income and related expenses, including amortization of premiums and accretion of discounts with changes in the timing and the amount of expected principal and interest cash flows reflected in yield, as applicable. . Dividend income from common and preferred stock and distributions from other investments, including distributions from private equity funds and hedge funds that are not accounted for under the equity method. . Realized and unrealized gains and losses from investments in other securities and investments for which we elected the fair value option. . Earnings from alternative investments. . Interest income on mortgage, policy and other loans. The following table presents the components of net investment income:
Years Ended December 31, ----------------------- (in millions) 2016 2015 2014 ------------- ------ ------ ------ Fixed maturity securities, including short-term investments $1,756 $1,755 $1,875 Interest on mortgage and other loans 312 302 324 Investment real estate 1 12 4 Alternative investments/*/ 39 76 224 Other investments 3 2 (4) ------ ------ ------ Total investment income 2,111 2,147 2,423 Investment expenses 66 70 67 ------ ------ ------ Net investment income $2,045 $2,077 $2,356 ====== ====== ======
* Beginning in 2016, the presentation of income on alternative investments has been refined to include only income from hedge funds and private equity funds. Prior period disclosures have been reclassified to conform to this presentation. Hedge funds for which we elected the fair value option are recorded as of the balance sheet date. Other hedge funds are generally reported on a one-month lag, while private equity funds are generally reported on a one-quarter lag. Net Realized Capital Gains and Losses Net realized capital gains and losses are determined by specific identification. The net realized capital gains and losses are generated primarily from the following sources: . Sales or full redemptions of available-for-sale fixed maturity securities, available-for-sale equity securities, real estate and other alternative investments. . Reductions to the amortized cost basis of available-for-sale fixed maturity securities, available-for-sale equity securities and certain other invested assets for other-than-temporary impairments. . Changes in fair value of derivatives except for those instruments that are designated as hedging instruments when the change in the fair value of the hedged item is not reported in net realized capital gains and losses. . Exchange gains and losses resulting from foreign currency transactions. 36 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the components of net realized capital gains (losses):
Years Ended December 31, ----------------------- (in millions) 2016 2015 2014 ------------- ------ ------ ------ Sales of fixed maturity securities $ 3 $ 3 $ 85 Sales of equity securities -- 1 -- Mortgage and other loans 2 (22) 8 Investment real estate 6 -- 15 Alternative investments 43 6 8 Derivatives (41) 192 48 Other (65) (44) 16 Other-than-temporary impairments (75) (62) (46) ----- ---- ---- Net realized capital income (losses) $(127) $ 74 $134 ===== ==== ====
Evaluating Investments for Other-Than-Temporary Impairments Fixed Maturity Securities If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell a fixed maturity security before recovery of its amortized cost basis and the fair value of the security is below amortized cost, an other-than-temporary impairment has occurred and the amortized cost is written down to current fair value, with a corresponding charge to realized capital losses. When assessing our intent to sell a fixed maturity security, or whether it is more likely than not that we will be required to sell a fixed maturity security before recovery of its amortized cost basis, management evaluates relevant facts and circumstances including, but not limited to, decisions to reposition our investment portfolio, sales of securities to meet cash flow needs and sales of securities to take advantage of favorable pricing. For fixed maturity securities for which a credit impairment has occurred, the amortized cost is written down to the estimated recoverable value with a corresponding charge to realized capital losses. The estimated recoverable value is the present value of cash flows expected to be collected, as determined by management. The difference between fair value and amortized cost that is not related to a credit impairment is presented in unrealized appreciation (depreciation) of fixed maturity securities on which other-than-temporary credit impairments were recognized (a separate component of accumulated other comprehensive income). When estimating future cash flows for structured fixed maturity securities (e.g., RMBS, CMBS, CDO, ABS) management considers historical performance of underlying assets and available market information as well as bond-specific structural considerations, such as credit enhancement and priority of payment structure of the security. In addition, the process of estimating future cash flows includes, but is not limited to, the following critical inputs, which vary by asset class: . Current delinquency rates; . Expected default rates and the timing of such defaults; . Loss severity and the timing of any recovery; and . Expected prepayment speeds. For corporate, municipal and sovereign fixed maturity securities determined to be credit impaired, management considers the fair value as the recoverable value when available information does not indicate that another value is more relevant or reliable. When management identifies information that supports a recoverable value other than the fair value, the determination of a recoverable value considers scenarios specific to the issuer and the security, and may be based upon estimates of outcomes of corporate restructurings, political and macroeconomic factors, stability and financial strength of the issuer, the value of any secondary sources of repayment and the disposition of assets. We consider severe price declines in our assessment of potential credit impairments. We may also modify our model inputs when we determine that price movements in certain sectors are indicative of factors not captured by the cash flow models. 37 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In periods subsequent to the recognition of an other-than-temporary impairment charge for available-for-sale fixed maturity securities that are not foreign exchange related, we prospectively accrete into earnings the difference between the new amortized cost and the expected undiscounted recoverable value over the remaining expected holding period of the security. Credit Impairments The following table presents a rollforward of the cumulative credit losses in other-than-temporary impairments recognized in earnings for available-for-sale fixed maturity securities:
Years Ended December 31, ----------------------- (in millions) 2016 2015 2014 ------------- ----- ------ ------ Balance, beginning of year $532 $ 716 $ 907 Increases due to: Credit impairments on new securities subject to impairment losses 37 18 4 Additional credit impairments on previously impaired securities 28 14 10 Reductions due to: Credit impaired securities fully disposed for which there was no prior intent or requirement to sell (52) (106) (100) Credit impaired securities for which there is a current intent or anticipated requirement to sell -- 1 -- Accretion on securities previously impaired due to credit/*/ (99) (111) (105) ---- ----- ----- Balance, end of year $446 $ 532 $ 716 ==== ===== =====
* Represents both accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit impaired securities and the accretion due to the passage of time. Equity Securities We evaluate our available-for-sale equity securities for impairment by considering such securities as candidates for other-than-temporary impairment if they meet any of the following criteria: . The security has traded at a significant (25 percent or more) discount to cost for an extended period of time (nine consecutive months or longer); . A discrete credit event has occurred resulting in (i) the issuer defaulting on a material outstanding obligation; (ii) the issuer seeking protection from creditors under the bankruptcy laws or any similar laws intended for court-supervised reorganization of insolvent enterprises; or (iii) the issuer proposing a voluntary reorganization pursuant to which creditors are asked to exchange their claims for cash or securities having a fair value substantially lower than the par value of their claims; or . We have concluded that we may not realize a full recovery on our investment, regardless of the occurrence of one of the foregoing events. The determination that an equity security is other-than-temporarily impaired requires the judgment of management and consideration of the fundamental condition of the issuer, its near-term prospects and all the relevant facts and circumstances. In addition to the above criteria, all equity securities that have been in a continuous decline in value below cost over twelve months are impaired. We also consider circumstances of a rapid and severe market valuation decline (50 percent or more) discount to cost, in which we could not reasonably assert that the impairment period would be temporary (severity losses). Other Invested Assets Our equity and cost method investments in private equity funds, hedge funds and other entities are evaluated for impairment similar to the evaluation of equity securities for impairments as discussed above. Such evaluation considers market conditions, events and volatility that may impact the recoverability of the underlying investments within these private equity funds and hedge funds and is based on the nature of the underlying investments and specific inherent risks. Such risks may evolve based on the nature of the underlying investments. Investments in real estate are periodically evaluated for recoverability whenever changes in circumstances indicate the carrying amount of an asset may be impaired. When impairment indicators are present, we compare expected investment cash flows to carrying amount. When the expected cash flows are less than the carrying amount, the investments are written down to fair value with a corresponding charge to earnings. 38 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Purchased Credit Impaired (PCI) Securities We purchase certain RMBS securities that have experienced deterioration in credit quality since their issuance. We determine whether it is probable at acquisition that we will not collect all contractually required payments for these PCI securities, including both principal and interest. At acquisition, the timing and amount of the undiscounted future cash flows expected to be received on each PCI security is determined based on our best estimate using key assumptions, such as interest rates, default rates and prepayment speeds. At acquisition, the difference between the undiscounted expected future cash flows of the PCI securities and the recorded investment in the securities represents the initial accretable yield, which is accreted into Net investment income over their remaining lives on an effective yield basis. Additionally, the difference between the contractually required payments on the PCI securities and the undiscounted expected future cash flows represents the non-accretable difference at acquisition. The accretable yield and the non-accretable difference will change over time, based on actual payments received and changes in estimates of undiscounted expected future cash flows, which are discussed further below. On a quarterly basis, the undiscounted expected future cash flows associated with PCI securities are re-evaluated based on updates to key assumptions. Declines in undiscounted expected future cash flows due to further credit deterioration as well as changes in the expected timing of the cash flows can result in the recognition of an other-than-temporary impairment charge, as PCI securities are subject to our policy for evaluating investments for other-than-temporary impairment. Changes to undiscounted expected future cash flows due solely to the changes in the contractual benchmark interest rates on variable rate PCI securities will change the accretable yield prospectively. Significant increases in undiscounted expected future cash flows for reasons other than interest rate changes are recognized prospectively as adjustments to the accretable yield. The following tables present information on our PCI securities, which are included in bonds available for sale:
(in millions) At Date of Acquisition ------------- ---------------------- Contractually required payments (principal and interest) $3,936 Cash flows expected to be collected/*/ 3,339 Recorded investment in acquired securities 2,299 ======
* Represents undiscounted expected cash flows, including both principal and interest
December 31, ------------- (in millions) 2016 2015 ------------- ------ ------ Outstanding principal balance $1,908 $1,733 Amortized cost 1,460 1,358 Fair value 1,503 1,388 ====== ======
The following table presents activity for the accretable yield on PCI securities:
Years Ended December 31, ----------------------- (in millions) 2016 2015 ------------- ------ ------ Balance, beginning of year $689 $633 Newly purchased PCI securities 137 132 Disposals -- (11) Accretion (81) (80) Effect of changes in interest rate indices 12 (24) Net reclassification from non-accretable difference, including effects of prepayments 55 39 ---- ---- Balance, end of year $812 $689 ==== ====
Pledged Investments Secured Financing and Similar Arrangements We enter into secured financing transactions whereby certain securities are sold under agreements to repurchase (repurchase agreements), in which we transfer securities in exchange for cash, with an agreement by us to repurchase the same or substantially similar securities. Our secured financing transactions also include those that involve the transfer of securities to financial institutions in exchange for cash (securities lending agreements). In all of these secured financing transactions, the securities transferred by us (pledged collateral) may be sold or repledged by the 39 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) counterparties. These agreements are recorded at their contracted amounts plus accrued interest, other than those that are accounted for at fair value. Pledged collateral levels are monitored daily and are generally maintained at an agreed-upon percentage of the fair value of the amounts borrowed during the life of the transactions. In the event of a decline in the fair value of the pledged collateral under these secured financing transactions, we may be required to transfer cash or additional securities as pledged collateral under these agreements. At the termination of the transactions, we and our counterparties are obligated to return the amounts borrowed and the securities transferred, respectively. The following table presents the fair value of securities pledged to counterparties under secured financing transactions, including repurchase and securities lending agreements:
December 31, ------------ (in millions) 2016 2015 ------------- ---- ---- Securities available for sale $238 $163 Other securities 231 223 ---- ----
Amounts borrowed under repurchase and securities lending agreements totaled $465 million and $388 million at December 31, 2016 and 2015, respectively. The following table presents the fair value of securities pledged under our repurchase agreements by collateral type and by remaining contractual maturity:
Remaining Contractual Maturity of the Agreements ------------------------------------------------ Overnight Greater December 31, 2016 and Up to 30 Than 90 (in millions) Continuous days 31-90 days days Total ------------- ---------- -------- ---------- ------- ----- Repurchase agreements: Bonds available for sale: Other bond securities: Non U.S. government $-- $-- $ -- $ 7 $ 7 Corporate debt -- 47 106 71 224 --- --- ---- --- ---- Total repurchase agreements -- 47 106 78 231 --- --- ---- --- ---- Securities lending agreements: Bonds available for sale: Non U.S. government -- -- 16 -- 16 Corporate debt -- -- 217 -- 217 CMBS -- -- 5 -- 5 --- --- ---- --- ---- Total securities lending agreements -- -- 238 -- 238 --- --- ---- --- ---- Total secured financing transactions $-- $47 $344 $78 $469 === === ==== === ====
Insurance - Statutory and Other Deposits Total carrying values of cash and securities we deposited under requirements of regulatory authorities were $3 million at December 31, 2016 and 2015, respectively. Other Pledges We are members of the FHLB of Dallas and such membership requires the members to own stock in the FHLB. We owned $9 million and $7 million of stock in the FHLB at December 31, 2016 and 2015, respectively. Pursuant to the membership terms, we have elected to pledge such stock to the FHLB. In addition, we had pledged securities with a fair value of $164 million and $279 million at December 31, 2016 and 2015, respectively, to provide adequate collateral for potential advances from the FHLB. 40 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. LENDING ACTIVITIES Mortgage and other loans receivable include commercial mortgages, residential mortgages, life insurance policy loans, commercial loans, and other loans and notes receivable. Commercial mortgages, residential mortgages, commercial loans, and other loans and notes receivable are carried at unpaid principal balances less allowance for credit losses and plus or minus adjustments for the accretion or amortization of discount or premium. Interest income on such loans is accrued as earned. Direct costs of originating commercial mortgages, commercial loans, and other loans and notes receivable, net of nonrefundable points and fees, are deferred and included in the carrying amount of the related receivables. The amount deferred is amortized to income as an adjustment to earnings using the interest method. Premiums and discounts on purchased residential mortgages are also amortized to income as an adjustment to earnings using the interest method. Life insurance policy loans are carried at unpaid principal balances. There is no allowance for policy loans because these loans serve to reduce the death benefit paid when the death claim is made and the balances are effectively collateralized by the cash surrender value of the policy. The following table presents the composition of mortgages and other loans receivable:
December 31, -------------- (in millions) 2016 2015 ------ ------ Commercial mortgages* $4,712 $4,544 Residential mortgages 535 242 Life insurance policy loans 683 723 Commercial loans, other loans and notes receivable 198 261 ------ ------ Total mortgage and other loans receivable 6,128 5,770 Allowance for losses (45) (52) ------ ------ Mortgage and other loans receivable, net $6,083 $5,718 ====== ======
* Commercial mortgages primarily represent loans for office, apartments and retail, with exposures in New York and California representing the largest geographic concentrations (25 percent and 12 percent, respectively, at December 31, 2016 and 23 percent and 14 percent, respectively, at December 31, 2015). Nonperforming loans are generally those loans where payment of contractual principal or interest is more than 90 days past due. Nonperforming mortgages were not significant for all periods presented. The following table presents the credit quality performance indicators for commercial mortgages:
Number Class Percent of ------------------------------------------------- of Loans Apartments Offices Retail Industrial Hotel Others Total/(c)/ Total $ (dollars in millions) ------ ---------- ------- ------ ---------- ----- ------ --------- ------- December 31, 2016 Credit Quality Indicator: In good standing 252 $1,197 $1,366 $1,164 $314 $460 $162 $4,663 99% Restructured/(a)/ 2 -- 49 -- -- -- -- 49 1 Total/(b)/ 254 $1,197 $1,415 $1,164 $314 $460 $162 $4,712 100% --- ------ ------ ------ ---- ---- ---- ------ --- Allowance for losses $ 6 $ 16 $ 10 $ 7 $ 2 $ 1 $ 42 1% --- ------ ------ ------ ---- ---- ---- ------ --- December 31, 2015 Credit Quality Indicator: In good standing 291 $ 808 $1,415 $1,105 $381 $454 $222 $4,385 96% Restructured/(a)/ 4 -- 67 7 -- -- -- 74 2 90 days or less delinquent 2 -- 26 4 -- -- -- 30 1 >90 days delinquent or in process of foreclosure 4 3 52 -- -- -- -- 55 1 --- ------ ------ ------ ---- ---- ---- ------ --- Total/(b)/ 301 $ 811 $1,560 $1,116 $381 $454 $222 $4,544 100% --- ------ ------ ------ ---- ---- ---- ------ --- Allowance for losses $ 6 $ 24 $ 9 $ 7 $ 3 $ 1 $ 50 1% === ====== ====== ====== ==== ==== ==== ====== ===
(a)Loans that have been modified in troubled debt restructurings and are performing according to their restructured terms. See discussion of troubled debt restructurings below. (b)Does not reflect allowance for credit losses. (c)100 percent of the commercial mortgages held at such respective dates were current as to payments of principal and interest. There were no significant amounts of nonperforming commercial mortgages (defined as those loans where payment of contractual principal or interest is more than 90 days past due) during any of the periods presented. 41 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Methodology Used to Estimate the Allowance for Credit Losses Mortgage and other loans receivable are considered impaired when collection of all amounts due under contractual terms is not probable. Impairment is measured using either i) the present value of expected future cash flows discounted at the loan's effective interest rate, ii) the loan's observable market price, if available, or iii) the fair value of the collateral if the loan is collateral dependent. Impairment of commercial mortgages is typically determined using the fair value of collateral while impairment of other loans is typically determined using the present value of cash flows or the loan's observable market price. An allowance is typically established for the difference between the impaired value of the loan and its current carrying amount. Additional allowance amounts are established for incurred but not specifically identified impairments, based on statistical models primarily driven by past due status, debt service coverage, loan-to-value ratio, property type and location, loan term, profile of the borrower and of the major property tenants, and loan seasoning. When all or a portion of a loan is deemed uncollectible, the uncollectible portion of the carrying amount of the loan is charged off against the allowance. Interest income is not accrued when payment of contractual principal and interest is not expected. Any cash received on impaired loans is generally recorded as a reduction of the current carrying amount of the loan. Accrual of interest income is generally resumed when delinquent contractual principal and interest is repaid or when a portion of the delinquent contractual payments are made and the ongoing required contractual payments have been made for an appropriate period. A significant majority of commercial mortgages in the portfolio are non-recourse loans and, accordingly, the only guarantees are for specific items that are exceptions to the non-recourse provisions. It is therefore extremely rare for us to have cause to enforce the provisions of a guarantee on a commercial real estate or mortgage loan. The following table presents a rollforward of the changes in the allowance for credit losses on mortgage and other loans receivable:
2016 2015 2014 --------------------- --------------------- --------------------- Years Ended December 31, Commercial Other Commercial Other Commercial Other (in millions) Mortgages Loans Total Mortgages Loans Total Mortgages Loans Total ------------------------ ---------- ----- ----- ---------- ----- ----- ---------- ----- ----- Allowance, beginning of year $50 $ 2 $52 $36 $-- $36 $ 47 $-- $ 47 Additions (reductions) to allowance (3) 1 (2) 19 2 21 (15) -- (15) Charge-offs, net of recoveries (5) -- (5) (5) -- (5) 4 -- 4 --- --- --- --- --- --- ---- --- ---- Allowance, end of year $42 $ 3 $45 $50 $ 2 $52 $ 36 $-- $ 36 === === === === === === ==== === ====
The following table presents information on mortgage loans individually assessed for credit losses:
Years Ended December 31, ----------------------- (in millions) 2016 2015 2014 ------------- ---- ---- ---- Impaired loans with valuation allowances $ 57 $125 $21 Impaired loans without valuation allowances 49 83 7 ---- ---- --- Total impaired loans 106 208 28 Valuation allowances on impaired loans (8) (20) (6) ---- ---- --- Impaired loans, net $ 98 $188 $22 ==== ==== === Interest income on impaired loans $ 11 $ 8 $ 2 ==== ==== ===
Troubled Debt Restructurings We modify loans to optimize their returns and improve their collectability, among other things. When we undertake such a modification with a borrower that is experiencing financial difficulty and the modification involves us granting a concession to the troubled debtor, the modification is a troubled debt restructuring (TDR). We assess whether a borrower is experiencing financial difficulty based on a variety of factors, including the borrower's current default on any of its outstanding debt, the probability of a default on any of its debt in the foreseeable future without the modification, the insufficiency of the borrower's forecasted cash flows to service any of its outstanding debt (including both principal and interest), and the borrower's inability to access alternative third-party financing at an interest rate that would be reflective of current market conditions for a non-troubled debtor. Concessions granted may include extended maturity dates, interest rate changes, principal or interest forgiveness, payment deferrals and easing of loan covenants. There were no commercial mortgage loans that had been modified in a TDR at December 31, 2016 and 2015. 42 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. REINSURANCE We assume reinsurance from other insurance companies. We are also a reinsurer for the guaranteed minimum income benefit (GMIB), guaranteed minimum withdrawal benefit (GMWB) and guaranteed minimum death benefit (GMDB) on certain variable annuities issued in Japan by MetLife Insurance K.K. (formerly American Life Insurance Company, a former subsidiary of AIG Parent). New business under this reinsurance arrangement was no longer accepted after March 31, 2009. We recorded liabilities for the amount of reserves calculated for the GMIB, GMWB and GMDB provisions of this reinsurance arrangement, which totaled $30 million and $39 million at December 31, 2016 and 2015, respectively. 7. DERIVATIVES AND HEDGE ACCOUNTING We use derivatives and other financial instruments as part of our financial risk management programs and as part of our investment operations. Interest rate derivatives (such as interest rate swaps) are used to manage interest rate risk associated with embedded derivatives in insurance contract liabilities and with fixed maturity securities, as well as other interest rate sensitive assets and liabilities. Foreign exchange derivatives (principally foreign exchange swaps and forwards) are used to economically mitigate risk associated with non U.S. dollar denominated transactions, primarily investments. We hedge our economic exposure to market risk related to variable annuity products with riders that guarantee a certain level of benefits. Our variable annuity hedging program is designed to offset certain changes in the economic value of these guarantee features, within established thresholds. The hedging program is designed to provide additional protection against large and combined movements in interest rates, equity prices, credit spreads and market volatility under multiple scenarios. In addition to risk-mitigating features in our variable annuity product design, and the use of certain fixed income securities with a fair value option election to manage interest rate and credit spread exposures, our variable annuity hedging program utilizes various derivative instruments, including but not limited to equity options, futures contracts, interest rate swaps and swaption contracts, as well as other hedging instruments. Our exchange-traded index futures contracts have no recorded fair value as they are cash settled daily. In addition to hedging activities, we also enter into derivative instruments as a part of our investment operations, which may include, among other things, purchases of investments with embedded derivatives, such as equity-linked notes and convertible bonds. Interest rate, currency and equity swaps, swaptions, options and forward transactions are accounted for as derivatives, recorded on a trade-date basis and carried at fair value. Unrealized gains and losses are reflected in income, when appropriate. Aggregate asset or liability positions are netted on the Consolidated Balance Sheets only to the extent permitted by qualifying master netting arrangements in place with each respective counterparty. Cash collateral posted with counterparties in conjunction with transactions supported by qualifying master netting arrangements is reported as a reduction of the corresponding net derivative liability, while cash collateral received in conjunction with transactions supported by qualifying master netting arrangements is reported as a reduction of the corresponding net derivative asset. We have elected to present all derivative receivables and derivative payables, and the related cash collateral received and paid, on a net basis on our Consolidated Balance Sheets when a legally enforceable ISDA Master Agreement exists between us and our derivative counterparty. An ISDA Master Agreement is an agreement governing multiple derivative transactions between two counterparties. The ISDA Master Agreement generally provides for the net settlement of all, or a specified group, of these derivative transactions, as well as transferred collateral, through a single payment, and in a single currency, as applicable. The net settlement provisions apply in the event of a default on, or affecting any, one derivative transaction or a termination event affecting all, or a specified group of, derivative transactions governed by the ISDA Master Agreement. Derivatives, with the exception of embedded derivatives, are measured at fair value and presented within other assets and other liabilities in the Consolidated Balance Sheets. Embedded derivatives are generally presented with the host contract in the Consolidated Balance Sheets. A bifurcated embedded derivative is measured at fair value and accounted for in the same manner as a free standing derivative contract. The corresponding host contract is accounted for according to the accounting guidance applicable for that instrument. See Notes 3 and 11 for additional information 43 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) on our embedded derivatives, which are primarily related to guarantee features in variable annuity products, and include equity and interest rate components. We believe our economic hedging instruments have been and remain economically effective, but for the most part they have not been designated as hedges receiving hedge accounting treatment. Changes in the fair value of derivatives not designated as hedges are reported within net realized capital gains and losses. Certain swaps associated with available-for-sale investments have been designated as fair value hedges. Changes in fair value hedges of available-for-sale securities are reported in net realized capital gains (losses) along with changes in the hedged item. The following table presents the notional amounts and the fair value of derivative assets and liabilities, excluding embedded derivatives:
December 31, 2016 December 31, 2015 ------------------------------- -------------------------------- Gross Derivative Gross Derivative Gross Derivative Gross Derivative Assets Liabilities Assets Liabilities -------------- --------------- --------------- --------------- Notional Fair Notional Fair Notional Fair Notional Fair (in millions) Amount Value Amount Value Amount Value Amount Value ------------- -------- ----- -------- ----- -------- ----- -------- ----- Derivatives designated as hedging instruments:/(a)/ Interest rate contracts $ -- $ -- $ 39 $-- $ 18 $ -- $ 60 $ -- Foreign exchange contracts 508 56 119 6 384 42 -- -- Derivatives not designated as hedging instruments:/(a)/ Interest rate contracts 4,959 122 101 -- 3,428 84 1,768 23 Foreign exchange contracts 613 40 125 1 570 19 131 2 Equity contracts 2,181 28 308 -- 1,527 43 225 -- ------ ----- ---- --- ------ ---- ------ ---- Total derivatives, gross $8,261 246 $692 7 $5,927 188 $2,184 25 ------ ----- ---- --- ------ ---- ------ ---- Counterparty netting/(b)/ (7) (7) (25) (25) Cash collateral/(c)/ (191) -- (86) -- ----- --- ---- ---- Total derivatives included in Other Assets and Other Liabilities, respectively/(d)/ $ 48 $-- $ 77 $ -- ===== === ==== ====
(a)Fair value amounts are shown before the effects of counterparty netting adjustments and offsetting cash collateral. (b)Represents netting of derivative exposures covered by a qualifying master netting agreement. (c)Represents cash collateral posted and received that is eligible for netting. (d)Excludes embedded derivatives. Fair value of assets related to bifurcated embedded derivatives was zero at both December 31, 2016 and December 31, 2015. Fair value of liabilities related to bifurcated embedded derivatives was $209 million and $197 million, respectively, at December 31, 2016 and December 31, 2015. 44 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the changes in the fair value of derivative instruments and the classification of these changes in the Consolidated Statements of Income:
Years Ended December 31, ------------------------ (in millions) 2016 2015 2014 ------------- ------ ------ ----- Derivative instruments in fair value hedging relationships:* Foreign exchange contracts $ (11) $ 4 $ (1) ------ ------ ----- Total $ (11) $ 4 $ (1) ====== ====== ===== Derivatives not designated as hedging instruments by derivative type: Interest rate contracts $ (36) $ 66 $ 198 Foreign exchange contracts 64 48 37 Equity contracts (97) (28) (32) Embedded derivatives 39 102 (154) ------ ------ ----- Total $ (30) $ 188 $ 49 ====== ====== ===== By classification: Net realized capital gains (losses) $ (41) $ 192 $ 48 ------ ------ ----- Total $ (41) $ 192 $ 48 ====== ====== =====
* The amounts presented do not include periodic net coupon settlements of derivative contract or coupon income (expense) related to the hedged item. 8. DEFERRED POLICY ACQUISITION COSTS AND DEFERRED SALES INDUCEMENTS Deferred Policy Acquisition Costs Deferred policy acquisition costs (DAC) represent those costs that are incremental and directly related to the successful acquisition of new or renewal of existing insurance contracts. We defer incremental costs that result directly from, and are essential to, the acquisition or renewal of an insurance contract. Such deferred policy acquisition costs generally include agent or broker commissions and bonuses, premium taxes, and medical and inspection fees that would not have been incurred if the insurance contract had not been acquired or renewed. Each cost is analyzed to assess whether it is fully deferrable. We partially defer costs, including certain commissions, when we do not believe that the entire cost is directly related to the acquisition or renewal of insurance contracts. We also defer a portion of employee total compensation and payroll-related fringe benefits directly related to time spent performing specific acquisition or renewal activities including costs associated with the time spent on underwriting, policy issuance and processing, and sales force contract selling. The amounts deferred are derived based on successful efforts for each distribution channel and/or cost center from which the cost originates. Long-duration insurance contracts: Policy acquisition costs for life-contingent products are generally deferred and amortized, with interest, over the premium paying period. The assumptions used to calculate the benefit liabilities and DAC for these traditional products are set when a policy is issued and do not change with changes in actual experience, unless a loss recognition event occurs. These "locked-in" assumptions include mortality, morbidity, persistency, maintenance expenses and investment returns, and include margins for adverse deviation to reflect uncertainty given that actual experience might deviate from these assumptions. A loss recognition event occurs when there is a shortfall between the carrying amount of future policy benefit liabilities, net of DAC, and what the future policy benefit liabilities, net of DAC, would be when applying updated current assumptions. When we determine a loss recognition event has occurred, we first reduce any DAC related to that block of business through amortization of acquisition expense, and after DAC is depleted, we record additional liabilities through a charge to policyholder benefits. Groupings for loss recognition testing are consistent with our manner of acquiring, servicing and measuring the profitability of the business and applied by product groupings. Once loss recognition has been recorded for a block of business, the old assumption set is replaced and the assumption set used for the loss recognition would then be subject to the lock-in principle. Investment-oriented contracts: Policy acquisition costs and policy issuance costs related to universal life and investment-type products (collectively, investment-oriented products) are deferred and amortized, with interest, in relation to the incidence of estimated gross profits to be realized over the estimated lives of the contracts. Estimated 45 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) gross profits include net investment income and spreads, net realized capital gains and losses, fees, surrender charges, expenses, and mortality gains and losses. In each reporting period, current period amortization expense is adjusted to reflect actual gross profits. If estimated gross profits change significantly, DAC is recalculated using the new assumptions, and any resulting adjustment is included in income. If the new assumptions indicate that future estimated gross profits are higher than previously estimated, DAC will be increased resulting in a decrease in amortization expense and increase in income in the current period; if future estimated gross profits are lower than previously estimated, DAC will be decreased resulting in an increase in amortization expense and decrease in income in the current period. Updating such assumptions may result in acceleration of amortization in some products and deceleration of amortization in other products. DAC is grouped consistent with the manner in which the insurance contracts are acquired, serviced and measured for profitability and is reviewed for recoverability based on the current and projected future profitability of the underlying insurance contracts. To estimate future estimated gross profits for variable annuity products, a long-term annual asset growth assumption is applied to determine the future growth in assets and related asset-based fees. In determining the asset growth rate, the effect of short-term fluctuations in the equity markets is partially mitigated through the use of a "reversion to the mean" methodology whereby short-term asset growth above or below long-term annual rate assumptions impact the growth assumption applied to the five-year period subsequent to the current balance sheet date. The reversion to the mean methodology allows us to maintain our long-term growth assumptions, while also giving consideration to the effect of actual investment performance. When actual performance significantly deviates from the annual long-term growth assumption, as evidenced by growth assumptions in the five-year reversion to the mean period falling below a certain rate (floor) or above a certain rate (cap) for a sustained period, judgment may be applied to revise or "unlock" the growth rate assumptions to be used for both the five-year reversion to the mean period as well as the long-term annual growth assumption applied to subsequent periods. Shadow DAC and Shadow Loss Recognition: DAC related to investment-oriented products is also adjusted to reflect the effect of unrealized gains or losses on fixed maturity and equity securities available for sale on estimated gross profits, with related changes recognized through other comprehensive income (shadow DAC). The adjustment is made at each balance sheet date, as if the securities had been sold at their stated aggregate fair value and the proceeds reinvested at current yields. Similarly, for long-duration traditional insurance contracts, if the assets supporting the liabilities maintain a temporary net unrealized gain position at the balance sheet date, loss recognition testing assumptions are updated to exclude such gains from future cash flows by reflecting the impact of reinvestment rates on future yields. If a future loss is anticipated under this basis, any additional shortfall indicated by loss recognition tests is recognized as a reduction in accumulated other comprehensive income (shadow loss recognition). Similar to other loss recognition on long-duration insurance contracts, such shortfall is first reflected as a reduction in DAC and secondly as an increase in liabilities for future policy benefits. The change in these adjustments, net of tax, is included with the change in net unrealized appreciation of investments that is credited or charged directly to other comprehensive income. Internal Replacements of Long-duration and Investment-oriented Products: For some products, policyholders can elect to modify product benefits, features, rights or coverages by exchanging a contract for a new contract or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. These transactions are known as internal replacements. If the modification does not substantially change the contract, we do not change the accounting and amortization of existing DAC and related actuarial balances. If an internal replacement represents a substantial change, the original contract is considered to be extinguished and any related DAC or other policy balances are charged or credited to income, and any new deferrable costs associated with the replacement contract are deferred. 46 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents a rollforward of DAC:
Years Ended December 31, ----------------------- (in millions) 2016 2015 2014 ------------- ------- ------ ------ Balance, beginning of year $ 964 $ 800 $ 901 Acquisition costs deferred 80 78 66 Accretion of interest/amortization (105) (91) (93) Effect of unlocking assumptions used in estimating future gross profits (43) 41 47 Effect of realized gains/loss on securities 13 30 (25) Effect of unrealized gains/loss on securities 45 106 (94) Increase (decrease) due to foreign exchange 1 -- (2) ------- ------ ------ Balance, end of year $ 955 $ 964 $ 800 ======= ====== ======
Deferred Sales Inducements We offer sales inducements, which include enhanced crediting rates or bonus payments to contract holders (bonus interest) on certain annuity and investment contract products. Sales inducements provided to the contract holder are recognized in policyholder contract deposits in the Consolidated Balance Sheets. Such amounts are deferred and amortized over the life of the contract using the same methodology and assumptions used to amortize DAC. To qualify for such accounting treatment, the bonus interest must be explicitly identified in the contract at inception. We must also demonstrate that such amounts are incremental to amounts we credit on similar contracts without bonus interest, and are higher than the contract's expected ongoing crediting rates for periods after the bonus period. The amortization expense associated with these assets is reported within interest credited to policyholder account balances in the Consolidated Statements of Income. The following table presents a rollforward of deferred sales inducements:
Years Ended December 31, ---------------------- (in millions) 2016 2015 2014 ------------- ------ ------ ------ Balance, beginning of year $ 195 $ 162 $ 177 Acquisition costs deferred 14 14 17 Accretion of interest/amortization (23) (17) (21) Effect of unlocking assumptions used in estimating future gross profits (4) 8 14 Effect of realized gains/loss on securities 4 6 (5) Effect of unrealized gains/loss on securities 10 22 (20) ------ ------ ------ Balance, end of year $ 196 $ 195 $ 162 ====== ====== ======
The asset management operations defer distribution costs that are directly related to the sale of mutual funds that have a 12b-1 distribution plan and/or contingent deferred sales charge feature (collectively, Distribution Fee Revenue). We amortize these deferred distribution costs on a straight-line basis, adjusted for redemptions, over a period ranging from one year to eight years depending on share class. Amortization of these deferred distribution costs is increased if at any reporting period the value of the deferred amount exceeds the projected Distribution Fee Revenue. The projected Distribution Fee Revenue is impacted by estimated future withdrawal rates and the rates of market return. Management uses historical activity to estimate future withdrawal rates and average annual performance of the equity markets to estimate the rates of market return. 47 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. VARIABLE INTEREST ENTITIES A variable interest entity (VIE) is a legal entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support or is structured such that equity investors lack the ability to make significant decisions relating to the entity's operations through voting rights or do not substantively participate in the gains and losses of the entity. Consolidation of a VIE by its primary beneficiary is not based on majority voting interest, but is based on other criteria discussed below. We enter into various arrangements with VIEs in the normal course of business and consolidate the VIEs when we determine we are the primary beneficiary. This analysis includes a review of the VIE's capital structure, related contractual relationships and terms, nature of the VIE's operations and purpose, nature of the VIE's interests issued and our involvement with the entity. When assessing the need to consolidate a VIE, we evaluate the design of the VIE as well as the related risks the entity was designed to expose the variable interest holders to. The primary beneficiary is the entity that has both (1) the power to direct the activities of the VIE that most significantly affect the entity's economic performance and (2) the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. While also considering these factors, the consolidation conclusion depends on the breadth of our decision-making ability and our ability to influence activities that significantly affect the economic performance of the VIE. The following table presents the total assets and total liabilities associated with our variable interests in consolidated VIEs, as classified in the Consolidated Balance Sheets:
Real Estate and Investment Securitization (in millions) Entities/(c)/ Vehicles Total ------------- --------------- -------------- ------ December 31, 2016 Assets: Bonds available for sale $-- $2,913 $2,913 Other bond securities -- 365 365 Mortgage and other loans receivable -- 198 198 Other/(a)/ -- 350 350 --- ------ ------ Total assets/(b)/ $-- $3,826 $3,826 === ====== ====== Liabilities: Notes payable - to affiliates $-- $ 183 $ 183 Notes payable - to third parties -- 50 50 Other/(d)/ -- 6 6 --- ------ ------ Total liabilities $-- $ 239 $ 239 === ====== ====== December 31, 2015 Assets: Bonds available for sale $-- $3,342 $3,342 Other bond securities -- 358 358 Mortgage and other loans receivable -- 288 288 Other invested assets 18 -- 18 Other/(a)/ 13 315 328 --- ------ ------ Total assets/(b)/ $31 $4,303 $4,334 === ====== ====== Liabilities: Notes payable - to affiliates $-- $ 143 $ 143 Notes payable - to third parties -- 50 50 Other/(d)/ -- 4 4 --- ------ ------ Total liabilities $-- $ 197 $ 197 === ====== ======
(a)Comprised primarily of short-term investments and other assets at both December 31, 2016 and 2015. (b)The assets of each VIE can be used only to settle specific obligations of that VIE. (c)Off-balance sheet exposure, which primarily consisted of commitments to real estate and investment entities, was $10 million at December 31, 2015. (d)Comprised primarily of amounts due to related parties and other liabilities, at fair value, at both December 31, 2016 and 2015. We calculate our maximum exposure to loss to be (i) the amount invested in the debt or equity of the VIE, (ii) the notional amount of VIE assets or liabilities where we have also provided credit protection to the VIE with the VIE as the 48 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) referenced obligation, and (iii) other commitments and guarantees to the VIE. Interest holders in VIEs sponsored by us generally have recourse only to the assets and cash flows of the VIEs and do not have recourse to us, except in limited circumstances when we have provided a guarantee to the VIE's interest holders. The following table presents total assets of unconsolidated VIEs in which we hold a variable interest, as well as our maximum exposure to loss associated with these VIEs:
Maximum Exposure to Loss ----------------------------- Total VIE On-Balance Off-Balance (in millions) Assets Sheet/(a)/ Sheet Total ------------- --------- ---------- ----------- ------ December 31, 2016 Real estate and investment entities/(c)/ $87,089 $ 977 $133 $1,110 Securitization vehicles 2,114 530 -- 530 ------- ------ ---- ------ Total/(b)/ $89,203 $1,507 $133 $1,640 ======= ====== ==== ====== December 31, 2015 Real estate and investment entities/(c)/ $ 4,737 $ 473 $ 51 $ 524 Securitization vehicles 1,453 349 -- 349 ------- ------ ---- ------ Total $ 6,190 $ 822 $ 51 $ 873 ======= ====== ==== ======
(a)At December 31, 2016 and 2015, $977 million and $473 million, respectively, of our total unconsolidated VIE assets were recorded as other invested assets and $530 million and $349 million, respectively, were recorded as bonds available for sale. (b)As discussed in Note 2, on January 1, 2016, we adopted accounting guidance that resulted in an increase in the number of our investment entities classified as VIEs. (c)Comprised primarily of hedge funds and private equity funds. Real Estate and Investment Entities We participate as a passive investor in the equity issued by certain third party-managed hedge and private equity funds, and certain real estate entities that are VIEs managed by AIG Asset Management (US), LLC (AIG Investments), an affiliate. We are typically not involved in the design or establishment of these VIEs, nor do we actively participate in the management of the VIEs. Securitization Vehicles We created certain VIEs that hold investments, primarily investment-grade debt securities and commercial mortgage loans, and issued beneficial interests in these investments. We own the majority of these beneficial interests and we maintain the power to direct the activities of the VIEs that most significantly impact their economic performance and bear the obligation to absorb losses or receive benefits from the entities that could potentially be significant to the entities. Accordingly, we consolidate these entities, and beneficial interests issued to third parties or affiliates by these entities are reported as notes payable. See Note 18 for additional information on capital commitments made to these entities by other affiliates. Ambrose During 2012, 2013 and 2014, we entered into securitization transactions that involved the transfer of portfolios of high grade corporate securities and structured securities acquired from AIG Parent, to newly formed special purpose entities (collectively referred to as the Ambrose entities), which are VIEs. For those Ambrose entities in which we own the majority of the beneficial interests issued by the Ambrose entities and we maintain the power to direct the activities of the VIEs that most significantly impact their economic performance and bear the obligation to absorb losses or receive benefits from the VIEs that could potentially be significant to the VIEs, we consolidate those Ambrose entities. See Note 18 for additional information on these securitization transactions. 49 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Selkirk During 2013 and 2014, we entered into securitization transactions in which portfolios of our commercial mortgage loans were transferred to special purpose entities, with us retaining a significant beneficial interest in the securitized loans. As consideration for the transferred loans, we received beneficial interests in certain special purpose entities and cash proceeds from the securitized notes issued to third party investors by other special purpose entities. We determined that we control or we are the primary beneficiary of certain special purpose entities in the securitization structures, and therefore we consolidate these entities, including those that are VIEs. RMBS, CMBS, Other ABS and CDOs We are passive investors in RMBS, CMBS, other ABS and CDOs, the majority of which are issued by domestic special purpose entities. We generally do not sponsor or transfer assets to, or act as the servicer to these asset backed structures, and were not involved in the design of these entities. Our maximum exposure in these types of structures is limited to our investment in securities issued by these entities. Based on the nature of our investments and our passive involvement in these types of structures, we have determined that we are not the primary beneficiary of these entities. We have not included these entities in the tables above; however, the fair values of our investments in these structures are reported in Note 3 and Note 4. 10. INSURANCE LIABILITIES Future Policy Benefits Future policy benefits primarily include reserves for life-contingent annuity payout contracts and are based on estimates of cost of future policy benefits. Included in future policy benefits are liabilities for annuities issued in structured settlement arrangements whereby a claimant has agreed to settle a general insurance claim in exchange for fixed payments over a fixed determinable period of time with a life contingency feature. Policyholder Contract Deposits The liability for policyholder contract deposits is primarily recorded at accumulated value (deposits received and net transfers from separate accounts, plus accrued interest credited at rates ranging from 1.0 percent to 9.0 percent at December 31, 2016, less withdrawals and assessed fees). Deposits collected on investment-oriented products are not reflected as revenues, because they are recorded directly to policyholder contract deposits upon receipt. Amounts assessed against the contract holders for mortality, administrative, and other services are included in revenues. In addition to liabilities for fixed annuities, fixed options within variable annuities and annuities without life contingencies, policyholder contract deposits also include our liability for (a) certain guaranteed benefits and indexed features accounted for as embedded derivatives at fair value and (b) annuities issued in a structured settlement arrangement with no life contingency. See Note 3 for discussion of the fair value measurement of embedded policy derivatives and Note 11 for additional discussions of guaranteed benefits accounted for as embedded derivatives. 11. VARIABLE ANNUITY CONTRACTS We report variable contracts within the separate accounts when investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder and the separate account meets additional accounting criteria to qualify for separate account treatment. The assets supporting the variable portion of variable annuity contract that qualifies for separate account treatment are carried at fair value and reported as separate account assets, with an equivalent summary total reported as separate account liabilities. 50 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Policy values for variable products and investment contracts are expressed in terms of investment units. Each unit is linked to an asset portfolio. The value of a unit increases or decreases based on the value of the linked asset portfolio. The current liability at any time is the sum of the current unit value of all investment units in the separate accounts, plus any liabilities for guaranteed minimum death benefits or guaranteed minimum withdrawal benefits included in future policy benefits or policyholder contract deposits, respectively. Amounts assessed against the contract holders for mortality, administrative, and other services are included in revenue. Net investment income, net investment gains and losses, changes in fair value of assets, and policyholder account deposits and withdrawals related to separate accounts are excluded from the Consolidated Statements of Income, Comprehensive Income (Loss) and Cash Flows. Variable annuity contracts may include certain contractually guaranteed benefits to the contract holder. These guaranteed features include guaranteed minimum death benefits (GMDB) that are payable in the event of death, and living benefits that are payable in the event of annuitization, or, in other instances, at specified dates during the accumulation period. Our living benefits include guaranteed minimum withdrawal benefits (GMWB). A variable annuity contract may include more than one type of guaranteed benefit feature; for example, it may have both a GMDB and a GMWB. However, a policyholder can only receive payout from one guaranteed feature on a contract containing a death benefit and a living benefit, because the features are mutually exclusive, so the exposure to the guaranteed amount for each feature is independent of the exposure from other features (except a surviving spouse who has a rider to potentially collect both a GMDB upon their spouse's death and a GMWB during their lifetime). A policyholder cannot purchase more than one living benefit on one contract. The net amount at risk for each feature is calculated irrespective of the existence of other features, and as a result, the net amount at risk for each feature is not additive to that of other features. In addition, we record liabilities for assumed reinsurance of certain GMDB and GMWB features in variable annuity contracts issued by another insurer, under coinsurance and modified coinsurance agreements. Amounts related to guaranteed benefits shown below exclude such assumed reinsurance. See Note 6 for additional information on assumed reinsurance. Account balances of variable annuity contracts with guarantees were invested in separate account investment options as follows:
December 31, --------------- (in millions) 2016 2015 ------------- ------- ------- Equity funds $24,206 $23,643 Bond funds 3,174 3,008 Balanced funds 4,435 4,191 Money market funds 459 491 ------- ------- Total $32,274 $31,333 ======= =======
GMDB Depending on the contract, the GMDB feature may provide a death benefit of either (a) total deposits made to the contract less any partial withdrawals plus a minimum return (and in rare instances, no minimum return) or (b) the highest contract value attained, typically on any anniversary date minus any subsequent withdrawals following the contract anniversary. GMDB is our most widely offered benefit. The liabilities for GMDB, which are recorded in future policyholder benefits, represent the expected value of benefits in excess of the projected account value, with the excess recognized ratably over the accumulation period based on total expected assessments, through policyholder benefits. The net amount at risk for GMDB represents the amount of benefits in excess of account value if death claims were filed on all contracts on the balance sheet date. 51 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the details concerning our GMDB exposures, excluding assumed reinsurance:
December 31, ----------------------------- 2016 2015 -------------- -------------- Net Deposits Net Deposits Plus a Minimum Plus a Minimum (dollars in millions) Return Return --------------------- -------------- -------------- Account value $ 56,946 $ 55,539 Net amount at risk 471 585 Average attained age of contract holders 61 61 Range of guaranteed minimum return rates 0% - 3% 0% - 3%
The following table presents a rollforward of the GMDB liabilities related to variable annuity contracts:
Years Ended December 31, ----------------------- (in millions) 2016 2015 2014 ------------- ---- ---- ---- Balance, beginning of year $17 $17 1 Reserve increase 2 2 19 Benefits paid -- (2) (3) --- --- -- Balance, end of year $19 $17 17 === === ==
Assumptions used to determine the GMDB liability include interest rates, which vary by year of issuance and products; mortality rates, which are based upon actual experience modified to allow for variations in policy form; lapse rates, which are based upon actual experience modified to allow for variations in policy form; investment returns, using assumptions from a randomly generated model; and asset growth assumptions, which include a reversion to the mean methodology, similar to that applied for DAC. We regularly evaluate estimates used to determine the GMDB liability and adjust the liability balance, with a related charge or credit to policyholder benefits, if actual experience or other evidence suggests that earlier assumptions should be revised. GMWB Guaranteed benefit and equity index features, which are recorded in policyholder contract deposits, are bifurcated from the host contract and accounted for separately as embedded policy derivatives at fair value, with changes in fair value recognized in net realized capital gains (losses). These include GMWB and index annuities, which offer a guaranteed minimum interest rate plus a contingent return based on some internal or external equity index. Certain of our variable annuity contracts contain optional GMWB benefits. With a GMWB, the contract holder can monetize the excess of the guaranteed amount over the account value of the contract only through a series of withdrawals that do not exceed a specific percentage per year of the guaranteed amount. If, after the series of withdrawals, the account value is exhausted, the contract holder will receive a series of annuity payments equal to the remaining guaranteed amount, and, for lifetime GMWB products, the annuity payments continue as long as the covered person(s) is living. The fair value of these embedded policy derivatives was a net liability of $165 million and $131 million at December 31, 2016 and 2015, respectively. We had account values subject to GMWB that totaled $3.2 billion and $3.6 billion at December 31, 2016 and 2015, respectively. The net amount at risk for GMWB represents the present value of minimum guaranteed withdrawal payments, in accordance with contract terms, in excess of account value, assuming no lapses. The net amount at risk related to the GMWB guarantees was $112 million and $89 million at December 31, 2016 and 2015, respectively. We use derivative instruments and other financial instruments to mitigate a portion of our exposure that arises from GMWB benefits. 52 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 12. DEBT Notes payable are carried at the principal amount borrowed, including unamortized discounts and fair value adjustments, when applicable, except for certain notes payable - to affiliates, for which we have elected the fair value option. The change in fair value of notes for which the fair value option has been elected is recorded in other income in the Consolidated Statements of Income. See Note 3 for discussion of fair value measurements. The following table lists our total debt outstanding. The interest rates presented in the following table are the range of contractual rates in effect at December 31, 2016, including fixed and variable-rates:
Balance at December 31, Range of Maturity ----------------------- (in millions) Interest Rate(s) Date(s) 2016 2015 ------------- ---------------- -------- ---------- ---------- Notes payable - to affiliates: Notes payable of consolidated VIEs, at fair value 10.60%-12.44% 2060 $ 183 $ 143 ---------- ---------- Total notes payable - to affiliates 183 143 ---------- ---------- Notes payable - to third parties: Notes payable of consolidated VIEs 3.71%-3.91% 2060 50 50 ---------- ---------- Total notes payable - to third parties 50 50 ---------- ---------- Total notes payable $ 233 $ 193 ========== ==========
The following table presents maturities of long-term debt, including fair value adjustments, when applicable:
Year Ending December 31, 2016 ----------------------------------- (in millions) Total 2017 2018 2019 2020 2021 Thereafter ------------- ----- ---- ---- ---- ---- ---- ---------- Notes payable - to affiliates: Notes payable of consolidated VIEs, at fair value $183 $-- $-- $-- $-- $-- $183 ---- --- --- --- --- --- ---- Total notes payable - to affiliates 183 -- -- -- -- -- 183 ---- --- --- --- --- --- ---- Notes payable - to third parties: Notes payable of consolidated VIEs 50 -- -- -- -- -- 50 ---- --- --- --- --- --- ---- Total notes payable - to third parties 50 -- -- -- -- -- 50 ---- --- --- --- --- --- ---- Total notes payable $233 $-- $-- $-- $-- $-- $233 ==== === === === === === ====
FHLB Borrowings Membership with the FHLB provides us with collateralized borrowing opportunities, primarily as an additional source of contingent liquidity, or for other uses deemed appropriate by management. The purpose of our FHLB Advance Facility operational plan is to effectively utilize the FHLB facility to manage short-term cash management and/or liquidity needs. Pursuant to the plan, we may periodically obtain cash advances on a same-day basis, up to an internally approved limit. To provide adequate collateral for potential advances under the Advance Facility, we pledge securities to the FHLB. The fair value of all collateral pledged to secure advances from the FHLB included the value of our pledged FHLB common stock. Upon any event of default, the FHLB's recovery would generally be limited to the amount of our liability under advances borrowed. Intercompany Loan Facility On January 1, 2015, we and certain of our affiliates entered into a revolving loan facility with AIG Parent, pursuant to which we and each such affiliate can, on a several basis, borrow monies from AIG Parent (as lender) subject to the terms and conditions stated therein. Principal amounts borrowed under this facility may be repaid and re-borrowed, in whole or in part, from time to time, without penalty. However, the total aggregate amount of loans borrowed by all borrowers under the facility cannot exceed $500 million. The loan facility also sets forth individual borrowing limits for each borrower, with our maximum borrowing limit being $500 million. At December 31, 2016, we had no outstanding balance under this facility. 53 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13. COMMITMENTS AND CONTINGENCIES Commitments Leases We occupy leased space in many locations under various long-term leases, and have entered into various leases covering long-term use of data processing equipment. The following table presents the future minimum lease payments under operating leases at December 31, 2016:
(in thousands) -------------- 2017 $2,807 2018 1,856 2019 1,591 2020 1,377 2021 618 Remaining years after 2021 588 ------ Total $8,837 ======
Commitments to Fund Partnership Investments In the normal course of business, we enter into commitments to invest in limited partnerships, private equity funds and hedge funds. These commitments totaled $246 million at December 31, 2016. Mortgage Loan Commitments We have $292 million and $48 million in commitments related to commercial and residential mortgage loans, respectively, at December 31, 2016. Contingencies Legal Matters Various lawsuits against us have arisen in the ordinary course of business. Except as discussed below, we believe it is unlikely that contingent liabilities arising from litigation, income taxes and other matters will have a material adverse effect on our financial position, results of operations or cash flows. We are currently defending a lawsuit filed in the Circuit Court of Kanawha County, West Virginia on November 12, 2009 by The West Virginia Investment Management Board and The West Virginia Consolidated Public Retirement Board (the WV Boards). The WV Boards assert damages in excess of $100 million. In November 2014, the West Virginia Supreme Court reversed the trial court's grant of summary judgment in our favor, and remanded the matter to the Business Court for further proceedings. The matter was arbitrated in March 2017 and a decision is expected by April 30, 2017. Regulatory Matters All fifty states and the District of Columbia have laws requiring solvent life insurance companies, through participation in guaranty associations, to pay assessments to protect the interests of policyholders of insolvent life insurance companies. These state insurance guaranty associations generally levy assessments, up to prescribed limits, on member insurers in a particular state based on the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer is engaged. Such assessments are used to pay certain contractual insurance benefits owed pursuant to insurance policies issued by impaired, insolvent or failed 54 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) insurers. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. We accrue liabilities for guaranty fund assessments (GFA) when an assessment is probable and can be reasonably estimated. We estimate the liability using the latest information available from the National Organization of Life and Health Insurance Guaranty Associations. While we cannot predict the amount and timing of any future GFA, we have established reserves we believe are adequate for assessments relating to insurance companies that are currently subject to insolvency proceedings. Our liability for these guaranty fund assessments was $5 million at December 31, for both 2016 and 2015, net of amounts recoverable through premium tax offsets. Various federal, state and other regulatory agencies may from time to time review, examine or inquire into our operations, practices and procedures, such as through financial examinations, subpoenas, market conduct exams or regulatory inquiries. Based on the current status of pending regulatory examinations and inquiries involving us, we believe it is not likely that these regulatory examinations or inquiries will have a material adverse effect on our consolidated financial position, results of operations or cash flows. 14. EQUITY Accumulated Other Comprehensive Income The following table presents the components of accumulated other comprehensive income:
December 31, ------------ (in millions) 2016 2015 ------------- ----- ----- Unrealized appreciation of fixed maturity and equity securities, available for sale $ 934 $ 921 Net unrealized gains on other invested assets 172 256 Adjustments to DAC and deferred sales inducements (51) (106) Shadow loss recognition (26) -- Foreign currency translation adjustments (7) (8) Deferred income tax (150) (155) ----- ----- Accumulated other comprehensive income $ 872 $ 908 ===== =====
55 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the other comprehensive income (loss) reclassification adjustments:
Unrealized Depreciation of Fixed Maturity Investments on Which Other- Than- Temporary Unrealized Adjustments Credit Appreciation to DAC and Unrealized Foreign Impairments (Depreciation) Deferred Insurance Currency were of All Other Sales Loss Translation (in millions) Recognized Investments Inducements Recognition Adjustments Total ------------- --------------- -------------- ----------- ----------- ----------- ------- Year ended December 31, 2014 Unrealized change arising during period $ 31 $ 908 $ (84) $(77) $(4) $ 774 Less: Reclassification adjustments included in net income 65 21 30 -- -- 116 ---- ------- ----- ---- --- ------- Total other comprehensive income (loss), before income tax expense (benefit) (34) 887 (114) (77) (4) 658 Less: Income tax expense (benefit) (13) 33 (31) (28) (2) (41) ---- ------- ----- ---- --- ------- Total other comprehensive income (loss), net of income tax expense (benefit) $(21) $ 854 $ (83) $(49) $(2) $ 699 ==== ======= ===== ==== === ======= Year ended December 31, 2015 Unrealized change arising during period $(12) $(1,214) $ 164 $ 84 $(2) $ (980) Less: Reclassification adjustments included in net income 65 21 36 -- -- 122 ---- ------- ----- ---- --- ------- Total other comprehensive income (loss), before income tax expense (benefit) (77) (1,235) 128 84 (2) (1,102) Less: Income tax expense (benefit) (28) (297) 46 30 (1) (250) ---- ------- ----- ---- --- ------- Total other comprehensive income (loss), net of income tax expense (benefit) $(49) $ (938) $ 82 $ 54 $(1) $ (852) ==== ======= ===== ==== === ======= Year ended December 31, 2016 Unrealized change arising during period $(29) $ (39) $ 72 $(26) $ 1 $ (21) Less: Reclassification adjustments included in net income 16 (13) 17 -- -- 20 ---- ------- ----- ---- --- ------- Total other comprehensive income (loss), before income tax expense (benefit) (45) (26) 55 (26) 1 (41) Less: Income tax expense (benefit) (16) (2) 21 (9) 1 (5) ---- ------- ----- ---- --- ------- Total other comprehensive income (loss), net of income tax expense (benefit) $(29) $ (24) $ 34 $(17) $-- $ (36) ==== ======= ===== ==== === =======
The following table presents the effect of the reclassification of significant items out of accumulated other comprehensive income on the respective line items in the Consolidated Statements of Income:
Amount Reclassified from Accumulated Other Comprehensive Income Affected ------------------------ Line Item in December 31, the ------------------------ Statements (in millions) 2016 2015 2014 of Income ------------- ------- ------ ----- -------------- Unrealized appreciation of fixed maturity investments on which other- Net realized than-temporary credit impairments were recognized $ 16 $ 65 65 capital gains (losses) Unrealized appreciation (depreciation) of all other investments Net realized capital gains (13) 21 21 (losses) Adjustments to DAC and deferred sales inducements Amortization of deferred policy acquisition 17 36 30 costs ------- ------ ----- Total reclassifications for the period $ 20 $ 122 116 ======= ====== =====
56 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 15. STATUTORY FINANCIAL DATA AND RESTRICTIONS The following table presents our statutory net income and capital and surplus:
(in millions) 2016 2015 2014 ------------- ------ ------ ------ Years Ended December 31, Statutory net income $ 758 $ 757 $1,025 At December 31, Statutory capital and surplus $2,388 $2,723 Aggregate minimum required statutory capital and surplus 662 733
We file financial statements prepared in accordance with statutory accounting practices prescribed or permitted by state insurance regulatory authorities. The principal differences between statutory financial statements and financial statements prepared in accordance with U.S. GAAP are that statutory financial statements do not reflect DAC, some bond portfolios may be carried at amortized cost, investment impairments are determined in accordance with statutory accounting practices, assets and liabilities are presented net of reinsurance, policyholder liabilities are generally valued using more conservative assumptions and certain assets are non-admitted. In addition, state insurance regulatory authorities have the right to permit specific practices that deviate from prescribed statutory practices. The aggregate minimum required statutory capital and surplus is based on the greater of the Risk-based Capital (RBC) level that would trigger regulatory action or minimum requirements per state insurance regulation. At both December 31, 2016 and 2015, we exceeded the minimum required statutory capital and surplus requirements and all RBC minimum required levels. Dividend Restrictions Dividends that we may pay to the Parent in any year without prior approval of the Texas Department of Insurance (TDI) are limited by statute. The maximum amount of dividends in a twelve-month period, measured retrospectively from the date of payment, which can be paid over a rolling twelve-month period to shareholders of Texas domiciled insurance companies without obtaining the prior approval of the TDI is limited to the greater of: (1) 10 percent of the statutory surplus as regards to policyholders at the preceding December 31; or (2) the preceding year's statutory net gain from operations. Additionally, unless prior approval of the TDI is obtained, dividends can only be paid out of unassigned surplus. Subject to the TDI requirements, the maximum dividend payout that may be made in 2017 without prior approval of the TDI is $641 million. Dividend payments in excess of positive retained earnings in 2014 and 2015 were classified and reported as a return of capital. 16. BENEFIT PLANS Effective January 1, 2002, our employees participate in various benefit plans sponsored by AIG Parent, including a noncontributory qualified defined benefit retirement plan, various stock option and purchase plans, a 401(k) plan and a post retirement benefit program for medical care and life insurance (the U.S. Plans). AIG's U.S. Plans do not separately identify projected benefit obligations and plan assets attributable to employees of participating affiliates. Effective January 1, 2016, the defined benefit plans were frozen by AIG. Consequently, these plans are closed to new participants and current participants no longer earn benefits. However, interest credits continue to accrue on the existing cash balance accounts and participants are continuing to accrue years of service for purposes of vesting and early retirement eligibility and subsidies as they continue to be employed by AIG Parent and its subsidiaries. AIG Parent sponsors several defined contribution plans for U.S. employees that provide for pre-tax salary reduction contributions by employees. The most significant plan is the AIG Incentive Savings Plan, for which the matching contribution is 100 percent of the first six percent of a participant's contributions, subject to the IRS-imposed limitations. 57 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Effective January 1, 2016, participants in the AIG Incentive Savings Plan receive an additional fully vested, non-elective, non-discretionary employer contribution equal to three percent of the participant's annual base compensation for the plan year, paid each pay period regardless of whether the participant currently contributes to the plan, and subject to the Internal Revenue Service (IRS)-imposed limitations. We are jointly and severally responsible with AIG Parent and other participating companies for funding obligations for the U.S. Plans, Employee Retirement Income Security Act (ERISA) qualified defined contribution plans and ERISA plans issued by other AIG subsidiaries (the ERISA Plans). If the ERISA Plans do not have adequate funds to pay obligations due participants, the Pension Benefit Guaranty Corporation or Department of Labor could seek payment of such amounts from the members of the AIG ERISA control group, including us. Accordingly, we are contingently liable for such obligations. We believe that the likelihood of payment under any of these plans is remote. Accordingly, we have not established any liability for such contingencies. We also maintain a retirement plan for the benefit of our sales agents and managers. Investments in the plan consist of a deposit administration group annuity contract we issued. The liabilities and expenses associated with this plan were not material to our consolidated financial position and results of operations for the years presented. 17. INCOME TAXES The following table presents the income tax expense (benefit) attributable to pre-tax income (loss):
Years Ended December 31, (in millions) 2016 2015 2014 ------------------------ ---- ---- ---- Current $201 $243 $262 Deferred (57) 87 152 ---- ---- ---- Total income tax expense $144 $330 $414 ==== ==== ====
The U.S. statutory income tax rate is 35 percent for 2016, 2015 and 2014. Actual income tax (benefit) expense differs from the statutory U.S. federal amount computed by applying the federal income tax rate, due to the following:
Years Ended December 31, (in millions) 2016 2015 2014 ------------------------ ---- ---- ---- U.S federal income tax expense at statutory rate $231 $387 $491 Adjustments: Dividends received deduction (42) (39) (10) Reclassifications from accumulated other comprehensive income (28) (25) -- State income tax 8 7 (7) Capital loss carryover write-off -- 5 (29) Valuation allowance -- -- (12) Other credits, taxes and settlements (25) (5) (19) ---- ---- ---- Total income tax expense $144 $330 $414 ==== ==== ====
Deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities, at the enacted tax rates expected to be in effect when the temporary differences reverse. The effect of a tax rate change is recognized in income in the period of enactment. State income taxes are included in income tax expense. 58 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the components of the net deferred tax assets (liabilities):
Years Ended December 31, (in millions) 2016 2015 ------------------------ ----- ----- Deferred tax assets: Basis differences on investments $ 586 $ 551 Policy reserves 109 162 Fixed assets 120 47 Losses and tax credit carryforwards 66 68 State deferred tax benefits 10 -- Accrued expenses -- 42 Other 4 -- ----- ----- Total deferred tax assets 895 870 ----- ----- Deferred tax liabilities: Deferred policy acquisition costs (404) (462) Net unrealized gains on debt and equity securities available for sale (367) (338) Other (5) (1) ----- ----- Total deferred tax liabilities (776) (801) ----- ----- Net deferred tax asset before valuation allowance 119 69 Valuation allowance (102) (115) ----- ----- Net deferred tax asset (liability) $ 17 $ (46) ===== =====
The following table presents our tax losses and credit carryforwards on a tax return basis.
