<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1999
FILE NOS. 333-67685
811-07727
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
/X/
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 3 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 /X/
AMENDMENT NO. 7
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
VARIABLE ANNUITY ACCOUNT FIVE
(PORTION RELATING TO THE SEASONS SELECT VARIABLE ANNUITY)
(Exact Name of Registrant)
ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Name of Depositor)
1 SUNAMERICA CENTER
LOS ANGELES, CALIFORNIA 90067-6022
(Address of Depositor's Principal Offices) (Zip Code)
Depositor's Telephone Number, including Area Code
(310) 772-6000
SUSAN L. HARRIS, ESQ.
ANCHOR NATIONAL LIFE INSURANCE COMPANY
1 SUNAMERICA CENTER
LOS ANGELES, CALIFORNIA 90067-6022
(Name and Address of Agent for Service)
Approximate date of proposed public offering:
As soon as practicable after effectiveness of the Registration Statement.
Title of securities being registered:
Interests in a Separate Account under group and individual flexible payment
deferred annuity contracts.
It is prosposed that this filing will become effective:
-- immediately upon filing pursuant to paragraph (b) of Rule 485
X on December 29, 1998 pursuant to paragraph (b) of Rule 485
-- 60 days after filing pursuant to paragraph (a) of Rule 485
-- on ____________ pursuant to paragraph (a) of Rule 485
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
CROSS REFERENCE SHEET
PART A -- PROSPECTUS
Incorporated herein by reference to Post-Effective Amendment No. 2 under
Securities Act of 1933 (the 33 Act) and No. 6 under the Investment Company Act
of 1940 (the 40 Act) to Registration Statement file No. 333-67685 and
811-07727 filed on Form N-4 on July 12, 1999.
<PAGE>
PART B -- STATEMENT OF ADDITIONAL INFORMATION
Incorporated herein by reference to Post-Effective Amendment No. 2 under
Securities Act of 1933 (the 33 Act) and No. 6 under the Investment Company Act
of 1940 (the 40 Act) to Registration Statement file No. 333-67685 and
811-07727 filed on Form N-4 on July 12, 1999.
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
[LOGO]
PROFILE
July 15, 1999
Incorporated herein by reference to Post-Effective Amendment No. 2 under
Securities Act of 1933 (the 33 Act) and No. 6 under the Investment Company Act
of 1940 (the 40 Act) to Registration Statement file No. 333-67685 and
811-07727 filed on Form N-4 on July 12, 1999.
<PAGE>
[LOGO]
PROSPECTUS
July 15, 1999
ALLOCATED FIXED AND VARIABLE GROUP ANNUITY
issued by
VARIABLE ANNUITY ACCOUNT FIVE
and
ANCHOR NATIONAL LIFE INSURANCE COMPANY
Incorporated herein by reference to Post-Effective Amendment No. 2 under
Securities Act of 1933 (the 33 Act) and No. 6 under the Investment Company Act
of 1940 (the 40 Act) to Registration Statement file No. 333-67685 and
811-07727 filed on Form N-4 on July 12, 1999.
<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 dated December 29, 1999, 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 DECEMBER 29, 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.
Effective October 1, 1999, the Company changed its fiscal year end from
September 30, to December 31. Reflecting this change, also included in this
Statement of Additional Information is the Company's audited Transition
Report as of and for the three months ended December 31, 1998. The 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>
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 statement of income and comprehensive income and cash flows
present fairly, in all material respects, the financial position of Anchor
National Life Insurance Company and its subsidiaries (the "Company") at
December 31, 1998, September 30, 1998 and 1997, and the results of their
operations and their cash flows for the three months ended December 31, 1998
and for each of the three fiscal 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 19, 1999
3
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At September 30,
December 31, -----------------------------------------
1998 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 3,303,454,000 $ 333,735,000 $ 113,580,000
Bonds, notes and redeemable
preferred stocks available for sale,
at fair value (amortized cost:
December 1998, $4,252,740,000;
September 1998, $1,934,863,000;
September 1997, $1,942,485,000) 4,248,840,000 1,954,754,000 1,986,194,000
Mortgage loans 388,780,000 391,448,000 339,530,000
Policy loans 320,688,000 11,197,000 10,948,000
Common stocks available for sale,
at fair value (cost: December 1998,
$1,409,000; September 1998, $115,000;
September 1997, $271,000) 1,419,000 169,000 1,275,000
Partnerships 4,577,000 4,403,000 46,880,000
Real estate 24,000,000 24,000,000 24,000,000
Other invested assets 15,185,000 15,036,000 85,894,000
--------------- --------------- ---------------
Total investments 8,306,943,000 2,734,742,000 2,608,301,000
Variable annuity assets held in separate
accounts 13,767,213,000 11,133,569,000 9,343,200,000
Accrued investment income 73,441,000 26,408,000 21,759,000
Deferred acquisition costs 866,053,000 539,850,000 536,155,000
Income taxes currently receivable --- 5,869,000 ---
Receivable from brokers for sales of
securities 22,826,000 23,904,000 2,290,000
Other assets 109,857,000 85,926,000 61,524,000
--------------- --------------- ---------------
TOTAL ASSETS $23,146,333,000 $14,550,268,000 $12,573,229,000
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
See accompanying notes
4
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET (Continued)
<TABLE>
<CAPTION>
At September 30,
December 31, -----------------------------------------
1998 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $ 5,500,157,000 $ 2,189,272,000 $ 2,098,803,000
Reserves for universal life insurance
contracts 2,339,194,000 --- ---
Reserves for guaranteed investment
contracts 306,461,000 282,267,000 295,175,000
Payable to brokers for purchases of
securities --- 50,957,000 2,553,000
Income taxes currently payable 11,123,000 --- 32,265,000
Other liabilities 160,020,000 106,594,000 122,728,000
--------------- --------------- ---------------
Total reserves, payables
and accrued liabilities 8,316,955,000 2,629,090,000 2,551,524,000
--------------- --------------- ---------------
Variable annuity liabilities related to
separate accounts 13,767,213,000 11,133,569,000 9,343,200,000
--------------- --------------- ---------------
Subordinated notes payable to affiliates 209,367,000 39,182,000 36,240,000
--------------- --------------- ---------------
Deferred income taxes 105,772,000 95,758,000 67,047,000
--------------- --------------- ---------------
Shareholder's equity:
Common Stock 3,511,000 3,511,000 3,511,000
Additional paid-in capital 378,674,000 308,674,000 308,674,000
Retained earnings 366,460,000 332,069,000 244,628,000
Accumulated other comprehensive
income (loss) (1,619,000) 8,415,000 18,405,000
--------------- --------------- ---------------
Total shareholder's equity 747,026,000 652,669,000 575,218,000
--------------- --------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $23,146,333,000 $14,550,268,000 $12,573,229,000
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
See accompanying notes
5
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended ---------------------------------------------------------
December 31, 1998 1998 1997 1996
----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment income $ 54,278,000 $ 221,966,000 $ 210,759,000 $ 164,631,000
----------------- ------------- ------------- -------------
Interest expense on:
Fixed annuity contracts (22,828,000) (112,695,000) (109,217,000) (82,690,000)
Guaranteed investment
