<PAGE>
File pursuant to Rule 497(c)
Under the Securities Act of 1933
Registration No. 333-67685
[LOGO]
PROFILE
July 15, 1999
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS YOU SHOULD KNOW
AND CONSIDER BEFORE PURCHASING THE SEASONS SELECT VARIABLE ANNUITY. THE ANNUITY
IS MORE FULLY DESCRIBED IN THE PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY.
1. THE SEASONS SELECT VARIABLE ANNUITY
The Seasons Select Variable Annuity contract is a contract between you and
Anchor National Life Insurance Company. We designed Seasons Select to help you
save on a tax-deferred basis. Season Select provides a means to diversify your
investments among asset classes and managers as well as a variety of investment
styles to meet long-term financial goals, such as retirement funding. Tax
deferral means all your money, including the amount you would otherwise pay in
current income taxes, remains in your contract to generate more earnings. Your
money could grow faster than it would in a comparable taxable investment. Of
course, certain qualified contracts automatically provide tax deferral
regardless of whether they are funded with an annuity.
The Seasons Select Variable Annuity is designed as a long term retirement
investment and helps you meet these goals by offering variable investment
options. There are nine multimanaged portfolios called SELECT PORTFOLIOS
representing a spectrum of investment styles. In addition, there are four
STRATEGIES which are managed by five different professional investment managers.
The value of any portion of your contract allocated to the SELECT PORTFOLIOS or
STRATEGIES will fluctuate up or down based on the performance of the SELECT
PORTFOLIOS and STRATEGIES you select. You may experience a loss of both
principal and earnings. Five fixed investment options, each for a different
length of time and offering different interest rates guaranteed by Anchor
National, are also available. In addition, the DCA fixed accounts offer fixed
interest rates guaranteed by Anchor National and are available under the
contract strictly as source accounts for the Dollar Cost Averaging program.
The SELECT PORTFOLIOS, STRATEGIES and fixed investment options are designed to
be used in concert in order to achieve your desired investment goals. You may
put money into any of the SELECT PORTFOLIOS, STRATEGIES and/or fixed investment
options. You may transfer between the SELECT PORTFOLIOS, STRATEGIES and/or the
fixed investment options four times per year without charge.
Like most annuities, the contract has an Accumulation Phase and an Income Phase.
During the Accumulation Phase, you invest money in your contract. Your earnings
are based on the investment performance of the SELECT PORTFOLIO(S) or
STRATEGY(IES) to which your money is allocated and/or the interest rate earned
on the fixed investment options. You may withdraw money from your contract
during the Accumulation Phase. However, as with other tax-deferred investments,
you will pay taxes on earnings and untaxed contributions when you withdraw them.
An IRS tax penalty may apply if you make withdrawals before age 59 1/2. During
the Income Phase, you will receive payments from your annuity. Your payments may
be fixed in dollar amount, vary with investment performance or be a combination
of both, depending on where your money is allocated. Among other factors, the
amount of money you are able to accumulate in your contract during the
Accumulation Phase will determine the amount of your payments during the Income
Phase.
The Seasons Select Variable Annuity may not be available in all states.
<PAGE>
2. INCOME OPTIONS
You can select from one of five income options:
(1) payments for your lifetime;
(2) payments for your lifetime and your survivor's lifetime;
(3) payments for your lifetime and your survivor's lifetime, but for not
less than 10 or 20 years;
(4) payments for your lifetime, but for not less than 10 or 20 years; and
(5) payments for a specified period of 5 to 30 years.
Other options may be available.
You will also need to decide if you want your payments to fluctuate with
investment performance or remain constant, and the date on which your payments
will begin. Once you begin receiving payments, you cannot change your income
option. If your contract is non-qualified, payments during the Income Phase are
considered partly a return of your original investment. The "original
investment" part of each payment is not taxable but any gain to your original
investment is currently taxable as ordinary income upon distribution. For
qualified contracts, the entire payment is currently taxable as ordinary income.
3. PURCHASING A SEASONS SELECT VARIABLE ANNUITY
You can buy a contract through your financial representative, who can also help
you complete the proper forms. For Non-Qualified contracts the minimum initial
investment is $5000. For Qualified contracts the minimum initial investment is
$2000. You can add $500 or more to your contract at any time during the
Accumulation Phase.
4. INVESTMENT OPTIONS
You can put your money into any one or more of the nine distinct SELECT
PORTFOLIOS, four multi-manager variable investment STRATEGIES and/or the seven
fixed investment options. The fixed investment options offer fixed rates of
interest for specified lengths of time.
Each SELECT PORTFOLIO has a distinct investment objective utilizing a
disciplined investing style to achieve its objective. Each SELECT PORTFOLIO
invests in an underlying investment portfolio. Except for the Cash Management
portfolio[s], each underlying portfolio is multi-managed by a team of three
money managers specializing in the distinct investment style. The nine SELECT
PORTFOLIOS and the respective managers are:
<TABLE>
<S> <C>
LARGE CAP GROWTH LARGE CAP COMPOSITE
BANKERS TRUST COMPANY BANKERS TRUST
("BANKERS TRUST") SUNAMERICA ASSET
GOLDMAN SACHS ASSET MANAGEMENT COMPANY
MANAGEMENT ("GOLDMAN ("SAAMCO")
SACHS") T. ROWE PRICE ASSOCIATES,
INC.
JANUS CAPITAL ("T. ROWE PRICE")
CORPORATION("JANUS")
LARGE CAP VALUE MID CAP GROWTH
BANKERS TRUST BANKERS TRUST
T. ROWE PRICE T. ROWE PRICE
WELLINGTON MANAGEMENT WELLINGTON
COMPANY LLP
("WELLINGTON")
MID CAP VALUE SMALL-CAP
BANKERS TRUST BANKERS TRUST
GOLDMAN SACHS LORD ABBETT
LORD ABBETT & CO. ("LORD SAAMCO
ABBETT")
INTERNATIONAL EQUITY DIVERSIFIED FIXED INCOME
BANKERS TRUST BANKERS TRUST
GOLDMAN SACHS MANAGEMENT SAAMCO
INTERNATIONAL ("GOLDMAN WELLINGTON
SACHS INT'L")
LORD ABBETT
CASH MANAGEMENT
SAAMCO
</TABLE>
Each STRATEGY has a different investment objective. The STRATEGY(IES) use an
asset allocation investment approach. Each STRATEGY invests in a combination of
underlying investment portfolios which in turn invest in a
<PAGE>
combination of stocks, bonds and cash, to achieve its investment objective. The
four investment STRATEGIES and their underlying investment portfolios are:
GROWTH STRATEGY
MODERATE GROWTH STRATEGY
- - ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC.
- - STOCK PORTFOLIO
T. ROWE PRICE ASSOCIATES, INC.
- - MULTI-MANAGED MODERATE GROWTH PORTFOLIO
JANUS CAPITAL CORPORATION
SUNAMERICA ASSET MANAGEMENT CORP.
WELLINGTON MANAGEMENT COMPANY LLP
BALANCED GROWTH STRATEGY
- - ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC.
- - STOCK PORTFOLIO
T. ROWE PRICE ASSOCIATES, INC.
- - MULTI-MANAGED INCOME/EQUITY PORTFOLIO
JANUS CAPITAL CORPORATION
SUNAMERICA ASSET MANAGEMENT CORP.
WELLINGTON MANAGEMENT COMPANY LLP
CONSERVATIVE GROWTH STRATEGY
- - ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC.
- - STOCK PORTFOLIO
T. ROWE PRICE ASSOCIATES, INC.
- - MULTI-MANAGED INCOME PORTFOLIO
JANUS CAPITAL CORPORATION
SUNAMERICA ASSET MANAGEMENT CORP.
WELLINGTON MANAGEMENT COMPANY LLP
The percentage allocation which each STRATEGY invests in each underlying
portfolio is depicted on page 14 of the prospectus.
5. EXPENSES
Each year we deduct a $35 ($30 in North Dakota) contract administration fee on
your contract anniversary. We currently waive this fee if your contract value is
at least $50,000 on your contract anniversary.
We also deduct insurance charges. If you are age 80 or younger at the issue
date, the insurance charge amounts to 1.40% annually of the average daily value
of your contract allocated to the SELECT PORTFOLIO(S) and/or STRATEGY(IES). If
you are 81 years of age or older at the issue date, the amount of the insurance
charge is 1.52% annually of the average daily value of your contract allocated
to the SELECT PORTFOLIO(S) and/or STRATEGY(IES). There are also investment
charges and other expenses if you put money into the SELECT PORTFOLIO(S) or
STRATEGY(IES), which are estimated to range from .85% to 1.30%. Investment
charges may be more or less than the percentages reflected here.
If you take your money out in excess of the "free withdrawal" amount allowed for
in your contract, we may assess a withdrawal charge that is a percentage of the
money you withdraw. The percentage declines with each year the purchase payment
is in the contract as follows:
<TABLE>
<S> <C> <C> <C>
Year 1........ 9% Year 6........ 5%
Year 2........ 8% Year 7........ 4%
Year 3........ 7% Year 8........ 3%
Year 4........ 6% Year 9........ 2%
Year 5........ 6% Year 10........ 0%
</TABLE>
Additionally, if you take money out of a multi-year fixed investment option
before the end of the selected period, we may assess an adjustment which could
increase or decrease the value of your money.
In some states you may also be assessed a state premium tax of up to 3.5%,
depending upon the state in which you reside.
If you transfer among the SELECT PORTFOLIO(S), STRATEGY(IES) and/or fixed
investment options more than four times per year, we charge a $25 dollar
transfer fee for each subsequent transfer ($10 in Pennsylvania and Texas).
The following charts are designed to help you understand the charges in your
contract. THE COLUMN "TOTAL ANNUAL CHARGES" SHOWS THE TOTAL OF THE $35 CONTRACT
ADMINISTRATION CHARGE, THE 1.40% OR 1.52% INSURANCE CHARGES, WHICHEVER IS
APPLICABLE, AND THE INVESTMENT CHARGES FOR EACH SELECT PORTFOLIO AND STRATEGY.
WE CONVERTED THE CONTRACT ADMINISTRATION CHARGE TO A PERCENTAGE (.09%) USING AN
ASSUMED CONTRACT SIZE OF $40,000. The actual impact of this charge on your
contract may differ from this percentage.
<PAGE>
If you are age 80 or younger at contract issue:
<TABLE>
<CAPTION>
Total Annual
Insurance
Related Total Annual EXAMPLES
Charges Investment Total Total Total
SELECT PORTFOLIOS Related Annual Expenses Expenses
Charges Charges at end of at end of
1 YEAR 10 YEARS
<S> <C> <C> <C> <C> <C> <C>
Large-Cap Growth 1.49% (1.40% + .09%) 1.10% 2.59% $116 $293
Large-Cap Composite 1.49% (1.40% + .09%) 1.10 2.59 $116 $293
Large-Cap Value 1.49% (1.40% + .09%) 1.10 2.59 $116 $293
Mid-Cap Growth 1.49% (1.40% + .09%) 1.15 2.64 $117 $297
Mid-Cap Value 1.49% (1.40% + .09%) 1.15 2.64 $117 $297
Small-Cap 1.49% (1.40% + .09%) 1.15 2.64 $117 $297
International Equity 1.49% (1.40% + .09%) 1.30 2.79 $118 $312
Diversified Fixed Income 1.49% (1.40% + .09%) 1.00 2.49 $115 $283
Cash Management 1.49% (1.40% + .09%) .85 2.34 $114 $268
<CAPTION>
Total Annual
Insurance
Related Total Annual EXAMPLES
Charges Investment Total Total Total
STRATEGIES Related Annual Expenses Expenses
Charges(1) Charges at end of at end of
1 YEAR 10 YEARS
<S> <C> <C> <C> <C> <C> <C>
Growth 1.49% (1.40% + .09%) 1.17% 2.66% $97 $299
Moderate Growth 1.49% (1.40% + .09%) 1.16% 2.65% $97 $298
Balanced Growth 1.49% (1.40% + .09%) 1.15% 2.64% $97 $297
Conservative Growth 1.49% (1.40% + .09%) 1.10% 2.59% $96 $292
</TABLE>
(1) Investment related charges for each STRATEGY are based upon the allocation
to the underlying investment portfolio after the quarterly rebalancing
described in the prospectus.
<PAGE>
If you are age 81 or older at contract issue:
<TABLE>
<CAPTION>
Total Annual
Insurance
Related Total Annual EXAMPLES
Charges Investment Total Total Total
SELECT PORTFOLIO(S) Related Annual Expenses Expenses
Charges Charges at end of at end of
1 YEAR 10 YEARS
<S> <C> <C> <C> <C> <C> <C>
Large-Cap Growth 1.61% (1.52% + .09%) 1.10% 2.71% $117 $304
Large-Cap Composite 1.61% (1.52% + .09%) 1.10 2.71 $117 $304
Large-Cap Value 1.61% (1.52% + .09%) 1.10 2.71 $117 $304
Mid-Cap Growth 1.61% (1.52% + .09%) 1.15 2.76 $118 $309
Mid-Cap Value 1.61% (1.52% + .09%) 1.15 2.76 $118 $309
Small-Cap Portfolio 1.61% (1.52% + .09%) 1.15 2.76 $118 $309
International Equity 1.61% (1.52% + .09%) 1.30 2.91 $119 $323
Diversified Fixed Income 1.61% (1.52% + .09%) 1.00 2.61 $116 $295
Cash Management 1.61% (1.52% + .09%) .85 2.46 $115 $280
<CAPTION>
Total Annual
Insurance
Related Total Annual EXAMPLES
Charges Investment Total Total Total
STRATEGY(IES) Related Annual Expenses Expenses
Charges(1) Charges at end of at end of
1 YEAR 10 YEARS
<S> <C> <C> <C> <C> <C> <C>
Growth 1.61% (1.52% + .09%) 1.17% 2.78% $98 $311
Moderate Growth 1.61% (1.52% + .09%) 1.16% 2.77% $98 $310
Balanced Growth 1.61% (1.52% + .09%) 1.15% 2.76% $98 $309
Conservative Growth 1.61% (1.52% + .09%) 1.10% 2.71% $97 $304
</TABLE>
(1) Investment related charges for each STRATEGY are based upon the allocation
to the underlying investment portfolio after the quarterly rebalancing
described in the prospectus.
The examples assume that you invested $1,000 in a SELECT PORTFOLIO or STRATEGY
which earns 5% annually and that you withdrew your money at the end of a 1 year
period and at the end of a 10 year period. For year 1, the total annual charges
are assessed as well as the withdrawal charge. For year 10, the example reflects
the total annual charges but there is no withdrawal charge applicable. The
annual investment-related expenses may vary. The amounts shown here are
estimates and reflect the waiver or reimbursement of expenses by the investment
adviser. No premium taxes are reflected. Please see the Fee Tables in the
prospectus for more detailed information regarding the fees and expenses
incurred under the contract.
6. TAXES
Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts earned in a non-qualified contract (one that is established
with after tax dollars) are deferred until they are withdrawn. In a qualified
contract (one that is established with before tax dollars) all amounts are
taxable when they are withdrawn.
When you begin taking distributions or withdrawals from your contract, earnings
are considered to be taken out first and will be taxed at your ordinary income
tax rate. You may be subject to a 10% IRS tax penalty for distributions or
withdrawals before age 59 1/2.
7. ACCESS TO YOUR MONEY
Withdrawals may be made from your contract in the amount of $1,000 or more.
Your contract provides for a free withdrawal amount each year. A free withdrawal
amount is the portion of your account that we allow you to take out each year
without being charged a surrender penalty. However, upon a future full surrender
of your contract we will recoup any surrender charges which would have been due
if your free withdrawal had not been free.
To determine your free withdrawal amount and your surrender charge, we refer to
two special terms. These are penalty free earnings and the total invested
amount.
<PAGE>
The penalty-free earnings portion of your contract is simply your account value
less your total invested amount. The total invested amount is the total of all
Purchase Payments you have made into the contract less portions of some prior
withdrawals you made.
During the first year after we issue your contract your free withdrawal amount
is the greater of:
1. Your penalty-free earnings; and
2. If you are participating in the Systematic Withdrawal program, a total of
10% of your total invested amount, less any withdrawals taken during the
contract year.
After the first contract year, you can take out the greater of the following
amounts each year:
1. Your penalty free earnings and any portion of your total invested amount no
longer subject to surrender charges; or
2. 10% of the portion of your total invested amount that has been in your
contract for at least one year, less any withdrawals taken during the
contract year.
If you withdraw your entire contract value you will not receive the benefit of
any free withdrawal amount. A separate withdrawal charge schedule applies to
each purchase payment. After a purchase payment has been in the contract for
nine full years, withdrawal charges no longer apply to that portion of the
money. Of course, upon withdrawal you may also have to pay income taxes and a
10% IRS tax penalty may apply. Neither withdrawal charges nor the 10% IRS tax
penalty are assessed when a death benefit is paid.
8. PERFORMANCE
The value of your annuity will fluctuate depending upon the investment
performance of the SELECT PORTFOLIO(S) and/or STRATEGY(IES) you select. From
time to time we may advertise a SELECT PORTFOLIO'S or STRATEGY'S total return.
The total return figures are based on historical data and are not intended to
indicate future performance.
Prior to the date of this prospectus Seasons Select was not available for sales.
Therefore, no performance information is presented here.
9. DEATH BENEFIT
If you, or, if there is a joint owner, either of the two, should die during the
Accumulation Phase, your Beneficiary will receive a death benefit.
If at the time we issued your contract, you were 80 years old or younger, the
death benefit is the greatest of:
(1) the value of your contract at the time we receive satisfactory proof of
death; or (2) total Purchase Payments less withdrawals (and any fees or charges
applicable to such withdrawals) in an amount proportionate to the amount by
which such withdrawals decreased contract values, compounded at a 4% annual
growth rate until the date of death (3% growth rate if 70 or older at the time
of contract issue); or (3) the value of your contract on the seventh contract
anniversary, plus any Purchase Payments and less withdrawals (and any fees or
charges applicable to such withdrawals) in an amount proportionate to the amount
by which such withdrawals decreased contract values, since the seventh contract
anniversary, all compounded at a 4% annual growth rate until the date of death
(3% growth rate if age 70 or older at the time of contract issue). (4) the
maximum anniversary value on any contract anniversary prior to your 81st
birthday. The anniversary value equals the value of your contract on a contract
anniversary plus any Purchase Payments and less any withdrawals (and any fees or
charges applicable to such withdrawals) in an amount proportionate to the amount
by which such withdrawals decreased contract values, since that contract
anniversary.
If at the time we issued your contract, you were 81 years old or older, the
death benefit is the greatest of: (1) the value of your contract at the time we
receive satisfactory proof of death, or (2) total Purchase Payments less
withdrawals (and any fees or charges applicable to such withdrawals) in an
amount proportionate to the amount by which such withdrawals decreased contract
values, compounded at 3% to date of death.
10. OTHER INFORMATION
OWNERSHIP: The contract is an allocated fixed and variable group annuity
contract. A group contract is issued to a contractholder, for the benefit of the
participants in the group. You, as an owner of a Seasons Select Variable
Annuity, are a participant in the group and will receive a certificate
evidencing your ownership. You, as the owner of a certificate, are entitled to
all the rights and privileges of ownership. As used in this Profile and the
prospectus, the term contract refers to your certificate. In some states an
individual fixed and variable annuity contract may be available instead, which
is identical to the group contract described in this Profile and the prospectus
except that it is issued directly to the individual owner.
FREE LOOK: You may cancel your contract within 10 days of receiving it (or
whatever period is required by your state) by mailing it to our Annuity Service
Center. Your contract will be treated as void on the date we receive it and we
will pay you an amount equal to the value of the money in the SELECT
PORTFOLIO(S) and/or STRATEGY(IES) plus any money you put into the fixed
investment options. Its value may be more or less than the money you initially
invested. Thus, the investment risk is borne by you during the free look period.
SYSTEMATIC WITHDRAWAL PROGRAM: If selected by you, this program allows you to
receive either monthly, quarterly, semi-annual
<PAGE>
or annual checks during the Accumulation Phase. Systematic withdrawals may also
be electronically transferred to your bank account. Of course, withdrawals
during the Accumulation Phase may be taxable and a 10% IRS tax penalty may apply
if you are under age 59 1/2.
DOLLAR COST AVERAGING: If selected by you, this program allows you to invest
gradually into one or more of the SELECT PORTFOLIO(S) or STRATEGY(IES).
PRINCIPAL ADVANTAGE PROGRAM: If selected by you, this program allows you to put
money in a fixed investment option and one or more SELECT PORTFOLIO(S) or
STRATEGY(IES) and we will guarantee that the portion allocated to the fixed
investment option assuming that it remains invested in that option, will grow to
equal your principal investment.
AUTOMATIC PAYMENT PLAN: You can add to your contract directly from your bank
account with as little as $50 per month.
CONFIRMATIONS AND QUARTERLY STATEMENTS: During the accumulation phase, you will
receive confirmation of transactions within your contract. Transactions made
pursuant to contractual or systematic agreements, such as deduction of the
annual maintenance fee and dollar cost averaging, may be confirmed quarterly.
Purchase payments received through the automatic payment plan or a salary
reduction arrangement, may also be confirmed quarterly. For all other
transactions, we send confirmations immediately.
During the accumulation and income phases, you will receive a statement of your
transactions over the past quarter and a summary of your account values.
11. INQUIRIES:
If you have questions about your contract or need to make changes, call your
financial representative or contact us at:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
800/445-SUN2
If money accompanies your correspondence, you should direct it to:
Anchor National Life Insurance Company
P.O. Box 100330
Pasadena, California 91189-0001
<PAGE>
[LOGO]
PROSPECTUS
July 15, 1999
ALLOCATED FIXED AND VARIABLE GROUP ANNUITY
issued by
VARIABLE ANNUITY ACCOUNT FIVE
and
ANCHOR NATIONAL LIFE INSURANCE COMPANY
The annuity contract has 20 investment choices - 7 fixed investment options
which offer interest rates guaranteed by Anchor National for different periods
of time, 9 variable investment SELECT PORTFOLIOS and 4 variable investment
STRATEGIES:
SELECT PORTFOLIOS
LARGE CAP GROWTH
LARGE CAP COMPOSITE
LARGE CAP VALUE
MID CAP GROWTH
MID CAP VALUE
SMALL CAP
INTERNATIONAL EQUITY
DIVERSIFIED FIXED INCOME
CASH MANAGEMENT
STRATEGIES
GROWTH
MODERATE GROWTH
BALANCED GROWTH
CONSERVATIVE GROWTH
all of which invest in the underlying portfolios of
SEASONS SERIES TRUST
which is managed by:
SELECT PORTFOLIOS
BANKERS TRUST COMPANY
GOLDMAN SACHS ASSET MANAGEMENT
JANUS CAPITAL CORPORATION
LORD, ABBETT & COMPANY
SUNAMERICA ASSET MANAGEMENT COMPANY
T. ROWE PRICE ASSOCIATES, INC.
WELLINGTON MANAGEMENT COMPANY, LLP
STRATEGIES
PUTNAM INVESTMENT MANAGEMENT, INC.
T. ROWE PRICE ASSOCIATES, INC.
JANUS CAPITAL CORPORATION
SUNAMERICA ASSET MANAGEMENT COMPANY
WELLINGTON MANAGEMENT COMPANY, LLP
You can put your money into any one or all of the SELECT PORTFOLIO(S),
STRATEGY(IES) and/or fixed investment options.
Please read this prospectus carefully before investing and keep it for your
future reference. It contains important information you should know about the
Seasons Select Variable Annuity.
To learn more about the annuity offered by this prospectus, you can obtain a
copy of the Statement of Additional Information ("SAI") dated July 15,
1999. The SAI has been filed with the Securities and Exchange Commission
("SEC") and can be considered part of this prospectus.
The table of contents of the SAI appears on page 33 of this prospectus. For a
free copy of the SAI, call us at 800/445-SUN2 or write our Annuity Service
Center at, P.O. Box 54299, Los Angeles, California 90054-0299.
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
In addition, the SEC maintains a website (http://www.sec.gov) that contains the
SAI, materials incorporated by reference and other information filed
electronically with the SEC.
ANNUITIES INVOLVE RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, AND ARE NOT A
DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
Anchor National's Annual Report on Form 10-K for the year ended September 30,
1998, and its quarterly report on Form 10-Q for the quarters ended December 31,
1998 and March 31, 1999 are incorporated herein by reference. In addition,
Anchor National filed three reports on Form 8-K on January 14 and 15 and March
12, 1999. These reports are also incorporated herein by reference.
All documents or reports filed by Anchor National under Section 13(a), 13(c),
14, or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") after the effective date of this prospectus are also incorporated by
reference. Statements contained in this prospectus and subsequently filed
documents which are incorporated by reference or deemed to be incorporated by
reference are deemed to modify or supersede documents incorporated herein by
reference.
Anchor National files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000006342.
Anchor National is subject to the informational requirements of the Securities
and Exchange Act of 1934 (as amended). We file reports and other information
with the SEC to meet those requirements. You can inspect and copy this
information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
7 World Trade Center, 13th Fl.
New York, NY 10048
To obtain copies by mail contract the Washington, D.C. location. After you pay
the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the registration
statements and exhibits. For further information regarding the separate account,
Anchor National and its general account, the Variable Portfolios and the
contract, please refer to the registration statements and exhibits.
The SEC also maintains a website (http://www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by Anchor National.
Anchor National will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of the documents
incorporated by reference. Requests for these documents should be directed to
Anchor National's Annuity Service Center, as follows:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
Indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") is provided to Anchor National's officers, directors and controlling
persons. The SEC has advised that it believes such indemnification is against
public policy under the Act and unenforceable. If a claim for indemnification
against such liabilities (other than for Anchor National's payment of expenses
incurred or paid by its directors, officers or controlling persons in the
successful defense of any legal action) is asserted by a director, officer or
controlling person of Anchor National in connection with the securities
registered under this prospectus, Anchor National will submit to a court with
jurisdiction to determine whether the indemnification is against public policy
under the Act. Anchor National will be governed by final judgment of the issue.
