<PAGE>
FILE NO. 333-08859
811-07727
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
/ /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 5 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 /X/
AMENDMENT NO. 6
(CHECK APPROPRIATE BOX OR BOXES)
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VARIABLE ANNUITY ACCOUNT FIVE
(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)
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/ / on pursuant to paragaph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a) of Rule 485
/X/ on July 15, 1999, pursuant to paragraph (a) of Rule 485
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<PAGE>
VARIABLE ANNUITY ACCOUNT FIVE
CROSS REFERENCE SHEET
PART A -- PROSPECTUS
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM N-4 CAPTION
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<C> <S> <C>
1. Cover Page........................................... Cover Page
2. Definitions.......................................... Glossary of Terms
3. Synopsis............................................. Profile; Fee Tables; Examples
4. Condensed Financial Information...................... Not Applicable
5. General Description of Registrant, Depositor and
Portfolio Companies................................. Investment Options; Other Information
6. Deductions........................................... Expenses
7. General Description of Variable Annuity Contracts.... The Seasons Variable Annuity; Income Options;
Purchasing a Seasons Variable Annuity; Access to
Your Money
8. Annuity Period....................................... Income Options
9. Death Benefit........................................ Death Benefit
10. Purchases and Contract Value......................... Purchasing a Seasons Variable Annuity; Access to Your
Money
11. Redemptions.......................................... Access to Your Money
12. Taxes................................................ Taxes
13. Legal Proceedings.................................... Other Information
14. Table of Contents of Statement of Additional
Information......................................... Other Information
</TABLE>
<PAGE>
PART B -- STATEMENT OF ADDITIONAL INFORMATION
Certain information required in part B of the Registration Statement has
been included within the prospectus forming part of this Registration Statement;
the following cross-references suffixed with a "P" are made by reference to the
captions in the Prospectus.
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM N-4 CAPTION
- --------------------------------------------------- ---------------------------------------------
<C> <S> <C>
15. Cover Page................................... Cover Page
16. Table of Contents............................ Table of Contents
17. General Information and History.............. Other Information (P)
18. Services..................................... Expenses (P); Other Information (P)
19. Purchase of Securities Being Offered......... Purchasing a Seasons Variable Annuity (P)
20. Underwriters................................. Other Information (P); Distribution of
Contracts
21. Calculation of Performance Data.............. Performance (P); Performance Data
22. Annuity Payments............................. Income Options (P); Annuity Unit Value;
Annuity Payments
23. Financial Statements......................... Other Information (P)
</TABLE>
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
This Profile is a summary of some of the more important points you should know
before purchasing the Seasons Variable Annuity. The annuity is more fully
described in the prospectus. Please read the prospectus carefully.
1. THE SEASONS VARIABLE ANNUITY
The Seasons Variable Annuity Contract is a contract between you and Anchor
National Life Insurance Company. We designed Seasons to help you save on a
tax-deferred basis and diversify your investments among asset classes and
managers to meet long-term financial goals, such as retirement funding. Tax
deferral means all your money, including the amount you would otherwise pay in
current income taxes, remains in your contract to generate more earnings. Your
money could grow faster than it would in a comparable taxable investment.
The Seasons Variable Annuity helps you meet these goals by offering four
variable investment STRATEGIES which are managed by five different professional
investment managers. The value of any portion of your contract allocated to the
STRATEGIES will fluctuate up or down based on the performance of the STRATEGIES
you select. You may experience a loss. Five fixed account options, each for a
different length of time and offering different interest rates guaranteed by
Anchor National, are available. In addition, the DCA fixed accounts also offer
fixed interest rates guaranteed by Anchor National and are available under the
contract as source accounts for the Dollar Cost Averaging program.
The STRATEGIES and fixed account options are designed to be used in concert in
order to achieve your desired investment goals. You may put money into any of
the STRATEGIES and/or fixed account options. You may transfer between STRATEGIES
and/or the fixed account options four times per year without charge.
Like most annuities, the contract has an Accumulation Phase and an Income Phase.
During the Accumulation Phase, you invest money in your contract. Your earnings
are based on the investment performance of the STRATEGY or STRATEGIES to which
your money is allocated and/or the interest rate earned on the fixed account
options. You may withdraw money from your contract during the Accumulation
Phase. However, as with other tax-deferred investments, you will pay taxes on
earnings and untaxed contributions when you withdraw them. A federal tax penalty
may apply if you make withdrawals before age 59 1/2. During the Income Phase,
you will receive payments from your annuity. Your payments may be fixed in
dollar amount, vary with investment performance or be a combination of both,
depending on where your money is allocated. Among other factors, the amount of
money you are able to accumulate in your contract during the Accumulation Phase
will determine the amount of your payments during the Income Phase.
<PAGE>
2. INCOME OPTIONS
You can select from one of five income options:
(1) payments for your lifetime;
(2) payments for your lifetime and your survivor's lifetime;
(3) payments for your lifetime and your survivor's lifetime, but for not
less than 10 or 20 years;
(4) payments for your lifetime, but for not less than 10 or 20 years; and
(5) payments for a specified period of 5 to 30 years.
You will also need to decide if you want your payments to fluctuate with
investment performance or remain constant, and the date on which your payments
will begin. Once you begin receiving payments, you cannot change your income
option. If your contract is non-qualified, payments during the Income Phase are
considered partly a return of your original investment. The "original
investment" part of each payment is not taxable but any gain to your original
investment is currently taxable as ordinary income upon distribution. For
qualified contracts, the entire payment is currently taxable as ordinary income.
In addition to the above income options, you may also elect to take income
payments under the Income Protector program, subject to the provisions thereof.
3. PURCHASING A SEASONS VARIABLE ANNUITY
You can buy a contract through your financial representative, who can also help
you complete the proper forms. For Non-Qualified contracts the minimum initial
investment is $5,000. For Qualified contracts the minimum initial investment is
$2,000. You can add $500 or more to your contract at any time during the
Accumulation Phase.
4. INVESTMENT OPTIONS
You can put your money into any one or more of the four multi-manager variable
investment STRATEGIES and/or one or more of the seven fixed account options. The
fixed investment options offer fixed rates of interest for specified lengths of
time.
Each STRATEGY has a different investment objective. The STRATEGIES use an asset
allocation investment approach. The STRATEGIES invest in a combination of
underlying investment portfolios which in turn invest in a combination of
stocks, bonds and cash, to achieve their investment objective. The four
investment STRATEGIES are:
GROWTH
MODERATE GROWTH
BALANCED GROWTH
CONSERVATIVE GROWTH
Each STRATEGY invests in three out of six underlying investment portfolios. The
underlying investment portfolios are managed by the following five investment
managers:
PUTNAM INVESTMENT MANAGEMENT, INC.
T. ROWE PRICE ASSOCIATES, INC.
JANUS CAPITAL CORPORATION
SUNAMERICA ASSET MANAGEMENT CORP.
WELLINGTON MANAGEMENT COMPANY, LLP
5. EXPENSES
Each year we deduct a $35 ($30 in North Dakota) contract administration fee on
your contract anniversary. We currently waive this fee if your contract value is
at least $50,000 on your contract anniversary.
We also deduct insurance charges which amount to 1.40% annually of the average
daily value of your contract allocated to the STRATEGIES. There are also
investment charges and other expenses if you put money into the STRATEGIES,
which are estimated to range from 1.12% to 1.25%. Investment charges may be more
or less than the percentages reflected here.
If you take your money out in excess of the "free withdrawal" amount allowed for
in your contract, we may assess a withdrawal charge that is a percentage of the
money you withdraw. The percentage declines with each year the purchase payment
is in the contract as follows:
<TABLE>
<S> <C> <C> <C>
Year 1......... 7% Year 5......... 4%
Year 2......... 6% Year 6......... 3%
Year 3......... 6% Year 7......... 2%
Year 4......... 5% Year 8......... 0%
</TABLE>
Additionally, if you take money out of a multi-year fixed account option before
the end of the selected period, we may assess an adjustment which could increase
or decrease the value of your money.
In some states you may also be assessed a state premium tax of up to 3.5%,
depending upon the state in which you reside.
If you transfer among the STRATEGIES and/or fixed account options more than four
times per year, we may charge a $25 dollar transfer fee for each subsequent
transfer ($10 in Pennsylvania and Texas).
If you elect the PLUS or MAX Alternative of the Income Protector feature, we
will charge .15% or .30% of your Income Benefit Base and subtract it from your
contract value.
<PAGE>
The following chart is designed to help you understand the charges in your
contract. THE COLUMN "TOTAL ANNUAL CHARGES" SHOWS THE TOTAL OF THE $35 CONTRACT
ADMINISTRATION CHARGE, THE 1.40% INSURANCE CHARGES AND THE INVESTMENT CHARGES
FOR EACH STRATEGY. WE CONVERTED THE CONTRACT ADMINISTRATION CHARGE TO A
PERCENTAGE (.09%) USING AN ASSUMED CONTRACT SIZE OF $40,000. The actual impact
of this charge on your contract may differ from this percentage.
<TABLE>
<CAPTION>
Total Annual
Insurance
Related Total Annual EXAMPLES
Charges Investment Total Total Total
STRATEGY Related Annual Expenses Expenses
Charges Charges at end of at end of
1 YEAR 10 YEARS
<S> <C> <C> <C> <C> <C> <C>
Growth 1.49% (1.40% + .09%) 1.25% 2.74% $98 $307
Moderate Growth 1.49% (1.40% + .09%) 1.21% 2.70% $97 $303
Balanced Growth 1.49% (1.40% + .09%) 1.17% 2.66% $97 $299
Conservative Growth 1.49% (1.40% + .09%) 1.12% 2.61% $96 $294
</TABLE>
The examples assume that you invested $1,000 in a STRATEGY which earns 5%
annually and that you withdrew your money at the end of a 1 year period and at
the end of a 10 year period. For year 1, the total annual charges are assessed
as well as the withdrawal charge. For year 10, the example reflects the total
annual charges but there is no withdrawal charge applicable. The annual
investment-related expenses may vary. The amounts shown here are estimates and
reflect the waiver or reimbursement of expenses by the investment adviser. No
premium taxes are reflected. Please see the Fee Tables in the prospectus for
more detailed information regarding the fees and expenses incurred under the
contract.
6. TAXES
Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts earned in a non-qualified contract (one that is established
with after tax dollars) are deferred until they are withdrawn. In a qualified
contract (one that is established with before tax dollars) all amounts are
taxable when they are withdrawn.
When you begin taking distributions or withdrawals from your contract, earnings
are considered to be taken out first and will be taxed at your ordinary income
tax rate. You may be subject to a 10% federal tax penalty for distributions or
withdrawals before age 59 1/2.
7. ACCESS TO YOUR MONEY
Withdrawals may be made from your contract in the amount of $1,000 or more. Each
year, you can take out up to 10% of the total amount you invested without
charge. Withdrawals in excess of the 10% will be assessed a withdrawal charge.
If you withdraw your entire contract value you will not receive the benefit of
any free withdrawal amount. A separate withdrawal charge schedule applies to
each purchase payment. After a purchase payment has been in the contract for
seven full years, withdrawal charges no longer apply to that portion of the
money. Of course, you may also have to pay income tax and a 10% IRS tax penalty
may apply. Neither withdrawal charges nor the 10% federal tax penalty are
assessed when a death benefit is paid.
8. PERFORMANCE
The value of your annuity will fluctuate depending upon the investment
performance of the STRATEGY or STRATEGIES you select. From time to time we may
advertise a STRATEGY'S total return. The total return figures are based on
historical data and are not intended to indicate future performance.
The following chart shows total return for each STRATEGY for calendar year 1998.
These numbers reflect the insurance charges, the contract maintenance fee and
investment charges. Withdrawal charges are not reflected in the chart. Past
performance is not a guarantee of future results.
<TABLE>
<CAPTION>
STRATEGY 1998
<S> <C>
Growth 25.38%
Moderate Growth 22.58%
Balanced Growth 19.62%
Conservative Growth 16.42%
</TABLE>
9. DEATH BENEFIT
If you, or, if there is a joint owner, either of the two of you, should die
during the Accumulation Phase, your Beneficiary will receive a death benefit.
If you die before age 75, the death benefit will be the greater of: (1) the
money you put into the contract less any withdrawals, applicable charges and
market value adjustments on those withdrawals, accumulated at 3%; or (2) the
current value of your contract.
If you die after age 75, the death benefit will be the greater of: (1) the money
you put into the contract less any withdrawals, charges and market value
adjustments, accumulated at 3% until your 75th birthday plus any subsequent
Purchase Payments and less any withdrawals; or (2) the current value of your
contract.
<PAGE>
In the instance of joint owners, the amount of the death benefit is calculated
based upon the age of the youngest joint owner.
10. OTHER INFORMATION
OWNERSHIP: The contract is an allocated fixed and variable group annuity
contract. A group contract is issued to a contractholder, for the benefit of the
participants in the group. You, as an owner of a Seasons Variable Annuity, are a
participant in the group and will receive a certificate evidencing your
ownership. You, as the owner of a certificate, are entitled to all the rights
and privileges of ownership. As used in this Profile and the prospectus, the
term contract refers to your certificate. In some states an individual fixed and
variable annuity contract may be available instead, which is identical to the
group contract described in this Profile and the prospectus except that it is
issued directly to the individual owner.
