<PAGE>
FILE NOS. 333-67685
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
/X/
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 4 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 /X/
AMENDMENT NO. 8
(CHECK APPROPRIATE BOX OR BOXES)
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VARIABLE ANNUITY ACCOUNT FIVE
(PORTION RELATING TO THE SEASONS SELECT VARIABLE ANNUITY)
(Exact Name of Registrant)
ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Name of Depositor)
1 SUNAMERICA CENTER
LOS ANGELES, CALIFORNIA 90067-6022
(Address of Depositor's Principal Offices) (Zip Code)
Depositor's Telephone Number, including Area Code
(310) 772-6000
SUSAN L. HARRIS, ESQ.
ANCHOR NATIONAL LIFE INSURANCE COMPANY
1 SUNAMERICA CENTER
LOS ANGELES, CALIFORNIA 90067-6022
(Name and Address of Agent for Service)
Approximate date of proposed public offering:
As soon as practicable after effectiveness of the Registration Statement.
Title of securities being registered:
Interests in a Separate Account under group and individual flexible payment
deferred annuity contracts.
It is prosposed that this filing will become effective:
-- immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 2000 pursuant to paragraph (b) of Rule 485
-- 60 days after filing pursuant to paragraph (a) of Rule 485
-- on ____________ pursuant to paragraph (a) of Rule 485
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VARIABLE ANNUITY ACCOUNT FIVE
CROSS REFERENCE SHEET
PART A -- PROSPECTUS
Incorporated herein by reference to Post-Effective Amendment No. 2 under
Securities Act of 1933 (the 33 Act) and No. 6 under the Investment Company Act
of 1940 (the 40 Act) to Registration Statement file No. 333-67685 and
811-07727 filed on Form N-4 on July 12, 1999.
<PAGE>
PART B -- STATEMENT OF ADDITIONAL INFORMATION
Incorporated herein by reference to Post-Effective Amendment No. 2 under
Securities Act of 1933 (the 33 Act) and No. 6 under the Investment Company Act
of 1940 (the 40 Act) to Registration Statement file No. 333-67685 and
811-07727 filed on Form N-4 on July 12, 1999.
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
[LOGO]
PROFILE
December 29, 1999
Incorporated herein by reference to Post-Effective Amendment No. 2 under
Securities Act of 1933 (the 33 Act) and No. 6 under the Investment Company Act
of 1940 (the 40 Act) to Registration Statement file No. 333-67685 and
811-07727 filed on Form N-4 on July 12, 1999.
<PAGE>
[LOGO]
PROSPECTUS
December 29, 1999
ALLOCATED FIXED AND VARIABLE GROUP ANNUITY
issued by
VARIABLE ANNUITY ACCOUNT FIVE
and
ANCHOR NATIONAL LIFE INSURANCE COMPANY
Incorporated herein by reference to Post-Effective Amendment No. 2 under
Securities Act of 1933 (the 33 Act) and No. 6 under the Investment Company Act
of 1940 (the 40 Act) to Registration Statement file No. 333-67685 and
811-07727 filed on Form N-4 on July 12, 1999.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FIXED AND VARIABLE GROUP DEFERRED
ANNUITY CONTRACTS ISSUED BY
VARIABLE ANNUITY ACCOUNT FIVE (PORTION RELATING TO THE SEASONS SELECT VARIABLE
ANNUITY)
DEPOSITOR: ANCHOR NATIONAL LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus; it should be
read with the prospectus dated May 1, 2000, relating to the annuity contracts
described above, a copy of which may be obtained without charge by calling
800/445-SUN2 or by written request addressed to:
Anchor National Life Insurance Company
Annuity Service Center
PO. Box 54299
Los Angeles, California 90054-0299
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS MAY 1, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Separate Account. . . . . . . . . . . . . . . . . . . . . . . . . . .3
General Account . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Performance Data. . . . . . . . . . . . . . . . . . . . . . . . . . .4
Annuity Payments. . . . . . . . . . . . . . . . . . . . . . . . . . .5
Annuity Unit Values . . . . . . . . . . . . . . . . . . . . . . . . .5
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Distribution of Contracts . . . . . . . . . . . . . . . . . . . . . 12
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
2
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SEPARATE ACCOUNT
Variable Annuity Account Five was originally established by Anchor National
Life Insurance Company (the "Company") on July 3, 1996 pursuant to the
provisions of Arizona law, as a segregated asset account of the Company. The
separate account meets the definition of a "separate account" under the
federal securities laws and is registered with the SEC as a unit investment
trust under the Investment Company Act of 1940. This registration does not
involve supervision of the management of the separate account or the Company
by the SEC.
The assets of the separate account are the property of the Company. However,
the assets of the separate account, equal to its reserves and other contract
liabilities, are not chargeable with liabilities arising out of any other
business the Company may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to
the separate account are credited to or charged against the separate account
without regard to other income, gains, or losses of the Company.
The separate account is divided into SELECT PORTFOLIOS and STRATEGIES, with
the assets of each SELECT PORTFOLIO and STRATEGY invested in the shares of
one or more underlying investment portfolios. The Company does not guarantee
the investment performance of the separate account, its SELECT PORTFOLIOS and
STRATEGIES or the underlying investment portfolios. Values allocated to the
separate account and the amount of variable annuity payments will vary with
the values of shares of the underlying investment portfolios, and are also
reduced by insurance charges and fees.
The basic objective of a variable annuity contract is to provide variable
annuity payments which will be to some degree responsive to changes in the
economic environment, including inflationary forces and changes in rates of
return available from various types of investments. The contract is designed
to seek to accomplish this objective by providing that variable annuity
payments will reflect the investment performance of the separate account with
respect to amounts allocated to it both before and after the Annuity Date.
Since the separate account is always fully invested in shares of the
underlying investment portfolios, its investment performance reflects the
investment performance of those entities. The values of such shares held by
the separate account fluctuate and are subject to the risks of changing
economic conditions as well as the risk inherent in the ability of the
underlying funds' managements to make necessary changes in their SELECT
PORTFOLIOS and STRATEGIES to anticipate changes in economic conditions.
Therefore, the owner bears the entire investment risk that the basic
objectives of the contract may not be realized, and that the adverse effects
of inflation may not be lessened. There can be no assurance that the
aggregate amount of variable annuity payments will equal or exceed the
Purchase Payments made with respect to a particular account for the reasons
described above, or because of the premature death of an Annuitant.
Another important feature of the contract related to its basic objective is
the Company's promise that the dollar amount of variable annuity payments
made during the lifetime of the Annuitant will not be adversely affected by
the actual mortality experience of the Company or the actual
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expenses incurred by the Company in excess of expense deductions provided for
in the contract (although the Company does not guarantee the amounts of the
variable annuity payments).
GENERAL ACCOUNT
The General Account is made up of all of the general assets of the Company
other than those allocated to the separate account or any other segregated
asset account of the Company. A Purchase Payment may be allocated to the
one, three, five, seven or ten year fixed investment option and/or the one
year or 6-month DCA fixed account(s) available in connection with the general
account, as elected by the owner purchasing a contract. Assets supporting
amounts allocated to a fixed investment option become part of the Company's
general account assets and are available to fund the claims of all classes of
customers of the Company, as well as of its creditors. Accordingly, all of
the Company's assets held in the general account will be available to fund
the Company's obligations under the contracts as well as such other claims.
The Company will invest the assets of the general account in the manner
chosen by the Company and allowed by applicable state laws regarding the
nature and quality of investments that may be made by life insurance
companies and the percentage of their assets that may be committed to any
particular type of investment. In general, these laws permit investments,
within specified limits and subject to certain qualifications, in federal,
state and municipal obligations, corporate bonds, preferred and common
stocks, real estate mortgages, real estate and certain other investments.
PERFORMANCE DATA
From time to time the separate account may advertise the Cash Management
Portfolio's "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Cash Management Portfolio refers to the net income generated
for a contract funded by an investment in the Portfolio (which invests in
shares of the Cash Management Portfolio of Seasons Series Trust) over a
seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Portfolio is assumed to be reinvested at the
end of each seven day period. The "effective yield" will be slightly higher
than the "yield" because of the compounding effect of this assumed
reinvestment. Neither the yield nor the effective yield takes into
consideration the effect of any capital changes that might have occurred
during the seven day period, nor do they reflect the impact of premium taxes
or any withdrawal charges. The impact of other recurring charges (including
the mortality and expense risk charge, distribution expense charge and
contract maintenance fee) on both yield figures is, however, reflected in
them to the same extent it would affect the yield (or effective yield) for a
contract of average size.
The Separate Account may advertise "total return" data for its SELECT
PORTFOLIOS and STRATEGIES. Total return figures are based on historical data
and are not intended to indicate future performance. The "total return" for
a SELECT PORTFOLIO or STRATEGY is a computed rate of return that, when
compounded annually over a stated period of time and applied to a
hypothetical initial investment in a contract funded by that SELECT PORTFOLIO
or STRATEGY made at the beginning of the period, will produce the same
contract value at the end of the period that the hypothetical investment
would have produced over the same period (assuming a complete redemption of
the contract at the end of the period.) The effect of applicable Withdrawal
Charges due to the assumed redemption will be reflected in the return
figures, but may be omitted in additional return figures given for comparison.
CASH MANAGEMENT PORTFOLIO
Inception of the Cash Management portfolio occurred on March 26, 1999,
for contracts issued to those under age 80 and on April 8, 1999, for
contracts issued to those over age 80. The annualized current yield and
effective yield for the Cash Management Portfolio for the seven day period
ended March 31, 2000, were as follows:
<TABLE>
<CAPTION>
Current Yield Effective Yield
------------- ---------------
<S> <C> <C>
A. Issue Age Under 80 3.45 3.51
B. Issue Age Over 80 3.24 3.29
</TABLE>
Current yield is computed by first determining the Base Period Return
attributable to a hypothetical contract having a balance of one Accumulation
Unit at the beginning of a 7 day period using the formula:
Base Period Return=(EV-SV-CMF)/(SV)
where:
SV=value of one Accumulation Unit at the start of a 7 day period
EV=value of one Accumulation Unit at the end of the 7 day period
CMF=an allocated portion of the $35 annual Contract Maintenance
Fee, prorated for 7 days
The change in the value of an Accumulation Unit during the 7 day period
reflects the income received minus any expenses accrued, during such 7 day
period. The Contract Maintenance Fee (CMF) is first allocated among the
STRATEGIES and/or SELECT PORTFOLIOS and the general account so that each
STRATEGY'S and/or SELECT PORTFOLIO'S allocated portion of the fee is
proportional to the percentage of the number of accounts that have money
allocated to that STRATEGY and/or SELECT PORTFOLIO. The fee is further
reduced, for purposes of the yield computation, by multiplying it by the
ratio that the value of the hypothetical contract bears to the value of an
account of average size for contracts funded by the Cash Management
Portfolio. Finally, as is done with the other charges discussed above, the
result is multiplied by the fraction 7/365 to arrive at the portion
attributable to the 7 day period.
The current yield is then obtained by annualizing the Base Period
Return:
Current Yield=(Base Period Return)x(365/7)
OTHER PORTFOLIOS
The Portfolios of the separate account other than the Cash Management
Portfolio compute their performance data as "total return."
TOTAL RETURN FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE.
Total return for a Portfolio represents a single computed annual rate of
return that, when compounded annually over a specified time period (one,
five, and ten years, or since inception) and applied to a hypothetical initial
investment in a contract funded by that Portfolio made at the beginning of
the period, will produce the same contract value at the end of the period
that the hypothetical investment would have produced over the same period.
The total rate of return (T) is computed so that it satisfies the formula:
n
P(1 +T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV=redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1,5 or 10 year period as of the end of the period (or
fractional portion thereof)
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The total return figures reflect the effect of both non-recurring and
recurring charges. The applicable Withdrawal Charge (if any) is deducted as
of the end of the period, to reflect the effect of the assumed complete
redemption. Total return figures are derived from historical data and are
not intended to be a projection of future performance. Variable Annuity
Account Five also funds another contract (Seasons) which has been in
existence longer than the Seasons Select Variable Annuity. The Strategies in
Seasons Select are also available in that other contract and have been since
4/15/97. Sales of Seasons Select began on February 18, 1999. The one year and
since inception numbers for the strategies are based on Season's historical
data (which is adjusted for the fees and charges applicable to Seasons
Select) and represent adjusted actual performance of the separate account.