December 31, 2016 Tax Expiration (in millions) Effected Periods ----------------- -------- ---------- Foreign tax credit carryforwards $52 2017-2024 Business credit carryforwards 14 2027-2035 --- Total carryforwards $66 ===
We are included in the consolidated federal income tax return of our ultimate parent, AIG Parent. Under the tax sharing agreement with AIG Parent, taxes are recognized and computed on a separate company basis. To the extent that benefits for net operating losses, tax credits or net capital losses are utilized on a consolidated basis, we will recognize tax benefits based upon the amount of the deduction and credits utilized in the consolidated federal income tax return. We calculate current and deferred state income taxes using the actual apportionment and statutory rates for states in which we are required to file on a separate basis. In states that have a unitary regime, AIG Parent accrues and pays the taxes owed and does not allocate the provision or cash settle the expense with the members of the unitary group. Unlike for federal income tax purposes, AIG Parent does not have state tax sharing agreements. AIG Parent has determined that because the unitary tax expense will never be borne by the subsidiaries, the state tax unitary liability is not included in this separate company expense. Assessment of Deferred Tax Asset Valuation Allowance The evaluation of the recoverability of the deferred tax asset and the need for a valuation allowance requires us to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed. Our framework for assessing the recoverability of deferred tax assets requires us to consider all available evidence, including: . the nature, frequency and severity of cumulative financial reporting losses in recent years; . the predictability of future operating profitability of the character necessary to realize the net deferred tax asset; . the carryforward periods for the net operating loss, capital loss and foreign tax credit carryforwards, including the effect of reversing taxable temporary differences; and 59 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) . prudent and feasible tax planning strategies that would be implemented, if necessary, to protect against the loss of deferred tax assets. Estimates of future taxable income, including income generated from prudent and feasible actions and tax planning strategies, could change in the near term, perhaps materially, which may require us to consider any potential impact to our assessment of the recoverability of the deferred tax asset. Such potential impact could be material to our consolidated financial condition or results of operations for an individual reporting period. At December 31, 2016, recent changes in market conditions, including interest rate fluctuations, impacted the unrealized tax losses in our available-for-sale portfolio, resulting in a decrease to the related deferred tax asset. The deferred tax asset relates to the unrealized losses for which the carryforward period has not yet begun, and as such, when assessing its recoverability, we consider our ability and intent to hold the underlying securities to recovery. As of December 31, 2016, based on all available evidence, we concluded that a valuation allowance should be established on a portion of the deferred tax asset related to unrealized losses that are not more-likely-than-not to be realized. During 2016, we released $14 million of the valuation allowance to other comprehensive income. In 2015, we established $115 million of valuation allowance associated with unrealized tax losses, all of which was allocated to other comprehensive income. Accounting For Uncertainty in Income Taxes The following table presents a reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits, excluding interest and penalties:
Years Ended December 31, ------------------------ (in millions) 2016 2015 ------------- --------- ----------- Gross unrecognized tax benefits, beginning of year $ 34 $ 28 Increases in tax position for prior years -- 6 Decreases in tax position for prior years (15) -- --------- ----------- Gross unrecognized tax benefits, end of year $ 19 $ 34 ========= ===========
At December 31, 2016 and 2015, the amounts of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate were $19 million and $34 million, respectively. Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At December 31, 2016 and 2015, we had accrued liabilities of $2 million and $6 million, respectively, for the payment of interest (net of the federal benefit) and penalties. In 2016, 2015 and 2014, we recognized income of $4 million, expense of $1 million and income of less than $1 million, respectively, for interest (net of the federal benefit) and penalties. We regularly evaluate proposed adjustments by taxing authorities. At December 31, 2016, such proposed adjustments would not have resulted in a material change to our consolidated financial condition, although it is possible that the effect could be material to our consolidated results of operations for an individual reporting period. Although it is reasonably possible that a change in the balance of unrecognized tax benefits may occur within the next twelve months, based on the information currently available, we do not expect any change to be material to our consolidated financial condition. We are currently under IRS examination for the taxable years 2007 to 2010. Although the final outcome of possible issues raised in any future examination is uncertain, we believe that the ultimate liability, including interest, will not materially exceed amounts recorded in the consolidated financial statements. Taxable years 2001 to 2016 remain subject to examination by major tax jurisdictions. 60 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 18. RELATED PARTY TRANSACTIONS Events Related to AIG Parent AIG is subject to regulation by the Board of Governors of the Federal Reserve System (the Federal Reserve) as a systemically important financial institution (SIFI) pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. AIG is subject to regulation by the Federal Reserve as a savings and loan holding company. On January 26, 2016, AIG announced several actions designed to create a leaner, more profitable and focused insurer. In the fourth quarter of 2016, AIG finalized its plan to reorganize its operating model into "modular," self-contained business units to enhance transparency and accountability. Additionally, AIG also introduced a Legacy Portfolio, which aims to maximize shareholder value, release capital related to certain run-off non-strategic assets and run-off insurance lines, and highlight progress on improving the return on equity of AIG's Core portfolio. AIG's Core Portfolio includes its Commercial Insurance and Consumer Insurance business, as well as Other Operations. Accordingly, AIG modified the presentation of its segment results in its 2016 Annual report on Form 10-K to reflect its new operating structure. Additional information on AIG is publicly available in AIG Parent's regulatory filings with the U.S. Securities and Exchange Commission (SEC), which can be found at www.sec.gov. Information regarding AIG Parent as described herein is qualified by regulatory filings AIG Parent files from time to time with the SEC. Operating Agreements Pursuant to service and cost allocation agreements, we purchase administrative, investment management, accounting, marketing and data processing services from AIG Parent or its subsidiaries. The allocation of costs for investment management services is based on the level of assets under management. The allocation of costs for other services is based on estimated level of usage, transactions or time incurred in providing the respective services. The amount incurred for such services was approximately $418 million in both 2016 and 2015 and $428 million in 2014. American Home and National Union Guarantees We have a General Guarantee Agreement with American Home Assurance Company (American Home), an indirect wholly owned subsidiary of AIG Parent. Pursuant to the terms of the agreement, American Home has unconditionally and irrevocably guaranteed insurance policies we issued between March 3, 2003 and December 29, 2006. American Home's audited statutory financial statements are filed with the SEC in our registration statements for variable products we issued that are subject to the Guarantee. Other We purchase or sell securities, at fair market value, to or from our affiliates in the ordinary course of business. On September 27, 2016, we purchased securities from our affiliate American General Life Insurance Company, at fair market value, for total cash consideration of $508 million. During 2016 and 2015, we transferred certain hedge fund and private equity investments at fair market value to American Home, in exchange for cash and marketable securities totaling $421 million and $74 million, respectively, as part of an initiative to improve asset-liability management in AIG's domestic life and property casualty insurance companies. 19. SUBSEQUENT EVENTS We consider events or transactions that occur after the balance sheet date, but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional 61 THE VARIABLE ANNUITY LIFE INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) disclosures. We have evaluated subsequent events through April 24, 2017, the date the financial statements were issued. During the first quarter of 2017, we purchased commercial mortgage loans at outstanding principal balance and private placement assets at fair market value from certain affiliated AIG domestic property casualty companies for $196 million and $219 million, respectively. We will true up the purchase price of the commercial mortgage loans to fair value based on underlying property appraisals and valuations when that information is available. 62 American Home Assurance Company An AIG Company NAIC Code: 19380 Statutory Basis Financial Statements As of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 [LOGO] AMERICAN HOME ASSURANCE COMPANY Statutory Basis Financial Statements As of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 TABLE OF CONTENTS Report of Independent Auditors 3 Statements of Admitted Assets 4 Statements of Liabilities, Capital and Surplus 5 Statements of Operations and Changes in Capital and Surplus 6 Statements of Cash Flows 7 Note 1 Organization and Summary of Significant Statutory Basis Accounting Policies 8 Note 2 Accounting Adjustments to Statutory Basis Financial Statements 21 Note 3 Investments 24 Note 4 Fair Value of Financial Instruments 28 Note 5 Reserves for Losses and Loss Adjustment Expenses 30 Note 6 Related Party Transactions 33 Note 7 Reinsurance 41 Note 8 Income Taxes 43 Note 9 Capital and Surplus and Dividend Restrictions 50 Note 10 Contingencies 51 Note 11 Other Significant Matters 54 Note 12 Subsequent Events 56
Report of Independent Auditors To the Board of Directors of American Home Assurance Company: We have audited the accompanying statutory basis financial statements of American Home Assurance Company (the "Company"), which comprise the statements of admitted assets and liabilities, capital and surplus as of December 31, 2016 and 2015, and the related statements of operations and changes in capital and surplus and of cash flows for each of the three years in the period ended December 31, 2016. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting practices prescribed or permitted by the New York State Department of Financial Services. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles As described in Note 1B to the financial statements, the financial statements are prepared by the Company on the basis of the accounting practices prescribed or permitted by the New York State Department of Financial Services, which is a basis of accounting other than accounting principles generally accepted in the United States of America. The effects on the financial statements of the variances between the statutory basis of accounting and accounting principles generally accepted in the United States of America described in Notes 1B and 1D, although not reasonably determinable, are presumed to be material. Adverse Opinion on U.S. Generally Accepted Accounting Principles In our opinion, because of the significance of the matter discussed in the "Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles" paragraph, the financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2016 and 2015, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 2016. Opinion on Statutory Basis of Accounting In our opinion, the financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities and capital and surplus of the Company as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in accordance with the accounting practices prescribed or permitted by the New York State Department of Financial Services, as described in Note 1B. Emphasis of Matter As discussed in Notes 1, 5, 6 and 7 to the accompanying financial statements, the Company has entered into significant transactions with certain affiliated entities. Our opinion is not modified with respect to this matter. /s/ PricewaterhouseCoopers LLP April 25, 2017 American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- Statements of Admitted Assets
December 31, December 31, 2016 2015 ------------ ------------ Cash and invested assets: Bonds, primarily at amortized cost (fair value: 2016 - $19,297; 2015 - $16,942) $18,853 $16,339 Common stocks, at carrying value adjusted for nonadmitted assets (cost: 2016 - $376; 2015 - $252) 379 244 Preferred stocks, at carrying value (cost: 2016 - $49; 2015- $34) 49 34 Other invested assets (cost: 2016 - $4,299; 2015 - $3,888) 4,478 4,143 Mortgage loans 1,895 1,185 Derivative instruments 26 13 Short-term investments, at amortized cost (approximates fair value) 14 36 Cash 131 95 Receivable for securities sold 44 6 ------- ------- Total cash and invested assets $25,869 $22,095 ------- ------- Investment income due and accrued $ 211 $ 140 Agents' balances or uncollected premiums: Premiums in course of collection 972 839 Premiums and installments booked but deferred and not yet due 418 289 Accrued retrospective premiums 595 586 High deductible policy receivables 57 55 Reinsurance recoverable on paid losses 339 338 Funds held by or deposited with reinsurers 172 184 Current federal and foreign taxes recoverable 88 -- Net deferred tax assets 841 846 Equities in underwriting pools and associations 40 12 Receivables from parent, subsidiaries and affiliates 13 684 Other assets 143 117 Allowance for uncollectible accounts (74) (82) ------- ------- Total admitted assets $29,684 $26,103 ======= =======
See Notes to Statutory Basis Financial Statements -------------------------------------------------------------------------------- 4 STATEMENTS OF ADMITTED ASSETS - As of December 31, 2016 and 2015 American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions, Except Share Information) -------------------------------------------------------------------------------- Statements of Liabilities, Capital and Surplus
December 31, December 31, 2016 2015 ------------ ------------ Liabilities Reserves for losses and loss adjustment expenses $12,210 $13,171 Unearned premium reserves 3,427 3,181 Commissions, premium taxes, and other expenses payable 213 238 Reinsurance payable on paid loss and loss adjustment expenses 285 205 Current federal taxes payable to parent -- 5 Funds held by company under reinsurance treaties 1,639 1,379 Provision for reinsurance 37 34 Ceded reinsurance premiums payable, net of ceding commissions 3,956 339 Collateral deposit liability 384 334 Payable for securities purchased 14 6 Payable to parent, subsidiaries and affiliates 469 205 Borrowed money 246 30 Other liabilities 356 335 ------- ------- Total liabilities $23,236 $19,462 ------- ------- Capital and Surplus Common capital stock, $17 par value, 1,758,158 shares authorized, 1,695,054 shares issued and outstanding $ 29 $ 29 Capital in excess of par value 6,839 6,139 Unassigned surplus (939) 471 Special surplus funds from health insurance providers -- 1 Special surplus funds from reinsurance 519 1 ------- ------- Total capital and surplus $ 6,448 $ 6,641 ------- ------- Total liabilities, capital and surplus $29,684 $26,103 ======= =======
See Notes to Statutory Basis Financial Statements -------------------------------------------------------------------------------- 5 STATEMENTS OF LIABILITIES, CAPITAL and SURPLUS - As of December 31, 2016 and 2015 American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- Statements of Operations and Changes in Capital and Surplus
For the Years Ended December 31, ------------------------ 2016 2015 2014 ------- ------- ------ Statements of Operations Underwriting income: Premiums earned $ 6,052 $ 5,495 $5,593 ------- ------- ------ Underwriting deductions: Losses incurred 5,212 3,940 3,416 Loss adjustment expenses 267 1,032 733 Other underwriting expenses 1,875 1,686 1,674 ------- ------- ------ Total underwriting deductions 7,354 6,658 5,823 ------- ------- ------ Net underwriting loss (1,302) (1,163) (230) ------- ------- ------ Investment gain: Net investment income earned 1,187 1,209 1,188 Net realized capital losses (net of capital gains tax expense: 2016 - $61; 2015 - $15; 2014 - $53) (106) (107) (161) ------- ------- ------ Net investment gain 1,081 1,102 1,027 ------- ------- ------ Net loss from agents' or premium balances charged-off (36) (19) (1) Other (expense)/ income (20) (5) (11) ------- ------- ------ Income (loss) after capital gains taxes and before federal income taxes (277) (85) 785 Federal and foreign income tax benefit (34) (10) (23) ------- ------- ------ Net income (loss) $ (243) $ (75) $ 808 ======= ======= ====== Changes in Capital and Surplus ------------------------------ Capital and surplus, as of December 31, previous year $ 6,641 $ 7,248 $5,092 Adjustment to beginning surplus (Note 2) 66 (27) (6) ------- ------- ------ Capital and surplus, as of January 1, 6,707 7,221 5,086 Other changes in capital and surplus: Net income (loss) (243) (75) 808 Change in net unrealized capital losses (net of capital gains tax expense (benefit): 2016 - ($16); 2015 - ($40); 2014 - $8) (48) (179) (47) Change in net deferred income tax 118 81 (391) Change in nonadmitted assets (157) (45) 731 Change in provision for reinsurance (3) 27 (3) Capital contribution 700 776 1,315 Change in par value of common stock -- -- 9 Dividends to stockholder (600) (1,200) (384) Foreign exchange translation 22 58 123 Change in statutory contingency reserve (44) (22) -- Other surplus adjustments (4) (1) 1 ------- ------- ------ Total changes in capital and surplus (259) (580) 2,162 ------- ------- ------ Capital and Surplus, as of December 31, $ 6,448 $ 6,641 $7,248 ======= ======= ======
See Notes to Statutory Basis Financial Statements -------------------------------------------------------------------------------- 6 STATEMENTS OF OPERATIONS and CHANGES IN CAPITAL AND SURPLUS - for the years ending December 31, 2016, 2015 and 2014 American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- Statements of Cash Flows
Years Ended December 31, ------------------------ 2016 2015 2014 ------- ------ ------- Cash from Operations Premiums collected, net of reinsurance $ 6,477 $5,676 $ 5,588 Net investment income 974 1,051 1,008 Miscellaneous income (expense) 17 (27) (94) ------- ------ ------- Sub-total 7,468 6,700 6,502 ------- ------ ------- Benefit and loss related payments 2,750 3,912 3,768 Commission and other expense paid 2,236 2,510 2,427 Federal and foreign income taxes paid (recovered) 9 1 (17) ------- ------ ------- Net cash provided from operations 2,473 277 324 ------- ------ ------- Cash from Investments Proceeds from investments sold, matured, or repaid: Bonds 5,646 5,222 5,593 Stocks 35 186 17 Mortgage loans 118 272 43 Other investments 1,026 304 388 ------- ------ ------- Total proceeds from investments sold, matured, or repaid 6,825 5,984 6,041 ------- ------ ------- Cost of investments acquired: Bonds 7,584 4,245 6,010 Stocks 59 251 360 Mortgage loans 871 440 583 Other investments 1,035 1,827 897 ------- ------ ------- Total cost of investments acquired 9,549 6,763 7,850 ------- ------ ------- Net cash used in investing activities (2,724) (779) (1,809) ------- ------ ------- Cash from Financing and Miscellaneous Sources Capital contributions -- -- 1 Dividends to stockholder -- (914) (150) Borrowed funds received 216 30 -- Intercompany (payments) receipts (61) 565 1,991 Net deposit activity on deposit-type contracts and other insurance (24) 1 (10) Equities in underwriting pools and associations (27) 118 95 Collateral deposit liability receipts (payments) 50 (5) (75) Other receipts (payments) 111 111 (134) ------- ------ ------- Net cash provided from (used in) financing and miscellaneous activities 265 (94) 1,718 ------- ------ ------- Net change in cash and short-term investments 14 (596) 233 Cash and short-term investments ------- ------ ------- Beginning of year 131 727 494 ------- ------ ------- End of year $ 145 $ 131 $ 727 ======= ====== =======
Refer to Note 11D for description of non-cash items. See Notes to Statutory Basis Financial Statements -------------------------------------------------------------------------------- 7 STATEMENT OF CASH FLOW - for the years ended December 31, 2016, 2015 and 2014 American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- 1. Organization and Summary of Significant Statutory Basis Accounting Policies -------------------------------------------------------------------------------- A. Basis of Organization and Presentation -------------------------------------------------------------------------------- Organization -------------------------------------------------------------------------------- American Home Assurance Company ("the Company" or "American Home") is a direct wholly-owned subsidiary of AIG Property Casualty U.S., Inc. ("AIG PC US"), a Delaware corporation, which is in turn owned by AIG Property Casualty Inc. ("AIG PC"), a Delaware corporation. The Company's ultimate parent is American International Group, Inc. (the "Ultimate Parent" or "AIG"). AIG conducts its property and casualty operations through multiple line companies writing substantially all commercial (casualty, property, specialty and financial liability) and consumer (accident & health and personal lines) insurance both domestically and abroad. The Company is party to an inter-company pooling agreement (the "Combined Pooling Agreement"), among the twelve companies listed below, collectively named the Combined Pool. Effective January 1, 2016, the Combined Pooling Agreement was amended and restated among the twelve member companies. The member companies of the Combined Pool, their National Association of Insurance Commissioners ("NAIC") company codes, inter-company pooling percentages under the Combined Pooling Agreement, and states of domicile are as follows:
NAIC 2016 Pool 2015 Pool State of Company Company Code Percentage Percentage Domicile --------------------------------------------------------------------------- ------------ ---------- ---------- ---------- National Union Fire Insurance Company of Pittsburgh, Pa. (National Union)* 19445 30% 30% Pennsylvania American Home Assurance Company (American Home) 19380 35% 30% New York Lexington Insurance Company (Lexington) 19437 30% 30% Delaware AIG Property Casualty Company (APCC) 19402 5% 5% Pennsylvania Commerce and Industry Insurance Company (C&I) 19410 0% 5% New York The Insurance Company of the State of Pennsylvania (ISOP) 19429 0% 0% Illinois** New Hampshire Insurance Company (New Hampshire) 23841 0% 0% Illinois AIG Specialty Insurance Company (Specialty) 26883 0% 0% Illinois AIG Assurance Company (Assurance) 40258 0% 0% Illinois** Granite State Insurance Company (Granite) 23809 0% 0% Illinois Illinois National Insurance Co. (Illinois National) 23817 0% 0% Illinois AIU Insurance Company (AIU) 19399 0% 0% New York
* Lead Company of the Combined Pool ** Companies were redomesticated to Illinois in 2016 from Pennsylvania in 2015. Refer to Note 6 for additional information on the Combined Pool and the effects of the changes in the intercompany pooling arrangements (the "2016 Pooling Restructure Transaction") and Note 12 regarding changes in the pooling participation percentage effective January 1, 2017. The Company increased its participation percentage from 30% to 35% as a result of the 2016 Pooling Restructure Transaction. The Company accepts commercial business primarily through a network of independent retail and wholesale brokers and through an independent agency networks. In addition, the Company accepts consumer business primarily through agents and brokers, as well as through direct marketing, partner organizations and the internet. There were no Managing Agents or Third party administrators who placed direct written premium with the Company in an amount exceeding more than 5.0 percent of surplus of the Company for the years ending December 31, 2016, 2015, and 2014. -------------------------------------------------------------------------------- 8 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- The Company is diversified in terms of classes of its business, distribution network and geographic locations. The Company has direct written premium concentrations of 5.0 percent or more in the following locations:
State/ Location 2016 2015 2014 ------------------------------------------------------------------------------- ---- ---- ----- New York $97 $ 47 $ 28 United Arab Emirates**** 88 141 -- Florida 78 81 70 California*** 70 -- -- Texas*** 48 -- -- Indiana** -- 43 -- Foreign - Japan* -- -- (444)
* 2014 includes the impact of a ($726) reserve transfer due to the 2014 Japan Branch Conversion which was presented as negative written premium in accordance with statutory presentation requirements (refer to Note 6D for more information) ** Indiana is below 5% in 2016 & 2014 *** California & Texas were below 5% in 2015 & 2014 **** United Arab Emirates was below 5% in 2014 Basis of Presentation -------------------------------------------------------------------------------- The accompanying financial statements of the Company have been prepared in conformity with accounting practices prescribed or permitted by the New York State Department of Financial Services ("NY SAP"). Certain balances relating to prior periods have been reclassified to conform to the current year's presentation. Additionally, the financial statements include the Company's U.S. operations, its Japan, Dubai, Caribbean, Jamaica and Argentina branch operations and its participation in the American International Overseas Association (the "Association"), as described in Note 6. The Company's financial information as of and for the years ended December 31, 2016, 2015 and 2014 have been presented in accordance with the terms of the Combined Pooling Agreement. Refer to Note 6 for additional information regarding the changes in the pooling percentages. B. Permitted and Prescribed Practices -------------------------------------------------------------------------------- NY SAP recognizes only statutory accounting practices prescribed or permitted by the New York State Department of Financial Services ("NY DFS") for determining and reporting the financial position and results of operations of an insurance company and for the purpose of determining its solvency under the New York Insurance Code. The NAIC Statutory Accounting Principles included within the Accounting Practices and Procedures Manual ("NAIC SAP") have been adopted as a component of prescribed practices by the NY DFS. The Superintendent of the NY DFS (the "Superintendent") has the right to permit other specific practices that differ from prescribed practices. NY SAP has prescribed the practice of discounting workers' compensation known case loss reserves on a non-tabular basis. This practice is not prescribed under NAIC SAP. Accounting practices prescribed or permitted by the Insurance Department of the Commonwealth of Pennsylvania ("PA SAP") has prescribed the availability of certain offsets in the calculation of the Provision for reinsurance, which offsets are not prescribed under NAIC SAP. The Company has received approval to reflect the transfer of the collection risk on certain of the Company's asbestos related reinsurance recoverable balances, to an authorized third party reinsurer, as another form of collateral acceptable to the commissioner with respect to the reinsurance recoverable balance from the original reinsurer. In 2016 and 2014, the Company received a permitted practice to present the consideration received in relation to loss reserves transferred other than via commutation as part of the updated and amended Combined Pooling Agreement transaction within paid losses rather than as premiums written and earned. The classification change has no effect on net income or surplus. A similar permitted practice was received by the Company with respect to the presentation of consideration paid to Eaglestone Reinsurance Company ("Eaglestone") for loss portfolio transfers ("LPT") executed in 2015 and 2014. -------------------------------------------------------------------------------- 9 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- As of and for the year ended December 31, 2016, the accompanying financial statements reflect the application of a permitted practice to recognize the effects of a retroactive aggregate excess of loss reinsurance agreement (the "ADC" or "Adverse Development Cover") entered into in January 2017 with National Indemnity Company ("NICO"), a subsidiary of Berkshire Hathaway, Inc. In addition, the Company applied a permitted practice to record the impact of the ADC as prospective reinsurance in its December 31, 2016 financial statements. The ADC is more fully described in Note 12 herein. The permitted practice also allowed the Company to reflect the consideration as paid losses rather than a reduction in premiums earned. The surplus gain associated with the ADC has been reported in a segregated surplus account and does not form part of the Company's unassigned surplus, subject to the applicable dividend restrictions; such amounts must be restricted in surplus until such time as payments received by NICO exceed premiums paid for the retrocession. The use of the aforementioned permitted and prescribed practices has not affected the Company's ability to comply with the NAIC's RBC and surplus requirements for the 2016 and 2015 reporting periods. A reconciliation of the net income and capital and surplus between NAIC SAP and practices prescribed or permitted by NY SAP is shown below:
SSAP # FS Ref 2016 2015 2014 ------ ------ ------ ------ ------ Net income (loss), NY SAP $ (243) $ (75) $ 808 State prescribed or permitted practices - addition (charge): Change in non-tabular discounting 65 (a) 147 77 40 Adverse Development Cover 62R (a) (514) -- -- Present the consideration received/paid in relation to the loss reserves within paid losses 62R (b) -- -- -- ------ ------ ------ Net income (loss), NAIC SAP $ (610) $ 2 $ 848 ------ ------ ------ Statutory surplus, NY SAP $6,448 $6,641 $7,248 State prescribed or permitted practices--addition (charge): Non-tabular discounting 65 (a) (159) (306) (383) Credits for reinsurance 62R (c) -- (4) (40) Credits for collection risk on certain asbestos reinsurance recoveries 62R (c) (58) (41) (81) Adverse Development Cover 62R (d) (514) -- -- Present the consideration received/paid in relation to the loss reserves within paid losses 62R (b) -- -- -- ------ ------ ------ Statutory surplus, NAIC SAP $5,717 $6,290 $6,744 ------ ------ ------
(a)Impacts Reserves for losses and Loss adjustment expenses within the Statements of Liabilities, Capital and Surplus and Losses incurred within the Statements of Operations and Changes in Capital and Surplus. (b)Impacts Losses incurred and Premiums earned within the Statements of Operations and Changes in Capital and Surplus. (c)Impacts Provision for reinsurance within the Statements of Liabilities, Capital and Surplus and the Change in provision for reinsurance within the Statements of Operations and Changes in Capital and Surplus. (d)Impacts Segregated Surplus within the Statements of Liabilities, Capital and Surplus C. Use of Estimates in the Preparation of the Financial Statements -------------------------------------------------------------------------------- The preparation of statutory financial statements in accordance with NY SAP requires the application of accounting policies that often involve a significant degree of judgment. The Company's accounting policies that are most dependent on the application of estimates and assumptions are considered critical accounting estimates and are related to the determination of: . Reserves for losses and loss adjustment expenses ("LAE") including estimates and recoverability of the related reinsurance assets; . Legal contingencies; . Other than temporary impairment ("OTTI") losses on investments; . Fair value of certain financial assets, impacting those investments measured at fair value in the Statements of Admitted Assets and Liabilities, Capital and Surplus, as well as unrealized gains (losses) included in capital and surplus; and . Income tax assets and liabilities, including the recoverability and admissibility of net deferred tax assets and the predictability of future tax operating profitability of the character necessary to realize the net deferred tax asset. -------------------------------------------------------------------------------- 10 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- These accounting estimates require the use of assumptions about matters, including some that are highly uncertain at the time of estimation. It is reasonably possible that actual experience may materially differ from the assumptions used and therefore the Company's statutory financial condition, results of operations and cash flows could be materially affected. D. Accounting Policy Differences -------------------------------------------------------------------------------- NAIC SAP is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America ("US GAAP"). NAIC SAP varies from US GAAP in certain respects, including: ----------------------------------------------------------------------------------------------------------------- Transactions NAIC SAP Treatment US GAAP Treatment ----------------------------------------------------------------------------------------------------------------- Policy Acquisition Costs Costs are immediately expensed and Costs directly related to the Principally brokerage commissions are included in Other Underwriting successful acquisition of new or and premium taxes arising from the Expenses, except for reinsurance renewal insurance contracts are issuance of insurance contracts. ceding commissions received in excess deferred and amortized over the term of the cost to acquire business which of the related insurance coverage. are recognized as a deferred liability and amortized over the period of the reinsurance agreement. ----------------------------------------------------------------------------------------------------------------- Unearned Premiums, Unpaid Presented net of reinsurance Presented gross of reinsurance with Losses and Loss Expense recoverable. corresponding reinsurance recoverable Liabilities assets for ceded unearned premiums and reinsurance recoverable on unpaid losses, respectively. ----------------------------------------------------------------------------------------------------------------- Retroactive reinsurance contracts Gains and losses are recognized in Gains are deferred and amortized over earnings immediately and surplus is the settlement period of the ceded segregated to the extent pretax gains claim recoveries. Losses are are recognized. Certain retroactive immediately recognized in the affiliate or related party Statements of Operations. reinsurance contracts are accounted for as prospective reinsurance if there is no gain in surplus as a result of the transaction. ----------------------------------------------------------------------------------------------------------------- Investments in Bonds held as: Investment grade securities (rated by All available for sale investments NAIC as class 1 or 2) are carried at are carried at fair value with 1)available for sale amortized cost. Non-investment grade changes in fair value, net of securities (NAIC rated 3 to 6) are applicable taxes, reported in 2)fair value option carried at the lower of amortized accumulated other comprehensive cost and fair value. income within shareholder's equity. Fair value option investments are carried at fair value with changes in fair value, net of applicable projected income taxes, reported in net investment income. ----------------------------------------------------------------------------------------------------------------- Investments in Equity Securities Carried at fair value with unrealized Same treatment as available for sale classified as: gains and losses reported, net of investments in bonds. applicable taxes, in the Statement of 1)available for sale Changes in Capital and Surplus. Same treatment as fair value option investments in bonds. 2)fair value option -----------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 11 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- Transactions NAIC SAP Treatment US GAAP Treatment ----------------------------------------------------------------------------------------------------------------- Investments in Limited Carried at the underlying US GAAP If aggregate interests allow the Partnerships, Hedge Funds and equity with results from the holding entity to exercise more than Private Equity Interests investment's operations recorded, net minor influence (typically more than of applicable taxes, as Unrealized 3%), the investment is carried at Net gains (losses) directly in the Asset Value ("NAV") with changes in Statements of Changes in Capital and value recorded to net investment Surplus. income. Where the aggregate interests allow the entity to exercise only minor influence (typically less than 3%), the investment is recorded at NAV with changes in value recorded, net of tax, as a component of accumulated other comprehensive income in shareholder's equity. ----------------------------------------------------------------------------------------------------------------- Investments in Subsidiary, Subsidiaries are not consolidated. Consolidation is required when there Controlled and Affiliated Entities is a determination that the (SCAs) The equity investment in SCAs are affiliated entity is a variable accounted for under the equity method interest entity ("VIE") and the and recorded as Common stock entity has a variable interest and investments. Dividends are recorded the power to direct the activities of within Net Investment Income. the VIE. The VIE assessment would consider various factors including limited partnership (LP) status and inherent rights of equity investors. Investments in SCAs that are voting interest entities (VOE) with majority voting rights are generally consolidated. Investments in SCAs where the holding entity exercises significant influence (generally ownership of>3% voting interests for LPs and similar entities and between 20 percent and 50 percent for other entities) are recorded at equity value. The change in equity is included within operating income. ----------------------------------------------------------------------------------------------------------------- Structured Settlements Structured settlement annuities where For structured settlements in which the claimant is the payee are treated the reporting entity has not been as completed transactions (thereby legally released from its obligation allowing for immediate gain with the claimant (i.e. the reporting recognition), regardless of whether entity remains the primary obligor), the reporting entity is the owner of resulting gains are deferred and the annuity, subject to credit amounts expected to be recovered from exposure in certain circumstances. such annuities are recorded as assets. ----------------------------------------------------------------------------------------------------------------- Statement of Cash Flows Statutory Statements of Cash Flows The Statements of Cash Flows can be must be presented using the direct presented using the direct or method. Changes in cash, cash indirect methods, however are equivalents, and short-term typically presented using the investments and certain sources of indirect method. Presentation is cash are excluded from operational limited to changes in cash and cash cash flows. Non-cash items are equivalents (short-term investments required to be excluded in the are excluded). All non-cash items are statement of cash flows and should be excluded from the presentation of disclosed accordingly. cash flows. ----------------------------------------------------------------------------------------------------------------- Deferred Federal Income Taxes Deferred income taxes are established The provision for deferred income for the temporary differences between taxes is recorded as a component of tax and book assets and liabilities, income tax expense, as a component of subject to limitations on the Statement of Operations, except admissibility of tax assets. for changes associated with items that are included within other Changes in deferred income taxes are comprehensive income where such items recorded within capital and surplus are recorded net of applicable income and have no impact on the Statement taxes. of Operations.