contracts (3,980,000) (17,787,000) (22,650,000) (19,974,000)
Senior indebtedness (34,000) (1,498,000) (2,549,000) (2,568,000)
Subordinated notes payable to
affiliates (471,000) (3,114,000) (3,142,000) (2,556,000)
----------------- ------------- ------------- -------------
Total interest expense (27,313,000) (135,094,000) (137,558,000) (107,788,000)
----------------- ------------- ------------- -------------
NET INVESTMENT INCOME 26,965,000 86,872,000 73,201,000 56,843,000
----------------- ------------- ------------- -------------
NET REALIZED INVESTMENT GAINS
(LOSSES) 271,000 19,482,000 (17,394,000) (13,355,000)
----------------- ------------- ------------- -------------
Fee income:
Variable annuity fees 58,806,000 200,867,000 139,492,000 103,970,000
Net retained commissions 11,479,000 48,561,000 39,143,000 31,548,000
Asset management fees 8,068,000 29,592,000 25,764,000 25,413,000
Surrender charges 3,239,000 7,404,000 5,529,000 5,184,000
Other fees 1,738,000 3,938,000 3,218,000 3,390,000
----------------- ------------- ------------- -------------
TOTAL FEE INCOME 83,330,000 290,362,000 213,146,000 169,505,000
----------------- ------------- ------------- -------------
GENERAL AND ADMINISTRATIVE
EXPENSES (22,375,000) (96,102,000) (98,802,000) (81,552,000)
----------------- ------------- ------------- -------------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS (27,070,000) (72,713,000) (66,879,000) (57,520,000)
----------------- ------------- ------------- -------------
ANNUAL COMMISSIONS (6,624,000) (18,209,000) (8,977,000) (4,613,000)
----------------- ------------- ------------- -------------
PRETAX INCOME 54,497,000 209,692,000 94,295,000 69,308,000
Income tax expense (20,106,000) (71,051,000) (31,169,000) (24,252,000)
----------------- ------------- ------------- -------------
NET INCOME 34,391,000 138,641,000 63,126,000 45,056,000
----------------- ------------- ------------- -------------
Other comprehensive income, net of tax:
Net unrealized gains on bonds and
notes available for sale:
Net unrealized gains
identified in the current
period (10,249,000) (4,027,000) 16,605,000 (11,265,000)
Less reclassification
Adjustment for net
realized gains included
in net income 215,000 (5,963,000) 7,321,000 11,417,000
----------------- ------------- ------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS) (10,034,000) (9,990,000) 23,926,000 152,000
----------------- ------------- ------------- -------------
COMPREHENSIVE INCOME $ 24,357,000 $ 128,651,000 $ 87,052,000 $ 45,208,000
----------------- ------------- ------------- -------------
----------------- ------------- ------------- -------------
</TABLE>
See accompanying notes
6
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------------
December 31, 1998 1998 1997 1996
----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 34,391,000 $ 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 22,828,000 112,695,000 109,217,000 82,690,000
Guaranteed investment
contracts 3,980,000 17,787,000 22,650,000 19,974,000
Net realized investment losses
(gains) (271,000) (19,482,000) 17,394,000 13,355,000
Amortization (accretion) of
net premiums (discounts)
on investments (1,199,000) 447,000 (18,576,000) (8,976,000)
Amortization of goodwill 356,000 1,422,000 1,187,000 1,169,000
Provision for deferred income
taxes 15,945,000 34,087,000 (16,024,000) (3,351,000)
Change in:
Accrued investment income (1,512,000) (4,649,000) (2,084,000) (5,483,000)
Deferred acquisition costs (34,328,000) (160,926,000) (113,145,000) (60,941,000)
Other assets (21,070,000) (19,374,000) (14,598,000) (8,000,000)
Income taxes currently payable 16,992,000 (38,134,000) 10,779,000 5,766,000
Other liabilities 5,617,000 (2,248,000) 14,187,000 5,474,000
Other, net 5,510,000 (5,599,000) 418,000 (129,000)
----------------- --------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 47,239,000 54,667,000 74,531,000 86,604,000
----------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of:
Bonds, notes and redeemable
preferred stocks (392,515,000) (1,970,502,000) (2,566,211,000) (1,937,890,000)
Mortgage loans (4,962,000) (131,386,000) (266,771,000) (15,000,000)
Other investments, excluding
short-term investments (1,992,000) --- (75,556,000) (36,770,000)
Sales of:
Bonds, notes and redeemable
Preferred stocks 265,039,000 1,602,079,000 2,299,063,000 1,241,928,000
Real estate --- --- --- 900,000
Other investments, excluding
short-term investments 142,000 42,458,000 6,421,000 4,937,000
Redemptions and maturities of:
Bonds, notes and redeemable
preferred stocks 37,290,000 424,393,000 376,847,000 288,969,000
Mortgage loans 7,699,000 80,515,000 25,920,000 11,324,000
Other investments, excluding
short-term investments 853,000 67,213,000 23,940,000 20,749,000
Cash and short-term investments
acquired in coinsurance
transaction with MBL Life
Assurance Corporation 3,083,211,000 --- --- ---
----------------- --------------- --------------- ---------------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES 2,994,765,000 114,770,000 (176,347,000) (420,853,000)
----------------- --------------- --------------- ---------------
</TABLE>
7
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------------
December 31, 1998 1998 1997 1996
----------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Premium receipts on:
Fixed annuity contracts $ 351,616,000 $ 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 (448,762,000) (1,303,790,000) (620,367,000) (236,705,000)
Withdrawal payments on:
Fixed annuity contracts (41,554,000) (191,690,000) (242,589,000) (263,614,000)
Guaranteed investment
contracts (3,797,000) (36,313,000) (198,062,000) (16,492,000)
Claims and annuity payments
on fixed annuity contracts (9,333,000) (40,589,000) (35,731,000) (31,107,000)
Net receipts from (repayments
of) other short-term
financings 9,545,000 (10,944,000) 34,239,000 (119,712,000)
Net receipt/(payment) related to
a modified coinsurance
transaction (170,436,000) 166,631,000 --- ---
Receipts from issuance of
subordinated note payable
to affiliate 170,436,000 --- --- ---
Capital contribution received 70,000,000 --- 28,411,000 27,387,000
Dividends paid --- (51,200,000) (25,500,000) (29,400,000)
----------------- --------------- -------------- -------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (72,285,000) 50,718,000 93,338,000 207,098,000
----------------- --------------- -------------- -------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS 2,969,719,000 220,155,000 (8,478,000) (127,151,000)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD 333,735,000 113,580,000 122,058,000 249,209,000
----------------- --------------- -------------- -------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 3,303,454,000 $ 333,735,000 $ 113,580,000 $ 122,058,000
----------------- --------------- -------------- -------------
----------------- --------------- -------------- -------------
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid on indebtedness $ 536,000 $ 3,912,000 $ 7,032,000 $ 5,982,000
----------------- --------------- -------------- -------------
----------------- --------------- -------------- -------------
Net income taxes paid (refunded) $ (12,302,000) $ 74,932,000 $ 36,420,000 $ 22,031,000
----------------- --------------- -------------- -------------
----------------- --------------- -------------- -------------
</TABLE>
See accompanying notes
8
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company (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 include 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: At December 31, 1998, the Company was a wholly owned
indirect subsidiary of SunAmerica Inc. On January 1, 1999, SunAmerica Inc.