However, if in the opinion of Anchor National's counsel this issue has been
determined by controlling precedent, Anchor National will not submit the issue
to a court for determination.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY............................................................................................................ 4
FEE TABLES.......................................................................................................... 5
Owner Transaction Expenses...................................................................................... 5
Annual Separate Account Expenses................................................................................ 5
Investment Portfolio Expenses................................................................................... 6
Investment Portfolio Expenses by Strategy....................................................................... 6
Investment Portfolio Expenses for Strategy Underlying Portfolios................................................ 6
EXAMPLES............................................................................................................ 7
THE SEASONS SELECT VARIABLE ANNUITY................................................................................. 9
PURCHASING A SEASONS SELECT VARIABLE ANNUITY........................................................................ 10
Allocation of Purchase Payments................................................................................. 10
Accumulation Units.............................................................................................. 10
Free Look....................................................................................................... 11
INVESTMENT OPTIONS.................................................................................................. 11
Variable Investment Options..................................................................................... 11
THE SELECT PORTFOLIO(S)....................................................................................... 11
THE STRATEGIES................................................................................................ 12
Market Value Adjustment......................................................................................... 16
Transfers During the Accumulation Phase......................................................................... 17
Dollar Cost Averaging........................................................................................... 18
Principal Advantage Program..................................................................................... 19
Voting Rights................................................................................................... 20
Substitution.................................................................................................... 20
ACCESS TO YOUR MONEY................................................................................................ 20
Free Withdrawal Provision....................................................................................... 20
Systematic Withdrawal Program................................................................................... 22
Minimum Contract Value.......................................................................................... 22
Qualified Contract Owners....................................................................................... 22
DEATH BENEFIT....................................................................................................... 22
Death of the Annuitant.......................................................................................... 23
EXPENSES............................................................................................................ 23
Insurance Charges............................................................................................... 23
Withdrawal Charges.............................................................................................. 24
Investment Charges.............................................................................................. 24
Contract Maintenance Fee........................................................................................ 24
Transfer Fee.................................................................................................... 25
Premium Tax..................................................................................................... 25
Income Taxes.................................................................................................... 25
Reduction or Elimination of Charges and Expenses, and Additional Amounts Credited............................... 25
INCOME OPTIONS...................................................................................................... 25
Annuity Date.................................................................................................... 25
Income Options.................................................................................................. 26
Allocation of Annuity Payments.................................................................................. 27
Transfers During the Income Phase............................................................................... 27
Deferment of Payments........................................................................................... 28
TAXES............................................................................................................... 28
Annuity Contracts in General.................................................................................... 28
Tax Treatment of Distributions--Non-qualified Contracts......................................................... 28
Tax Treatment of Distributions--Qualified Contracts............................................................. 28
Minimum Distributions........................................................................................... 29
Diversification................................................................................................. 29
PERFORMANCE......................................................................................................... 29
OTHER INFORMATION................................................................................................... 30
The Separate Account............................................................................................ 30
Custodian....................................................................................................... 30
The General Account............................................................................................. 31
Distribution of the Contract.................................................................................... 31
Administration.................................................................................................. 31
Year 2000....................................................................................................... 31
Legal Proceedings............................................................................................... 32
INDEPENDENT ACCOUNTANTS............................................................................................. 32
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION............................................................ 33
APPENDIX A--CONDENSED FINANCIAL INFORMATION......................................................................... A-1
APPENDIX B--MARKET VALUE ADJUSTMENT................................................................................. B-1
APPENDIX C--PREMIUM TAXES........................................................................................... C-1
</TABLE>
3
<PAGE>
GLOSSARY
We have capitalized some of the technical terms used in this prospectus. To help
you understand these terms, we define them in this glossary.
ACCUMULATION PHASE--The period during which you invest money in your contract.
ACCUMULATION UNITS--A measurement we use to calculate the value of the variable
portion of your contract during the Accumulation Phase.
ANNUITANT(S)--The person(s) on whose life (lives) we base annuity payments.
ANNUITY DATE--The date on which annuity payments are to begin, as selected by
you.
ANNUITY UNITS--A measurement we use to calculate the amount of annuity payments
you receive from the variable portion of your contract during the Income Phase.
BENEFICIARY(IES)--The person(s) designated to receive any benefits under the
contract if you or the Annuitant dies.
COMPANY--Anchor National Life Insurance Company ("Anchor National"), We, Us, the
issuer of this annuity contract.
INCOME PHASE--The period during which we make annuity payments to you.
IRS--The Internal Revenue Service.
NON-QUALIFIED (CONTRACT)--A contract purchased with after-tax dollars. In
general, these contracts are not under any pension plan, specially sponsored
program or individual retirement account ("IRA").
PURCHASE PAYMENTS--The money you give us to buy the contract, as well as any
additional money you give us to invest in the contract after you own it.
QUALIFIED (CONTRACT)--A contract purchased with pretax dollars. These contracts
are generally purchased under a pension plan, specially sponsored program or
individual retirement account ("IRA").
STRATEGY(IES)--A sub-account of Variable Annuity Account Five which provides for
the variable investment options available under the contract. Each STRATEGY has
its own investment objective and is invested in the underlying investment
porfolios of the Seasons Series Trust. This investment option allocates assets
to three out of six available portfolios, each of which is managed by a
different investment advisor.
SELECT PORTFOLIO(S)--A sub-account of Variable Annuity Account Five which
provides for the variable investment options available under the contract. Each
SELECT PORTFOLIO has a distinct investment objective and is invested in the
underlying investment portfolios of the Seasons Series Trust. This investment
option allocates assets to an underlying fund in which a portion of the assets
is managed by three out of seven advisors.
4
<PAGE>
SEASONS SELECT VARIABLE ANNUITY FEE TABLES
------------------------------------------------------------
OWNER TRANSACTION EXPENSES
Withdrawal Charge as a percentage of Purchase Payments:
<TABLE>
<S> <C> <C> <C>
Year 1.............. 9% Year 6.............. 5%
Year 2.............. 8% Year 7.............. 4%
Year 3.............. 7% Year 8.............. 3%
Year 4.............. 6% Year 9.............. 2%
Year 5.............. 6% Year 10............. 0%
</TABLE>
<TABLE>
<S> <C>
Contract Maintenance Charge........ $35 each year ($30 in North Dakota)
Transfer Fee....................... No charge for first 4 transfers each
year; thereafter, the fee is $25 per
transfer ($10 in
Pennsylvania and Texas)
</TABLE>
ANNUAL SEPARATE ACCOUNT EXPENSES
(as a percentage of daily net asset value)
If age 80 or younger at contract issue:
<TABLE>
<S> <C>
Mortality Risk Charge........................ 0.90%
Expense Risk Charge.......................... 0.35%
Distribution Expense Charge.................. 0.15%
---
Total Separate Account Expenses........ 1.40%
</TABLE>
If age 81 or older at contract issue:
<TABLE>
<S> <C>
Mortality Risk Charge........................ 1.02%
Expense Risk Charge.......................... 0.35%
Distribution Expense Charge.................. 0.15%
---
Total Separate Account Expenses........ 1.52%
</TABLE>
5
<PAGE>
INVESTMENT PORTFOLIO EXPENSES
OF SELECT PORTFOLIOS
(Estimated for the current fiscal year as a percentage of daily net asset value
of each investment portfolio)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
SELECT PORTFOLIOS*
- --------------------------------------------
Large Cap Growth .80% .30% 1.10%
Large Cap Composite .80% .30% 1.10%
Large Cap Value .80% .30% 1.10%
Mid Cap Growth .85% .30% 1.15%
Mid Cap Value .85% .30% 1.15%
Small Company .85% .30% 1.15%
International Equity 1.00% .30% 1.30%
Diversified Fixed Income .70% .30% 1.00%
Cash Management 55% .30% .85%
- -------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT PORTFOLIO EXPENSES BY STRATEGY
(based on the total annual expenses of the underlying investment portfolios
reflected below as of the fiscal year end of the
Trust ending March 31, 1999)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Growth .87% .30% 1.17%
Moderate Growth .85% .31% 1.16%
Balanced Growth .83% .32% 1.15%
Conservative Growth .80% .30% 1.10%
- -------------------------------------------------------------------------------------------------------
</TABLE>
IMPORTANT INFORMATION ABOUT PORTFOLIO EXPENSES IF INVESTED IN STRATEGY(IES):
The Investment Portfolio Expenses table set forth below identify the total
investment expenses charged by the underlying investment portfolios of Seasons
Series Trust. Each contractholder invested in a STRATEGY will incur only a
portion of the investment expense of those portfolios in which the STRATEGY
invests. The table above entitled "Investment Portfolio Expenses by STRATEGY"
shows an approximation of the total investment expenses a contractholder may
incur if invested in each respective STRATEGY, after the automatic quarterly
rebalancing of such STRATEGY as described on page 13. The actual investment
expenses incurred by contractholders within a STRATEGY will vary depending upon
the daily net asset value of each investment portfolio in which such STRATEGY is
invested.
INVESTMENT PORTFOLIO EXPENSES
FOR STRATEGY UNDERLYING PORTFOLIOS
(as a percentage of daily net asset value of each investment portfolio as of the
fiscal year end of the
Trust (March 31, 1999))
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Stock .85% .25% 1.10%
Asset Allocation: Diversified Growth .85% .36% 1.21%
Multi-Managed Growth .89% .30% 1.19%
Multi-Managed Moderate Growth .85% .31% 1.16%
Multi-Managed Income/Equity .81% .33% 1.14%
Multi-Managed Income .77% .29% 1.06%
- -------------------------------------------------------------------------------------------------------
</TABLE>
THE ABOVE INVESTMENT PORTFOLIO EXPENSES WERE PROVIDED BY SEASONS SERIES TRUST.
WE HAVE NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
6
<PAGE>
EXAMPLES
You will pay the following expenses on a $1,000 investment, assuming a 5% annual
return on assets and:
(a) surrender of the contract at the end of the stated time period if you were
80 or younger at time of issue;
(b) surrender of the contract at the end of the stated time period if you were
age 81 or older at time of issue.
(c) If the contract is not surrendered or is annuitized and you were 80 or
younger at time of issue.*
(d) If the contract is not surrendered or is annuitized and you were 81 or
older at time of issue.*
<TABLE>
<CAPTION>
TIME PERIODS
SELECT PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Large Cap Growth (a) $ 116 (a) $ 151 (a) $ 198 (a) $ 293
(b) $ 117 (b) $ 154 (b) $ 204 (b) $ 304
(c) $ 26 (c) $ 81 (c) $ 138 (c) $ 293
(d) $ 27 (d) $ 84 (d) $ 144 (d) $ 304
Large Cap Composite (a) $ 116 (a) $ 151 (a) $ 198 (a) $ 293
(b) $ 117 (b) $ 154 (b) $ 204 (b) $ 304
(c) $ 26 (c) $ 81 (c) $ 138 (c) $ 293
(d) $ 27 (d) $ 84 (d) $ 144 (d) $ 304
Large Cap Value (a) $ 116 (a) $ 151 (a) $ 198 (a) $ 293
(b) $ 117 (b) $ 154 (b) $ 204 (b) $ 304
(c) $ 26 (c) $ 81 (c) $ 138 (c) $ 293
(d) $ 27 (d) $ 84 (d) $ 144 (d) $ 304
Mid Cap Growth (a) $ 117 (a) $ 152 (a) $ 200 (a) $ 297
(b) $ 118 (b) $ 156 (b) $ 206 (b) $ 309
(c) $ 27 (c) $ 82 (c) $ 140 (c) $ 297
(d) $ 28 (d) $ 86 (d) $ 146 (d) $ 309
Mid Cap Value (a) $ 117 (a) $ 152 (a) $ 200 (a) $ 297
(b) $ 118 (b) $ 156 (b) $ 206 (b) $ 309
(c) $ 27 (c) $ 82 (c) $ 140 (c) $ 297
(d) $ 28 (d) $ 86 (d) $ 146 (d) $ 309
Small Company (a) $ 117 (a) $ 152 (a) $ 200 (a) $ 297
(b) $ 118 (b) $ 156 (b) $ 206 (b) $ 309
(c) $ 27 (c) $ 82 (c) $ 140 (c) $ 297
(d) $ 28 (d) $ 86 (d) $ 146 (d) $ 309
International Equity (a) $ 118 (a) $ 157 (a) $ 207 (a) $ 312
(b) $ 119 (b) $ 160 (b) $ 213 (b) $ 323
(c) $ 28 (c) $ 87 (c) $ 147 (c) $ 312
(d) $ 29 (d) $ 90 (d) $ 153 (d) $ 323
Diversified Fixed
Income (a) $ 115 (a) $ 148 (a) $ 193 (a) $ 283
(b) $ 116 (b) $ 151 (b) $ 199 (b) $ 295
(c) $ 25 (c) $ 78 (c) $ 133 (c) $ 283
(d) $ 26 (d) $ 81 (d) $ 139 (d) $ 295
Cash Management (a) $ 114 (a) $ 125 (a) $ 185 (a) $ 268
(b) $ 115 (b) $ 147 (b) $ 191 (b) $ 280
(c) $ 24 (c) $ 85 (c) $ 125 (c) $ 268
(d) $ 25 (d) $ 77 (d) $ 131 (d) $ 280
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
TIME PERIODS
STRATEGY 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth (a) $ 97 (a) $ 143 (a) $ 181 (a) $ 299
(b) $ 98 (b) $ 146 (b) $ 187 (b) $ 311
(c) $ 27 (c) $ 83 (c) $ 141 (c) $ 299
(d) $ 28 (d) $ 86 (d) $ 147 (d) $ 311
Moderate Growth (a) $ 97 (a) $ 142 (a) $ 180 (a) $ 298
(b) $ 98 (b) $ 146 (b) $ 186 (b) $ 310
(c) $ 27 (c) $ 82 (c) $ 140 (c) $ 298
(d) $ 28 (d) $ 86 (d) $ 146 (d) $ 310
Balanced Growth (a) $ 97 (a) $ 142 (a) $ 180 (a) $ 297
(b) $ 98 (b) $ 146 (b) $ 186 (b) $ 309
(c) $ 27 (c) $ 82 (c) $ 140 (c) $ 297
(d) $ 28 (d) $ 86 (d) $ 146 (d) $ 309
Conservative Growth (a) $ 96 (a) $ 140 (a) $ 177 (a) $ 292
(b) $ 97 (b) $ 144 (b) $ 183 (b) $ 304
(c) $ 26 (c) $ 80 (c) $ 137 (c) $ 292
(d) $ 27 (d) $ 84 (d) $ 143 (d) $ 304
</TABLE>
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you will
incur directly and indirectly by investing in the contract. The example
reflects owner transaction expenses, separate account expenses and
investment portfolio expenses by SELECT PORTFOLIO and STRATEGY.
2. The Examples assume that no transfer fees were imposed. Premium taxes are
not reflected but may be applicable. Although premium taxes may apply in
certain states, they are not reflected in the Examples.
3. For certain investment portfolios in which the SELECT PORTFOLIOS and
STRATEGIES invest SunAmerica Asset Management has voluntarily agreed to
waive fees or reimburse expenses, if necessary, to keep annual operating
expenses at or below the following percentages of each of the following
Portfolios' average net assets: Multi-Managed Growth Portfolio 1.29%,
Multi-Managed Moderate Growth Portfolio 1.21%, Multi-Managed Income/Equity
Portfolio 1.14%, Multi-Managed Income Portfolio 1.06%, Asset Allocation:
Diversified Growth Portfolio 1.21%, Stock Portfolio 1.21%, Large Cap
Growth Portfolio 1.10%, Large Cap Composite Portfolio 1.10%, Large Cap
Value Portfolio 1.10%, Mid Cap Growth Portfolio 1.15%, Mid Cap Value
Portfolio 1.15%, Small Cap Portfolio 1.15%, International Equity Portfolio
1.30%, Diversified Fixed Income Portfolio 1.00% and Cash Management
Portfolio 0.85%. SunAmerica Asset Management also may voluntarily waive or
reimburse additional amounts to increase the investment return to a
Portfolio's investors. SunAmerica may terminate all such waivers and/or
reimbursements at any time. Further, any waivers or reimbursements made by
SunAmerica Asset Management with respect to a Portfolio are subject to
recoupment from that Portfolio within the following two years, provided
that the Portfolio is able to effect such payment to SunAmerica Asset
Management and remain in compliance with the foregoing expense
limitations. During the time period reflected in this Fee Table, the
adviser did not rely on any of these waiver and/or reimbursement
agreements.
4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The historical accumulation unit values for the STRATEGY(IES) and SELECT
PORTFOLIOS are contained in Appendix A--Condensed Financial Information.
8
<PAGE>
THE SEASONS SELECT VARIABLE ANNUITY
- --------------------------------------------------------------------------------
An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: This means that you do not pay taxes on your earnings from
the annuity until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer
payment of taxes on earnings until withdrawal. If you are considering funding a
tax-qualified retirement plan with an annuity, you should know that an annuity
does not provide any additional tax deferral treatment of earnings beyond the
treatment provided by the tax-qualified retirement plan itself. However,
annuities do provide other features and benefits which may be valuable to you.
You should fully discuss this decision with your financial advisor.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request us to start
making payments to you out of the money accumulated in your contract.
The Contract is called a "variable" annuity because it allows you to invest in
variable investment portfolios which we call SELECT PORTFOLIOS and/or
STRATEGIES. The SELECT PORTFOLIOS and STRATEGIES, are similar to mutual funds,
in that they have specific investment objectives and their performance varies.
You can gain or lose money if you invest in these SELECT PORTFOLIOS or
STRATEGIES. The amount of money you accumulate in your contract depends on the
performance of the SELECT PORTFOLIO(S) or STRATEG(IES) in which you invest.
The Contract also offers several fixed account options for varying time periods.
Fixed account options earn interest at a rate set and guaranteed by Anchor
National. If you allocate money to the fixed account options, the amount of
money that accumulates in your Contract depends on the total interest credited
to the particular fixed account option(s) in which you are invested.
For more information on SELECT PORTFOLIO(S), STRATEGY(IES) and fixed account
options available under this contract, SEE INVESTMENT OPTIONS PAGE 11.
Anchor National Life Insurance Company (Anchor National, The Company, Us, We)
issues the Seasons Select Variable Annuity. When you purchase a Seasons Select
Variable Annuity, a contract exists between you and Anchor National. The Company
is a stock life insurance company organized under the laws of the state of
Arizona. Its principal place of business is 1 SunAmerica Center, Los Angeles,
California 90067. The Company conducts life insurance and annuity business in
the District of Columbia and all states except New York. Anchor National is an
indirect, wholly owned subsidiary of American International Group, Inc., a
Delaware corporation. Seasons Select may not currently be available in all
states.
This annuity is designed for investors whose personal circumstances allow for a
long-term investment time horizon, to assist in contributing to retirement
savings. As a function of the IRC you may be assessed a 10% federal tax penalty
on any withdrawal made prior to your reaching age 59 1/2. Additionally, this
contract provides that you will
9
<PAGE>
be charged a withdrawal charge on each purchase payment withdrawn if that
purchase payment has not been invested in this contract for at least 9 years.
Because of these potential penalties, you should fully discuss all of the
benefits and risks of this contract with your financial adviser prior to
purchase.
PURCHASING A SEASONS SELECT VARIABLE ANNUITY
- --------------------------------------------------------------------------------
An initial Purchase Payment is the money you give us to buy a contract. Any
additional money you give us to invest in the contract after purchase is a
subsequent Purchase Payment.
This chart shows the minimum initial and subsequent Purchase Payments permitted
under your contract. These amounts depend upon whether a contract is Qualified
or Non-Qualified for tax purposes.
<TABLE>
<CAPTION>
MINIMUM
MINIMUM INITIAL SUBSEQUENT
PURCHASE PAYMENT PURCHASE PAYMENT
----------------- -------------------
<S> <C> <C>
Qualified $ 2,000 $ 500
Non-Qualified $ 5,000 $ 500
</TABLE>
Prior Company approval is required to accept Purchase Payments greater than
$1,000,000. The Company reserves the right to refuse any Purchase Payment
including one which would cause the contact value or Purchase Payments to exceed
$1,000,000 at the time of the Purchase Payment. Also, the optional Automatic
Payment Plan allows you to make subsequent payments as small as $50.00. We may
refuse any Purchase Payment.
In general, we will not issue a Qualified contract to anyone who is age 70 1/2
or older, unless they certify to us that the minimum distribution required by
the IRS is being made. In addition we may not issue a contract to anyone over
age 90.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed accounts, SELECT PORTFOLIO(S)
and/or STRATEGY(IES) according to your instructions. If we receive a Purchase
Payment without allocation instructions, we will invest the money according to
your last allocation instructions. Purchase Payments are applied to your
contract based upon the value of the variable investment option next determined
after receipt of your money. SEE INVESTMENT OPTIONS PAGE 11.
In order to issue your contract, we must receive your completed application,
Purchase Payment allocation instructions and any other required paper work at
our Annuity Service Center. We allocate your initial purchase payment within two
days of receiving it. If we do not have complete information necessary to issue
your contract, we will contact you. If we do not have the information necessary
to issue your contract within 5 business days we will:
- Send your money back to you, or;
- Ask your permission to keep your money until we get the information
necessary to issue the contract.
ACCUMULATION UNITS
The value of the variable portion of your contract will go up or down depending
upon the investment performance of the SELECT PORTFOLIO(S) or STRATEGY(IES) you
select. In order to keep track of the value of your contract, we use a unit of
measure called an Accumulation Unit which works like a share of a mutual fund.
During the Income Phase, we call them Annuity Units.
10
<PAGE>
An Accumulation Unit value is determined each day that the New York Stock
Exchange ("NYSE") is open. We calculate an Accumulation Unit for each STRATEGY
or SELECT PORTFOLIO after the NYSE closes each day. We do this by:
1. determining the total value of money invested in a particular STRATEGY
or SELECT PORTFOLIO;
2. subtracting from that amount any asset-based charges and any other
charges such as taxes we have deducted; and
3. dividing this amount by the number of outstanding Accumulation Units.
FREE LOOK
You may cancel your contract within ten days after receiving it (or longer if
required by state law). We call this a "free look." To cancel, you must mail the
contract along with your free look request to our Annuity Service Center at P.O.
Box 54299, Los Angeles, California 90054-0299. Unless otherwise required by
state law, you will receive back the value of the money allocated to the SELECT
PORTFOLIO(S) or STRATEGY(IES) on the day we receive your request plus any
Purchase Payment in the fixed investment options. This value may be more or less
than the money you initially invested. Thus, the investment risk is borne by you
during the free look period.
Certain states require us to return your Purchase Payments upon a free look
request. Additionally, all contracts issued as an IRA require the full return of
Purchase Payments upon a free look. With respect to those contracts, we reserve
the right to put your money in the 1-year fixed investment option during the
free look period. If you cancel your contract during the free look period, we
return the greater of (1) your Purchase Payments, or (2) the value of your
contract. At the end of the free look period, we reallocate your money according
to your instructions.
INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
The contract offers variable investment options which we call SELECT
PORTFOLIO(S) and STRATEGY(IES), and fixed investment options. We designed the
contract to meet your varying investment needs over time. You can achieve this
by using the SELECT PORTFOLIO(S) and/or STRATEGY(IES) alone or in concert with
the fixed investment options. The SELECT PORTFOLIO(S) and STRATEGY(IES) operate
similar to a mutual fund but are only available through the purchase of certain
variable annuities. A mixture of your investment in the SELECT PORTFOLIO(S)
and/or STRATEGY(IES) and fixed account options may lower the risk associated
with investing only in a variable investment option.
VARIABLE INVESTMENT OPTIONS
Each of the variable investment options of the contract invests in underlying
portfolios of Seasons Series Trust. SunAmerica Asset Management Company
("SAAMCo"), an affiliate of Anchor National, manages Seasons Series Trust.
SAAMCo has engaged sub-advisers to provide investment advice for certain of the
underlying investment portfolios.
YOU SHOULD READ THE PROSPECTUS FOR THE SEASONS SERIES TRUST CAREFULLY BEFORE
INVESTING. THE PROSPECTUS WHICH IS ATTACHED HERETO CONTAINS DETAILED INFORMATION
ABOUT THE UNDERLYING INVESTMENT PORTFOLIOS INCLUDING INVESTMENT OBJECTIVE AND
RISK FACTORS.
THE SELECT PORTFOLIOS
The contract offers nine SELECT PORTFOLIO(S), each with a distinct investment
objective, utilizing a disciplined investing style to achieve its objective.
Each SELECT PORTFOLIO invests in an underlying investment portfolio of the
Seasons Series Trust. Except for the Cash Management portfolio, each underlying
portfolio is multi-managed by a team of three money managers, one component of
the underlying portfolios is an unmanaged
11
<PAGE>
component that tracks a particular target index or subset of an index. The other
two components are actively managed. The unmanaged component of each underlying
portfolio is intended to balance some of the risks associated with an actively
traded portfolio.
Each underlying portfolio and the respective managers are:
<TABLE>
<S> <C>
LARGE-CAP GROWTH LARGE-CAP COMPOSITE
Bankers Trust Company ("Bankers Trust") Bankers Trust
Goldman Sachs Assets Management ("Goldman Sachs) SAAMCo
Janus Capital Corporation ("Janus") T. Rowe Price Associates, Inc. ("T. Rowe
Price")
LARGE-CAP VALUE MID-CAP GROWTH
Bankers Trust Bankers Trust
T. Rowe Price T. Rowe Price
Wellington Management Company, LLP ("Wellington") Wellington
MID-CAP VALUE SMALL-CAP
Bankers Trust Bankers Trust
Goldman Sachs Lord Abbett
Lord Abbett & Co. ("Lord Abbett") SAAMCo
INTERNATIONAL EQUITY DIVERSIFIED FIXED INCOME
Bankers Trust Bankers Trust
Goldman Sachs Asset Management International SAAMCo
Lord Abbett Wellington
CASH MANAGEMENT
SAAMCo
</TABLE>
SELECT PORTFOLIO OPERATION
Each SELECT PORTFOLIO is designed to meet a distinct investment objective
facilitated by the management philosophy of three different money managers.