TOTAL ANNUAL RETURN FOR THE PERIOD ENDING MARCH 31, 2000 (RETURN WITH/WITHOUT
REDEMPTION)ISSUE AGE UNDER 80
<TABLE>
<CAPTION>
STRATEGIES INCEPTION 1 YEAR RETURN** SINCE FUND INCEPTION**
DATE W W/O W W/O
<S> <C> <C> <C> <C> <C>
Growth 4/15/97 25.01 34.01 27.62 29.07
Moderate Growth 4/15/97 20.10 29.10 23.71 25.25
Balanced Growth 4/15/97 9.69 18.69 17.12 18.83
Conservative Growth 4/15/97 3.69 12.69 12.52 14.36
<CAPTION>
PORTFOLIOS INCEPTION 1 YEAR RETURN SINCE FUND INCEPTION
DATE W W/O W W/O
<S> <C> <C> <C> <C> <C>
Large Cap Growth 3/1/99 30.86 39.86 37.56 44.73
Large Cap Composite 3/1/99 14.59 23.59 18.94 26.20
Large Cap Value 3/1/99 -4.94 4.06 -0.51 6.85
Mid Cap Growth 3/1/99 64.30 73.30 68.51 75.55
Mid Cap Value 3/1/99 -0.89 8.11 1.12 8.47
Small Cap 3/1/99 35.87 44.87 38.13 45.30
International Equity 3/1/99 20.41 29.41 25.58 32.80
Diversified Fixed 3/10/99 -9.23 -0.23 -7.60 -0.03
Income
TOTAL ANNUAL RETURN FOR THE PERIOD ENDING MARCH 31, 1999 (RETURN WITH/WITHOUT
REDEMPTION)
ISSUE AGE OVER 80
</TABLE>
<TABLE>
<CAPTION>
STRATEGIES INCEPTION 1 YEAR RETURN** SINCE FUND INCEPTION**
DATE W W/O W W/O
<S> <C> <C> <C> <C> <C>
Growth 4/15/97 24.89 33.89 27.50 28.96
Moderate Growth 4/15/97 19.97 28.97 23.58 25.13
Balanced Growth 4/15/97 9.58 18.58 17.00 18.72
Conservative Growth 4/15/97 3.55 12.55 12.39 14.24
<CAPTION>
PORTFOLIOS INCEPTION 1 YEAR RETURN*** SINCE FUND INCEPTION***
DATE W W/O W W/O
<S> <C> <C> <C> <C> <C>
Large Cap Growth 3/1/99 30.73 39.73 37.47 44.60
Large Cap Composite 3/1/99 14.47 23.47 18.84 26.08
Large Cap Value 3/1/99 -5.19 3.81 -0.76 6.60
Mid Cap Growth 3/1/99 64.14 73.14 68.42 75.40
Mid Cap Value 3/1/99 -1.00 8.00 1.01 8.36
Small Cap 3/1/99 35.74 44.74 38.03 45.16
International Equity 3/1/99 20.22 29.22 25.41 32.61
Diversified Fixed 3/10/99 -9.40 -0.40 -7.77 -0.20
Income
</TABLE>
** These rates of return were calculated utilizing Seasons rates for the
related periods, adjusting for differences in fees.
*** These rates of return were calculated utilizing Seasons Select (under 80)
rates for the related periods, adjusting for differences in fees.
ANNUITY PAYMENTS
INITIAL ANNUITY PAYMENT
The initial annuity payment is determined by taking the contract value, less
any premium tax, less any Market Value Adjustment that may apply in the case
of a premature annuitization of CERTAIN guarantee amounts, and then applying
it to the annuity table specified in the contract. Those tables are based on
a set amount per $1,000 of proceeds applied. The appropriate rate must be
determined by the sex (except where, as in the case of certain Qualified
contracts and other employer-sponsored retirement plans, such classification
is not permitted) and age of the Annuitant and designated second person, if
any.
The dollars applied are then divided by 1,000 and the result multiplied by
the appropriate annuity factor appearing in the table to compute the amount
of the first monthly annuity payment. In the case of a variable annuity,
that amount is divided by the value of an Annuity Unit as of the Annuity Date
to establish the number of Annuity Units representing each variable annuity
payment. The number of Annuity Units determined for the first variable
annuity payment remains constant for the second and subsequent monthly
variable annuity payments, assuming that no reallocation of contract values
is made.
SUBSEQUENT MONTHLY PAYMENTS
For a fixed annuity, the amount of the second and each subsequent monthly
annuity payment is the same as that determined above for the first monthly
payment.
The amount of the second and each subsequent monthly variable annuity payment
is determined by multiplying the number of Annuity Units, as determined in
connection with the determination of the initial monthly payment, above, by
the Annuity Unit Value as of the day preceding the date on which each annuity
payment is due.
ANNUITY UNIT VALUES
The value of an Annuity Unit is determined independently for each SELECT
PORTFOLIO and STRATEGY. The annuity tables contained in the contract are
based on a 3.5% per annum assumed investment rate. If the actual net
investment rate experienced by a SELECT PORTFOLIO or STRATEGY exceeds 3.5010,
variable annuity payments derived from allocations to that SELECT PORTFOLIO
or STRATEGY will increase over time. Conversely, if the actual rate is less
than 3.5%, variable annuity payments will decrease over time. If the net
investment rate equals 3.5%, the variable annuity payments will remain
constant. If a higher assumed investment rate had been used, the initial
monthly
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payment would be higher, but the actual net investment rate would also have
to be higher in order for annuity payments to increase (or not to decrease).
The payee receives the value of a fixed number of Annuity Units each month.
The value of a fixed number of Annuity Units will reflect the investment
performance of the SELECT PORTFOLIOS and/or STRATEGIES elected, and the
amount of each annuity payment will vary accordingly.
For each SELECT PORTFOLIO and/or STRATEGY, the value of an Annuity Unit is
determined by multiplying the Annuity Unit value for the preceding month by
the Net Investment Factor for the month for which the Annuity Unit value is
being calculated. The result is then multiplied by a second factor which
offsets the effect of the assumed net investment rate of 3.5% per annum which
is assumed in the annuity tables contained in the contract.
NET INVESTMENT FACTOR
The Net Investment Factor ("NIF") is an index applied to measure the net
investment performance of SELECT PORTFOLIO or STRATEGY from one month to the
next. The NIF may be greater or less than or equal to one; therefore, the
value of an Annuity Unit may increase, decrease or remain the same.
The NIF for any SELECT PORTFOLIO or STRATEGY for a certain month is
determined by dividing (a) by (b) where:
(a) is the Accumulation Unit value of the SELECT PORTFOLIO or STRATEGY
determined as of the end of that month, and
(b) is the Accumulation Unit value of the SELECT PORTFOLIO or STRATEGY
determined as of the end of the preceding month.
The NIF for a SELECT PORTFOLIO or STRATEGY for a given month is a measure of
the net investment performance of the SELECT PORTFOLIO or STRATEGY from the
end of the prior month to the end of the given month. A NIF of 1.000 results
from no change; a NIF greater than 1.000 results from an increase; and a NIF
less than 1.000 results from a decrease. The NIF is increased (or decreased)
in accordance with the increases (or decreases, respectively) in the value of
the shares of the underlying investment portfolios in which the SELECT
PORTFOLIO or STRATEGY invests; it is also reduced by separate account asset
charges.
ILLUSTRATIVE EXAMPLE
Assume that one share of a given SELECT PORTFOLIO or STRATEGY had an
Accumulation Unit value of $11.46 as of the close of the New York Stock
Exchange ("NYSE") on the last business day in September; that its
Accumulation Unit value had been $11.44 at the close of the NYSE on the last
business day at the end of the previous month. The NIF for the month of
September is:
NIF = ($11.46/$11.44)
= 1.00174825
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ILLUSTRATIVE EXAMPLE
The change in Annuity Unit value for a SELECT PORTFOLIO or STRATEGY from one
month to the next is determined in part by multiplying the Annuity Unit value
at the prior month end by the NIF for that SELECT PORTFOLIO or STRATEGY for
the new month. In addition, however, the result of that computation must
also be multiplied by an additional factor that takes into account, and
neutralizes, the assumed investment rate of 3.5 percent per annum upon which
the annuity payment tables are based. For example, if the net investment
rate for a SELECT PORTFOLIO or STRATEGY (reflected in the NIF) were equal to
the assumed investment rate, the variable annuity payments should remain
constant (i.e., the Annuity Unit value should not change). The monthly
factor that neutralizes the assumed investment rate of 3.5 percent per annum
is:
1/[(1.035) ^ (1/12)] = 0.99713732
In the example given above, if the Annuity Unit value for the SELECT
PORTFOLIO or STRATEGY was $10.103523 on the last business day in August, the
Annuity Unit value on the last business day in September would have been:
$10.103523 x 1.00174825 x 0.99713732 = $10.092213
To determine the initial payment, the initial annuity payment for variable
annuitization is calculated based on our mortality expectations and an
assumed interest rate (AIR) of 3.5%. Thus the initial variable annuity
payment is the same as the initial payment for a fixed interest payout
annuity calculated at an effective rate of 3.5%.
The Net Investment Factor (NIF) measures the performance of the funds that
are the basis for the amount of future annuity payments. This performance is
compared to the AIR, and if the growth in the NIF is the same as the AIR rate
the payment remains the same as the prior month. If the rate of growth of
the NIF is different than the AIR, then the payment is changed
proportionately to the ratio (1+NIF)/(1+AIR), calculated on a monthly basis.
If the NIF is greater than the AIR, then this proportion is greater than one
and payments are increased. If the NIF is less than the AIR, then this
proportion is less than one and payments are decreased.
VARIABLE ANNUITY PAYMENTS
ILLUSTRATIVE EXAMPLE
Assume that a male owner, P, owns a contract in connection with which P has
allocated all of his contract value to a single SELECT PORTFOLIO or STRATEGY.
P is also the sole Annuitant and, at age 60, has elected to annuitize his
contract as a life annuity with 120 monthly payments guaranteed. As of the
last valuation preceding the Annuity Date, P's Account was credited with
7543.2456 Accumulation Units each having a value of $15.432655, (i.e., P's
Account Value is equal to 7543.2456 x $15.432655 = $116,412.31). Assume also
that the Annuity Unit value for the SELECT PORTFOLIO or STRATEGY on that same
date is $13.256932, and that the Annuity Unit value on the day immediately
prior to the second annuity payment date is $13.327695.
P's first variable annuity payment is determined from the annuity rate tables
in P's contract, using the information assumed above. From the tables, which
supply monthly annuity payments for each $1,000 of applied contract value,
P's first variable annuity payment is determined by multiplying the monthly
installment of $5.42 (Option 4 tables, male Annuitant age 60 at the Annuity
Date) by the result of dividing P's account value by $1,000:
First Payment = $5.42 x ($116,412.31/$1,000) = $630.95
The number of P's Annuity Units (which will be fixed; i.e., it will not
change unless he transfers his Account to another Account) is also determined
at this time and is equal to the amount of the
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first variable annuity payment divided by the value of an Annuity Unit on the
day immediately prior to annuitization:
Annuity Units = $630.95/$13.256932 = 47.593968
P's second variable annuity payment is determined by multiplying the number
of Annuity Units by the Annuity Unit value as of the day immediately prior to
the second payment due date:
Second Payment = 47.593968 x $13.327695 = $634.32
The third and subsequent variable annuity payments are computed in a manner
similar to the second variable annuity payment.
Note that the amount of the first variable annuity payment depends on the
contract value in the relevant SELECT PORTFOLIO or STRATEGY on the Annuity
Date and thus reflects the investment performance of the SELECT PORTFOLIO or
STRATEGY net of fees and charges during the Accumulation Phase. The amount
of that payment determines the number of Annuity Units, which will remain
constant during the Annuity Phase (assuming no transfers from the SELECT
PORTFOLIO or STRATEGY). The net investment performance of the SELECT
PORTFOLIO or STRATEGY during the Annuity Phase is reflected in continuing
changes during this phase in the Annuity Unit value, which determines the
amounts of the second and subsequent variable annuity payments.