merged with and into American International Group, Inc. ("AIG") in a
tax-free reorganization that has been treated as a pooling of interests for
accounting purposes. Thus, SunAmerica Inc. ceased to exist on that date.
However, on the date of merger, substantially all of the net assets of
SunAmerica Inc. were contributed to a newly formed subsidiary of AIG named
SunAmerica Inc. ("SunAmerica").
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 items have been reclassified to conform to the
current period's 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.
9
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. Policy loans are carried at unpaid balances. Limited
partnerships are accounted for by the cost method of accounting. Real
estate is carried at the lower of cost or fair value. Other invested assets
include investments in separate account investments, leveraged leases, and
collateralized mortgage obligation residuals.
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
10
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 accumulated other comprehensive income/(loss) that is credited or
charged directly to shareholder's equity. DAC has been increased by
$1,400,000 at December 31, 1998, decreased by $7,000,000 at September 30,
1998, and decreased by $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 $22,983,000 at December 31, 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.
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").
11
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 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
December 31, 1999 and is not included in these financial statements.
Implementation of 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 was postponed by SFAS 137, and now will be
effective for the Company as of January 1, 2001. Therefore, it is not
included in the accompanying 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.
3. FISCAL YEAR CHANGE
Effective December 31, 1998, the Company changed its fiscal year end from
September 30 to December 31. Accordingly, the consolidated financial
statements include the results of operations and cash flows for the
three-month transition period ended December 31, 1998. Such results are not
necessarily indicative of operations for a full year. The consolidated
financial statements as of and for the three months ended December 31, 1998
were originally filed as the Company's unaudited Transition Report on Form
10-Q.
Results for the comparable prior year period are summarized below.
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1997
-----------------
<S> <C>
Investment income 59,855,000
Net investment income 26,482,000
Net realized investment gains 20,935,000
Total fee income 63,984,000
Pretax income 67,654,000
Net income 44,348,000
-----------------
-----------------
</TABLE>
12
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. 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
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 6,033,000 $ 6,272,000
Mortgage-backed securities 546,790,000 553,990,000
Securities of public utilities 208,074,000 205,119,000
Corporate bonds and notes 2,624,330,000 2,616,073,000
Redeemable preferred stocks 6,125,000 7,507,000
Other debt securities 861,388,000 859,879,000
-------------- --------------
Total $4,252,740,000 $4,248,840,000
-------------- --------------
-------------- --------------
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:
Securities of the United States
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>
13
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS (Continued)
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by contractual maturity, as of December
31, 1998, follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
Due in one year or less $ 918,639,000 $ 918,419,000
Due after one year through
five years 1,547,743,000 1,546,798,000
Due after five years through
ten years 815,959,000 816,689,000
Due after ten years 423,609,000 412,944,000
Mortgage-backed securities 546,790,000 553,990,000
-------------- --------------
Total $4,252,740,000 $4,248,840,000
-------------- --------------
-------------- --------------
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above due to prepayments and redemptions.
14
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. 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 DECEMBER 31, 1998:
Securities of the United States
Government $ 239,000 $ ---
Mortgage-backed securities 9,398,000 (2,198,000)
Securities of public utilities 926,000 (3,881,000)
Corporate bonds and notes 22,227,000 (30,484,000)
Redeemable preferred stocks 1,382,000 ---
Other debt securities 2,024,000 (3,533,000)
----------- ------------
Total $36,196,000 $(40,096,000)
----------- ------------
----------- ------------
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, 1997:
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
$10,000, $54,000, and $1,004,000 at December 31, 1998, September 30, 1998,
and September 30, 1997, respectively. There were no unrealized losses at
December 31, 1998, September 30, 1998, or September 30, 1997.
15
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS (Continued)
Gross realized investment gains and losses on sales of investments are as
follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended --------------------------------------------------------
December 31, 1998 1998 1997 1996
----------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
BONDS, NOTES AND
REDEEMABLE PREFERRED
STOCKS:
Realized gains $ 6,669,000 $ 28,086,000 $ 22,179,000 $ 14,532,000
Realized losses (5,324,000) (4,627,000) (25,310,000) (10,432,000)
COMMON STOCKS:
Realized gains 12,000 337,000 4,002,000 511,000
Realized losses (9,000) --- (312,000) (3,151,000)
OTHER INVESTMENTS:
Realized gains 573,000 8,824,000 2,450,000 1,135,000
IMPAIRMENT WRITEDOWNS (1,650,000) (13,138,000) (20,403,000) (15,950,000)
----------------- ------------ ------------ ------------
Total net realized
investment gains
and losses $ 271,000 $ 19,482,000 $(17,394,000) $(13,355,000)
----------------- ------------ ------------ ------------
----------------- ------------ ------------ ------------
<CAPTION>
The sources and related amounts of investment income are as follows:
Years Ended September 30,
Three Months Ended --------------------------------------------------------
December 31, 1998 1998 1997 1996
----------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Short-term investments $ 4,649,000 $ 12,524,000 $ 11,780,000 $ 10,647,000
Bonds, notes and
redeemable preferred
stocks 39,660,000 156,140,000 163,038,000 140,387,000
Mortgage loans 7,904,000 29,996,000 17,632,000 8,701,000
Common stocks --- 34,000 16,000 8,000
Real estate 13,000 (467,000) (296,000) (196,000)
Cost-method partnerships 352,000 24,311,000 6,725,000 4,073,000
Other invested assets 1,700,000 (572,000) 11,864,000 1,011,000
----------------- ------------ ------------ ------------
Total investment income $ 54,278,000 $221,966,000 $210,759,000 $164,631,000
----------------- ------------ ------------ ------------
----------------- ------------ ------------ ------------
</TABLE>
Expenses incurred to manage the investment portfolio amounted to $500,000
for the three months ended December 31, 1998, $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.