Generally, an equal portion of the Purchase Payments received for allocation to
each SELECT PORTFOLIO will be allocated among the three managers for that SELECT
PORTFOLIO. Each quarter SAAMCo will evaluate the asset allocation between the
three managers of each SELECT PORTFOLIO. If SAAMCo determines that the assets
have become significantly unequal in allocation among the managers, then the
in-coming cash flows may be redirected in an attempt to stabilize the
allocations. Generally, existing SELECT PORTFOLIO assets will not be rebalanced.
However, we reserve the right to do so in the event that it is deemed necessary
and not adverse to the interests of contract owners invested in the SELECT
PORTFOLIO. Transfers made as a result of rebalancing a SELECT PORTFOLIO are not
considered a transfer under your contract.
THE STRATEGIES
The contract offers four multi-manager variable investment STRATEGY(IES), each
with a different investment objective. We designed the STRATEGY(IES) utilizing
an asset allocation approach to meet your investment needs over time,
considering factors such as your age, goals and risk tolerance. However, each
STRATEGY is designed to achieve different levels of growth over time.
Each STRATEGY invests in three underlying investment portfolios of the Seasons
Series Trust. The allocation of money among these investment portfolios varies
depending on the objective of the STRATEGY.
The underlying investment portfolios of Seasons Series Trust in which the
STRATEGY(IES) invest include the Asset Allocation--Diversified Growth Portfolio,
the Stock Portfolio and the Multi-Managed Growth, Multi-Managed Moderate Growth,
Multi-Managed Income/Equity and Multi-Managed Income Portfolios (the "Multi-
Managed Portfolios").
The Asset Allocation: Diversified Growth Portfolio is managed by Putnam
Investment Management, Inc. The Stock Portfolio is managed by T. Rowe Price
Associates, Inc. All of the Multi-Managed Portfolios include the same three
basic investment components: a growth component managed by Janus Capital
Corporation, a balanced
12
<PAGE>
component managed by SAAMCo and a fixed income component managed by Wellington
Management Company, LLP. The Growth STRATEGY and the Moderate Growth STRATEGY
also have an aggressive growth component which SAAMCo manages. The percentage
that any one of these components represents in each Multi-Managed Portfolio
varies in accordance with the investment objective.
Each STRATEGY uses an investment approach based on asset allocation. This
approach is achieved by each STRATEGY investing in distinct percentages in three
specific underlying funds of the Seasons Series Trust. In turn, the underlying
funds invest in a combination of domestic and international stocks, bonds and
cash. Based on the percentage allocation to each specific underlying fund and
each underlying fund's investment approach, each STRATEGY initially has a
neutral asset allocation mix of stocks, bonds and cash. At the beginning of each
quarter a rebalancing occurs among the underlying funds to realign each STRATEGY
with its distinct percentage investment in the three underlying funds. This
rebalancing is designed to help maintain the neutral asset allocation mix for
each STRATEGY. The pie charts on the following pages demonstrate:
- the neutral asset allocation mix for each STRATEGY; and
- the percentage allocation in which each STRATEGY invests.
STRATEGY REBALANCING
Each STRATEGY is designed to meet its investment objective by allocating a
portion of your money to three different investment portfolios. In order to
maintain the mix of investment portfolios consistent with each STRATEGY's
objective, each STRATEGY within your contract is rebalanced each quarter. On the
first business day of each quarter (or as close to such date as is
administratively practicable) your money will be allocated among the various
investment portfolios according to the percentages set forth on the prior pages.
Additionally, within each Multi-Managed Portfolio, your money will be rebalanced
among the various components. We also reserve the right to rebalance any
STRATEGY more frequently if rebalancing is, deemed necessary and not adverse to
the interests of contract owners invested in such STRATEGY. Rebalancing a
STRATEGY may involve shifting a portion of assets out of underlying investment
portfolios with higher returns into underlying investment portfolios with
relatively lower returns. Transfers made as a result of rebalancing a STRATEGY
are not counted against your four free transfers per year.
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<PAGE>
GROWTH
GOAL: Long-term growth of capital, allocating its assets primarily to
stocks. This STRATEGY may be best suited for those with longer periods to
invest.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Stocks 80%
Bonds 15%
Cash 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
ASSET ALLOCATION: DIVERSIFIED
GROWTH PORTFOLIO 25%
Managed by Putnam Investment
Management, Inc.
STOCK PORTFOLIO 25%
Managed by T. Rowe Price
Associates, Inc.
MULTI-MANAGED GROWTH PORTFOLIO 50%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
MODERATE GROWTH
GOAL: Growth of capital through investments in equities, with a secondary
objective of conservation of principal by allocating more of its assets to bonds
than the Growth STRATEGY. This STRATEGY may be best suited for those nearing
retirement years but still earning income.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Stocks 70%
Bonds 25%
Cash 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
ASSET ALLOCATION: DIVERSIFIED
GROWTH PORTFOLIO 25%
Managed by Putnam Investment
Management, Inc.
STOCK PORTFOLIO 20%
Managed by T. Rowe Price
Associates, Inc.
MULTI-MANAGED MODERATE GROWTH
PORTFOLIO 55%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
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<PAGE>
BALANCED GROWTH
GOAL: Focuses on conservation of principal by investing in a more balanced
weighting of stocks and bonds, with a secondary objective of seeking a high
total return. This STRATEGY may be best suited for those approaching retirement
and with less tolerance for investment risk.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Stocks 55%
Bonds 40%
Cash 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
ASSET ALLOCATION: DIVERSIFIED
GROWTH PORTFOLIO 25%
Managed by Putnam Investment
Management, Inc.
STOCK PORTFOLIO 20%
Managed by T. Rowe Price
Associates, Inc.
MULTI-MANAGED INCOME/EQUITY
PORTFOLIO 55%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
CONSERVATIVE GROWTH
GOAL: Capital preservation while maintaining some potential for growth over
the long term. This STRATEGY may be best suited for those with lower investment
risk tolerance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Stocks 42%
Bonds 53%
Cash 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
ASSET ALLOCATION: DIVERSIFIED
GROWTH PORTFOLIO 25%
Managed by Putnam Investment
Management, Inc.
STOCK PORTFOLIO 15%
Managed by T. Rowe Price
Associates, Inc.
MULTI-MANAGED INCOME PORTFOLIO 60%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
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<PAGE>
FIXED INVESTMENT OPTIONS
The contract also offers seven fixed investment options. Anchor National will
guarantee the interest rate earned on money you allocate to any of these fixed
investment options. We currently offer fixed investment options for periods of
one, three, five, seven and ten years, which we call guarantee periods. In
Maryland and Washington only the one year fixed account option is available. The
seven and ten year guarantee periods are not available in Oregon. Additionally,
we guarantee the interest rate for money allocated to the six-month DCA fixed
account and/ or the one year DCA fixed account (the "DCA fixed accounts") which
are available only in conjunction with the Dollar Cost Averaging Program. Please
see the section on the Dollar Cost Averaging Program on page 18 for additional
information about, including limitations on, the availability and operation of
the DCA fixed accounts. The DCA fixed accounts are only available for new
Purchase Payments.
All of these fixed account options pay interest at rates set and guaranteed by
Anchor National. Interest rates may differ from time to time and are set at our
sole discretion. We will never credit less than a 3% annual effective rate to
any of the fixed account options. The interest rate offered for new Purchase
Payments may differ from that offered for subsequent Purchase Payments and money
already in the fixed account options. In addition, different guarantee periods
offer different interest rates. Rates for specified payments are declared at the
beginning of the guarantee period and do not change during the specified period.
There are three scenarios in which you may put money into the fixed account
options. In each scenario your money may be credited a different rate of
interest as follows:
- INITIAL RATE: Rate credited to new Purchase Payments allocated to the
fixed account when you purchase your contract.
- CURRENT RATE: Rate credited to subsequent Purchase Payments allocated to
the fixed account.
- RENEWAL RATE: Rate credited to money transferred from a fixed account or
one of the STRATEGIES into a fixed account and to money remaining in a
fixed account after expiration of a guarantee period.
Each of these rates may differ from one and other. Although once declared the
applicable rate is guaranteed until the guarantee period expires.
The DCA fixed accounts also credit a fixed rate of interest. Interest is
credited to amounts allocated to the 1-year or 6-month DCA fixed account while
your investment is systematically transferred to the variable Portfolios. The
rates applicable to the DCA fixed accounts may differ from each other and/or the
other fixed account options but will never be less than an effective rate of 3%.
SEE DOLLAR COST AVERAGING ON PAGE 18 for more information.
When a guarantee period ends, you may leave your money in the same guarantee
period. You may also reallocate money to another fixed investment option (other
than the DCA fixed accounts) or to any of the SELECT PORTFOLIO(S) or
STRATEGY(IES). If you want to reallocate your money, you must contact us within
30 days after the end of the current guarantee period and instruct us how to
reallocate your money. If we do not hear from you, we will keep your money in
the same guarantee period where it will earn the renewal interest rate
applicable at that time.
MARKET VALUE ADJUSTMENT
NOTE: THE FOLLOWING DISCUSSION APPLIES TO THE 3, 5, 7 OR 10 YEAR FIXED
INVESTMENT OPTIONS ONLY. THESE OPTIONS ARE NOT AVAILABLE IN ALL STATES. PLEASE
CONTACT YOUR FINANCIAL REPRESENTATIVE FOR MORE INFORMATION. THIS DISCUSSION DOES
NOT APPLY TO WITHDRAWALS TO PAY A DEATH BENEFIT OR CONTRACT FEES AND CHARGES.
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<PAGE>
If you take money out of the 3, 5, 7 or 10 year fixed investment options before
the end of the guarantee period, we make an adjustment to your contract (the
"market value adjustment" or "MVA"). This market value adjustment reflects any
difference in the interest rate environment between the time you place your
money in the fixed investment option and the time when you withdraw that money.
This adjustment can increase or decrease your contract value. You have 30 days
after the end of each guarantee period to reallocate your funds without
incurring a market value adjustment.
We will not assess a market value adjustment against withdrawals made (1) to pay
a death benefit; (2) to pay contract fees and charges; or (3) to begin the
income phase of your contract on the latest annuity date.
We calculate the market value adjustment by doing a comparison between current
rates and the rate being credited to you in the fixed investment option. For the
current rate we use a rate being offered by us for a guarantee period that is
equal to the time remaining in the guarantee period from which you seek
withdrawal. If we are not currently offering a guarantee period for that period
of time, we determine an applicable rate by using a formula to arrive at a
number between the interest rates currently offered for the two closest periods
available.
Generally, if interest rates drop between the time you put your money into the
fixed investment options and the time you take it out, we credit a positive
adjustment to your contract. On the other hand, if interest rates increase
during the same period, we post a negative adjustment to your contract.
Where the market value adjustment is negative, we first deduct the adjustment
from any money remaining in the fixed investment option. If there is not enough
money in the fixed investment option to meet the negative deduction, we deduct
the remainder from your withdrawal. Where the market value adjustments is
positive, we add the adjustment to your withdrawal amount.
The one year fixed investment option and the DCA fixed accounts do not impose a
market value adjustment. These fixed investment options are not registered under
the Securities Act of 1933 and are not subject to the provisions of the
Investment Company Act of 1940.
Please see Appendix B for more information on how we calculate the market value
adjustment.
TRANSFERS DURING THE ACCUMULATION PHASE
Except as provided in the next sentence with respect to the DCA fixed accounts,
you can transfer money among the SELECT PORTFOLIO(S), STRATEGY(IES) and the
fixed investment options by written request or by telephone. Although you may
transfer money out of the DCA fixed accounts, you may not transfer money into
the DCA fixed account from any SELECT PORTFOLIO, STRATEGY or fixed investment
option. You can make four transfers every year without incurring a transfer
charge. We measure a year from the anniversary of the date we issued your
contract. If you make more than four transfers in a year, there is a $25 fee per
transfer ($10 in Pennsylvania and Texas). Additionally, transfers out of a 3, 5,
7 or 10 year fixed investment option may be subject to a market value
adjustment.
The minimum amount you can transfer is $500, or a lesser amount if you transfer
the entire balance from a SELECT PORTFOLIO, STRATEGY or a fixed investment
option. Any money remaining in a SELECT PORTFOLIO, STRATEGY or fixed investment
option after making a transfer must equal at least $500. Your request for
transfer must clearly state which investment option(s) are involved and the
amount you want to transfer. Please see the section below on Dollar Cost
Averaging for specific rules regarding the DCA fixed accounts.
We will accept transfers by telephone unless you specify otherwise on your
contract application. Additionally, in the future you may be able to execute
transfers or other financial transactions over the internet. When receiving
17
<PAGE>
instructions over the telephone, 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.
Upon implementation of internet account transfers we will have appropriate
procedures in place to provide reasonable assurance that the transactions
executed are genuine. Thus, we would not be responsible for any claim, loss or
expense from any error resulting from instructions received over the internet.
If we fail to follow our procedures we may be liable for any losses due to
unauthorized or fraudulent transactions.
For information regarding transfers during the Income Phase, SEE INCOME OPTIONS,
PAGE 25.
We may limit the number of transfers in any contract year or refuse any transfer
request for you or others invested in the contract if we believe that excessive
trading or a specific transfer request or group transfer requests may have a
detrimental effect on unit values or the share prices of the underlying
portfolios.
Where permitted by law, we may accept your authorization for a third party to
make transfers for you subject to our rules. We reserve the right to suspend or
cancel such acceptance at any time and will notify you accordingly.
Additionally, we may restrict the investment options available for transfers
during any period in which such third party acts for you. We notify such third
party beforehand regarding any restrictions. However, we will not enforce these
restrictions if we are satisfied that:
- such third party has been appointed by a court of competent jurisdiction
to act on your behalf; or
- such third party is a trustee/fiduciary appointed, by you or for you, to
act on your behalf for all your financial affairs.
We may provide administrative or other support services to independent third
parties you authorize to make transfers on your behalf. We do not currently
charge you extra for providing these support services. This includes, but is not
limited to, transfers between investment options in accordance with market
timing strategies. Such independent third parties may or may not be appointed
with us for the sale of annuities. However, WE DO NOT ENGAGE ANY THIRD PARTIES
TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE. WE TAKE NO RESPONSIBILITY
FOR THE INVESTMENT ALLOCATION AND TRANSFERS TRANSACTED ON YOUR BEHALF BY SUCH
THIRD PARTIES OR FOR ANY INVESTMENT ALLOCATION RECOMMENDATIONS MADE BY SUCH
PARTIES.
We reserve the right to modify, suspend or terminate the transfer privileges at
any time.
DOLLAR COST AVERAGING
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the
variable investment options. Under the program you systematically transfer a set
dollar amount or percentage of any SELECT PORTFOLIO and/or STRATEGY or from the
1-year fixed account option (source accounts) to any other SELECT PORTFOLIO or
STRATEGY. Transfers may be monthly or quarterly. You may change the frequency at
any time by notifying us in writing.
We also offer the 6-month and a 1-year DCA fixed accounts exclusively to
facilitate this program. The DCA fixed accounts only accept new Purchase
Payments. You can not transfer money already in your contract into these
options. If you allocate a Purchase Payment into a DCA fixed account, we
transfer all your money allocated to that account into the SELECT PORTFOLIO(S)
or STRATEGY(IES) you select over the selected 6-month or 1-year period. You
cannot change the option or the frequency of transfers once selected. The
minimum transfer amount if you use the 1-year or 6-month DCA fixed accounts to
provide dollar cost averaging is $100.
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<PAGE>
If allocated to the 6-month DCA fixed account, we transfer your money over a
maximum of 6 monthly transfers. We base the actual number of transfers on the
total amount allocated to the account. For example, if you allocate $500 to the
6-month DCA fixed account, we transfer your money over a period of five months,
so that each payment complies with the $100 per transfer minimum.
We determine the amount of the transfers from the 1-year DCA fixed account based
on
- the total amount of money allocated to the account, and
- the frequency of transfers selected.
For example, let's say you allocate $1,000 to the 1-year DCA account. You select
monthly transfers. We completely transfer all of your money to the selected
investment options over a period of ten months.
You may terminate your DCA program at any time. If money remains in the DCA
fixed account, we transfer the remaining money to the 1-year fixed investment
option, unless we receive different instructions from you.
Transfers under the DCA program do not count against your four free transfers
per year. In addition, transfers resulting from a termination of this program do
not count towards your 4 free transfers.
The DCA program is designed to lessen the impact of market fluctuations on your
investment. However, we cannot ensure that you will make a profit. When you
elect the DCA Program, you are continuously investing in securities regardless
of fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Mid-Cap Value SELECT PORTFOLIO over six
quarters. You set up dollar cost averaging and purchase Accumulation Units
at the following values:
<TABLE>
<CAPTION>
QUARTER ACCUMULATION UNIT UNITS PURCHASED
- --------- ----------------- -------------------
<S> <C> <C>
1 $ 7.50 100
2 $ 5.00 150
3 $ 10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
</TABLE>
You paid an average price of only $6.67 per Accumulation Unit over six
quarters, while the average market price actually was $7.08. By investing an
equal amount of money each month, you automatically buy more Accumulation
Units when the market price is low and fewer Accumulation Units when the
market price is high. This example is for illustrative purposes only.
PRINCIPAL ADVANTAGE PROGRAM
The Principal Advantage Program allows you to invest in one or more of the
SELECT PORTFOLIO(S) or STRATEGY(IES) without putting your principal at direct
risk. The program accomplishes this by allocating your investment strategically
between the fixed investment options (other than the DCA fixed accounts) and the
SELECT PORTFOLIO or STRATEGY you select. You decide how much you want to invest
and approximately
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<PAGE>
when you want a return of principal. We calculate how much of your Purchase
Payment needs to be allocated to the particular fixed investment option to
ensure that it grows to an amount equal to your total principal invested under
this program.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed investment option. You want the amount allocated to
the fixed investment option to grow to $100,000 in 7 years. If the 7-year
fixed investment option is offering a 5% interest rate, we will allocate
$71,069 to the 7-year fixed investment option to ensure that this amount
will grow to $100,000 at the end of the 7-year period. The remaining $28,931
may be allocated among the SELECT PORTFOLIO(S) or STRATEGY(IES), as
determined by you, to provide opportunity for greater growth.
VOTING RIGHTS
Anchor National is the legal owner of the Seasons Series Trust shares. However,
when an underlying portfolio solicits proxies in conjunction with a vote of
shareholders, we must obtain your instructions on how to vote those shares. We
vote all of the shares we own in proportion to your instructions. This includes
any shares we own on our own behalf. Should we determine that we are no longer
required to comply with these rules, we will vote the shares in our own right.
SUBSTITUTION
If any of the underlying portfolios become unavailable for investment, we may be
required to substitute shares of another investment portfolio. We will seek
prior approval of the SEC and give you notice before substituting shares.
ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. SEE INCOME OPTIONS,
PAGE 25.
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal and a market value adjustment if a withdrawal comes from the 3, 5, 7
or 10 year fixed investment options prior to the end of a guarantee period. If
you withdraw your entire contract value, we also deduct any applicable premium
taxes and a contract maintenance fee. SEE EXPENSES, PAGE 23. We calculate
charges due on a total withdrawal on the day after we receive your request and
other required paper work. We return your contract value less any applicable
fees and charges.
FREE WITHDRAWAL PROVISION
Your contract provides for a free withdrawal amount each year. A free withdrawal
amount is the portion of your account that we allow you to take out each year
without being charged a surrender penalty. However, upon a future full surrender
of your contract we will recoup any surrender charges which would have been due
if your prior free withdrawal(s) had not been free.
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<PAGE>
To determine your free withdrawal amount and your surrender charge, we refer to
two special terms. These are penalty free earnings and the total invested
amount.
The penalty-free earnings portion of your contract is simply your account value
less your total invested amount. The total invested amount is the total of all
Purchase Payments you have made into the contract less portions of some prior
withdrawals you made. The portions of prior withdrawals that reduce your total
invested amount are as follows:
1. Any free withdrawals in any year that were in excess of your penalty
free earnings and were based on the part of the Total Investment Amount
that was no longer subject to surrender charges at the time of the
withdrawal.
2. Any prior withdrawals of the Total Investment Amount on which you
already paid a surrender penalty, plus any surrender charge paid on such
a withdrawal.
When you make a withdrawal, we assume that it is taken from penalty-free
earnings first, then from the total invested amount on a first-in, first-out
basis. This means that you can also access your Purchase Payments which are no
longer subject to a surrender charge before those Purchase Payments which are
still subject to the surrender charge.
During the first year after we issue your contract your free withdrawal amount
is the greater of:
1. Your penalty-free earnings, or;
2. If you are participating in the Systematic Withdrawal program, a total
of 10% of your total invested amount less any withdrawals taken during
the contract year.
After the first contract year, you can take out the greater of the following
amounts each year:
1. Your penalty free earnings and any portion of your total invested amount
no longer subject to surrender charges, or;
2. 10% of the portion of your total invested amount that has been in your
contract for at least one year less any withdrawals taken during the
contract year.
Purchase payments, above and beyond the amount of your free withdrawal amount,
that are invested for less than 9 years and withdrawn will result in your paying
a penalty in the form of a surrender charge. The amount of the charge and how it
applies are discussed more fully below. You should consider, before purchasing
this contract, the effect this charge will have on your investment if you need
to withdraw more money than the free withdrawal amount. You should fully discuss
this decision with your financial advisor.
The minimum partial withdrawal amount is $1,000. We require that the value left
in any SELECT PORTFOLIO, STRATEGY or fixed account be at least $500 after the
withdrawal. You must send a written withdrawal request. Unless you provide us
with different instructions, partial withdrawals will be made in equal amounts
from each SELECT PORTFOLIO, STRATEGY and the fixed investment option in which
your contract is invested. Withdrawals from fixed investment options prior to
the end of the guarantee period may result in a market value adjustment.
We 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
Portfolios is not reasonably practicable; (4) the SEC, by order, so permits for
the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from a
fixed investment option. Such deferrals are limited to no longer than six
months.
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<PAGE>
SYSTEMATIC WITHDRAWAL PROGRAM
If you elect, we use money in your contract to pay you monthly, quarterly,
semi-annual or annual payments during the Accumulation Phase. Electronic
transfer of these funds to your bank account is also available. The minimum
amount of each withdrawal is $250. There must be at least $500 remaining in your
contract at all times. Withdrawals may be taxable and a 10% IRS tax penalty may
apply if you are under age 59 1/2. Any withdrawals you make using this program
count against your free withdrawal amount as described above. Withdrawals in
excess of that amount may incur a withdrawal charge. There is no additional
charge for participating in this program.
The program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals;
and (2) you have not made any Purchase Payments during the past three years. We
will provide you with sixty days written notice. At the end of the notice
period, we will distribute the contract's remaining value to you.
QUALIFIED CONTRACT OWNERS
Certain qualified plans restrict and/or prohibit your ability to withdraw money
from your contract. SEE TAXES, PAGE 28 for a more detailed explanation.
DEATH BENEFIT
- --------------------------------------------------------------------------------
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary.
If at the time we issued your contract, you were 80 years old or younger, the
death benefit is the greatest of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Purchase Payments less withdrawals (and any fees or charges
applicable to such withdrawals) in an amount proportionate to the amount
by which such withdrawals decreased contract values, compounded at a 4%
annual growth rate until the date of death (3% growth rate if 70 or older
at the time of contract issue); or
3. the value of your contract on the seventh contract anniversary, plus any
Purchase Payments and less withdrawals (and any fees or charges
applicable to such withdrawals) in an amount proportionate to the amount
by which such withdrawals decreased contract values, since the seventh
contract anniversary, all compounded at a 4% annual growth rate until the
date of death (3% growth rate if age 70 or older at the time of contract
issue); or
4. the maximum anniversary value on any contract anniversary prior to your
81st birthday. The anniversary value equals the value of your contract on
a contract anniversary plus any Purchase Payments and less any
withdrawals (and any fees or charges applicable to such withdrawals) in
an amount proportionate to the amount by which such withdrawals decreased
contract values, since that contract anniversary.
If at the time we issue your contract, you were 81 years old or older, the death
benefit is the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
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<PAGE>
2. total Purchase Payments less withdrawals (and any fees or charges
applicable to such withdrawals) in an amount proportionate to the amount
by which such withdrawals decreased contract values, compounded at a 3%
annual growth rate until the date of death.
The death benefit is not paid after you switch to the Income Phase. If you die
during the Income Phase, your Beneficiary will receive any remaining guaranteed
income payments in accordance with the income option you choose. SEE INCOME
OPTIONS, PAGE 25.
You select the Beneficiary to receive any amounts payable on death. You may
change the Beneficiary at any time, unless you previously made an irrevocable
Beneficiary designation. A new Beneficiary designation is not effective until we
record the change.
The death benefit will be paid out when we receive adequate proof of death: (1)
a certified copy of a death certificate; (2) a certified copy of a decree of
court of competent jurisdiction as to the finding of death; (3) a written
statement by a medical doctor who attended the deceased at the time of death; or
(4) any other proof satisfactory to us. We may also require additional
documentation or proof in order for the death benefit to be paid.
The death benefit must begin payment immediately upon receipt of all necessary
documents and, in any event, must be paid within 5 years of the date of death.
The Beneficiary may, in the alternative, elect to have the death benefit payable
in the form of an annuity. If the Beneficiary elects an income option, it must
be paid over the Beneficiary's lifetime or for a period not extending beyond the
Beneficiary's life expectancy. Income payments must begin within one year of
your death. If the Beneficiary is the spouse of the owner, he or she can elect
to continue the contract at the then current value, rather than receive a death
benefit.