TAXES
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code")
governs taxation of annuities in general. A contract owner is not taxed on
increases in the value of a contract until distribution occurs, either in the
form of a non-annuity distribution or as annuity payments under the annuity
payment option elected. For a lump sum payment received as a total surrender
(total redemption), the recipient is taxed on the portion of the payment that
exceeds the cost basis of the contract. For a payment received as a
withdrawal (partial redemption), federal tax liability is determined on a
last-in, first-out basis, meaning taxable income is withdrawn before the cost
basis of the contract is withdrawn. For contracts issued in connection with
Non-qualified plans, the cost basis is generally the Purchase Payments, while
for contracts issued in connection with Qualified plans there may be no cost
basis. The taxable portion of the lump sum payment is taxed at ordinary
income tax rates. Tax penalties may also apply.
For annuity payments, the taxable portion is determined by a formula which
establishes the ratio that the cost basis of the contract bears to the total
value of annuity payments for the term of the annuity contract. The taxable
portion is taxed at ordinary income tax rates. Contract owners, Annuitants
and Beneficiaries under the contracts should seek competent financial advice
about the tax consequences of distributions under the retirement plan under
which the contracts are purchased.
8
<PAGE>
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the separate account is not a separate entity from the
Company and its operations form a part of the Company.
WITHHOLDING TAX ON DISTRIBUTIONS
The Code generally requires the Company (or, in some cases, a plan
administrator) to withhold tax on the taxable portion of any distribution or
withdrawal from a contract. For "eligible rollover distributions" from
contracts issued under certain types of Qualified plans, 20% of the
distribution must be withheld, unless the payee elects to have the
distribution "rolled over" to another eligible plan in a direct "trustee to
trustee" transfer. This requirement is mandatory and cannot be waived by the
owner. Withholding on other types of distributions can be waived.
An "eligible rollover distribution" is the estimated taxable portion of any
amount received by a covered employee from a plan qualified under Section
401(a) or 403(a) of the Code, or from a tax-sheltered annuity qualified under
Section 403(b) of the Code (other than (1) annuity payments for the life (or
life expectancy) of the employee, or joint lives (or joint life expectancies)
of the employee and his or her designated Beneficiary, or for a specified
period of ten years or more; and (2) distributions required to be made under
the Code). Failure to "rollover" the entire amount of an eligible rollover
distribution (including an amount equal to the 20% portion of the
distribution that was withheld) could have adverse tax consequences,
including the imposition of a penalty tax on premature withdrawals, described
later in this section.
Withdrawals or distributions from a contract other than eligible rollover
distributions are also subject to withholding on the estimated taxable
portion of the distribution, but the owner may elect in such cases to waive
the withholding requirement. If not waived, withholding is imposed (1) for
periodic payments, at the rate that would be imposed if the payments were
wages, or (2) for other distributions, at the rate of 10%. If no withholding
exemption certificate is in effect for the payee, the rate under (1) above
is computed by treating the payee as a married individual claiming 3
withholding exemptions.
DIVERSIFICATION - SEPARATE ACCOUNT INVESTMENTS
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not
adequately diversified, in accordance with regulations prescribed by the
United States Treasury Department ("Treasury Department"). Disqualification
of the contract as an annuity contract would result in imposition of federal
income tax to the owner with respect to earnings allocable to the contract
prior to the receipt of payments under the contract. The Code contains a
safe harbor provision which provides that annuity contracts such as the
contracts meet the diversification requirements if, as of the close of each
calendar quarter, the underlying assets meet the diversification standards
for a regulated investment company, and no more than 55% of the total assets
consist of cash, cash items, U.S. government securities and securities of
other regulated investment companies.
9
<PAGE>
The Treasury Department has issued regulations which establish
diversification requirements for the investment portfolios underlying annuity
variable contracts such as the contracts. The regulations amplify the
diversification requirements for variable annuity contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the regulations an investment portfolio will be deemed adequately
diversified if (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90%
of the value of the total assets of the portfolio is represented by any four
investments. For purposes of determining whether or not the diversification
standards imposed on the underlying assets of variable contracts by Section
817(h) of the Code have been met, "each United States government agency or
instrumentality shall be treated as a separate issuer."
MULTIPLE CONTRACTS
Multiple annuity contracts which are issued within a calendar year to the
same contract owner by one company or its affiliates are treated as one
annuity contract for purposes of determining the tax consequences of any
distribution. Such treatment may result in adverse tax consequences including
more rapid taxation of the distributed amounts from such multiple contracts.
The Company believes that Congress intended to affect the purchase of
multiple deferred annuity contracts which may have been purchased to avoid
withdrawal income tax treatment. Owners should consult a tax adviser prior
to purchasing more than one annuity contract in any calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment of a contract may have tax consequences, and may also be
prohibited by ERISA in some circumstances. Owners should therefore consult
competent legal advisers should they wish to assign their contracts.
QUALIFIED PLANS
The contracts offered by this prospectus are designed to be suitable for use
under various types of Qualified plans. Taxation of owners in each Qualified
plan varies with the type of plan and terms and conditions of each specific
plan. Owners, Annuitants and Beneficiaries are cautioned that benefits under
a Qualified plan may be subject to the terms and conditions of the plan,
regardless of the terms and conditions of the contracts issued pursuant to
the plan.
Following are general descriptions of the types of Qualified plans with which
the contracts may be used. Such descriptions are not exhaustive and are for
general information purposes only. The tax rules regarding Qualified plans
are very complex and will have differing applications
10
<PAGE>
depending on individual facts and circumstances. Each purchaser should
obtain competent tax advice prior to purchasing a contract issued under a
Qualified plan.
Contracts issued pursuant to Qualified plans include special provisions
restricting contract provisions that may otherwise be available and described
in this prospectus. Generally, contracts issued pursuant to Qualified plans
are not transferable except upon surrender or annuitization. Various penalty
and excise taxes may apply to contributions or distributions made in
violation of applicable limitations. Furthermore, certain withdrawal
penalties and restrictions may apply to surrenders from Qualified contracts.
(a) H.R. 10 PLANS
Section 401 of the Code permits self-employed individuals to establish
Qualified plans for themselves and their employees, commonly referred to as
"H.R. 10" or "Keogh" Plans. Contributions made to the plan for the benefit
of the employees will not be included in the gross income of the employees
until distributed from the plan. The tax consequences to owners may vary
depending upon the particular plan design. However, the Code places
limitations and restrictions on all plans on such items as: amounts of
allowable contributions; form, manner and timing of distributions; vesting
and nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Purchasers of contracts for use with an H.R. 10 Plan should
obtain competent tax advice as to the tax treatment and suitability of such
an investment.
(b) TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities"
by public schools and certain charitable, education and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the contracts for the benefit of their
employees. Such contributions are not includible in the gross income of the
employee until the employee receives distributions from the contract. The
amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
non-discrimination and withdrawals. Any employee should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
(c) INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to
an IRA which will be deductible from the individual's gross income. These
IRAs are subject to limitations on eligibility, contributions,
transferability and distributions. Sales of contracts for use with IRAs are
subject to special requirements imposed by the Code, including the
requirement that certain informational disclosure be given to
11
<PAGE>
persons desiring to establish an IRA. Purchasers of contracts to be qualified
as IRAs should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
(d) ROTH IRA
Section 408A of the Code permits an individual to contribute to an individual
retirement program called a Roth IRA. Unlike contributions to a regular IRA
under Section 408(b) of the Code, contributions to a Roth IRA are not made on
a tax deferred basis, but distributions are tax-free if certain requirements
are satisfied. Like regular IRAs, Roth IRAs are subject to limitations on
the amount that may be contributed, those who may be eligible and the time
when distributions may commence without tax penalty. Certain persons may be
eligible to convert a regular IRA into a Roth IRA, and the resulting income
tax may be spread over four years if the conversion occurs before January 1,
1999. If and when Contracts are made available for use with Roth IRAs they
may be subject to special requirements imposed by the Internal Revenue
Service. Purchasers of the Contracts for this purpose will be provided with
such supplementary information as may be required by the Internal Revenue
Service or other appropriate agency.
(e) CORPORATE PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit corporate employers to
establish various types of retirement plans for employees. These retirement
plans may permit the purchase of the contracts to provide benefits under the
plan. Contributions to the plan for the benefit of employees will not be
includible in the gross income of the employee until distributed from the
plan. The tax consequences to owners may vary depending upon the particular
plan design. However, the Code places limitations on all plans on such items
as amount of allowable contributions; form, manner and timing of
distributions; vesting and nonforfeitability of interests; nondiscrimination
in eligibility and participation; and the tax treatment of distributions,
withdrawals and surrenders. Purchasers of contracts for use with corporate
pension or profit sharing plans should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
(f) DEFERRED COMPENSATION PLANS - SECTION 457
Under Section 457 of the Code, governmental and certain other tax-exempt
employers may establish, for the benefit of their employees, deferred
compensation plans which may invest, in annuity contracts. The Code, as in
the case of Qualified plans, establishes limitations and restrictions on
eligibility, contributions and distributions. Under these plans,
contributions made for the benefit of the employees will not be includible in
the employees' gross income until distributed from the plan. However, under
a 457 plan all the plan assets shall remain solely the property of the
employer, subject only to the claims of the employer's general creditors
until such time as made available to an owner or a Beneficiary. As of
January 1, 1999 all 457 plans of state and local governments must hold assets
and income in trust (or custodial accounts or an annuity contract) for the
exclusive benefit of participants and their beneficiaries.
DISTRIBUTION OF CONTRACTS
The contracts are offered through SunAmerica Capital Services, Inc., located
at 733 Third Avenue, 4th Floor, New York, New York 10017. SunAmerica Capital
Services, Inc. is registered
12
<PAGE>
as a broker-dealer under the Securities Exchange Act of 1934, as amended, and
is a member of the National Association of Securities Dealers, Inc. The
Company and SunAmerica Capital Services, Inc. are each an indirect wholly
owned subsidiary of SunAmerica Inc. No underwriting fees are paid in
connection with the distribution of the contracts. Contracts are offered on
a continuous basis.
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company as of December
31, 1999, December 31, 1998 and September 30, 1998 and for the year ended
December 31, 1999, and for the three months ended December 31, 1998, and for
each of the two fiscal years in the period ended September 30, 1998 are
presented in this Statement of Additional Information. Effective December 31,
1999, the Company changed its fiscal year end from September 30, to December
31. The financial statements of the Company should be considered only as
bearing on the ability of the Company to meet its obligation under the
contracts. The financial statements of Variable Annuity Account Five
(Portion Relating to the SEASONS SELECT Variable Annuity) as of March 31,
1999 and for the period from inception to March 31, 1999 are incorporated by
reference to Post-Effective Amendment No. 7 under the Securities Act of 1933
("33 Act") and No. 3 under the Investment Company Act of 1940 ("40 Act") to
this Registration Statement file No. 333-67685 and 811-7727 filed on form N-4
on July 12, 1999.
Documents incorporated by reference for filing purposes will still appear at
the end of this document when it is distributed upon request.