16
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS (Continued)
At December 31, 1998, the following investments exceeded 10% of the
Company's consolidated shareholder's equity of $74,703,000:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
General Motors Acceptance Corporation 188,908,000 188,953,000
Export Development Corporation 114,895,000 114,895,000
Morgan Stanley Dean Witter 111,838,000 111,837,000
Lucent Technologies Inc. 89,901,000 89,901,000
Duke Energy Corporation 89,896,000 89,896,000
International Lease Finance Corp. 84,965,000 84,965,000
Ford Motor Corporation 79,973,000 79,976,000
Gannet Company 79,869,000 79,869,000
Exxon Asset Management Co. 78,935,000 78,935,000
General Electric Capital Corp. 78,008,000 78,008,000
Merrill Lynch & Company 75,040,000 75,042,000
Koch Industries 74,939,000 74,939,000
Government of Canada 74,928,000 74,927,000
-------------- --------------
Total $1,222,095,000 $1,222,143,000
-------------- --------------
-------------- --------------
</TABLE>
At December 31, 1998, mortgage loans were collateralized by properties
located in 29 states, with loans totaling approximately 20% 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 December 31, 1998, bonds, notes and redeemable preferred stocks included
$241,769,000 of bonds and notes not rated investment grade. The Company had
no material concentrations of non-investment-grade assets at December 31,
1998.
At December 31, 1998, the carrying value of investments in default as to
the payment of principal or interest was $3,168,000, composed of $2,500,000
of bonds and $668,000 of mortgage loans. Such nonperforming investments had
an estimated fair value of $1,918,000.
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
December 31, 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 $54,000 for the three months ended
December 31, 1998, $278,000 for the year ended September 30, 1998, and
$125,000 for the year ended September 30, 1997, and is included in Interest
Expense on Guaranteed Investment Contracts in the income statement. There
were no outstanding Swap Agreements at September 30, 1996.
17
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS (Continued)
At December 31, 1998, $5,305,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory
requirements.
5. 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
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 are
assigned a fair value equal to current net surrender value. Annuitized
18
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
contracts are valued based on the present value of future cash flows at
current pricing rates.
RESERVES FOR UNIVERSAL LIFE INSURANCE CONTRACTS: Universal life and single
premium life contracts are assigned a fair value equal to current net
surrender value.
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.
RECEIVABLE FROM/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.
19
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Company's financial instruments at
December 31, 1998, September 30, 1998 and 1997, compared with their
respective carrying values, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
--------------- ---------------
<S> <C> <C>
DECEMBER 31, 1998:
ASSETS:
Cash and short-term investments $ 3,303,454,000 $ 3,303,454,000
Bonds, notes and redeemable
preferred stocks 4,248,840,000 4,248,840,000
Mortgage loans 388,780,000 411,230,000
Common stocks 1,419,000 1,419,000
Cost-method partnerships 4,577,000 12,802,000
Variable annuity assets held in
separate accounts 13,767,213,000 13,767,213,000
Receivable from brokers for sales
of securities 22,826,000 22,826,000
LIABILITIES:
Reserves for fixed annuity contracts 5,500,157,000 5,437,045,000
Reserves for universal life
insurance contracts 2,339,194,000 2,339,061,000
Reserves for guaranteed investment
contracts 306,461,000 306,461,000
Variable annuity liabilities related
to separate accounts 13,767,213,000 13,287,434,000
Subordinated notes payable to Parent 209,367,000 210,587,000
--------------- ---------------
--------------- ---------------
SEPTEMBER 30, 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
Receivable from brokers for sales
of securities 23,904,000 23,904,000
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 50,957,000 50,957,000
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
--------------- ---------------
--------------- ---------------
</TABLE>
20
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
Carrying Fair
Value Value
-------------- ---------------
<S> <C> <C>
SEPTEMBER 30, 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
Receivable from brokers for sales
of securities 2,290,000 2,290,000
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 2,553,000 2,553,000
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>
6. SUBORDINATED NOTES PAYABLE TO PARENT
On December 30, 1998, the Company received cash totaling $170,436,000 in
exchange for issuance of a surplus note (the "Note") payable to its
immediate parent, SunAmerica Life Insurance Company (the "Parent"), which
Note has been included in Subordinated Notes Payable to Affiliates in the
accompanying consolidated balance sheet. Interest on this note accrues at a
rate of 7%.
Subordinated notes and accrued interest payable to affiliates totaled
$209,367,000 at interest rates ranging from 7% to 9% at December 31, 1998,
and require principal payments of $23,060,000 in 1999, $5,400,000 in 2000,
$10,000,000 in 2001 and $170,436,000 thereafter. On June 30, 1999, the
Parent cancelled the Note and funds received were reclassified to
Additional Paid-in Capital.
7. REINSURANCE
On August 11, 1998, the Company entered into a modified coinsurance
transaction, approved by the Arizona Department of Insurance, which
involved 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. As
payments were made to the reinsurer, the reduction of DAC was relieved.
Certain expenses related to this transaction were charged directly to DAC
amortization in the income statement. The net effect of this transaction in
the income statement is not material.
21
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. REINSURANCE (Continued)
On December 31, 1998, the Company recaptured this business. As part of this
recapture, the Company paid cash of $170,436,000 and recorded an increase
in DAC of $167,202,000 with the balance of $3,234,000 being recorded as DAC
amortization in the income statement.
On December 31, 1998, the Company acquired the individual life business and
the individual and group annuity business of MBL Life Assurance Corporation
("MBL Life"), via a 100% coinsurance transaction, for a cash purchase price
of $128,420,000. As part of this transaction, the Company acquired assets
having an aggregate fair value of $5,718,227,000, composed primarily of
invested assets totaling $5,715,010,000. Liabilities assumed in this
acquisition totaled $5,831,266,000, including $3,460,503,000 of fixed
annuity reserves, $2,308,742,000 of universal life reserves and $24,011,000
of guaranteed investment contract reserves. Reserves for universal life
contracts are based on fund value. The excess of the purchase price over
the fair value of net assets received amounted to $113,039,000 and is
included in Deferred Acquisition Costs in the accompanying consolidated
balance sheet.