-------------------------------------------------------------------------------- 12 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- Transactions NAIC SAP Treatment US GAAP Treatment ------------------------------------------------------------------------------------------------------------------- Statutory Adjustments Certain asset balances are designated All assets and liabilities are (applied to certain assets including as nonadmitted, are excluded from the included in the financial statements. goodwill, furniture and equipment, Statement of Admitted Assets and are Provisions for uncollectible deferred taxes in excess of reflected as deductions from capital receivables are established as limitations, prepaid expenses, and surplus. valuation allowances and are overdue receivable balances and recognized as expense within the unsecured reinsurance amounts) A Provision for reinsurance is Statement of Operations. established for unsecured reinsurance amounts recoverable from unauthorized and certain authorized reinsurers with a corresponding reduction to Unassigned surplus.
The effects on the financial statements of the variances between NAIC SAP and US GAAP, although not reasonably determinable, are presumed to be material. -------------------------------------------------------------------------------- E. Significant Statutory Accounting Policies -------------------------------------------------------------------------------- Premiums -------------------------------------------------------------------------------- Premiums for insurance and reinsurance contracts are recorded as gross premiums written on the inception date of the policy. Premiums are earned primarily on a pro-rata basis over the term of the related insurance coverage. Extended reporting endorsements are reflected as premiums written and are earned on a pro-rata basis over the stated term of the endorsement unless the term of the endorsement is indefinite in which case premiums are fully earned at inception of the endorsement along with the recognition of associated loss and LAE. Unearned premium reserves are established on an individual policy basis, reflecting the terms and conditions of the coverage being provided. Unearned premium reserves include the portion of premiums written relating to the unexpired terms of coverage as of the date of the financial statements. For policies with coverage periods equal to or greater than thirteen months and generally not subject to cancellation or modification by the Company, premiums are earned using a prescribed percentage of completion method. Reinsurance premiums under a reinsurance contract are typically earned over the same period as the underlying policies, or risks, covered by the contracts. As a result, the earnings pattern of a reinsurance contract generally written for a 12-month term may extend up to 24 months, reflecting the inception dates of the underlying attaching policies throughout the 12-month period of the reinsurance contract. Reinsurance premiums ceded are recognized as a reduction in revenues over the period reinsurance coverage is provided. Insurance premiums billed and outstanding for 90 days or more are nonadmitted and deducted from Unassigned surplus. Premiums for retrospectively rated contracts are initially recorded based on the expected loss experience, based upon historical ratios of retrospectively rated loss development and are earned on a pro-rata basis over the term of the related insurance coverage. Additional or returned premium is recorded if the estimated loss experience differs from the initial estimate and is immediately recognized in earned premium. The Company records accrued retrospectively rated premiums as written premiums. Adjustments to premiums for changes in the level of exposure to insurance risk are generally determined based upon audits conducted after the policy expiration date. Gross written premiums net of ceded written premiums ("Net written premiums") that were subject to retrospective rating features as of December 31, 2016, 2015 and 2014 were as follows:
Years ended December 31, 2016 2015 2014 ------------------------ ---- ---- ---- Net written premiums subject to retrospectively rated premiums $ 72 $ 83 $112 Percentage of total net written premiums 1.1% 1.5% 2.1% ==== ==== ====
-------------------------------------------------------------------------------- 13 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- As of December 31, 2016 and 2015, the admitted portion of accrued premiums related to the Company's retrospectively rated contracts were $595 and $586, respectively, which will be billed in future periods based primarily on the payment of the underlying expected losses and LAE. Unsecured amounts associated with these accrued retrospective premiums were $62 and $80 as of December 31, 2016 and 2015, respectively. Ten percent of the amount of accrued retrospective premiums receivable not offset by retrospective return premiums or other liabilities to the same party, other than loss and LAE reserves, or collateral (collectively referred to as the unsecured amount) have been nonadmitted in the amount of $13 and $14 as of December 31, 2016 and 2015, respectively. The Company establishes loss reserves for high deductible policies net of the insured's contractual deductible (such deductibles are referred to as "reserve credits"). The Company establishes a nonadmitted asset for ten percent of paid losses recoverable in excess of collateral held on an individual insured basis, or for one hundred percent of paid losses recoverable where no collateral is held and amounts are outstanding for more than ninety days. Additionally, the Company establishes an allowance for doubtful accounts for such paid losses recoverable in excess of collateral and after nonadmitted assets. Similarly, the Company does not recognize reserve credit offsets to its estimate of loss reserves where such credits are deemed uncollectible, as the Company ultimately bears credit risk on the underlying policies' insurance obligations. As of December 31, 2016 and 2015, the amounts of offsetting reserve credits on unpaid claims, recoverable on paid claims and nonadmitted balances were:
December 31, 2016 2015 ------------ ------ ------ Reserve credits on unpaid claims $4,468 $3,747 Recoverable on paid claims 72 74 Nonadmitted balance 15 19 ====== ======
Deposit Accounting -------------------------------------------------------------------------------- Direct insurance transactions where management determines there is insufficient insurance risk transfer are recorded as deposits unless the policy was issued (i) in respect of the insured's requirement for evidence of coverage pursuant to applicable statutes (insurance statutes or otherwise), contractual terms or normal business practices, (ii) in respect of an excess insurer's requirement for an underlying primary insurance policy in lieu of self-insurance, or (iii) in compliance with filed forms, rates and/or rating plans. Assumed and ceded reinsurance contracts which do not transfer a sufficient amount of insurance risk are recorded as deposits with the net consideration paid or received recognized as a deposit asset or liability, respectively. Deposit assets are admitted if (i) the assuming company is licensed, accredited or qualified by the PA DOI, or (ii) the collateral (i.e., funds withheld, letters of credit or trusts) provided by the reinsurer meets all the requirements of the NY SAP, as applicable. The deposit asset or liability is adjusted by calculating the effective yield on the deposit to reflect the actual payments made or received to date and expected future payments with a corresponding credit or charge to Other Income in the Statements of Operations. Deposit assets are recorded to Other assets within the Statements of Admitted Assets, refer to Note 11A. Deposit liabilities and deposit liabilities - funds held are recorded to Other liabilities within the Statements of Liabilities, Capital and Surplus, refer to Note 11B. Premium Deficiency -------------------------------------------------------------------------------- The Company periodically reviews its expected ultimate losses with respect to its unearned premium reserves. A premium deficiency loss and related liability is established if the unearned premium reserves and related future investment income are collectively not sufficient to cover the expected ultimate loss projection. As of December 31, 2016 and 2015, the Company did not incur any premium deficiency losses. Retroactive Reinsurance -------------------------------------------------------------------------------- Transactions involving the transfer of loss and LAE reserves associated with loss events that occurred prior to the effective date of the transfer are recorded as retroactive reinsurance and reported separately from Reserves for losses and loss adjustment expenses in the Statements of Liabilities, Capital and Surplus. Initial pre-tax gains or losses are recorded in Other Income within the Statements of Operations and Changes in Capital and Surplus with surplus gains recorded as Special surplus funds from retroactive reinsurance which is a component of Capital and surplus that is restricted from dividend payment. Amounts recorded in Special surplus funds from retroactive reinsurance are considered to be earned surplus (i.e., transferred to Unassigned surplus) only when, and to the extent that, cash recoveries from the assuming entity exceed the consideration paid by as respects such retroactive reinsurance transaction. Special surplus funds from retroactive reinsurance are maintained separately for each respective retroactive reinsurance agreement; Special surplus from retroactive reinsurance account write-in entry on the balance sheet is adjusted, upward or downward, to reflect any subsequent increase or reduction in reserves ceded. For each agreement, the reduction in the special surplus funds is limited to the lesser of amounts recovered by the Company in excess of consideration paid or the surplus gain in relation to such agreement. -------------------------------------------------------------------------------- 14 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- To the extent that the transfer of loss and LAE reserves is between affiliated entities and neither entity records a gain or loss, the transaction is accounted for as prospective reinsurance. Insurance Related Acquisition Costs -------------------------------------------------------------------------------- Commissions, premium taxes, and certain underwriting costs are expensed as incurred and are included in Other underwriting expenses. The Company records an unearned ceding commission accrual equal to the excess of the ceding commissions received from reinsurers compared to the acquisition cost of the business ceded. This amount is amortized as an increase to income over the effective period of the reinsurance agreement in proportion to the amount of insurance coverage provided. Provisions for Allowances and Unauthorized or Overdue Reinsurance -------------------------------------------------------------------------------- The recoverability of certain assets, including insurance receivables with counterparties, is reviewed periodically by management. Amounts deemed uncollectible are reduced, with the required statutory basis provision for reinsurance deducted from surplus and reflected as the Provision for reinsurance liability. Various factors are taken into consideration when assessing the recoverability of these asset balances including: the age of the related amounts due and the nature of the unpaid balance; disputed balances, historical recovery rates and any significant decline in the credit standing of the counterparty. PA SAP is applied in the determination of the Company's Provision for reinsurance. Reserves for Losses and Loss Adjustment Expenses -------------------------------------------------------------------------------- Reserves for case, IBNR and LAE losses are determined on the basis of actuarial specialists' evaluations and other estimates, including historical loss experience. The methods of making such estimates and for establishing the resulting reserves are reviewed and updated based on available information, and any resulting adjustments are recorded in the current period. Accordingly, newly established reserves for losses and LAE, or subsequent changes, are charged to income as incurred. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsurance policy based upon the terms of the underlying contract. See Note 5 for further discussion of policies and methodologies for estimating the liabilities and losses. Workers' compensation reserves are discounted in accordance with NY DFS statutes; see Note 5 for further details. Structured Settlements -------------------------------------------------------------------------------- In the ordinary course of business, the Company enters into structured settlements to settle certain claims. Structured settlements involve the purchase of an annuity by the Company, generally from life insurers, to fund future claim obligations. In the event the life insurers providing the annuity do not meet their obligations, the Company would, in certain cases, become liable for the payments of benefits. As of December 31, 2016 there were no incurred losses, there has been no default by any of the participating life insurers and the Company has not reduced its loss reserves for any annuities purchased where it is both the owner and the payee. Management believes that based on the financial strength of the life insurers involved (mostly affiliates) the likelihood of the Company becoming liable, or incurring an incremental loss, is remote. The estimated loss reserves eliminated by such structured settlement annuities and the unrecorded loss contingencies were $1,335 as of December 31, 2016. As of December 31, 2016, the Company had annuities with aggregate statement values in excess of one percent of its policyholders' surplus with life insurer affiliates as follows:
Licensed in Life Insurance Company State of Domicile New York Statement Value ---------------------- ----------------- ----------- --------------- The United States Life Insurance Company in the City of New York New York Yes $837 American General Life Insurance Company of Delaware Delaware No 281 American General Life Insurance Company Texas No 159
-------------------------------------------------------------------------------- 15 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- Fair Value of Financial Instruments -------------------------------------------------------------------------------- The degree of judgment used in measuring the fair value of financial instruments generally inversely correlates with the level of observable valuation inputs. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments for which no quoted prices are available have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction, liquidity and general market conditions. Assets and liabilities recorded at fair value are measured and classified in accordance with a fair value hierarchy consisting of three 'levels' based upon the observability of inputs available in the marketplace as discussed below: . Level 1: Fair value measurements that are based upon quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. The quoted price for such instruments is not subject to adjustment. . Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. . Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we must make certain assumptions as to the inputs a hypothetical market participant would use to value that asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's policy is to recognize transfers in and out at the end of the reporting period, consistent with the date of the determination of fair value. The valuation methods and assumptions used in estimating the fair values of financial instruments are as follows: . The fair values of bonds, mortgage loans, unaffiliated common stocks and preferred stocks are based on fair values that reflect the price at which a security would sell in an arm's length transaction between a willing buyer and seller. As such, sources of valuation include third party pricing sources, stock exchanges, brokers or custodians or the NAIC Capital Markets and Investment Analysis Office ("NAIC IAO"). . The fair value of derivatives are determined using quoted prices in active markets and other market evidence whenever possible, including market-based updates, broker or dealer quotations or alternative pricing sources. . The carrying value of all other financial instruments approximates fair value. Cash Equivalents and Short Term Investments -------------------------------------------------------------------------------- Cash equivalents are short-term, highly liquid investments, with original maturities of three months or less, that are both; (a) readily convertible to known amounts of cash; and (b) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Highly liquid debt securities with maturities of greater than three months but less than twelve months from the date of purchase are classified as short-term investments. Short-term investments are carried at amortized cost which approximates fair value. -------------------------------------------------------------------------------- 16 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- Bonds (including Loan Backed and Structured Securities) -------------------------------------------------------------------------------- Loan-backed and structured securities ("LBaSS") include residential mortgage-backed securities ("RMBS"), commercial mortgage-backed securities ("CMBS"), and asset-backed securities ("ABS"), pass-through securities, lease-backed securities, equipment trust certificates, loan-backed securities issued by special purpose corporations or trusts, and securities where there is not direct recourse to the issuer. Bonds and LBaSS with an NAIC IAO designation of "1" or "2" (considered to be investment grade) are carried at amortized cost. Bonds and LBaSS with an NAIC designation of "3", "4", "5", "5*", "6" or "6*" (considered to be non-investment grade) are carried at the lower of amortized cost or fair value. LBaSS fair values are primarily determined using independent pricing services and broker quotes. Bonds and LBaSS that have not been filed and have not received a designation in over a year, from the NAIC IAO, are assigned a 6* designation and carried at zero, with unrealized losses charged to surplus. Bond and LBaSS securities that have been filed and received a 6* designation can carry a value greater than zero. Bond and LBaSS securities are assigned a 5* designation when the following conditions are met: a) the documentation required for a full credit analysis did not exist, b) the issuer/obligor has made all contractual interest and principal payments, and c) an expectation of repayment of interest and principal exists. Amortization of premium or discount on bonds and LBaSS is calculated using the effective yield method. Additionally, mortgage-backed securities ("MBS") and ABS prepayment assumptions were obtained from an outside vendor or internal estimates. The retrospective adjustment method is used to account for the effect of unscheduled payments affecting high credit quality securities, while securities with less than high credit quality and securities for which the collection of all contractual cash flows is not probable are both accounted for using the prospective adjustment method. Mortgage Loans -------------------------------------------------------------------------------- Mortgage loans on real estate are carried at unpaid principal balances, net of unamortized premiums, discounts and impairments. Impaired loans are identified by management as loans in which it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The Company accrues income on impaired loans to the extent it is deemed collectible and the loan continues to perform under its original or restructured contractual terms. Non-performing loan interest income that is delinquent more than 90 days is generally recognized on a cash basis. Mortgage loans are considered impaired when collection of all amounts due under contractual terms is not probable. Impairment is measured using either i) the present value of expected future cash flows discounted at the loan's effective interest rate, ii) the loan's observable market price, if available, or iii) the fair value of the collateral if the loan is collateral dependent. An allowance is typically established for the difference between the impaired value of the loan and its current carrying amount. Additional allowance amounts are established for incurred but not specifically identified impairments, based on statistical models primarily driven by past due status, debt service coverage, loan-to-value ratio, property occupancy, profile of the borrower and of the major property tenants, and economic trends in the market where the property is located. When all or a portion of a loan is deemed uncollectible, the uncollectible portion of the carrying amount of the loan is charged off against the allowance. Internal credit risk ratings are assigned based on the consideration of risk factors including past due status, debt service coverage, loan-to-value ratio or the ratio of the loan balance to the estimated value of the property, property occupancy, profile of the borrower and of the major property tenants, economic trends in the market where the property is located, and condition of the property. Preferred Stocks -------------------------------------------------------------------------------- Perpetual preferred stocks with an NAIC rating of "P1" or "P2", having characteristics of equity securities are carried at fair value. Redeemable preferred stocks with an NAIC rating of "RP1" or "RP2", which have characteristics of debt securities, are carried at amortized cost. All preferred stocks with an NAIC rating of "3" through "6" are carried at the lower of amortized cost or fair value. Unaffiliated Common Stock Securities -------------------------------------------------------------------------------- Unaffiliated common stock investments are carried at fair value with changes in fair value recorded as Unrealized gains(losses) in Unassigned surplus, or as realized losses in the event a decline in value is determined to be other than temporary. Investments in subsidiaries and affiliated companies -------------------------------------------------------------------------------- Investments in non-publicly traded affiliates are recorded based on the underlying equity of the respective entity's financial statements as presented on a basis consistent with the nature of the affiliates operations (including any nonadmitted amounts). The Company's share of undistributed earnings and losses of affiliates is recorded as Unrealized gains (losses) in Unassigned surplus. -------------------------------------------------------------------------------- 17 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- Investments in joint ventures, partnerships and limited liability companies -------------------------------------------------------------------------------- Other invested assets include joint ventures and partnerships and are accounted for under the equity method, based on the most recent financial statements of the entity. Changes in carrying value are recorded as Unrealized gains(losses). Additionally, other invested assets include investments in collateralized loans that are recorded at the lower of amortized cost and the fair value of the underlying collateral. Changes in carrying value resulting from adjustments where the fair value is less than amortized cost are recorded as Unrealized gains (losses) in Unassigned surplus, while changes resulting from amortization are recorded as Net investment income. Derivatives -------------------------------------------------------------------------------- Derivative financial instruments are accounted for at fair value using quoted prices in active markets and other market evidence whenever possible, including market-based inputs to valuation models, broker or dealer quotations or alternative pricing sources, reduced by the amount of collateral held or posted by the Company with respect to the derivative position. Changes in carrying value are recorded as Unrealized gains(losses) in Unassigned surplus. Net investment income and gain/loss -------------------------------------------------------------------------------- Investment income is recorded as earned and includes interest, dividends and earnings from subsidiaries, loans and joint ventures. Realized gains or losses on the disposition or impairment of investments are determined on the basis of specific identification. Investment income due and accrued is assessed for collectability. The Company records a valuation allowance on investment income receivable when it is probable that an amount is uncollectible by recording a charge against investment income in the period such determination is made. Any amounts receivable over 90 days past due, or 180 days past due for mortgage loans, that do not have a valuation allowance are nonadmitted by the Company. Evaluating Investments for Other-Than-Temporary Impairment -------------------------------------------------------------------------------- If a bond is determined to have an OTTI in value the cost basis is written down to fair value as its new cost basis, with the corresponding charge to Net realized capital gains (losses) as a realized loss. For bonds, other than loan-backed and structured securities, an OTTI shall be considered to have occurred if it is probable that the Company will not be able to collect all amounts due under the original contractual terms. For loan-backed and structured securities, an OTTI shall be considered to have occurred if the fair value of a security is below its amortized cost and management intends to sell or does not have the ability and intent to retain the security until recovery of the amortized cost (i.e., intent based impairment). When assessing the intent to sell a security, management evaluates relevant facts and circumstances including, but not limited to, decisions to rebalance the investment portfolio, sales of securities to meet cash flow needs and sales of securities to take advantage of favorable pricing. In general, a security is considered a candidate for OTTI evaluation if it meets any of the following criteria: . The Company may not realize a full recovery on their investment based on lack of ability or intent to hold a security to recovery; . Fundamental credit risk of the issuer exists; and/or . Other qualitative/quantitative factors exist indicating an OTTI has occurred. When a credit-related OTTI is present, the amount of OTTI recognized as a realized capital loss is equal to the difference between the investment's amortized cost basis and the present value of cash flows expected to be collected regardless of management's ability or intent to hold the security. -------------------------------------------------------------------------------- 18 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- Common and preferred stock investments whose fair value is less than their carrying value or is at a significant discount to acquisition value are considered to be potentially impaired. For securities with unrealized losses, an analysis is performed. Factors include: . If management intends to sell a security that is in an unrealized loss position then an OTTI loss is considered to have occurred; . If the investments are trading at a significant (25 percent or more) discount to par, amortized cost (if lower) or cost for an extended period of time based on facts and circumstances of the investment; or . If a discrete credit event occurs resulting in: (i) the issuer defaulting on a material outstanding obligation; (ii) the issuer seeking protection from creditors under bankruptcy law or any similar laws intended for court supervised reorganization of insolvent enterprises; or, (iii) the issuer proposing a voluntary reorganization pursuant to which creditors are asked to exchange their claims for cash or securities having a fair value substantially lower than par value of their claims; or . If there are other factors precluding a full recovery of the investment. Limited partnership investments whose fair value is less than its book value with a significant unrealized loss are considered candidates for OTTI. OTTI factors that are periodically considered include: . If an order of liquidation or other fundamental credit issues with the partnership exists; . If there is a significant reduction in scheduled cash flow activities between the Company and the partnership or fund during the year; . If there is an intent to sell, or the Company may be required to sell, the investment prior to the recovery of cost of the investment; or . If other qualitative/quantitative factors indicating an OTTI exist based on facts and circumstances of the investment. Equities in Pools & Associations -------------------------------------------------------------------------------- The Company accounts for its participation in the Association by recording its participation in . net premium participation as gross premium; . the underwriting and net investment income results in the Statements of Operations and Changes in Capital and Surplus; . insurance and reinsurance balances in the Statements of Admitted Assets; . all other non-insurance assets and liabilities recorded as Equities in Underwriting Pools and Associations in the Statements of Admitted Assets; and . all Association business activity is reflected within the Statements of Cash Flows. Foreign Currency Transactions -------------------------------------------------------------------------------- Foreign currency denominated assets and liabilities and the results of non-U.S. operations are translated into U.S. dollars using rates of exchange prevailing at the period end date with the related translation adjustments recorded as unrealized gains (losses) within Unassigned surplus in the Statements of Capital and Surplus. All other realized gains and losses resulting from foreign currency transactions, not in support of foreign insurance operations, are included in Other Income in the Statements of Operations. Retirement Plans, Deferred Compensation, Postemployment Benefits and Compensated Absences and Other Postretirement Benefit Plans -------------------------------------------------------------------------------- The Company's employees participate in various AIG-sponsored defined benefit pension and postretirement plans. AIG, as sponsor, is ultimately responsible for the maintenance of these plans in compliance with applicable laws. The Company is not directly liable for obligations under these plans. AIG charges the Company and its insurance company affiliates pursuant to intercompany expense sharing agreements; the expenses are then shared by the pool participants in accordance with the pooling agreement. In August 2015, AIG amended the defined benefit pension plans, to freeze benefit accruals effective January 1, 2016. Consequently, these plans were closed to new participants and current participants ceased earning additional benefits as of December 31, 2015. However, interest credits continue to accrue on the existing cash balance accounts and participants are continuing to accrue years of service for purposes of vesting and early retirement eligibility and subsidies as they continue to be employed by AIG and its subsidiaries. -------------------------------------------------------------------------------- 19 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- AIG sponsors various defined contribution plans that provide for pre-tax salary reduction contributions by its U.S. employees. The most significant plan is the AIG Incentive Savings Plan, to which the Company makes matching contributions of 100 percent of the first six percent of employee contributions, subject to Internal Revenue Service imposed limitations. Effective January 1, 2016, participants began receiving an additional fully vested, non-elective, non-discretionary employer contribution equal to three percent of the participant's annual base compensation for the plan year, paid each pay period regardless of whether the participant currently contributes to the plan, and subject to the Internal Revenue Service ("IRS")-imposed limitations. The Company incurred employee related costs related to defined benefit and defined contribution plans during 2016, 2015 and 2014 of $10, $5 and $11, respectively. Depreciation -------------------------------------------------------------------------------- Certain assets, principally electronic data processing ("EDP") equipment, software and leasehold improvements are designated as nonadmitted assets and their net book value is deducted from surplus. EDP equipment primarily consists of non-operating software and is depreciated over its useful life, generally not exceeding five years. Leasehold improvements are amortized over the lesser of the remaining lease term or the estimated useful life of the leasehold improvement. Income Taxes -------------------------------------------------------------------------------- The Company files a consolidated U.S. federal income tax return with AIG. AIG has more than 300 subsidiaries which form part of this tax return. A complete listing of the participating subsidiaries is included in Note 8. The Company is allocated U.S. federal income taxes based upon a tax sharing agreement (the "Tax Sharing Agreement") with AIG, approved by the Company's Board of Directors. This agreement provides that the Company shall incur tax results that would have been paid or received by such company if it had filed a separate federal income tax return, with limited exceptions. Additionally, while the agreement described above governs the current and deferred income tax recorded in the income tax provision, the amount of cash that will be paid or received for U.S. federal income taxes may at times be different. The terms of this agreement are based on principles consistent with the allocation of income tax expense or benefit on a separate company basis, except that: . The sections of the Internal Revenue Code relating to Alternative Minimum Tax ("AMT") are applied, but only if the AIG consolidated group is subject to AMT in the Consolidated Tax Liability, and; . The impact of Deferred Intercompany Transactions (as defined in Treas. Reg. (S)1.1502-13(b)(1), if the "intercompany items" from such transaction, as defined in Treas. Reg. (S)1.1502-13(b)(2), have not been taken into account pursuant to the "matching rule" of Treas. Reg. (S)1.1502-13(c)), are excluded from current taxation, provided however, that the Company records the appropriate deferred tax asset and/or deferred tax liability related to the gain or loss and includes such gain or loss in its separate return tax liability in the subsequent tax year when the deferred tax liability or deferred tax asset becomes current. In 2014, the Company, modified the Tax Sharing Agreement which clarified certain tax attributes related to the 2013 Association distribution of AIG Europe Holdings Limited's ("AEHL") shares. The gain resulting from the transfer was treated as currently taxable and the Company's resulting tax liability was waived in the form of a deemed capital contribution. As a result, the Company recognized a benefit to statutory surplus of $21. The NY DFS responded to the informational submissions with no objection. The Company has an enforceable right to recoup federal income taxes in the event of future net losses that it may incur or to recoup its net losses carried forward as an offset to future net income subject to federal income taxes. Under the Tax Sharing Agreement, income tax liabilities related to uncertain tax positions and tax authority audit adjustments ("TAAAs") shall remain with the Company for which the income tax liabilities relate. Furthermore, if and when such income tax liabilities are realized or determined to no longer be necessary, the responsibility for any additional income tax liabilities, benefits or rights to any refunds due, remains with the Company. In 2014, the Company settled for cash certain tax payables and receivables with AIG. Such payables and receivables related to TAAAs that were reflected in an amended federal income tax return filing for the tax years 2007 to 2011, which was filed with the ("IRS"). -------------------------------------------------------------------------------- 20 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- In accordance with Circular Letter 1979-33 issued by the NY DFS, AIG shall establish and maintain an escrow account for amounts where the Company's separate return liability exceeds the AIG consolidated tax liability. As of December 31, 2016, the Company's separate return liability did not exceed the AIG consolidated tax liability and therefore no amounts were maintained in escrow. Deferred Taxes -------------------------------------------------------------------------------- The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance, if necessary, to reduce the deferred tax asset to an amount that is more likely than not to be realized ("adjusted gross deferred tax asset"). The evaluation of the recoverability of the deferred tax asset and the need for a valuation allowance requires management to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it would be to support a conclusion that a valuation allowance is not needed. The Company's framework for assessing the recoverability of deferred tax assets requires it to consider all available evidence, including: . the nature, frequency, and amount of cumulative financial reporting income and losses in recent years; . the sustainability of recent operating profitability of our subsidiaries; . the predictability of future operating profitability of the character necessary to realize the net deferred tax asset; . the carryforward periods for the net operating loss, capital loss and foreign tax credit carryforwards, including the effect of reversing taxable temporary differences; and, . prudent and feasible actions and tax planning strategies that would be implemented, if necessary, to protect against the loss of the deferred tax asset. The adjusted gross deferred tax asset is then assessed for statutory admissibility. The reversing amount eligible for loss carryback or the amount expected to be realized in three years is admissible, subject to the defined surplus limitation. The remaining adjusted gross deferred tax asset can be admitted to the extent of offsetting deferred tax liabilities. 2. Accounting Adjustments to Statutory Basis Financial Statements -------------------------------------------------------------------------------- A. Change in Accounting Principles -------------------------------------------------------------------------------- 2016 Changes -------------------------------------------------------------------------------- In 2016, the Company adopted the following change in the Statements of Statutory Accounting Principles ("SSAP"):: Going Concern: In June 2015, the Statutory Accounting Principles Working Group adopted changes to SSAP No.1, Disclosures of Accounting Policies, Risks & Uncertainties, and Other Disclosures ("SSAP 1"), with a December 31, 2016 effective date, requiring management to evaluate whether there are conditions that give rise to substantial doubt over the Company's ability to continue as a going concern within one year from the financial statement issuance date. Conditions that would give rise to substantial doubt ordinarily relate to the Company's ability to meet its obligations as they become due. If substantial doubt arises over the Company's ability to continue as a going concern, the Company shall provide disclosure detailing management's evaluation and the consideration of management's plans to alleviate any substantial doubt. The adoption of this change did not have an effect on the Company's financial condition, results of operations or cash flows. 2015 Changes -------------------------------------------------------------------------------- In 2015, the Company adopted the following change in the SSAP: Cash Flow: In March 2015, the Statutory Accounting Principles Working Group adopted revisions to SSAP No. 69, Statement of Cash Flow ("SSAP 69"), with a December 31, 2015 effective date to clarify cash flow shall include cash, cash equivalents and short-term investments. Disclosure of non-cash items affecting assets and liabilities was expanded to include non-cash operating items in addition to financing and investing items. The Company has adopted and applied these revisions in the 2015 Statements of Cash Flows and related disclosures. -------------------------------------------------------------------------------- 21 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- 2014 Changes -------------------------------------------------------------------------------- In 2014, the Company adopted the following changes in the SSAP: Affordable Care Act Assessments: In June 2014, the NAIC issued SSAP No. 106, Affordable Care Act Assessments ("SSAP 106"), which provides accounting and disclosure guidance related to assessments on entities that issue health insurance. Under the Affordable Care Act ("ACA"), an assessment becomes payable to the U.S. Treasury once a health insurer provides health insurance for any subject U.S. health risk during the calendar year, in an amount based upon the amount of health insurance provided by such company in the prior year. Under SSAP 106, the amount of the assessment shall be expensed and recognized as a liability once the entity provides qualifying health insurance. Additionally, the guidance requires the recognition in Special Surplus, as a reclassification from Unassigned Surplus, of an amount equal to its estimated subsequent fee year assessment based upon the health insurance written in the current year. The special surplus is restored to unassigned surplus in the following year, when the health insurer recognizes the expense for the assessment. Risk-Sharing Provisions: In December 2014, the NAIC issued SSAP No. 107, Accounting for the Risk-Sharing Provisions of the Affordable Care Act. This statement provides accounting guidance for the Risk Adjustment Program, the Transitional Reinsurance Program, and the Transitional Risk Corridor Program of the ACA. While the Company participates in the health insurance market and is subject to certain provisions of the ACA, such as the assessment described above, with the exception of the industry-wide assessment on health insurers to fund the Transitional Reinsurance Program, the Company's health insurance policies are not subject to the risk sharing provisions of the ACA. The impact of the guidance on the Company relates solely to the treatment of Transitional Reinsurance Program assessment. B. Adjustments to Surplus -------------------------------------------------------------------------------- During 2016, 2015 and 2014 the Company identified corrections that resulted in after-tax statutory adjustments to beginning capital and surplus of $66, $(27) and $(6), respectively. In accordance with SSAP No. 3, Accounting Changes and Corrections of Errors ("SSAP 3"), the corrections of errors have been reported in the 2016, 2015 and 2014 statutory financial statements as adjustments to Unassigned surplus. The impact of the 2016 corrections would have increased the 2015 and 2014 pre-tax income by $61 and $50, respectively. Management has concluded that the effects of these errors on the previously issued financial statements were immaterial based on a quantitative and qualitative analysis. The impact to surplus, assets and liabilities as of January 1, 2016, 2015 and 2014 is presented in the following tables:
Policyholders' Total Admitted 2016 Adjustments Surplus Assets Total Liabilities ---------------- -------------- -------------- ----------------- Balance at December 31, 2015 $6,641 $26,103 $19,462 Adjustments to beginning Capital and Surplus: Asset corrections 42 42 -- Liability corrections (3) -- 3 Income tax corrections 27 27 -- ------ ------- ------- Total adjustments to beginning Capital and Surplus 66 69 3 ------ ------- ------- Balance at January 1, 2016 as adjusted $6,707 $26,172 $19,465 ====== ======= =======
An explanation for each of the adjustments for prior period corrections is described below: Asset corrections - The increase in net admitted assets is primarily the result of a) an increase due to an overcharge of claims service fees related to an internally developed system; partially offset by b) a decrease due to understatement of the prior year expense allocation; and c) a decrease related to unsupported ceded premiums. Liability corrections - The increase in total liabilities is primarily the result of a) an increase due to ceded losses recorded without consideration of contract limits; b) an increase due to recording of unsupported ceded Unearned Premium reserves; and c) an increase resulting from losses understated on certain client accounts; partially offset by d) a decrease related to an overstatement of profit share between AIG PC Pool companies and AIG Warranty Guard Agency. Income tax corrections - The increase in the tax assets is primarily the result of a) corrections to prior period balances for adjustments to the current and deferred tax assets and liabilities and b) the tax effect of the corresponding change in asset realization and liability corrections. -------------------------------------------------------------------------------- 22 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) --------------------------------------------------------------------------------
Policyholders' Total Admitted 2015 Adjustments Surplus Assets Total Liabilities ---------------- -------------- -------------- ----------------- Balance at December 31, 2014 $7,248 $26,408 $19,160 Adjustments to beginning Capital and Surplus: Asset corrections (1) (1) -- Liability corrections (27) -- 27 Income tax corrections 1 1 -- ------ ------- ------- Total adjustments to beginning Capital and Surplus (27) -- 27 ------ ------- ------- Balance at January 1, 2015 as adjusted $7,221 $26,408 $19,187 ====== ======= =======
An explanation for each of the adjustments for prior period corrections is described below: Asset corrections - The decrease in total admitted assets is primarily the result of a) a decrease in accrued retrospective premiums resulting from an overstatement of an accrual; b) a decrease in amounts recoverable from reinsurers due to the correction of a coding error; and c) a decrease in other assets due to a reduction of deductible recoverables on programs where the aggregate loss limits were already met; partially offset by d) an increase in deferred premiums due to unrecorded fee revenue; and e) an increase in equities and deposits in pools and associations resulting from a duplication in the expenses recorded. Liability corrections -increase in total liabilities is primarily the result of a) an increase in losses due to data remediation in addition to certain claims that were not adequately reserved; and b) corrections to the state tax payable account; partially offset by c) a decrease in other expenses and payable to parent, subsidiaries and affiliates due to the overstatement of prior year end expense accruals; d) decrease in taxes, licenses, and fees related to amounts improperly reflected; and e) a decrease in funds held by company under reinsurance treaties and unearned premiums due to data remediation. Income tax corrections -The increase in the tax assets is primarily the result of the tax effect of the corresponding asset and liability corrections, as well as partnership basis adjustments.