PricewaterhouseCoopers LLP, 400 South Hope Street, Los Angeles, California
90071, serves as the independent accountants for the Separate Account and the
Company. The financial statements referred to above have been so included in
reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
13
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder of
Anchor National Life Insurance Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and comprehensive income and of cash flows
present fairly, in all material respects, the financial position of Anchor
National Life Insurance Company and its subsidiaries (the "Company") at December
31, 1999, December 31, 1998, and September 30, 1998, and the results of their
operations and their cash flows for the year ended December 31, 1999, for the
three months ended December 31, 1998 and for each of the two fiscal years in the
period ended September 30, 1998, in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States, 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
January 31, 2000
F-2
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1999 1998 1998
--------------- --------------- --------------
<S> <C> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 475,162,000 $ 3,303,454,000 $ 333,735,000
Bonds, notes and redeemable
preferred stocks available for sale,
at fair value (amortized cost:
December 1999, $4,155,728,000;
December 1998, $4,252,740,000;
September 1998, $1,934,863,000) 3,953,169,000 4,248,840,000 1,954,754,000
Mortgage loans 674,679,000 388,780,000 391,448,000
Policy loans 260,066,000 320,688,000 11,197,000
Separate account seed money 141,499,000 --- ---
Common stocks available for sale,
at fair value (cost: December 1999,
$0; December 1998, $1,409,000;
September 1998, $115,000) --- 1,419,000 169,000
Partnerships 4,009,000 4,577,000 4,403,000
Real estate 24,000,000 24,000,000 24,000,000
Other invested assets 19,385,000 15,185,000 15,036,000
--------------- --------------- ---------------
Total investments 5,551,969,000 8,306,943,000 2,734,742,000
Variable annuity assets held in separate
accounts 19,949,145,000 13,767,213,000 11,133,569,000
Accrued investment income 60,584,000 73,441,000 26,408,000
Deferred acquisition costs 1,089,979,000 866,053,000 539,850,000
Receivable from brokers for sales of
securities 54,760,000 22,826,000 23,904,000
Income taxes currently receivable --- --- 5,869,000
Deferred income taxes 53,445,000 --- ---
Other assets 114,612,000 109,857,000 85,926,000
--------------- --------------- ---------------
TOTAL ASSETS $26,874,494,000 $23,146,333,000 $14,550,268,000
=============== =============== ===============
</TABLE>
See accompanying notes
F-3
<PAGE>
<TABLE>
<CAPTION>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET (Continued)
December 31, December 31, September 30,
1999 1998 1998
--------------- --------------- --------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $ 3,254,895,000 $ 5,500,157,000 $ 2,189,272,000
Reserves for universal life insurance
contracts 1,978,332,000 2,339,194,000 ---
Reserves for guaranteed investment
contracts 305,570,000 306,461,000 282,267,000
Payable to brokers for purchases of
securities 139,000 --- 50,957,000
Income taxes currently payable 23,490,000 11,123,000 ---
Modified coinsurance deposit liability 140,757,000 --- ---
Other liabilities 249,224,000 160,020,000 106,594,000
--------------- --------------- ---------------
Total reserves, payables
and accrued liabilities 5,952,407,000 8,316,955,000 2,629,090,000
--------------- --------------- ---------------
Variable annuity liabilities related to
separate accounts 19,949,145,000 13,767,213,000 11,133,569,000
--------------- --------------- ---------------
Subordinated notes payable to affiliates 37,816,000 209,367,000 39,182,000
--------------- --------------- ---------------
Deferred income taxes --- 105,772,000 95,758,000
--------------- --------------- ---------------
Shareholder's equity:
Common Stock 3,511,000 3,511,000 3,511,000
Additional paid-in capital 493,010,000 378,674,000 308,674,000
Retained earnings 551,158,000 366,460,000 332,069,000
Accumulated other comprehensive
income (loss) (112,553,000) (1,619,000) 8,415,000
--------------- --------------- ---------------
Total shareholder's equity 935,126,000 747,026,000 652,669,000
--------------- --------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $26,874,494,000 $23,146,333,000 $14,550,268,000
=============== =============== ===============
</TABLE>
See accompanying notes
F-4
<PAGE>
<TABLE>
<CAPTION>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
Years Ended September 30,
Year Ended Three Months Ended -----------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Investment income $ 521,953,000 $ 54,278,000 $ 221,966,000 $ 210,759,000
------------- ------------ ------------- -------------
Interest expense on:
Fixed annuity contracts (231,929,000) (22,828,000) (112,695,000) (109,217,000)
Universal life insurance
contracts (102,486,000) --- --- ---
Guaranteed investment
contracts (19,649,000) (3,980,000) (17,787,000) (22,650,000)
Senior indebtedness (199,000) (34,000) (1,498,000) (2,549,000)
Subordinated notes payable
to affiliates (3,474,000) (853,000) (3,114,000) (3,142,000)
------------- ------------ ------------- -------------
Total interest expense (357,737,000) (27,695,000) (135,094,000) (137,558,000)
------------- ------------ ------------- -------------
NET INVESTMENT INCOME 164,216,000 26,583,000 86,872,000 73,201,000
------------- ------------ ------------- -------------
NET REALIZED INVESTMENT
GAINS (LOSSES) (19,620,000) 271,000 19,482,000 (17,394,000)
------------- ------------ ------------- -------------
Fee income:
Variable annuity fees 306,417,000 58,806,000 200,867,000 139,492,000
Net retained commissions 51,039,000 11,479,000 48,561,000 39,143,000
Asset management fees 43,510,000 8,068,000 29,592,000 25,764,000
Universal life insurance
fees 23,290,000 --- --- ---
Surrender charges 17,137,000 3,239,000 7,404,000 5,529,000
Other fees 13,999,000 1,738,000 3,938,000 3,218,000
------------- ------------ ------------- -------------
TOTAL FEE INCOME 455,392,000 83,330,000 290,362,000 213,146,000
------------- ------------ ------------- -------------
GENERAL AND ADMINISTRATIVE
EXPENSES (154,665,000) (21,993,000) (96,102,000) (98,802,000)
------------- ------------ ------------- -------------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS (116,840,000) (27,070,000) (72,713,000) (66,879,000)
------------- ------------ ------------- -------------
ANNUAL COMMISSIONS (40,760,000) (6,624,000) (18,209,000) (8,977,000)
------------- ------------ ------------- -------------
PRETAX INCOME 287,723,000 54,497,000 209,692,000 94,295,000
Income tax expense (103,025,000) (20,106,000) (71,051,000) (31,169,000)
------------- ------------ ------------- -------------
NET INCOME 184,698,000 34,391,000 138,641,000 63,126,000
------------- ------------ ------------- -------------
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses)
on debt and equity securities
available for sale:
Net unrealized gains
(losses) identified in
the current period (118,669,000) (10,249,000) (4,027,000) 16,605,000
Less reclassification
adjustment for net
realized (gains) losses
included in net income 7,735,000 215,000 (5,963,000) 7,321,000
------------- ------------ ------------- -------------
OTHER COMPREHENSIVE INCOME
(LOSS) (110,934,000) (10,034,000) (9,990,000) 23,926,000
------------- ------------ ------------- -------------
COMPREHENSIVE INCOME $ 73,764,000 $ 24,357,000 $ 128,651,000 $ 87,052,000
============= ============ ============= =============
</TABLE>
See accompanying notes
F-5
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended -------------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 184,698,000 $ 34,391,000 $ 138,641,000 $ 63,126,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Interest credited to:
Fixed annuity contracts 231,929,000 22,828,000 112,695,000 109,217,000
Universal life insurance
contracts 102,486,000 --- --- ---
Guaranteed investment
contracts 19,649,000 3,980,000 17,787,000 22,650,000
Net realized investment
losses (gains) 19,620,000 (271,000) (19,482,000) 17,394,000
Amortization (accretion) of
net premiums (discounts)
on investments (18,343,000) (1,199,000) 447,000 (18,576,000)
Universal life insurance
fees (23,290,000) --- --- ---
Amortization of goodwill 776,000 356,000 1,422,000 1,187,000
Provision for deferred
income taxes (100,013,000) 15,945,000 34,087,000 (16,024,000)
Change in:
Accrued investment income 9,155,000 (1,512,000) (4,649,000) (2,084,000)
Deferred acquisition costs (208,228,000) (34,328,000) (160,926,000) (113,145,000)
Other assets (5,661,000) (21,070,000) (19,374,000) (14,598,000)
Income taxes currently
payable 12,367,000 16,992,000 (38,134,000) 10,779,000
Other liabilities 49,504,000 5,617,000 (2,248,000) 14,187,000
Other, net 15,087,000 5,510,000 (5,599,000) 418,000
--------------- -------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 289,736,000 47,239,000 54,667,000 74,531,000
--------------- -------------- --------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of:
Bonds, notes and redeemable
preferred stocks (4,130,682,000) (392,515,000) (1,970,502,000) (2,566,211,000)
Mortgage loans (331,398,000) (4,962,000) (131,386,000) (266,771,000)
Other investments, excluding
short-term investments (227,268,000) (1,992,000) --- (75,556,000)
Sales of:
Bonds, notes and redeemable
preferred stocks 2,660,931,000 265,039,000 1,602,079,000 2,299,063,000
Other investments, excluding
short-term investments 65,395,000 142,000 42,458,000 6,421,000
Redemptions and maturities of:
Bonds, notes and redeemable
preferred stocks 1,274,764,000 37,290,000 424,393,000 376,847,000
Mortgage loans 46,760,000 7,699,000 80,515,000 25,920,000
Other investments, excluding
short-term investments 33,503,000 853,000 67,213,000 23,940,000
Cash and short-term investments
acquired in coinsurance
transaction with MBL Life
Assurance Corporation --- 3,083,211,000 --- ---
Short-term investments
transferred to First
SunAmerica Life Insurance
Company in assumption
reinsurance transaction with
MBL Life Assurance Corporation (371,634,000) --- --- ---
--------------- -------------- --------------- ---------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (979,629,000) 2,994,765,000 114,770,000 (176,347,000)
--------------- -------------- --------------- ---------------
</TABLE>
F-6
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended -------------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Premium receipts on:
Fixed annuity contracts $ 2,016,851,000 $ 351,616,000 $ 1,512,994,000 $1,097,937,000
Universal life insurance
contracts 78,864,000 --- --- ---
Guaranteed investment
contracts --- --- 5,619,000 55,000,000
Net exchanges from the fixed
accounts of variable annuity
contracts (1,821,324,000) (448,762,000) (1,303,790,000) (620,367,000)
Withdrawal payments on:
Fixed annuity contracts (2,232,374,000) (41,554,000) (191,690,000) (242,589,000)
Universal life insurance
contracts (81,634,000) --- --- ---
Guaranteed investment
contracts (19,742,000) (3,797,000) (36,313,000) (198,062,000)
Claims and annuity payments on:
Fixed annuity contracts (46,578,000) (9,333,000) (40,589,000) (35,731,000)
Universal life insurance
contracts (158,043,000) --- --- ---
Net receipts from (repayments
of) other short-term
financings (129,512,000) 9,545,000 (10,944,000) 34,239,000
Net receipt/(payment) related
to a modified coinsurance
transaction 140,757,000 (170,436,000) 166,631,000 ---
Receipts from issuance of
subordinated note payable
to affiliate --- 170,436,000 --- ---
Net of capital contributions
and return of capital 114,336,000 70,000,000 --- 28,411,000
Dividends paid --- --- (51,200,000) (25,500,000)
--------------- -------------- --------------- --------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (2,138,399,000) (72,285,000) 50,718,000 93,338,000
--------------- -------------- --------------- --------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS (2,828,292,000) 2,969,719,000 220,155,000 (8,478,000)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD 3,303,454,000 333,735,000 113,580,000 122,058,000
--------------- -------------- --------------- --------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 475,162,000 $3,303,454,000 $ 333,735,000 $ 113,580,000
=============== ============== =============== ==============
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid on indebtedness $ 3,787,000 $ 1,169,000 $ 3,912,000 $ 7,032,000
=============== ============== =============== ==============
Net income taxes paid
(refunded) $ 190,126,000 $ (12,302,000) $ 74,932,000 $ 36,420,000
=============== ============== =============== ==============
</TABLE>
See accompanying notes
F-7
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company, including its wholly owned
subsidiaries, (the "Company") is an Arizona-domiciled life insurance
company which conducts its business through three segments: annuity
operations, asset management operations and broker-dealer operations.
Annuity operations include the sale and administration of deposit-type
insurance contracts, including fixed and variable annuities, universal
life contracts and guaranteed investment contracts. Asset management
operations, which include the distribution and management of mutual
funds, are 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 Company is an indirect wholly owned subsidiary of American
International Group, Inc. ("AIG"), an international insurance and
financial services holding company. At December 31, 1998, the Company
was a wholly owned indirect subsidiary of SunAmerica Inc., a Maryland
Corporation. On January 1, 1999, SunAmerica Inc. merged with and into
AIG in a tax-free reorganization that has been treated as a pooling of
interests for accounting purposes. Thus, SunAmerica Inc. ceased to
exist on that date. However, immediately prior to the date of the
merger, substantially all of the net assets of SunAmerica Inc. were
contributed to a newly formed subsidiary of AIG named SunAmerica
Holdings, Inc., a Delaware Corporation. SunAmerica Holdings, Inc.
subsequently changed its name to SunAmerica Inc. ("SunAmerica").
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,
the 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 items have
been reclassified to conform to the current period's presentation.
F-8
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Under generally accepted accounting principles, premiums collected on
the non-traditional life and annuity insurance products, such as those
sold by the Company, are not reflected as revenues in the Company's
statement of earnings, as they are recorded directly to policyholders
liabilities upon receipt.
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.