FREE LOOK: You may cancel your contract within 10 days of receiving it (or
whatever period is required by your state) by mailing it to our Annuity Service
Center. Your contract will be treated as void on the date we receive it and we
will pay you an amount equal to the value of the money in the STRATEGIES plus
any money you put into the fixed account options. Its value may be more or less
than the money you initially invested. Thus, the investment risk is borne by you
during the free look period.
SYSTEMATIC WITHDRAWAL PROGRAM: If selected by you, this program allows you to
receive either monthly, quarterly, semi-annual or annual checks during the
Accumulation Phase. Systematic withdrawals may also be electronically
transferred to your bank account. Of course, withdrawals during the Accumulation
Phase may be taxable and a 10% IRS tax penalty may apply if you are under age
59 1/2.
DOLLAR COST AVERAGING: If selected by you, this program allows you to invest
gradually into one or more of the STRATEGIES.
PRINCIPAL ADVANTAGE PROGRAM: If selected by you, this program allows you to put
money in a fixed account option and one or more STRATEGIES and we will guarantee
that the portion allocated to the fixed account option, assuming that it remains
invested in that option, will grow to equal your principal investment.
AUTOMATIC PAYMENT PLAN: You can add to your contract directly from your bank
account with as little as $50 per month.
CONFIRMATIONS AND QUARTERLY STATEMENTS: You will receive a confirmation of each
transaction within your contract. On a quarterly basis, you will receive a
complete statement of your transactions over the past quarter and a summary of
your account values.
11. INQUIRIES:
If you have questions about your contract or need to make changes, call your
financial representative or contact us at:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
800/445-SUN2
If money accompanies your correspondence, you should direct it to:
Anchor National Life Insurance Company
P.O. Box 100330
Pasadena, California 91189-0001
<PAGE>
[LOGO]
ALLOCATED FIXED AND VARIABLE GROUP ANNUITY
issued by
VARIABLE ANNUITY ACCOUNT FIVE
and
ANCHOR NATIONAL LIFE INSURANCE COMPANY
The annuity contract has 11 investment choices - 7 fixed account options which
offer interest rates guaranteed by Anchor National for different periods of time
and 4 variable investment STRATEGIES:
GROWTH
MODERATE GROWTH
BALANCED GROWTH
CONSERVATIVE GROWTH
which invest in the underlying portfolios of
SEASONS SERIES TRUST
which is managed by:
PUTNAM INVESTMENT MANAGEMENT, INC.
T. ROWE PRICE ASSOCIATES, INC.
JANUS CAPITAL CORPORATION
SUNAMERICA ASSET MANAGEMENT CORP.
WELLINGTON MANAGEMENT COMPANY, LLP
You can put your money into any one or all of the STRATEGIES and/or fixed
account options.
Please read this prospectus carefully before investing and keep it for your
future reference. It contains important information you should know about the
Seasons Variable Annuity.
To learn more about the annuity offered by this prospectus, you can obtain a
copy of the Statement of Additional Information ("SAI") dated July 15,
1999. The SAI has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this prospectus. The table of
contents of the SAI appears on page 30 of this prospectus. For a free copy of
the SAI, call us at 800/445-SUN2 or write us at our Annuity Service Center, P.O.
Box 54299, Los Angeles, California 90054-0299.
In addition, the SEC maintains a website (http://www.sec.gov) that contains the
SAI, materials incorporated by reference and other information filed
electronically with the SEC.
ANNUITIES INVOLVE RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, AND ARE NOT A
DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
Anchor National's Annual Report on Form 10-K for the year ended September 30,
1998, and its quarterly report on Form 10-Q for the quarters ended December 31,
1998 and March 31, 1999 are incorporated herein by reference. In addition,
Anchor National filed two reports on Form 8-K on January 14 and 15 and filed one
report on Form 8-K/A on March 12, 1999. These reports are also incorporated
herein by reference.
All documents or reports filed by Anchor National under Section 13(a), 13(c),
14, or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") after the effective date of this prospectus are also incorporated by
reference. Statements contained in this prospectus and subsequently filed
documents which are incorporated by reference or deemed to be incorporated by
reference are deemed to modify or supersede documents incorporated herein by
reference.
Anchor National files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000006842.
Anchor National is subject to the informational requirements of the Securities
and Exchange Act of 1934 (as amended). We file reports and other information
with the SEC to meet those requirements. You can inspect and copy this
information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
7 World Trade Center, 13th Fl.
New York, NY 10048
To obtain copies by mail contact the Washington, D.C. location. After you pay
the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration Statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the Registration
Statement and its exhibits. For further information regarding the Separate
Account, Anchor National and its general account, the Portfolios and the
contract, please refer to the registration statement and its exhibits.
The SEC also maintains a website (http://www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by Anchor National.
Anchor National will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of the above
documents incorporated herein by reference. Requests for these documents should
be directed to Anchor National's Annuity Service Center, as follows:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
SECURITIES AND EXCHANGE COMMISSION POSITION ON
INDEMNIFICATION
Indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") is provided to Anchor National's officers, directors and controlling
persons. The SEC has advised that it believes such indemnification is against
public policy under the Act and unenforceable. If a claim for indemnification
against such liabilities (other than for Anchor National's payment of expenses
incurred or paid by its directors, officers or controlling persons in the
successful defense of any legal action) is asserted by a director, officer or
controlling person of Anchor National in connection with the securities
registered under this prospectus, Anchor National will submit to a court with
jurisdiction to determine whether the indemnification is against public policy
under the Act. Anchor National will be governed by final judgment of the issue.
However, if in the opinion of Anchor National's counsel this issue has been
determined by controlling precedent, Anchor National will not submit the issue
to a court for determination.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY............................................................................................................ 3
FEE TABLES.......................................................................................................... 4
Owner Transaction Expenses...................................................................................... 4
Annual Separate Account Expenses................................................................................ 4
The Income Protector Expense.................................................................................... 4
Investment Portfolio Expenses................................................................................... 4
EXAMPLES............................................................................................................ 5
THE SEASONS VARIABLE ANNUITY........................................................................................ 6
PURCHASING A SEASONS VARIABLE ANNUITY CONTRACT...................................................................... 6
Allocation of Purchase Payments................................................................................. 7
Accumulation Units.............................................................................................. 7
Free Look....................................................................................................... 8
INVESTMENT OPTIONS.................................................................................................. 8
Variable Investment Options..................................................................................... 8
THE STRATEGIES................................................................................................ 8
STRATEGY REBALANCING.......................................................................................... 12
Fixed Account Options........................................................................................... 12
Market Value Adjustment......................................................................................... 13
Transfers During the Accumulation Phase......................................................................... 13
Dollar Cost Averaging........................................................................................... 14
Principal Advantage Program..................................................................................... 15
Voting Rights................................................................................................... 15
Substitution.................................................................................................... 15
ACCESS TO YOUR MONEY................................................................................................ 16
Systematic Withdrawal Program................................................................................... 16
Minimum Contract Value.......................................................................................... 17
Qualified Contract Owners....................................................................................... 17
DEATH BENEFIT....................................................................................................... 17
Death of the Annuitant.......................................................................................... 18
EXPENSES............................................................................................................ 18
Insurance Charges............................................................................................... 18
Withdrawal Charges.............................................................................................. 18
Investment Charges.............................................................................................. 19
Contract Maintenance Fee........................................................................................ 19
Transfer Fee.................................................................................................... 19
Premium Tax..................................................................................................... 19
Income Taxes.................................................................................................... 20
Reduction or Elimination of Charges and Expenses, and Additional Amounts Credited............................... 20
INCOME OPTIONS...................................................................................................... 20
Annuity Date.................................................................................................... 20
Income Options.................................................................................................. 20
Allocation of Income Payments................................................................................... 21
Fixed or Variable Income Payments............................................................................... 21
Income Payments................................................................................................. 22
Transfers During the Income Phase............................................................................... 22
Deferment of Payments........................................................................................... 22
The Income Protector............................................................................................ 22
TAXES............................................................................................................... 26
Annuity Contracts in General.................................................................................... 26
Tax Treatment of Distributions--Non-qualified Contracts......................................................... 26
Tax Treatment of Distributions--Qualified Contracts............................................................. 27
Minimum Distributions........................................................................................... 27
Diversification................................................................................................. 27
PERFORMANCE......................................................................................................... 28
OTHER INFORMATION................................................................................................... 28
The Separate Account............................................................................................ 28
The General Account............................................................................................. 29
Distribution of the Contract.................................................................................... 29
Administration.................................................................................................. 29
Year 2000....................................................................................................... 29
Legal Proceedings............................................................................................... 30
Custodian....................................................................................................... 30
Registration Statement.......................................................................................... 30
INDEPENDENT ACCOUNTANTS............................................................................................. 30
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION............................................................ 31
APPENDIX A--CONDENSED FINANCIAL INFORMATION......................................................................... A-1
APPENDIX B--MARKET VALUE ADJUSTMENT................................................................................. B-1
APPENDIX C--PREMIUM TAXES........................................................................................... C-1
</TABLE>
2
<PAGE>
GLOSSARY
We have capitalized some of the technical terms used in this prospectus. To help
you understand these terms, we define them in this glossary.
ACCUMULATION PHASE--The period during which you invest money in your contract.
ACCUMULATION UNITS--A measurement we use to calculate the value of the variable
portion of your contract during the Accumulation Phase.
ANNUITANT(S)--The person(s) on whose life (lives) we base annuity payments.
ANNUITY DATE--The date on which annuity payments are to begin, as selected by
you.
ANNUITY UNITS--A measurement we use to calculate the amount of annuity payments
you receive from the variable portion of your contract during the Income Phase.
BENEFICIARY (IES)--The person(s) designated to receive any benefits under the
contract if you or the Annuitant dies.
COMPANY--Anchor National Life Insurance Company, Anchor National, We, Us, the
insurer which issues this policy.
INCOME PHASE--The period during which we make annuity payments to you.
IRS--The Internal Revenue Service.
NON-QUALIFIED (CONTRACT)--A contract purchased with after-tax dollars. In
general, these contracts are not under any pension plan, specially sponsored
program or individual retirement account ("IRA").
PURCHASE PAYMENTS--The money you give us to buy the contract, as well as any
additional money you give us to invest in the contract after you own it.
QUALIFIED (CONTRACT)--A contract purchased with pretax dollars. These contracts
are generally purchased under a pension plan, specially sponsored program or
individual retirement account ("IRA").
STRATEGY(IES)--A sub-account of Variable Annuity Account Five which provides for
the variable investment options available under the contract. Each STRATEGY has
its own investment objective and is invested in the underlying investment
porfolios of the Seasons Series Trust.
3
<PAGE>
SEASONS VARIABLE ANNUITY FEE TABLES
-------------------------------------------------------------
OWNER TRANSACTION EXPENSES
Withdrawal Charge as a percentage of Purchase Payments:
<TABLE>
<S> <C> <C> <C>
Year 1.............. 7% Year 5.............. 4%
Year 2.............. 6% Year 6.............. 3%
Year 3.............. 6% Year 7.............. 2%
Year 4.............. 5% Year 8.............. 0%
</TABLE>
<TABLE>
<S> <C>
Contract Maintenance Charge........ $35 each year ($30 in North Dakota)
Transfer Fee....................... No charge for first 4 transfers each
year; thereafter, the fee is $25 per
transfer ($10 in
Pennsylvania and Texas)
</TABLE>
THE INCOME PROTECTOR EXPENSE
(The Income Protector PLUS & MAX features are optional and if elected the fees
are deducted annually from your contract value)
<TABLE>
<CAPTION>
Fee as a percentage of
The Income Protector your
Alternatives Income Benefit Base
- --------------------------------- -------------------------
<S> <C>
Income Protector Plus............ 0.15%
Income Protector Max............. 0.30%
</TABLE>
ANNUAL SEPARATE ACCOUNT EXPENSES
(as a percentage of daily net asset value)
<TABLE>
<S> <C>
Mortality Risk Charge........................ 0.90%
Expense Risk Charge.......................... 0.35%
Distribution Expense Charge.................. 0.15%
---
Total Separate Account Expenses........ 1.40%
</TABLE>
INVESTMENT PORTFOLIO EXPENSES
(as a percentage of daily net asset value of each investment portfolio for the
fiscal year of the Trust ending March 31, 1999)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
To be Updated by Amendment FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Stock .85% .36% 1.21%
Asset Allocation: Diversified Growth .85% .36% 1.21%
Multi-Managed Growth .89% .40% 1.29%
Multi-Managed Moderate Growth .85% .36% 1.21%
Multi-Managed Income/Equity .81% .33% 1.14%
Multi-Managed Income .77% .29% 1.06%
- ----------------------------------------------------------------------------------------------
</TABLE>
The Investment Portfolio Expenses table set forth above identifies the total
investment expenses charged by the underlying investment portfolios of Seasons
Series Trust. As explained in this prospectus, each variable investment option
(STRATEGY) under this contract invests in a combination of three of these
underlying portfolios. The total investment charge depending on the particular
STRATEGY, will be a proportion of the investment charges of the underlying
portfolio in which each STRATEGY invests. Accordingly, the actual investment
portfolio expenses incurred by contract holders within a STRATEGY will vary
depending upon the daily net asset value of each investment portfolio in which
each STRATEGY is invested. You can get a better understanding of the practical
ramifications of this blended investment charge by looking at the next table
Investment Portfolio Expenses By STRATEGY. That table sets forth an estimate of
the annual investment charge you may incur as a result of the ratio of the
STRATEGY(ies) investment in the underlying portfolios.