Policyholders' Total Admitted 2014 Adjustments Surplus Assets Total Liabilities ---------------- -------------- -------------- ----------------- Balance at December 31, 2013 $5,092 $23,671 $18,579 Adjustments to beginning Capital and Surplus: Asset corrections 59 59 -- Liability corrections (71) -- 71 Income tax corrections 6 6 -- ------ ------- ------- Total adjustments to beginning Capital and Surplus (6) 65 71 ------ ------- ------- Balance at January 1, 2014 as adjusted $5,086 $23,736 $18,650 ====== ======= =======
An explanation for each of the adjustments for prior period corrections is described below: Asset corrections - The increase in total admitted assets is the result of a) an increase in reinsurance recoverable related to the reversal of an accrued liability; b) an adjustment of an intangible asset resulting from the sale of the Canadian Branch of American Home Assurance Company; c) an increase in admitted assets due to Association's underutilization of reserves to offset the aged premium receivable in their nonadmitted penalty determination; partially offset by d) a decrease in reinsurance recoverable due to an increase in the related contingency reserve; and e) a decrease in reinsurance recoverable on paid losses related to miscoded ceded reinsurance. Liability corrections - The increase in total liabilities is primarily the result of a) an increase in loss reserves resulting from errors identified during the completion of a reserve substantiation study, b) an increase in IBNR related to asbestos business and in the calculation of the insolvent and commute estimate, c) an increase in taxes, licenses, and fees related to workers' compensation surcharges, d) an increase in ceded reinsurance premiums payable resulting from unrecorded profit commission, e) an increase in intercompany payables due to prior year costs incurred from the development of a claims systems; and f) an increase to the unpaid loss reserves resulting from miscoded ceded reinsurance on a facultative claim; partially offset by g) a correction to the historical loss provision for balances previously charged off. -------------------------------------------------------------------------------- 23 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- Income tax corrections - The decrease in taxes is primarily the result of a) corrections to prior period balances for adjustments to the current and deferred tax assets and liabilities and b) the tax effect of the corresponding change in asset and liability corrections. 3. Investments -------------------------------------------------------------------------------- A. Bond Investments -------------------------------------------------------------------------------- The reconciliation from carrying value to fair value of the Company's bond investments as of December 31, 2016 and 2015 are outlined in the table below:
Gross Gross Carrying Unrealized Unrealized Fair As of December 31, 2016: Value Gains Losses Value ------------------------ -------- ---------- ---------- ------- U.S. governments $ 161 $ 5 $ -- $ 166 All other governments 297 2 (5) 294 States, territories and possessions 1,222 50 (11) 1,261 Political subdivisions of states, territories and possessions 1,275 45 (11) 1,309 Special revenue and special assessment obligations and all non- guaranteed obligations of agencies and authorities and their political subdivisions 5,137 115 (71) 5,181 Industrial and miscellaneous 10,761 436 (111) 11,086 ------- ---- ----- ------- Total $18,853 $653 $(209) $19,297 ======= ==== ===== =======
Gross Gross Carrying Unrealized Unrealized Fair As of December 31, 2015: Value Gains Losses Value ------------------------ -------- ---------- ---------- ------- U.S. governments $ 180 $ 8 $ -- $ 188 All other governments 186 2 (3) 185 States, territories and possessions 1,058 67 -- 1,125 Political subdivisions of states, territories and possessions 1,284 52 -- 1,336 Special revenue and special assessment obligations and all non-guaranteed obligations of agencies and authorities and their political subdivisions 3,761 170 (2) 3,929 Industrial and miscellaneous 9,870 435 (126) 10,179 ------- ---- ----- ------- Total $16,339 $734 $(131) $16,942 ======= ==== ===== =======
The carrying values and fair values of bonds at December 31, 2016, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.
Carrying Fair December 31, 2016 Value Value ----------------- -------- ------- Due in one year or less $ 224 $ 224 Due after one year through five years 3,241 3,345 Due after five years through ten years 2,582 2,619 Due after ten years 4,206 4,228 Structured securities 8,608 8,888 ------- ------- Total bonds $18,861 $19,304 ======= =======
-------------------------------------------------------------------------------- 24 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- B. Mortgage Loan Investments -------------------------------------------------------------------------------- The minimum and maximum lending rates for mortgage loans during 2016 were:
Minimum Maximum Category Lending Rate % Lending Rate % -------- -------------- -------------- Retail 2.9% 4.9% Office 3.8% 4.7% Industrial 3.6% 4.1% Multi-Family 3.4% 5.2% Hotel/Motel 4.4% 4.7% Other Commercial 6.5% 6.5% === ===
The maximum percentage of any one loan to the value of security at the time of the loan, exclusive of insured or guaranteed or purchase money mortgages was 73.77 percent. All of the mortgage loans were in good standing as of December 31, 2016. The Company did not have any advanced amounts for taxes or assessments. The following table details an analysis of mortgage loans as of December 31, 2016 and 2015:
Residential Commercial ----------------- --------------------------- Farm Insured All Other Insured All Other Mezzanine Total ---- ------- --------- ------- --------- --------- ------ 2016 Recorded Investment Current $-- $-- $-- $-- $1,895 $-- $1,895 2015 Recorded Investment Current $-- $-- $-- $-- $1,185 $-- $1,185 === === === === ====== === ======
C. Loan-Backed and Structured Investments -------------------------------------------------------------------------------- The Company did not record any non-credit other than temporary impairment losses during 2016 for loan-backed and structured securities. As of December 31, 2016, the Company held loan-backed and structured securities for which it recognized $28 of credit-related OTTI during 2016 based on the present value of projected cash flows being less than the amortized cost of the securities. The following table shows the aggregate unrealized losses and related fair value relating to those securities for which an OTTI has not been recognized as of the reporting date and the length of time that the securities have been in a continuous unrealized loss position: Aggregate unrealized losses: Less than 12 Months $ 65 12 Months or longer $ 27 Aggregate related fair value of securities with unrealized losses: Less than 12 Months $2,681 12 Months or longer $ 475
The Company held structured notes as of December 31, 2016 with a total carrying value of $81. There were no structured notes held as of December 31, 2016 which were considered mortgage-referenced securities. -------------------------------------------------------------------------------- 25 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- D. Unrealized losses -------------------------------------------------------------------------------- The fair value of the Company's bonds and stocks that had gross unrealized losses (where fair value is less than amortized cost) as of December 31, 2016 and 2015 are set forth in the table below:
Less than 12 Months 12 Months or Longer Total December 31, 2016 -------------------- -------------------- -------------------- Unrealized Unrealized Unrealized Description of Securities Fair Value Losses Fair Value Losses Fair Value Losses ------------------------- ---------- ---------- ---------- ---------- ---------- ---------- U.S. governments $ 9 $ -- $ -- $ -- $ 9 $ -- All other governments 179 (6) 18 (1) 197 (7) States, territories and possessions 325 (11) -- -- 325 (11) Political subdivisions of states, territories and possessions 433 (11) -- -- 433 (11) Special revenue and special assessment obligations and all non-guaranteed obligations of agencies and authorities and their political subdivisions 2,056 (71) -- -- 2,056 (71) Industrial and miscellaneous 3,175 (73) 800 (50) 3,975 (123) ------ ----- ------ ---- ------ ----- Total bonds 6,177 (172) 818 (51) 6,995 (223) ------ ----- ------ ---- ------ ----- Affiliated -- -- 222 (41) 222 (41) Non-affiliated -- -- -- -- -- -- ------ ----- ------ ---- ------ ----- Total common stocks -- -- 222 (41) 222 (41) ------ ----- ------ ---- ------ ----- Preferred stocks 17 -- -- -- 17 -- ------ ----- ------ ---- ------ ----- Total stocks 17 -- 222 (41) 239 (41) ------ ----- ------ ---- ------ ----- Total bonds and stocks $6,194 $(172) $1,040 $(92) $7,234 $(264) ====== ===== ====== ==== ====== ===== Less than 12 Months 12 Months or Longer Total December 31, 2015 -------------------- -------------------- -------------------- Unrealized Unrealized Unrealized Description of Securities Fair Value Losses Fair Value Losses Fair Value Losses ------------------------- ---------- ---------- ---------- ---------- ---------- ---------- U.S. governments $ 8 $ -- $ -- $ -- $ 8 $ -- All other governments 102 (8) 2 -- 104 (8) States, territories and possessions 20 -- -- -- 20 -- Political subdivisions of states, territories and possessions 8 -- -- -- 8 -- Special revenue and special assessment obligations and all non-guaranteed obligations of agencies and authorities and their political subdivisions 223 (2) -- -- 223 (2) Industrial and miscellaneous 2,906 (100) 763 (63) 3,669 (163) ------ ----- ------ ---- ------ ----- Total bonds 3,267 (110) 765 (63) 4,032 (173) ------ ----- ------ ---- ------ ----- Affiliated 139 (36) 24 (5) 163 (41) Total common stocks 139 (36) 24 (5) 163 (41) ------ ----- ------ ---- ------ ----- Total stocks 139 (36) 24 (5) 163 (41) ------ ----- ------ ---- ------ ----- Total bonds and stocks $3,406 $(146) $ 789 $(68) $4,195 $(214) ====== ===== ====== ==== ====== =====
-------------------------------------------------------------------------------- 26 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- E. Realized Gains(Losses) -------------------------------------------------------------------------------- Proceeds from sales and associated gross realized gains (losses) for the years ended December 31, 2016, 2015 and 2014 were as follows:
Years ended December 31 2016 2015 2014 ----------------------- ------------------ ----------------- ----------------- Equity Equity Equity Bonds Securities Bonds Securities Bonds Securities ------ ---------- ------ ---------- ------ ---------- Proceeds from sales $3,895 $34 $3,176 $178 $2,737 $21 Gross realized gains 83 12 61 2 78 5 Gross realized losses (48) -- (34) (3) (14) (1)
F. Derivative Financial Instruments -------------------------------------------------------------------------------- The Company holds currency as well as interest rate derivative financial instruments in the form of currency swaps, interest rate swaps, and currency forwards and futures to manage risk from currency exchange rate fluctuations, and the impact of such fluctuations to surplus and cash flows on investments or loss reserves. While not accounted for under hedge accounting, the currency derivatives are economic hedges of the Company's exposure to fluctuations in the value of receipts on certain investments held by the Company denominated in foreign currencies (primarily GBP and EUR), or of the Company's exposure to fluctuations in recorded amounts of loss reserves denominated in foreign currencies (primarily JPY). Additionally, interest rate derivatives were entered into to manage risk from fluctuating interest rates in the market, and the impact of such fluctuations to surplus and cash flows on investments or loss reserves. The interest rate derivatives are cash flow hedges of the company's exposure to fluctuations in LIBOR/EURIBOR rates on investments in collateralized loan obligations. Market Risk The Company is exposed under these types of contracts to fluctuations in value of the swaps and forwards and variability of cash flows due to changes in interest rates and exchange rates. Credit Risk The current credit exposure of the Company's derivative contracts is limited to the fair value of such contracts. Credit risk is managed by entering into transactions with creditworthy counterparties and obtaining collateral. Cash Requirements The Company is subject to collateral requirements on its currency and interest rate derivative contracts. Additionally, the Company is required to make currency exchanges on fixed dates and fixed amounts or fixed exchange rates, or make a payment in the amount of foreign currency physically received on certain foreign denominated investments. For interest rate swaps, the Company is required to make payments based on a floating rate (LIBOR/EURIBOR) on a fixed payment date. The currency and interest rate derivatives do not qualify for hedge accounting. As a result, the Company's currency and interest rate contracts are accounted for at fair value and the changes in fair value are recorded as unrealized gains or losses in the Statements of Operations and Changes in Capital and Surplus until the derivative expires at which time the related unrealized amounts are recognized in Realized capital gains(losses). The Company did not apply hedge accounting to any of its derivatives for any period in these financial statements. The following tables summarize the outstanding notional amounts, the fair values and the realized and unrealized gains or losses of the derivative financial instruments held by the Company for the years ended December 31, 2016 and 2015.
Year ended December 31, 2016 December 31, 2016 --------------------- --------------------- Unrealized Outstanding Realized capital Notional Fair gains/ gains/ Derivative Financial Instrument Amount Value (losses) (losses) ------------------------------- ----------- --------- --------- ---------- Swaps $ 860 $ 28 $ 51 $ 11 Forwards 112 (3) (7) -- ---------- --------- --------- --------- Total $ 972 $ 25 $ 44 $ 11 ========== ========= ========= =========
-------------------------------------------------------------------------------- 27 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) --------------------------------------------------------------------------------
Year ended December 31, 2015 December 31, 2015 ------------------- ------------------- Unrealized Outstanding Realized capital Notional Fair gains/ gains/ Derivative Financial Instrument Amount Value (losses) (losses) ------------------------------- ----------- ------- -------- ---------- Swaps $ 1,063 $ 16 $ (12) $ 16 Forwards 177 (3) 3 (3) ---------- ------- -------- ------- Total $ 1,240 $ 13 $ (9) $ 13 ========== ======= ======== =======
G. Other Invested Assets -------------------------------------------------------------------------------- During 2016, 2015 and 2014, the Company recorded OTTI impairment losses on investments in joint ventures and partnerships of $66, $52, and $14, respectively. H. Investment Income -------------------------------------------------------------------------------- The Company had no accrued investment income receivables over 90 days past due. Investment expenses of $33, $32 and $24 were included in Net Investment Income for the years ended December 31, 2016, 2015 and 2014, respectively. I. Restricted Assets -------------------------------------------------------------------------------- The Company had securities deposited with regulatory authorities, as required by law, with a carrying value of $1,437 and $726 as of December 31, 2016 and 2015, respectively. 4. Fair Value of Financial Instruments -------------------------------------------------------------------------------- The following table presents information about financial instruments carried at fair value on a recurring basis and indicates the level of the fair value measurement as of December 31, 2016 and 2015:
2016 Level 1 Level 2 Level 3 Total ---- ------- ------- ------- ----- Bonds $ -- $255 $66 $321 Common stocks 99 -- 21 120 Derivative asset -- 29 -- 29 Derivative liabilities -- (4) -- (4) Mutual funds 3 -- -- 3 ---- ---- --- ---- Total $102 $280 $87 $469 ==== ==== === ==== 2015 Level 1 Level 2 Level 3 Total ---- ------- ------- ------- ----- Bonds $ -- $433 $56 $489 Common stocks 33 -- -- 33 Derivative asset -- 22 -- 22 Derivative liabilities -- (9) -- (9) ---- ---- --- ---- Total $ 33 $446 $56 $535 ==== ==== === ====
There were no assets carried at fair value that were transferred between Level 1 and Level 2 during 2016 and 2015. -------------------------------------------------------------------------------- 28 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- A. Fair Value Measurements in Level 3 of the Fair Value Hierarchy -------------------------------------------------------------------------------- The following tables show the balance and activity of financial instruments classified as level 3 in the fair value hierarchy for the years ended December 31, 2016 and 2015.
Purchases, Beginning Total gains Total gains Sales, Balance at (losses) (losses) Issuances, Balance at January 1, Transfers Transfers out included in included in Settlements, December 31, 2016 2016 into Level 3 of Level 3 Net Income Surplus Net 2016 ---- ---------- ------------ ------------- ----------- ----------- ------------ ------------ Bonds $56 $45 $(68) $6 $(1) $28 $66 Common stocks -- -- -- 2 -- 19 21 --- --- ---- -- --- --- --- Total $56 $45 $(68) $8 $(1) $47 $87 === === ==== == === === ===
For the year ended December 31, 2016, bonds of $45 transferred into Level 3 during 2016 because of a lack of observable market data due to a decrease in market activity for these activities. Bond Balance of $68 transferred out of Level 3 because observable market data became available for these securities.
Purchases, Beginning Total gains Total gains Sales, Balance at (losses) (losses) Issuances, Balance at January 1, Transfers Transfers out included in included in Settlements, December 31, 2015 2015 into Level 3 of Level 3 Net Income Surplus Net 2015 ---- ---------- ------------ ------------- ----------- ----------- ------------ ------------ Bonds $122 $71 $(124) $ 2 $ 5 $(20) $56 Derivatives 8 -- -- -- (4) (4) -- ---- --- ----- --- --- ---- --- Total $130 $71 $(124) $ 2 $ 1 $(24) $56 ==== === ===== === === ==== ===
For the year ended December 31, 2015, bonds of $124 which are no longer carried at fair value, were transferred out of Level 3. Bond balances of $71 were transferred into Level 3 and carried at fair value during 2015. Prior to the transfer, the securities were Level 3 but not carried at fair value. There were no bonds or common stocks carried at fair value transferred into/out of Level 3 originating in Levels 1 or 2. There were no derivative balances transferred into/out of Level 3 during 2015. The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level 3 instruments, and includes only those instruments for which information about the inputs is reasonably available to us, such as data from independent third-party valuation service providers and from internal valuation models. Because input information from third-parties with respect to certain Level 3 instruments may not be reasonably available to us, balances shown below may not equal total amounts reported for such Level 3 assets.
Fair Value at December 31, 2016 Valuation Technique Unobservable Input Range (Weighted Average) -------------------------- -------------------- ------------------ ------------------------ Assets: Bonds $40 Discounted cash flow Yield 4.91% - 5.67% (5.29%) === ==================== ===== =====================
-------------------------------------------------------------------------------- 29 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- B. Fair Value of all Financial Instruments -------------------------------------------------------------------------------- The table below details the fair value of all financial instruments except for those accounted for under the equity method as of December 31, 2016 and 2015:
Aggregate Fair Not Practicable December 31, 2016 Value Admitted Assets Level 1 Level 2 Level 3 (Carry Value) ----------------- -------------- --------------- ------- ------- ------- --------------- Bonds $19,297 $18,853 $ -- $15,636 $3,661 $-- Common stock 139 139 99 19 21 -- Derivatives - assets 29 29 -- 29 -- -- Derivatives - liabilities (4) (4) -- (4) -- -- Mortgage loans 1,893 1,895 -- -- 1,893 -- Mutual funds 3 3 3 -- -- -- Preferred stock 49 49 -- 49 -- -- Short term investments 14 14 11 3 -- -- ------- ------- ---- ------- ------ --- Total $21,420 $20,978 $113 $15,732 $5,575 $-- ======= ======= ==== ======= ====== === Aggregate Fair Not Practicable December 31, 2015 Value Admitted Assets Level 1 Level 2 Level 3 (Carry Value) ----------------- -------------- --------------- ------- ------- ------- --------------- Bonds $16,942 $16,339 $ -- $13,746 $3,196 $-- Common stock 41 41 33 8 -- -- Derivatives - assets 22 22 -- 22 -- -- Derivatives - liabilities (9) (9) -- (9) -- -- Mortgage loans 1,194 1,185 -- -- 1,194 -- Preferred Stocks 33 34 -- 33 -- -- Short term investments 36 36 25 11 -- -- ------- ------- ---- ------- ------ --- Total $18,259 $17,648 $ 58 $13,811 $4,390 $-- ======= ======= ==== ======= ====== ===
5. Reserves for Losses and Loss Adjustment Expenses -------------------------------------------------------------------------------- A roll forward of the Company's net reserves for losses and LAE as of December 31, 2016, 2015 and 2014, is set forth in the table below:
2016 2015 2014 ------- ------- ------- Reserves for losses and LAE, end of prior year $13,171 $13,429 $12,445 Incurred losses and LAE related to: Current accident year 4,377 3,776 3,958 Prior accident year 1,102 1,196 191 ------- ------- ------- Total incurred losses and LAE $ 5,479 $ 4,972 $ 4,149 ------- ------- ------- Paid losses and LAE related to: Impact of pooling restructure transaction -- -- 1,563 Current accident year (1,123) (980) (1,034) Prior accident year (5,317) (4,250) (3,694) ------- ------- ------- Total paid losses and LAE (6,440) (5,230) (3,165) ------- ------- ------- Reserves for losses and LAE, end of current year $12,210 $13,171 $13,429 ======= ======= =======
For 2016, the Company reported adverse loss and LAE net reserve development of $1,102 which includes a loss reserve discount of $152 due to accretion. The adverse development is comprised mainly of development on the Primary Workers Compensation class of business of $669, the Primary General Liability class of business of $270, the Excess Casualty class of business of $268, the Medical Malpractice class of business of $152, the Primary Commercial Auto class of business of $123, and the Programs class of business of $131. In addition, favorable prior year loss development on retrospectively rated policies was $12 as of December 31, 2016, which was offset by additional return premiums. Original estimates are adjusted as additional information becomes known regarding individual claims. As a result of the ADC, there was $514 of prior year development (net of discount) ceded to NICO. Refer to Notes 1 and 12 for further details regarding this transaction. -------------------------------------------------------------------------------- 30 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- For 2015, the Company reported adverse loss and LAE net reserve development of $1,196 which includes a loss reserve discount charge of $78 due to accretion. The adverse development is comprised of development on the Excess Casualty class of business of $457, the Primary Casualty class of business of $338, the Healthcare class of business of $143. Original estimates are increased or decreased, as additional information becomes known regarding individual claims. Included in this increase is $15 of unfavorable prior year loss development on retrospectively rated policies as of December 31, 2015, which was offset by additional premiums. For 2014, the Company reported adverse loss and LAE net reserve development of $191, which includes a loss reserve discount benefit of $15 due to changes in the payout pattern assumptions, accretion, as well as the impact of the Combined Pooling Agreement (Note 6). The adverse development is comprised of development on the Excess Casualty class of business of $87, the National Accounts class of business of $83, the Executive Liability class of business of $69 for all other lines. $120 of favorable development from the Japan branch transfer. Original estimates are increased or decreased as additional information becomes known regarding individual claims. Included in this increase is $32 of unfavorable prior year loss development on retrospectively rated policies as of December 31, 2014, which was offset by additional premiums. The Company's reserves for losses and LAE have been reduced for anticipated salvage and subrogation of $242, $189 and $190 as of December 31, 2016, 2015 and 2014, respectively. The Company paid $36, $11 and $11 in the reporting period to settle 54, 236 and 190 claims related to extra contractual obligations or bad faith claims stemming from lawsuits as of December 31, 2016, 2015 and 2014, respectively. A. Asbestos/Environmental Reserves -------------------------------------------------------------------------------- The Company has indemnity claims asserting injuries from toxic waste, hazardous substances, asbestos and other environmental pollutants and alleged damages to cover the clean-up costs of hazardous waste dump sites (environmental claims). Estimation of environmental claims loss reserves is a difficult process, as these claims, which emanate from policies written in 1986 and prior years, cannot be estimated by conventional reserving techniques. Environmental claims development is affected by factors such as inconsistent court resolutions, the broadening of the intent of policies and scope of coverage and increasing number of new claims. The Company and other industry members have and will continue to litigate the broadening judicial interpretation of policy coverage and the liability issues. If the courts continue in the future to expand the intent of the policies and the scope of the coverage, as they have in the past, additional liabilities would emerge for amounts in excess of reserves held. This emergence cannot now be reasonably estimated, but could have a material impact on the Company's future operating results or financial position. The Company has exposure to asbestos and/or environmental losses and LAE costs arising from pre-1986 general liability, product liability, commercial multi-peril and excess liability insurance or reinsurance policies as noted below:
Asbestos Losses Environmental Losses -------------------- ------------------- December 31, 2016 2015 2014 2016 2015 2014 ------------ ----- ----- ------ ---- ---- ---- Direct - Loss and LAE reserves, beginning of year $ 819 $ 969 $1,186 $149 $ 97 $ 84 Impact of pooling restructure transaction 137 -- (1) 25 -- 5 Incurred losses and LAE 37 (29) (107) 91 62 33 Calendar year paid losses and LAE (155) (121) (109) (10) (10) (25) ----- ----- ------ ---- ---- ---- Loss and LAE Reserves, end of year $ 838 $ 819 $ 969 $255 $149 $ 97 ----- ----- ------ ---- ---- ---- Assumed reinsurance - Loss and LAE reserves, beginning of year $ 264 $ 273 $ 281 $ 14 $ 13 $ 5 Impact of pooling restructure transaction 43 -- (41) 2 -- -- Incurred losses and LAE 1 33 114 (1) 1 9 Calendar year paid losses and LAE (59) (42) (81) -- -- (1) ----- ----- ------ ---- ---- ---- Loss and LAE Reserves, end of year $ 249 $ 264 $ 273 $ 15 $ 14 $ 13 ----- ----- ------ ---- ---- ---- Net of reinsurance - Loss and LAE reserves, beginning of year $ 9 $ -- $ -- $ -- $ 55 $ 51 Impact of pooling restructure transaction 2 -- -- -- -- (2) Incurred losses and LAE -- -- -- -- 37 18 Calendar year paid losses and LAE (10) 9 -- -- (92) (12) ----- ----- ------ ---- ---- ---- Loss and LAE Reserves, end of year $ 1 $ 9 $ -- $ -- $ -- $ 55 ===== ===== ====== ==== ==== ====
The Company estimates the full impact of the asbestos and environmental exposure by establishing full case basis reserves on all known losses and establishes bulk reserves for IBNR losses and LAE based on management's judgment after reviewing all the available loss, exposure, and other information. -------------------------------------------------------------------------------- 31 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- Included in the above table are loss and LAE - IBNR and bulk reserves arising from pre-1986 general liability, product liability, commercial multi-peril and excess liability insurance or reinsurance policies as noted below:
Loss Reserves LAE Reserves Asbestos ------------- ------------ December 31, 2016 2015 2016 2015 ------------ ---- ---- ---- ---- Direct basis: $444 $376 $49 $42 Assumed reinsurance basis: 68 81 8 9 Net of ceded reinsurance basis: -- 1 -- -- Loss Reserves LAE Reserves Environmental ------------- ------------ December 31, 2016 2015 2016 2015 ------------ ---- ---- ---- ---- Direct basis: $ 90 $ 67 $39 $29 Assumed reinsurance basis: 4 2 2 1 Net of ceded reinsurance basis: -- -- -- --
B. Loss Portfolio Transfer -------------------------------------------------------------------------------- Effective December 2015, certain AIG affiliated insurers (collectively, the "Reinsureds", each of which is a member of the Combined Pool) entered into four loss portfolio transfer reinsurance agreements with Eaglestone. Under these agreements, the Reinsureds ceded loss portfolio transfers of certain liabilities as follows: (1) Legacy Environmental loss reserves, (2) certain "Runoff" loss reserves, (3) certain Environmental Impairment Liability loss reserves, and (4) certain Medical Malpractice loss reserves. The total consideration paid by the Reinsureds, on a funds withheld basis, was approximately $1,490, equal to the total of the subject reserves for unearned premiums, and nominal losses and loss adjustment expenses (including IBNR). Pursuant to a permitted practice approved by the Company's regulator, the Company recognized its share of the consideration paid as paid losses, rather than as ceded premiums written and earned. Following the cession, the Company recognized a reduction in discount of $13 on the assumed loss reserves associated with one of the LPT agreements. NAIC SSAP allow for prospective accounting treatment for intercompany reinsurance agreements among companies 100% owned by a common parent provided there is no gain in surplus as a result of the transaction. Transfer of consideration in an amount equal to the statutory book value of the net reinsured liabilities ensures that there is no impact to surplus. In determining whether there was a gain in surplus as a result of the transaction, the Company excludes certain second order accounting effects, including loss reserve discounts and deferred tax effects. As a result, all of the LPT agreements are treated as prospective reinsurance by all parties to the LPTs. Effective April 2014, the Reinsureds executed two reinsurance agreements whereby the Combined Pool ceded portfolio transfers of certain Public Entity and Occupational Accident reserves to Eaglestone. Total premiums transferred as part of this transaction were $253 (equal to total reserves transferred). C. Discounting of Liabilities for Unpaid Losses or Unpaid Loss Adjustment Expenses -------------------------------------------------------------------------------- The Company discounts its workers' compensation (both tabular and non-tabular) reserves. The calculation of the Company's tabular discount is based upon the mortality table used in the 2007 US Decennial Life Table, and applying a 3.5 percent interest rate. Only case basis reserves are subject to tabular discounting. The December 31, 2016 and 2015 liabilities include $1,619 and $1,243 of such discounted reserves, respectively. -------------------------------------------------------------------------------- 32 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- Tabular Reserve Discount -------------------------------------------------------------------------------- The table below presents the amount of tabular discount applied to the Company's reserves as of December 31, 2016, 2015 and 2014.