If the Beneficiary does not make a specific election as to how they want the
death benefit distributed within sixty days of our receipt of adequate proof of
death, it will be paid in a lump sum.
DEATH OF THE ANNUITANT
If the Annuitant dies before annuity payments begin, you can name a new
Annuitant. If no Annuitant is named within 30 days, you will become the
Annuitant. However, if the owner is a non-natural person (for example, a
corporation), then the death of the Annuitant will be treated as the death of
the owner, no new Annuitant may be named and the death benefit will be paid.
EXPENSES
- --------------------------------------------------------------------------------
There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the contract
maintenance fee or withdrawal charges under your contract. However the
investment charges under your contract may increase or decrease. Some states may
require that we charge less than the amounts described below.
INSURANCE CHARGES
If you are age 80 or younger when your contract is issued, the amount of this
charge is 1.40% annually of the value of your contract invested in the SELECT
PORTFOLIO(S) and/or STRATEGY(IES). If you are are 81 or older at the time of
contract issue, the insurance charge is 1.52% annually of the value of your
contract invested in the SELECT PORTFOLIO(S) and/or STRATEGY(IES).
We deduct the charge daily, on a pro-rata basis, from the value of your contract
allocated to the SELECT PORTFOLIOS and/or STRATEGIES. The insurance charge
compensates us for the mortality and expense risks and the costs of contract
distribution assumed by Anchor National.
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If these charges do not cover all of our expenses, we will pay the difference.
Likewise, if these charges exceed our expenses, we will keep the difference.
WITHDRAWAL CHARGES
During the Accumulation Phase you may make withdrawals from your contract.
However, a withdrawal charge may apply. We apply a withdrawal charge upon an
early withdrawal against each Purchase Payment you put into the contract. The
withdrawal charge equals a percentage of the Purchase Payment you take out of
the contract. The withdrawal charge percentage declines each year a purchase
payment is in the contract, as follows:
<TABLE>
<CAPTION>
YEAR 1 2 3 4 5 6 7 8
- ------------------ ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WITHDRAWAL CHARGE 9% 8% 7% 6% 6% 5% 4% 3%
<CAPTION>
YEAR 9 10
- ------------------ ----- -----
<S> <C> <C>
WITHDRAWAL CHARGE 2% 0%
</TABLE>
After a Purchase Payment has been in the contract for nine complete years, the
withdrawal charge no longer applies to that payment.
When calculating the withdrawal charge, we treat withdrawals as coming first
from the Purchase Payments that have been in your contract the longest. However,
for tax purposes, your withdrawals are considered earnings first, then Purchase
Payments.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract from each of your investment options on a pro-rata basis. If you
withdraw all of your contract value, we deduct any applicable withdrawal charges
from the amount withdrawn.
The contract provides a free withdrawal amount every year. SEE ACCESS TO YOUR
MONEY PAGE 20.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit. We do not currently assess a withdrawal charge upon election to receive
income payments from your contract.
Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE TAXES PAGE
28.
INVESTMENT CHARGES
Charges are deducted from the assets of the investment portfolios underlying the
SELECT PORTFOLIO(S) or STRATEGY(IES) for the advisory and other expenses of the
portfolios. THE FEE TABLE BEGINNING ON PAGE 5 ILLUSTRATES THESE CHARGES AND
EXPENSES. FOR MORE DETAILED INFORMATION ON THESE INVESTMENT CHARGES, REFER TO
THE PROSPECTUS FOR THE SEASONS SERIES TRUST, ATTACHED.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from your
account once per year. This charge compensates us for the cost of contract
administration. We will deduct the $35 ($30 in North Dakota) contract
maintenance fee on a pro-rata basis from your account value on your contract
anniversary. In the state of Washington a contract maintenance fee will be
deducted pro-rata from the SELECT PORTFOLIOS and/or STRATEGIES in which you are
invested, only. If you withdraw your entire contract value, we deduct the fee
from that withdrawal.
If your contract value is $50,000 or more on your contract anniversary date, we
will waive the charge. This waiver is subject to change without notice.
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<PAGE>
TRANSFER FEE
We currently permit four free transfers between investment options, every
contract year. We charge you $25 for each transfer over four in any one year
($10 in Pennsylvania and Texas). We deduct the transfer fee from the SELECT
PORTFOLIO(S), STRATEGY and/or fixed investment option from which you request the
transfer. SEE INVESTMENT OPTIONS, PAGE 11.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract. We deduct from your contract these premium tax charges. Currently we
deduct the charge for premium taxes when you take a full withdrawal or annuitize
the contract. In the future, we may assess this deduction at the time you put
Purchase Payment(s) into the contract or upon payment of a death benefit.
APPENDIX C provides more information about premium taxes.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the right
to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated individuals may
lower our administrative and/or sales expenses. We reserve the right to reduce
or waive certain charges and expenses when this type of sale occurs. In
addition, we may also credit additional interest to policies sold to such
groups. We determine which groups are eligible for such treatment. Some of the
criteria we evaluate to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that our expenses will be reduced; and/or any other
factors that we believe indicate that administrative and/or sales expenses may
be reduced.
Anchor National may make such a determination regarding sales to its employees,
it affiliates' employees and employees of currently contracted broker-dealers;
its registered representatives and immediate family members of all of those
described.
We reserve the right to change or modify any such determination or the treatment
applied to a particular group, at any time.
INCOME OPTIONS
- --------------------------------------------------------------------------------
ANNUITY DATE
During the Income Phase, the money in your Contract is used to make regular
income payments to you. You may switch to the Income Phase any time after your
2nd contract anniversary. You select the month and year in which you want income
payments to begin. The first day of that month is the Annuity Date. You may
change your Annuity Date, so long as you do so at least seven days before the
income payments are scheduled to begin. Once you begin receiving income
payments, you cannot change your Income Option. Except as discussed under Option
5, once you begin receiving income payments, you cannot otherwise access your
money through a withdrawal or surrender.
25
<PAGE>
Income payments must begin on or before your 90th birthday or on your tenth
contract anniversary, whichever occurs later. If you do not choose an Annuity
Date, your income payments will automatically begin on this date. Certain states
may require your income payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose its
status as an annuity under Federal tax laws. This may cause you to incur adverse
tax consequences. In addition, certain Qualified contracts require you to take
minimum distributions after you reach age 70 1/2. SEE TAXES, PAGE 28.
INCOME OPTIONS
Currently, this Contract offers 5 Income Options. If you elect to receive income
payments but do not select an option, your income payments will be made in
accordance with option 4 for a period of 10 years. For income payments selected
for joint lives, we pay according to option 3.
We base our calculation of income payments on the life of the Annuitant and the
annuity rates set forth in your contract. As the contract owner, you may change
the Annuitant at any time prior to the Annuity Date. You must notify us if the
Annuitant dies before the Annuity Date and then designate a new Annuitant.
OPTION 1 - LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for the
life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop whenever the survivor dies.
OPTION 3 - JOINT AND 100% SURVIVOR LIFE ANNUITY WITH 10 OR 20 YEAR PERIOD
CERTAIN
This option is similar to option 2 above, with an additional guarantee of
payments for at least 10 or 20 years. If the Annuitant and the Survivor die
before all of the payments have been made, the remaining payments are made to
the Beneficiary under your Contract.
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEAR PERIOD CERTAIN
This option is similar to option 1 above. In addition, this option provides a
guarantee that income payments will be made for at least 10 or 20 years. You
select the number of years. If the Annuitant dies before all guaranteed income
payments are made, the remaining income payments go to the Beneficiary under
your Contract.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 5 to
30 years. If the Annuitant dies before all the guaranteed income payments are
made, the remaining income payments are made to the Beneficiary under your
contract. Additionally, if variable income payments are elected under this
option, you (or the Beneficiary under the contract if the Annuitant dies prior
to all guaranteed payments being made) may redeem the contract value after the
Annuity Date. The amount available upon such redemption would be the discounted
present value of any remaining guaranteed payments.
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<PAGE>
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. Since Option 5 does not contain
an element of mortality risk, no benefit is derived from this charge.
We make Income Payments on a monthly, quarterly, semi-annual or annual basis.
You instruct us to send you a check or to have the payments direct deposited
into your bank account. If state law allows, we distribute annuities with a
contract value of $5,000 or less in a lump sum. Also, if the selected income
option results in annuity payments of less than $50 per payment, we may decrease
the frequency of the payments, state law allowing.
ALLOCATION OF ANNUITY PAYMENTS
You can choose income payments that are fixed, variable or both. If payments are
fixed, Anchor National guarantees the amounts of each payment. If the payments
are variable, the amounts are not guaranteed. They will go up and/or down based
upon the performance of the SELECT PORTFOLIO(S) or STRATEGY(IES) in which you
invest.
FIXED OR VARIABLE INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. If at the date
when income payments begin you are invested in the SELECT PORTFOLIO(S) and/or
STRATEGY(IES) only, your income payments will be variable. If your money is only
in fixed accounts at that time, your income payments will be fixed in amount. If
you are invested in both fixed and variable options at the time you begin the
Income Phase, a portion of your income payments will be fixed and a portion will
be variable.
INCOME PAYMENTS
Your income payments will vary if you are invested in the SELECT PORTFOLIO(S)
and/or STRATEGY(IES) after the Annuity date depending on four things:
- for life options, your age when payments begin, and;
- the value of your contract in the SELECT PORTFOLIO(S) and/or STRATEGY(IES)
on the Annuity Date, and;
- the 3.5% assumed investment rate for variable income payments used in the
annuity table for the contract, and;
- the performance of the SELECT PORTFOLIO(S) and/or STRATEGY(IES) in which
you are invested during the time you receive income payments.
If you are invested in both the fixed account options and the SELECT
PORTFOLIO(S) and/or STRATEGY(IES) after the Annuity Date, the allocation of
funds between the fixed accounts and SELECT PORTFOLIO(S) and/or STRATEGY(IES)
also impacts the amount of your annuity payments.
TRANSFERS DURING THE INCOME PHASE
You may transfer money among the SELECT PORTFOLIO(S) and/or STRATEGY(IES) during
the Income Phase. Transfers are subject to the same limitations as transfers
during the Accumulation Phase. However, you may not transfer money from the
fixed accounts into the SELECT PORTFOLIO(S) and/or STRATEGY(IES) or from the
SELECT PORTFOLIO(S) and/or STRATEGY(IES) into the fixed accounts during the
Income Phase. SEE EXPENSES, PAGE 23.
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<PAGE>
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period.
Please read the Statement of Additional Information ("SAI") for a more detailed
discussion of the income options.
TAXES
- --------------------------------------------------------------------------------
NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL DISCUSSION OF
THE SUBJECT. IT IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE
ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR
ANNUITY. TAX LAWS CONSTANTLY CHANGE, THEREFORE WE CANNOT GUARANTEE THAT THE
INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, taxes on the earnings in your annuity
contract are deferred until you take the money out. Qualified retirement
investments automatically provide tax deferral regardless of whether the
underlying contract is an annuity. Different rules apply depending on how you
take the money out and whether your contract is Qualified or Non-qualified.
If you do not purchase your contract under a pension plan, a specially sponsored
employer program or an individual retirement account, your contract is referred
to as a Non-qualified contract. A Non-qualified contract receives different tax
treatment than a Qualified contract. In general, your cost basis in a
Non-qualified contract is equal to the Purchase Payments you put into the
contract. You have already been taxed on the cost basis in your contract.
If you purchase your contract under a pension plan, a specially sponsored
employer program or as an individual retirement account, your contract is
referred to as a Qualified contract. Examples of qualified plans are: Individual
Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as
403(b) contracts), H.R. 10 Plans (referred to as Keogh Plans) and pension and
profit sharing plans, including 401(k) plans. Typically you have not paid any
tax on the Purchase Payments used to buy your contract and therefore, you have
no cost basis in your contract.
TAX TREATMENT OF DISTRIBUTIONS--NON-QUALIFIED CONTRACTS
If you make a withdrawal from a Non-qualified contract, the IRC treats such a
withdrawal as first coming from the earnings and then as coming from your
Purchase Payments. For annuity payments, any portion of each payment that is
considered a return of your Purchase Payment will not be taxed. Withdrawn
earnings are treated as income to you and are taxable. The IRC provides for a
10% penalty tax on any earnings that are withdrawn other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) in a series of substantially equal installments made for your life
or for the joint lives of you and you Beneficiary; (5) under an immediate
annuity; or (6) which come from Purchase Payments made prior to August 14, 1982.
TAX TREATMENT OF DISTRIBUTIONS--QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract. Any amount of money you take out as a withdrawal or as
income payments is taxable income. The IRC further provides for a 10% penalty
tax on any withdrawal or income payment paid to you other than in conjunction
with the following
28
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circumstances: (1) after reaching age 59 1/2; (2) when paid to your Beneficiary
after you die; (3) after you become disabled (as defined in the IRC); (4) in a
series of substantially equal installments made for your life or for the joint
lives of you and your Beneficiary; (5) to the extent such withdrawals do not
exceed limitations set by the IRC for amounts paid during the taxable year for
medical care; (6) to fund higher education expenses (as defined in IRC); (7) to
fund certain first-time home purchase expenses; and, except in the case of an
IRA; (8) when you separate from service after attaining age 55; and (9) when
paid to an alternate payee pursuant to a qualified domestic relations order.
The IRC limits the withdrawal of Purchase Payments from certain Tax-Sheltered
Annuities. Withdrawals can only be made when an owner: (1) reaches age 59 1/2;
(2) leaves his or her job; (3) dies; (4) becomes disabled (as defined in the
IRC); or (5) in the case of hardship. In the case of hardship, the owner can
only withdraw Purchase Payments.
MINIMUM DISTRIBUTIONS
If you have a Qualified contract, distributions must begin by April 1 of the
calendar year following the later of (1) the calendar year in which you attain
age 70 1/2 or (2) the calendar year in which you retire. Failure to satisfy the
minimum distribution requirements may result in a tax penalty. You should
contact your tax advisor for more information.
We currently waive surrender charges and MVA on withdrawals taken to meet
minimum distribution requirements. Current operational practice is to provide a
free withdrawal of the greater of the contract's maximum penalty free amount or
the required minimum distribution amount for a particular contract (but not
both).
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that the underlying Portfolios'
management monitors the variable Portfolios so as to comply with these
requirements. To be treated as a variable annuity for tax purposes, the
underlying investments must meet these requirements.
The diversification regulations do not provide guidance as to the circumstances
under which you, because of the degree of control you exercise over the
underlying investments, and not Anchor National, would be considered the owner
of the shares of the Portfolios. It is unknown to what extent owners are
permitted to select investments, to make transfers among Portfolios or the
number and type of Portfolios owners may select from. If any guidance is
provided which is considered a new position, then the guidance would generally
be applied prospectively. However, if such guidance is considered not to be a
new position, it may be applied retroactively. This would mean you, as the owner
of the contract, could be treated as the owner of the underlying variable
investment Portfolios. Due to the uncertainty in this area, we reserve the right
to modify the contract in an attempt to maintain favorable tax treatment.
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time we will advertise the performance of the SELECT PORTFOLIO(S)
and/or STRATEGY(IES). Any such performance results are based on historical
earnings and are not intended to indicate future performance.
We advertise the Cash Management SELECT PORTFOLIO's yield and effective yield.
In addition, the other SELECT PORTFOLIO(S) and STRATEGY(IES) advertise total
return, gross yield and yield-to-maturity. These figures represent past
performance of the SELECT PORTFOLIO(S) and STRATEGY(IES). These performance
numbers do not indicate future results.
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We may show performance of each SELECT PORTFOLIO and/or STRATEGY in comparison
to various appropriate indexes and the performance of other similar variable
annuity products with similar objectives as reported by such independent
reporting services as Morningstar, Inc., Lipper Analytical Services, Inc. and
the Variable Annuity Research Data Service ("VARDS").
Please see the Statement of Additional Information for additional information
regarding the methods used to calculate performance data.
Anchor National may also advertise the rating and other information assigned to
it by independent industry ratings organizations. Some of those organizations
are A.M. Best Company ("A.M. Best"), Moody's Investor's Service ("Moody's"),
Standard & Poor's Insurance Rating Services ("S&P"), and Duff & Phelps. A.M.
Best's and Moody's ratings reflect their current opinion of our financial
strength and performance in comparison to others in the life and health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues.
These two ratings do not measure the insurer's ability to meet non-policy
obligations. Ratings in general do not relate to the performance of the variable
Portfolios.
OTHER INFORMATION
- --------------------------------------------------------------------------------
ANCHOR NATIONAL
Anchor National is a stock life insurance company originally organized under the
laws of the state of California in April 1965. On January 1, 1996, Anchor
National redomesticated under the laws of the state of Arizona.
Anchor National and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, CalAmerica Life Insurance Company, SunAmerica
National Life Insurance Company, SunAmerica Asset Management, Resources Trust
Company, and the SunAmerica Financial Network, Inc. (comprising six wholly owned
broker-dealers), specialize in retirement savings and investment products and
services. Business focuses include, fixed and variable annuities, mutual funds,
broker-dealer services and trust administration services.
THE SEPARATE ACCOUNT
Anchor National originally established a separate account, Variable Annuity
Account Five (the "Separate Account"), under Arizona law on July 8, 1996. The
Separate Account is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940, as amended.
Anchor National owns the assets in the Separate Account. However, the assets in
the Separate Account are not chargeable with liabilities arising out of any
other business conducted by Anchor National. Income gains and losses (realized
and unrealized) resulting from assets in the Separate Account are credited to or
charged against the Separate Account without regard to other income, gains or
losses of Anchor National.
CUSTODIAN
State Street Bank and Trust Company, 255 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the Separate Account. Anchor
National pays State Street Bank for services provided, based on a schedule of
fees.
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THE GENERAL ACCOUNT
Money allocated to the fixed account options goes into Anchor National's general
account. The general account consists of all of Anchor National'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 Anchor National contract holders
as well as all of its creditors. The general account funds are invested as
permitted under state insurance laws.
DISTRIBUTION OF THE CONTRACT
Registered representatives of broker-dealers sell the contract. We pay
commissions to these representatives for the sale of the contracts. We do not
expect the total commissions to exceed 7.5% of your Purchase Payments. We may
also pay a bonus to representatives for contracts which stay active for a
particular period of time, in addition to standard commissions. We do not deduct
commissions paid to registered representatives directly from your Purchase
Payments.
From time to time, we may pay or allow additional promotional incentives in the
form of cash or other compensation. We reserve the right to offer these
additional incentives only to certain broker-dealers that sell or are expected
to sell, certain minimum amounts of the contract, or other contracts offered by
us. Promotional incentives may change at any time.
SunAmerica Capital Services, Inc., 733 Third Avenue, 4th Floor, New York, New
York 10017 distributes the contracts. SunAmerica Capital Services is an
affiliate of Anchor National, and is a registered as a broker-dealer under the
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc.
No underwriting fees are paid in connection with the distribution of the
contracts.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. During the
accumulation phase, you will receive confirmation of transactions within your
contract. Transactions made pursuant to contractual or systematic agreements,
such as deduction of the annual maintenance fee and dollar cost averaging, may
be confirmed quarterly. Purchase payments received through the automatic payment
plan or a salary reduction arrangement, may also be confirmed quarterly. For all
other transactions, we send confirmations immediately.
During the accumulation and income phases, you will receive a statement of your
transactions over the past quarter and a summary of your account values. Please
contact our Annuity Service Center at 1-800-445-SUN2, if you have any comment,
question or service request.
We send out transaction confirmations and quarterly statements. It is your
responsibility to review these documents carefully and notify us of any
inaccuracies immediately. We investigate all inquiries. To the extent that we
believe we made an error, we retroactively adjust your contract, provided you
notify us within 30 days of receiving the transaction confirmation or quarterly
statement. Any other adjustments we deem warranted are made as of the time we
receive notice of the error.
YEAR 2000
We rely significantly on computer systems and applications in our daily
operations. Many of our systems are not presently year 2000 compliant, which
means that because they have historically used only two digits to identify the
year in a date, they will fail to distinguish dates in the "2000s" from dates in
the "1900s." Anchor National's
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business, financial condition and results of operations could be materially and
adversely affected by the failure of our systems and applications (and those
operated by third parties interfacing with our systems and applications) to
properly operate or manage these dates.
Anchor National has a coordinated plan to repair or replace these noncompliant
systems and to obtain similar assurances from third parties interfacing with our
systems and applications. In fiscal 1997, the Company's parent recorded a $15.0
million provision for estimated programming costs to make necessary repairs of
certain specific noncompliant systems of which $6.2 million was allocated to
Anchor National. In addition, the Company's parent is making expenditures which
it expects will ultimately total $12.3 million to replace certain other
noncompliant systems. Of these expenditures, approximately $5.0 million will be
allocated to Anchor National. Total expenditures relating to the replacement of
noncompliant systems will be capitalized as software costs and will be amortized
over future periods. Both phases of the project are progressing according to
plan and were substantially completed by the end of the calendar 1998. Testing
of both the repaired and replacement systems is expected to be substantially
completed by July 31, 1999. However, Anchor National will continue to test all
of its computer systems and applications through 1999 to ensure continued
compliance.
In addition, we distributed a year 2000 questionnaire to our significant
suppliers, distributors, financial institutions, lessors and others we do
business with to evaluate their year 2000 compliance plans and state of
readiness and to determine how our systems and applications may be affected by
their failure to solve their own year 2000 issues. To date, however, we have
only received preliminary feedback from such parties and have not independently
confirmed any information received from other parties with respect to the year
2000 issues. Therefore, we cannot assure that such other parties will complete
their year 2000 conversions in a timely fashion or will not suffer a year 2000
business disruption that may adversely affect our financial condition and
results of operations.
Because we expect to complete our year 2000 conversion prior to any potential
disruption to our business, we have not developed a comprehensive year 2000
contingency plan. Anchor National closely monitors the progression of its plan
for compliance, and if necessary, would devote additional resources to assure
the timely completion of our year 2000 plan. If we determine that our business
is at material risk of disruption due to the year 2000 issue or anticipate that
we will not complete our year 2000 conversion in a timely fashion, we will work
to enhance our contingency plans.
The above statements are forward-looking. The costs of our year 2000 conversion,
the date which we have set to complete such conversion and the possible risks
associated with the year 2000 issue are based on our current estimates and are
subject to various uncertainties that could cause the actual results to differ
materially from our expectations. Such uncertainties include, among others, our
success in identifying systems and applications that are not year 2000
compliant, the nature and amount of programming required to upgrade or replace
each of the affected systems and applications, the availability of qualified
personnel, consultants and other resources, and the success of the year 2000
conversion efforts of others.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. Anchor
National and its subsidiaries engage in various kinds of routine litigation. In
management's opinion, these matters are not of material importance to their
respective total assets nor are they material with respect to the Separate
Account.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The consolidated financial statements of Anchor National Life Insurance Company
as of September 30, 1998 and 1997 and for each of the three years in the period
ended September 30, 1998 and the financial statements of Variable Annuity
Account Five (Portion Relating to the SEASONS SELECT Variable Annuity), as of
March 31, 1999 and for the period from inception to March 31, 1999 are included
in the Statement of Additional Information and have been so included in reliance
on the reports of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
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TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Separate Account.............................................................................. 3
General Account............................................................................... 4
Performance Data.............................................................................. 4
Annuity Payments.............................................................................. 5
Annuity Unit Values........................................................................... 5
Taxes......................................................................................... 8
Distribution of Contracts..................................................................... 12
Financial Statements.......................................................................... 13
</TABLE>
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APPENDIX A - CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCEPTION TO
STRATEGIES 3/31/99
- ----------------------------------------------------------------------------------- ------------------
<S> <C>
- -------------------------------------------------------------------------------------------------------
Growth (Inception Date 3/4/99)
Beginning AUV.................................................................... (a) 15.05
(b) 0
End AUV.......................................................................... (a) 15.89
(b) 0
Ending Number of AUs............................................................. (a) 31,169
(b) 0
- -------------------------------------------------------------------------------------------------------
Moderate Growth (Inception Date 3/3/99)
Beginning AUV.................................................................... (a) 14.25
(b) 0
End AUV.......................................................................... (a) 15.09
(b) 0
Ending Number of AUs............................................................. (a) 93,136
(b) 0
- -------------------------------------------------------------------------------------------------------
Balanced Growth (Inception Date 3/5/99)
Beginning AUV.................................................................... (a) 13.80
(b) 0
End AUV.......................................................................... (a) 14.05
(b) 0
Ending Number of AUs............................................................. (a) 85,553
(b) 0
- -------------------------------------------------------------------------------------------------------
Conservative Growth (Inception Date 3/5/99)
Beginning AUV.................................................................... (a) 13.03
(b) 13.25
End AUV.......................................................................... (a) 13.21
(b) 13.21
Ending Number of AUs............................................................. (a) 33,892
(b) 5,689
- -------------------------------------------------------------------------------------------------------
</TABLE>
AUV-Accumulation Unit Value
AU-Accumulation Units
(a) Reflects age 80 or younger
(b) Reflects age 81 or older
A-1
<PAGE>
<TABLE>
<CAPTION>
INCEPTION TO
SELECT PORTFOLIOS 3/31/99
- ----------------------------------------------------------------------------------- ------------------
<S> <C>
- -------------------------------------------------------------------------------------------------------
Large Cap Growth (Inception Date 3/1/99)
Beginning AUV.................................................................... (a) 10.00
(b) 0
End AUV.......................................................................... (a) 10.68
(b) 0
Ending Number of AUs............................................................. (a) 85,647
(b) 0
- -------------------------------------------------------------------------------------------------------
Large Cap Composite (Inception Date 3/1/99)
Beginning AUV.................................................................... (a) 10.00
(b) 0
End AUV.......................................................................... (a) 10.41
(b) 0
Ending Number of AUs............................................................. (a) 33,347
(b) 0
- -------------------------------------------------------------------------------------------------------
Large Cap Value (Inception Date 3/1/99)
Beginning AUV.................................................................... (a) 10.00
(b) 0
End AUV.......................................................................... (a) 10.32
(b) 0
Ending Number of AUs............................................................. (a) 34,004
(b) 0
- -------------------------------------------------------------------------------------------------------
Mid Cap Growth (Inception Date 3/1/99)
Beginning AUV.................................................................... (a) 10.00
(b) 0
End AUV.......................................................................... (a) 10.62
(b) 0
Ending Number of AUs............................................................. (a) 27,096
(b) 0
- -------------------------------------------------------------------------------------------------------
Mid Cap Value (Inception Date 3/1/99)
Beginning AUV.................................................................... (a) 10.00
(b) 0
End AUV.......................................................................... (a) 10.10
(b) 0
Ending Number of AUs............................................................. (a) 11,278
(b) 0
- -------------------------------------------------------------------------------------------------------
</TABLE>
AUV-Accumulation Unit Value
AU-Accumulation Units
(a) Reflects age 80 or younger
(b) Reflects age 81 or older
A-2
<PAGE>
<TABLE>
<CAPTION>
INCEPTION TO
SELECT PORTFOLIOS 3/31/99
- ----------------------------------------------------------------------------------- ------------------
<S> <C>
- -------------------------------------------------------------------------------------------------------
Small Cap (Inception Date 3/1/99)
Beginning AUV.................................................................... (a) 10.00
(b) 0
End AUV.......................................................................... (a) 10.35
(b) 0
Ending Number of AUs............................................................. (a) 22,807
(b) 0
- -------------------------------------------------------------------------------------------------------
International Equity (Inception Date 3/1/99)
Beginning AUV.................................................................... (a) 10.00
(b) 0
End AUV.......................................................................... (a) 10.51
(b) 0
Ending Number of AUs............................................................. (a) 23,961
(b) 0
- -------------------------------------------------------------------------------------------------------
Diversified Fixed Income (Inception Date 3/10/99)
Beginning AUV.................................................................... (a) 10.00
(b) 0
End AUV.......................................................................... (a) 10.02
(b) 0
Ending Number of AUs............................................................. (a) 31,762
(b) 0
- -------------------------------------------------------------------------------------------------------
Cash Management (Inception Date 3/26/99)
Beginning AUV.................................................................... (a) 10.00
(b) 0
End AUV.......................................................................... (a) 10.00
(b) 0
Ending Number of AUs............................................................. (a) 970
(b) 0
- -------------------------------------------------------------------------------------------------------
</TABLE>
AUV-Accumulation Unit Value
AU-Accumulation Units
(a) Reflects age 80 or younger
(b) Reflects age 81 or older
A-3
<PAGE>
APPENDIX B - MARKET VALUE ADJUSTMENT
- --------------------------------------------------------------------------------
The market value adjustment reflects the impact that changing interest rates
have on the value of money invested at a fixed interest rate. The longer the
period of time remaining in the term you initially agreed to leave your money in
the fixed investment option, the greater the impact of changing interest rates.