INVESTED ASSETS: Cash and short-term investments primarily include
cash, commercial paper, money market investments, repurchase agreements
and short-term bank participations. All such investments are carried at
cost plus accrued interest, which approximates fair value, have
maturities of three months or less and are considered cash equivalents
for purposes of reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and
common stocks are carried at aggregate fair value and changes in
unrealized gains or losses, net of tax, are credited or charged
directly to shareholder's equity. Bonds, notes and redeemable preferred
stocks are reduced to estimated net realizable value when necessary for
declines in value considered to be other than temporary. Estimates of
net realizable value are subjective and actual realization will be
dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of
provisions for estimated losses. Policy loans are carried at unpaid
balances. Separate account seed money consists of seed money for mutual
funds used as investment vehicles for the Company's variable annuity
separate accounts and is valued at market. Limited partnerships are
accounted for by the cost method of accounting. Real estate is carried
at cost, reduced by impairment provisions. Other invested assets
include collateralized bond obligations.
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
F-9
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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,
universal life insurance 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 accumulated other comprehensive
income/(loss) that is credited or charged directly to shareholder's
equity. DAC has been increased by $29,400,000 at December 31, 1999,
increased by $1,400,000 at December 31, 1998, and decreased by
$7,000,000 at September 30, 1998 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated
in separate accounts. The Company receives administrative fees for
managing the funds and other fees for assuming mortality and certain
expense risks. Such fees are included in Variable Annuity Fees in the
income statement.
GOODWILL: Goodwill, amounting to $22,206,000 at December 31, 1999, 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, universal life insurance 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).
MODIFIED COINSURANCE DEPOSIT LIABILITY: Cash received as part of the
modified coinsurance transaction described in Note 8 is recorded as a
deposit liability.
F-10
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FEE INCOME: Variable annuity fees, asset management fees, universal
life insurance fees and surrender charges are recorded in income as
earned. Net retained commissions are recognized as income on a trade
date basis.
INCOME TAXES: The Company files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Its federal income tax
return is consolidated with those of its direct parent, SunAmerica Life
Insurance Company (the "Parent"), and its affiliate, First SunAmerica
Life Insurance Company. 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 1998, the FASB issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging
activities. SFAS 133 was postponed by SFAS 137, and now will be
effective for the Company as of January 1, 2001. Therefore, it is not
included in the accompanying financial statements. The Company has not
completed its analysis of the effect of SFAS 133, but management
believes that it will not have a material impact on the Company's
results of operations, financial condition or liquidity.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was adopted for the
year ended December 31, 1999 and is included in Note 14 of the
accompanying financial statements.
3. FISCAL YEAR CHANGE
Effective December 31, 1998, the Company changed its fiscal year end
from September 30 to December 31. Accordingly, the consolidated
financial statements include the results of operations and cash flows
for the three-month transition period ended December 31, 1998. Such
results are not necessarily indicative of operations for a full year.
The consolidated financial statements as of and for the three months
ended December 31, 1998 were originally filed as the Company's
unaudited Transition Report on Form 10-Q.
Results for the comparable prior year period are summarized below.
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1997
------------------
<S> <C>
Investment income 59,855,000
Net investment income 26,482,000
Net realized investment gains 20,935,000
Total fee income 63,984,000
Pretax income 67,654,000
Net income 44,348,000
==========
</TABLE>
F-11
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. ACQUISITION
On December 31, 1998, the Company acquired the individual life business
and the individual and group annuity business of MBL Life Assurance
Corporation ("MBL Life") ("the Acquisition"), via a 100% coinsurance
transaction, for a cash purchase price of $128,420,000. As part of this
transaction, the Company acquired assets having an aggregate fair value
of $5,718,227,000, composed primarily of invested assets totaling
$5,715,010,000. Liabilities assumed in this acquisition totaled
$5,831,266,000, including $3,460,503,000 of fixed annuity reserves,
$2,308,742,000 of universal life reserves and $24,011,000 of guaranteed
investment contract reserves. The excess of the purchase price over the
fair value of net assets received amounted to $104,509,000 at December
31, 1999, after adjustment for the transfer of the New York business to
First SunAmerica Life Insurance Company (see below), and is included in
Deferred Acquisition Costs in the accompanying consolidated balance
sheet. The income statement for the year ended December 31, 1999
includes the impact of the Acquisition. On a pro forma basis, assuming
the Acquisition had been consummated on October 1, 1996, the beginning
of the prior-year periods discussed within, investment income would
have been $517,606,000 and net income would have been $158,887,000 for
the year ended September 30, 1998. For the year ended September 30,
1997, investment income would have been $506,399,000 and net income
would have been $83,372,000.
Included in the block of business acquired from MBL Life were policies
whose owners are residents of New York State ("the New York Business").
On July 1, 1999, the New York Business was acquired by the Company's
New York affiliate, First SunAmerica Life Insurance Company ("FSA"),
via an assumption reinsurance agreement, and the remainder of the
business converted to assumption reinsurance in the Company, which
superseded the coinsurance agreement. As part of this transfer,
invested assets equal to $678,272,000, life reserves equal to
$282,247,000, group pension reserves equal to $406,118,000, and other
net assets of $10,093,000 were transferred to FSA.
The $128,420,000 purchase price was allocated between the Company and
FSA based on the estimated future gross profits of the two blocks of
business. The portion allocated to FSA was $10,000,000.
As part of the Acquisition, the Company received $242,473,000 from MBL
to pay policy enhancements guaranteed by the MBL Life rehabilitation
agreement to policyholders meeting certain requirements. A primary
requirement was that annuity policyholders must have converted their
MBL Life policy to a policy type currently offered by the Company or
one of its affiliates by December 31, 1999. The enhancements are to be
credited in four installments on January 1, 2000, June 30, 2001, June
30, 2002 and June 30, 2003, to eligible policies still active on each
of those dates. On December 31, 1999, the enhancement reserve for such
payments totaled $223,032,000, which includes interest accredited at
6.75% on the original reserve. Of this amount, $69,836,000 was credited
to policyholders in February 2000 for the January 1, 2000 installment.
F-12
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale by major category
follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
AT DECEMBER 31, 1999:
Securities of the United States
Government $ 24,688,000 $ 22,884,000
Mortgage-backed securities 1,505,729,000 1,412,134,000
Securities of public utilities 114,933,000 107,596,000
Corporate bonds and notes 1,676,006,000 1,596,469,000
Redeemable preferred stocks 4,375,000 4,547,000
Other debt securities 829,997,000 809,539,000
-------------- --------------
Total $4,155,728,000 $3,953,169,000
============== ==============
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 6,033,000 $ 6,272,000
Mortgage-backed securities 546,790,000 553,990,000
Securities of public utilities 208,074,000 205,119,000
Corporate bonds and notes 2,624,330,000 2,616,073,000
Redeemable preferred stocks 6,125,000 7,507,000
Other debt securities 861,388,000 859,879,000
-------------- --------------
Total $4,252,740,000 $4,248,840,000
============== ==============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 84,377,000 $ 88,239,000
Mortgage-backed securities 569,613,000 584,007,000
Securities of public utilities 108,431,000 106,065,000
Corporate bonds and notes 883,890,000 884,209,000
Redeemable preferred stocks 6,125,000 6,888,000
Other debt securities 282,427,000 285,346,000
-------------- --------------
Total $1,934,863,000 $1,954,754,000
============== ==============
</TABLE>
F-13
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale by contractual maturity,
as of December 31, 1999, follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
Due in one year or less $ 199,679,000 $ 199,198,000
Due after one year through
five years 552,071,000 530,289,000
Due after five years through
ten years 1,243,298,000 1,187,044,000
Due after ten years 654,951,000 624,504,000
Mortgage-backed securities 1,505,729,000 1,412,134,000
-------------- --------------
Total $4,155,728,000 $3,953,169,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above due to prepayments and redemptions.
F-14
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
5. INVESTMENTS (Continued)
Gross unrealized gains and losses on bonds, notes and redeemable
preferred stocks available for sale by major category follow:
Gross Gross
Unrealized Unrealized
Gains Losses
----------- --------------
<S> <C> <C>
AT DECEMBER 31, 1999:
Securities of the United States
Government $ 47,000 $ (1,852,000)
Mortgage-backed securities 3,238,000 (96,832,000)
Securities of public utilities 13,000 (7,350,000)
Corporate bonds and notes 10,222,000 (89,758,000)
Redeemable preferred stocks 172,000 ---
Other debt securities 4,275,000 (24,734,000)
----------- -------------
Total $17,967,000 $(220,526,000)
=========== =============
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 239,000 $ ---
Mortgage-backed securities 9,398,000 (2,198,000)
Securities of public utilities 926,000 (3,881,000)
Corporate bonds and notes 22,227,000 (30,484,000)
Redeemable preferred stocks 1,382,000 ---
Other debt securities 2,024,000 (3,533,000)
----------- -------------
Total $36,196,000 $ (40,096,000)
=========== =============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 3,862,000 $ ---
Mortgage-backed securities 15,103,000 (709,000)
Securities of public utilities 2,420,000 (4,786,000)
Corporate bonds and notes 31,795,000 (31,476,000)
Redeemable preferred stocks 763,000 ---
Other debt securities 5,235,000 (2,316,000)
----------- -------------
Total $59,178,000 $ (39,287,000)
=========== =============
</TABLE>
There were no gross unrealized gains on equity securities available for
sale at December 31, 1999. Gross unrealized gains on equity securities
available for sale aggregated $10,000 and $54,000 at December 31, 1998
and September 30, 1998, respectively. There were no unrealized losses
at December 31, 1999, December 31, 1998, or September 30, 1998.
F-15
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
Gross realized investment gains and losses on sales of investments are
as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended ----------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C>
BONDS, NOTES AND
REDEEMABLE PREFERRED
STOCKS:
Realized gains $ 8,333,000 $ 6,669,000 $ 28,086,000 $ 22,179,000
Realized losses (26,113,000) (5,324,000) (4,627,000) (25,310,000)
COMMON STOCKS:
Realized gains 4,239,000 12,000 337,000 4,002,000
Realized losses (11,000) (9,000) --- (312,000)
OTHER INVESTMENTS:
Realized gains --- 573,000 8,824,000 2,450,000
IMPAIRMENT WRITEDOWNS (6,068,000) (1,650,000) (13,138,000) (20,403,000)
------------- ----------- ------------ ------------
Total net realized
investment gains
and losses $(19,620,000) $ 271,000 $ 19,482,000 $(17,394,000)
============ =========== ============ ============
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended ----------------------------------
December 31,1999 December 31, 1998 1998 1997
----------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C>
Short-term investments $ 61,764,000 $ 4,649,000 $ 12,524,000 $ 11,780,000
Bonds, notes and
redeemable preferred
stocks 348,373,000 39,660,000 156,140,000 163,038,000
Mortgage loans 47,480,000 7,904,000 29,996,000 17,632,000
Common stocks 7,000 --- 34,000 16,000
Real estate (525,000) 13,000 (467,000) (296,000)
Cost-method partnerships 6,631,000 352,000 24,311,000 6,725,000
Other invested assets 58,223,000 1,700,000 (572,000) 11,864,000
------------ ----------- ------------ ------------
Total investment
income $521,953,000 $54,278,000 $221,966,000 $210,759,000
============ =========== ============ ============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to
$10,014,000 for the year ended December 31, 1999, $500,000 for the
three months ended December 31, 1998, $1,910,000 for the year ended
September 30, 1998 and $2,050,000 for the year ended September 30,
1997, and are included in General and Administrative Expenses in the
income statement. Investment expenses have increased significantly
because the size of the portfolio increased as a result of the
Acquisition.
F-16
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
At December 31, 1999, the following investments exceeded 10% of the
Company's consolidated shareholder's equity of $935,126,000:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Provident Institutional Funds Inc.
Del Treasury Trust Fund 113,000,000 113,000,000
Salomon Smith Barney Repurchase
Agreement 97,000,000 97,000,000
------------ ------------
Total $210,000,000 $210,000,000
============ ============
</TABLE>
At December 31, 1999, mortgage loans were collateralized by properties
located in 29 states, with loans totaling approximately 36% of the
aggregate carrying value of the portfolio secured by properties located
in California and approximately 11% by properties located in New York.
No more than 8% of the portfolio was secured by properties in any other
single state.
At December 31, 1999, bonds, notes and redeemable preferred stocks
included $377,149,000 of bonds and notes not rated investment grade.
The Company had no material concentrations of non-investment-grade
assets at December 31, 1999.
At December 31, 1999, the carrying value of investments in default as
to the payment of principal or interest was $1,529,000, composed of
$870,000 of bonds and $659,000 of mortgage loans. Such nonperforming
investments had an estimated fair value of $872,000.