Lines of Business 2016 2015 2014 ----------------- ---- ---- ---- Workers' Compensation Case Reserves $96 $191 $187
Non-Tabular Discount -------------------------------------------------------------------------------- The Company's non-tabular workers' compensation case reserves are discounted using the Company's own payout pattern and a 5 percent interest rate, as prescribed by NY SAP. The table below presents the amount of non-tabular discount applied to the Company's reserves as of December 31, 2016, 2015 and 2014.
Lines of Business 2016 2015 2014 ----------------- ---- ---- ---- Workers' Compensation Case Reserves $159 $306 $383
6. Related Party Transactions -------------------------------------------------------------------------------- A. Combined Pooling Agreement -------------------------------------------------------------------------------- As described in Note 1, effective January 1, 2016, the Combined Pooling Agreement was amended and restated among the twelve member companies. In order to rebalance the capital accounts of the companies in the Combined Pool, certain participants of the Combined Pool made distributions or received contributions of capital during February 2016. C&I distributed to AIG PC US, its parent, an amount of $700, of which $158 was an extraordinary dividend and $542 was a return of capital. Subsequently, AIG PC US made a contribution to American Home in the amount of $700. -------------------------------------------------------------------------------- 33 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- The following table shows the changes in assets, liabilities and surplus as a result of the 2016 Pooling Restructure Transaction:
Amount ------ Assets: Agents' balances or uncollected premiums $ 286 Amounts recoverable from reinsurers 51 Funds held by or deposited with reinsured companies 31 Other insurance assets 37 ------ Total Assets 405 ------ Liabilities Unearned premium reserves (net) 521 Reinsurance payable on paid losses and loss adjustment expenses 34 Reserves for losses and loss adjustment expenses (net) 2,265 Funds held by company under reinsurance treaties 227 Ceded reinsurance premiums payable 47 Other insurance liabilities 140 ------ Total Liabilities $3,234 ------ Statement of Operations and Changes in Surplus Net premiums written $ 521 Change in unearned premium reserves (521) ------ Premiums earned -- ------ Other underwriting expenses incurred 82 ------ Net income 82 ------ Total change in Surplus 82 ------ Net Impact $2,747 ------ Consideration received Securities received $ 18 Cash received 2,729 ------ Consideration Received $2,747 ------
Other underwriting expenses incurred represent the net expense allowance impact to the Company pursuant to the Combined Pooling Agreement. The Company received a permitted practice from the domiciliary state that resulted in the reporting of consideration for the transfer of undiscounted loss reserves as paid (or negative paid) losses within losses incurred, rather than presenting such amounts within premiums written and earned. This permitted practice only relates to the inception of the pooling arrangement. As a result, the consideration paid relating to unearned premium is reflected as negative premiums written, as offset by the change in unearned premium, and the consideration relating to the transfer of undiscounted loss reserves and loss adjustment expenses was recorded as negative paid losses, as offset by the change in net losses incurred. This permitted practice had no effect upon net income or surplus for the period. -------------------------------------------------------------------------------- 34 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- Statutory accounting principles allow for prospective accounting treatment for modifications to existing intercompany pooling agreements that do not result in a gain in surplus to the insurance group or to impacted companies. Transfer of both assets and the liabilities valued at statutory book value ensures that there is no impact to surplus as a result of implementing a modification to an existing pooling arrangement. Under the terms of the Combined Pooling agreement, which was approved by the individual company's Insurance Department state of domicile, all assets and liabilities were transferred at statutory book value, gross of admissibility, recoverability allowances, provisions and discount amounts. Due to the adjustment for these amounts, there were impacts to the individual companies' net income and surplus amounts, mainly due to the prescribed or permitted practices of the individual company's Insurance Department state of domicile in comparison to other states of domicile. Specifically, changes in discount resulting from the net reduction in workers' compensation reserves retained following the reduction in the Company's pooling participation were reflected as a charge to income based on the state prescribed discount rates. In addition, the Companies were compensated for any previous acquisition costs associated with unearned premium reserves that were subject to transfer, as well as certain expense reallocations that had no effect to the Combined Pool. As a result of the transaction, the Company recorded an increase/(decrease) in its Assets, Liabilities, Surplus and Net Income subsequent to the changes associated with the net consideration received (described above), yet inclusive of the change in discount, acquisition costs and expense reallocation adjustments as follows:
Net Admitted Line Description Assets Liabilities Surplus Net Income ---------------- ------------ ----------- ------- ---------- Change in nonadmitted assets $-- $-- $(21) $ -- Worker's compensation discount -- -- 83 83 Other allocations -- -- (20) (14) --- --- ---- ---- Total $-- $-- $ 42 $ 69 === === ==== ====
B. American International Overseas Association -------------------------------------------------------------------------------- AIG formed the Association, a Bermuda unincorporated association, in 1976, as the pooling mechanism for AIG's international general insurance operations. In exchange for membership in the Association at the assigned participation, the members contributed capital in the form of cash and other assets, including rights to future business written by international operations owned by the members. The legal ownership and insurance licenses of these international branches remain in the name of applicable Association members, New Hampshire, American Home and National Union. At the time of forming the Association, the member companies entered into a reinsurance agreement, cancelable with six months written notice by any member. The reinsurance agreement governs the insurance business pooled in the Association. The 2016, 2015 and 2014 participation percentages for the Association pool member companies are set forth in the table below:
NAIC Co. Participation Member Company Code Percent -------------- -------- ------------- Combined Pool Member companies, as follows: National Union 19445 78% New Hampshire 23841 12% American Home 19380 10% ===== ==
The Company's participation in the Association is pooled among all Pool members in proportion to their participation in the Combined Pool. The Association's fiscal year end is November 30. Although the fiscal year end for the members of the Company is December 31, their financial statements have historically and consistently reported the results of their participation in the Association as of the Association's fiscal year end (and therefore on a one month lag). -------------------------------------------------------------------------------- 35 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- The Company's participation in the Association's assets and liabilities at December 31, 2016 and 2015 was as follows:
December 31, 2016 2015 ------------ ------ ------ Assumed reinsurance premiums receivable $ 351 $ 235 Funds held by ceding reinsurers 155 167 Reinsurance recoverable 60 67 Equity in underwriting pools and associations 40 12 ------ ------ Total assets 606 481 ------ ------ Loss and LAE reserves 715 609 Unearned premium reserves 302 276 Funds held 17 19 Ceded balances payable 101 70 Assumed reinsurance payable 176 98 Other liabilities 15 11 ------ ------ Total liabilities 1,326 1,083 ------ ------ Total surplus (deficit) $ (720) $ (602) ====== ======
The Company's cash flow includes the impact of cash collected and paid by Association. The net impact of operating cash collected (paid) by Association for the year ended December 31, 2016, 2015, and 2014 was $(25), $73, and $113, respectively, which are included as part of the Equities in underwriting pools and associations on the Statement of Cash Flows. C. Significant Transactions -------------------------------------------------------------------------------- The following table summarizes transactions (excluding reinsurance and cost allocation transactions) that occurred during 2016, 2015 and 2014 between the Company and affiliated companies in which the value exceeded one-half of one percent of the Company's admitted assets as of December 31, 2016, 2015 and 2014:
Assets Assets Received Transferred by the by the 2016 Company Company ---- ------------------------- --------------------- Explanation of Name of Statement Statement Date of Transaction Transaction Affiliate Value Description Value Description ------------------- -------------- ----------------- --------- --------------- --------- ----------- Receivable for Capital 01/25/16 Contribution(a) AIG PC US $650 Securities $ -- -- 02/29/16 Capital AIG PC US Securities -- Contribution 700 -- 06/30/16 Dividend AIG PC US -- -- 300 Securities 09/30/16 Dividend AIG PC US -- 300 Securities Various Sale of The Variable Cash Securities Annuity Life Insurance Company 310 310 Various Purchase of American General Securities/Cash Securities Securities Life Insurance Company 187 187
(a)Refer to Note 11 for more details -------------------------------------------------------------------------------- 36 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) --------------------------------------------------------------------------------
Assets Assets Received Transferred by the by the 2015 Company Company ---- --------------------- --------------------- Date of Statement Statement Transaction Explanation of Transaction Name of Affiliate Value Description Value Description ----------- -------------------------- -------------------------------- --------- ----------- --------- ----------- 2/2/2015 Dividend AIG PC US $ -- -- $600 Cash 3/27/2015 Purchase of securities AIG 149 Securities 149 Cash 4/20/2015 Sale of securities National Union 180 Cash 180 Securities 5/1/2015 Purchase of securities National Union 171 Securities 171 Cash 5/15/2015 Sale of securities Eaglestone 164 Cash 164 Securities 5/15/2015 Purchase of securities Eaglestone 164 Securities 164 Cash 6/29/2015 Dividend AIG PC US -- -- 286 Securities 6/29/2015 Dividend AIG PC US -- -- 14 Cash 6/30/2015 Parent loan (a) AIG PC US 211 Cash -- -- 7/1/2015 Repayment of Parent loan AIG PC US -- -- 211 Cash 8/10/2015 Sale of securities National Union 244 Cash 244 Securities 8/28/2015 Dividend AIG PC US -- -- 300 Cash Securities transferred American General Life Insurance Private Securities 12/31/2015 Company 362 Equity 362 12/31/2015 Capital Contribution (b) AIG PC US 650 Receivables -- -- (a)Refer to Note 6H for more details on the Parent loan. (b)Refer to Note 11 for more details Assets Assets Received Transferred by the by the 2014 Company Company ---- --------------------- --------------------- Date of Statement Statement Transaction Explanation of Transaction Name of Affiliate Value Description Value Description ----------- -------------------------- -------------------------------- --------- ----------- --------- ----------- 1/17/2014 Capital Contribution (a) AIG PC US $1,293 Securities $ -- -- 1/17/2014 Capital Contribution (a) AIG PC US 1 Cash -- -- 1/17/2014 Capital Changes (a) AIG PC US 9 In Kind -- -- 4/1/2014 Dividend (b) AIG PC US -- -- 234 Securities 12/19/2014 Dividend AIG PC US -- -- 150 Cash 12/31/2014 Capital Contribution (c) AIG PC US 21 In Kind -- -- Various Purchase of securities C&I 629 Securities 630 Various Various Purchase of securities ISOP 648 Securities 654 Cash Various Purchase of securities NHIC 582 Securities 585 Cash (a)2014 Pooling Restructure Transaction (b)Refer to Note 6D for more details on the Company's Japan Branch Conversion (c)Refer to Note 1E, Income Taxes, for more detail
D. Restructuring Foreign Operations -------------------------------------------------------------------------------- In 2015, as part of its efforts to simplify the legal entity structure, enhance transparency and streamline financial visibility, AIG PC continued to restructure the foreign branch operations of the Pool members. Generally, the results of these foreign branch operations, with the exception of American Home's Japan and Argentina branches, were historically reported as part of the operations of the Association by its member companies. The U.S. member companies of the Association share their participation with the other members of the Combined Pool. Seven branches formerly consolidated through the Association were directly consolidated to their direct member owner. With the exception of Argentina, Jamaica and Dubai, the branches are subject to the Combined Pooling Agreement. -------------------------------------------------------------------------------- 37 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- Purchase of SCA -------------------------------------------------------------------------------- As part of its legal entity simplification efforts, on April 1, 2015, the Company issued a $122 promissory note to AIU as consideration for the purchase of AIG Insurance Company China Limited. AIU distributed the promissory note within the AIG group of companies, and the promissory note was returned to the Company as a capital contribution. Japan Branch Conversion -------------------------------------------------------------------------------- On April 1, 2014, The Company transferred substantially all the assets and liabilities of its Japan Branch to American Home Assurance Co. Ltd. ("AHJ"), a Japanese-domiciled insurance company that is 100% owned by AIG Property Casualty International ("PCI"), in exchange for 1,000 Class A shares of AHJ ("the AHJ Shares"). The AHJ Shares received by American Home were then distributed to AIG and such shares were further distributed to AIG PC and then contributed to PCI as capital contributed from AIG PC. The fair value for the AHJ shares was $234 equal to the fair value of the branch on the effective date of transfer. The remainder of the assets and liabilities were transferred on April, 26, 2016. The following reflects the impact of American Home's Japan Branch transfer (at statement value) on American Home's statutory financial statements during 2014:
Net Impact ---------- Assets Cash and invested assets $(895) Agents' balances or uncollected premiums (34) Reinsurance recoverable on loss payments (29) Receivables from parent, subsidiaries and affiliates (3) Other admitted assets (16) ----- Total admitted assets (977) ----- Liabilities Reserves for losses and LAE (181) Unearned premium reserves (385) Commissions, premium taxes and other expenses payable (9) Reinsurance payable on paid loss and LAE (33) Funds held by company under reinsurance treaties (4) Other liabilities (83) ----- Total liabilities (695) ----- Net assets $(284) ----- Statement of Operations Premium written $(567) ----- Premiums earned (181) Losses incurred (181) Net realized capital gains - investment 26 Net realized capital (losses) - foreign exchange (39) Net realized capital (losses) - other (96) ----- Net Income / (Loss) (109) ----- Change in unrealized capital (loss) (26) Change in unrealized foreign exchange 39 Change in nonadmitted assets 46 ----- Total change in capital and surplus (50) ----- Net Impact (234) ----- Dividends to stockholder $(234) -----
The impact on net income from the transaction includes a net realized loss of $109 comprised of the difference between the statutory net assets transferred, adjusted for nonadmitted assets (primarily capitalized EDP costs) of $96, the fair value of the stock distributed, to a loss on the realization of foreign exchange net assets $39, partially offset by the gain on the sale of invested assets of $26. -------------------------------------------------------------------------------- 38 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- The Company and AHJ followed a statutory notice procedure, provided for under Japanese law, to facilitate the transfer of the branch's in-force business to AHJ without the need to obtain consent from each policyholder or ceding company individually. Based on the responses received during the notice procedure, the Company and AHJ determined that eligible policyholders effectively consented to the transfer. As a result, the completion of the notice procedure resulted in complete extinguishment of American Home's obligations under insurance policies eligible for transfer under the notice procedure. AHJ agreed to assume primary responsibility (including policy administration and claims handling) for the policies not eligible under the notice procedure (the "Excluded Policies"), and further agreed to indemnify, defend and hold harmless the Company for any costs or expense the Company incurs with respect to such policies. In addition, AIG Japan Holding Kabushiki Kaisha ("AIGJHKK"), an affiliated company which owns 100% of AHJ, has agreed to guarantee AHJ's obligations to indemnify the Company for any costs or expenses arising from the Excluded Policies after the transfer date. As a result of AHJ's assuming primary responsibility for the Excluded Policies and the Company's determination that it is probable that the Company will not be called upon to make any payments with respect to the Excluded Policies, the Company has reduced its loss reserves on such policies to zero from the effective date of the transfer. There were approximately $18 and $32 in loss reserves on Excluded Policies recorded by AHJ as of December 31, 2016 and 2015, respectively. E. Amounts Due to or from Related Parties -------------------------------------------------------------------------------- At December 31, 2016 and 2015, the Company reported the following receivables/payables balances from/to its Ultimate Parent, subsidiaries and affiliates (excluding reinsurance transactions). Intercompany agreements have defined settlement terms and related receivables are reported as nonadmitted if balances due remain outstanding more than ninety days past the due date as specified in the agreement.
As of December 31, 2016 2015 ------------------ ---- ---- Balances with National Union $ -- $ 29 Balances with other member pool companies 1 1 Balances with other affiliates 12 654 ---- ---- Receivable from parent, subsidiaries and affiliates $ 13 $684 ---- ---- Balances with National Union $406 $ 14 Balances with other member pool companies 3 1 Balances with other affiliates 60 190 ---- ---- Payable to parent, subsidiaries and affiliates $469 $205 ==== ====
Federal and foreign income taxes recoverable (payable) under the Tax Sharing Agreement at December 31, 2016 and 2015 were $87 and $(5), respectively. The Company did not change its methods of establishing terms regarding any transactions with its affiliates during the years ended December 31, 2016 and 2015. -------------------------------------------------------------------------------- 39 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- F. Guarantees or Contingencies for Related Parties -------------------------------------------------------------------------------- The Company has issued guarantees whereby it unconditionally and irrevocably guarantees all present and future obligations and liabilities arising from the policies of insurance issued by certain insurers who, as of the guarantee issue date, were members of the AIG holding company group. The guarantees were provided in order to secure or maintain the guaranteed companies' rating status issued by certain rating agencies, as disclosed in Note 10. G. Management, Service Contract and Cost Sharing Arrangements -------------------------------------------------------------------------------- As an affiliated company of AIG, the Company utilizes centralized services from AIG and its affiliates. The Company is allocated a charge for these services, based on the amount of incremental expense associated with operating the Company as a separate legal entity. The amount of expense allocated to the Company each period was determined based on an analysis of services provided to the Company. The following table summarizes fees incurred related to affiliates that exceeded one-half of one percent of the Company's admitted assets during 2016, 2015 and 2014:
Affiliates 2016 2015 2014 ---------- ---- ---- ---- AIG Global Claims Services, Inc. $173 $250 $265 AIG PC Global Services, Inc.* -- 166 153 ---- ---- ---- Total $173 $416 $418 ==== ==== ====
* AIG PC Global Services, Inc. is below one-half of one percent in 2016 is presented to show prior years In 2016, 2015 and 2014 management service costs included severance expenses pertaining to an AIG-wide initiative to centralize work streams into lower cost locations and create a more streamlined organization. As of December 31, 2016 and 2015, short-term investments included amounts invested in the AIG Managed Money Market Fund of $3 and $11, respectively. H. Borrowed Money -------------------------------------------------------------------------------- The Company (among other affiliates) is a borrower under a Loan Agreement, dated December, 2014, with AIG, as lender, pursuant to which the Company may borrow funds from AIG from time to time (the "Loan Facility"). The aggregate amount of all loans that may be outstanding to the Company under the Loan Facility at a given time is $500. As of December 31, 2016, the Company had no outstanding liability. As of December 31, 2015, the Company had an outstanding liability in the amount of $30 due to AIG, which was settled in January 2016. Principal amounts are due on the one year anniversary of the date on which the loan was made. At the option of the Company, early repayment may be made. Interest at a rate equal to LIBOR + 15bps is required to be paid annually. Significant debt terms and covenants include the following: . The Company must preserve and maintain its legal existence while maintaining all rights, privileges and franchises necessary to the normal conduct of its business; . The Company must take, or cause to be taken, all other actions reasonably necessary or desirable to preserve and defend the rights of the Lender to payment hereunder, and to assure to the Lender the benefits hereof and; . The Company must not merge with or into or consolidate with any other person, sell, transfer or dispose of all or substantially all of its assets or undergo any change in the control of its voting stock unless (a) such merger or consolidation is with or into a wholly-owned subsidiary of Lender, (b) such sale or transfer is to a wholly-owned subsidiary of the Lender or (c) the Company receives the prior written authorization from the Lender. There have been no violations of the terms and covenants associated with the debt issuance. -------------------------------------------------------------------------------- 40 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- 7. Reinsurance -------------------------------------------------------------------------------- In the ordinary course of business, the Company may use both treaty and facultative reinsurance to minimize its net loss exposure to a) any single catastrophic loss event; b) to an accumulation of losses from a number of smaller events; or c) to provide greater risk diversification. In addition, the Company assumes reinsurance from other insurance companies. Based on the terms of the reinsurance contracts, a portion of expected IBNR losses will be recoverable in accordance with terms of the reinsurance protection purchased. This determination is necessarily based on the estimate of IBNR and accordingly, is subject to the same uncertainties as the estimate of IBNR. Ceded amounts related to paid and unpaid losses and loss expenses with respect to these reinsurance agreements are generally substantially collateralized. The Company remains liable to the extent that the reinsurers do not meet their obligation under the reinsurance contracts after any collateral is exhausted, and as such, the financial condition of the reinsurers is regularly evaluated and monitored for concentration of credit risk. The following table presents direct, assumed reinsurance and ceded reinsurance written and earned for the year ended December 31, 2016, 2015 and 2014:
Years Ended December 31, 2016 2015 2014 ------------------------ ------------------------ ------------------------ ------------------------ Written Earned Written Earned Written Earned ------- ------ ------- ------ ------- ------ Direct premiums $ 715 $ 481 $ 576 $ 378 $ (211) $ 172 Reinsurance premiums assumed: Affiliates 8,658 8,182 7,714 7,503 7,799 7,460 Non-affiliates 311 217 109 160 134 129 ------ ------ ------ ------ ------ ------ Gross premiums 9,684 8,880 8,399 8,041 7,722 7,761 ------ ------ ------ ------ ------ ------ Reinsurance premiums ceded: Affiliates 1,513 1,169 1,118 972 764 713 Non-affiliates 1,903 1,659 1,572 1,574 1,458 1,454 ------ ------ ------ ------ ------ ------ Net premiums $6,268 $6,052 $5,709 $5,495 $5,500 $5,594 ====== ====== ====== ====== ====== ====== 2014 Direct Written Premiums included the impact of ($726) reserve transfer due to the Japan Branch Conversion.
As of December 31, 2016 and 2015, and for the years then ended, the Company's unearned premium reserves, paid losses and LAE, and reserves for losses and LAE (including IBNR), have been reduced for reinsurance ceded as follows:
Unearned Premium Paid Losses and Reserves for Losses Reserves LAE and LAE ---------------- --------------- ------------------- December 31, 2016: Affiliates $1,007 $ 64 $10,436 Non-affiliates 700 275 7,865 ------ ---- ------- Total $1,707 $339 $18,301 ====== ==== ======= December 31, 2015: Affiliates $ 663 $ 86 $ 9,417 Non-affiliates 455 252 2,688 ------ ---- ------- Total $1,118 $338 $12,105 ====== ==== =======
-------------------------------------------------------------------------------- 41 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- A. Reinsurance Return Commission -------------------------------------------------------------------------------- The maximum amount of return commission which would have been due to reinsurers if all of the Company's reinsurance had been cancelled as of December 31, 2016 and 2015 with the return of the unearned premium reserve is as follows:
Assumed Reinsurance Ceded Reinsurance Net --------------------------------- --------------------------------- -------------------------------- Premium Reserve Commission Equity Premium Reserve Commission Equity Premium Reserve Commission Equity --------------- ----------------- --------------- ----------------- --------------- ----------------- December 31, 2016 Affiliates $4,420 $750 $1,007 $160 $3,413 $590 All Other 139 24 700 111 (561) (87) ------ ---- ------ ---- ------ ---- Total $4,559 $774 $1,707 $271 $2,852 $503 ====== ==== ====== ==== ====== ==== December 31, 2015* Affiliates $3,943 $623 $ 663 $132 $3,280 $491 All Other 45 7 455 90 (410) (83) ------ ---- ------ ---- ------ ---- Total $3,988 $630 $1,118 $222 $2,870 $408 ====== ==== ====== ==== ====== ====
* The table above has been revised to correct the assumed and ceded reinsurance commission equity balances as of December 31, 2015. Affiliate commission equity ceded and net have been adjusted by $270 and ($133), respectively. Non affiliate commission equity ceded and net have been adjusted by $185 and ($184), respectively. All other adjustments are not considered significant. There was no impact from these adjustments to the Company's asset, liability or surplus positions for the current or prior years. B. Unsecured Reinsurance Recoverable -------------------------------------------------------------------------------- The aggregate unsecured reinsurance balances (comprising recoverables for paid and unpaid losses and LAE and unearned premium reserves) in excess of three percent of policyholders' surplus at December 31, 2016 and 2015 with respect to an individual reinsurer, and each of such reinsurer's related group members having an unsecured aggregate reinsurance balance with the company, are as follows:
Reinsurer 2016 2015 --------- ------- ------ Affiliates: Combined Pool (a) $ 9,027 $7,856 Eaglestone 986 903 Other affiliates 54 13 ------- ------ Total affiliates 10,067 8,772 ------- ------ Swiss Reinsurance America Corp 590 397 Munich Reinsurance Group (b) 227 -- Berkshire Hathaway Group (b) 1,025 -- ------- ------ Total Non-affiliates 1,842 397 ------- ------ Total affiliates and non-affiliates $11,909 $9,169 ======= ======
(a)Includes intercompany pooling impact of $812 related to Unearned Premium Reserve, $8,049 related to Reserves for Losses and LAE and $23 related to Paid losses and LAE as of and for the year ended December 31, 2016, and $448, $7,240, and $27, respectively, as of and for the year ended December 31, 2015. (b)Munich Reinsurance Group and Berkshire Hathaway Group were below 3% in 2015. C. Reinsurance Recoverable in Dispute -------------------------------------------------------------------------------- At December 31, 2016 and 2015, the aggregate of all disputed items did not exceed ten percent of capital and surplus and there were no amounts in dispute for any single reinsurer that exceeded five percent of capital and surplus. The total reinsurance recoverable balances in dispute are $86 and $78 as of December 31, 2016 and 2015, respectively. -------------------------------------------------------------------------------- 42 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- D. Reinsurance Agreements Qualifying for Reinsurer Aggregation -------------------------------------------------------------------------------- In 2011, the Combined Pool companies entered into a loss portfolio transfer reinsurance agreement with Eaglestone, an affiliate, which provides coverage up to a limit of $5,000 for the Pool's net asbestos exposures. Effective the same date, Eaglestone retroceded the majority of this exposure to NICO, an unaffiliated company. National Indemnity provides coverage up to a limit of $3,500 for subject business covered under the agreement. National Indemnity administers claims and pursues amounts recoverable from the Combined Pool companies' reinsurers with respect to paid losses and loss adjustment expenses. To the extent that the prior reinsurers pay, the amounts are collected and retained by National Indemnity. National Indemnity maintains funds in trust for the benefit of Eaglestone under the contract; as of December 31, 2016 and 2015 the amount in trust was $3,135 and $2,768, respectively. The amount of the unexhausted limit under the National Indemnity agreement as of December 31, 2016 and 2015 was $1,353 and $1,338, respectively. The Company has accounted for its cession to Eaglestone as prospective reinsurance. During 2015, the Combined Pool completed a commutation with Transatlantic Reinsurance Company and its subsidiaries ("Transatlantic") associated with both ceded and assumed reinsurance agreements covering the amounts due under, or in connection with, 1986 and prior reinsurance agreements and U.S. asbestos claims under 1987 and later reinsurance agreements. A total of $400 was paid by Transatlantic as a net commutation payment. A significant portion of the commuted arrangements related to asbestos losses that are subject to the retroactive reinsurance agreement with National Indemnity. Of the total consideration, Transatlantic paid $350 directly to National Indemnity pursuant to the Company's arrangement whereby National Indemnity administers the claims, bills and collects directly from reinsurers. The Combined Pool recognized a loss of $44 related to the portion of the commutation arrangement retained by the Combined Pool member companies, of which the Company's pool share was $13. 8. Income Taxes -------------------------------------------------------------------------------- At December 31, 2016, the Company recorded gross deferred tax assets ("DTA") of $1,748. A valuation allowance was established on deferred tax assets net of liabilities of $32 as it is management's belief that certain assets will not be realized in the foreseeable future. Tax planning strategies had no impact on the determination of the net admitted DTA. The components of the Company's net deferred tax assets/liabilities ("DTA"/"DTL") as of December 31, 2016 and 2015 are as follows:
12/31/2016 12/31/2015 Change ----------------------- ----------------------- --------------------- Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total -------- ------- ------ -------- ------- ------ -------- ------- ----- Gross DTA $1,556 $192 $1,748 $1,423 $166 $1,589 $133 $ 26 $159 Statutory Valuation Allowance -- 32 32 -- -- -- -- 32 32 ------ ---- ------ ------ ---- ------ ---- ---- ---- Adjusted Gross DTA 1,556 160 1,716 1,423 166 1,589 133 (6) 127 Nonadmitted DTA 387 -- 387 250 -- 250 137 -- 137 ------ ---- ------ ------ ---- ------ ---- ---- ---- Subtotal Admitted DTA 1,169 160 1,329 1,173 166 1,339 (4) (6) (10) DTL 328 160 488 293 200 493 35 (40) (5) ------ ---- ------ ------ ---- ------ ---- ---- ---- Net Admitted DTA/(DTL) $ 841 $ -- $ 841 $ 880 $(34) $ 846 $(39) $ 34 $ (5) ====== ==== ====== ====== ==== ====== ==== ==== ==== The following table shows the summary of the calculation for the net admitted DTA as of December 31, 2016 and 2015: 12/31/2016 12/31/2015 Change ----------------------- ----------------------- --------------------- Ordinary Capital Total Ordinary Capital Total Ordinary Capital Total -------- ------- ------ -------- ------- ------ -------- ------- ----- Carried back losses that reverse in subsequent three calendar years $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- Adjusted gross DTAs realizable within 36 months or 15 percent of statutory surplus (the lesser of 1 and 2 below) 841 -- 841 846 -- 846 (5) -- (5) 1. Adjusted gross DTAs realizable within 36 months 966 -- 966 846 -- 846 120 -- 120 2. 15 percent of statutory surplus -- -- 841 -- -- 869 -- -- (28) Adjusted gross DTAs that can be offset against DTLs 328 160 488 327 166 493 1 (6) (5) ------ ---- ------ ------ ---- ------ ---- ---- ---- Total DTA admitted as the result of application of SSAP 101 $1,169 160 1,329 $1,173 $166 $1,339 $ (4) $ (6) $(10) ====== ==== ====== ====== ==== ====== ==== ==== ====
-------------------------------------------------------------------------------- 43 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) --------------------------------------------------------------------------------
2016 2015 ------ ------ Ratio percentage used to determine recovery period and threshold limitation amount 362% 347% Amount of adjusted capital and surplus used to determine recovery period and threshold limitation in (2) above. $5,607 $5,795
The following table shows the components of the current income tax expense (benefit) for the periods listed:
For the years ended December 31, 2016 2015 Change -------------------------------- ---- ---- ------ Federal income tax $(45) $(14) $(31) Foreign income tax 11 4 7 ---- ---- ---- Subtotal (34) (10) (24) ---- ---- ---- Federal income tax on net capital gains 61 15 46 ---- ---- ---- Federal and foreign income taxes incurred $ 27 $ 5 $ 22 ==== ==== ====
The following table shows the components of the DTA split between ordinary and capital DTA as of December 31, 2016 and 2015:
2016 2015 Change ------ ------ ------ Ordinary Discounting of unpaid losses $ 309 $ 294 $ 15 Nonadmitted assets 61 86 (25) Unearned premium reserve 304 269 35 Bad debt expense 26 29 (3) Net operating loss carry forward 620 399 221 Foreign tax credit carry forwards 57 51 6 Deferred tax on foreign operations -- 1 (1) Investments 78 261 (183) Mortgage Contingency Reserve 23 8 15 Intangible Assets 21 -- 21 Other temporary difference 57 25 32 ------ ------ ----- Subtotal 1,556 1,423 133 Nonadmitted 387 250 137 ------ ------ ----- Admitted ordinary deferred tax assets $1,169 $1,173 $ (4) ------ ------ ----- Capital Investments $ 181 $ 146 $ 35 Unrealized capital losses 11 19 (8) Deferred loss on branch conversions -- 1 (1) ------ ------ ----- Subtotal 192 166 26 ------ ------ ----- Statutory valuation allowance adjustment 32 -- 32 ------ ------ ----- Admitted capital deferred tax assets 160 166 (6) ------ ------ ----- Admitted deferred tax assets $1,329 $1,339 $ (10) ====== ====== =====
-------------------------------------------------------------------------------- 44 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- The following table shows the components of the DTL split between ordinary and capital DTL as of December 31, 2016 and 2015:
2016 2015 Change ---- ---- ------ Ordinary Investments $124 $271 $(147) Intangible Assets 14 -- 14 Deferred Reinsurance Gain 180 -- 180 Other temporary differences 10 22 (12) ---- ---- ----- Subtotal $328 $293 $ 35 ---- ---- ----- Capital Investments $ 65 $ 81 $ (16) Unrealized capital gains 94 119 (25) Deferred Impact of branch conversions 1 -- 1 ---- ---- ----- Subtotal 160 200 (40) ---- ---- ----- Deferred tax liabilities 488 493 (5) ---- ---- ----- Net deferred tax assets/liabilities $841 $846 $ (5) ==== ==== =====
The change in net deferred tax assets is comprised of the following:
2016 2015 Change ------ ------ ------ Adjusted gross deferred tax assets $1,716 $1,589 $127 Total deferred tax liabilities (488) (493) 5 ------ ------ ---- Net deferred tax assets/ (liabilities) 1,228 1,096 132 Deferred tax assets/(liabilities) - SSAP 3 (2) Deferred tax assets/(liabilities) - unrealized 16 ---- Total change in net deferred tax $118 ==== Change in deferred tax - current year 112 Change in deferred tax - current year - other surplus items 6 ---- Change in deferred tax - current year - total $118 ====
The following table shows the components of opening surplus adjustments upon current and deferred taxes for the year ended December 31, 2016
Current Deferred Total ------- -------- ----- SSAP 3 impact: SSAP 3 - general items $(6) $ 15 $ 9 SSAP 3 - unrealized gain/loss -- (17) (17) --- ---- ---- Subtotal impact to tax admitted assets (6) (2) (8) SSAP 3 - nonadmitted impact 6 29 35 --- ---- ---- Total SSAP 3 impact $-- $ 27 $ 27 === ==== ====
-------------------------------------------------------------------------------- 45 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- The provision for federal and foreign income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The following table presents a reconciliation of such differences in arriving at total taxes related to the Company for the years ended December 31, 2016, 2015 and 2014:
2016 2015 2014 -------------------- -------------------- ------------------- Description Amount Tax Effect Amount Tax Effect Amount Tax Effect ----------- ------ ---------- ------ ---------- ------ ---------- Net Income Before Federal Income Taxes and Capital Gains Taxes $(216) $ (76) $ (70) $(24) $ 838 $293 Book to Tax Adjustments: Tax Exempt Income, net of proration (118) (41) (124) (43) (171) (60) Transfer Pricing (5) (2) (35) (12) (31) (11) Stock Options And Other Compensation -- -- -- -- 20 7 Change in Nonadmitted Assets 19 7 25 9 165 58 Change in Tax Position -- 17 -- 1 -- -- Statutory Valuation Allowance -- 32 Return to Provision -- (7) -- (1) -- 3 Reversal of Book/Tax Difference on Share Distribution -- -- -- -- 119 42 Change in contingency reserve (44) (15) (22) (8) -- -- Other 2 -- 2 3 7 3 ----- ----- ----- ---- ----- ---- Total Book to Tax Adjustments (146) (9) (154) (51) 109 42 ----- ----- ----- ---- ----- ---- Total Income Tax $(362) $ (85) $(224) $(75) $ 947 $335 ===== ===== ===== ==== ===== ==== Federal and Foreign Income Taxes Incurred -- (34) -- (10) -- (23) Federal Income Tax on Net Capital Gains -- 61 -- 15 -- 53 Change in Net Deferred Income Taxes -- (118) -- (80) -- 391 Less: Change in Deferred Tax--Other Surplus Items -- 6 -- -- -- (86) ----- ----- ----- ---- ----- ---- Total Income Tax $ -- $ (85) $ -- $(75) $ -- $335 ===== ===== ===== ==== ===== ==== For the year ended December 31, 2014, the table above includes $42 of tax effected adjustments reflecting the different treatment for book and tax purposes of the distribution of the AHJ's assets and liabilities as detailed in Note 6.