The total investment expenses for each contract owner will be based upon the
STRATEGY in which they are invested. Each STRATEGY invests in different
proportions of these underlying portfolios. The proportion of each portfolio in
each particular STRATEGY determines the amounts of investment charge borne by
each contractholder.
THE ABOVE INVESTMENT PORTFOLIO EXPENSES WERE PROVIDED BY SEASONS SERIES TRUST.
WE HAVE NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
4
<PAGE>
INVESTMENT PORTFOLIO EXPENSES BY STRATEGY
(based on the total annual expenses of the underlying investment portfolios
reflected above as of the fiscal year end of the Trust ending March 31, 1999)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
To be updated by Amendment FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
STRATEGY
Growth .87% .38% 1.25%
Moderate Growth .85% .36% 1.21%
Balanced Growth .83% .34% 1.17%
Conservative Growth .80% .32% 1.12%
- --------------------------------------------------------------------------------------------
</TABLE>
EXAMPLES
You will pay the following expenses on a $1,000 investment in each STRATEGY,
assuming a 5% annual return on assets and:
(a) that you surrender the contract at the end of the stated time period;
(b) that the contract is annuitized or not surrendered.*
<TABLE>
<CAPTION>
TIME PERIODS
STRATEGY 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Growth (a) $98 (a) $145 (a) $185 (a) $307
(b) $28 (b) $ 85 (b) $145 (b) $307
Moderate Growth (a) $97 (a) $144 (a) $183 (a) $303
(b) $27 (b) $ 84 (b) $143 (b) $303
Balanced Growth (a) $97 (a) $143 (a) $181 (a) $299
(b) $27 (b) $ 83 (b) $141 (b) $299
Conservative Growth (a) $96 (a) $141 (a) $178 (a) $294
(b) $26 (b) $ 81 (b) $138 (b) $294
* We do not currently charge a withdrawal charge when you elect to
begin income payments, unless you elect to take income under the
Income Protector program. We will assess any applicable surrender
charges upon annuitizations using the Income Protector program.
</TABLE>
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you will
incur directly and indirectly by investing in the contract. The example
reflects owner transaction expenses, separate account expenses and
investment portfolio expenses by STRATEGY.
2. For certain investment portfolios in which the STRATEGIES invest, the
adviser, SunAmerica Asset Management Corp., has voluntarily agreed to
waive fees or reimburse certain expenses, if necessary, to keep annual
operating expenses at or below the following percentages of each
investment portfolio's average net assets: Stock and Asset Allocation:
Diversified Growth Portfolios: 1.21%; Multi-Managed Growth: 1.29%;
Multi-Managed Moderate Growth: 1.21%; Multi-Managed Income/Equity: 1.14%,
Multi-Managed Income: 1.06%. The adviser also may voluntarily waive or
reimburse additional amounts to increase an investment portfolios'
investment return. All waivers and/or reimbursements may be terminated at
any time. Furthermore, the adviser may recoup any waivers or
reimbursements within two years after such waivers or reimbursements are
granted, provided that the investment portfolio is able to make such
payment and remain in compliance with the foregoing expense limitations.
To date, none of the investment portfolio expenses have exceeded the
stated caps. Therefore no waiver of fees or reimbursements were
implemented.
3. The Examples assume that no transfer fees were imposed. Premium taxes are
not reflected but may be applicable. In addition, these examples do not
reflect the fees associated with the optional Income Protector PLUS and
MAX features.
4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE HISTORICAL ACCUMULATION
UNIT VALUES ARE CONTAINED IN
APPENDIX A--CONDENSED FINANCIAL INFORMATION
5
<PAGE>
THE SEASONS VARIABLE ANNUITY
- --------------------------------------------------------------------------------
An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: means that you do not pay taxes on your earnings from the
annuity until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
This annuity was developed to help you contribute to your retirement savings.
The flexibility and diversification offered by this annuity can help you reach
you retirement savings goals. This annuity works in two stages, the Accumulation
Phase and the Income Phase. Your contract is in the Accumulation Phase during
the period when you make payments into the contract. The Income Phase begins
when you request us to start making payments to you out of the money accumulated
in your contract.
The Contract is called a "variable" annuity because it allows you to invest in
STRATEGIES which, like mutual funds, vary with market conditions. You can gain
or lose money if you invest in these STRATEGIES. If you allocate money to the
STRATEGY(IES), the amount of money you accumulate in your contract depends on
the performance of the STRATEGY(IES) in which you invest.
The Contract also offers several fixed account options for varying time periods.
Fixed account options earn interest at a rate set and guaranteed by Anchor
National. If you allocate money to the fixed account options, the amount of
money that accumulates in the Contract depends on the total interest credited to
the particular fixed account option(s) in which you are invested.
For more information on STRATEGIES and fixed account options available under
this contract SEE SECTION 4, INVESTMENT OPTIONS.
Anchor National Life Insurance Company (Anchor National, The Company, Us, We)
issues the Seasons Variable Annuity. When you purchase a Seasons Variable
Annuity, a contract exists between you and Anchor National. The Company is a
stock life insurance company organized under the laws of the state of Arizona.
Its principal place of business is 1 SunAmerica Center, Los Angeles, California
90067. The Company conducts life insurance and annuity business in the District
of Columbia and all states except New York. Anchor National is an indirect,
wholly owned subsidiary of American International Group, Inc., a Delaware
corporation.
PURCHASING A SEASONS VARIABLE ANNUITY
- --------------------------------------------------------------------------------
A Purchase Payment is the money you give us to buy a contract. Any additional
money you give us to invest in the contract after purchase is a subsequent
Purchase Payment.
This chart shows the minimum initial and subsequent Purchase Payments permitted
under your contract. These amounts depend upon whether a contract is Qualified
or Non-Qualified for tax purposes.
<TABLE>
<CAPTION>
MINIMUM
MINIMUM INITIAL SUBSEQUENT
PURCHASE PAYMENT PURCHASE PAYMENT
----------------- -------------------
<S> <C> <C>
Qualified $ 2,000 $ 500
Non-Qualified $ 5,000 $ 500
</TABLE>
6
<PAGE>
Prior Company approval is required to make Purchase Payments greater than
$1,000,000. The Company reserves the right to refuse any Purchase Payment or
subsequent Purchase Payments, including but not limited to any Purchase Payments
which would cause the contract value to exceed $1,000,000 at the time of the
Purchase Payment. Also, the optional Automatic Payment Plan allows you to make
subsequent payments as small as $50.00.
We may refuse any Purchase Payment. In general, we will not issue a contract to
anyone who is age 70 1/2 or older, unless they certify to us that the minimum
distribution required by the IRS is being made. In addition, we may not issue a
contract to anyone over age 90.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed accounts and STRATEGIES according
to your instructions. If we receive a Purchase Payment without allocation
instructions, we will invest the money according to your last allocation
instructions. Purchase Payments are credited based upon the Accumulation Unit
Value (AUV) next determined after receipt. SEE INVESTMENT OPTIONS PAGE 8.
In order to issue your contract, we must receive your completed application,
Purchase Payment allocation instructions and any other required paper work at
our Annuity Service Center. We allocate your initial purchase payment within two
days of receiving it. If we do not have complete information necessary to issue
your contract, we will contact you. If we do not have the information necessary
to issue your contract within 5 business days, we will:
- Send your money back to you, or;
- Ask your permission to keep your money until we get the information
necessary to issue the contract.
ACCUMULATION UNITS
The value of the variable portion of your contract will go up or down depending
upon the investment performance of the STRATEGY(IES) you select. In order to
keep track of the value of your contract, we use a unit of measure called an
Accumulation Unit which works like a share of a mutual fund. During the Income
Phase, we call them Annuity Units.
An Accumulation Unit value is determined each day that the New York Stock
Exchange ("NYSE") is open. We calculate an Accumulation Unit for each STRATEGY
after the NYSE closes each day. We do this by:
1. determining the total value of money invested in a particular STRATEGY;
2. subtracting from that amount any asset-based charges and any other
charges such as taxes we have deducted; and
3. dividing this amount by the number of outstanding Accumulation Units.
The value of an Accumulation Unit may go up or down from day to day. When you
make a Purchase Payment, we credit your contract with Accumulation Units. The
number of Accumulation Units credited is determined by dividing the amount of
the Purchase Payment allocated to a STRATEGY by the value of the Accumulation
Unit for that STRATEGY.
Example:
We receive a $25,000 Purchase Payment from you on Wednesday. You want your
money to be invested in the Moderate Growth STRATEGY. We determine that the
value of an Accumulation Unit for the Moderate Growth STRATEGY is $11.10
when the NYSE closes on Wednesday. We then divide $25,000 by $11.10 and
credit your contract on Wednesday night with 2,252.252 Accumulation Units
for the Moderate Growth STRATEGY.
7
<PAGE>
FREE LOOK
You may cancel your contract within ten days after receiving it (or longer if
required by state law). We call this a "free look." To cancel, you must mail the
contract along with your free look request to our Annuity Service Center at P.O.
Box 54299, Los Angeles, California 90054-0299. Unless otherwise required by
state law, you will receive back the value of the money allocated to the
STRATEGIES on the day we receive your request plus any Purchase Payment in the
fixed account options. This value may be more or less than the money you
initially invested. Thus, the investment risk is borne by you during the free
look period.
Certain states (and under all contracts issued as IRAs) require us to return
your Purchase Payments upon a free look request. With respect to those
contracts, we reserve the right to put your money in the 1-year fixed account
option during the free look period. If you cancel your contract during the free
look period, we return your Purchase Payments or the value of your contract,
whichever is larger. At the end of the free look period, we reallocate your
money according to your instructions.
INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
The contract offers variable investment options which we call STRATEGIES and
fixed account options. We designed the contract to meet your varying investment
needs over time. You can achieve this by using the STRATEGIES alone or in
concert with the fixed account options. A mixture of your investment in the
STRATEGY(IES) and fixed account options may lower the risk associated with
investing only in a variable investment option.
VARIABLE INVESTMENT OPTIONS:
THE STRATEGIES
The contract offers four multi-manager variable investment STRATEGIES, each with
a different investment objective. We designed the STRATEGIES to meet your
investment needs over time, considering factors such as your age, goals and risk
tolerance. However, each STRATEGY is designed to achieve different levels of
growth over time.
Each STRATEGY invests in three of the six underlying investment portfolios of
the Seasons Series Trust. The allocation of money among these investment
portfolios varies depending on the objective of the STRATEGY.
SunAmerica Asset Management Corp. ("SAAMCo."), which is affiliated with Anchor
National manages Seasons Series Trust. SAAMCo. engaged sub-advisers to provide
investment advice for certain investment portfolios.
The underlying investment portfolios of Seasons Series Trust include the Asset
Allocation: Diversified Growth Portfolio, the Stock Portfolio and the
Multi-Managed Growth, Multi-Managed Moderate Growth, Multi-Managed Income/Equity
and Multi-Managed Income Portfolios (the "Multi-Managed Portfolios"). Seasons
Series Trust contains other underlying investment portfolios in addition to
those listed here which are not available for investment under the contract.
The Asset Allocation: Diversified Growth Portfolio is managed by Putnam
Investment Management, Inc. The Stock Portfolio is managed by T. Rowe Price
Associates, Inc. All of the Multi-Managed Portfolios include the same three
basic investment components: a growth component managed by Janus Capital
Corporation, a balanced component managed by SAAMCo. and a fixed income
component managed by Wellington Management
8
<PAGE>
Company, LLP. The Growth STRATEGY and the Moderate Growth STRATEGY also have an
aggressive growth component which SAAMCo. manages. The percentage that any one
of these components represents in the Multi-Managed Portfolio varies in
accordance with the investment objective.
YOU SHOULD READ THE PROSPECTUS FOR SEASONS SERIES TRUST CAREFULLY BEFORE
INVESTING. THE PROSPECTUS CONTAINS DETAILED INFORMATION ABOUT THE INVESTMENT
PORTFOLIOS AND IS ATTACHED TO THIS PROSPECTUS.
Each STRATEGY uses an investment approach based on asset allocation. This
approach is achieved by each STRATEGY investing in distinct percentages in three
specific underlying funds of the Seasons Series Trust. In turn, the underlying
funds invest in a combination of domestic and international stocks, bonds and
cash. Based on the percentage allocation to each specific underlying fund and
each underlying fund's investment approach, each STRATEGY has a neutral asset
allocation mix of stocks, bonds and cash. At the beginning of each quarter a
rebalancing occurs among the underlying funds to realign each STRATEGY with its
distinct percentage investment in the three underlying funds. This rebalancing
is designed to help maintain the neutral asset allocation mix for each STRATEGY.
The pie charts on the following pages demonstrate:
- the neutral asset allocation mix for each STRATEGY; and
- the percentage allocation in which each STRATEGY invests.