As a component of its asset and liability management strategy, the
Company utilizes Swap Agreements to match assets more closely to
liabilities. Swap Agreements are agreements to exchange with a
counterparty interest rate payments of differing character (for
example, variable-rate payments exchanged for fixed-rate payments)
based on an underlying principal balance (notional principal) to hedge
against interest rate changes. The Company typically utilizes Swap
Agreements to create a hedge that effectively converts floating-rate
assets and liabilities to fixed-rate instruments. At December 31, 1999,
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 $215,000 for the year ended December 31,
1999, $54,000 for the three months ended December 31, 1998, $278,000
for the year ended September 30, 1998, and $125,000 for the year ended
September 30, 1997, and is included in Interest Expense on Guaranteed
Investment Contracts in the income statement.
At December 31, 1999, $7,418,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory
requirements.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to
F-17
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
reasonable estimates of the fair value of only the Company's financial
instruments. The disclosures do not address the value of the Company's
recognized and unrecognized nonfinancial assets (including its real
estate investments and other invested assets except for cost-method
partnerships) and liabilities or the value of anticipated future
business. The Company does not plan to sell most of its assets or
settle most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Selling expenses
and potential taxes are not included. The estimated fair value amounts
were determined using available market information, current pricing
information and various valuation methodologies. If quoted market
prices were not readily available for a financial instrument,
management determined an estimated fair value. Accordingly, the
estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market
transaction.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
CASH AND SHORT-TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based
principally on independent pricing services, broker quotes and other
independent information.
MORTGAGE LOANS: Fair values are primarily determined by discounting
future cash flows to the present at current market rates, using
expected prepayment rates.
SEPARATE ACCOUNT SEED MONEY: Carrying value is the market value of the
underlying securities.
COMMON STOCKS: Fair value is based principally on independent pricing
services, broker quotes and other independent information.
COST-METHOD PARTNERSHIPS: Fair value of limited partnerships accounted
for by using the cost method is based upon the fair value of the net
assets of the partnerships as determined by the general partners.
VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS: Variable annuity
assets are carried at the market value of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts are
assigned a fair value equal to current net surrender value. Annuitized
contracts are valued based on the present value of future cash flows at
current pricing rates.
RESERVES FOR UNIVERSAL LIFE INSURANCE CONTRACTS: Universal life and
F-18
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
single life premium life contracts are assigned a fair value equal to
current net surrender value.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on
the present value of future cash flows at current pricing rates and is
net of the estimated fair value of a hedging Swap Agreement, determined
from independent broker quotes.
RECEIVABLE FROM/PAYABLE TO BROKERS FOR PURCHASES OF SECURITIES: Such
obligations represent transactions of a short-term nature for which the
carrying value is considered a reasonable estimate of fair value.
MODIFIED COINSURANCE DEPOSIT LIABILITY: Fair value is based on
discounting the liability by the appropriate cost of funds, and
therefore approximates carrying 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 AFFILIATES: Fair value is estimated based
on the quoted market prices for similar issues.
F-19
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Company's financial instruments at
December 31, 1999, December 31, 1998 and September 30, 1998 compared
with their respective carrying values, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
--------------- ---------------
<S> <C> <C>
DECEMBER 31, 1999:
ASSETS:
Cash and short-term investments $ 475,162,000 $ 475,162,000
Bonds, notes and redeemable
preferred stocks 3,953,169,000 3,953,169,000
Mortgage loans 674,679,000 673,781,000
Separate account seed money 141,499,000 141,499,000
Common stocks --- ---
Cost-method partnerships 4,009,000 9,114,000
Variable annuity assets held in
separate accounts 19,949,145,000 19,949,145,000
Receivable from brokers for sales
of securities 54,760,000 54,760,000
LIABILITIES:
Reserves for fixed annuity contracts 3,254,895,000 3,053,660,000
Reserves for universal life insurance
contracts 1,978,332,000 1,853,442,000
Reserves for guaranteed investment
contracts 305,570,000 305,570,000
Payable to brokers for purchases
of securities 139,000 139,000
Modified coinsurance deposit
liability 140,757,000 140,757,000
Variable annuity liabilities related
to separate accounts 19,949,145,000 19,367,834,000
Subordinated notes payable to
affiliates 37,816,000 38,643,000
=============== ===============
DECEMBER 31, 1998:
ASSETS:
Cash and short-term investments $ 3,303,454,000 $ 3,303,454,000
Bonds, notes and redeemable
preferred stocks 4,248,840,000 4,248,840,000
Mortgage loans 388,780,000 411,230,000
Separate account seed money --- ---
Common stocks 1,419,000 1,419,000
Cost-method partnerships 4,577,000 12,802,000
Variable annuity assets held in
separate accounts 13,767,213,000 13,767,213,000
Receivable from brokers for sales
of securities 22,826,000 22,826,000
LIABILITIES:
Reserves for fixed annuity contracts 5,500,157,000 5,437,045,000
Reserves for universal life
insurance contracts 2,339,194,000 2,339,061,000
Reserves for guaranteed investment
contracts 306,461,000 306,461,000
Variable annuity liabilities related
to separate accounts 13,767,213,000 13,287,434,000
Subordinated notes payable to
affiliates 209,367,000 211,058,000
=============== ===============
</TABLE>
F-20
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
Carrying Fair
Value Value
--------------- ---------------
<S> <C> <C>
SEPTEMBER 30, 1998:
ASSETS:
Cash and short-term investments $ 333,735,000 $ 333,735,000
Bonds, notes and redeemable
preferred stocks 1,954,754,000 1,954,754,000
Mortgage loans 391,448,000 415,981,000
Separate account seed money --- ---
Common stocks 169,000 169,000
Cost-method partnerships 4,403,000 12,744,000
Variable annuity assets held in
separate accounts 11,133,569,000 11,133,569,000
Receivable from brokers for sales
of securities 23,904,000 23,904,000
LIABILITIES:
Reserves for fixed annuity contracts 2,189,272,000 2,116,874,000
Reserves for guaranteed investment
contracts 282,267,000 282,267,000
Payable to brokers for purchases
of securities 50,957,000 50,957,000
Variable annuity liabilities related
to separate accounts 11,133,569,000 10,696,607,000
Subordinated notes payable to
affiliates 39,182,000 41,272,000
=============== ===============
</TABLE>
7. SUBORDINATED NOTES PAYABLE TO AFFILIATES
At December 31, 1998, Subordinated Notes Payable to Affiliates included
a surplus note (the "Note") payable to its immediate parent, SunAmerica
Life Insurance Company (the "Parent"), for $170,436,000. On June 30,
1999, the Parent cancelled the Note and forgave the interest earned.
Funds received were reclassified to Additional Paid-in Capital in the
accompanying consolidated balance sheet.
Subordinated notes and accrued interest payable to affiliates totaled
$37,816,000 at interest rates ranging from 8% to 9% at December 31,
1999, and require principal payments of $5,400,000 in 2000, $10,000,000
in 2001 and $22,060,000 in 2002.
8. REINSURANCE
The business which was assumed from MBL Life is subject to existing
reinsurance ceded agreements. At December 31, 1998, the maximum
retention on any single life was $2,000,000, and a total credit of
$5,057,000 was taken against the life insurance reserves, representing
predominantly yearly renewable term reinsurance. In order to limit even
further the exposure to loss on any single insured and to recover an
additional portion of the benefits paid over such limits, the Company
entered into a reinsurance treaty effective January 1, 1999 under which
the Company retains no more than $100,000 of risk on any
F-21
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. REINSURANCE (Continued)
one insured life. At December 31, 1999, a total reserve credit of
$3,560,000 was taken against the life insurance reserves. With respect
to these coinsurance agreements, the Company could become liable for
all obligations of the reinsured policies if the reinsurers were to
become unable to meet the obligations assumed under the respective
reinsurance agreements. The Company monitors its credit exposure with
respect to these agreements. However, due to the high credit ratings of
the reinsurers, such risks are considered to be minimal.
On August 1, 1999, the Company entered into a modified coinsurance
transaction, approved by the Arizona Department of Insurance, which
involved the ceding of approximately $6,000,000,000 of variable
annuities to ANLIC Insurance Company (Hawaii), a non-affiliated stock
life insurer. The transaction is accounted for as reinsurance for
statutory reporting purposes. As part of the transaction, the Company
received cash in the amount of $150,000,000 and recorded a
corresponding deposit liability. As payments are made to the reinsurer,
the deposit liability is relieved. The cost of this program, $3,621,000
in 1999, is classified as General and Administrative Expenses in the
income statement.
On August 11, 1998, the Company entered into a similar modified
coinsurance transaction, approved by the Arizona Department of
Insurance, which involved the ceding of approximately $6,000,000,000 of
variable annuities to ANLIC Insurance Company (Cayman), a Cayman
Islands stock life insurance company, effective December 31, 1997. As a
part of this transaction, the Company received cash amounting to
approximately $188,700,000, and recorded a corresponding reduction of
DAC related to the coinsured annuities. As payments were made to the
reinsurer, the reduction of DAC was relieved. Certain expenses related
to this transaction were charged directly to DAC amortization in the
income statement. The net effect of this transaction in the income
statement was not material.
On December 31, 1998, the Company recaptured this business. As part of
this recapture, the Company paid cash of $170,436,000 and recorded an
increase in DAC of $167,202,000 with the balance of $3,234,000 being
recorded as DAC amortization in the income statement.
9. CONTINGENT LIABILITIES
The Company has entered into four agreements in which it has provided
liquidity support for certain short-term securities of municipalities
and non-profit organizations 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 $359,400,000. The Company's Parent currently shares in
the liabilities and fees of two of these agreements. The Parent's share
in these liabilities will increase by $150,000,000 subsequent to
December 31, 1999, and the Company's share will decrease to
$209,400,000. Management does not anticipate any material future losses
with respect to these liquidity support facilities.
F-22
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. CONTINGENT LIABILITIES (Continued)
The Company is involved in various kinds of litigation common to its
businesses. These cases are in various stages of development and, based
on reports of counsel, management believes that provisions made for
potential losses relating to such litigation are adequate and any
further liabilities and costs will not have a material adverse impact
upon the Company's financial position, results of operations or cash
flows.
The Company's current financial strength and counterparty credit
ratings from Standard & Poor's are based in part on a guarantee (the
"Guarantee") of the Company's insurance policy obligations by American
Home Assurance Company ("American Home"), a subsidiary of AIG, and a
member of an AIG intercompany pool, and the belief that the Company is
viewed as a strategically important member of AIG. The Guarantee is
unconditional and irrevocable, and policyholders have the right to
enforce the Guarantee directly against American Home.
The Company's current financial strength rating from Moody's is based
in part on a support agreement between the Company and AIG (the
"Support Agreement"), pursuant to which AIG has agreed that AIG will
cause the Company to maintain a policyholder's surplus of not less than
$1 million or such greater amount as shall be sufficient to enable the
Company to perform its obligations under any policy issued by it. The
Support Agreement also provides that if the Company needs funds not
otherwise available to it to make timely payment of its obligations
under policies issued by it, AIG will provide such funds at the request
of the Company. The Support Agreement is not a direct or indirect
guarantee by AIG to any person of any obligation of the Company. AIG
may terminate the Support Agreement with respect to outstanding
obligations of the Company only under circumstances where the Company
attains, without the benefit of the Support Agreement, a financial
strength rating equivalent to that held by the Company with the benefit
of the support agreement. Policyholders have the right to cause the
Company to enforce its rights against AIG and, if the Company fails or
refuses to take timely action to enforce the Support Agreement or if
the Company defaults in any claim or payment owed to such policyholder
when due, have the right to enforce the Support Agreement directly
against AIG.
American Home does not publish financial statements, although it files
statutory annual and quarterly reports with the New York State
Insurance Department, where such reports are available to the public.
AIG is a reporting company under the Securities Exchange Act of 1934,
and publishes annual reports on Form 10-K and quarterly reports on Form
10-Q, which are available from the Securities and Exchange Commission.