Operating loss and tax credit carry forwards At December 31, 2016, the Company had net operating loss carry forwards originating during the years 2010 to 2016 and expiring through 2036 of: $1,770 At December 31, 2016, the Company had no capital loss carry forwards. $ -- At December 31, 2016, the Company had no AMT credit carry forwards. $ -- At December 31, 2016, the Company had foreign tax credits originating during the years 2009 to 2016 and expiring through 2026 of: $ 57
There were no deposits reported as admitted assets under Section 6603 of the Internal Revenue Service (IRS) Code as of December 31, 2016. The Company does not believe that the liability related to any federal or foreign tax loss contingencies will significantly change within the next 12 months. A reasonable estimate of such change cannot be made at this time. As of December 31, 2016, the Company recorded gross receivables related to tax return errors and omissions in the amount of $185K, all of which were nonadmitted. As of December 31, 2016, there was a $15 liability related to uncertain tax positions. The U.S is the only major tax jurisdiction of the Company, and as of December 31, 2016, the tax years from 2000 to 2015 remain open. The following table lists those companies that form part of the 2016 AIG consolidated federal income tax return: -------------------------------------------------------------------------------- 46 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) --------------------------------------------------------------------------------
Company Company Company Company Company --------------------------- ---------------------- ---------------------- ------------------------ ----------------------- 245 LGC Hotel Owner A.I. Credit Consumer A.I. Credit Corp. ABI Holdings LLC AGC Life Insurance LLC Discount Company Company AGLIC GRE Harrison AH Land 1470 AH SubGP 1000 AH SubGP 1007 AH SubGP 1008 Castle Investor, LLC Palmetto, LLC Woodwind Lakes, LLC Highland Meadow, Highlands, LLC LLC AH SubGP 1020 AH SubGP 1045 AH SubGP 1098 Green AH SubGP 1120 Camp AH SubGP 1122 Collingham, LLC Montgomery, LLC Pines, LLC Verde, LLC English Oaks, LLC AH SubGP 1158 Flat Iron, AH SubGP 1167 AH SubGP 1199 AH SubGP 1207 Park AH SubGP 1210 LLC Steeplechase, LLC Rancho Del Sol, LLC Place, LLC Geronimo, LLC AH SubGP 1211 Mision AH SubGP 1212 AH SubGP 1248 North AH SubGP 1263 West AH SubGP 1384 Del Valle, LLC Painted Desert, LLC Vista, LLC Virginia, LLC Woodglen, LLC AH SubGP 1422 Gardens AH SubGP 1470 AH SubGP 1535 AH SubGP 1548 AH SubGP 1551 at Stafford, LLC Palmetto, LLC Hunter's Run, LLC Walnut, LLC Spanish Creek, LLC AH SubGP 1597 AH SubGP 1600 AH SubGP 1631 AH SubGP 1661 AH SubGP 1694 Broadmoor, LLC Rainer, LLC Broadway, LLC Woodchase, LLC Sonoma, LLC AH SubGP 206 West AH SubGP 245 AH SubGP 348 River AH SubGP 39 AH SubGP 479 Sunrise, Park, LLC Garland, LLC Run, LLC Wellington Place, LLC LLC AH SubGP 503 Southgate AH SubGP 516 AH SubGP 585 St. AH SubGP 592 AH SubGP 706 River II, LLC Merrilltown, LLC Clair, LLC Waterford at Summit Run II, LLC View, LLC AH SubGP 716 Villas of AH SubGP 785 AH SubGP 787 North AH SubGP 821 San AH SubGP 835 Mission Bend, LLC Mayfield, LLC Knoll, LLC Luis Bay, LLC Whispering, LLC AH SubGP 914 Grand AH SubGP 919 MS AH SubGP 929 AH SubGP 935 Dunlop AH SubGP 936 Pointe II, LLC Loveland, LLC Collinwood, LLC farms, LLC Emmaus, LLC AH SubGP 943 AH SubGP 997 Maxey, AH SubGP GAG AH SubGP MDL, LLC AHAC GRE Harrison Southcreek, LLC LLC Gandolf, LLC Investor, LLC AICCO, Inc. [Delaware] AIG Advisor Group, AIG Aerospace AIG Aerospace AIG Asset Management Inc. Adjustment Services, Insurance Services, Inc. (U.S.), LLC Inc. AIG Assurance Company AIG BG Holdings LLC AIG Brazil Holding I, AIG Brazil Holding II, AIG Capital LLC LLC Corporation AIG Capital Services, Inc. AIG Castle Holdings II AIG Castle Holdings AIG Central Europe & AIG Century LLC LLC CIS Insurance Holdings Verwaltungsgesellschaft Corporation mbH AIG Claims, Inc. AIG Commercial AIG Commercial AIG Consumer Finance AIG Credit (Europe) Equipment Finance Equipment Finance, Group, Inc. Corporation Company, Canada Inc. AIG Credit Corp. AIG Direct Insurance AIG Employee AIG Equipment AIG Europe Holdings Services, Inc. Services, Inc. Finance Holdings, Inc. Limited AIG FCOE, Inc. AIG Federal Savings AIG Financial Advisor AIG Financial Products AIG G5, Inc. Bank Services, Inc. Corp. AIG Global Asset AIG Global Capital AIG Global Real Estate AIG Global Real Estate AIG Global Real Estate Management Holdings Markets Securities, Investment (Europe) Investment Corp. Investment de Mexico, Corp. LLC Limited S. de R.L. de C.V. AIG GLOC Holdings AIG Holdings Europe AIG Home Loan 1, AIG Home Loan 2, AIG Home Loan 3, Corporation Limited LLC LLC LLC AIG Home Loan 4, LLC AIG Home Loan 5, AIG Insurance AIG International Inc. AIG Kirkwood, Inc. LLC Management Services, Inc. AIG Korean Real Estate AIG Latin America AIG Latin America AIG Latin America AIG Life Holdings, Inc. Development YH Holdings LLC Investments, LLC Investments, LLC Agencia en Chile AIG Life of Bermuda, AIG Lodging AIG Markets, Inc. AIG Matched Funding AIG Matched Ltd. Opportunities, Inc. Corp. Investment Program AIG MEA Investments AIG MEA Investments AIG MEA Investments AIG Mortgage Capital, AIG North America, and Services, Inc. and Services, Inc. and Services, LLC LLC Inc. [Dubai Airport Free Zone]
-------------------------------------------------------------------------------- 47 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) --------------------------------------------------------------------------------
Company Company Company Company Company -------------------------- ---------------------- ---------------------- ---------------------- ----------------------- AIG Offshore Systems AIG PC European AIG PC Global AIG PC Global AIG Portfolio Solutions Services, Inc. Insurance Investments Services, Inc. Services, Inc. United LLC Inc. Kingdom branch AIG Procurement AIG Property Casualty AIG Property Casualty AIG Property Casualty AIG Property Casualty Services, Inc. Company Europe Financing Inc. International, LLC Limited AIG Property Casualty AIG Real Estate AIG Realty, Inc. AIG Relocation, Inc. AIG S1, Inc. U.S., Inc. Investment & Management Co. (P.R.), Inc. AIG Securities Lending AIG Service AIG Shared Services AIG Shared Services AIG Shared Services Corp. Department Corporation Corporation-- Corporation Management Services (Philippines Branch) AIG Specialty Insurance AIG Spring Ridge I, AIG Structured AIG Technologies, Inc. AIG Trading Group Inc. Company Inc. Mortgage Insurance Company AIG Travel Assist, Inc. AIG Travel EMEA AIG Travel Europe AIG Travel Insurance AIG Travel, Inc. Limited Limited Agency, Inc. AIG United Guaranty AIG United Guaranty, AIG Warranty Services AIG Warranty Services, AIG WarrantyGuard, Agenzia Di Assicurazione Sociedad Limitada of Florida, Inc. Inc. Inc. S.R.L. AIG.COM, Inc. AIG-FP Capital AIG-FP Capital AIG-FP Matched AIG-FP Pinestead Funding Corp. Preservation Corp. Funding Corp. Holdings Corp. AIG-FP Private Funding AIG-FP Structured AIGGRE 251 West AIGGRE 401 Hennepin AIGGRE 520 Eola (Cayman) Limited Finance (Cayman) 30th Street Investor Investor LLC Investor LLC Limited LLC AIGGRE 5th and Summit AIGGRE 6037 Investor AIGGRE 950 Second AIGGRE Beachwalk AIGGRE Bellevue II Investor LLC LLC Investor, LLC Investor LLC Investor LLC AIGGRE Bellevue AIGGRE Bonita AIGGRE Bridges/ AIGGRE Carrollton AIGGRE Cherry Creek Investor, LLC Springs Investor LLC Angeline Investor, LLC Investor LLC Investor, LLC AIGGRE City Center AIGGRE Clarity Pointe AIGGRE Clarity Pointe AIGGRE Clarity Pointe AIGGRE Columbia Investor LLC Investor LLC Platform LLC Tallahassee Investor Hotel Investor LLC LLC AIGGRE Columbia Pike, AIGGRE Consolidated AIGGRE Corte AIGGRE Crescent AIGGRE D36 Investor LLC Retail Holdco LLC Madera, LLC Bellevue Investor LLC LLC AIGGRE DC Ballpark AIGGRE Dunwoody AIGGRE Edgewater AIGGRE Emerald Bay AIGGRE EOLA, LLC Investor, LLC Investor, LLC Investor LLC Club Investor LLC AIGGRE Fairfax, LLC AIGGRE Fairways AIGGRE Forest City AIGGRE Gainesville AIGGRE Gardens Investor LLC West Village Investor, West 38 Investor LLC Investor, LLC LLC AIGGRE GT Assisted AIGGRE Hazel Dell AIGGRE Hill7 Investor AIGGRE Hyde Park, AIGGRE Island Club Living Investor, LLC Investor LLC LLC LLC Investor LLC AIGGRE King's Crossing AIGGRE Lake Norman AIGGRE Lane Field AIGGRE Laurel Towne AIGGRE Lexington Investor LLC Investor LLC Investor LLC Centre Investor LLC Hotel Investor LLC AIGGRE LSU Baton AIGGRE Maple, LLC AIGGRE Market Street AIGGRE Market Street AIGGRE Menai Rouge, LLC II LLC LLC Investments Holdco LLC AIGGRE Metro Place, AIGGRE MXIP-OD l AIGGRE MXIP-OD ll AIGGRE MXIP-OD, S. AIGGRE Mystic, LLC LLC LLC LLC de R.L. de C.V. AIGGRE Naples Investor AIGGRE Nashville AIGGRE North Central AIGGRE Oakland AIGGRE Park Central LLC Hotel Investor LLC Investor LLC Investor LLC II Investor LLC AIGGRE Park Central, AIGGRE Peachtree, AIGGRE Pearl Block AIGGRE Rancho AIGGRE Redmond LLC LLC 136 Investor LLC Dominguez Investor Investor, LLC LLC AIGGRE Retail Investor I, AIGGRE Retail AIGGRE Ritz Block AIGGRE Riverfront, AIGGRE Riverhouse LLC Investor II, LLC Investor LLC LLC Investor LLC AIGGRE Solana Olde AIGGRE St. Simons AIGGRE ST. Tropez AIGGRE Tampa AIGGRE Tampa Town Investor LLC Investor LLC Investor LLC Parkland GP, LLC Parkland, LLC AIGGRE Toringdon AIGGRE Torrance II AIGGRE Torrance, AIGGRE Uptown AIGGRE Vantage Point Investor LLC LLC LLC Village Investor LLC Investor LLC
-------------------------------------------------------------------------------- 48 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) --------------------------------------------------------------------------------
Company Company Company Company Company ------------------------- ----------------------- ------------------------ ---------------------- ----------------------- AIGGRE Vista, LLC AIGGRE Williamsburg AIGGRE Windy Ridge AIU Insurance AIUH LLC LLC Investor LLC Company Akita, Inc. Alabaster Capital LLC AM Holdings LLC Ambler Holding Corp. American Athletic Club, Inc. American Collector's American General American General American General American General Insurance LLC Annuity Service Assignment Assignment Insurance Agency, Inc. Corporation Corporation Corporation of New York American General Life American General Life American General American Home American International Insurance Company Services Company, Realty Investment Assurance Company Facilities Management, LLC Corporation Inc. American International American International American International American International Applewood Funding Facilities Management, Group, Inc. Realty Corporation Reinsurance Company, Corp. LLC Ltd. Attorneys & Professional Barnegat Funding Corp. Blackbird Investments Blackcap Investments Bluewood Investments Insurance Services, Inc. LLC LLC LLC Branch Retail Partners C&I UK Investments CAP Investor 1, LLC CAP Investor 10, LLC CAP Investor 2, LLC Consolidated, L.P. Ltd. CAP Investor 4, LLC CAP Investor 5, LLC Care Providers Castle 2003-1 Trust Castle 2003-2 Trust Insurance Services, LLC CEF Lease Holding, LLC Charleston Bay SAHP Chartis Excess Limited Chartis Iraq, Inc. Cherrywood Corp. Investments LLC Commerce and Industry Connective Mortgage Crossings SAHP Corp. Curzon Funding Curzon Funding LLC Insurance Company Advisory Company Limited Curzon Street Funding Deerfield Gillete, LLC Design Professionals DIL/SAHP Corp. Eaglestone Reinsurance Limited Association Risk Company Purchasing Group, Inc. Eastcheap Investments Eastgreen, Inc. ESPL Corp. (formerly F 2000, Inc. Financial Service (Cayman) Limited E.L.M. Insurance Corporation Brokers Inc.) First Principles Capital Fischbach L.L.C. Flamebright Investment Forest SAHP Corp. FQA Master Tenant Management, LLC Limited MM, LLC FQA, LLC French Quarter FSC Agency, Inc. FSC Securities Global Loss Prevention, Apartments Manager, Corporation Inc. LLC Global Loss Prevention, Grand Savannah SAHP Granite State Insurance Graphite Management Health Direct, Inc. Inc. [Canada] Corp. Company LLC HPIS Limited HPSC Hotel Owner Illinois National Innovative Risk Inspiration Lane LLC LLC Insurance Co. Management, Inc. Knickerbocker Lavastone Capital LLC Lexington Insurance Livetravel, Inc. Lower Makefield Corporation Company Investor LLC LSTREET I, LLC LSTREET II, LLC Macori, Inc. [Delaware] Macori, Inc. [Texas] Maksin Management Corp. Managed Care Concepts Max Bingo Investments Medical Excess Medical Excess LLC Metropolis I, LLC of Delaware, Inc. Limited Insurance Services, Inc. Metropolis II, LLC MG Reinsurance MIP Mezzanine, LLC MIP PE Holdings, LLC Morefar Marketing, Inc. Limited Mt. Mansfield Company, National Union Fire National Union Fire NCCAP Investor 18, NCCAP Investor 19, Inc. Insurance Company Of Insurance Company Of LLC LLC Pittsburgh Vermont New Hampshire Insurance Nightingale Finance Nightingale Finance NSM Holdings, Inc. NSM Insurance Group, Company Limited LLC LLC NSM Investments, Inc. OHCAP Investor 12, Orangewood Peachwood, LLC Pearce & Pearce, Inc. LLC Investments LLC Persimmon LLC Pine Street Real Estate Plumwood, LLC Prairie SAHP Corp. Quartz Holdings LLC Holdings Corp. Raptor Funding Corp. Rialto Melbourne Risk Specialists Rokland Limited Royal Alliance Investor LLC Companies Insurance Associates, Inc. Agency, Inc.
-------------------------------------------------------------------------------- 49 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) --------------------------------------------------------------------------------
Company Company Company Company Company ------------------------- ---------------------- --------------------- ---------------------- ---------------------- SA Affordable Housing, SA Investment Group, SAAHP GP Corp. SAFG Retirement SagePoint Financial, LLC Inc. Services, Inc. Inc. SAHP NCCAP 18, LLC SAHP NCCAP 19, LLC SAI Deferred Sandstone (2016) Ltd. SCSP Corp. Compensation Holdings, Inc. Service Net Retail Service Net Solutions Service Net Warranty, Seventh Street Funding Slate Capital LLC Solutions, LLC of Florida, LLC LLC LLC SN Warranty, LLC SNW Insurance SPIA I LLC Spicer Energy LLC Spicer Holding Corp. Agency, LLC Spruce Peak Realty, LLC Stoneland Limited Stowe Mountain SubGen NT, Inc. SunAmerica Affordable Holdings, Inc. Housing Partners, Inc. SunAmerica Asset SunAmerica Fund SunAmerica Fund SunAmerica Life SunAmerica Retirement Management, LLC Assets, LLC Services, Inc. Reinsurance Company Markets, Inc. The Insurance Company The United States Life The Variable Annuity Travel Guard Americas Travel Guard Group, of the State of Insurance Company in Life Insurance LLC Inc. Pennsylvania the City of NY Company U G Corporation UG Shared Services, United Guaranty United Guaranty Corp. United Guaranty Inc. Commercial Insurance Corporation Company of North Carolina United Guaranty Credit United Guaranty United Guaranty United Guaranty United Guaranty Insurance Company Insurance Company Mortgage Indemnity Mortgage Insurance Mortgage Insurance Company Company Company of North Carolina United Guaranty Partners United Guaranty United Guaranty United Guaranty VALIC Financial Insurance Company Residential Insurance Residential Insurance Services, Inc. Advisors, Inc. Company Company of North Carolina VALIC Retirement Vision2020 Wealth Webatuck Corp. Woodbury Financial Yellowwood Services Company Management Corp. Services, Inc. Investments LLC
9. Capital and Surplus and Dividend Restrictions -------------------------------------------------------------------------------- A. Dividend Restrictions -------------------------------------------------------------------------------- Under New York law, the Company may pay cash dividends only from Unassigned surplus determined on a statutory basis. New York domiciled companies are restricted (on the basis of the lower of 10 percent of statutory earned surplus as defined in NY Insurance Law section 4105, adjusted for special surplus items, as of the last statement on file with the Superintendent, or 100 percent of adjusted net investment income for the preceding thirty-six month period ended as of the last statement on file with the Superintendent) as to the amount of dividends they may declare or pay in any twelve-month period without the prior approval of the NY DFS. The maximum dividend amount the Company can pay in 2017, as of December 31, 2016 is $0. Other than the limitations above, there are no restrictions placed on the portion of Company profits that may be paid as ordinary dividends to the stockholders. -------------------------------------------------------------------------------- 50 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- The Company paid the following dividends during 2016 and 2015:
2016 State approval --------- --------------------- Date paid Amount Type of Dividend Required Obtained --------- ------ ---------------- -------- ------------ 6/30/2016 $ 300 Ordinary No Not Required 9/30/2016 300 Ordinary No Not Required ------ Total $ 600 ====== 2015 State approval --------- --------------------- Date paid Amount Type of Dividend Required Obtained --------- ------ ---------------- -------- ------------ 2/2/2015 $ 600 Extraordinary Yes Yes 6/29/2015 300 Extraordinary Yes Yes 8/28/2015 300 Extraordinary Yes Yes ------ Total $1,200 ======
B. Capital & Surplus -------------------------------------------------------------------------------- Changes in balances of special surplus funds are due to adjustments in the amounts of reserves transferred under retroactive reinsurance agreements and when cash recoveries exceed the consideration paid. The portion of Unassigned surplus at December 31, 2016 and 2015 represented or reduced by each item below is as follows:
As Adjusted* Years Ended December 31, 2016 2015 2015 ------------------------ ----- ------------ ----- Unrealized gains and losses (net of taxes) $ 20 $ 66 $ 13 Nonadmitted asset values (562) (406) (452) Provision for reinsurance (37) (34) (34)
* As Adjusted includes SSAP 3 prior year adjustments The Company exceeded minimum RBC requirements at both December 31, 2016 and 2015. 10.Contingencies -------------------------------------------------------------------------------- A. Legal Proceedings -------------------------------------------------------------------------------- The Company is involved in various legal proceedings incident to the operation of its business. Such proceedings include claims litigation in the normal course of business involving disputed interpretations of policy coverage. Other proceedings in the normal course of business include allegations of underwriting errors or omissions, bad faith in the handling of insurance claims, employment claims, regulatory activity, and disputes relating to the Company's business ventures and investments. Other legal proceedings include the following: Workers' Compensation Residual Market Assessment: In April 2007, the National Association of Insurance Commissioners (NAIC) formed a Settlement Review Working Group, directed by the State of Indiana, to review the Workers' Compensation Residual Market Assessment portion of the settlement between AIG, the Office of the New York Attorney General, and the New York State Department of Insurance. In late 2007, the Settlement Review Working Group, under the direction of Indiana, Minnesota and Rhode Island, recommended that a multi-state targeted market conduct examination focusing on workers' compensation insurance be commenced under the direction of the NAIC's Market Analysis Working Group. AIG was informed of the multi-state targeted market conduct examination in January 2008. The lead states in the multi-state examination were Delaware, Florida, Indiana, Massachusetts, Minnesota, New York, Pennsylvania and Rhode Island. All other states (and the District of Columbia) agreed to participate in the multi-state examination. The examination focused on legacy issues related to certain AIG entities' writing and reporting of workers compensation insurance between 1985 and 1996. -------------------------------------------------------------------------------- 51 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- On December 17, 2010, AIG and the lead states reached an agreement to settle all regulatory liabilities arising out of the subjects of the multistate examination. This regulatory settlement agreement, which was agreed to by all 50 states and the District of Columbia, included, among other terms, (i) AIG's payment of $100 in regulatory fines and penalties; (ii) AIG's payment of $46.5 in outstanding premium taxes and assessments; (iii) AIG's agreement to enter into a compliance plan describing agreed-upon specific steps and standards for evaluating AIG's ongoing compliance with state regulations governing the setting of workers' compensation insurance premium rates and the reporting of workers compensation premiums; and (iv) AIG's agreement to pay up to $150 in contingent fines in the event that AIG fails to comply substantially with the compliance plan requirements. In furtherance of the compliance plan, the agreement provided for a monitoring period from May 29, 2012 to May 29, 2014 leading up to a compliance plan examination. After the close of the monitoring period, as part of preparation for the actual conduct of the compliance plan examination, on or about October 1, 2014, AIG and the lead states agreed upon corrective action plans to address particular issues identified during the monitoring period. The compliance plan examination is ongoing. There can be no assurance that the result of the compliance plan examination will not result in a fine, have a material adverse effect on AIG's ongoing operations or lead to civil litigation. Accident and Health: In connection with the previously disclosed multi-state examination of certain accident and health products, including travel products, issued by National Union, AIG PC, on behalf of itself, National Union, and certain of AIG PC's insurance and non-insurance companies (collectively, the parties) entered into a Regulatory Settlement Agreement with regulators from 50 U.S. jurisdictions effective November 29, 2012. Under the agreement, and without admitting any liability for the issues raised in the examination, the parties (i) paid a civil penalty of $50, (ii) entered into a corrective action plan describing agreed-upon specific steps and standards for evaluating the parties' ongoing compliance with laws and regulations governing the issues identified in the examination, and (iii) agreed to pay a contingent fine in the event that the parties fail to satisfy certain terms of the corrective action plan. On April 29, 2016, National Union and other AIG companies achieved a settlement in principle of civil litigation relating to the conduct of their accident and health business, subject to formal documentation and court approval. The parties have accrued their current estimate of loss with respect to this settlement. On May 23, 2016, the managing lead state in the multi-state examination ordered that the companies subject to the Regulatory Settlement Agreement have "complied with the terms" of the Regulatory Settlement Agreement and that no contingent fine or civil penalty would be due. Other Proceedings: AIG is also subject to various legal proceedings which have been disclosed in AIG's periodic filings under the Securities Exchange Act of 1934, as amended, in which the Company is not named as a party, but whose outcome may nonetheless adversely affect the Company's financial position or results of operation. Except as may have been otherwise noted above with respect to specific matters, the Company cannot predict the outcome of the matters described above, reasonably estimate the potential costs related to these matters, or determine whether other AIG subsidiaries, including the Company, would have exposure to proceedings in which they are not named parties by virtue of their participation in an intercompany pooling arrangement. In the opinion of management, except as may have been otherwise noted above with respect to specific matters, the Company's ultimate liability for the matters referred to above is not likely to have a material adverse effect on the Company's financial position, although it is possible that the effect would be material to the Company's results of operations for an individual reporting period. B. Leases -------------------------------------------------------------------------------- Lease expenses are allocated to the Company based upon the percentage of space occupied with the final share of cost based upon its percentage participation in the Combined Pool. C. Other Commitments -------------------------------------------------------------------------------- As part of its hedge fund, private equity and real estate equity portfolio investments, as of December 31, 2016, the Company may be called upon for additional capital investments of up to $986. D. Guarantees -------------------------------------------------------------------------------- The Company has issued guarantees whereby it unconditionally and irrevocably guaranteed all present and future obligations and liabilities arising from the policies of insurance issued by certain insurers who, as of the guarantee issue date, were members of the AIG holding company group. The guarantees were provided in order to secure or maintain the guaranteed companies' rating status issued by certain rating agencies. The Company would be required to perform under the guarantee in the event that a guaranteed entity failed to make payments due under policies of insurance issued during the period of the guarantee. The Company has not been required to perform under any of the guarantees. The Company remains contingently liable for all policyholder obligations associated with insurance policies issued by the guaranteed entity during the period in which the guarantee was in force. -------------------------------------------------------------------------------- 52 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- Each guaranteed entity has reported total assets in excess of its liabilities and the majority have invested assets in excess of their direct (prior to reinsurance) policyholder liabilities. Additionally, the Company is party to an agreement with AIG whereby AIG has agreed to make any payments due under the guarantees in the Company's place and stead. Furthermore, for any former affiliate that has been sold, the purchaser has provided the Company with hold harmless agreements relative to the guarantee of the divested affiliate. Accordingly, management believes that the likelihood of payment under any of the guarantees is remote. The following schedule sets forth the effective and termination dates (agreements with guarantees in run off), of each guarantee, the amount of direct policyholder obligations guaranteed, the invested assets and policyholder surplus for each guaranteed entity as of December 31, 2016:
Policyholder Policyholders' Obligations @ Invested Assets Estimated Loss Surplus Guaranteed Company Issued Terminated 12/31/2016 @ 12/31/2016 @ 12/31/2016 12/31/2016 ------------------ ---------- ---------- ------------- --------------- -------------- -------------- 21st Century Advantage Insurance Company (f/k/a AIG Advantage Insurance Company ) 12/15/1997 8/31/2009 $ 1 $ 27 $-- $ 29 21st Century North America Insurance Company (f/k/a American International Insurance Company ) 11/5/1997 8/31/2009 17 558 -- 564 21st Century Pinnacle Insurance Company (f/k/a American International Insurance Company of New Jersey) 12/15/1997 8/31/2009 3 42 -- 42 21st Century Superior Insurance Company (f/k/a American International Insurance Company of California, Inc.) 12/15/1997 8/31/2009 -- 31 -- 31 AIG Edison Life Insurance Company (f/k/a GE Edison Life Insurance Company) 8/29/2003 3/31/2011 6,653 85,200 -- 2,129 American General Life and Accident Insurance Company * 3/3/2003 9/30/2010 1,489 167,547 -- 9,001 American General Life Insurance Company * 3/3/2003 12/29/2006 8,047 167,547 -- 9,001 American International Assurance Company (Australia) Limited ("AIA") ** 11/1/2002 10/31/2010 443 1,799 -- 574 Chartis Europe, S.A. (f/k/a AIG Europe, S.A.) * 9/15/1998 12/31/2012 3,965 12,991 -- 4,969 Chartis Seguros Mexico SA (f/k/a AIG Mexico Seguros Interamericana, S.A. de C.V.) * 12/15/1997 3/31/2015 208 143 -- 75 Chartis UK (f/k/a Landmark Insurance Company, Limited (UK)) * 3/2/1998 11/30/2007 181 12,991 -- 4,969 Farmers Insurance Hawaii (f/k/a AIG Hawaii Insurance Company, Inc.) 11/5/1997 8/31/2009 -- 104 -- 94 Lloyd's Syndicate 1414 (Ascot Corporate Name) 1/20/2005 10/31/2007 25 484 -- 48 SunAmerica Annuity and Life Assurance Company (Anchor National Life Insurance Company) * 1/4/1999 12/29/2006 1,148 167,547 -- 9,001 SunAmerica Life Insurance Company * 1/4/1999 12/29/2006 2,665 167,547 -- 9,001 The United States Life Insurance Company in the City of New York 3/3/2003 4/30/2010 1,091 27,960 -- 1,837 The Variable Annuity Life Insurance 3/3/2003 12/29/2006 4,661 75,842 -- 2,388 ------- -------- --- ------- Total $30,597 $888,360 $-- $53,753 ======= ======== === ======= * Current affiliates ** AIA was formerly as subsidiary of AIG, Inc. In previous years AIA provided the direct policyholder obligations as of each year end. However, starting in 2014 AIA declined to provide financial information related to these guarantees. The financial information reflects amounts as of December 31, 2012, at which time the guaranteed entities had invested assets in excess of direct policyholder obligations and were in a positive surplus position. Such amounts continue to remain the Company's best estimate given available financial information. The guaranteed policyholder obligations will decline as the policies expire.