9
<PAGE>
GROWTH
GOAL: Long-term growth of capital, allocating its assets primarily to
stocks. This STRATEGY may be best suited for those with longer periods to
invest.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Stocks 80%
Bonds 15%
Cash 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
ASSET ALLOCATION: DIVERSIFIED
GROWTH PORTFOLIO 25%
Managed by Putnam Investment
Management, Inc.
STOCK PORTFOLIO 25%
Managed by T. Rowe Price
Associates, Inc.
MULTI-MANAGED GROWTH PORTFOLIO 50%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
MODERATE GROWTH
GOAL: Growth of capital through investments in equities, with a secondary
objective of conservation of principal by allocating more of its assets to bonds
than the Growth STRATEGY. This STRATEGY may be best suited for those nearing
retirement years but still earning income.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Stocks 70%
Bonds 25%
Cash 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
ASSET ALLOCATION: DIVERSIFIED
GROWTH PORTFOLIO 25%
Managed by Putnam Investment
Management, Inc.
STOCK PORTFOLIO 20%
Managed by T. Rowe Price
Associates, Inc.
MULTI-MANAGED MODERATE GROWTH
PORTFOLIO 55%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
10
<PAGE>
BALANCED GROWTH
Goal: Focuses on conservation of principal by investing in a more balanced
weighting of stocks and bonds, with a secondary objective of seeking a high
total return. This STRATEGY may be best suited for those approaching retirement
and with less tolerance for investment risk.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Stocks 55%
Bonds 40%
Cash 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
ASSET ALLOCATION: DIVERSIFIED
GROWTH PORTFOLIO 25%
Managed by Putnam Investment
Management, Inc.
STOCK PORTFOLIO 20%
Managed by T. Rowe Price
Associates, Inc.
MULTI-MANAGED INCOME/EQUITY
PORTFOLIO 55%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
CONSERVATIVE GROWTH
Goal: Capital preservation while maintaining some potential for growth over
the long term. This STRATEGY may be best suited for those with lower investment
risk tolerance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Stocks 42%
Bonds 53%
Cash 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
ASSET ALLOCATION: DIVERSIFIED
GROWTH PORTFOLIO 25%
Managed by Putnam Investment
Management, Inc.
STOCK PORTFOLIO 15%
Managed by T. Rowe Price
Associates, Inc.
MULTI-MANAGED INCOME PORTFOLIO 60%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
11
<PAGE>
STRATEGY REBALANCING
Each STRATEGY is designed to meet its investment objective by allocating a
portion of your money to three different investment portfolios. In order to
maintain the mix of investment portfolios consistent with each STRATEGY's
objective, each STRATEGY within your contract will be rebalanced each quarter.
On the first business day of each quarter (or as close to such date as is
administratively practicable) your money will be allocated among the various
investment portfolios according to the percentages set forth on the prior pages.
Additionally, within each Multi-Managed Portfolio, your money will be rebalanced
among the various components. We also reserve the right to rebalance any
STRATEGY more frequently if rebalancing is, deemed necessary and not adverse to
the interests of contract owners invested in such STRATEGY. Rebalancing a
STRATEGY may involve shifting a portion of assets out of underlying investment
portfolios with higher returns into underlying investment portfolios with
relatively lower returns. Transfers made as a result of rebalancing a STRATEGY
are not counted against your 4 free transfers per year.
FIXED ACCOUNT OPTIONS
The contract also offers seven fixed account options. Anchor National will
guarantee the interest rate earned on money you allocate to any of these fixed
account options. We currently offer fixed account options for periods of one,
three, five, seven and ten years, which we call Guarantee Periods. In Maryland
and Washington only the one year fixed account option is available. The seven
and ten year guarantee periods are not available in Oregon. Additionally, we
guarantee the interest rate for money allocated to the six-month DCA fixed
account and/or the one year DCA fixed account (the "DCA fixed accounts") which
are available only in conjunction with the Dollar Cost Averaging Program. Please
see the section on the Dollar Cost Averaging Program on the next page for
additional information about, including limitations on, the availability and
operation of the DCA fixed accounts. The DCA fixed accounts are only available
for new Purchase Payments.
Each guarantee period may offer a different interest rate but will never be less
than an annual effective rate of 3%. Once established the rates for specified
payments do not change during the guarantee period. The guarantee period is that
period for which we credit the applicable rate (one, three, five, seven or ten
years).
There are three scenarios in which you may put money into the MVA fixed account
options. In each scenario your money may be credited a different rate of
interest as follows:
- Initial Rate: Rate credited to new Purchase Payments allocated to the
fixed account when you purchase your contract.
- Current Rate: Rate credited to subsequent Purchase Payments allocated to
the fixed account.
- Renewal Rate: Rate credited to money transferred from one fixed account or
one of the STRATEGIES to another fixed account.
Each of these rates may differ from one and other. Although once declared the
applicable rate is guaranteed until the guarantee period expires.
When a guarantee period ends, you may leave your money in the same fixed
investment option. You may also reallocate your money to another fixed
investment option or to the STRATEGIES. If you want to reallocate your money to
a different fixed account option or STRATEGY, you must contact us within 30 days
after the end of the current interest guarantee period and instruct us how to
reallocate the money. We do not contact you. If we do not hear from you, your
money will remain in the same fixed account option, where it will earn interest
at the renewal rate then in effect for the fixed account option.
The DCA fixed accounts also credit a fixed rate of interest for a predetermined
amount of time. The interest rate in the 1-year or 6-month DCA fixed account is
credited for one year or six months while your investment is systematically
transferred to the variable Portfolios. The rates applicable to the DCA fixed
accounts may differ from each other and/or the other fixed account options. See
Dollar Cost Averaging page 14 for more information.
12
<PAGE>
You may reallocate money to a fixed account option (other than the DCA fixed
accounts) or to any of the STRATEGIES after the end of the Guarantee Period.
However, if you do not give us different instructions within 30 days after the
end of your Guarantee Period, we will keep your money in the fixed account for
the same Guarantee Period you previously selected. You will receive the renewal
interest rate then in effect for that Guarantee Period.
MARKET VALUE ADJUSTMENT
NOTE: THE FOLLOWING DISCUSSION APPLIES TO THE 3, 5, 7 OR 10 YEAR FIXED ACCOUNT
OPTIONS, ONLY. THESE OPTIONS ARE NOT AVAILABLE IN ALL STATES. PLEASE CONTACT
YOUR FINANCIAL REPRESENTATIVE FOR MORE INFORMATION. THIS DISCUSSION DOES NOT
APPLY TO WITHDRAWALS TO PAY A DEATH BENEFIT OR CONTRACT FEES AND CHARGES.
If you take money out of the three, five, seven or ten year fixed account
options before the end of the guarantee period, we make an adjustment to your
contract (the "Market Value Adjustment"). This Market Value Adjustment reflects
any difference in the interest rate environment between the time you place your
money in the fixed account option and the time when you withdraw that money.
This adjustment can increase or decrease your contract value.
We calculate the market value adjustment by doing a comparison between current
rates and the rate being credited to you in the fixed account option. For the
current rate we use a rate being offered by us for a guarantee period that is
equal to the time remaining in the guarantee period from which you seek
withdrawal. If we are not currently offering a guarantee period for that period
of time, we determine an applicable rate by using a formula to arrive at a rate
between the interest rates currently offered for the two closest periods
available.
Generally, if interest rates drop between the time you put your money into the
fixed account options and the time you take it out, we credit a positive
adjustment to your contract. Conversely, if interest rates increase during the
same period, we post a negative adjustment to your contract.
Where the market value adjustment is negative, we first deduct the adjustment
from any money remaining in the fixed account option. If there is not enough
money in the fixed account option to meet the negative deduction, we deduct the
remainder from your withdrawal or transfer. Where the market value adjustments
is positive, we add the adjustment to your withdrawal or transfer from the fixed
account option.
The one year fixed account option and the DCA fixed accounts do not impose a
market value adjustment. These fixed account options are not registered under
the Securities Act of 1933 and are not subject to the provisions of the
Investment Company Act of 1940.
Please see Appendix B for more information on how we calculate the Market Value
Adjustment.
TRANSFERS DURING THE ACCUMULATION PHASE
Except as provided in the next sentence with respect to the DCA Account, you can
transfer money among the STRATEGIES and the fixed account options by written
request or by telephone. Although you may transfer money out of the DCA Account,
you may not transfer money into the DCA Account from any STRATEGY or any fixed
account option. You can make four transfers every year without incurring a
transfer fee. We measure a year from the anniversary of the date we issued your
contract. If you make more than four transfers in a year, there is a $25
transfer fee per transfer ($10 in Pennsylvania and Texas). Additionally,
transfers out of a multi-year fixed account option may be subject to a market
value adjustment.
The minimum amount you can transfer is $500 or a lesser amount if you transfer
the entire balance from a STRATEGY or a fixed account option. If any money will
remain in a STRATEGY or fixed account option after making a transfer, it must be
at least $500. Your request for transfer must clearly state which STRATEGY(IES)
and/or fixed account option(s) are involved and the amount you want to transfer.
Please see the section below on Dollar Cost Averaging for specific rules
regarding the DCA Account.
13
<PAGE>
We will accept transfers by telephone unless you specify otherwise on your
contract application. Additionally, in the future you may be able to execute
transfers or other financial transactions over the internet. We have in place
procedures to provide reasonable assurance that instructions given to us by
telephone are genuine. Thus, we disclaim all liability for any claim, loss or
expense from any error. If we fail to use such procedures, we may be liable for
any losses due to unauthorized or fraudulent instructions.
Upon implementation of internet account transfers we will have appropriate
procedures in place to provide reasonable assurance that the transactions
executed are genuine. Thus, we would not be responsible for any claim, loss or
expense from any error resulting from instructions received over the internet.
If we fail to follow our procedures we may be liable for any losses due to
unauthorized or fraudulent transactions.
We reserve the right to modify, suspend or terminate the transfer privileges at
any time.
DOLLAR COST AVERAGING
The Dollar Cost Averaging Program allows you to systematically transfer a set
percentage or amount from any STRATEGY or the one year fixed account option (we
call these source accounts) to another STRATEGY. You can also select to transfer
the entire value in a STRATEGY or the one year fixed investment option in a
stated number of transfers. Transfers may be monthly or quarterly. You can
change the amount or frequency at any time by notifying us in writing. The
minimum transfer amount is $500, unless you use the DCA fixed accounts (see
below).
When you make either your initial Purchase Payment or a subsequent Purchase
Payment and want to participate in the Dollar Cost Averaging Program with that
money, you may also use a DCA fixed account as a source account. You cannot
transfer money from a STRATEGY or other fixed investment option into a DCA fixed
account.
When the one-year DCA fixed account is used for the DCA Program, all of your
money in the one-year DCA fixed account will be transferred to the STRATEGY(IES)
you select in either monthly or quarterly transfers (as selected by you) by the
end of the one year period for which the interest rate is guaranteed (one year
from the date of your deposit). Once selected, you cannot change the frequency.
When the six-month DCA fixed account is used, all of the money you allocate to
the six-month DCA fixed account is transferred to the STRATEGY(IES) you select
in monthly transfers by the end of the six month period for which the interest
rate is guaranteed.
The minimum amount that may be allocated to a DCA fixed account is $500 and the
minimum amount that may be transferred from a DCA fixed account to the
STRATEGY(IES) you select is $100. Therefore, if the amount allocated to a DCA
fixed account is such that the transfer amount under the frequency selected
would fail to meet the $100 minimum transfer requirement, the number of
transfers under the program would be reduced to comply with the minimum transfer
requirement. For example, if you allocate $500 to the six-month DCA fixed
account, your money will be transferred out over a period of five months.
If you want to stop participation in the Dollar Cost Averaging Program and you
are using a DCA fixed account as your source account, we will either transfer
your money to the STRATEGY(IES) or fixed investment option(s) you select, or, in
the absence of express instructions, we will transfer your money to the one year
fixed investment option which will earn interest at the rate then being offered
for new purchase payments for a period of one year.
By allocating amounts to the STRATEGIES on a regular schedule as opposed to
allocating the total amount at one particular time, you may be less susceptible
to the impact of market fluctuations. However, there is no assurance
that you will earn a greater profit. You are still subject to loss in a
declining market. Dollar cost averaging involves continuous investment in
securities regardless of fluctuating price levels. You should consider your
financial ability to continue to invest through periods of low prices.
Transfers under this program are not counted against your four free transfers
per year. In addition, any transfer to the one-year fixed investment option upon
termination of this program will not be counted against your four free
transfers.
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<PAGE>
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the
Conservative Growth STRATEGY to the Growth STRATEGY over six quarters. You
set up dollar cost averaging and purchase Accumulation Units at the
following values:
<TABLE>
<CAPTION>
QUARTER ACCUMULATION UNIT UNITS PURCHASED
- --------- ----------------- -------------------
<S> <C> <C>
1 $ 7.50 100
2 $ 5.00 150
3 $ 10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
</TABLE>
You paid an average price of only $6.67 per Accumulation Unit over six
quarters, while the average market price actually was $7.08. By investing an
equal amount of money each month, you automatically buy more Accumulation
Units when the market price is low and fewer Accumulation Units when the
market price is high. This example is for illustrative purposes only.