This business was assumed from MBL life subject to existing reinsurance
ceded agreements. At December 31, 1998, the maximum retention on any single
life was $2,000,000, and a total credit of $5,057,000 was taken against the
life insurance reserves, representing predominantly yearly renewable term
reinsurance. In order to limit even further the exposure to loss on any
single insured and to recover an additional portion of the benefits paid
over such limits, the Company entered into a reinsurance treaty effective
January 1, 1999 under which the Company retains no more than $100,000 of
risk on any one insured life. With respect to these coinsurance agreements,
the Company could become liable for all obligations of the reinsured
policies if the reinsurers were to become unable to meet the obligations
assumed under the respective reinsurance agreements.
Included in the block of business acquired from MBL Life 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 ("FSA"), via an
assumption reinsurance agreement, and the remainder of the business will be
acquired by the Company via an assumption reinsurance agreement with MBL
Life, which will supersede the coinsurance agreement. The $128,420,000
purchase price will be allocated between the Company and its affiliate
based on the estimated future gross profits of the two blocks of business.
8. CONTINGENT LIABILITIES
The Company has entered into two agreements in which it has provided
liquidity support for certain short-term securities of 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 at December 31,
22
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. CONTINGENT LIABILITIES (Continued)
1998 is $210,000,000. Management does not anticipate any material future
losses with respect to these liquidity support facilities. An additional
$60,000,000 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, results of operations or cash flows.
23
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value
Common Stock. At December 31, 1998 and September 30, 1998, 3,511 shares
were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended --------------------------------------------------------
December 31, 1998 1998 1997 1996
----------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balances $ 308,674,000 $308,674,000 $280,263,000 $252,876,000
Capital contributions
received 70,000,000 --- 28,411,000 27,387,000
----------------- ------------ ------------ ------------
Ending balances $ 378,674,000 $308,674,000 $308,674,000 $280,263,000
----------------- ------------ ------------ ------------
----------------- ------------ ------------ ------------
RETAINED EARNINGS:
Beginning balances $ 332,069,000 $244,628,000 $207,002,000 $191,346,000
Net income 34,391,000 138,641,000 63,126,000 45,056,000
Dividend paid --- (51,200,000) (25,500,000) (29,400,000)
----------------- ------------ ------------ ------------
Ending balances $ 366,460,000 $332,069,000 $244,628,000 $207,002,000
----------------- ------------ ------------ ------------
----------------- ------------ ------------ ------------
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(LOSS):
Beginning balances $ 8,415,000 $ 18,405,000 $ (5,521,000) $ (5,673,000)
Change in net
unrealized gains
(losses) on debt
securities
available for sale (23,791,000) (23,818,000) 57,463,000 (2,904,000)
Change in net
unrealized gains
(losses) on equity
securities
available for sale (44,000) (950,000) (55,000) 3,538,000
Change in adjustment
to deferred
acquisition costs 8,400,000 9,400,000 (20,600,000) (400,000)
Tax effects of net
changes 5,401,000 5,378,000 (12,882,000) (82,000)
----------------- ------------ ------------ ------------
Ending balances $ (1,619,000) $ 8,415,000 $ 18,405,000 $ (5,521,000)
----------------- ------------ ------------ ------------
----------------- ------------ ------------ ------------
</TABLE>
24
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. 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. No dividends were paid in the
three months ended December 31, 1998.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net loss for the year ended December
31, 1998 was $98,766,000. The statutory net income for the year ended
December 31, 1997 totaled $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 totaled $443,394,000 at December 31, 1998, $537,542,000
at September 30, 1998, $567,979,000 at December 31, 1997 and $311,176,000
at December 31, 1996.
10. 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>
THREE MONTHS ENDED DECEMBER 31, 1998:
Currently payable $ 740,000 $ 3,421,000 $ 4,161,000
Deferred (620,000) 16,565,000 15,945,000
------------ ------------ ------------
Total income tax expense $ 120,000 $ 19,986,000 $ 20,106,000
------------ ------------ ------------
------------ ------------ ------------
YEAR ENDED SEPTEMBER 30, 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
------------ ------------ ------------
------------ ------------ ------------
YEAR ENDED SEPTEMBER 30, 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
------------ ------------ ------------
------------ ------------ ------------
YEAR ENDED SEPTEMBER 30, 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>
25
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. INCOME TAXES (Continued)
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,
Three Months Ended --------------------------------------------------------
December 31, 1998 1998 1997 1996
----------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Amount computed at
statutory rate $ 19,074,000 $ 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 146,000 460,000 666,000 464,000
State income taxes,
net of federal tax
benefit 1,183,000 5,530,000 1,950,000 2,070,000
Dividends-received
deduction (345,000) (7,254,000) (4,270,000) (2,357,000)
Tax credits (1,296,000) (318,000) (257,000)
Other, net 48,000 219,000 138,000 74,000
----------------- ------------ ------------ ------------
Total income tax
expense $ 20,106,000 $ 71,051,000 $ 31,169,000 $ 24,252,000
----------------- ------------ ------------ ------------
----------------- ------------ ------------ ------------
</TABLE>
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 December 31, 1998. The Company does not anticipate any
transactions which would cause any part of this surplus to be taxable.
26
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. INCOME TAXES (Continued)
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>
December 31, At September 30,
------------- ---------------------------------------
1998 1998 1997
------------- ------------- --------------
<S> <C> <C> <C>
DEFERRED TAX LIABILITIES:
Investments $ 18,174,000 $ 17,643,000 $ 13,160,000
Deferred acquisition costs 222,943,000 223,392,000 154,949,000
State income taxes 3,143,000 2,873,000 1,777,000
Other liabilities 13,906,000 144,000 ---
Net unrealized gains on debt
and equity securities
available for sale --- 4,531,000 9,910,000
------------- ------------- --------------
Total deferred tax
liabilities 258,166,000 248,583,000 179,796,000
------------- ------------- --------------
DEFERRED TAX ASSETS:
Contractholder reserves (148,587,000) (149,915,000) (108,090,000)
Guaranty fund assessments (2,935,000) (2,910,000) (2,707,000)
Other assets --- --- (1,952,000)
Net unrealized losses on
debt and equity securities
available for sale (872,000) --- ---
------------- ------------- --------------
Total deferred tax assets (152,394,000) (152,825,000) (112,749,000)
------------- ------------- --------------
Deferred income taxes $ 105,772,000 $ 95,758,000 $ 67,047,000
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
11. ADOPTION OF NEW ACCOUNTING STANDARD
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130")
which requires the reporting of comprehensive income in addition to net
income from operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the calculation of
net income. The adoption of SFAS 130 did not have an impact on the
Company's results of operations, financial condition or liquidity.
Comprehensive income amounts for the prior year are disclosed to conform to
the current year's presentation.