The impact of the market value adjustment can be either positive or negative,
and is computed by multiplying the amount withdrawn, transferred or annuitized
by the following factor:
[(1+I/(1+J+L)](to the power of N/12) - 1
THE MARKET VALUE ADJUSTMENT FORMULA
MAY DIFFER IN CERTAIN STATES
where:
I is the interest rate you are earning on the money invested in
the fixed investment option;
J is the interest rate then currently available for the period
of time equal to the number of years remaining in the term you initially agreed
to leave your money in the fixed investment option; and
L is equal to 0.005, except in Pennsylvania where it is equal to
zero and Florida where it is equal to .0025.
N is the number of full months remaining in the term you
initially agreed to leave your money in the fixed investment option.
EXAMPLES OF THE MARKET VALUE ADJUSTMENT
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to the
10-year fixed investment option at a rate of 5%;
(2) You make a partial withdrawal of $4,000 when 1 year (12 months) remain
in the 10-year term you initially agreed to leave your money in the fixed
investment option (N=12); and
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals.
No withdrawal charges are reflected because your Purchase Payment has been in
the contract for nine full years. If a withdrawal charge applies, it is deducted
before the market value adjustment. The market value adjustment is assessed on
the amount withdrawn less any withdrawal charges.
NEGATIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year fixed investment option is 6%.
The market value adjustment factor is
= [(1+I)/(1+J+0.005)](to the power of N/12) - 1
= [(1.05)/(1.06+0.005)](to the power of 12/12) - 1
= (0.985915)(1) - 1
= 0.985915 - 1
= -0.014085
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
$4,000 X (-0.014085) = -$56.34
B-1
<PAGE>
$56.34 represents the market value adjustment that will be deducted from the
money remaining in the 10-year fixed investment option.
POSITIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for a new
Purchase Payments in the 1-year fixed investment option is 4%.
The market value adjustment factor is
= [(1+I/(1+J+0.005)](N/12) - 1
= [(1.05)/(1.04+0.005)](12/12) - 1
= (1.004785)1 - 1
= 1.004785 - 1
= +0.004785
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
$4,000 x (+0.004785) = +$19.14
$19.14 represents the market value adjustment that would be added to your
withdrawal.
B-2
<PAGE>
APPENDIX C - PREMIUM TAXES
- --------------------------------------------------------------------------------
Premium taxes vary according to the state and are subject to change without
notice. In many states, there is no tax at all. Listed below are the current
premium tax rates in those states that assess a premium tax. For current
information, you should consult your tax adviser.
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
STATE CONTRACT CONTRACT
- ----------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
California................................................................... .50% 2.35%
Kentucky..................................................................... 2% 2%
Maine........................................................................ 0% 2%
Nevada....................................................................... 0% 3.5%
South Dakota................................................................. 0% 1.25%
West Virginia................................................................ 1% 1%
Wyoming...................................................................... 0% 1%
</TABLE>
C-1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FIXED AND VARIABLE GROUP DEFERRED
ANNUITY CONTRACTS ISSUED BY
VARIABLE ANNUITY ACCOUNT FIVE (PORTION RELATING TO THE SEASONS SELECT VARIABLE
ANNUITY)
DEPOSITOR: ANCHOR NATIONAL LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus; it should be
read with the prospectus relating to the annuity contracts described above, a
copy of which may be obtained without charge by calling 800/445-SUN2 or by
written request addressed to:
Anchor National Life Insurance Company
Annuity Service Center
PO. Box 54299
Los Angeles, California 90054-0299
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS JULY 15, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Separate Account. . . . . . . . . . . . . . . . . . . . . . . . . . .3
General Account . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Performance Data. . . . . . . . . . . . . . . . . . . . . . . . . . .4
Annuity Payments. . . . . . . . . . . . . . . . . . . . . . . . . . .5
Annuity Unit Values . . . . . . . . . . . . . . . . . . . . . . . . .5
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Distribution of Contracts . . . . . . . . . . . . . . . . . . . . . 12
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
2
<PAGE>
SEPARATE ACCOUNT
Variable Annuity Account Five was originally established by Anchor National
Life Insurance Company (the "Company") on July 3, 1996 pursuant to the
provisions of Arizona law, as a segregated asset account of the Company. The
separate account meets the definition of a "separate account" under the
federal securities laws and is registered with the SEC as a unit investment
trust under the Investment Company Act of 1940. This registration does not
involve supervision of the management of the separate account or the Company
by the SEC.
The assets of the separate account are the property of the Company. However,
the assets of the separate account, equal to its reserves and other contract
liabilities, are not chargeable with liabilities arising out of any other
business the Company may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to
the separate account are credited to or charged against the separate account
without regard to other income, gains, or losses of the Company.
The separate account is divided into SELECT PORTFOLIOS and STRATEGIES, with
the assets of each SELECT PORTFOLIO and STRATEGY invested in the shares of
one or more underlying investment portfolios. The Company does not guarantee
the investment performance of the separate account, its SELECT PORTFOLIOS and
STRATEGIES or the underlying investment portfolios. Values allocated to the
separate account and the amount of variable annuity payments will vary with
the values of shares of the underlying investment portfolios, and are also
reduced by insurance charges and fees.
The basic objective of a variable annuity contract is to provide variable
annuity payments which will be to some degree responsive to changes in the
economic environment, including inflationary forces and changes in rates of
return available from various types of investments. The contract is designed
to seek to accomplish this objective by providing that variable annuity
payments will reflect the investment performance of the separate account with
respect to amounts allocated to it both before and after the Annuity Date.
Since the separate account is always fully invested in shares of the
underlying investment portfolios, its investment performance reflects the
investment performance of those entities. The values of such shares held by
the separate account fluctuate and are subject to the risks of changing
economic conditions as well as the risk inherent in the ability of the
underlying funds' managements to make necessary changes in their SELECT
PORTFOLIOS and STRATEGIES to anticipate changes in economic conditions.
Therefore, the owner bears the entire investment risk that the basic
objectives of the contract may not be realized, and that the adverse effects
of inflation may not be lessened. There can be no assurance that the
aggregate amount of variable annuity payments will equal or exceed the
Purchase Payments made with respect to a particular account for the reasons
described above, or because of the premature death of an Annuitant.
Another important feature of the contract related to its basic objective is
the Company's promise that the dollar amount of variable annuity payments
made during the lifetime of the Annuitant will not be adversely affected by
the actual mortality experience of the Company or the actual
3
<PAGE>
expenses incurred by the Company in excess of expense deductions provided for
in the contract (although the Company does not guarantee the amounts of the
variable annuity payments).
GENERAL ACCOUNT
The General Account is made up of all of the general assets of the Company
other than those allocated to the separate account or any other segregated
asset account of the Company. A Purchase Payment may be allocated to the
one, three, five, seven or ten year fixed investment option and/or the one
year or 6-month DCA fixed account(s) available in connection with the general
account, as elected by the owner purchasing a contract. Assets supporting
amounts allocated to a fixed investment option become part of the Company's
general account assets and are available to fund the claims of all classes of
customers of the Company, as well as of its creditors. Accordingly, all of
the Company's assets held in the general account will be available to fund
the Company's obligations under the contracts as well as such other claims.
The Company will invest the assets of the general account in the manner
chosen by the Company and allowed by applicable state laws regarding the
nature and quality of investments that may be made by life insurance
companies and the percentage of their assets that may be committed to any
particular type of investment. In general, these laws permit investments,
within specified limits and subject to certain qualifications, in federal,
state and municipal obligations, corporate bonds, preferred and common
stocks, real estate mortgages, real estate and certain other investments.
PERFORMANCE DATA
From time to time the separate account may advertise the Cash Management
Portfolio's "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Cash Management Portfolio refers to the net income generated
for a contract funded by an investment in the Portfolio (which invests in
shares of the Cash Management Portfolio of Seasons Series Trust) over a
seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Portfolio is assumed to be reinvested at the
end of each seven day period. The "effective yield" will be slightly higher
than the "yield" because of the compounding effect of this assumed
reinvestment. Neither the yield nor the effective yield takes into
consideration the effect of any capital changes that might have occurred
during the seven day period, nor do they reflect the impact of premium taxes
or any withdrawal charges. The impact of other recurring charges (including
the mortality and expense risk charge, distribution expense charge and
contract maintenance fee) on both yield figures is, however, reflected in
them to the same extent it would affect the yield (or effective yield) for a
contract of average size.
The Separate Account may advertise "total return" data for its SELECT
PORTFOLIOS and STRATEGIES. Total return figures are based on historical data
and are not intended to indicate future performance. The "total return" for
a SELECT PORTFOLIO or STRATEGY is a computed rate of return that, when
compounded annually over a stated period of time and applied to a
hypothetical initial investment in a contract funded by that SELECT PORTFOLIO
or STRATEGY made at the beginning of the period, will produce the same
contract value at the end of the period that the hypothetical investment
would have produced over the same period (assuming a complete redemption of
the contract at the end of the period.) The effect of applicable Withdrawal
Charges due to the assumed redemption will be reflected in the return
figures, but may be omitted in additional return figures given for comparison.
CASH MANAGEMENT PORTFOLIO
Inception of the Cash Management portfolio occurred on March 26, 1999,
for contracts issued to those under age 80 and on April 8, 1999, for
contracts issued to those over age 80. As a result there has not been seven
days worth of activity preceding the end of the fiscal year of the separate
account (March 31). Therefore, no yield figures are quoted here. In the
future we may advertise yields based on the information contained herein.
Current yield is computed by first determining the Base Period Return
attributable to a hypothetical contract having a balance of one Accumulation
Unit at the beginning of a 7 day period using the formula:
Base Period Return=(EV-SV-CMF)/(SV)
where:
SV=value of one Accumulation Unit at the start of a 7 day period
EV=value of one Accumulation Unit at the end of the 7 day period
CMF=an allocated portion of the $35 annual Contract Maintenance
Fee, prorated for 7 days
The change in the value of an Accumulation Unit during the 7 day period
reflects the income received minus any expenses accrued, during such 7 day
period. The Contract Maintenance Fee (CMF) is first allocated among the
STRATEGIES and/or SELECT PORTFOLIOS and the general account so that each
STRATEGY'S and/or SELECT PORTFOLIO'S allocated portion of the fee is
proportional to the percentage of the number of accounts that have money
allocated to that STRATEGY and/or SELECT PORTFOLIO. The fee is further
reduced, for purposes of the yield computation, by multiplying it by the
ratio that the value of the hypothetical contract bears to the value of an
account of average size for contracts funded by the Cash Management
Portfolio. Finally, as is done with the other charges discussed above, the
result is multiplied by the fraction 7/365 to arrive at the portion
attributable to the 7 day period.
The current yield is then obtained by annualizing the Base Period
Return:
Current Yield=(Base Period Return)x(365/7)
OTHER PORTFOLIOS
The Portfolios of the separate account other than the Cash Management
Portfolio compute their performance data as "total return."
TOTAL RETURN FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE.
Total return for a Portfolio represents a single computed annual rate of
return that, when compounded annually over a specified time period (one,
five, and ten years, or since inception) and applied to a hypothetical initial
investment in a contract funded by that Portfolio made at the beginning of
the period, will produce the same contract value at the end of the period
that the hypothetical investment would have produced over the same period.
The total rate of return (T) is computed so that it satisfies the formula:
n
P(1 +T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV=redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1,5 or 10 year period as of the end of the period (or
fractional portion thereof)
4
<PAGE>
The total return figures reflect the effect of both non-recurring and
recurring charges. The applicable Withdrawal Charge (if any) is deducted as
of the end of the period, to reflect the effect of the assumed complete
redemption. Total return figures are derived from historical data and are
not intended to be a projection of future performance. Variable Annuity
Account Five also funds another contract (Seasons) which has been in
existence longer than the Seasons Select Variable Annuity. The Strategies in
Seasons Select are also available in that other contract and have been since
4/15/97. Sales of Seasons Select began on February 18, 1999. The one year and
since inception numbers for the strategies are based on Season's historical
data (which is adjusted for the fees and charges applicable to Seasons
Select) and represent adjusted actual performance of the separate account.
TOTAL ANNUAL RETURN FOR THE PERIOD ENDING MARCH 31, 1999 (RETURN WITH/WITHOUT
REDEMPTION)ISSUE AGE UNDER 80
<TABLE>
<CAPTION>
STRATEGIES INCEPTION DATE 1 YEAR SINCE
INCEPTION
<S> <C> <C> <C>
Growth 4-15-97 12.30/21.30 23.30/26.60
Moderate Growth 4-15-97 9.26/18.26 19.96/23.34
Balanced Growth 4-15-97 3.85/12.85 15.37/18.88
Conservative Growth 4-15-97 0.49/9.49 11.58/15.20
SELECT PORTFOLIOS
Large Cap Growth 3-1-99 N/A -2.25/6.75
Large Cap Composite 3-1-99 N/A -4.87/4.13
Large Cap Value 3-1-99 N/A -5.76/3.24
Mid Cap Growth 3-1-99 N/A -2.78/6.22
Mid Cap Value 3-1-99 N/A -7.98/1.02
Small Cap 3-1-99 N/A -5.51/3.49
International Equity 3-1-99 N/A -3.90/5.10
Diversified Fixed 3-10-99 N/A -8.80/ .20
Income
TOTAL ANNUAL RETURN FOR THE PERIOD ENDING MARCH 31, 1999 (RETURN WITH/WITHOUT
REDEMPTION)
ISSUE AGE OVER 80
</TABLE>
<TABLE>
<CAPTION>
STRATEGIES INCEPTION DATE 1 YEAR SINCE
INCEPTION
<S> <C> <C> <C>
Growth 4-15-97 12.20/21.20 23.19/26.49
Moderate Growth 4-15-97 9.11/18.11 19.81/23.20
Balanced Growth 4-15-97 3.74/12.74 15.24/18.76
Conservative Growth 4-15-97 0.37/9.37 11.45/15.08
SELECT PORTFOLIOS
Large Cap Growth 3-1-99 N/A -2.26/6.74
Large Cap Composite 3-1-99 N/A -4.88/4.12
Large Cap Value 3-1-99 N/A -5.77/3.23
Mid Cap Growth 3-1-99 N/A -2.79/6.21
Mid Cap Value 3-1-99 N/A -7.99/1.01
Small Cap 3-1-99 N/A -5.51/3.49
International Equity 3-1-99 N/A -3.91/5.09
Diversified Fixed 3-10-99 N/A -8.81/ .19
Income
</TABLE>
ANNUITY PAYMENTS
INITIAL ANNUITY PAYMENT
The initial annuity payment is determined by taking the contract value, less
any premium tax, less any Market Value Adjustment that may apply in the case
of a premature annuitization of CERTAIN guarantee amounts, and then applying
it to the annuity table specified in the contract. Those tables are based on
a set amount per $1,000 of proceeds applied. The appropriate rate must be
determined by the sex (except where, as in the case of certain Qualified
contracts and other employer-sponsored retirement plans, such classification
is not permitted) and age of the Annuitant and designated second person, if
any.
The dollars applied are then divided by 1,000 and the result multiplied by
the appropriate annuity factor appearing in the table to compute the amount
of the first monthly annuity payment. In the case of a variable annuity,
that amount is divided by the value of an Annuity Unit as of the Annuity Date
to establish the number of Annuity Units representing each variable annuity
payment. The number of Annuity Units determined for the first variable
annuity payment remains constant for the second and subsequent monthly
variable annuity payments, assuming that no reallocation of contract values
is made.
SUBSEQUENT MONTHLY PAYMENTS
For a fixed annuity, the amount of the second and each subsequent monthly
annuity payment is the same as that determined above for the first monthly
payment.
The amount of the second and each subsequent monthly variable annuity payment
is determined by multiplying the number of Annuity Units, as determined in
connection with the determination of the initial monthly payment, above, by
the Annuity Unit Value as of the day preceding the date on which each annuity
payment is due.
ANNUITY UNIT VALUES
The value of an Annuity Unit is determined independently for each SELECT
PORTFOLIO and STRATEGY. The annuity tables contained in the contract are
based on a 3.5% per annum assumed investment rate. If the actual net
investment rate experienced by a SELECT PORTFOLIO or STRATEGY exceeds 3.5010,
variable annuity payments derived from allocations to that SELECT PORTFOLIO
or STRATEGY will increase over time. Conversely, if the actual rate is less
than 3.5%, variable annuity payments will decrease over time. If the net
investment rate equals 3.5%, the variable annuity payments will remain
constant. If a higher assumed investment rate had been used, the initial
monthly
5
<PAGE>
payment would be higher, but the actual net investment rate would also have
to be higher in order for annuity payments to increase (or not to decrease).
The payee receives the value of a fixed number of Annuity Units each month.
The value of a fixed number of Annuity Units will reflect the investment
performance of the SELECT PORTFOLIOS and/or STRATEGIES elected, and the
amount of each annuity payment will vary accordingly.
For each SELECT PORTFOLIO and/or STRATEGY, the value of an Annuity Unit is
determined by multiplying the Annuity Unit value for the preceding month by
the Net Investment Factor for the month for which the Annuity Unit value is
being calculated. The result is then multiplied by a second factor which
offsets the effect of the assumed net investment rate of 3.5% per annum which
is assumed in the annuity tables contained in the contract.
NET INVESTMENT FACTOR
The Net Investment Factor ("NIF") is an index applied to measure the net
investment performance of SELECT PORTFOLIO or STRATEGY from one month to the
next. The NIF may be greater or less than or equal to one; therefore, the
value of an Annuity Unit may increase, decrease or remain the same.
The NIF for any SELECT PORTFOLIO or STRATEGY for a certain month is
determined by dividing (a) by (b) where:
(a) is the Accumulation Unit value of the SELECT PORTFOLIO or STRATEGY
determined as of the end of that month, and
(b) is the Accumulation Unit value of the SELECT PORTFOLIO or STRATEGY
determined as of the end of the preceding month.
The NIF for a SELECT PORTFOLIO or STRATEGY for a given month is a measure of
the net investment performance of the SELECT PORTFOLIO or STRATEGY from the
end of the prior month to the end of the given month. A NIF of 1.000 results
from no change; a NIF greater than 1.000 results from an increase; and a NIF
less than 1.000 results from a decrease. The NIF is increased (or decreased)
in accordance with the increases (or decreases, respectively) in the value of
the shares of the underlying investment portfolios in which the SELECT
PORTFOLIO or STRATEGY invests; it is also reduced by separate account asset
charges.
ILLUSTRATIVE EXAMPLE
Assume that one share of a given SELECT PORTFOLIO or STRATEGY had an
Accumulation Unit value of $11.46 as of the close of the New York Stock
Exchange ("NYSE") on the last business day in September; that its
Accumulation Unit value had been $11.44 at the close of the NYSE on the last
business day at the end of the previous month. The NIF for the month of
September is:
NIF = ($11.46/$11.44)
= 1.00174825
6
<PAGE>
ILLUSTRATIVE EXAMPLE
The change in Annuity Unit value for a SELECT PORTFOLIO or STRATEGY from one
month to the next is determined in part by multiplying the Annuity Unit value
at the prior month end by the NIF for that SELECT PORTFOLIO or STRATEGY for
the new month. In addition, however, the result of that computation must
also be multiplied by an additional factor that takes into account, and
neutralizes, the assumed investment rate of 3.5 percent per annum upon which
the annuity payment tables are based. For example, if the net investment
rate for a SELECT PORTFOLIO or STRATEGY (reflected in the NIF) were equal to
the assumed investment rate, the variable annuity payments should remain
constant (i.e., the Annuity Unit value should not change). The monthly
factor that neutralizes the assumed investment rate of 3.5 percent per annum
is:
1/[(1.035) ^ (1/12)] = 0.99713732
In the example given above, if the Annuity Unit value for the SELECT
PORTFOLIO or STRATEGY was $10.103523 on the last business day in August, the
Annuity Unit value on the last business day in September would have been:
$10.103523 x 1.00174825 x 0.99713732 = $10.092213
To determine the initial payment, the initial annuity payment for variable
annuitization is calculated based on our mortality expectations and an
assumed interest rate (AIR) of 3.5%. Thus the initial variable annuity
payment is the same as the initial payment for a fixed interest payout
annuity calculated at an effective rate of 3.5%.
The Net Investment Factor (NIF) measures the performance of the funds that
are the basis for the amount of future annuity payments. This performance is
compared to the AIR, and if the growth in the NIF is the same as the AIR rate
the payment remains the same as the prior month. If the rate of growth of
the NIF is different than the AIR, then the payment is changed
proportionately to the ratio (1+NIF)/(1+AIR), calculated on a monthly basis.
If the NIF is greater than the AIR, then this proportion is greater than one
and payments are increased. If the NIF is less than the AIR, then this
proportion is less than one and payments are decreased.
VARIABLE ANNUITY PAYMENTS
ILLUSTRATIVE EXAMPLE
Assume that a male owner, P, owns a contract in connection with which P has
allocated all of his contract value to a single SELECT PORTFOLIO or STRATEGY.
P is also the sole Annuitant and, at age 60, has elected to annuitize his
contract as a life annuity with 120 monthly payments guaranteed. As of the
last valuation preceding the Annuity Date, P's Account was credited with
7543.2456 Accumulation Units each having a value of $15.432655, (i.e., P's
Account Value is equal to 7543.2456 x $15.432655 = $116,412.31). Assume also
that the Annuity Unit value for the SELECT PORTFOLIO or STRATEGY on that same
date is $13.256932, and that the Annuity Unit value on the day immediately
prior to the second annuity payment date is $13.327695.
P's first variable annuity payment is determined from the annuity rate tables
in P's contract, using the information assumed above. From the tables, which
supply monthly annuity payments for each $1,000 of applied contract value,
P's first variable annuity payment is determined by multiplying the monthly
installment of $5.42 (Option 4 tables, male Annuitant age 60 at the Annuity
Date) by the result of dividing P's account value by $1,000:
First Payment = $5.42 x ($116,412.31/$1,000) = $630.95
The number of P's Annuity Units (which will be fixed; i.e., it will not
change unless he transfers his Account to another Account) is also determined
at this time and is equal to the amount of the
7
<PAGE>
first variable annuity payment divided by the value of an Annuity Unit on the
day immediately prior to annuitization:
Annuity Units = $630.95/$13.256932 = 47.593968
P's second variable annuity payment is determined by multiplying the number
of Annuity Units by the Annuity Unit value as of the day immediately prior to
the second payment due date:
Second Payment = 47.593968 x $13.327695 = $634.32
The third and subsequent variable annuity payments are computed in a manner
similar to the second variable annuity payment.
Note that the amount of the first variable annuity payment depends on the
contract value in the relevant SELECT PORTFOLIO or STRATEGY on the Annuity
Date and thus reflects the investment performance of the SELECT PORTFOLIO or
STRATEGY net of fees and charges during the Accumulation Phase. The amount
of that payment determines the number of Annuity Units, which will remain
constant during the Annuity Phase (assuming no transfers from the SELECT
PORTFOLIO or STRATEGY). The net investment performance of the SELECT
PORTFOLIO or STRATEGY during the Annuity Phase is reflected in continuing
changes during this phase in the Annuity Unit value, which determines the
amounts of the second and subsequent variable annuity payments.