PRINCIPAL ADVANTAGE PROGRAM
The Principal Advantage Program allows you to invest in one or more
STRATEGY(IES) without putting the amount of your principal at direct risk. The
program accomplishes this by allocating your investment strategically between
the fixed account options and STRATEGY(IES). You decide how much you want to
invest and approximately when you want a return of principal. We calculate how
much of your Purchase Payment needs to be allocated to the particular fixed
account option to ensure that it grows to an amount equal to your total
principal invested under this program. We invest the rest of your principal in
the STRATEGY(IES) of your choice.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed account option. You want the amount allocated to
the fixed account option to grow to $100,000 in 7 years. If the 7-year fixed
account option is offering a 5% interest rate, we will allocate $71,069 to
the 7-year fixed account option to ensure that this amount will grow to
$100,000 at the end of the 7-year period. The remaining $28,931 may be
allocated among the STRATEGY(IES), as determined by you, to provide
opportunity for greater growth.
VOTING RIGHTS
Anchor National is the legal owner of the Seasons Series Trust shares. However,
when the underlying investment portfolios of the Seasons Series Trust solicit
proxies in conjunction with a vote of shareholders, we must obtain your
instructions on how to vote those shares. We vote all of the shares we own in
proportion to your instructions. This includes any shares we own on our own
behalf. Should we determine that we are no longer required to comply with these
rules, we will vote the shares in our own right.
SUBSTITUTION
If any of the STRATEGY(IES) become unavailable for investment, we may be
required to substitute shares of another STRATEGY. We will seek prior approval
of the SEC and give you notice before doing this.
15
<PAGE>
ACCESS TO YOUR MONEY
- --------------------------------------------------------------------------------
You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. (SEE INCOME OPTIONS
PAGE 20.)
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal and a market value adjustment if a withdrawal comes from the 3, 5, 7
or 10 year fixed account options. If you withdraw your entire contract value, we
also deduct any applicable premium taxes and a contract maintenance fee. (SEE
EXPENSES PAGE 18.)
Your contract provides for a free withdrawal amount each year. A free withdrawal
amount is the portion of your account that we allow you to take out each year
without being charged a surrender penalty. However, upon a future full surrender
of your contract we will recoup any surrender charges which would have been due
if your free withdrawal had not been free.
Generally, each contract year you may withdraw up to 10% of your Purchase
Payments which are subject to a withdrawal charge free of any withdrawal charge.
This is the free withdrawal amount.
We calculate charges due on a total withdrawal on the day after we receive your
request and your contract. We return your contract value less any applicable
fees and charges.
Under most circumstances, the minimum partial withdrawals amount is $1,000. We
require that the value left in any STRATEGY or fixed account be at least $500,
after the withdrawal. You must send a written withdrawal request. Unless you
provide us with different instructions, partial withdrawals will be made in
equal amounts from each STRATEGY and fixed account option in which your contract
is invested.
Washington residents should consult their financial adviser for additional
information.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Portfolios is not reasonably practicable; (4) the SEC, by order, so permits for
the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from a
fixed account option. Such deferrals are limited to six months.
SYSTEMATIC WITHDRAWAL PROGRAM
If you elect, we use money in your contract to pay you monthly, quarterly,
semi-annual or annual payments during the Accumulation Phase. Electronic
transfer of these funds to your bank account is also available. The minimum
amount of each withdrawal is $250. There must be at least $500 remaining in your
contract at all times. Withdrawals may be taxable and a 10% IRS tax penalty may
apply if you are under age 59 1/2. Any withdrawals you make using this program
count against your free withdrawal amount as described above. Withdrawals in
excess of the free withdrawal amount may incur a withdrawal charge. There is no
additional charge for participating in this program.
The program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
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<PAGE>
WITHDRAWAL CHARGES, MARKET VALUE ADJUSTMENTS, INCOME TAXES, TAX PENALTIES AND
CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL YOU MAKE, INCLUDING SYSTEMATIC
WITHDRAWALS.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals;
and (2) you have not made any Purchase Payments during the past three years. We
will provide you with sixty days written notice. At the end of the notice
period, we will distribute the contract's remaining value to you.
QUALIFIED CONTRACT OWNERS
Certain qualified plans restrict and/or prohibit your ability to withdraw money
from your contract. (PLEASE SEE TAXES PAGE 26) for a more detailed explanation.
DEATH BENEFIT
- --------------------------------------------------------------------------------
If you should die before beginning the Income Phase of your contract, we will
pay a death benefit to your Beneficiary.
If you should die prior to reaching age 75 or, in the case of joint owners, if
an owner should die prior to the youngest owner reaching age 75, the death
benefit will be equal to the greater of:
1. The value of your contract at the time we receive adequate proof of
death and the Beneficiary's election as to how the benefit should be
paid; or
2. Total Purchase Payments less withdrawals, applicable charges, market
value adjustments and taxes, accumulated at 3% from the date your
contract was issued until the date of death, plus any Purchase Payments
received, less any withdrawals, applicable charges, market value
adjustments and taxes made or charged, after the date of death.
If the contract was issued after your 75th birthday or if you should die after
you reach age 75, or, in the case of joint owners, if the contract was issued
after both owners' 75th birthday or if an owner dies after the youngest owner
reaches age 75, the death benefit will be the greater of:
1. The value of your contract at the time we receive adequate proof of
death and the Beneficiary's election as to how the death benefit will be
paid; or
2. Total Purchase Payments received by us before age 75 (in the case of
joint owners, before the younger owner reaches age 75) less any
withdrawals, applicable charges, market value adjustments and taxes,
accumulated at 3% from the date your contract was issued until your 75th
birthday (or, if there is a joint owner, the 75th Birthday of the
youngest owner), plus any subsequent Purchase Payments received, less any
withdrawals, applicable charges, market value adjustments and taxes made
or charged, after your 75th birthday.
The death benefit is not paid after you switch to the Income Phase. If you die
during the Income Phase, your Beneficiary will receive any remaining guaranteed
income payments in accordance with the income option you choose.
You select the Beneficiary to receive any amounts payable on death. You may
change the Beneficiary at any time, unless you previously made an irrevocable
Beneficiary designation. A new Beneficiary designation is not effective until we
record the change.
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<PAGE>
The death benefit must begin payment immediately upon receipt of all necessary
documents and, in any event, must be paid within 5 years of the date of death.
The Beneficiary may elect to have the death benefit payable in the form of an
annuity. If the Beneficiary elects an income option, it must be paid over the
Beneficiary's lifetime or for a period not extending beyond the Beneficiary's
life expectancy. Income payments must begin within one year of your death. If
the Beneficiary is the spouse of the owner, he or she can elect to continue the
contract at the then current value.
The death benefit will be paid out when we receive adequate proof of death: (1)
a certified copy of a death certificate; (2) a certified copy of a decree of
court of competent jurisdiction as to the finding of death; (3) a written
statement by a medical doctor who attended the deceased at the time of death; or
(4) any other proof satisfactory to us. We may also require additional
documentation or proof in order for the death benefit to be paid. If the
Beneficiary does not make a specific election as to how they want the death
benefit distributed within sixty days of our receipt of adequate proof of death,
it will be paid in a lump sum.
DEATH OF THE ANNUITANT
If the Annuitant dies before annuity payments begin, you can name a new
Annuitant. If no Annuitant is named within 30 days, you will become the
Annuitant. However, if the owner is a non-natural person (for example, a
corporation), then the death of the Annuitant will be treated as the death of
the owner, no new Annuitant may be named and the death benefit will be paid.
EXPENSES
- --------------------------------------------------------------------------------
There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return.We will not increase the contract
maintainance fee and withdrawal charges. However, the investment charges under
your contract may increase or decrease. Some states may require that we charge
less than the amounts described below.
INSURANCE CHARGES
The amount of this charge is 1.40% annually, of the value of your contract
invested in the STRATEGIES. We deduct the charge daily.
The insurance charge compensates us for the mortality and expense risks and the
costs of contract distribution assumed by Anchor National.
If these charges do not cover all of our expenses, we will pay the difference.
Likewise, if these charges exceed our expenses, we will keep the difference.
WITHDRAWAL CHARGES
The contract provides a Free Withdrawal Amount every year (SEE ACCESS TO YOUR
MONEY PAGE 16). If you take money out in excess of the Free Withdrawal Amount,
you may incur a withdrawal charge.
We apply a withdrawal charge against each Purchase Payment you put into the
contract. After a Purchase Payment has been in the contract for seven complete
years, no withdrawal charge applies. The withdrawal charge equals a percentage
of the Purchase Payment you take out of the contract. The withdrawal charge
percentage declines each year a purchase payment is in the contract, as follows
<TABLE>
<CAPTION>
YEAR 1 2 3 4 5 6 7 8
- ----------------- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WITHDRAWAL CHARGE 7% 6% 6% 5% 4% 3% 2% 0%
</TABLE>
18
<PAGE>
When calculating the withdrawal charge, we treat withdrawals as coming first
from the Purchase Payments that have been in your contract the longest. However,
for tax purposes, your withdrawals are considered earnings first, then Purchase
Payments.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract. If you withdraw all of your contract value, we deduct any
applicable withdrawal charges from the amount withdrawn.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit. We will not assess a withdrawal charge upon election to receive income
payments from your contract, except when you elect to receive income payments
using the Income Protector program. If you annuitize using the Income Protector
program, we assess the withdrawal charge on Purchase Payments remaining in your
contract which are still subject to withdrawal charges as if you fully
surrendered your contract as of the Income Benefit Date.
Withdrawals made prior to age 59 1/2 may result in tax penalties (SEE TAXES PAGE
26).
INVESTMENT CHARGES
Charges are deducted from the assets of the investment portfolios underlying the
STRATEGIES for the advisory and other expenses of the portfolios. THE FEE TABLES
BEGINNING ON PAGE 4 ILLUSTRATE THESE CHARGES AND EXPENSES. FOR MORE DETAILED
INFORMATION ON THESE INVESTMENT CHARGES, REFER TO THE PROSPECTUS FOR THE TRUST,
ENCLOSED OR ATTACHED.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from your
account once per year. This charge compensates us for the cost of contract
administration. We will deduct the $35 contract maintenance fee ($30 in North
Dakota) from your account value on your contract anniversary. If you withdraw
your entire contract value, we deduct the fee from that withdrawal.
If your contract value is $50,000 or more on your contract anniversary date, we
will waive the charge. This waiver is subject to change without notice.
TRANSFER FEE
We currently permit four free transfers between investment options, every
contract year. We charge you $25 for each transfer over four in any one year
($10 in Pennsylvania and Texas). We deduct the transfer fee from the STRATEGY
and/or fixed account option from which you request the transfer (SEE INVESTMENT
OPTIONS PAGE 8).
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract. We deduct from your contract these premium tax charges. Currently we
deduct the charge for premium taxes when you take a full withdrawal or annuitize
the contract. In the future, we may assess this deduction at the time you put
Purchase Payment(s) into the contract or upon payment of a death benefit.
APPENDIX C provides more information about premium taxes.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the right
to do so in the future.
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<PAGE>
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated individuals may
lower our administrative and/or sales expenses. We reserve the right to reduce
or waive certain charges and expenses when this type of sale occurs. In
addition, we may also credit additional interest to policies sold to such
groups. We determine which groups are eligible for such treatment. Some of the
criteria we evaluate to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that our expenses will be reduced; and/or any other
factors that we believe indicate that administrative and/or sales expenses may
be reduced.
Anchor National may make such a determination regarding sales to its employees,
its affiliates' employees and employees of currently contracted broker-dealers;
its registered representatives and immediate family members of all of those
described.
We reserve the right to change or modify any such determination or the treatment
applied to a particular group, at any time.
INCOME OPTIONS
- --------------------------------------------------------------------------------
ANNUITY DATE
During the Income Phase, the money in your Contract is used to make regular
income payments to you. You may switch to the Income Phase any time after your
2nd contract anniversary. You select the month and year in which you want income
payments to begin. The first day of that month is the Annuity Date. You may
change your Annuity Date, so long as you do so at least seven days before the
income payments are scheduled to begin. Once you begin receiving income
payments, you cannot change your Income Option. Except to the extent discussed
under Option 5, once you begin receiving income payments you cannot otherwise
access your money through a withdrawal or surrender.
Income payments must begin on or before your 90th birthday or on your tenth
contract anniversary, whichever occurs later. If you do not choose an Annuity
Date, your income payments will automatically begin on this date. Certain states
may require your income payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose its
status as an annuity under Federal tax laws. This may cause you to incur adverse
tax consequences. In addition, certain Qualified contracts require you to take
minimum distributions after you reach age 70 1/2. SEE TAXES PAGE 26.
INCOME OPTIONS
Currently, this Contract offers 5 Income Options. If you elect to receive income
payments but do not select an option, your income payments will be made in
accordance with option 4 for a period of 10 years. For income payments selected
for joint lives, we pay according to option 3.
We base our calculation of income payments on the life of the Annuitant and the
annuity factors set forth in your contract. As the contract owner, you may
change the Annuitant at any time prior to the Annuity Date. You must notify us
if the Annuitant dies before the Annuity Date and then designate a new
Annuitant.