27
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. ADOPTION OF NEW ACCOUNTING STANDARD (Continued)
The before tax, after tax, and tax benefit (expense) amounts for each
component of the increase or decrease in unrealized losses or gains on debt
and equity securities available for sale for both the current and prior
periods are summarized below:
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------ ----------- ------------
<S> <C> <C> <C>
THREE MONTHS ENDED DECEMBER 31,
1998:
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period $(24,345,000) $ 8,521,000 $(15,824,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 8,579,000 (3,004,000) 5,575,000
------------ ----------- ------------
Subtotal (15,766,000) 5,517,000 (10,249,000)
------------ ----------- ------------
Reclassification adjustment for:
Net realized losses included
in net income 510,000 (179,000) 331,000
Related change in deferred
acquisition costs (179,000) 63,000 (116,000)
------------ ----------- ------------
Total reclassification
adjustment 331,000 (116,000) 215,000
------------ ----------- ------------
Total other comprehensive loss $(15,435,000) $ 5,401,000 $(10,034,000)
------------ ----------- ------------
------------ ----------- ------------
YEAR ENDED SEPTEMBER 30, 1998:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $(10,281,000) $ 3,598,000 $ (6,683,000)
Decrease in deferred acquisition
cost adjustment identified in
the current period 4,086,000 (1,430,000) 2,656,000
------------ ----------- ------------
Subtotal (6,195,000) 2,168,000 (4,027,000)
------------ ----------- ------------
Reclassification adjustment for:
Net realized gains included
in net income (14,487,000) 5,070,000 (9,417,000)
Related change in deferred
acquisition costs 5,314,000 (1,860,000) 3,454,000
------------ ----------- ------------
Total reclassification
adjustment (9,173,000) 3,210,000 (5,963,000)
------------ ----------- ------------
Total other comprehensive loss $(15,368,000) $ 5,378,000 $ (9,990,000)
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
28
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. ADOPTION OF NEW ACCOUNTING STANDARD (Continued)
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------- ------------ -------------
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1997:
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period $ 40,575,000 $(14,201,000) $ 26,374,000
Increase in deferred acquisition
cost adjustment identified in
the current period (15,031,000) 5,262,000 (9,769,000)
------------- ------------ -------------
Subtotal 25,544,000 (8,939,000) 16,605,000
------------- ------------ -------------
Reclassification adjustment for:
Net realized losses included
in net income 16,832,000 (5,891,000) 10,941,000
Related change in deferred
acquisition costs (5,569,000) 1,949,000 (3,620,000)
------------- ------------ ------------
Total reclassification
adjustment 11,263,000 (3,942,000) 7,321,000
------------- ------------ ------------
Total other comprehensive
income $ 36,807,000 $(12,881,000) $ 23,926,000
------------- ------------ -------------
------------- ------------ -------------
YEAR ENDED SEPTEMBER 30, 1996:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $ (26,189,000) $ 9,166,000 $ (17,023,000)
Decrease in deferred acquisition
cost adjustment identified in
the current period 8,858,000 (3,100,000) 5,758,000
------------- ------------ ------------
Subtotal (17,331,000) 6,066,000 (11,265,000)
------------- ------------ ------------
Reclassification adjustment for:
Net realized gains included
in net income 26,823,000 (9,388,000) 17,435,000
Related change in deferred
acquisition costs (9,258,000) 3,240,000 (6,018,000)
------------- ------------ ------------
Total reclassification
adjustment 17,565,000 (6,148,000) 11,417,000
------------- ------------ ------------
Total other comprehensive
income $ 234,000 $ (82,000) $ 152,000
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
29
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. 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 $6,977,000 in the three months ended December 31,
1998, and $32,946,000, $25,492,000, and $16,906,000 in the years ended
September 30, 1998, 1997 and 1996, respectively. 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
35.6%, 33.6%, 36.1%, and 38.3% of premiums in the three months ended
December 31, 1998, and the years ended September 30, 1998, 1997, and 1996,
respectively. The Company also sells its products through unaffiliated
broker-dealers, the largest two of which represented approximately 14.7%
and 9.4% of premiums in the three months ended December 31, 1998, 17.3% and
8.4% of premiums in the year ended September 30, 1998, 19.2% and 10.1% in
the year ended September 30, 1997, and 19.7% and 10.2% in the year ended
September 30, 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 $21,593,000 for the three months ended
December 31, 1998, $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 $9,906,000, $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.
At December 31, 1998, the Company held bonds with a fair value of
$84,965,000 which were issued by its affiliate, International Lease Finance
Corp. The amortized cost of these bonds is equal to the fair value.
For the three months ended December 31, 1998, the Company made no purchases
or sales of invested assets to the Parent or its affiliates.
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.
30
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. RELATED-PARTY MATTERS (Continued)
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.
13. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
Total
depreciation
and
Total amortization Pretax Total
revenues expense income assets
------------ ----------- ------------ ---------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED
DECEMBER 31, 1998:
Annuity operations $103,626,000 $23,236,000 $ 45,962,000 $22,982,323,000
Broker-dealer
operations 11,279,000 561,000 4,444,000 59,537,000
Asset management
operations 22,974,000 4,204,000 4,091,000 104,473,000
------------ ----------- ------------ ---------------
Total $137,879,000 $28,001,000 $ 54,497,000 $23,146,333,000
------------ ----------- ------------ ---------------
------------ ----------- ------------ ---------------
YEAR ENDED
SEPTEMBER 30, 1998:
Annuity operations $443,407,000 $60,731,000 $178,120,000 $14,389,922,000
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 $14,550,268,000
------------ ----------- ------------ ---------------
------------ ----------- ------------ ---------------
YEAR ENDED
SEPTEMBER 30, 1997:
Annuity operations $332,845,000 $55,675,000 $ 74,792,000 $12,440,311,000
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 $12,573,229,000
------------ ----------- ------------ ---------------
------------ ----------- ------------ ---------------
YEAR ENDED
SEPTEMBER 30, 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>
31
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. SUBSEQUENT EVENTS
On June 30, 1999, the Parent cancelled the $170,436,000 Note and funds
received were reclassified to Additional Paid-in Capital. Also on June 30,
1999, the Parent forgave the total interest earned on the Note of
$4,971,000.
On July 1, 1999, the New York Business acquired from MBL Life was
transferred to FSA via an assumption reinsurance agreement and the
remainder of the business converted to assumption reinsurance, which
superseded the coinsurance arrangement. As part of this transfer, invested
assets equal to $675,303,000, life reserves equal to $282,947,000, group
pension reserves equal to $404,318,000, and other net assets of $11,962,000
were transferred to FSA. The $128,420,000 purchase price was allocated
between the Company and FSA based on the estimated future gross profits of
the two blocks of business. The portion allocated to FSA was $10,000,000.