-------------------------------------------------------------------------------- 53 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- E. Joint and Several Liabilities -------------------------------------------------------------------------------- AIU and American Home are jointly and severally obligated to policyholders of their Japan branches, in connection with transfers of the business of those Japan branches to Japan-domiciled affiliates in 2013 and 2014, respectively. Under the terms of the transfer agreement, the Japan affiliates have agreed to be responsible for 100% of the obligations associated with such policies, and management expects such companies to satisfy their obligation. The Company carries no reserves with respect to such liabilities. The Japanese affiliates carried $33 and $63 of loss reserves in respect of such policies, as of December 31, 2016 and 2015, respectively. If the Japan affiliates were to fail to satisfy their obligations, the Company's share of the aggregate exposure under the pooling agreement is $18. Each member of the Combined Pool is also jointly and severally obligated to the other pool members, in proportion to their pool share, in the event any other pool member fails. 11.Other Significant Matters -------------------------------------------------------------------------------- A. Other Assets -------------------------------------------------------------------------------- As of December 31, 2016 and 2015, other admitted assets as reported in the accompanying Statements of Admitted Assets were comprised of the following balances:
Other admitted assets 2016 2015 --------------------- ---- ---- Deposit accounting assets $ 8 $ 4 Guaranty funds receivable on deposit 8 7 Loss funds on deposit 46 38 Other assets 81 68 ---- ---- Total other admitted assets $143 $117 ==== ====
B. Other Liabilities -------------------------------------------------------------------------------- As of December 31, 2016 and 2015, other liabilities as reported in the accompanying Statements of Liabilities, Capital and Surplus were comprised of the following balances:
Other liabilities 2016 2015 ----------------- ---- ---- Accrued retrospective premiums $ 20 $ 27 Amounts withheld or retained by company for account of others 4 3 Collateral on derivative assets 37 8 Deferred commission earnings 67 34 Deposit accounting liabilities 40 60 Remittances and items not allocated 10 7 Retroactive reinsurance reserves--ceded (22) (11) Servicing carrier liability 8 5 Statutory contingency reserve 66 22 Escrow funds (NICO) 25 29 Loss reserve offset for paid claims (77) (62) Other accrued liabilities 178 213 ---- ---- Total other liabilities $356 $335 ==== ====
-------------------------------------------------------------------------------- 54 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- C. Other (Expense)/ Income -------------------------------------------------------------------------------- For the years ended December 31, 2016, 2015 and 2014, other (expense)/ income as reported in the accompanying Statements of Operations and Changes in Capital and Surplus were comprised of the following balances:
Other (expense)/ income 2016 2015 2014 ----------------------- ---- ---- ---- Other income $ 18 $ 14 $ 19 Fee income on deposit programs 7 4 4 Equities and deposits in pools and associations 2 14 6 Interest expense on reinsurance program (47) (37) (40) ---- ---- ---- Total other (expense)/ income $(20) $ (5) $(11) ==== ==== ====
D. Non- Cash items -------------------------------------------------------------------------------- For the years ended December 31, 2016, 2015 and 2014, the amounts reported in the Statements of Cash Flow are net of the following non-cash items:
Non-cash transactions 2016 2015 2014 --------------------- ----- ----- ------- Capital contribution from parent: Tax Sharing Agreement $ -- $ -- $ 21 Pooling Restructure Transaction 700 -- 1,302 Securities -- 125 -- Receivable -- 650 -- Dividends to parent: Securities (600) (286) (234) Funds Held: Premiums collected (441) (13) -- Benefit and loss related payments 244 (224) (69) Funds held (46) 301 76 Interest 114 -- -- Commission 129 (64) (7) Intercompany Pooling Settlement: Securities received 986 126 -- Securities transferred (824) (776) -- Pooling Restructure Transaction: Premiums collected -- -- 562 Miscellaneous expense (income) -- -- 51 Benefit and loss related payments -- -- 1,091 Commission and other expense paid -- -- 284 Net deposit on deposit-type contracts and other insurance -- -- (13) Intercompany 55 -- (1,976) Japan Branch Transfer: Premiums collected -- -- (392) Net investment income -- -- 2 Benefit and loss related payments -- -- (136) Commission and other expense paid -- -- (26) Securities -- -- 794 Other: Securities* 650 -- (9) ===== ===== =======
* Prior year Capital Contribution recorded as a receivable was settled in 2016 in the form of cash and securities. -------------------------------------------------------------------------------- 55 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- E. Federal Home Loan Bank ("FHLB") Agreements -------------------------------------------------------------------------------- The Company is a member of the FHLB of New York. Such membership requires ownership of stock in the FHLB. The Company owned an aggregate of $19 and $8 of stock in the FHLB at December 31, 2016 and 2015, respectively. Through its membership, the Company has conducted business activity (borrowings) with the FHLB. The Company utilizes the FHLB facility to supplement liquidity or for other uses deemed appropriate by management. The outstanding borrowings are being used primarily for interest rate risk management purposes in connection with certain reinsurance arrangements, and the balances are expected to decline as underlying premiums are collected. The Company is required to pledge certain mortgage-backed securities, government and agency securities and other qualifying assets to secure advances obtained from the FHLB. The FHLB applies a haircut to collateral pledged to determine the amount of borrowing capacity it will provide to its member. As of December 31, 2016, the Company had an actual borrowing capacity of $1,474 based on qualified pledged collateral. At December 31, 2016, the Company had borrowings of $246 from the FHLB. F. Insurance-Linked Securities -------------------------------------------------------------------------------- The Company is a ceding insurer in five catastrophe bond reinsurance transactions in force as of December 31, 2016 covering the Company's direct and assumed property exposures. The aggregate amount the Company may receive under these arrangements in the event of catastrophic events that exceed the related limits for each applicable bond is $289. 12.Subsequent Events -------------------------------------------------------------------------------- Subsequent events have been considered through April 25, 2017 for these Financial Statements issued on April 25, 2017. Type I - Recognized Subsequent Events: None Type II - Nonrecognized Subsequent Events: Adverse Development Cover On January 20, 2017, the Combined Pool entered into an adverse development reinsurance agreement with NICO under which the Combined Pool ceded to NICO eighty percent of its reserve risk above an attachment point on substantially all of its U.S. Commercial long-tail exposures for accident years 2015 and prior. Under this agreement, the Combined Pool ceded to NICO eighty percent of net paid losses on subject business on or after January 1, 2016 in excess of $25,000 of net paid losses, up to an aggregate limit of $25,000. At NICO's 80 percent share, NICO's limit of liability under the contract is $20,000. National Union, Lexington and APCC account for this transaction as retroactive reinsurance. American Home accounts for this transaction as prospective reinsurance, except that the surplus gain associated with the ADC has been reported in a segregated surplus account and does not form a part of Combined Pool's unassigned surplus. As a result, the total surplus gain recognized by the Pool, $1,113, is presented as segregated surplus and subject to the applicable dividend restrictions. American Home's share of this gain was $514. This amount must be restricted in surplus until such time as the actual retroactive reinsurance recovered from NICO exceeds the consideration paid for the cession. The Combined Pool paid consideration of approximately $10,188 in February 2017, including interest at 4 percent per annum from January 1, 2016 to date of payment. American Home's share of the consideration paid was $3,566. NICO has placed the consideration received into a collateral trust account as security for NICO's claim payment obligations, and Berkshire Hathaway Inc. has provided a parental guarantee to secure NICO's obligations under the agreement. The Combined Pool applied a permitted practice pursuant to which the initial recognition of this contract, which otherwise would have been recorded in 2017, was recorded in 2016. Real Estate Consolidation On January 31, 2017, the Company received cash proceeds of $5, $20 and $96 for the redemption of their common stock affiliate investments in Pine Street RE Holdings, Eastgreen Inc and American International Realty Corp, respectively. The Company recognized pre-tax realized capital gains of $72 on these redemptions -------------------------------------------------------------------------------- 56 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. American Home Assurance Company Statutory Basis Financial Statements (Dollars in Millions) -------------------------------------------------------------------------------- 2017 Pooling Restructure Transaction Effective January 1, 2017, the Combined Pooling Agreement was amended and restated to reflect new pool participation percentages amongst certain pool members as follows:
Pool Participation Pool Participation State of NAIC Percentage Percentage Domicile Company Company Code as of January 1, 2017 as of December 31, 2016 Domicile ------- ------------ --------------------- ----------------------- ------------ National Union Fire Insurance Company* 19445 35% 30% Pennsylvania American Home Assurance Company (American Home) 19380 35% 35% New York Lexington Insurance Company (Lexington) 19437 30% 30% Delaware AIG Property Casualty Company (APCC) 19402 0% 5% Pennsylvania Commerce and Industry Insurance Company (C&I) 19410 0% 0% New York The Insurance Company of the State of Pennsylvania (ISOP) 19429 0% 0% Illinois New Hampshire Insurance Company (New Hampshire) 23841 0% 0% Illinois AIG Specialty Insurance Company (Specialty) 26883 0% 0% Illinois AIG Assurance Company (Assurance) 40258 0% 0% Illinois Granite State Insurance Company (Granite) 23809 0% 0% Illinois Illinois National Insurance Company (Illinois National) 23817 0% 0% Illinois AIU Insurance Company (AIU) 19399 0% 0% New York
* Lead Company of the Combined Pool The Company's participation in the pool remained at 35%. As such, the change in the Combined Pooling Agreement has no effect on the Company's reported assets, liabilities, surplus, operations or cash flows. -------------------------------------------------------------------------------- 57 NOTES TO FINANCIAL STATEMENTS - As of December 31, 2016 and 2015 and for years ended December 31, 2016, 2015 and 2014. PART C -- OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements The following financial statements are included in Part B of this Registration Statement: - Audited Financial Statements of The Variable Annuity Life Insurance Company Separate Account A for the year ended December 31, 2016. - Audited Consolidated Financial Statements of The Variable Annuity Life Insurance Company for the years ended December 31, 2016, 2015 and 2014. - Audited Statutory Financial Statements of American Home Assurance Company for the years ended December 31, 2016, 2015 and 2014. (b) Exhibits (1) (a) Resolutions adopted by The Variable Annuity Life Insurance Company Board of Directors at its Annual Meeting of April 18, 1979 establishing The Variable Annuity Life Insurance Company Separate Account A..................................................................... 1 (b) Restated Resolutions dated September 1, 2002, adopted by unanimous written consent of Executive Committee of The Variable Annuity Life Insurance Company Board of Directors.......... 4 (2) Not Applicable. (3) Underwriting Agreement between The Variable Annuity Life Insurance Company, The Variable Annuity Life Insurance Company Separate Account A and A. G. Distributors, Inc......... 1 (4) (a) Form of Group Annuity Contract (Form GTS-VA-1)................................................. 1 (b) Form of Group Annuity Contract (Form GUP-64)................................................... 1 (c) Form of Group Annuity Contract (Form GUP-74)................................................... 1 (5) (a) Form of Application for Annuity Contract Forms IFA-582, GFA-582, GUP 64/74 and GTSVA.......................................................................................... 1 (b) Form of Group Master Application for Group Unit Purchase Annuity (GUP 64/74)................... 1 (c) Form of Endorsement to Nonqualified Deferred Compensation Plan................................. 3 (6) (a) Copy of Amended and Restated Articles of Incorporation of The Variable Annuity Life Insurance Company effective as of April 28, 1989............................................... 1 (b) Copy of Amendment Number One to Amended and Restated Articles of Incorporation of The Variable Annuity Life Insurance Company as amended through April 28, 1989, effective March 28, 1990................................................................................. 1 (c) Copy of Amended and Restated Bylaws of The Variable Annuity Life Insurance Company as amended through August 3, 2006................................................................. 7 (7) Not Applicable. (8) (a) General Guarantee Agreement between The Variable Annuity Life Insurance Company and American Home Assurance Company................................................................ 5 (b) Notice of Termination of General Guarantee Agreement as published in the Wall Street Journal on November 24, 2006................................................................... 8 (c)(i) Amended and Restated Unconditional Capital Maintenance Agreement Between American International Group, Inc. and The Variable Annuity Life Insurance Company effective February 18, 2014.............................................................................. 9 (c)(ii) CMA Termination Agreement effective October 31, 2014........................................... 10 (9) (a) Opinion and consent of counsel for Depositor................................................... 6 (b) Opinion of Counsel and Consent of Sullivan & Cromwell LLP, Counsel to American Home Assurance Company.............................................................................. 6 (10) Consent of Independent Registered Public Accounting Firm -- PricewaterhouseCoopers, LLP................ Filed herewith (11) Not Applicable. (12) Not Applicable. (13) Calculation of standard and nonstandard performance information........................................ 2 (14) (a) Power of Attorney -- The Variable Annuity Life Insurance Company............................... 11 (b) Power of Attorney -- American Home Assurance Company........................................... 11 (15) Supplemental Information Form which discloses Section 403(b)(11) withdrawal restrictions as set forth in a no-action letter issued by the SEC on November 28, 1988, and which form requires the signed acknowledgement of participants who purchase Section 403(b) annuities with regard to these withdrawal restrictions. 1
-------- 1 Incorporated by reference to Post-Effective Amendment No. 17 to Form N-4 Registration Statement (File No.033-75292/811-03240) of The Variable Annuity Life Insurance Company Separate Account A filed on April 26, 2000, Accession No. 0000950129-00-001969. 2 Incorporated by reference to Post-Effective Amendment No. 51 to Form N-4 Registration Statement (File No. 002-32783/811-03240) of The Variable Annuity Life Insurance Company Separate Account A filed on April 18, 1997, accession number 0000950129-97-001637. 3 Incorporated by reference to Post-Effective Amendment No. 54 to Form N-4 Registration Statement (File No. 002-32783/811-03240) of The Variable Annuity Life Insurance Company Separate Account A filed on April 28, 2000, accession number 0000950129-00-002030. 4 Incorporated by reference to Post-Effective Amendment No. 57 to Form N-4 Registration Statement (File No. 002-32783/811-03240) of The Variable Annuity Life Insurance Company Separate Account A filed on April 30, 2003, accession number 0000950129-03-002382. 5 Incorporated by reference to Post-Effective Amendment No. 62 to Form N-4 Registration Statement (File No. 002-32783/811-03240) of The Variable Annuity Life Insurance Company Separate Account A filed on August 12, 2005, accession number 0000354912-05-000048. 6 Incorporated by reference to Post-Effective Amendment No. 64 to Form N-4 Registration Statement (File No. 002-32783/811-03240) of The Variable Annuity Life Insurance Company Separate Account A filed on October 25, 2005, accession number 0000950129-05-010058. 7 Incorporated by reference to Initial Form N-4 Registration Statement (File No. 333-137942/811-03240) of The Variable Annuity Life Insurance Company Separate Account A filed on October 11, 2006, accession number 0001193125-06-206012. 8 Incorporated by reference to Post-Effective Amendment No. 67 to Form N-4 Registration Statement (File No. 002-32783/811-03240) of The Variable Annuity Life Insurance Company Separate Account A filed on May 1, 2007, accession number 0000950134-07-009700. 9 Incorporated by reference to Post-Effective Amendment No. 74 to Form N-4 Registration Statement (File No. 002-32783/811-03240) of The Variable Annuity Life Insurance Company Separate Account A filed on April 30, 2014, accession number 0001193125-14-172668. 10 Incorporated by reference to Post-Effective Amendment No. 45 to Form N-4 Registration Statement (File No. 033-75292/811-03240) of The Variable Annuity Life Insurance Company Separate Account A filed on December 23, 2014, Accession No. 0001193125-14-452203. 11 Incorporated by reference to Post-Effective Amendment No. 15 to Form N-4 (File No. 333-124398/811-03240) of The Variable Annuity Life Insurance Company Separate Account A filed on April 29, 2016, Accession No. 0001193125-16-569270. ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR The directors and principal officers of the Company are set forth below. The business address of each officer and director is 2929 Allen Parkway, Houston, Texas 77019, unless otherwise noted.
NAMES, POSITIONS AND OFFICES HELD WITH DEPOSITOR -------------------------------------------------- Kevin T. Hogan(3) Director, Chairman of the Board, Chief Executive Officer, and President Axel P. Andre Director, Senior Vice President and Chief Risk Officer Thomas J. Diemer Director, Executive Vice President and Chief Financial Officer Elias F. Habayeb(2) Director Deborah A. Gero(3) Director, Senior Vice President and Chief Investment Officer Jana W. Greer(1) Director and President, Group Retirement Michael P. Harwood Director, Senior Vice President, Chief Actuary and Corporate Illustration Actuary Stephen A. Maginn(1) Director, Senior Vice President and Chief Distribution Officer Glenn R. Harris Executive Vice President Robert J. Scheinerman Executive Vice President Eric Levy Executive Vice President Don W. Cummings(2) Senior Vice President and Controller William C. Kolbert(5) Senior Vice President and Business Information Officer Kyle L. Jennings Senior Vice President and Chief Compliance Officer Sabyasachi Ray(3) Senior Vice President and Chief Operations Officer Christine A. Nixon(1) Senior Vice President and General Counsel Yoav Tamir(1) Senior Vice President, Market Risk Management Sarah J. VanBeck Senior Vice President and Life Controller Timothy L. Gladura Vice President Marla S. Campagna(3) Vice President Julie Cotton Hearne Vice President and Secretary Manda Ghaferi(1) Vice President Tracey E. Harris Vice President, Product Filing Keith C. Honig(3) Vice President Frank Kophamel Vice President and Appointed Actuary Mallary L. Reznik(1) Vice President and Assistant Secretary T. Clay Spires Vice President and Tax Officer Daniel R. Cricks Vice President and Tax Officer Josephine B. Lowman Vice President and Tax Officer Justin J.W. Caulfield(2) Vice President and Treasurer Melissa H. Cozart Privacy Officer Becky L. Strom Anti-Money Laundering and Economic Sanctions Compliance Officer Lisa K. Gerhart Vice President and Assistant Life Controller Jennifer A. Roth(1) Vice President, 38a-1 Compliance Officer Rosemary Foster Assistant Secretary Michael Plotkin(6) Assistant Tax Officer Virginia N. Puzon(1) Assistant Secretary Laszio Kulin(4) Investment Tax Officer Alireza Vaseghi(4) Managing Director and Chief Operating Officer, Institutional Markets
-------- (1) 21650 Oxnard Street, Woodland Hills, CA 91367 (2) 175 Water Street, New York, NY 10038 (3) 777 S. Figueroa Street, Los Angeles, CA 90017 (4) 80 Pine Street, New York, NY 10005 (5) 50 Danbury Road, Wilton, CT 06897 (6) 2000 American General Way, Brentwood, TN 37027 ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR REGISTRANT The Registrant is a separate account of The Variable Annuity Life Insurance Company ("Depositor"). The Depositor is an indirect, wholly owned subsidiary of American International Group, Inc. An organizational chart for American International Group, Inc. can be found as Exhibit 21 in American International Group, Inc.'s Form 10-K, SEC File No. 001-08787, Accession No. 0000005272-17-000017, filed on February 23, 2017. Exhibit 21 is incorporated herein by reference. ITEM 27. NUMBER OF CONTRACTS OWNERS As of February 28, 2017, a date within 90 days prior to the date of filing, VALIC Separate Account A, the Registrant, offered the following contracts in connection with this Registration Statement: 115 non-qualified contracts and 18,455 qualified contracts. ITEM 28. INDEMNIFICATION Insofar as indemnification for liability arising under the Securities Act of 1933 ("Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. THE VARIABLE ANNUITY LIFE INSURANCE COMPANY To the full extent authorized by law, the corporation shall indemnify any person made, or threatened to be made, a party to an action or proceeding, whether criminal or civil, by reason of the fact that he, his testator or intestate is or was a director or officer of the corporation or serves or served in any capacity in any other corporation at the request of the corporation. Nothing contained herein shall affect any rights to indemnification to which corporate personnel other than directors and officers may be entitled by contract or otherwise under law. ITEM 29. PRINCIPAL UNDERWRITER (a) AIG Capital Services, Inc. acts as distributor for the following investment companies: AMERICAN GENERAL LIFE INSURANCE COMPANY Variable Separate Account Variable Annuity Account One Variable Annuity Account Two Variable Annuity Account Four Variable Annuity Account Five Variable Annuity Account Seven Variable Annuity Account Nine Separate Account A Separate Account D Separate Account I Separate Account II Separate Account VA-1 Separate Account VA-2 Separate Account VL-R Separate Account VUL Separate Account VUL-2 AG Separate Account A THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK FS Variable Separate Account FS Variable Annuity Account One FS Variable Annuity Account Two FS Variable Annuity Account Five Separate Account USL VA-R Separate Account USL VL-R Separate Account USL A Separate Account USL B THE VARIABLE ANNUITY LIFE INSURANCE COMPANY Separate Account A (b) Directors, Officers and principal place of business:
OFFICER/DIRECTORS* POSITION ------------------------------ ------------------------------------------------------------------ Peter A. Harbeck(1) Director Stephen A. Maginn Director, Senior Vice President James T. Nichols(1) Director, President and Chief Executive Officer Frank Curran(1) Vice President, Chief Financial Officer, Chief Operation Officer, Controller and Treasurer Rebecca Snider(2) Chief Compliance Officer John T. Genoy(1) Vice President Mallary L. Reznik Vice President Christine A. Nixon Secretary Julie A. Cotton Hearne(2) Assistant Secretary Rosemary Foster(2) Assistant Secretary Virginia N. Puzon Assistant Secretary Thomas Clayton Spires(2) Vice President, Tax Officer Michael E. Treske Chief Distribution Officer, Mutual Funds and Variable Annuities
-------- * Unless otherwise indicated, the principal business address of AIG Capital Services, Inc. and of each of the above individuals is 21650 Oxnard Street, Suite 750, Woodland Hills, CA 91367-4997. (1) Principal business address is Harborside 5, 185 Hudson Street, Jersey City, NJ 07311. (2) Principal business address 2919 Allen Parkway, Houston, TX 77019. (c) AIG Capital Services, Inc. retains no compensation or commissions from the Registrant. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS All records referenced under Section 31(a) of the1940 Act, and Rules 31a-1 through 31a-3 thereunder, are maintained and in the custody of The Variable Annuity Life Insurance Company at its principal executive office located at 2929 Allen Parkway, Houston, Texas 77019. ITEM 31. MANAGEMENT SERVICES Not Applicable. ITEM 32. UNDERTAKINGS a. VALIC hereby commits itself, on behalf of the contract owners, to the following undertakings: 1. To file a post-effective amendment to this registration statement as frequently as necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted; 2. To include as part of any application to purchase a contract offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information; 3. To deliver any Statement of Additional Information and any financial statements required to be made available under this form promptly upon written or oral request. b. The Company hereby represents that the fees and charges deducted under the contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred and the risks assumed by the Company. c. Additional Commitments The Tax Reform Act of 1986 added to the Internal Revenue Code a new section 403(b)(11) which applies to tax years beginning after December 31, 1988. This paragraph provides that withdrawal restrictions apply to contributions made and interest earned subsequent to December 31, 1988. Such restrictions require that distributions not begin before age 59 1/2, separation from service, death, disability, or hardship (only employee contributions without accrued interest may be withdrawn in case of hardship). These withdrawal restrictions appear in the Section "Federal Tax Matters" in either the prospectus or the Statement of Additional Information for contracts of this Registration Statement. The Company relies on a no-action letter issued by the Securities and Exchange Commission on November 28, 1988 stating that no enforcement action would be taken under sections 22(e), 27(c)(1), or 27(d) of the Act if, in effect, the Company permits restrictions on cash distributions from elective contributions to the extent necessary to comply with section 403(b)(11) of the Internal Revenue Code in accordance with the following conditions: (1) Include appropriate disclosure regarding the redemption restrictions imposed by section 403(b)(11) in each registration statement, including the prospectus, used in connection with the offer of the contract; (2) Include appropriate disclosure regarding the redemption restrictions imposed by section 403(b)(11) in any sales literature used in connection with the offer of the contract; (3) Instruct sales representatives who solicit participants to purchase the contract specifically to being the redemption restrictions imposed by section 403(b)(11) to the attention of the potential participants; (4) Obtain from each plan participant who purchases a section 403(b) annuity contract, prior to or at the time of such purchase, a signed statement acknowledging the participant's understanding of (1) the restrictions on redemption imposed by section 403(b)(11), and (2) the investment alternatives available under the employer's section 403(b) arrangement, to which the participant may elect to transfer his contract value. The Company has complied, and is complying, with the provisions of paragraphs (1)-(4) above. The Company relies on Rule 6c-7 of the Act which states that a registered separate account, and any depositor of or underwriter for such account, shall be exempt from the provisions of sections 22(e), 27(c)(1) and 27(d) of the Act with respect to a contract participating in this account to the extent necessary to permit compliance with the Texas Optional Retirement Program (Program) in accordance with the following conditions: (a) include appropriate disclosure regarding the restrictions on redemption imposed by the Program in each registration statement, including the prospectus, used in connection with the Program; (b) include appropriate disclosure regarding the restrictions on redemption imposed by the Program in any sales literature used in connection with the offer of the contract to Program participants; (c) instruct salespeople who solicit Program participants to purchase the contract specifically to bring the restrictions on redemption imposed by the Program to the attention of potential Program participants; (d) obtain from each Program participant who purchases the contract in connection with the Program, prior to or at the time of such purchase, a signed statement acknowledging the restrictions on redemption imposed by the Program. The Company has complied, and is complying, with the provisions of paragraphs (a)-(d) above. The Company relies on an order issued by the Securities and Exchange Commission on May 19, 1993 exempting it from the provisions of section 22(e), 27(c)(1) and 27(d) of the Act with respect to a contract participating in this account to the extent necessary to permit compliance with the Optional Retirement Program of the State University System of Florida ("Florida ORP") as administered by the Division of Retirement of the Florida Department of Management Services ("Division") in accordance with the following conditions: (a) include appropriate disclosure regarding the restrictions on redemption imposed by the Division in each registration statement, including the prospectus, relating to the contracts issued in connection with the Florida ORP; (b) include appropriate disclosure regarding the restrictions on redemption imposed by the Division in any sales literature used in connection with the offer of contracts to eligible employees; (c) instruct salespeople who solicit eligible employees to purchase the contracts specifically to bring the restrictions on redemption imposed by the Division to the attention of the eligible employees; (d) obtain from each participant in the Florida ORP who purchases a contract, prior to or at the time of such purchase, a signed statement acknowledging the participant's understanding: (i) of the restrictions on redemption imposed by the Division, and (ii) that other investment alternatives are available under the Florida ORP, to which the participant may elect to transfer his or her contract values. The Company has complied, and is complying, with the provisions of paragraphs (a)-(d) above. UNDERTAKINGS OF THE DEPOSITOR REGARDING GUARANTOR During any time there are insurance obligations outstanding and covered by the guarantee issued by American Home Assurance Company ("American Home Guarantee Period"), filed as an exhibit to this Registration Statement (the "American Home Guarantee"), the Depositor hereby undertakes to provide notice to policy owners covered by the American Home Guarantee promptly after the happening of significant events related to the American Home Guarantee. These significant events include: (i) termination of the American Home Guarantee that has a material adverse effect on the policy owner's rights under the American Home Guarantee; (ii) a default under the American Home Guarantee that has a material adverse effect on the policy owner's rights under the American Home Guarantee; or (iii) the insolvency of American Home Assurance Company ("American Home"). Depositor hereby undertakes during the American Home Guarantee Period to cause Registrant to file post-effective amendments to this Registration Statement as frequently as is necessary to ensure that the current annual audited statutory financial statements of American Home in the Registration Statement are updated to be as of a date not more than 16 months prior to the effective date of this Registration Statement, and to cause Registrant to include as an exhibit to this Registration Statement the consent of the independent auditors of American Home regarding such financial statements. During the American Home Guarantee Period, the Depositor hereby undertakes to include in the prospectus to policy owners, an offer to supply the Statement of Additional Information which shall contain the annual audited statutory financial statements of American Home, free of charge upon a policy owner's request. As of December 29, 2006 at 4:00 p.m. Eastern Time (the "Point of Termination"), the American Home Guarantee was terminated for prospectively issued Contracts. The American Home Guarantee will not cover any Contracts with an issue date later than the Point of Termination. The American Home Guarantee will continue to cover Contracts with a date of issue earlier than the Point of Termination until all insurance obligations under such contracts are satisfied in full. SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, The Variable Annuity Life Insurance Company Separate Account A, certifies that it meets the requirements of the Securities Act of 1933 Rule 485(b) for effectiveness of this amended Registration Statement and has caused this amended Registration Statement to be signed on its behalf, in the City of Houston, and State of Texas on this 24th day of April, 2017. THE VARIABLE ANNUITY LIFE INSURANCE COMPANY SEPARATE ACCOUNT A (Registrant) BY: THE VARIABLE ANNUITY LIFE INSURANCE COMPANY (On behalf of the Registrant and itself) BY: /s/ SARAH J. VANBECK ------------------------------------- SARAH J. VANBECK SENIOR VICE PRESIDENT AND LIFE CONTROLLER As required by the Securities Act of 1933, this Registration Statement has been signed below by the following persons, on behalf of the Registrant and Depositor, in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------------------------------- ------------------------------------------------------ --------------- *KEVIN T. HOGAN Director, Chairman of the Board, -Chief Executive April 24, 2017 ------------------------------ Officer, and President KEVIN T. HOGAN Director, Senior Vice President and Chief Risk ------------------------------ Officer AXEL P. ANDRE *THOMAS J. DIEMER Director, Executive Vice President and Chief April 24, 2017 ------------------------------ Financial Officer THOMAS J. DIEMER *DEBORAH A. GERO Director, Senior Vice President and Chief Investment April 24, 2017 ------------------------------ Officer DEBORAH A. GERO *JANA W. GREER Director and President, Group Retirement April 24, 2017 ------------------------------ JANA W. GREER *ELIAS F. HABAYEB Director April 24, 2017 ------------------------------ ELIAS F. HABAYEB *MICHAEL P. HARWOOD Director, Senior Vice President, Chief Actuary and April 24, 2017 ------------------------------ Corporate Illustration Actuary MICHAEL P. HARWOOD *STEPHEN A. MAGINN Director, Senior Vice President and Chief April 24, 2017 ------------------------------ Distribution Officer STEPHEN A. MAGINN *DON W. CUMMINGS Senior Vice President and Controller April 24, 2017 ------------------------------ DON W. CUMMINGS /s/ MANDA GHAFERI Attorney-in-Fact April 24, 2017 ------------------------------ *MANDA GHAFERI
SIGNATURES American Home Assurance Company has caused this amended Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of New York, and State of New York on the 24th day of April, 2017. AMERICAN HOME ASSURANCE COMPANY BY: /s/ ALLISON KENWORTHY ------------------------------------- ALLISON KENWORTHY STATUTORY CONTROLLER AND VICE PRESIDENT This amended Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE -------------------------------------------- ------------------------------------- --------------- *CAROL G. BARTON Director April 24, 2017 ------------------------------ CAROL G. BARTON *ALEXANDER R. BAUGH Director April 24, 2017 ------------------------------ ALEXANDER R. BAUGH *JAMES BRACKEN Director April 24, 2017 ------------------------------ JAMES BRACKEN *JOSEPH D. COOK Director, Senior Vice President and April 24, 2017 ------------------------------ Chief Financial Officer JOSEPH D. COOK *JEREMY D. EDGECLIFFE-JOHNSON Director, President and April 24, 2017 ------------------------------ Chief Executive Officer JEREMY D. EDGECLIFFE-JOHNSON *GAURAV GARG Director April 24, 2017 ------------------------------ GAURAV GARG *STEPHEN J. GRABEK Director April 24, 2017 ------------------------------ STEPHEN J. GRABEK *RALPH W. MUCERINO Director April 24, 2017 ------------------------------ RALPH W. MUCERINO *ALESSANDREA C. QUANE Director April 24, 2017 ------------------------------ ALESSANDREA C. QUANE *ROBERT S.H. SCHIMEK Director April 24, 2017 ------------------------------ ROBERT S.H. SCHIMEK *AMY E. STERN Director April 24, 2017 ------------------------------ AMY E. STERN *GEORGE R. STRATTS Director April 24, 2017 ------------------------------ GEORGE R. STRATTS *BY: /s/ JOSEPH D. COOK April 24, 2017 -------------------------- JOSEPH D. COOK ATTORNEY-IN-FACT (Exhibit to the Registration Statement)
INDEX OF EXHIBITS
EXHIBIT NO. ------------- (10) Consent of Independent Registered Public Accounting Firm -- PricewaterhouseCoopers LLP