OPTION 1 - LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
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<PAGE>
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for the
life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop whenever the survivor dies.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10 OR 20 YEAR PERIOD CERTAIN
This option is similar to option 2 above, with an additional guarantee of
payments for at least 10 years. If the Annuitant and the Survivor die before all
of the guaranteed payments have been made, the remaining payments are made to
the Beneficiary under your Contract.
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEAR PERIOD CERTAIN
This option is similar to option 1 above. In addition, this option provides a
guarantee that income payments will be made for at least 10 or 20 years. You
select the number of years. If the Annuitant dies before all guaranteed income
payments are made, the remaining income payments go to the Beneficiary under
your Contract.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 5 to
30 years. If the Annuitant dies before all of the guaranteed income payments are
made, the remaining income payments are made to the Beneficiary under your
contract. Additionally, if variable income payments are elected under this
option, you (or the Beneficiary under the contract if the Annuitant dies prior
to all guaranteed payments being made) may redeem the contract value after the
Annuity Date. The amount available upon such redemption would be the discounted
present value of any remaining guaranteed payments.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. Since Option 5 does not contain
an element of mortality risk, no benefit is derived from this charge.
Please read the Statement of Additional Information ("SAI") for a more detailed
discussion of the income options.
ALLOCATION OF INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. If payments are
fixed, Anchor National guarantees the amounts of each payment. If the payments
are variable, the amounts are not guaranteed. They will go up and/or down based
upon the performance of your STRATEGIES.
FIXED OR VARIABLE INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. If at the date
when income payments begin you are invested in the STRATEGIES only, your income
payments will be variable. If your money is only in fixed accounts at that time,
your income payments will be fixed in amount.
INCOME PAYMENTS
If you are invested in the STRATEGIES after the Annuity date, your income
payments will vary depending on four things:
- for life options, your age when payments begin, and;
- the value of your contract in the STRATEGIES on the Annuity Date, and;
- the 3.5% assumed investment rate used in the annuity table for the
contract, and;
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<PAGE>
- the performance of the STRATEGIES in which you are invested during the
time you receive income payments.
If you are invested in both the fixed account options and the STRATEGIES after
the Annuity Date, the allocation of funds between the fixed accounts and
STRATEGIES also impacts the amount of your annuity payments.
We make income payments on a monthly, quarterly, semi-annual or annual basis.
You instruct us to send you a check or to have the payments directly deposited
into your bank account. If state law allows, we distribute annuities with a
contract value of $5,000 or less in a lump sum. Also, if the selected income
option results in income payments of less than $50 per payment, we may decrease
the frequency of the payments, state law allowing.
TRANSFERS DURING THE INCOME PHASE
You may transfer money among the STRATEGIES during the Income Phase. Transfers
are subject to the same limitations as transfers during the Accumulation Phase.
However, you may not transfer money from the fixed account into the STRATEGIES
or from the STRATEGIES into the fixed accounts during the Income Phase. SEE
EXPENSES PAGE 18.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period.
Please read the Statement of Additional Information ("SAI") for a more detailed
discussion of the income payments.
THE INCOME PROTECTOR
If elected, this feature provides a future "safety net" in the event that, when
you choose to begin receiving annuity payments, your contract has not performed
within a historically anticipated range. The Income Protector feature offers you
the ability to receive a guaranteed fixed minimum retirement income upon
annuitization. With the Income Protector you can know the level of minimum
income that will be available to you if, when you chose to begin taking income
payments, down markets have negatively impacted your contract value. In order to
utilize the benefit of this program, you must follow the provisions discussed
below.
The Income Protector provides two levels of minimum retirement income. The two
available options are the Income Protector PLUS and MAX. If you enroll in the
Income Protector program, we charge a fee based on the level of protection you
select. The amount of the fee and how to enroll are described below.
Certain IRC restrictions on the income options available to qualified retirement
investors may have an impact on your ability to benefit from this feature.
Qualified investors should read NOTE TO QUALIFIED CONTRACT HOLDERS, below.
HOW WE DETERMINE THE AMOUNT OF YOUR MINIMUM GUARANTEED INCOME
We base the amount of minimum income available to you if you annuitize using the
Income Protector upon a calculation we call the Income Benefit Base. At the time
your enrollment in the Income Protector program becomes effective, your Income
Benefit Base is equal to your contract value. Your participation becomes
effective on either the date of issue of the contract (if elected at the time of
application) or at the contract anniversary following your enrollment in the
program.
The Income Benefit Base is only a calculation. It does not represent a contract
value, nor does it guarantee performance of the Variable Portfolios in which you
invest.
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<PAGE>
Your Income Benefit Base increases if you make subsequent Purchase Payments and
decreases if you withdraw money from your contract. The exact Income Benefit
Base calculation is equal to (a) plus (b) minus (c) where:
(a) is,
- for the first year of calculation, your contract value on the date
your participation in the program became effective, or;
- for each subsequent year of calculation, the Income Benefit Base on
the prior contract anniversary, and;
(b) is the sum of all subsequent Purchase Payments made into the contract
since the last contract anniversary, and;
(c) is all withdrawals and applicable fees and charges since the last
contract anniversary (excluding any MVA), in an amount proportionate to
the amount by which such withdrawals decreased your contract value.
The Income Benefit Base accumulates at one of the following annual growth rates
from the date your enrollment becomes effective through your election to begin
receiving income under the program:
<TABLE>
<CAPTION>
OPTION GROWTH RATE
<S> <C>
THE INCOME PROTECTOR PLUS 3.25%
The Income Protector MAX 5.25%
</TABLE>
The growth rates for the PLUS or MAX features cease on the contract anniversary
following the Annuitant's 90th birthday.
ENROLLING IN THE PROGRAM
If you decide that you want the protection offered by the Income Protector
program, you must elect the option of your choice by completing the Income
Protector Election Form available through our Annuity Service Center. You may
only elect one of the options, you cannot change your election once made, and
you cannot terminate your election. If you enroll in the program at contract
issue your Income Benefit Base will begin accumulating at the applicable growth
rate from the issue date. Otherwise, your Income Benefit Base will begin
accumulating at the applicable growth rate on the contract anniversary following
our receipt of your completed election form. In order to obtain the benefit of
the Income Protector program you may not begin the income phase for at least
seven years following your enrollment. Thus, you must make your election prior
to the later of:
- your 83rd birthday, or
- your 3rd anniversary.
STEP-UP OF YOUR INCOME BENEFIT BASE
You may also have the opportunity to "Step-Up" your Income Benefit Base. The
Step-Up feature allows you to increase your Income Benefit Base to the amount of
your contract value on your contract anniversary. You can only elect to Step-Up
within the 30 days before the next contract anniversary. The seven year waiting
period required prior to electing income payments through the Income Protector
is restarted if you step-up your Income Benefit Base. Thus, your last
opportunity to step-up is the later of:
- your 83rd birthday, or
- your 3rd anniversary
You must complete the appropriate portion of the contract holders Income
Protector Election Form to effect a Step-Up. The form is available from our
Annuity Service Center.
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<PAGE>
ELECTING TO RECEIVE INCOME PAYMENTS
You may elect to begin the Income Phase of your contract using the Income
Protector Program ONLY within the 30 days after the seventh or later contract
anniversary following the later of,
- the effective date of your enrollment in the Income Protector program, or
- the contract anniversary of your most recent Step-Up.
The contract anniversary prior to your election to begin receiving income
payments is your Income Benefit Date. This is the date as of which we calculate
your Income Benefit Base to use in determining your guaranteed minimum fixed
retirement income. To arrive at the minimum guaranteed fixed retirement income
available to you, we apply the annuity rates stated in your Income Protector
Endorsement for the income option you select, to your final Income Benefit Base.
You then choose if you would like to receive that income annually, quarterly or
monthly for the time guaranteed under your selected annuity option. Your final
Income Benefit Base is equal to (a) minus (b) where:
(a) is your Income Benefit Base as your Income Benefit Date, and;
(b) is any partial withdrawals of contract value and any charges applicable
to those withdrawals (excluding any MVA) and any withdrawal charges
otherwise applicable, calculated as if you fully surrender your contract
as the Income Benefit Date, and any applicable premium taxes.
The income options available when using the Income Protector program to receive
your retirement income are:
- Life Annuity with 10 Year Period Certain, or
- Joint and 100% Survivor Annuity with 20 Year Period Certain
At the time you elect to begin the income phase, we will calculate your annual
income using both your final Income Benefit Base and your contract value. We
will use the same income option for each calculation, however, the annuity
factors used to calculate your income under the Income Protector will be
different. You will receive whichever provides a greater stream of income. If
you annuitize using the Income Protector your income payments will be fixed in
amount. You are not required to use the Income Protector to receive income
payments. The general provisions of your contract provide other income options.
However, we will not refund fees paid for the Income Protector if you begin
taking annuity payments under the general provisions of your contract. YOU MAY
NEVER NEED TO RELY UPON THE INCOME PROTECTOR, IF YOUR CONTRACT PERFORMS WITHIN A
HISTORICALLY ANTICIPATED RANGE. HOWEVER, PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS.
NOTE TO QUALIFIED CONTRACT HOLDERS
Qualified contracts generally require that you select an annuity income option
which does not exceed your life expectancy. That restriction, if it applies to
you, may limit the benefit of the Income Protector program. As discussed above,
in order to utilize the Income Protector you must annuitize under one of two
annuity income options. If those income options exceed your life expectancy you
may be prohibited from receiving your guaranteed fixed income under the program.
If you own a Qualified contract to which this restriction applies and you elect
the Income Protector program, you may pay for this guarantee and not be able to
realize the benefit.
Generally, for qualified contracts
- for the Life Annuity with 10 Year Period Certain, you must annuitize
before age 79, and
- for the Joint and 100% Survivor Annuity with 20 Year Period Certain, both
Annuitants must be 70 or younger or one of the annuitants must be 65 or
younger upon annuitization. Other age combinations may be available.
You should consult your tax advisor for information concerning your particular
circumstances.
24
<PAGE>
FEES ASSOCIATED WITH THE INCOME PROTECTOR
We charge a fee for the Income Protector program, as follows:
<TABLE>
<CAPTION>
OPTION FEE AS A % OF YOUR INCOME BENEFIT BASE
<S> <C>
Income Protector PLUS .15%
Income Protector MAX .30%
</TABLE>
Since the Income Benefit Base is only a calculation and does not provide a
contract value, we deduct the fee from your actual contract value beginning on
the contract anniversary on which your enrollment in the program becomes
effective.
If you enroll in the Income Protector program at contract issue, we begin
deducting the annual fee for the PLUS or MAX option on the contract anniversary
when your enrollment becomes effective. If you elect to participate in the
Income Protector program at some time after contract issue, we begin deducting
the annual fee on the contract anniversary following of or following election.
After a Step-Up, the fee for the Income Protector MAX or PLUS will be based on
your Stepped-Up Income Benefit Base, and will be deducted from your contract
value beginning on the effective date of the step-up.
We will deduct the charge from your contract value on every contract anniversary
up to and including your Income Benefit Date. Additionally, we deduct the entire
annual fee from any full surrender of your contract requested prior to your
contract anniversary.
HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR
This table assumes $100,000 initial investment in a non-qualified contract with
no withdrawals, additional payments or premium taxes, no step-up; and the
election of optional income protector benefits at contract issue.
This table assumes a $100,000 initial investment in a non qualified contract
with no further premiums, no withdrawals, no step-ups and no premium taxes; and
the election of optional Income Protector alternatives at contract issue.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ANNUAL INCOME IF YOU ANNUITIZE ON THE FOLLOWING
IF AT ISSUE YOU CONTRACT ANNIVERSARIES: BENEFIT
ARE... 1-6 7 10 15 20 LEVEL
Male N/A 8,046 9,633 12,971 17,313 Plus
age 60* N/A 9,202 11,670 17,296 25,410 Max
Female N/A 7,145 8,542 11,652 15,948 Plus
Age 60* N/A 8,172 10,349 15,538 23,407 Max
Male, Age 60** N/A 6,290 7,353 9,442 11,785 Plus
Female, Age 60 N/A 7,194 8,908 12,590 17,296 Max
</TABLE>
* 10 Year and Life
** Joint and 100% Survivor with 20 Year Certain
The Income Protector may not be available in your state. Please consult your
financial adviser for information regarding availability of this program in your
state.
25
<PAGE>
TAXES
- --------------------------------------------------------------------------------
NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL DISCUSSION OF
THE SUBJECT. IT IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE
ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR
ANNUITY. TAX LAWS CONSTANTLY CHANGE, THEREFORE WE CANNOT GUARANTEE THAT THE
INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, taxes on the earnings in your annuity
contract are deferred until you take the money out. Different rules apply
depending on how you take the money out and whether your contract is Qualified
or Non-qualified.
If you do not purchase your contract under a pension plan, a specially sponsored
employer program or an individual retirement account, your contract is referred
to as a Non-qualified contract. A Non-qualified contract receives different tax
treatment than a Qualified contract. In general, your cost basis in a
Non-qualified contract is equal to the Purchase Payments you put into the
contract. You have already been taxed on the cost basis in your contract.