As of August 1, 1999, the Company ceded $6,444,871,000 billion of variable
annuity liabilities through a modified coinsurance transaction to ANLIC
Insurance Company (Hawaii). As part of this transaction, the Company
received $150,000,000 on September 9, 1999, which was credited to Deferred
Amortization Costs in the balance sheet to eliminate the unamortized costs
previously deferred with respect to the ceded business.
On September 9, 1999, the Company paid $170,500,000 to its Parent as a
return of capital. On September 14, 1999, the Parent contributed additional
capital of $54,250,000 to the Company.
32
<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
<PAGE>
PART C -- OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements are included in Part B of the
Registration Statement:
Consolidated financial statements of Anchor National Life Insurance
Company as of September 30, 1998 and 1997 and for each of the three
years for the fiscal year ended September 30, 1998.
Audited Transition Report of Anchor National Life Insurance Company as
of and for the months ended December 31, 1998.
Financial Statements of Variable Annuity Account Five (Portion
Relating to the SEASON SELECT Variable Annuity) as of March 31, 1999
and for the period from inception to March 31, 1999.
(b) Exhibits
<TABLE>
<C> <S> <C>
(1) Resolutions Establishing Separate Account.................... ****
(2) Form of Custody Agreements................................... ****
(3) (a) Form of Distribution Contract............................ ****
(b) Form of Selling Agreement................................ ****
(4) (a) Seasons Select Variable Annuity Group Certificate........ +
(b) Seasons Select Individual Variable Annuity Contract...... +
(5) (a) Seasons Select Enrollment Form for Group Annuity
Certificate............................................ +
(b) Seasons Select Application for Individual Contract....... +
(6) Depositor -- Corporate Documents
(a) Certificate of Incorporation............................. ****
(b) By-Laws.................................................. ****
(7) Reinsurance Contract......................................... **
(8) Form of Seasons Series Trust Fund Participation Agreement.... ****
(9) Opinion and Consent of Counsel............................... ****
(10) Consent of Independent Accountants........................... *
(11) Financial Statements Omitted from Item 23.................... **
(12) Initial Capitalization Agreement............................. **
(13) Performance Computations..................................... ++
(14) Diagram and Listing of All Persons Directly or Indirectly
Controlled By or Under Common Control with Anchor National
Life Insurance Company, the Depositor of Registrant......... *
(15) Powers of Attorney........................................... ***
</TABLE>
- ------------------------
*Herewith
**Not Applicable
***Filed in the Initial Registration Statement of Variable Annuity
Account Five (811-7727) and Anchor National Life Insurance Company
(333-67685) on November 20, 1998
****Filed in the Registration Statement of Variable Annuity Account Five
(811-7727) and Anchor National Life Insurance Company (333-08859),
Pre-Effective Amendment No. 1 on March 11, 1997
+Filed in the Registration Statement of Variable Annuity Account
Five (811-7727) and Anchor National Life Insurance Company
(333-08859), Pre-Effective Amendment Numbers 2 and 3 on July 27, 1998
++Filed on July 12, 1999, Post-Effective Amendment No. 2 under Securities
Act of 1933 (the 33 Act) and No. 6 under the Investment Company Act of
1940 (the 40 Act) to Registration Statement File No. 333-67685 and
811-07727.
II-1
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The officers and directors of Anchor National Life Insurance Company are listed
below. Their principal business address is 1 SunAmerica Center, Los Angeles,
California 90067-6022, unless otherwise noted.
<TABLE>
<CAPTION>
NAME POSITION
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Eli Broad Chairman, President and Chief Executive Officer
Jay S. Wintrob Director and Executive Vice President
Jana W. Greer Director and Senior Vice President
Peter McMillan Director
James R. Belardi Director and Senior Vice President
Susan L. Harris Director, Senior Vice President and Secretary
Scott L. Robinson Director and Senior Vice President
N. Scott Gillis Senior Vice President and Controller
Edwin R. Raquel Senior Vice President and Chief Actuary
Marc H. Gamsin Director and Senior Vice President
J. Franklin Grey Vice President
Edward P. Nolan* Vice President
Gregory M. Outcalt Vice President
Scott H. Richland Vice President
David R. Bechtel Vice President and Treasurer
P. Daniel Demko, Jr. Vice President
Kevin J. Hart Vice President
</TABLE>
- ------------------------
*88 Bradley Road, P.O. Box 4005, Woodbridge, Connecticut 06525
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR
REGISTRANT
The Registrant is a separate account of Anchor National Life Insurance
Company (Depositor). Depositor is a subsidiary of American International Inc.
("AIG"). For a complete listing and diagram of all persons directly or
indirectly controlled by or under common control with the Depositor or
Registrant, see Exhibit 14 of the Initial Registration Statement of Variable
Annuity Account Seven and Anchor National Life Insurance Company,
(file Nos. 333-65965 and 811-09003) (N-4) and (333-65953) (S-1), which is
incorporated herein by reference. As of January 4, 1999, Anchor National
became an indirect wholly-owned subsidiary of American International Group,
Inc. ("AIG"). An organizational chart for AIG can be found in Form 10-K, SEC
file number 001-08787 filed March 31, 1999.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1999, the number of contracts funded by Variable Annuity
Account Five of Anchor National Life Insurance was 98; 35 of which were
qualified contracts and 63 of which were non-qualified contracts.
ITEM 28. INDEMNIFICATION
None.
II-2
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER
SunAmerica Capital Services, Inc. serves as distributor to the Registrant,
Variable Annuity Account Five, Presidential Variable Account One, FS Variable
Separte Account, Variable Annuity Account One, FS Variable Annuity Account
One, Variable Annuity Account Four and Variable Annuity Account Seven.
SunAmerica Capital Services, Inc. also serves as the underwriter to the
SunAmerica Income Funds, SunAmerica Equity Funds, SunAmerica Money Market
Funds, Inc., Stlye Select Series, Inc. and the SunAmerica Stategic Investment
Series, Inc., all issued by Sunamerica Asset Management Corp.
Its principal business address is 733 Third Avenue, 4th Floor, New York, New
York 10017. The following are the directors and officers of SunAmerica Capital
Services, Inc.
<TABLE>
<CAPTION>
NAME POSITION WITH DISTRIBUTOR
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Peter A. Harbeck Director
Robert M. Zakem Director, Executive Vice President, General Counsel &
Assistant Secretary
Susan L. Harris Secretary
J. Steven Neamtz Director and President
Debbie Potash-Turner Controller
James Nickels Vice President
</TABLE>
<TABLE>
<CAPTION>
NET DISTRIBUTION COMPENSATION OR
DISCOUNTS AND REDEMPTION OR BROKERAGE
NAME OF DISTRIBUTOR COMMISSIONS ANNUITIZATION COMMISSIONS COMMISSIONS*
- ------------------------------------------------- ----------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
SunAmerica Capital Services, Inc. None None None None
</TABLE>
- ------------------------
*Distribution fee is paid by Anchor National Life Insurance Company.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Anchor National Life Insurance Company, the Depositor for the Registrant, is
located at 1 SunAmerica Center, Los Angeles, California 90067-6022. SunAmerica
Capital Services, Inc., the distributor of the Contracts, is located at 733
Third Avenue, New York, New York 10017. Each maintains those accounts and
records required to be maintained by it pursuant to Section 31(a) of the
Investment Company Act and the rules promulgated thereunder.