TAXES
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code")
governs taxation of annuities in general. A contract owner is not taxed on
increases in the value of a contract until distribution occurs, either in the
form of a non-annuity distribution or as annuity payments under the annuity
payment option elected. For a lump sum payment received as a total surrender
(total redemption), the recipient is taxed on the portion of the payment that
exceeds the cost basis of the contract. For a payment received as a
withdrawal (partial redemption), federal tax liability is determined on a
last-in, first-out basis, meaning taxable income is withdrawn before the cost
basis of the contract is withdrawn. For contracts issued in connection with
Non-qualified plans, the cost basis is generally the Purchase Payments, while
for contracts issued in connection with Qualified plans there may be no cost
basis. The taxable portion of the lump sum payment is taxed at ordinary
income tax rates. Tax penalties may also apply.
For annuity payments, the taxable portion is determined by a formula which
establishes the ratio that the cost basis of the contract bears to the total
value of annuity payments for the term of the annuity contract. The taxable
portion is taxed at ordinary income tax rates. Contract owners, Annuitants
and Beneficiaries under the contracts should seek competent financial advice
about the tax consequences of distributions under the retirement plan under
which the contracts are purchased.
8
<PAGE>
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the separate account is not a separate entity from the
Company and its operations form a part of the Company.
WITHHOLDING TAX ON DISTRIBUTIONS
The Code generally requires the Company (or, in some cases, a plan
administrator) to withhold tax on the taxable portion of any distribution or
withdrawal from a contract. For "eligible rollover distributions" from
contracts issued under certain types of Qualified plans, 20% of the
distribution must be withheld, unless the payee elects to have the
distribution "rolled over" to another eligible plan in a direct "trustee to
trustee" transfer. This requirement is mandatory and cannot be waived by the
owner. Withholding on other types of distributions can be waived.
An "eligible rollover distribution" is the estimated taxable portion of any
amount received by a covered employee from a plan qualified under Section
401(a) or 403(a) of the Code, or from a tax-sheltered annuity qualified under
Section 403(b) of the Code (other than (1) annuity payments for the life (or
life expectancy) of the employee, or joint lives (or joint life expectancies)
of the employee and his or her designated Beneficiary, or for a specified
period of ten years or more; and (2) distributions required to be made under
the Code). Failure to "rollover" the entire amount of an eligible rollover
distribution (including an amount equal to the 20% portion of the
distribution that was withheld) could have adverse tax consequences,
including the imposition of a penalty tax on premature withdrawals, described
later in this section.
Withdrawals or distributions from a contract other than eligible rollover
distributions are also subject to withholding on the estimated taxable
portion of the distribution, but the owner may elect in such cases to waive
the withholding requirement. If not waived, withholding is imposed (1) for
periodic payments, at the rate that would be imposed if the payments were
wages, or (2) for other distributions, at the rate of 10%. If no withholding
exemption certificate is in effect for the payee, the rate under (1) above
is computed by treating the payee as a married individual claiming 3
withholding exemptions.
DIVERSIFICATION - SEPARATE ACCOUNT INVESTMENTS
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not
adequately diversified, in accordance with regulations prescribed by the
United States Treasury Department ("Treasury Department"). Disqualification
of the contract as an annuity contract would result in imposition of federal
income tax to the owner with respect to earnings allocable to the contract
prior to the receipt of payments under the contract. The Code contains a
safe harbor provision which provides that annuity contracts such as the
contracts meet the diversification requirements if, as of the close of each
calendar quarter, the underlying assets meet the diversification standards
for a regulated investment company, and no more than 55% of the total assets
consist of cash, cash items, U.S. government securities and securities of
other regulated investment companies.
9
<PAGE>
The Treasury Department has issued regulations which establish
diversification requirements for the investment portfolios underlying annuity
variable contracts such as the contracts. The regulations amplify the
diversification requirements for variable annuity contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations an investment portfolio will be deemed adequately
diversified if (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90%
of the value of the total assets of the portfolio is represented by any four
investments. For purposes of determining whether or not the diversification
standards imposed on the underlying assets of variable contracts by Section
817(h) of the Code have been met, "each United States government agency or
instrumentality shall be treated as a separate issuer."
MULTIPLE CONTRACTS
Multiple annuity contracts which are issued within a calendar year to the
same contract owner by one company or its affiliates are treated as one
annuity contract for purposes of determining the tax consequences of any
distribution. Such treatment may result in adverse tax consequences including
more rapid taxation of the distributed amounts from such multiple contracts.
The Company believes that Congress intended to affect the purchase of
multiple deferred annuity contracts which may have been purchased to avoid
withdrawal income tax treatment. Owners should consult a tax adviser prior
to purchasing more than one annuity contract in any calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment of a contract may have tax consequences, and may also be
prohibited by ERISA in some circumstances. Owners should therefore consult
competent legal advisers should they wish to assign their contracts.
QUALIFIED PLANS
The contracts offered by this prospectus are designed to be suitable for use
under various types of Qualified plans. Taxation of owners in each Qualified
plan varies with the type of plan and terms and conditions of each specific
plan. Owners, Annuitants and Beneficiaries are cautioned that benefits under
a Qualified plan may be subject to the terms and conditions of the plan,
regardless of the terms and conditions of the contracts issued pursuant to
the plan.
Following are general descriptions of the types of Qualified plans with which
the contracts may be used. Such descriptions are not exhaustive and are for
general information purposes only. The tax rules regarding Qualified plans
are very complex and will have differing applications
10
<PAGE>
depending on individual facts and circumstances. Each purchaser should
obtain competent tax advice prior to purchasing a contract issued under a
Qualified plan.
Contracts issued pursuant to Qualified plans include special provisions
restricting contract provisions that may otherwise be available and described
in this prospectus. Generally, contracts issued pursuant to Qualified plans
are not transferable except upon surrender or annuitization. Various penalty
and excise taxes may apply to contributions or distributions made in
violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to surrenders from Qualified contracts.
(a) H.R. 10 PLANS
Section 401 of the Code permits self-employed individuals to establish
Qualified plans for themselves and their employees, commonly referred to as
"H.R. 10" or "Keogh" Plans. Contributions made to the plan for the benefit
of the employees will not be included in the gross income of the employees
until distributed from the plan. The tax consequences to owners may vary
depending upon the particular plan design. However, the Code places
limitations and restrictions on all plans on such items as: amounts of
allowable contributions; form, manner and timing of distributions; vesting
and nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Purchasers of contracts for use with an H.R. 10 Plan should
obtain competent tax advice as to the tax treatment and suitability of such
an investment.
(b) TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities"
by public schools and certain charitable, education and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the contracts for the benefit of their
employees. Such contributions are not includible in the gross income of the
employee until the employee receives distributions from the contract. The
amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
non-discrimination and withdrawals. Any employee should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
(c) INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to
an IRA which will be deductible from the individual's gross income. These
IRAs are subject to limitations on eligibility, contributions,
transferability and distributions. Sales of contracts for use with IRAs are
subject to special requirements imposed by the Code, including the
requirement that certain informational disclosure be given to
11
<PAGE>
persons desiring to establish an IRA. Purchasers of contracts to be qualified
as IRAs should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
(d) ROTH IRA
Section 408A of the Code permits an individual to contribute to an individual
retirement program called a Roth IRA. Unlike contributions to a regular IRA
under Section 408(b) of the Code, contributions to a Roth IRA are not made on
a tax deferred basis, but distributions are tax-free if certain requirements
are satisfied. Like regular IRAs, Roth IRAs are subject to limitations on
the amount that may be contributed, those who may be eligible and the time
when distributions may commence without tax penalty. Certain persons may be
eligible to convert a regular IRA into a Roth IRA, and the resulting income
tax may be spread over four years if the conversion occurs before January 1,
1999. If and when Contracts are made available for use with Roth IRAs they
may be subject to special requirements imposed by the Internal Revenue
Service. Purchasers of the Contracts for this purpose will be provided with
such supplementary information as may be required by the Internal Revenue
Service or other appropriate agency.
(e) CORPORATE PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit corporate employers to
establish various types of retirement plans for employees. These retirement
plans may permit the purchase of the contracts to provide benefits under the
plan. Contributions to the plan for the benefit of employees will not be
includible in the gross income of the employee until distributed from the
plan. The tax consequences to owners may vary depending upon the particular
plan design. However, the Code places limitations on all plans on such items
as amount of allowable contributions; form, manner and timing of
distributions; vesting and nonforfeitability of interests; nondiscrimination
in eligibility and participation; and the tax treatment of distributions,
withdrawals and surrenders. Purchasers of contracts for use with corporate
pension or profit sharing plans should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
(f) DEFERRED COMPENSATION PLANS - SECTION 457
Under Section 457 of the Code, governmental and certain other tax-exempt
employers may establish, for the benefit of their employees, deferred
compensation plans which may invest, in annuity contracts. The Code, as in
the case of Qualified plans, establishes limitations and restrictions on
eligibility, contributions and distributions. Under these plans,
contributions made for the benefit of the employees will not be includible in
the employees' gross income until distributed from the plan. However, under
a 457 plan all the plan assets shall remain solely the property of the
employer, subject only to the claims of the employer's general creditors
until such time as made available to an owner or a Beneficiary. As of
January 1, 1999 all 457 plans of state and local governments must hold assets
and income in trust (or custodial accounts or an annuity contract) for the
exclusive benefit of participants and their beneficiaries.
DISTRIBUTION OF CONTRACTS
The contracts are offered through SunAmerica Capital Services, Inc., located
at 733 Third Avenue, 4th Floor, New York, New York 10017. SunAmerica Capital
Services, Inc. is registered
12
<PAGE>
as a broker-dealer under the Securities Exchange Act of 1934, as amended, and
is a member of the National Association of Securities Dealers, Inc. The
Company and SunAmerica Capital Services, Inc. are each an indirect wholly
owned subsidiary of SunAmerica Inc. No underwriting fees are paid in
connection with the distribution of the contracts. Contracts are offered on
a continuous basis.
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company as of September
30, 1998 and 1997 and for each of the three years in the period ended
September 30, 1998 are presented in this Statement of Additional Information.
The consolidated financial statements of the Company should be considered
only as bearing on the ability of the Company to meet its obligation under
the contracts. The financial statements of Variable Annuity Account Five
(Portion Relating to the SEASONS SELECT Variable Annuity) as of March 31,
1999 and for the period from inception to March 31, 1999 are included in this
Statement of Additional Information.
PricewaterhouseCoopers LLP, 400 South Hope Street, Los Angeles, California
90071, serves as the independent accountants for the Separate Account and the
Company. The financial statements referred to above have been so included in
reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholder of
Anchor National Life Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated income statement and statement of cash flows present fairly, in all
material respects, the financial position of Anchor National Life Insurance
Company and its subsidiaries (the "Company") at September 30, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended September 30, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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 provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
November 9, 1998
F-1
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Investments:
Cash and short-term investments........................... $ 333,735,000 $ 113,580,000
Bonds, notes and redeemable preferred stocks available for
sale, at fair value (amortized cost: 1998,
$1,934,863,000; 1997, $1,942,485,000).................... 1,954,754,000 1,986,194,000
Mortgage loans............................................ 391,448,000 339,530,000
Common stocks available for sale, at fair value (cost:
1998, $115,000; 1997, $271,000).......................... 169,000 1,275,000
Real estate............................................... 24,000,000 24,000,000
Other invested assets..................................... 30,636,000 143,722,000
--------------- ---------------
Total investments..................................... 2,734,742,000 2,608,301,000
Variable annuity assets held in separate accounts........... 11,133,569,000 9,343,200,000
Accrued investment income................................... 26,408,000 21,759,000
Deferred acquisition costs.................................. 539,850,000 536,155,000
Income taxes currently receivable........................... 5,869,000 --
Other assets................................................ 85,926,000 61,524,000
--------------- ---------------
TOTAL ASSETS.......................................... $14,526,364,000 $12,570,939,000
--------------- ---------------
--------------- ---------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts...................... $ 2,189,272,000 $ 2,098,803,000
Reserves for guaranteed investment contracts.............. 282,267,000 295,175,000
Payable to brokers for purchases of securities............ 27,053,000 263,000
Income taxes currently payable............................ -- 32,265,000
Other liabilities......................................... 106,594,000 122,728,000
--------------- ---------------
Total reserves, payables and accrued liabilities...... 2,605,186,000 2,549,234,000
--------------- ---------------
Variable annuity liabilities related to separate accounts... 11,133,569,000 9,343,200,000
--------------- ---------------
Subordinated notes payable to Parent........................ 39,182,000 36,240,000
--------------- ---------------
Deferred income taxes....................................... 95,758,000 67,047,000
--------------- ---------------
Shareholder's equity:
Common Stock.............................................. 3,511,000 3,511,000
Additional paid-in capital................................ 308,674,000 308,674,000
Retained earnings......................................... 332,069,000 244,628,000
Net unrealized gains on debt and equity securities
available for sale....................................... 8,415,000 18,405,000
--------------- ---------------
Total shareholder's equity............................ 652,669,000 575,218,000
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............ $14,526,364,000 $12,570,939,000
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes
F-2
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Investment income................................. $221,966,000 $210,759,000 $164,631,000
------------ ------------ ------------
Interest expense on:
Fixed annuity contracts......................... (112,695,000) (109,217,000) (82,690,000)
Guaranteed investment contracts................. (17,787,000) (22,650,000) (19,974,000)
Senior indebtedness............................. (1,498,000) (2,549,000) (2,568,000)
Subordinated notes payable to Parent............ (3,114,000) (3,142,000) (2,556,000)
------------ ------------ ------------
Total interest expense.......................... (135,094,000) (137,558,000) (107,788,000)
------------ ------------ ------------
NET INVESTMENT INCOME............................. 86,872,000 73,201,000 56,843,000
------------ ------------ ------------
NET REALIZED INVESTMENT GAINS (LOSSES)............ 19,482,000 (17,394,000) (13,355,000)
------------ ------------ ------------
Fee income:
Variable annuity fees........................... 200,867,000 139,492,000 103,970,000
Net retained commissions........................ 48,561,000 39,143,000 31,548,000
Asset management fees........................... 29,592,000 25,764,000 25,413,000
Surrender charges............................... 7,404,000 5,529,000 5,184,000
Other fees...................................... 3,938,000 3,218,000 3,390,000
------------ ------------ ------------
TOTAL FEE INCOME.................................. 290,362,000 213,146,000 169,505,000
------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES............... (96,102,000) (98,802,000) (81,552,000)
------------ ------------ ------------
AMORTIZATION OF DEFERRED ACQUISITION COSTS........ (72,713,000) (66,879,000) (57,520,000)
------------ ------------ ------------
ANNUAL COMMISSIONS................................ (18,209,000) (8,977,000) (4,613,000)
------------ ------------ ------------
PRETAX INCOME..................................... 209,692,000 94,295,000 69,308,000
Income tax expense................................ (71,051,000) (31,169,000) (24,252,000)
------------ ------------ ------------
NET INCOME........................................ $138,641,000 $ 63,126,000 $ 45,056,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes
F-3
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 138,641,000 $ 63,126,000 $ 45,056,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Interest credited to:
Fixed annuity contracts........................... 112,695,000 109,217,000 82,690,000
Guaranteed investment contracts................... 17,787,000 22,650,000 19,974,000
Net realized investment (gains) losses............ (19,482,000) 17,394,000 13,355,000
Amortization (accretion) of net premiums
(discounts) on investments....................... 447,000 (18,576,000) (8,976,000)
Amortization of goodwill.......................... 1,422,000 1,187,000 1,169,000
Provision for deferred income taxes............... 34,087,000 (16,024,000) (3,351,000)
Change in:
Accrued investment income........................... (4,649,000) (2,084,000) (5,483,000)
Deferred acquisition costs.......................... (160,926,000) (113,145,000) (60,941,000)
Other assets........................................ (19,374,000) (14,598,000) (8,000,000)
Income taxes currently payable...................... (38,134,000) 10,779,000 5,766,000
Other liabilities................................... (2,248,000) 14,187,000 5,474,000
Other, net............................................ (5,599,000) 418,000 (129,000)
---------------- ---------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 54,667,000 74,531,000 86,604,000
---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts........................... 1,512,994,000 1,097,937,000 741,774,000
Guaranteed investment contracts................... 5,619,000 55,000,000 134,967,000
Net exchanges from the fixed accounts of variable
annuity contracts.................................. (1,303,790,000) (620,367,000) (236,705,000)
Withdrawal payments on:
Fixed annuity contracts........................... (191,690,000) (242,589,000) (263,614,000)
Guaranteed investment contracts................... (36,313,000) (198,062,000) (16,492,000)
Claims and annuity payments on fixed annuity
contracts.......................................... (40,589,000) (35,731,000) (31,107,000)
Net receipts from (repayment of) other short-term
financings......................................... (10,944,000) 34,239,000 (119,712,000)
Net receipts from a modified coinsurance
transaction........................................ 166,631,000 -- --
Capital contributions received...................... -- 28,411,000 27,387,000
Dividends paid...................................... (51,200,000) (25,500,000) (29,400,000)
---------------- ---------------- ----------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES...... 50,718,000 93,338,000 207,098,000
---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred stocks...... (1,970,502,000) (2,566,211,000) (1,937,890,000)
Mortgage loans.................................... (131,386,000) (266,771,000) (15,000,000)
Other investments, excluding short-term
investments...................................... -- (75,556,000) (36,770,000)
Sales of:
Bonds, notes and redeemable preferred stocks...... 1,602,079,000 2,299,063,000 1,241,928,000
Real estate....................................... -- -- 900,000
Other investments, excluding short-term
investments...................................... 42,458,000 6,421,000 4,937,000
Redemptions and maturities of:
Bonds, notes and redeemable preferred stocks...... 424,393,000 376,847,000 288,969,000
Mortgage loans.................................... 80,515,000 25,920,000 11,324,000
Other investments, excluding short-term
investments...................................... 67,213,000 23,940,000 20,749,000
---------------- ---------------- ----------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES...... 114,770,000 (176,347,000) (420,853,000)
---------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS.......................................... 220,155,000 (8,478,000) (127,151,000)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF
PERIOD............................................... 113,580,000 122,058,000 249,209,000
---------------- ---------------- ----------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD...... $ 333,735,000 $ 113,580,000 $ 122,058,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness....................... $ 3,912,000 $ 7,032,000 $ 5,982,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Net income taxes paid............................... $ 74,932,000 $ 36,420,000 $ 22,031,000
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
See accompanying notes
F-4
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company (the "Company") is a wholly owned
indirect subsidiary of SunAmerica Inc. (the "Parent"). The Company is an
Arizona-domiciled life insurance company and conducts its business through three
segments: annuity operations, asset management operations and broker-dealer
operations. Annuity operations include the sale and administration of fixed and
variable annuities and guaranteed investment contracts. Asset management
operations, which includes the sale and management of mutual funds, is conducted
by SunAmerica Asset Management Corp. Broker-dealer operations include the sale
of securities and financial services products, and are conducted by Royal
Alliance Associates, Inc.
The operations of the Company are influenced by many factors, including general
economic conditions, monetary and fiscal policies of the federal government, and
policies of state and other regulatory authorities. The level of sales of the
Company's financial products is influenced by many factors, including general
market rates of interest, strength, weakness and volatility of equity markets,
and terms and conditions of competing financial products. The Company is exposed
to the typical risks normally associated with a portfolio of fixed-income
securities, namely interest rate, option, liquidity and credit risk. The Company
controls its exposure to these risks by, among other things, closely monitoring
and matching the duration of its assets and liabilities, monitoring and limiting
prepayment and extension risk in its portfolio, maintaining a large percentage
of its portfolio in highly liquid securities, and engaging in a disciplined
process of underwriting, reviewing and monitoring credit risk. The Company also
is exposed to market risk, as market volatility may result in reduced fee income
in the case of assets managed in mutual funds and held in separate accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
include the accounts of the Company and all of its wholly owned subsidiaries.
All significant intercompany accounts and transactions are eliminated in
consolidation. Certain prior period amounts have been reclassified to conform
with the 1998 presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the amounts reported in the financial statements and the accompanying notes.
Actual results could differ from those estimates.
INVESTMENTS: Cash and short-term investments primarily include cash, commercial
paper, money market investments, repurchase agreements and short-term bank
participations. All such investments are carried at cost plus accrued interest,
which approximates fair value, have maturities of three months or less and are
considered cash equivalents for purposes of reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and common
stocks are carried at aggregate fair value and changes in unrealized gains or
losses, net of tax, are credited or charged directly to shareholder's equity.
Bonds, notes and redeemable preferred stocks are reduced to estimated net
realizable value when necessary for declines in value considered to be other
than temporary. Estimates of net realizable value are subjective and actual
realization will be dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of provisions for
estimated losses. Real estate is carried at the lower of cost or fair value.
Other invested assets include investments in limited partnerships, which are
accounted for by using the cost method of accounting; separate account
investments; leveraged leases; policy loans, which are carried at unpaid
balances; and collateralized mortgage obligation residuals.
F-5
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined by using the specific cost
identification method. Premiums and discounts on investments are amortized to
investment income by using the interest method over the contractual lives of the
investments.
INTEREST RATE SWAP AGREEMENTS: The net differential to be paid or received on
interest rate swap agreements ("Swap Agreements") entered into to reduce the
impact of changes in interest rates is recognized over the lives of the
agreements, and such differential is classified as Investment Income or Interest
Expense in the income statement. Initially, Swap Agreements are designated as
hedges and, therefore, are not marked to market. However, when a hedged
asset/liability is sold or repaid before the related Swap Agreement matures, the
Swap Agreement is marked to market and any gain/loss is classified with any
gain/loss realized on the disposition of the hedged asset/liability.
Subsequently, the Swap Agreement is marked to market and the resulting change in
fair value is included in Investment Income in the income statement. When a Swap
Agreement that is designated as a hedge is terminated before its contractual
maturity, any resulting gain/loss is credited/charged to the carrying value of
the asset/liability that it hedged and is treated as a premium/discount for the
remaining life of the asset/liability.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, in relation to the incidence of estimated gross
profits to be realized over the estimated lives of the annuity contracts.
Estimated gross profits are composed of net interest income, net realized
investment gains and losses, variable annuity fees, surrender charges and direct
administrative expenses. Costs incurred to sell mutual funds are also deferred
and amortized over the estimated lives of the funds obtained. Deferred
acquisition costs ("DAC") consist of commissions and other costs that vary with,
and are primarily related to, the production or acquisition of new business.
As debt and equity securities available for sale are carried at aggregate fair
value, an adjustment is made to DAC equal to the change in amortization that
would have been recorded if such securities had been sold at their stated
aggregate fair value and the proceeds reinvested at current yields. The change
in this adjustment, net of tax, is included with the change in net unrealized
gains/losses on debt and equity securities available for sale that is credited
or charged directly to shareholder's equity. DAC has been decreased by
$7,000,000 at September 30, 1998 and $16,400,000 at September 30, 1997 for this
adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities resulting
from the receipt of variable annuity premiums are segregated in separate
accounts. The Company receives administrative fees for managing the funds and
other fees for assuming mortality and certain expense risks. Such fees are
included in Variable Annuity Fees in the income statement.
GOODWILL: Goodwill, amounting to $23,339,000 at September 30, 1998, is
amortized by using the straight-line method over periods averaging 25 years and
is included in Other Assets in the balance sheet. Goodwill is evaluated for
impairment when events or changes in economic conditions indicate that the
carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity contracts
and guaranteed investment contracts are accounted for as investment-type
contracts in accordance with Statement of Financial Accounting Standards No. 97,
"Accounting and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of Investments," and
are recorded at accumulated value (premiums received, plus accrued interest,
less withdrawals and assessed fees).
FEE INCOME: Variable annuity fees, asset management fees and surrender charges
are recorded in income as earned. Net retained commissions are recognized as
income on a trade date basis.
F-6
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES: The Company is included in the consolidated federal income tax
return of the Parent and files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Income taxes have been
calculated as if the Company filed a separate return. Deferred income tax assets
and liabilities are recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and liabilities using
enacted income tax rates and laws.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1997, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131").
SFAS 130 establishes standards for reporting comprehensive income and its
components in a full set of general purpose financial statements. SFAS 130 is
effective for the Company as of October 1, 1998 and is not included in these
financial statements.
SFAS 131 establishes standards for the disclosure of information about the
Company's operating segments. SFAS 131 is effective for the year ending
September 30, 1999 and is not included in these financial statements.
Implementation of SFAS 130 and SFAS 131 will not have an impact on the Company's
results of operations, financial condition or liquidity.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. SFAS 133 is effective for the Company as of October 1, 1999 and is
not included in these financial statements. The Company has not completed its
analysis of the effect of SFAS 133, but management believes that it will not
have a material impact on the Company's results of operations, financial
condition or liquidity.