Qualified retirement investments automatically provide the deferral regardless
of whether the underlying contract is an annuity.
If you purchase your contract under a pension plan, a specially sponsored
employer program or as an individual retirement account, your contract is
referred to as a Qualified contract. Examples of qualified plans are: Individual
Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as
403(b) contracts), H.R. 10 Plans (referred to as Keogh Plans) and pension and
profit sharing plans, including 401(k) plans. Typically you have not paid any
tax on the Purchase Payments used to buy your contract and therefore, you have
no cost basis in your contract.
TAX TREATMENT OF DISTRIBUTIONS--NON-QUALIFIED CONTRACTS
If you make a withdrawal from a Non-qualified contract, the IRC treats such a
withdrawal as first coming from the earnings and then as coming from your
Purchase Payments. For annuity payments, any portion of each payment that is
considered a return of your Purchase Payment will not be taxed. Withdrawn
earnings are treated as income to you and are taxable. The IRC provides for a
10% penalty tax on any earnings that are withdrawn other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) in a series of substantially equal installments made for your life
or for the joint lives of you and you Beneficiary; (5) under an immediate
annuity; or (6) which come from Purchase Payments made prior to August 14, 1982.
TAX TREATMENT OF DISTRIBUTIONS--QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract. Any amount of money you take out as a withdrawal or as
income payments is taxable income. The IRC further provides for a 10% penalty
tax on any withdrawal or income payment paid to you other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) in a series of substantially equal installments made for your life
or for the joint lives of you and your Beneficiary; (5) to the extent such
withdrawals do not exceed limitations set by the IRC for amounts paid during the
taxable year for medical care; (6) to fund higher education expenses (as defined
in IRC); (7) to fund certain first-time home purchase expenses; and, except in
the case of an IRA; (8) when you separate from service after attaining age 55;
and (9) when paid to an alternate payee pursuant to a qualified domestic
relations order.
26
<PAGE>
The IRC limits the withdrawal of Purchase Payments from certain Tax-Sheltered
Annuities. Withdrawals can only be made when you: (1) reach age 59 1/2; (2)
leave your job; (3) die; (4) becomes disabled (as defined in the IRC); or (5) in
the case of hardship. In the case of hardship, you can only withdraw Purchase
Payments.
MINIMUM DISTRIBUTIONS
If you have a Qualified contract, distributions must begin by April 1 of the
calendar year following the later of (1) the calendar year in which you attain
age 70 1/2 or (2) the calendar year in which you retire. Failure to satisfy the
minimum distribution requirements may result in a tax penalty. You should
contact your tax advisor for more information.
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that the underlying Portfolios'
management monitors the variable Portfolios so as to comply with these
requirements. To be treated as a variable annuity for tax purposes, the
underlying investments must meet these requirements.
The diversification regulations do not provide guidance as to the circumstances
under which you, because of the degree of control you exercise over the
underlying investments, and not Anchor National, would be considered the owner
of the shares of the Portfolios. It is unknown to what extent owners are
permitted to select investments, to make transfers among Portfolios or the
number and type of Portfolios owners may select from. If any guidance is
provided which is considered a new position, then the guidance would generally
be applied prospectively. However, if such guidance is considered not to be a
new position, it may be applied retroactively. This would mean you, as the owner
of the contract, could be treated as the owner of the underlying variable
investment Portfolios. Due to the uncertainty in this area, we reserve the right
to modify the contract in an attempt to maintain favorable tax treatment.
27
<PAGE>
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time we will advertise the performance of the STRATEGIES. Any such
performance results are based on historical earnings and are not intended to
indicate future performance.
For each STRATEGY we will show performance against a comparison index which is
made up of the S&P 500 Index, the Lehman Brothers Corporate/Government Index and
the Lipper Money Market Index. The comparison index will blend the referenced
indices in proportion to the neutral allocation of stocks, bonds and cash within
each STRATEGY as indicated on pages 9 and 10 of this prospectus.
Additionally, we may show performance of each STRATEGY in comparison to various
appropriate indexes and the performance of other similar variable annuity
products with similar objectives as reported by such independent reporting
services as Morningstar, Inc., Lipper Analytical Services, Inc. and the Variable
Annuity Research Data Service ("VARDS").
Please see the Statement of Additional Information for additional information
regarding the methods used to calculate performance data.
Anchor National may also advertise the rating and other information assigned to
it by independent industry ratings organizations. Some of those organizations
are A.M. Best Company ("A.M. Best"), Moody's Investor's Service ("Moody's"),
Standard & Poor's Insurance Rating Services ("S&P"), and Duff & Phelps. A.M.
Best's and Moody's ratings reflect their current opinion of our financial
strength and performance in comparison to others in the life and health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues.
These two ratings do not measure the insurer's ability to meet non-policy
obligations. Ratings in general do not relate to the performance of the
STRATEGIES.
OTHER INFORMATION
- --------------------------------------------------------------------------------
Anchor National is a stock life insurance company originally organized under the
laws of the state of California in April 1965. On January 1, 1996, Anchor
National redomesticated under the laws of the state of Arizona.
Anchor National and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, CalAmerica Life Insurance Company, SunAmerica
National Life Insurance Company, SunAmerica Asset Management, Imperial Premium
Finance, Inc., Resources Trust Company, and five broker-dealers, specialize in
retirement savings and investment products and services. Business focuses
includes, fixed and variable annuities, mutual funds, premium finance,
broker-dealer services and trust administration services.
THE SEPARATE ACCOUNT
Anchor National originally established a separate account, Variable Annuity
Account Five (the "Separate Account"), under Arizona law on July 8, 1996. The
Separate Account is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940, as amended.
Anchor National owns the assets in the Separate Account. However, the assets in
the Separate Account are not chargeable with liabilities arising out of any
other business conducted by Anchor National. Income gains and losses (realized
and unrealized) resulting from assets in the Separate Account are credited to or
charged against the Separate Account without regard to other income, gains or
losses of Anchor National.
28
<PAGE>
THE GENERAL ACCOUNT
Money allocated to the fixed account options goes into Anchor National's general
account. The general account consists of all of Anchor National's assets other
than assets attributable to a separate account. All of the assets in the general
account are chargeable with the claims of any Anchor National contract holders
as well as all of its creditors. The general account funds are invested as
permitted under state insurance laws.
DISTRIBUTION OF THE CONTRACT
Registered representatives of broker-dealers sell the contract. We pay
commissions to these representatives for the sale of the contracts. We do not
expect the total commissions to exceed 7.25% of your Purchase Payments. We may
also pay a bonus to representatives for contracts which stay active for a
particular period of time, in addition to standard commissions. We do not deduct
commissions paid to registered representatives directly from your Purchase
Payments.
From time to time, we may pay or allow additional promotional incentives in the
form of cash or other compensation. We reserve the right to offer these
additional incentives only to certain broker-dealers that sell or are expected
to sell, certain minimum amounts of the contract, or other contracts offered by
us. Promotional incentives may change at any time.
SunAmerica Capital Services, Inc., 733 Third Avenue, 4th Floor, New York, New
York 10017 distributes the contracts. SunAmerica Capital Services is an
affiliate of Anchor National, and is a registered as a broker-dealer under the
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc.
No underwriting fees are paid in connection with the distribution of the
contracts.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact our Annuity Service Center at 1-800-445-SUN2, if you have any comment,
question or service request.
We send out transaction confirmations and quarterly statements. It is your
responsibility to review these documents carefully and notify us of any
inaccuracies immediately. We investigate all inquiries. To the extent that we
believe we made an error, we retroactively adjust your contract, provided you
notify us within 30 days of receiving the transaction confirmation or quarterly
statement. Any other adjustments we deem warranted are made as of the time we
receive notice of the error.
YEAR 2000
We rely significantly on computer systems and applications in our daily
operations. Many of our systems are not presently year 2000 compliant, which
means that because they have historically used only two digits to identify the
year in a date, they will fail to distinguish dates in the "2000s" from dates in
the "1900s." Anchor National's business, financial condition and results of
operations could be materially and adversely affected by the failure of our
systems and applications (and those operated by third parties interfacing with
our systems and applications) to properly operate or manage these dates.
Anchor National has a coordinated plan to repair or replace these noncompliant
systems and to obtain similar assurances from third parties interfacing with our
systems and applications. In fiscal 1997, the Company's parent recorded a $15.0
million provision for estimated programming costs to make necessary repairs of
certain specific noncompliant systems of which $6.2 million was allocated to
Anchor National. Anchor National's management is making expenditures which we
expect will ultimately total $5.0 million to replace certain other noncompliant
systems. Total expenditures relating to the replacement of noncompliant systems
will be capitalized by the
29
<PAGE>
Company as software costs and will be amortized over future periods. Both phases
of the project are progessing according to plan and were substantially completed
by the end of calendar 1998. Testing of both the repaired and replacement
systems is being conducted during calendar 1999.
In addition, we distributed a year 2000 questionnaire to our significant
suppliers, distributors, financial institutions, lessors and others we do
business with to evaluate their year 2000 compliance plans and state of
readiness and to determine how our systems and applications may be affected by
their failure to solve their own year 2000 issues. To date, however, we have
only received preliminary feedback from such parties and have not independently
confirmed any information received from other parties with respect to the year
2000 issues. Therefore, we cannot assure that such other parties will complete
their year 2000 conversions in a timely fashion or will not suffer a year 2000
business disruption that may adversely affect our financial condition and
results of operations.
Because we expect to complete our year 2000 conversion prior to any potential
disruption to our business, we have not developed a comprehensive year 2000
contingency plan. Anchor National closely monitors the progression of its plan
for compliance, and if necessary, would devote additional resources to assure
the timely completion of our year 2000 plan. If we determine that our business
is at material risk of disruption due to the year 2000 issue or anticipate that
we will not complete our year 2000 conversion in a timely fashion, we will work
to enhance our contingency plans.
The above statements are forward-looking. The costs of our year 2000 conversion,
the date which we have set to complete such conversion and the possible risks
associated with the year 2000 issue are based on our current estimates and are
subject to various uncertainties that could cause the actual results to differ
materially from our expectations. Such uncertainties include, among others, our
success in identifying systems and applications that are not year 2000
compliant, the nature and amount of programming required to upgrade or replace
each of the affected systems and applications, the availability of qualified
personnel, consultants and other resources, and the success of the year 2000
conversion efforts of others.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. Anchor
National and its subsidiaries engage in various kinds of routine litigation. In
management's opinion, these matters are not of material importance to their
respective total assets nor are they material with respect to the Separate
Account.
CUSTODIAN
State Street Bank and Trust Company, 255 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the Separate Account. Anchor
National pays State Street Bank for services provided, based on a schedule of
fees.
REGISTRATION STATEMENT
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The consolidated financial statements of Anchor National Life Insurance Company
as of September 30, 1998 and 1997 and for each of the three years in the period
ended September 30, 1998 included in the Statement of Additional Information
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
30
<PAGE>
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Separate Account.............................................................................. 3
General Account............................................................................... 3
Performance Data.............................................................................. 4
Annuity Payments.............................................................................. 8
Annuity Unit Values........................................................................... 8
Taxes......................................................................................... 11
Distribution of Contracts..................................................................... 14
Financial Statements.......................................................................... 15
</TABLE>
31
<PAGE>
APPENDIX A - CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR
3/31/99
INCEPTION TO TO BE FILED
STRATEGIES 3/31/98 BY AMENDMENT
- ---------------------------------------------------------------- ------------------ -----------------
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
Growth (Inception Date 4/15/97)
Beginning AUV................................................. 10.00
End AUV....................................................... 13.09
Ending Number of AUs.......................................... 3,950,133
- -------------------------------------------------------------------------------------------------------
Moderate Growth (Inception Date 4/15/97)
Beginning AUV................................................. 10.00
End AUV....................................................... 12.76
Ending Number of AUs.......................................... 3,639,458
- -------------------------------------------------------------------------------------------------------
Balanced Growth (Inception Date 4/15/97)
Beginning AUV................................................. 10.00
End AUV....................................................... 12.44
Ending Number of AUs.......................................... 2,789,702
- -------------------------------------------------------------------------------------------------------
Conservative Growth (Inception Date 4/15/97)
Beginning AUV................................................. 10.00
End AUV....................................................... 12.06
Ending Number of AUs.......................................... 1,536,220
- -------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
APPENDIX B - MARKET VALUE ADJUSTMENT
- --------------------------------------------------------------------------------
The market value adjustment reflects the impact that changing interest rates
have on the value of money invested at a fixed interest rate. The longer the
period of time remaining in the term you initially agreed to leave your money in
the fixed investment option, the greater the impact of changing interest rates.
The impact of the market value adjustment can be either positive or negative,
and is computed by multiplying the amount withdrawn, transferred or annuitized
by the following factor:
[(1+I/(1+J+0.005*)](to the power of N/12) - 1
THE MARKET VALUE ADJUSTMENT FORMULA
MAY DIFFER IN CERTAIN STATES
where:
I is the interest rate you are earning on the money invested in
the fixed investment option;
J is the Initial interest rate then currently available for the
period of time equal to the number of years remaining in the term you initially
agreed to leave your money in the fixed investment option; and
N is the number of full months remaining in the term you
initially agreed to leave your money in the fixed investment option.