F-23
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value
Common Stock. At December 31, 1999, December 31, 1998 and September 30,
1998, 3,511 shares were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended ----------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C>
ADDITIONAL PAID-IN
CAPITAL:
Beginning balances $ 378,674,000 $308,674,000 $308,674,000 $280,263,000
Reclassification of
Note by the Parent 170,436,000 --- --- ---
Return of capital (170,500,000) --- --- ---
Capital contributions
received 114,250,000 70,000,000 --- 28,411,000
Contribution of
partnership
investment 150,000 --- --- ---
------------- ------------ ------------ ------------
Ending balances $ 493,010,000 $378,674,000 $308,674,000 $308,674,000
============= ============ ============ ============
RETAINED EARNINGS:
Beginning balances $ 366,460,000 $332,069,000 $244,628,000 $207,002,000
Net income 184,698,000 34,391,000 138,641,000 63,126,000
Dividends paid --- --- (51,200,000) (25,500,000)
------------- ------------ ------------ ------------
Ending balances $ 551,158,000 $366,460,000 $332,069,000 $244,628,000
============= ============ ============ ============
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(LOSS):
Beginning balances $ (1,619,000) $ 8,415,000 $ 18,405,000 $ (5,521,000)
Change in net
unrealized gains
(losses) on debt
securities
available for sale (198,659,000) (23,791,000) (23,818,000) 57,463,000
Change in net
unrealized gains
(losses) on equity
securities
available for sale (10,000) (44,000) (950,000) (55,000)
Change in adjustment
to deferred
acquisition costs 28,000,000 8,400,000 9,400,000 (20,600,000)
Tax effects of net
changes $ 59,735,000 5,401,000 5,378,000 (12,882,000)
------------- ------------ ------------ ------------
Ending balances $(112,553,000) $ (1,619,000) $ 8,415,000 $ 18,405,000
============= ============ ============ ============
</TABLE>
F-24
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. 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 less equity in undistributed income or loss of
subsidiaries included in net investment income if, after paying the
dividend, the Company's capital and surplus would be adequate in the
opinion of the Arizona Department of Insurance. No dividends were paid
in the year ended December 31, 1999 or the three months ended December
31, 1998. Dividends in the amounts of $51,200,000 and $25,500,000 were
paid on June 4, 1998 and April 1, 1997, respectively. Dividends of
$69,000,000 were paid on March 1, 2000.
Under statutory accounting principles utilized in filings with
insurance regulatory authorities, the Company's net income for the year
ended December 31, 1999 was $261,539,000. The statutory net loss for
the year ended December 31, 1998 was $98,766,000. The statutory net
income for the year ended December 31, 1997 totaled $74,407,000. The
Company's statutory capital and surplus totaled $694,621,000 at
December 31, 1999, $443,394,000 at December 31, 1998 and $537,542,000
at September 30, 1998.
On June 30, 1999, the Parent cancelled the Company's surplus note
payable of $170,436,000 and funds received were reclassified to
Additional Paid-in Capital in the accompanying consolidated balance
sheet. On September 9, 1999, the Company paid $170,500,000 to its
Parent as a return of capital. On September 14, 1999 and October 25,
1999, the Parent contributed additional capital to the Company in the
amounts of $54,250,000 and $60,000,000, respectively. Also on December
31, 1999, the Parent made a $150,000 contribution of partnership
investments.
F-25
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. 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>
YEAR ENDED DECEMBER 31, 1999:
Currently payable $ 6,846,000 $196,192,000 $ 203,038,000
Deferred (13,713,000) (86,300,000) (100,013,000)
------------ ------------ -------------
Total income tax expense
(benefit) $ (6,867,000) $109,892,000 $ 103,025,000
============ ============ =============
THREE MONTHS ENDED DECEMBER 31, 1998:
Currently payable $ 740,000 $ 3,421,000 $ 4,161,000
Deferred (620,000) 16,565,000 15,945,000
------------ ------------ -------------
Total income tax expense $ 120,000 $ 19,986,000 $ 20,106,000
============ ============ =============
YEAR ENDED SEPTEMBER 30, 1998:
Currently payable $ 4,221,000 $ 32,743,000 $ 36,964,000
Deferred (550,000) 34,637,000 34,087,000
------------ ------------ -------------
Total income tax expense $ 3,671,000 $ 67,380,000 $ 71,051,000
============ ============ =============
YEAR ENDED SEPTEMBER 30, 1997:
Currently payable $ (3,635,000) $ 50,828,000 $ 47,193,000
Deferred (2,258,000) (13,766,000) (16,024,000)
------------ ------------ -------------
Total income tax expense
(benefit) $ (5,893,000) $ 37,062,000 $ 31,169,000
============ ============ =============
</TABLE>
F-26
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. INCOME TAXES (Continued)
Income taxes computed at the United States federal income tax rate of
35% and income taxes provided differ as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended ---------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Amount computed at
statutory rate $100,703,000 $19,074,000 $73,392,000 $33,003,000
Increases (decreases)
resulting from:
Amortization of
differences between
book and tax bases
of net assets
acquired 609,000 146,000 460,000 666,000
State income taxes,
net of federal tax
benefit 7,231,000 1,183,000 5,530,000 1,950,000
Dividends-received
deduction (3,618,000) (345,000) (7,254,000) (4,270,000)
Tax credits (1,346,000) (1,296,000) (318,000)
Other, net (554,000) 48,000 219,000 138,000
------------ ----------- ----------- -----------
Total income tax
expense $103,025,000 $20,106,000 $71,051,000 $31,169,000
============ =========== =========== ===========
</TABLE>
For United States federal income tax purposes, certain amounts from
life insurance operations are accumulated in a memorandum
policyholders' surplus account and are taxed only when distributed to
shareholders or when such account exceeds prescribed limits. The
accumulated policyholders' surplus was $14,300,000 at December 31,
1999. The Company does not anticipate any transactions which would
cause any part of this surplus to be taxable.
F-27
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. INCOME TAXES (Continued)
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1999 1998 1998
------------- ------------- -------------
<S> <C> <C> <C>
DEFERRED TAX LIABILITIES:
Investments $ 23,208,000 $ 18,174,000 $ 17,643,000
Deferred acquisition costs 272,697,000 222,943,000 223,392,000
State income taxes 5,203,000 3,143,000 2,873,000
Other liabilities 18,658,000 13,906,000 144,000
Net unrealized gains on debt
and equity securities
available for sale --- --- 4,531,000
------------- ------------- -------------
Total deferred tax liabilities $ 319,766,000 258,166,000 248,583,000
------------- ------------- -------------
DEFERRED TAX ASSETS:
Contractholder reserves (261,781,000) (148,587,000) (149,915,000)
Guaranty fund assessments (2,454,000) (2,935,000) (2,910,000)
Deferred income (48,371,000) --- ---
Other assets --- --- ---
Net unrealized losses on
debt and equity securities
available for sale (60,605,000) ( 872,000) ---
------------- ------------- -------------
Total deferred tax assets (373,211,000) (152,394,000) (152,825,000)
------------- ------------- -------------
Deferred income taxes $ (53,445,000) $ 105,772,000 $ 95,758,000
============= ============= =============
</TABLE>
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:
12. COMPREHENSIVE INCOME
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") which requires the reporting of comprehensive income in addition
to net income from operations. Comprehensive income is a more inclusive
financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income. The adoption of SFAS 130 did not have an
impact on the Company's results of operations, financial condition or
liquidity. Comprehensive income amounts for the prior years are
disclosed to conform to the current year's presentation.
F-28
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. COMPREHENSIVE INCOME (Continued)
The before tax, after tax, and tax benefit (expense) amounts for each
component of the increase or decrease in unrealized losses or gains on
debt and equity securities available for sale for both the current and
prior periods are summarized below:
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
----------- ----------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1999:
Net unrealized losses on debt and
equity securities available
for sale identified in the
current period $(217,259,000) $ 76,041,000 $(141,218,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 34,690,000 (12,141,000) 22,549,000
------------- ------------ -------------
Subtotal (182,569,000) 63,900,000 (118,669,000)
------------- ------------ -------------
Reclassification adjustment for:
Net realized losses included
in net income 18,590,000 (6,507,000) 12,083,000
Related change in deferred
acquisition costs (6,690,000) 2,342,000 (4,348,000)
------------- ------------ -------------
Total reclassification
adjustment 11,900,000 (4,165,000) 7,735,000
------------- ------------ -------------
Total other comprehensive
loss $(170,669,000) $ 59,735,000 $(110,934,000)
============= ============ =============
THREE MONTHS ENDED DECEMBER 31,
1998:
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period $ (24,345,000) $ 8,521,000 $ (15,824,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 8,579,000 (3,004,000) 5,575,000
------------- ------------ -------------
Subtotal (15,766,000) 5,517,000 (10,249,000)
------------- ------------ -------------
Reclassification adjustment for:
Net realized losses included
in net income 510,000 (179,000) 331,000
Related change in deferred
acquisition costs (179,000) 63,000 (116,000)
------------- ------------ -------------
Total reclassification
adjustment 331,000 (116,000) 215,000
------------- ------------ -------------
Total other comprehensive loss $ (15,435,000) $ 5,401,000 $ (10,034,000)
============= ============ =============
</TABLE>
F-29
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMPREHENSIVE INCOME (Continued)
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------ ------------ ------------
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
1998:
Net unrealized losses on debt and
equity securities available
for sale identified in the
current period $(10,281,000) $ 3,598,000 $(6,683,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 4,086,000 (1,430,000) 2,656,000
------------ ------------ -----------
Subtotal (6,195,000) 2,168,000 (4,027,000)
------------ ------------ -----------
Reclassification adjustment for:
Net realized losses included
in net income (14,487,000) 5,070,000 (9,417,000)
Related change in deferred
acquisition costs 5,314,000 (1,860,000) 3,454,000
------------ ------------ -----------
Total reclassification
adjustment (9,173,000) 3,210,000 (5,963,000)
------------ ------------ -----------
Total other comprehensive loss $(15,368,000) $ 5,378,000 $(9,990,000)
============ ============ ===========
YEAR ENDED SEPTEMBER 30,
1997:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $ 40,575,000 $(14,201,000) $26,374,000
Decrease in deferred acquisition
cost adjustment identified in
the current period (15,031,000) 5,262,000 (9,769,000)
------------ ------------ -----------
Subtotal 25,544,000 (8,939,000) 16,605,000
------------ ------------ -----------
Reclassification adjustment for:
Net realized losses included
in net income 16,832,000 (5,891,000) 10,941,000
Related change in deferred
acquisition costs (5,569,000) 1,949,000 (3,620,000)
------------ ------------ -----------
Total reclassification
adjustment 11,263,000 (3,942,000) 7,321,000
------------ ------------ -----------
Total other comprehensive
income $ 36,807,000 $(12,881,000) $23,926,000
============ ============ ===========
</TABLE>
F-30
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. 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 $37,435,000 in the year ended December 31,
1999, $6,977,000 in the three months ended December 31, 1998, and
$32,946,000 in the year ended September 30, 1998 and $25,492,000 in the
year ended September 30, 1997. These broker-dealers, when combined with
the Company's wholly owned broker-dealer, represent a significant
portion of the Company's business, amounting to approximately 35.6% of
premiums in the year ended December 31, 1999 and the three months ended
December 31, 1998, 33.6% in the year ended September 30, 1998 and 36.1%
in the year ended September 30, 1997.
The Company purchases administrative, investment management,
accounting, marketing and data processing services from its Parent and
SunAmerica, an indirect parent. Amounts paid for such services totaled
$105,059,000 for the year ended December 31, 1999, $21,593,000 for the
three months ended December 31, 1998, $84,975,000 for the year ended
September 30, 1998 and $86,116,000 for the year ended September 30,
1997. The marketing component of such costs during these periods
amounted to $53,385,000, $9,906,000, $39,482,000 and $31,968,000,
respectively, and are deferred and amortized as part of Deferred
Acquisition Costs. The other components of such costs are included in
General and Administrative Expenses in the income statement.
At December 31, 1999 and 1998, the Company held bonds with a fair value
of $50,000 and $84,965,000, respectively, which were issued by its
affiliate, International Lease Finance Corp. The amortized cost of
these bonds is equal to the fair value. At September 30, 1998 and 1997,
the Company held no investments issued by any of its affiliates.
During the year ended December 31, 1999, the Company transferred
short-term investments and bonds to FSA with an aggregate fair value of
$634,596,000 as part of the transfer of the New York Business from the
Acquisition (See Note 4). The Company recorded a net realized loss of
$5,144,000 on the transfer of these assets.
During the year ended December 31, 1999, the Company purchased certain
invested assets from SunAmerica for cash equal to their current market
value of $161,159,000.
For the three months ended December 31, 1998, the Company made no
purchases or sales of invested assets from or to the Parent or its
affiliates.