II-3
<PAGE>
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02100, maintains certain accounts and records pursuant to the instructions of
the Registrant.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
Registrant undertakes to (1) file post-effective amendments to this Registration
Statement as frequently as is necessary to ensure that the audited financial
statements in the Registration Statement are never more than 16 months old for
so long as payments under the variable annuity Contracts may be accepted; (2)
include either (A) as part of any application to purchase a Contract offered by
the prospectus forming a part of the Registration Statement, a space that an
applicant can check to request a Statement of Additional Information, or (B) a
postcard or similar written communication affixed to or included in the
Prospectus that the Applicant can remove to send for a Statement of Additional
Information; and (3) deliver a Statement of Additional Information and any
financial statements required to be made available under this Form N-4 promptly
upon written or oral request.
ITEM 33. REPRESENTATION
a) The Company hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
concerning the redeemability of Section 403(b) annuity Contracts (Commission
ref. IP-6-88) and that the following provisions have been complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including
the prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection
with the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment
alternatives available under the employer's Section 403(b) arrangement to
which the participant may elect to transfer his contract value.
b) REPRESENTATION PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF
1940: The Company represents that the fees and charges to be deducted under
the variable annuity contract described in the prospectus contained in this
registration statement are, in the aggregate, reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks
assumed in connection with the contract.
II-4
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on
its behalf, in the City of Los Angeles, and the State of California, on this
December 14, 1999.
VARIABLE ANNUITY ACCOUNT FIVE
(Registrant)
By: ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Depositor)
By: /s/ JAY S. WINTROB
-------------------------------------------
Jay S. Wintrob
EXECUTIVE VICE PRESIDENT
ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Depositor)
By: /s/ JAY S. WINTROB
-------------------------------------------
Jay S. Wintrob
EXECUTIVE VICE PRESIDENT
II-5
<PAGE>
As required by the Securities Act of 1933, this the Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
ELI BROAD* Officer and Chairman of
- ------------------------------ the Board (Principal December 14, 1999
Eli Broad Executive Officer)
SCOTT L. ROBINSON* Senior Vice President and
- ------------------------------ Director (Principal
Scott L. Robinson Financial Officer)
N. SCOTT GILLIS* Senior Vice President and
- ------------------------------ Controller (Principal
N. Scott Gillis Accounting Officer)
JAMES R. BELARDI*
- ------------------------------ Director
James R. Belardi
JANA W. GREER*
- ------------------------------ Director
Jana W. Greer
/s/ SUSAN L. HARRIS
- ------------------------------ Director
Susan L. Harris
PETER MCMILLAN*
- ------------------------------ Director
Peter McMillan
JAY S. WINTROB*
- ------------------------------ Director
Jay S. Wintrob
/s/ SUSAN L. HARRIS
- ------------------------------ Attorney-in-Fact
Susan L. Harris
</TABLE>
*Attorney-in-Fact
December 14, 1999
II-6
<PAGE>
** KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below hereby constitutes and appoints SUSAN L. HARRIS AND CHRISTINE
A. NIXON or each of them, as his true and lawful attorneys-in fact and
agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, as fully to all intents as he might or
could do in person, including specifically, but without limiting the
generality of the foregoing, to (I) take any action to comply with any rules,
regulations or requirements of the Securities and Exchange Commission under
the federal securities laws; (ii) make application for and secure any
exemptions from the federal securities laws; (iii) register additional
annuity contracts under the federal securities laws, if registration is
deemed necessary. The undersigned hereby ratifies and confirms all that said
attorneys-in-fact and agents or any of them, or their substitutes, shall do
or cause to be done by virtue thereof.
**/s/ MARC H. GAMSIN
- ------------------------------ Director
Marc H. Gamsin December 14, 1999
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------
<S> <C>
(10) Consent of Independent Accountants
(14) Diagram and Listing of All Persons Directly or Indirectly
Controlled by or Under Common Control with Anchor National
Life Insurance Company, The Depositor or Registrant
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus and Statement of Additional
Information constituting part of this Registration Statement on Form N-4 for
Variable Annuity Account Five (Portion Relating to the SEASONS SELECT
Variable Annuity) of Anchor National Life Insurance Company of our report
dated November 19, 1999 and November 9, 1998, relating to the consolidated
financial statements of Anchor National Life Insurance Company, and of our
report dated June 28, 1999, relating to the financial statements of Variable
Annuity Account Five (Portion Relating to the SEASONS SELECT Variable
Annuity), which appear in such Statement of Additional Information. We also
consent to the incorporation by reference in such Prospectus of our report
dated March 11, 1999, relating to the statement of assets acquired and
liabilities assumed in the MBL Life Assurance Corporation transaction at
December 31, 1998, appearing on page 8 of Anchor National Life Insurance
Company's Current Report on Form 8-K/A dated March 12, 1999. We also consent
to the reference to us under the heading "Independent Accountants" in such
Prospectus and to the reference to us under the heading "Financial
Statements" in such Statement of Additional Information.
PricewaterhouseCoopers LLP
Los Angeles, California
December 13, 1999
<PAGE>
EXHIBIT 14
DIAGRAM AND LISTING OF ALL PERSONS DIRECTLY OR INDIRECTLY
CONTROLLED BY OR UNDER COMMON CONTROL WITH ANCHOR NATIONAL LIFE
INSURANCE COMPANY, THE DEPOSITOR OF REGISTRANT
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR
REGISTRANT
The Registrant is a separate account of Anchor National Life Insurance
Company (Depositor). Depositor is a subsidiary of American International Inc.
("AIG"). For a complete listing and diagram of all persons directly or
indirectly controlled by or under common control with the Depositor or
Registrant, see Exhibit 14 of the Initial Registration Statement of Variable
Annuity Account Seven and Anchor National Life Insurance Company,
(file Nos. 333-65965 and 811-09003) (N-4) and (333-65953) (S-1), which is
incorporated herein by reference. As of January 4, 1999, Anchor National
became an indirect wholly-owned subsidiary of American International Group,
Inc. ("AIG"). An organizational chart for AIG can be found in Form 10-K, SEC
file number 001-08787 filed March 31, 1999.