* In Pennsylvania this number will be zero.
EXAMPLES OF THE MARKET VALUE ADJUSTMENT
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to the
10-year fixed investment option at a rate of 5%;
(2) You make a partial withdrawal of $4,000 when 2 1/2 years (30 months)
remain in the 10-year term you initially agreed to leave your money in the fixed
investment option (N=30); and
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals.
No withdrawal charges are reflected because your Purchase Payment has been in
the contract for seven full years. If a withdrawal charge applies, it is
deducted before the market value adjustment. The market value adjustment is
assessed on the amount withdrawn less any withdrawal charges.
NEGATIVE ADJUSTMENT
Assume that on the date of withdrawal, the Initial interest rate in effect for
new Purchase Payments in the 3-year fixed investment option (2 1/2 years rounded
up to the next full year) is 6%.
The market value adjustment factor is
= [(1+I)/(1+J+0.005)](to the power of N/12) - 1
= [(1.05)/(1.06+.005)](to the power of 30/12) - 1
= (0.985915)(2.5) - 1
= 0.965160 - 1
= -0.034840
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
$4,000 X (-0.034840) = -$139.36
B-1
<PAGE>
$139.36 represents the market value adjustment that will be deducted from the
money remaining in the 10-year fixed investment option.
POSITIVE ADJUSTMENT
Assume that on the date of withdrawal, the Initial interest rate in effect for a
new Purchase Payments in the 3-year fixed investment option (2 1/2 years rounded
up to the next full year) is 4%.
The market value adjustment factor is:
= [(1+I/(1+J+0.005)](N/12) - 1
= [(1.05)/(1.04+.005)](30/12) - 1
= (1.004785)(2.5) - 1
= 1.012005-1
= +0.012005
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
$4,000 x (+0.012005) = +$48.02
$48.02 represents the market value adjustment that would be added to your
withdrawal.
B-2
<PAGE>
APPENDIX C - PREMIUM TAXES
- --------------------------------------------------------------------------------
Premium taxes vary according to the state and are subject to change without
notice. In many states, there is no tax at all. Listed below are the current
premium tax rates in those states that assess a premium tax. For current
information, you should consult your tax adviser.
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
STATE CONTRACT CONTRACT
- ----------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
California................................................................... .50% 2.35%
Kentucky..................................................................... 2% 2%
Maine........................................................................ 0% 2%
Nevada....................................................................... 0% 3.5%
South Dakota................................................................. 0% 1.25%
West Virginia................................................................ 1% 1%
Wyoming...................................................................... 0% 1%
</TABLE>
C-1
<PAGE>
Please forward a copy (without charge) of the Seasons Variable Annuity Statement
of Additional Information to:
(Please print or type and fill in all information.)
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City/State/Zip
- --------------------------------------------------------------------------------
Date: ___________________ Signed: _____________________________________________
Return to: Anchor National Life Insurance Company, Annuity Service Center, P.O.
Box 52499, Los Angeles, California 90054-0299
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FIXED AND VARIABLE GROUP DEFERRED
ANNUITY CONTRACTS ISSUED BY
VARIABLE ANNUITY ACCOUNT FIVE
DEPOSITOR: ANCHOR NATIONAL LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus; it should be
read with the prospectus relating to the annuity contracts described above, a
copy of which may be obtained without charge by calling 800/445-SUN2 or by
written request addressed to:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS JULY 15, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Separate Account.......................................................... 3
General Account........................................................... 3
Performance Data.......................................................... 4
Annuity Payments.......................................................... 4
Annuity Unit Values....................................................... 5
Taxes..................................................................... 7
Distribution of Contracts................................................. 10
Financial Statements...................................................... 11
</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 STRATEGIES, with the assets of each
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 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 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 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 or the one year or six month
dollar cost averaging fixed accounts available in connection with the general
account, as elected by the owner purchasing a contract (subject to state
availability). 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.
3
<PAGE>
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
The Separate Account may advertise "total return" data for its STRATEGIES. Total
return figures are based on historical data and are not intended to indicate
future performance. The "total return" for a 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 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.
P(1+T) to the power of n = 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).
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.
TOTAL ANNUAL RETURN (IN PERCENT) FOR PERIOD ENDING ON MARCH 31, 1999
(RETURN WITH/WITHOUT REDEMPTION)
<TABLE>
<CAPTION>
INCEPTION SINCE
STRATEGIES DATE 1 YEAR INCEPTION
- ------------------------------------------------- ------------- ------------ ------------
<S> <C> <C> <C>
Growth........................................... 4/15/97 14.31/21.31 24.17/26.63
Moderate Growth.................................. 4/15/97 11.23/18.23 20.81/23.34
Balanced Growth.................................. 4/15/97 5.85/12.85 16.27/18.90
Conservative Growth.............................. 4/15/97 2.49/ 9.49 12.52/15.22
</TABLE>
INCOME PAYMENTS
INITIAL INCOME PAYMENT
The initial income 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.
4
<PAGE>
SUBSEQUENT MONTHLY PAYMENTS
For a fixed annuity, the amount of the second and each subsequent monthly income
payment is the same as that determined above for the first monthly payment.
The amount of the second and each subsequent monthly variable income 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.
INCOME PAYMENTS UNDER THE INCOME PROTECTOR PROGRAM
If contract holders elect to begin Income Payments using the Income Protector
Program, the income benefit base is determined as described in the prospectus.
The initial Income Payment is determined by applying the income benefit BASE to
the annuity table specifically designated for use in conjunction with the Income
Protector Program, either in the contract or in the endorsement to the contract.
Those tables are based on a set amount per $1,000 of income benefit BASE
applied. Income 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 classifications is not permitted) and
age of the Annuitant and designated second person, if any, and the Income Option
selected.
The income benefit BASE is applied and 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 Income Payment. The amount of the second and
each subsequent income payment is the same as that determined above for the
first monthly payment.
ANNUITY UNIT VALUES
The value of an Annuity Unit is determined independently for each 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
STRATEGY exceeds 3.5%, variable annuity payments derived from allocations to
that 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 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 STRATEGIES elected, and the amount of each annuity payment will vary
accordingly.
For each 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 a 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 STRATEGY for a certain month is determined by dividing (a) by
(b) where:
(a) is the Accumulation Unit value of the STRATEGY determined as of the end
of that month, and
5
<PAGE>
(b) is the Accumulation Unit value of the STRATEGY determined as of the end
of the preceding month.
The NIF for a STRATEGY for a given month is a measure of the net investment
performance of the 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 STRATEGY invests; it is also reduced by separate account asset
charges.
ILLUSTRATIVE EXAMPLE
Assume that one share of a given 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
ILLUSTRATIVE EXAMPLE
The change in Annuity Unit value for a 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 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 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 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
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 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 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
6
<PAGE>
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 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 STRATEGY on the Annuity Date and thus reflects
the investment performance of the 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 STRATEGY). The net investment performance of the 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.
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
7
<PAGE>
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 "roll over" 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.
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.
8
<PAGE>
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 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 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 IRAS
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
9
<PAGE>
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 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.
10
<PAGE>
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company as of September
30, 1998 and 1997 and for each of the three years in the period ended
September 30, 1998 are presented in this Statement of Additional Information.
The consolidated financial statements of the Company should be considered
only as bearing on the ability of the Company to meet its obligation under
the contracts. The financial statements of Variable Annuity Account Five
(Portion relating to Seasons Variable Annuity) as of March 31, 1999 to
be filed by amendment.
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 report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
11
<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>
PART C -- OTHER INFORMATION
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 for fiscal year ended September 30, 1998.
Financial Statements of Variable Annuity Account Five (Portion
relating to the Seasons Variable Annuity) to be filed by amendment.
(B) EXHIBITS
<TABLE>
<S> <C> <C>
(1) Resolutions Establishing Separate Account............................. ***
(2) Custody Agreements.................................................... ***
(3) (a) Form of Distribution Contract..................................... ***
(b) Form of Selling Agreement......................................... ***
(4) (a) Seasons Variable Annuity Contract................................. ***
(b) Seasons Endorsement............................................... **
(5) (a) Seasons Application for Contract.................................. ***
(b) Seasons/Participation Enrollment Form............................. ***
(6) Depositor -- Corporate Documents
(a) Certificate of Incorporation...................................... ***
(b) By-Laws........................................................... ***
(7) Reinsurance Contract.................................................. Not Applicable
(8) Seasons Series Trust Fund Participation Agreement..................... ***
(9) Opinion of Counsel.................................................... ***
Consent of Counsel.................................................... ***
(10) Consent of Independent Accountants.................................... ****
(11) Financial Statements Omitted from Item 23............................. Not Applicable
(12) Initial Capitalization Agreement...................................... Not Applicable
(13) Performance Computations.............................................. Not Applicable
(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>
- ------------------------
* Filed with Variable Annuity Account Five and Anchor National Life Insurance
Company (Anchor National) Initial Registration Statement 333-08859,
811-7727 on July 25, 1996.
** Filed with Variable Annuity Account Five and Anchor National Registration
Statement 333-08859, 811-7727, Post-Effective Amendment 2 & 3 on
July 27, 1998.
*** Filed with Variable Annuity Account Five and Anchor National
Registration Statement 333-08859, 811-7727, Pre-Effective Amendment 1 on
March 11, 1997.
**** Filed Herewith
+ Filed on March 31, 1999 on Form 10K Registration No. 001-08787
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
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. Reoliquio Raquel Senior Vice President and Chief Actuary
James W. Rowan Director and Senior Vice President
Victor E. Akin Senior Vice President
David R. Bechtel Vice President and Treasurer
J. Franklin Grey Vice President
Edward P. Nolan* Vice President
Gregory M. Outcalt Vice President
Scott H. Richland 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, 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 December 31, 1998, the number of contracts funded by Variable Annuity
Account Five of Anchor National Life Insurance was 6,317; 2,469 of which were
qualified contracts and 3,848 of which were non-qualified contracts.
ITEM 28. INDEMNIFICATION
None.
ITEM 29. PRINCIPAL UNDERWRITER
SunAmerica Capital Services, Inc. serves as distributor to the Registrant.
<PAGE>
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
J. Steven Neamtz Director & President
Robert M. Zakem Director, Executive Vice President, General Counsel
& Assistant Secretary
Susan L. Harris Secretary
James Nichols Vice President
Debbie Potash-Turner Controller
Gary Krat Director
</TABLE>
<TABLE>
<CAPTION>
NET DISTRIBUTION COMPENSATION ON
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.
[ADD INSERT TO COME ATTACHED]
SunAmerica Capital Services, Inc. also acts as the principal underwriter:
- Variable Separate Account
- Presidential Variable Account One
- FS Variable Separate Account
- Variable Annuity Account One
- Variable Annuity Account Three
- Variable Annuity Account Four
- Variable Annuity Account Six
- Variable Annuity Account Seven
- SunAmerica Income Funds
- SunAmerica Equity Funds
- SunAmerica Money Market Funds, Inc.
- Style Select Series, Inc.
and will serve as principal underwriter for SunAmerica Strategic Investment
Series, Inc. which is currently in registration.
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.
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
<PAGE>
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
(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.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485 for effectiveness of this Post-Effective Amendment to the Registration
Statement and has caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf, in the City of Los Angeles, and the State
of California, on this 14th day of May, 1999.
VARIABLE ANNUITY ACCOUNT FIVE
(Registrant)
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
As required by the Securities Act of 1933, this Post-Effective Amendment to
the Registration Statement has been signed by the following persons in the
capacity and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<S> <C> <C>
President, Chief Executive
ELI BROAD* Officer and Chairman of the
------------------------------------------- Board (Principal Executive May 14, 1999
Eli Broad Officer)
SCOTT L. ROBINSON* Senior Vice President and
------------------------------------------- Director (Principal Financial May 14, 1999
Scott L. Robinson Officer)
N. SCOTT GILLIS* Senior Vice President and
------------------------------------------- Controller (Principal Accounting May 14, 1999
N. Scott Gillis Officer)
JAMES R. BELARDI*
------------------------------------------- Director May 14, 1999
James R. Belardi
JANA W. GREER*
------------------------------------------- Director May 14, 1999
Jana W. Greer
<PAGE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<S> <C> <C>
/s/ SUSAN L. HARRIS
------------------------------------------- Director May 14, 1999
Susan L. Harris
PETER MCMILLAN*
------------------------------------------- Director May 14, 1999
Peter McMillan
JAMES W. ROWAN*
------------------------------------------- Director May 14, 1999
James W. Rowan
/s/ JAY S. WINTROB*
------------------------------------------- Director May 14, 1999
Jay S. Wintrob
*By: /s/ SUSAN L. HARRIS
------------------------------------------- Attorney in Fact May 14, 1999
Susan L. Harris
</TABLE>
Date: May 14, 1999
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ----------------------------------------------------------------
<C> <S> <C>
(10) Consent of Independent Accountants
</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 of Anchor National Life Insurance Company of
our report dated November 9, 1998, relating to the consolidated financial
statements of Anchor National Life Insurance Company, which appears 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
"Financial Statements" in such Statement of Additional Information.
PricewaterhouseCoopers LLP
Los Angeles, California
May 13, 1999