F-7
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by major category follow:
<TABLE>
<CAPTION>
ESTIMATED FAIR
AMORTIZED COST VALUE
---------------- ----------------
<S> <C> <C>
AT SEPTEMBER 30, 1998:
Securities of the United States Government................................ $ 84,377,000 $ 88,239,000
Mortgage-backed securities................................................ 569,613,000 584,007,000
Securities of public utilities............................................ 108,431,000 106,065,000
Corporate bonds and notes................................................. 883,890,000 884,209,000
Redeemable preferred stocks............................................... 6,125,000 6,888,000
Other debt securities..................................................... 282,427,000 285,346,000
---------------- ----------------
Total..................................................................... $ 1,934,863,000 $ 1,954,754,000
---------------- ----------------
---------------- ----------------
AT SEPTEMBER 30, 1997:
Government................................................................ $ 18,496,000 $ 18,962,000
Mortgage-backed securities................................................ 636,018,000 649,196,000
Securities of public utilities............................................ 22,792,000 22,893,000
Corporate bonds and notes................................................. 984,573,000 1,012,559,000
Redeemable preferred stocks............................................... 6,125,000 6,681,000
Other debt securities..................................................... 274,481,000 275,903,000
---------------- ----------------
Total..................................................................... $ 1,942,485,000 $ 1,986,194,000
---------------- ----------------
---------------- ----------------
</TABLE>
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by contractual maturity, as of September 30,
1998, follow:
<TABLE>
<CAPTION>
ESTIMATED FAIR
AMORTIZED COST VALUE
---------------- ----------------
<S> <C> <C>
Due in one year or less................................................... $ 19,124,000 $ 19,319,000
Due after one year through five years..................................... 313,396,000 318,943,000
Due after five years through ten years.................................... 744,740,000 750,286,000
Due after ten years....................................................... 287,990,000 282,199,000
Mortgage-backed securities................................................ 569,613,000 584,007,000
---------------- ----------------
Total..................................................................... $ 1,934,863,000 $ 1,954,754,000
---------------- ----------------
---------------- ----------------
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will differ
from those shown above due to prepayments and redemptions.
F-8
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
Gross unrealized gains and losses on bonds, notes and redeemable preferred
stocks available for sale by major category follow:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
GAINS LOSSES
------------- --------------
<S> <C> <C>
AT SEPTEMBER 30, 1998:
Securities of the United States Government...................................... $ 3,862,000 $ --
Mortgage-backed securities...................................................... 15,103,000 (709,000)
Securities of public utilities.................................................. 2,420,000 (4,786,000)
Corporate bonds and notes....................................................... 31,795,000 (31,476,000)
Redeemable preferred stocks..................................................... 763,000 --
Other debt securities........................................................... 5,235,000 (2,316,000)
------------- --------------
Total........................................................................... $ 59,178,000 $ (39,287,000)
------------- --------------
------------- --------------
AT SEPTEMBER 30, 1998:
Securities of the United States Government...................................... $ 498,000 $ (32,000)
Mortgage-backed securities...................................................... 14,998,000 (1,820,000)
Securities of public utilities.................................................. 141,000 (40,000)
Corporate bonds and notes....................................................... 28,691,000 (705,000)
Redeemable preferred stocks..................................................... 556,000 --
Other debt securities........................................................... 1,569,000 (147,000)
------------- --------------
Total........................................................................... $ 46,453,000 $ (2,744,000)
------------- --------------
------------- --------------
</TABLE>
Gross unrealized gains on equity securities available for sale aggregated
$54,000 and $1,004,000 at September 30, 1998 and 1997, respectively. There were
no unrealized losses at September 30, 1998 and 1997.
Gross realized investment gains and losses on sales of investments are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
BONDS, NOTES AND REDEEMABLE
PREFERRED STOCKS:
Realized gains................................................ $ 28,086,000 $ 22,179,000 $ 14,532,000
Realized losses............................................... (4,627,000) (25,310,000) (10,432,000)
COMMON STOCKS:
Realized gains................................................ 337,000 4,002,000 511,000
Realized losses............................................... -- (312,000) (3,151,000)
OTHER INVESTMENTS:
Realized gains................................................ 8,824,000 2,450,000 1,135,000
IMPAIRMENT WRITEDOWNS........................................... (13,138,000) (20,403,000) (15,950,000)
-------------- -------------- --------------
Total net realized investment gains and losses.................. $ 19,482,000 $ (17,394,000) $ (13,355,000)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
F-9
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Short-term investments......................................... $ 12,524,000 $ 11,780,000 $ 10,647,000
Bonds, notes and redeemable preferred stocks................... 156,140,000 163,038,000 140,387,000
Mortgage loans................................................. 29,996,000 17,632,000 8,701,000
Common stocks.................................................. 34,000 16,000 8,000
Real estate.................................................... (467,000) (296,000) (196,000)
Cost-method partnerships....................................... 24,311,000 6,725,000 4,073,000
Other invested assets.......................................... (572,000) 11,864,000 1,011,000
-------------- -------------- --------------
Total investment income.................................. $ 221,966,000 $ 210,759,000 $ 164,631,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
Expenses incurred to manage the investment portfolio amounted to $1,910,000 for
the year ended September 30, 1998, $2,050,000 for the year ended September 30,
1997, and $1,737,000 for the year ended September 30, 1996, and are included in
General and Administrative Expenses in the income statement.
At September 30, 1998, no investment exceeded 10% of the Company's consolidated
shareholder's equity.
At September 30, 1998, mortgage loans were collateralized by properties located
in 29 states, with loans totaling approximately 21% of the aggregate carrying
value of the portfolio secured by properties located in California and
approximately 14% by properties located in New York. No more than 8% of the
portfolio was secured by properties in any other single state.
At September 30, 1998, bonds, notes and redeemable preferred stocks included
$167,564,000 of bonds and notes not rated investment grade. The Company had no
material concentrations of non-investment-grade assets at September 30, 1998.
At September 30, 1998, the carrying value of investments in default as to the
payment of principal or interest was $917,000, all of which were mortgage loans.
Such nonperforming investments had an estimated fair value equal to their
carrying value.
As a component of its asset and liability management strategy, the Company
utilizes Swap Agreements to match assets more closely to liabilities. Swap
Agreements are agreements to exchange with a counterparty interest rate payments
of differing character (for example, variable-rate payments exchanged for
fixed-rate payments) based on an underlying principal balance (notional
principal) to hedge against interest rate changes. The Company typically
utilizes Swap Agreements to create a hedge that effectively converts
floating-rate assets and liabilities to fixed-rate instruments. At September 30,
1998, the Company had one outstanding Swap Agreement with a notional principal
amount of $21,538,000, which matures in December 2024. The net interest paid
amounted to $278,000 and $125,000 for the years ended September 30, 1998 and
1997, respectively, and is included in Interest Expense on Guaranteed Investment
Contracts in the income statement.
At September 30, 1998, $5,154,000 of bonds, at amortized cost, were on deposit
with regulatory authorities in accordance with statutory requirements.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to reasonable
estimates of the fair value of only the Company's financial instruments. The
disclosures do not address the value of the Company's recognized and
F-10
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
unrecognized nonfinancial assets (including its real estate investments and
other invested assets except for cost-method partnerships) and liabilities or
the value of anticipated future business. The Company does not plan to sell most
of its assets or settle most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Selling expenses and potential taxes are not
included. The estimated fair value amounts were determined using available
market information, current pricing information and various valuation
methodologies. If quoted market prices were not readily available for a
financial instrument, management determined an estimated fair value.
Accordingly, the estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market transaction.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND SHORT-TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based principally
on independent pricing services, broker quotes and other independent
information.
MORTGAGE LOANS: Fair values are primarily determined by discounting future cash
flows to the present at current market rates, using expected prepayment rates.
COMMON STOCKS: Fair value is based principally on independent pricing services,
broker quotes and other independent information.
COST-METHOD PARTNERSHIPS: Fair value of limited partnerships accounted for by
using the cost method is based upon the fair value of the net assets of the
partnerships as determined by the general partners.
VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS: Variable annuity assets are
carried at the market value of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts and single
premium life contracts are assigned a fair value equal to current net surrender
value. Annuitized contracts are valued based on the present value of future cash
flows at current pricing rates.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the
present value of future cash flows at current pricing rates and is net of the
estimated fair value of a hedging Swap Agreement, determined from independent
broker quotes.
PAYABLE TO BROKERS FOR PURCHASES OF SECURITIES: Such obligations represent net
transactions of a short-term nature for which the carrying value is considered a
reasonable estimate of fair value.
VARIABLE ANNUITY LIABILITIES RELATED TO SEPARATE ACCOUNTS: Fair values of
contracts in the accumulation phase are based on net surrender values. Fair
values of contracts in the payout phase are based on the present value of future
cash flows at assumed investment rates.
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on the
quoted market prices for similar issues.
F-11
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments at September
30, 1998 and 1997, compared with their respective carrying values, are as
follows:
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
---------------- ----------------
<S> <C> <C>
1998:
ASSETS:
Cash and short-term investments................................. $ 333,735,000 $ 333,735,000
Bonds, notes and redeemable preferred stocks.................... 1,954,754,000 1,954,754,000
Mortgage loans.................................................. 391,448,000 415,981,000
Common stocks................................................... 169,000 169,000
Cost-method partnerships........................................ 4,403,000 12,744,000
Variable annuity assets held in separate accounts............... 11,133,569,000 11,133,569,000
LIABILITIES:
Reserves for fixed annuity contracts............................ 2,189,272,000 2,116,874,000
Reserves for guaranteed investment contracts.................... 282,267,000 282,267,000
Payable to brokers for purchases of securities.................. 27,053,000 27,053,000
Variable annuity liabilities related to separate accounts....... 11,133,569,000 10,696,607,000
Subordinated notes payable to Parent............................ 39,182,000 40,550,000
---------------- ----------------
---------------- ----------------
1997:
ASSETS:
Cash and short-term investments................................. $ 113,580,000 $ 113,580,000
Bonds, notes and redeemable preferred stocks.................... 1,986,194,000 1,986,194,000
Mortgage loans.................................................. 339,530,000 354,495,000
Common stocks................................................... 1,275,000 1,275,000
Cost-method partnerships........................................ 46,880,000 84,186,000
Variable annuity assets held in separate accounts............... 9,343,200,000 9,343,200,000
LIABILITIES:
Reserves for fixed annuity contracts............................ 2,098,803,000 2,026,258,000
Reserves for guaranteed investment contracts.................... 295,175,000 295,175,000
Payable to brokers for purchases of securities.................. 263,000 263,000
Variable annuity liabilities related to separate accounts....... 9,343,200,000 9,077,200,000
Subordinated notes payable to Parent............................ 36,240,000 37,393,000
---------------- ----------------
---------------- ----------------
</TABLE>
5. SUBORDINATED NOTES PAYABLE TO PARENT
Subordinated notes and accrued interest payable to Parent totaled $39,182,000 at
interest rates ranging from 8.5% to 9% at September 30, 1998, and require
principal payments of $23,060,000 in 1999, $5,400,000 in 2000 and $10,000,000 in
2001.
6. REINSURANCE
On August 11, 1998, the Company entered into a modified coinsurance transaction,
approved by the Arizona Department of Insurance, which involves the ceding of
approximately $5,000,000,000 of variable annuities to ANLIC Insurance Company
(Cayman), a Cayman Islands stock life insurance company, effective December 31,
1997. As a part of this transaction, the Company received cash amounting to
approximately $188,700,000, and recorded a corresponding reduction of DAC
related to the coinsured annuities.
F-12
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. REINSURANCE (CONTINUED)
As payments are made to the reinsurer, the reduction of DAC is relieved. The net
reduction in DAC at September 30, 1998 was $166,631,000. Certain expenses
related to this transaction are being charged directly to DAC amortization in
the income statement. The net effect of this transaction in the income statement
is not material.
7. CONTINGENT LIABILITIES
The Company has entered into three agreements in which it has provided liquidity
support for certain short-term securities of two municipalities by agreeing to
purchase such securities in the event there is no other buyer in the short-term
marketplace. In return the Company receives a fee. The maximum liability under
these guarantees is $242,600,000. Management does not anticipate any material
future losses with respect to these liquidity support facilities. An additional
$51,000,000 has been committed to investments in the process of being funded or
to be available in the case of certain natural disasters, for which the Company
receives a fee.
The Company is involved in various kinds of litigation common to its businesses.
These cases are in various stages of development and, based on reports of
counsel, management believes that provisions made for potential losses relating
to such litigation are adequate and any further liabilities and costs will not
have a material adverse impact upon the Company's financial position or results
of operations.
8. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value Common
Stock. At September 30, 1998 and 1997, 3,511 shares were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balances................................. $ 308,674,000 $ 280,263,000 $ 252,876,000
Capital contributions received..................... -- 28,411,000 27,387,000
-------------- -------------- --------------
Ending balances.................................... $ 308,674,000 $ 308,674,000 $ 280,263,000
-------------- -------------- --------------
-------------- -------------- --------------
RETAINED EARNINGS:
Beginning balances................................. $ 244,628,000 $ 207,002,000 $ 191,346,000
Net income......................................... 138,641,000 63,126,000 45,056,000
Dividend paid...................................... (51,200,000) (25,500,000) (29,400,000)
-------------- -------------- --------------
Ending balances.................................... $ 332,069,000 $ 244,628,000 $ 207,002,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
NET UNREALIZED GAINS (LOSSES) ON DEBT AND
EQUITY SECURITIES AVAILABLE FOR SALE:
Beginning balances....................... $18,405,000 $(5,521,000) $(5,673,000)
Change in net unrealized gains (losses)
on debt securities available for sale... (23,818,000) 57,463,000 (2,904,000)
Change in net unrealized gains (losses)
on equity securities available for
sale.................................... (950,000) (55,000) 3,538,000
Change in adjustment to deferred
acquisition costs....................... 9,400,000 (20,600,000) (400,000)
Tax effects of net changes............... 5,378,000 (12,882,000) (82,000)
----------- ----------- -----------
Ending balances.......................... $ 8,415,000 $18,405,000 $(5,521,000)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-13
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHAREHOLDER'S EQUITY (CONTINUED)
Dividends that the Company may pay to its shareholder in any year without prior
approval of the Arizona Department of Insurance are limited by statute. The
maximum amount of dividends which can be paid to shareholders of insurance
companies domiciled in the state of Arizona without obtaining the prior approval
of the Insurance Commissioner is limited to the lesser of either 10% of the
preceding year's statutory surplus or the preceding year's statutory net gain
from operations. Dividends in the amounts of $51,200,000, $25,500,000 and
$29,400,000 were paid on June 4, 1998, April 1, 1997 and March 18, 1996,
respectively.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the nine months ended
September 30, 1998 was $64,125,000. The statutory net income for the year ended
December 31, 1997 was $74,407,000, and the statutory net income for the year
ended December 31, 1996 was $27,928,000. The Company's statutory capital and
surplus was $537,542,000 at September 30, 1998, $567,979,000 at December 31,
1997 and $311,176,000 at December 31, 1996.
9. INCOME TAXES
The components of the provisions for federal income taxes on pretax income
consist of the following:
<TABLE>
<CAPTION>
NET REALIZED
INVESTMENT
GAINS (LOSSES) OPERATIONS TOTAL
-------------- -------------- --------------
<S> <C> <C> <C>
1998:
Currently payable..................................... $ 4,221,000 $ 32,743,000 $ 36,964,000
Deferred.............................................. (550,000) 34,637,000 34,087,000
-------------- -------------- --------------
Total income tax expense.............................. $ 3,671,000 $ 67,380,000 $ 71,051,000
-------------- -------------- --------------
-------------- -------------- --------------
1997:
Currently payable..................................... $ (3,635,000) $ 50,828,000 $ 47,193,000
Deferred.............................................. (2,258,000) (13,766,000) (16,024,000)
-------------- -------------- --------------
Total income tax expense.............................. $ (5,893,000) $ 37,062,000 $ 31,169,000
-------------- -------------- --------------
-------------- -------------- --------------
1996:
Currently payable..................................... $ 5,754,000 $ 21,849,000 $ 27,603,000
Deferred.............................................. (10,347,000) 6,996,000 (3,351,000)
-------------- -------------- --------------
Total income tax expense.............................. $ (4,593,000) $ 28,845,000 $ 24,252,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
Income taxes computed at the United States federal income tax rate of 35% and
income taxes provided differ as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Amount computed at statutory rate........................ $ 73,392,000 $ 33,003,000 $ 24,258,000
Increases (decreases) resulting from:
Amortization of differences between book and tax bases
of net assets acquired................................ 460,000 666,000 464,000
State income taxes, net of federal tax benefit......... 5,530,000 1,950,000 2,070,000
Dividends-received deduction........................... (7,254,000) (4,270,000) (2,357,000)
Tax credits............................................ (1,296,000) (318,000) (257,000)
Other, net............................................. 219,000 138,000 74,000
------------- ------------- -------------
Total income tax expense................................. $ 71,051,000 $ 31,169,000 $ 24,252,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-14
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
For United States federal income tax purposes, certain amounts from life
insurance operations are accumulated in a memorandum policyholders' surplus
account and are taxed only when distributed to shareholders or when such account
exceeds prescribed limits. The accumulated policyholders' surplus was
$14,300,000 at September 30, 1998. The Company does not anticipate any
transactions which would cause any part of this surplus to be taxable.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. The significant
components of the liability for Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Investments................................................ $ 17,643,000 $ 13,160,000
Deferred acquisition costs................................. 223,392,000 154,949,000
State income taxes......................................... 2,873,000 1,777,000
Other liabilities.......................................... 144,000 --
Net unrealized gains on debt and equity securities
available for sale........................................ 4,531,000 9,910,000
--------------- --------------
Total deferred tax liabilities............................. 248,583,000 179,796,000
--------------- --------------
DEFERRED TAX ASSETS:
Contractholder reserves.................................... (149,915,000) (108,090,000)
Guaranty fund assessments.................................. (2,910,000) (2,707,000)
Other assets............................................... -- (1,952,000)
--------------- --------------
Total deferred tax assets.................................. (152,825,000) (112,749,000)
--------------- --------------
Deferred income taxes...................................... $ 95,758,000 $ 67,047,000
--------------- --------------
--------------- --------------
</TABLE>
10. RELATED PARTY MATTERS
The Company pays commissions to five affiliated companies, SunAmerica
Securities, Inc., Advantage Capital Corp., Financial Services Corp., Sentra
Securities Corp. and Spelman & Co. Inc. Commissions paid to these broker-dealers
totaled $32,946,000 in 1998, $25,492,000 in 1997, and $16,906,000 in 1996. These
broker-dealers, when combined with the Company's wholly owned broker-dealer,
represent a significant portion of the Company's business, amounting to
approximately 33.6%, 36.1%, and 38.3% of premiums in 1998, 1997, and 1996,
respectively. The Company also sells its products through unaffiliated
broker-dealers, the largest two of which represented approximately 17.3% and
8.4% of premiums in 1998, 19.2% and 10.1% in 1997, and 19.7% and 10.2% in 1996,
respectively.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from SunAmerica Financial, whose purpose
is to provide services to the Company and its affiliates. Amounts paid for such
services totaled $84,975,000 for the year ended September 30, 1998, $86,116,000
for the year ended September 30, 1997 and $65,351,000 for the year ended
September 30, 1996. The marketing component of such costs during these periods
amounted to $39,482,000, $31,968,000 and $17,442,000, respectively, and are
deferred and amortized as part of Deferred Acquisition Costs. The other
components of such costs are included in General and Administrative Expenses in
the income statement.
The Parent made a capital contribution of $28,411,000 in December 1996 to the
Company, through the Company's direct parent, in exchange for the termination of
its guaranty with respect to certain real estate owned in Arizona. Accordingly,
the Company reduced the carrying value of this real estate to estimated fair
value to reflect the termination of the guaranty.
F-15
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY MATTERS (CONTINUED)
During the year ended September 30, 1998, the Company sold various invested
assets to the Parent for cash equal to their current market value of
$64,431,000. The Company recorded a net gain aggregating $16,388,000 on such
transactions.
During the year ended September 30, 1998, the Company purchased certain invested
assets from the Parent, SunAmerica Life Insurance Company and CalAmerica Life
Insurance Company for cash equal to their current market value, which aggregated
$20,666,000, $10,468,000 and $61,000, respectively.
During the year ended September 30, 1997, the Company sold various invested
assets to SunAmerica Life Insurance Company and to CalAmerica Life Insurance
Company for cash equal to their current market value of $15,776,000 and $15,000,
respectively. The Company recorded a net gain aggregating $276,000 on such
transactions.
During the year ended September 30, 1997, the Company purchased certain invested
assets from SunAmerica Life Insurance Company and CalAmerica Life Insurance
Company for cash equal to their current market value of $8,717,000 and $284,000,
respectively.
During the year ended September 30, 1996, the Company sold various invested
assets to the Parent and to SunAmerica Life Insurance Company for cash equal to
their current market value of $274,000 and $47,321,000, respectively. The
Company recorded a net loss aggregating $3,000 on such transactions.
During the year ended September 30, 1996, the Company purchased certain invested
assets from SunAmerica Life Insurance Company for cash equal to their current
market value, which aggregated $28,379,000.
11. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
TOTAL
DEPRECIATION
AND
AMORTIZATION
TOTAL REVENUES EXPENSE PRETAX INCOME TOTAL ASSETS
-------------- ------------- -------------- -----------------
<S> <C> <C> <C> <C>
1998:
Annuity operations................. $ 443,407,000 $ 60,731,000 $ 178,120,000 $ 14,366,018,000
Broker-dealer operations........... 47,363,000 1,770,000 22,401,000 55,870,000
Asset management operations........ 41,040,000 14,780,000 9,171,000 104,476,000
-------------- ------------- -------------- -----------------
Total.............................. $ 531,810,000 $ 77,281,000 $ 209,692,000 $ 14,526,364,000
-------------- ------------- -------------- -----------------
-------------- ------------- -------------- -----------------
1997:
Annuity operations................. $ 332,845,000 $ 55,675,000 $ 74,792,000 $ 12,438,021,000
Broker-dealer operations........... 38,005,000 689,000 16,705,000 51,400,000
Asset management operations........ 35,661,000 16,357,000 2,798,000 81,518,000
-------------- ------------- -------------- -----------------
Total.............................. $ 406,511,000 $ 72,721,000 $ 94,295,000 $ 12,570,939,000
-------------- ------------- -------------- -----------------
-------------- ------------- -------------- -----------------
1996:
Annuity operations................. $ 256,681,000 $ 43,974,000 $ 53,827,000 $ 9,092,770,000
Broker-dealer operations........... 31,053,000 449,000 13,033,000 37,355,000
Asset management operations........ 33,047,000 18,295,000 2,448,000 74,410,000
-------------- ------------- -------------- -----------------
Total.............................. $ 320,781,000 $ 62,718,000 $ 69,308,000 $ 9,204,535,000
-------------- ------------- -------------- -----------------
-------------- ------------- -------------- -----------------
</TABLE>
F-16
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS
On July 15, 1998, the Company entered into a definitive agreement to acquire the
individual life business and the individual and group annuity business of MBL
Life Assurance Corporation (MBL Life) via a 100% coinsurance transaction for
approximately $130,000,000 in cash. The transaction will include approximately
$2,000,000,000 of universal life reserves and $3,000,000,000 of fixed annuity
reserves. The Company plans to reinsure a large portion of the mortality risk
associated with the acquired block of universal life business. Completion of
this acquisition is expected by the end of calendar year 1998 and is subject to
customary conditions and required approvals. Included in this block of business
is approximately $250,000,000 of individual life business and $500,000,000 of
group annuity business whose contract owners are residents of New York State
("the New York Business"). Approximately six months subsequent to completion of
the transaction, the New York Business will be acquired by the Company's New
York affiliate, First SunAmerica Life Insurance Company, and the remainder of
the business will be acquired by the Company via assumption reinsurance
agreements between MBL Life and the respective companies, which will supersede
the coinsurance agreement. The $130,000,000 purchase price will be allocated
between the Company and its affiliate based on their respective assumed life
insurance reserves.
On August 20, 1998, the Parent announced that it has entered into a definite
agreement to merge with and into American International Group, Inc. ("AIG").
Under the terms of the agreement, each share of the Parent's common stock
(including Nontransferable Class B) will be exchanged for 0.855 shares of AIG's
common stock. The transaction will be treated as a pooling of interests for
accounting purposes and will be a tax-free reorganization. The transaction was
approved by both the Parent's and AIG's shareholders on November 18, 1998, and,
subject to various regulatory approvals, will be completed in late 1998 or early
1999.
F-17
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(PORTION RELATING TO THE SEASONS SELECT VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
MARCH 31, 1999
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Anchor National Life Insurance Company
and the Contractholders of its separate account, Variable Annuity Account Five
(Portion Relating to the SEASONS SELECT Variable Annuity)
In our opinion, the accompanying statement of net assets, including the
schedule of portfolio investments, and the related statements of operations
and of changes in net assets present fairly, in all material respects, the
financial position of each of the Variable Accounts constituting Variable
Annuity Account Five (Portion Relating to the SEASONS SELECT Variable
Annuity), and a separate account of Anchor National Life Insurance Company
(the "Separate Account") at March 31, 1999, and the results of their
operations and the changes in their net assets for the period from inception
to March 31, 1999, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Separate
Account's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing
standards, which 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 audit, which included confirmation of securities owned at March 31, 1999
by correspondence with the custodian, provides a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
June 28, 1999
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(Portion Relating to the SEASONS SELECT Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
March 31, 1999
<TABLE>
<CAPTION>
Mid-Cap Mid-Cap International Diversified Cash
Growth Value Small-Cap Equity Fixed Income Management
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Seasons Series Trust,
at market value $ 287,823 $ 113,942 $ 236,059 $ 251,842 $ 318,256 $ 9,701 $ 6,455,289
Liabilities 0 0 0 0 0 0 0
-----------------------------------------------------------------------------------------
Net Assets $ 287,823 $ 113,942 $ 236,059 $ 251,842 $ 318,256 $ 9,701 $ 6,455,289
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Accumulation units outstanding 27,096 11,278 22,807 23,961 31,762 970
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Select 140:
Net Assets $ 287,823 $ 113,942 $ 236,059 $ 251,842 $ 318,256 $ 9,701
Accumulation units outstanding 27,096 11,278 22,807 23,961 31,762 970
Unit value of accumulation units $ 10.62 $ 10.10 $ 10.35 $ 10.51 $ 10.02 $ 10.00
Select 152:
Net Assets $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Accumulation units outstanding 0 0 0 0 0 0
Unit value of accumulation units $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(Portion Relating to the SEASONS SELECT Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
March 31, 1999
<TABLE>
<CAPTION>
Market Value Market
Variable Accounts Shares Per Share Value Cost
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Multi-Managed Growth Portfolio 14,512 $ 17.21 $ 249,671 $ 244,770
Multi-Managed Moderate Growth Portfolio 50,070 15.50 776,295 764,501
Multi-Managed Income/Equity Portfolio 49,531 13.33 660,418 656,106
Multi-Managed Income Portfolio 25,926 12.07 312,926 311,609
Asset Allocation: Diversified Growth Portfolio 71,491 12.63 903,261 903,228
Stock Portfolio 44,552 16.21 722,427 722,077
Large-Cap Growth Portfolio 84,899 10.77 914,326 898,733
Large-Cap Composite Portfolio 33,254 10.44 347,248 344,230
Large-Cap Value Portfolio 34,385 10.21 351,094 352,358
Mid-Cap Growth Portfolio 27,515 10.46 287,823 280,151
Mid-Cap Value Portfolio 11,417 9.98 113,942 113,123
Small-Cap Portfolio 23,815 9.91 236,059 232,260
International Equity Portfolio 24,357 10.34 251,842 246,390
Diversified Fixed Income Portfolio 32,016 9.94 318,256 318,324
Cash Management Portfolio 965 10.06 9,701 9,700
---------------------------------
$ 6,455,289 $ 6,397,560
---------------------------------
---------------------------------
</TABLE>
See Accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(Portion Relating to the SEASONS SELECT Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
March 31, 1999
<TABLE>
<CAPTION>
Moderate Balanced Conservative Large-Cap Large-Cap Large-Cap
Growth Growth Growth Growth Growth Composite Value
Strategy Strategy Strategy Strategy Portfolio Portfolio Portfolio
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Seasons Series Trust,
at market value $ 495,185 $ 1,405,285 $ 1,201,655 $ 522,873 $ 914,326 $ 347,248 $ 351,094
Liabilities 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------
Net Assets $ 495,185 $ 1,405,285 $ 1,201,655 $ 522,873 $ 914,326 $ 347,248 $ 351,094
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Accumulation units outstanding 31,169 93,136 85,553 39,581 85,647 33,347 34,004
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Select 140:
Net Assets $ 495,185 $ 1,405,285 $ 1,201,655 $ 447,724 $ 914,326 $ 347,248 $ 351,094
Accumulation units outstanding 31,169 93,136 85,553 33,892 85,647 33,347 34,004
Unit value of accumulation units $ 15.89 $ 15.09 $ 14.05 $ 13.21 $ 10.68 $ 10.41 $ 10.32
Select 152:
Net Assets $ 0 $ 0 $ 0 $ 75,149 $ 0 $ 0 $ 0
Accumulation units outstanding 0 0 0 5,689 0 0 0
Unit value of accumulation units $ 0 $ 0 $ 0 $ 13.21 $ 0 $ 0 $ 0
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(Portion Relating to the SEASONS SELECT Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION
TO MARCH 31, 1999
<TABLE>
<CAPTION>
Moderate Balanced Conservative Large-Cap Large-Cap Large-Cap
Growth Growth Growth Growth Growth Composite Value
Strategy Strategy Strategy Strategy Portfolio Portfolio Portfolio
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
-----------------------------------------------------------------------------
Total investment income 0 0 0 0 0 0 0
-----------------------------------------------------------------------------
Expenses:
Mortality risk charge (125) (394) (216) (137) (363) (154) (130)
Expense risk charge (49) (154) (84) (54) (141) (60) (51)
Distribution expense charge (21) (66) (36) (23) (61) (26) (22)
-----------------------------------------------------------------------------
Total expenses (195) (614) (336) (214) (565) (240) (203)
-----------------------------------------------------------------------------
Net investment loss (195) (614) (336) (214) (565) (240) (203)
-----------------------------------------------------------------------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 832 2,806 43,840 11,284 93 169 61
Cost of shares sold (837) (2,833) (43,478) (11,267) (92) (166) (60)
-----------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions (5) (27) 362 17 1 3 1
-----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments:
Beginning of period 0 0 0 0 0 0 0
End of period 4,547 10,347 6,153 1,660 15,593 3,018 (1,264)
-----------------------------------------------------------------------------
Change in net unrealized
appreciation/depreciation of investments 4,547 10,347 6,153 1,660 15,593 3,018 (1,264)
-----------------------------------------------------------------------------
Increase (decrease) in net assets from
operations $ 4,347 $ 9,706 $ 6,179 $ 1,463 $ 15,029 $ 2,781 $ (1,466)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(Portion Relating to the SEASONS SELECT Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION
TO MARCH 31, 1999
<TABLE>
<CAPTION>
Mid-Cap Mid-Cap International Diversified Cash
Growth Value Small-Cap Equity Fixed Income Management
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
------------------------------------------------------------------------------------
Total investment income 0 0 0 0 0 0 0
------------------------------------------------------------------------------------
Expenses:
Mortality risk charge (105) (65) (89) (101) (83) 0 (1,962)
Expense risk charge (41) (26) (35) (39) (33) 0 (767)
Distribution expense charge (17) (11) (15) (17) (14) 0 (329)
------------------------------------------------------------------------------------
Total expenses (163) (102) (139) (157) (130) 0 (3,058)
------------------------------------------------------------------------------------
Net investment loss (163) (102) (139) (157) (130) 0 (3,058)
------------------------------------------------------------------------------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 30 76 66 71 50 0 59,378
Cost of shares sold (29) (75) (65) (70) (50) 0 (59,022)
-----------------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions 1 1 1 1 0 0 356
-----------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments:
Beginning of period 0 0 0 0 0 0 0
End of period 7,672 819 3,799 5,452 (68) 1 57,729
--------------------------------------------------------------------------------------
Change in net unrealized
appreciation/depreciation of investments 7,672 819 3,799 5,452 (68) 1 57,729
--------------------------------------------------------------------------------------
Increase (decrease) in net assets from
operations $ 7,510 $ 718 $ 3,661 $ 5,296 $ (198) $ 1 $55,027
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(Portion Relating to the SEASONS SELECT Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION
TO MARCH 31, 1999
<TABLE>
<CAPTION>
Moderate Balanced Conservative Large-Cap Large-Cap Large-Cap
Growth Growth Growth Growth Growth Composite Value
Strategy Strategy Strategy Strategy Portfolio Portfolio Portfolio
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (195) $ (614) $ (336) $ (214) $ (565) $ (240) $ (203)
Net realized gains (losses) from securities
transactions (5) (27) 362 17 1 3 1
Change in net unrealized
appreciation/depreciation of investments 4,547 10,347 6,153 1,660 15,593 3,018 (1,264)
-------------------------------------------------------------------------------
Increase (decrease) in net assets from
operations 4,347 9,706 6,179 1,463 15,029 2,781 (1,466)
-------------------------------------------------------------------------------
From Select 140 capital transactions:
Net proceeds from units sold 491,086 1,395,579 1,245,810 446,051 884,374 344,467 337,505
Cost of units redeemed (248) 0 (150) 0 (132) 0 0
Net transfers 0 0 (50,184) 0 15,055 0 15,055
-------------------------------------------------------------------------------
Increase in net assets 490,838 1,395,579 1,195,476 446,051 899,297 344,467 352,560
-------------------------------------------------------------------------------
From Select 152 capital transactions:
Net proceeds from units sold 0 0 0 75,359 0 0 0
Cost of units redeemed 0 0 0 0 0 0 0
Net transfers 0 0 0 0 0 0 0
-------------------------------------------------------------------------------
Increase in net assets 0 0 0 75,359 0 0 0
-------------------------------------------------------------------------------
Total increase in net assets from
capital transactions 490,838 1,395,579 1,195,476 521,410 899,297 344,467 352,560
Increase in net assets 495,185 1,405,285 1,201,655 522,873 914,326 347,248 351,094
Net assets at beginning of period 0 0 0 0 0 0 0
-------------------------------------------------------------------------------
Net assets at end of period $ 495,185 $ 1,405,285 $ 1,201,655 $ 522,873 $ 914,326 $ 347,248 $ 351,094
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Select 140:
Units sold 31,185 93,136 89,122 33,892 84,261 33,347 32,572
Units redeemed (16) 0 (11) 0 (12) 0 0
Units transferred 0 0 (3,558) 0 1,398 0 1,432
-------------------------------------------------------------------------------
Increase in units outstanding 31,169 93,136 85,553 33,892 85,647 33,347 34,004
Beginning units 0 0 0 0 0 0 0
-------------------------------------------------------------------------------
Ending units 31,169 93,136 85,553 33,892 85,647 33,347 34,004
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Select 152:
Units sold 0 0 0 5,689 0 0 0
Units redeemed 0 0 0 0 0 0 0
Units transferred 0 0 0 0 0 0 0
-------------------------------------------------------------------------------
Increase in units outstanding 0 0 0 5,689 0 0 0
Beginning units 0 0 0 0 0 0 0
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Ending units 0 0 0 5,689 0 0 0
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(Portion Relating to the SEASONS SELECT Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION
TO MARCH 31, 1999
<TABLE>
<CAPTION>
Mid-Cap Mid-Cap International Diversified Cash
Growth Value Small-Cap Equity Fixed Income Management
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (163) $ (102) $ (139) $ (157) $ (130) $ 0 $ (3,058)
Net realized gains (losses) from securities
transactions 1 1 1 1 0 0 356
Change in net unrealized
appreciation/depreciation of investments 7,672 819 3,799 5,452 (68) 1 57,729
-----------------------------------------------------------------------------------
Increase (decrease) in net assets from
operations 7,510 718 3,661 5,296 (198) 1 55,027
-----------------------------------------------------------------------------------
From Select 140 capital transactions:
Net proceeds from units sold 280,413 113,224 232,398 246,546 298,380 9,850 6,325,683
Cost of units redeemed (100) 0 0 0 0 (150) (780)
Net transfers 0 0 0 0 20,074 0 0
-----------------------------------------------------------------------------------
Increase in net assets 280,313 113,224 232,398 246,546 318,454 9,700 6,324,903
-----------------------------------------------------------------------------------
From Select 152 capital transactions:
Net proceeds from units sold 0 0 0 0 0 0 75,359
Cost of units redeemed 0 0 0 0 0 0 0
Net transfers 0 0 0 0 0 0 0
-----------------------------------------------------------------------------------
Increase in net assets 0 0 0 0 0 0 75,359
-----------------------------------------------------------------------------------
Total increase in net assets from
capital transactions 280,313 113,224 232,398 246,546 318,454 9,700 6,400,262
Increase in net assets 287,823 113,942 236,059 251,842 318,256 9,701 6,455,289
Net assets at beginning of period 0 0 0 0 0 0 0
-----------------------------------------------------------------------------------
Net assets at end of period $ 287,823 $ 113,942 $ 236,059 $ 251,842 $ 318,256 $ 9,701 $6,455,289
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Select 140:
Units sold 27,105 11,278 22,807 23,961 29,755 985
Units redeemed (9) 0 0 0 0 (15)
Units transferred 0 0 0 0 2,007 0
------------------------------------------------------------------------
Increase in units outstanding 27,096 11,278 22,807 23,961 31,762 970
Beginning units 0 0 0 0 0 0
------------------------------------------------------------------------
Ending units 27,096 11,278 22,807 23,961 31,762 970
------------------------------------------------------------------------
------------------------------------------------------------------------
Select 152:
Units sold 0 0 0 0 0 0
Units redeemed 0 0 0 0 0 0
Units transferred 0 0 0 0 0 0
------------------------------------------------------------------------
Increase in units outstanding 0 0 0 0 0 0
Beginning units 0 0 0 0 0 0
------------------------------------------------------------------------
------------------------------------------------------------------------
Ending units 0 0 0 0 0 0
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(PORTION RELATING TO THE SEASONS SELECT VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Annuity Account Five (Portion Relating to the SEASONS SELECT
Variable Annuity) of Anchor National Life Insurance Company (the
"Separate Account") is a segregated investment account of Anchor
National Life Insurance Company (the "Company"). The Company is an
indirect, wholly owned subsidiary of SunAmerica Inc. Effective January
1, 1999, SunAmerica Inc. merged with and into American International
Group, Inc. in a tax-free reorganization that was treated as a pooling
of interests for accounting purposes. Immediately prior to the merger,
SunAmerica Inc. transferred substantially all of its net assets to its
wholly owned subsidiary SunAmerica Holdings, Inc., a Delaware
Corporation. On January 4, 1999, SunAmerica Holdings, Inc. changed its
name to SunAmerica Inc. The Separate Account is registered as a
segregated unit investment trust pursuant to the provisions of the
Investment Company Act of 1940, as amended.
The Separate Account is composed of four strategies (the "Strategies")
and nine variable portfolios (the "Select Portfolios") each with a
distinct investment objective. The Strategies are comprised of Growth,
Moderate Growth, Balanced Growth, and Conservative Growth. Each
strategy invests in the shares of a designated multi-managed portfolio
of the Seasons Series Trust ("the Trust") and in two other portfolios
of the Trust. Each of the Select Portfolios is invested solely in the
shares of a designated portfolio of the Trust. The Trust is a
diversified, open-end, affiliated investment company, which retains an
investment advisor to assist in its investment activities. The
contractholder may elect to have payments allocated to any of seven
guaranteed-interest funds of the Company (the "General Account"), which
are not a part of the Separate Account. The financial statements
include balances allocated by the participant to the four Strategies
and nine Select Portfolios and do not include balances allocated to the
General Account.
The Company offers two versions of Seasons Select depending upon the
age of the contractholder at the issue date. If the contractholder is
age 80 or younger at the issue date, the insurance charge amounts to
1.40% annually of the average daily value of the contract ("Select
140"). If the contractholder is 81 years of age or older at the issue
date, the amount of the insurance charge is 1.52% annually ("Select
152"). The .12% additional insurance charges for Select 152 results in
slightly reduced accumulation unit values. The two accumulation unit
values for each Strategy and Select Portfolio are computed daily based
on the total net assets applicable to Select 140 and Select 152
policies, respectively. The accumulation unit values, the transactions,
the number of units, and the separate account assets related to Select
140 and Select 152 policies are shown separately in the financial
statements.
1
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(PORTION RELATING TO THE SEASONS SELECT VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The inception dates of Select 140 Strategies and Select Portfolios are
summarized below:
The inception date of the Moderate Growth Strategy was March 3, 1999.
The inception date of the Growth Strategy was March 4, 1999. The
inception date of the Balanced Growth and Conservative Growth
Strategies was March 5, 1999. The inception date of the Diversified
Fixed Income Portfolio was March 10, 1999. The inception date of the
Cash Management Portfolio was March 26, 1999. The inception date of the
remaining portfolios was March 1, 1999.
The inception dates of Select 152 Strategies and Select Portfolios are
summarized below:
The inception date of the Conservative Growth Strategy was March 19,
1999. The inception date for all other Select 152 Strategies and Select
Portfolios was subsequent to March 31, 1999.
The four strategies differ in their investment objectives, levels of
risk and anticipated growth over time. Each strategy invests in a
multi-managed portfolio specific for that strategy and in the two
jointly utilized portfolios of the Trust, according to a predetermined
allocation designed to achieve its investment objective. The investment
allocation to the underlying portfolios is maintained by rebalancing
the strategies quarterly.
The investment objectives of the four strategies of the Separate
Account are described below:
The GROWTH STRATEGY seeks long-term growth of capital. The
Growth Strategy invests in the Multi-Managed Growth Portfolio,
the Asset Allocation: Diversified Growth Portfolio, and the
Stock Portfolio.
The MODERATE GROWTH STRATEGY seeks growth of capital, with conservation
of principal as a secondary objective. The Moderate Growth Strategy
invests in the Multi-Managed Moderate Growth Portfolio, the Asset
Allocation: Diversified Growth Portfolio, and the Stock Portfolio.
The BALANCED GROWTH STRATEGY focuses on conservation of principal, with
high total return as a secondary objective. The Balanced Growth
Strategy invests in the Multi-Managed Income/Equity Portfolio, the
Asset Allocation: Diversified Growth Portfolio, and the Stock
Portfolio.
2
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(PORTION RELATING TO THE SEASONS SELECT VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The CONSERVATIVE GROWTH STRATEGY focuses on capital preservation while
maintaining some potential for growth over the long term. The
Conservative Growth Strategy invests in the Multi-Managed Income
Portfolio, the Asset Allocation: Diversified Growth Portfolio, and the
Stock Portfolio.
The investment objectives of the six underlying portfolios of the
Strategies are summarized below:
The MULTI-MANAGED GROWTH PORTFOLIO seeks long-term growth of capital.
The MULTI-MANAGED MODERATE GROWTH PORTFOLIO seeks long-term growth of
capital, with capital preservation as a secondary objective.
The MULTI-MANAGED INCOME/EQUITY PORTFOLIO seeks conservation of
principal while maintaining some potential for long-term growth of
capital.
The MULTI-MANAGED INCOME PORTFOLIO seeks capital preservation.
The ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO seeks
capital appreciation. This portfolio invests primarily in equity
securities of U.S. and foreign issuers which the advisor believes
have the potential for appreciation. This portfolio is an investment
of all four strategies.
The STOCK PORTFOLIO seeks long-term capital appreciation and,
secondarily, increasing dividend income. This portfolio invests
primarily in common stocks of well-established growth companies.
This portfolio is an investment of all four strategies.
The four multi-managed Seasons portfolios described above pursue their
investment goals by allocating their assets among three or four managed
components. The assets of each multi-managed portfolio are allocated
among the same three investment managers in differing percentages,
depending on the portfolio's overall investment objective. Janus
Capital Corporation manages a growth component, SunAmerica Asset
Management Corp., a wholly owned subsidiary of SunAmerica Inc., manages
a balanced component, and Wellington Management Company, LLP manages a
fixed income component. SunAmerica Asset Management Corp. also manages
an aggressive growth component that is available only in the Growth and
Moderate Growth strategies. The investment policies relating to each of
the four managed Strategy components are described below:
3
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(PORTION RELATING TO THE SEASONS SELECT VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The SUNAMERICA/AGGRESSIVE GROWTH COMPONENT primarily consists of equity
securities of small capitalization growth companies or industries,
although larger capitalization companies may be included. This
component may also include debt securities that have the potential for
capital appreciation.
The JANUS/GROWTH COMPONENT primarily consists of common stocks of U.S.
or foreign issuers with earnings growth potential.
The SUNAMERICA/BALANCED COMPONENT, over the long term, will consist of
a diversified selection of equity investments in companies of medium to
large capitalizations that are thought to be undervalued in the
marketplace and long term bonds and other debt securities.
The WELLINGTON MANAGEMENT COMPANY/FIXED INCOME COMPONENT primarily
consists of fixed income securities of varying maturities and
risk/return characteristics.
The investment objectives and policies of the nine Select Portfolios
are summarized below:
The LARGE-CAP GROWTH PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in equity securities of large companies
selected through a growth strategy.
The LARGE-CAP COMPOSITE PORTFOLIO seeks long-term growth of capital and
growth of dividend income. This portfolio invests primarily in equity
securities of large companies that offer the potential for long-term
growth of capital or dividends.
The LARGE-CAP VALUE PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in equity securities of large companies
selected through a value strategy.
The MID-CAP GROWTH PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in equity securities of medium-sized
companies selected through a growth strategy.
The MID-CAP VALUE PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in equity securities of medium-sized
companies selected through a value strategy.
4
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(PORTION RELATING TO THE SEASONS SELECT VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The SMALL-CAP PORTFOLIO seeks long-term growth of capital. This
portfolio invests in equity securities of small companies.
The INTERNATIONAL EQUITY PORTFOLIO seeks long-term growth of capital.
This portfolio invests primarily in equity securities of issuers in at
least three countries other than the United States.
The DIVERSIFIED FIXED INCOME PORTFOLIO seeks relatively high current
income, and secondarily, capital appreciation. This portfolio invests
primarily in fixed income securities, including U.S. and foreign
government securities, mortgaged-backed securities, investment grade
debt securities, and high-yield/high-risk bonds.
The CASH MANAGEMENT PORTFOLIO seeks high current yield while preserving
capital. This portfolio invests in a diversified selection of money
market instruments.
Purchases and sales of shares of the portfolios of the Trust are valued
at the net asset values of the shares on the date the shares are
purchased or sold. Dividends and capital gains distributions are
recorded when received. Realized gains and losses on the sale of
investments in the Trust are recognized at the date of sale and are
determined on an average cost basis.
2. CHARGES AND DEDUCTIONS
Charges and deductions are applied against the current value of the
Separate Account and are paid as follows:
WITHDRAWAL CHARGE: The contract value may be withdrawn at any time
during the accumulation period. There is a free withdrawal amount for
the first withdrawal during each contract year. The free withdrawal
amount is equal to 10% of aggregate purchase payments that remain
subject to the withdrawal charge and that have not previously been
withdrawn. Should a withdrawal exceed the free withdrawal amount, a
withdrawal charge, in certain circumstances, is imposed and paid to the
Company.
Withdrawal charges vary in amount depending upon the number of years
since the purchase payment being withdrawn was made. The withdrawal
charge is deducted from the remaining contract value so that the actual
reduction in contract value as a result of the withdrawal will be
greater than the withdrawal amount requested and paid. For purposes of
determining the withdrawal charge, withdrawals will be allocated to the
oldest purchase
5
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(PORTION RELATING TO THE SEASONS SELECT VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS (continued)
payments first so that all withdrawals are allocated to purchase
payments to which the lowest (if any) withdrawal charge applies. Any
amount withdrawn which exceeds a free withdrawal may be subject to a
withdrawal charge in accordance with the withdrawal charge table shown
below:
<TABLE>
<CAPTION>
Year since Purchase Applicable Withdrawal
Payment Charge Percentage
<S> <C>
First 9%
Second 8%
Third 7%
Fourth 6%
Fifth 6%
Sixth 5%
Seventh 4%
Eighth 3%
Ninth 2%
Tenth and beyond 0%
</TABLE>
CONTRACT MAINTENANCE CHARGE: An annual contract maintenance fee of $35
($30 in North Dakota) is charged against each contract, which
reimburses the Company for expenses incurred in establishing and
maintaining records relating to a contract. The contract maintenance
fee will be assessed on each anniversary during the accumulation phase.
In the event that a total surrender of contract value is made, the
entire charge will be assessed as of the date of surrender.
TRANSFER FEE: A transfer fee of $25 ($10 in Pennsylvania and Texas)
is assessed on each transfer of funds in excess of four transactions
within a contract year.
PREMIUM TAXES: Premium taxes or other taxes payable to a state or other
governmental entity will be charged against the contract values. Some
states assess premium taxes at the time purchase payments are made;
others assess premium taxes at the time annuity payments begin or at
the time of surrender. The Company currently intends to deduct premium
taxes at the time of surrender or upon annuitization; however, it
reserves the right to deduct any premium taxes when incurred or upon
payment of the death benefit.
MORTALITY AND EXPENSE RISK CHARGE: The Company deducts mortality and
expense risk charges, which total to an annual rate of 1.25% and 1.37%
of the net asset value of each Strategy/Select Portfolio, computed on a
daily basis, for Select 140 and Select 152,
6
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(PORTION RELATING TO THE SEASONS SELECT VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS (continued)
respectively. The mortality risk charge is compensation for the
mortality risks assumed by the Company from its contractual obligations
to make annuity payments after the contract has annuitized for the life
of the annuitant and to provide death benefits, and for assuming the
risk that the current charges will be insufficient in the future to
cover the cost of administering the contract. The mortality risk
charges for Select 140 and Select 152 for the period from inception to
March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Mortality Risk
Version Charge
- ------------------------------------------- --------------------
<S> <C>
Select 140 $1,941
Select 152 21
--------------------
Total Mortality Risk Charges 1,962
--------------------
--------------------
</TABLE>
The mortality risk charge for Select 152 pertains solely to the
Conservative Growth Strategy.
DISTRIBUTION EXPENSE CHARGE: The Company deducts a distribution expense
charge at an annual rate of 0.15% of the net asset value of each
Strategy/Select Portfolio, computed on a daily basis. This charge is
for all expenses associated with the distribution of the contract.
These expenses include preparing the contract, confirmations and
statements, providing sales support and maintaining contract records.
If this charge is not enough to cover the cost of distributing the
contract, the Company will bear the loss.
SEPARATE ACCOUNT INCOME TAXES: The Company currently does not maintain
a provision for taxes, but has reserved the right to establish such a
provision for taxes in the future if it determines, in its sole
discretion, that it will incur a tax as a result of the operation of
the Separate Account.
7
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
(PORTION RELATING TO THE SEASONS SELECT VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENT IN SEASONS SERIES TRUST
The aggregate cost of the Trust's shares acquired and the aggregate
proceeds from shares sold during the period from inception to March 31,
1999 consist of the following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Portfolios Acquired Shares Sold
<S> <C> <C>
Multi-Managed Growth Portfolio 245,464 689
Multi-Managed Moderate Growth Portfolio 767,288 2,760
Multi-Managed Income/Equity Portfolio 680,678 24,734
Multi-Managed Income Portfolio 318,798 7,230
Asset Allocation: Diversified Growth Portfolio 916,414 13,244
Stock Portfolio 732,063 10,105
Large-Cap Growth Portfolio 898,825 93
Large-Cap Composite Portfolio 344,396 169
Large-Cap Value Portfolio 352,418 61
Mid-Cap Growth Portfolio 280,180 30
Mid-Cap Value Portfolio 113,199 76
Small-Cap Portfolio 232,325 66
International Equity Portfolio 246,460 71
Diversified Fixed Income Portfolio 318,374 50
Cash Management Portfolio 9,700 0
------------------------------------
------------------------------------
</TABLE>
4. FEDERAL INCOME TAXES
The Company qualifies for federal income tax treatment granted to life
insurance companies under subchapter L of the Internal Revenue Service
Code (the "Code"). The operations of the Separate Account are part of
the total operations of the Company and are not taxed separately. The
Separate Account is not treated as a regulated investment company under
the Code.
8