During the year ended September 30, 1998, the Company sold various
invested assets to SunAmerica 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 SunAmerica, the Parent and CalAmerica Life
Insurance Company ("CalAmerica"), a wholly-owned subsidiary of the
Parent that has since merged into the Parent, for cash equal to their
current market value which aggregated $20,666,000, $10,468,000
F-31
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. RELATED-PARTY MATTERS (Continued)
and $61,000, respectively.
During the year ended September 30, 1997, the Company sold various
invested assets to the Parent and CalAmerica 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 the Parent and CalAmerica for cash equal to their
current market value of $8,717,000 and $284,000, respectively.
14. BUSINESS SEGMENTS
Effective January 1, 1999, the Company adopted Statement of Financial
Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information," which requires the reporting
of certain financial information by business segment. For the purpose
of providing segment information, the Company has three business
segments: annuity operations, asset management operations and
broker-dealer operations. The annuity operations focus primarily on the
marketing of variable annuity products and the administration of the
universal life business acquired from MBL Life in 1998 (See Note 4).
The Company's variable annuity products offer investors a broad
spectrum of fund alternatives, with a choice of investment managers, as
well as guaranteed fixed-rate account options. The Company earns fee
income on investments in the variable options and net investment income
on the fixed-rate options. The asset management operations are
conducted by the Company's registered investment advisor subsidiary,
SunAmerica Asset Management Corp. ("SunAmerica Asset Management"), and
its related distributor. SunAmerica Asset Management earns fee income
by distributing and managing a diversified family of mutual funds, by
managing certain subaccounts within the Company's variable annuity
products and by providing professional management of individual,
corporate and pension plan portfolios. The broker-dealer operations are
conducted by the Company's broker-dealer subsidiary, Royal Alliance
Associates, Inc. ("Royal"), which sells proprietary annuities and
mutual funds, as well as a full range of non-proprietary investment
products.
F-32
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
Asset Broker
Annuity Management Dealer
Operations Operations Operations Total
--------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Total assets $26,649,310,000 $150,966,000 $74,218,000 $26,874,494,000
Expenditures for long-
lived assets --- 2,563,000 2,728,000 5,291,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 790,697,000 54,652,000 41,185,000 886,534,000
Intersegment revenue --- 62,998,000 8,193,000 71,191,000
--------------- ------------ ----------- ---------------
Total revenue 790,697,000 117,650,000 49,378,000 957,725,000
=============== ============ =========== ===============
Investment income 511,914,000 9,072,000 967,000 521,953,000
Interest expense (354,263,000) (3,085,000) (389,000) (357,737,000)
Depreciation and
amortization expense (95,408,000) (23,249,000) (3,234,000) (121,891,000)
Income from unusual
transactions --- --- --- ---
Pretax income 199,333,000 67,779,000 20,611,000 287,723,000
Income tax expense (65,445,000) (28,247,000) (9,333,000) (103,025,000)
Income from extraordinary
items --- --- --- ---
Net income $ 133,888,000 $ 39,532,000 $11,278,000 $ 184,698,000
=============== ============ =========== ===============
Significant non-cash
items $ --- $ --- $ --- $ ---
=============== ============ =========== ===============
</TABLE>
F-33
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
Asset Broker-
Annuity Management Dealer
Operations Operations Operations Total
-------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED
DECEMBER 31, 1998:
Total assets $22,982,323,000 $104,473,000 $59,537,000 $23,146,333,000
Expenditures for long-
lived assets --- 328,000 1,005,000 1,333,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 103,626,000 11,103,000 9,605,000 124,334,000
Intersegment revenue --- 11,871,000 1,674,000 13,545,000
--------------- ------------ ----------- ---------------
Total revenue 103,626,000 22,974,000 11,279,000 137,879,000
=============== ============ =========== ===============
Investment income 53,149,000 971,000 158,000 54,278,000
Interest expense (26,842,000) (752,000) (101,000) (27,695,000)
Depreciation and
amortization expense (23,236,000) (4,204,000) (561,000) (28,001,000)
Income from unusual
transactions --- --- --- ---
Pretax income 36,961,000 13,092,000 4,444,000 54,497,000
Income tax expense (12,978,000) (5,181,000) (1,947,000) (20,106,000)
Income from extraordinary
items --- --- --- ---
Net income $ 23,983,000 $ 7,911,000 $ 2,497,000 $ 34,391,000
=============== ============ =========== ===============
Significant non-cash
items $ --- $ --- $ --- $ ---
=============== ============ =========== ===============
</TABLE>
F-34
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
Asset Broker-
Annuity Management Dealer
Operations Operations Operations TOTAL
-------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1998:
Total assets $14,389,922,000 $104,476,000 $ 55,870,000 $14,550,268,000
Expenditures for long-
lived assets --- 477,000 5,289,000 5,766,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 410,011,000 34,396,000 39,729,000 484,136,000
Intersegment revenue --- 40,040,000 7,634,000 47,674,000
--------------- ------------ ------------ ---------------
Total revenue 410,011,000 74,436,000 47,363,000 531,810,000
=============== ============ ============ ===============
Investment income 218,044,000 2,839,000 1,083,000 221,966,000
Interest expense (131,980,000) (2,709,000) (405,000) (135,094,000)
Depreciation and
amortization expense (60,731,000) (14,780,000) (1,770,000) (77,281,000)
Income from unusual
transactions --- --- --- ---
Pretax income 148,084,000 39,207,000 22,401,000 209,692,000
Income tax expense (44,706,000) (15,670,000) (10,675,000) (71,051,000)
Income from extraordinary
items --- --- --- ---
Net income $ 103,378,000 $ 23,537,000 $ 11,726,000 $ 138,641,000
=============== ============ ============ ===============
Significant non-cash
items $ --- $ --- $ --- $ ---
=============== ============ ============ ===============
</TABLE>
F-35
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
Asset Broker-
Annuity Management Dealer
Operations Operations Operations Total
-------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1997:
Total assets $12,440,311,000 $ 81,518,000 $51,400,000 $12,573,229,000
Expenditures for long-
lived assets --- 804,000 4,527,000 5,331,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 317,061,000 28,655,000 31,678,000 377,394,000
Intersegment revenue --- 22,790,000 6,327,000 29,117,000
--------------- ------------ ----------- ---------------
Total revenue 317,061,000 51,445,000 38,005,000 406,511,000
=============== ============ =========== ===============
Investment income 208,382,000 1,445,000 932,000 210,759,000
Interest expense (134,416,000) (2,737,000) (405,000) (137,558,000)
Depreciation and
amortization expense (55,675,000) (16,357,000) (689,000) (72,721,000)
Income from unusual
transactions --- --- --- ---
Pretax income 58,291,000 19,299,000 16,705,000 94,295,000
Income tax expense (16,318,000) (7,850,000) (7,001,000) (31,169,000)
Income from extraordinary
items --- --- --- ---
Net income $ 41,973,000 $ 11,449,000 $ 9,704,000 $ 63,126,000
=============== ============ =========== ===============
Significant non-cash
items $ --- $ --- $ --- $ ---
=============== ============ =========== ===============
</TABLE>
Substantially all of the Company's revenues are derived from the United
States.
The accounting policies of the segments are as described in the summary
of significant accounting policies (Note 2). The Parent makes
expenditures for long-lived assets for the annuity operations segment
and allocates depreciation of such assets to the annuity operations
segment. The annuity operations and asset management operations pay
commissions to Royal for sales of their proprietary products.
Approximately 90% of these commission payments are in turn paid to
registered representatives of Royal, with the remainder of the revenue
reflected in Net Retained Commissions. In addition, premiums from
variable annuity policies sold by the Company are held in trusts that
are owned by the Company, although the assets directly support
policyholder obligations. SunAmerica Asset Management is the Investment
Advisor for all of the subaccounts of these trusts, for which service
it receives fees which are direct expenses of the trusts. Such fees are
reported as Variable Annuity Fees in the consolidated income statement
and are shown as intersegment revenues in the business segments
disclosure above, although there is no corresponding expense on the
books of any segment.
The annuity operations segment's products are marketed through over 800
independent broker-dealers, full-service securities firms and financial
institutions, in addition to the Company's affiliated broker-dealers.
Those independent selling organizations
F-36
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
responsible for over 10% of sales represented 12.0% of sales in the
year ended December 31, 1999, 14.7% in the three months ended December
31, 1998, 16.8% in the year ended September 30, 1998, and 18.4% and
10.2% in the year ended September 30, 1997. Registered representatives
sell products for the Company's asset management operations and sell
products offered by the broker-dealer operations. Revenue from any
single registered representative or group of registered representatives
do not compose a material percentage of total revenues in either the
asset management operations or the broker-dealer operations.
15. SUBSEQUENT EVENTS
On March 1, 2000, the Company paid dividends of $69,000,000 to the
Parent.
F-37
<PAGE>
PART C -- OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements are included in Part B of the
Registration Statement:
Audited Consolidated Financial Statements of Anchor National Life
Insurance Company as of December 31, 1999, December 31, 1998 and
September 30, 1998, and for the year ended December 31, 1999, and for the
three months ended December 31, 1998 and for each of the two fiscal years
in the period ended September 30, 1998.
Audited Financial Statements of Variable Annuity Account Five (Portion
Relating to the SEASON SELECT Variable Annuity) as of March 31, 1999
and for the period from inception to March 31, 1999.
[INCORPORATED BY REFERENCE]
(b) Exhibits
<TABLE>
<C> <S> <C>
(1) Resolutions Establishing Separate Account.................... ****
(2) Form of Custody Agreements................................... ****
(3) (a) Form of Distribution Contract............................ ****
(b) Form of Selling Agreement................................ ****
(4) (a) Seasons Select Variable Annuity Group Certificate........ +
(b) Seasons Select Individual Variable Annuity Contract...... +
(5) (a) Seasons Select Enrollment Form for Group Annuity
Certificate............................................ +
(b) Seasons Select Application for Individual Contract....... +
(6) Depositor -- Corporate Documents
(a) Certificate of Incorporation............................. ****
(b) By-Laws.................................................. ****
(7) Reinsurance Contract......................................... **
(8) Form of Seasons Series Trust Fund Participation Agreement.... ****
(9) Opinion and Consent of Counsel............................... ****
(10) Consent of Independent Accountants........................... *
(11) Financial Statements Omitted from Item 23.................... **
(12) Initial Capitalization Agreement............................. **
(13) Performance Computations..................................... ++
(14) Diagram and Listing of All Persons Directly or Indirectly
Controlled By or Under Common Control with Anchor National
Life Insurance Company, the Depositor of Registrant......... *
(15) Powers of Attorney........................................... ***
</TABLE>
- ------------------------
*Herewith
**Not Applicable
***Filed in the Initial Registration Statement of Variable Annuity
Account Five (811-7727) and Anchor National Life Insurance Company
(333-67685) on November 20, 1998
****Filed in the Registration Statement of Variable Annuity Account Five
(811-7727) and Anchor National Life Insurance Company (333-08859),
Pre-Effective Amendment No. 1 on March 11, 1997
+Filed in the Registration Statement of Variable Annuity Account
Five (811-7727) and Anchor National Life Insurance Company
(333-08859), Pre-Effective Amendment Numbers 2 and 3 on July 27, 1998
++Filed on July 12, 1999, Post-Effective Amendment No. 2 under Securities
Act of 1933 (the 33 Act) and No. 6 under the Investment Company Act of
1940 (the 40 Act) to Registration Statement File No. 333-67685 and
811-07727.
II-1
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The officers and directors of Anchor National Life Insurance Company are listed
below. Their principal business address is 1 SunAmerica Center, Los Angeles,
California 90067-6022, unless otherwise noted.
<TABLE>
<CAPTION>
NAME POSITION
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Eli Broad Chairman, President and Chief Executive Officer
Jay S. Wintrob Director and Executive Vice President
Jana W. Greer Director and Senior Vice President
James R. Belardi Director and Senior Vice President
Susan L. Harris Director, Senior Vice President and Secretary
N. Scott Gillis Senior Vice President and Controller
Edwin R. Raquel Senior Vice President and Chief Actuary
Marc H. Gamsin Director and Senior Vice President
J. Franklin Grey Vice President
Edward P. Nolan* Vice President
Gregory M. Outcalt Senior Vice President and Controller
Scott H. Richland Vice President
David R. Bechtel Vice President and Treasurer
P. Daniel Demko, Jr. Vice President
Kevin J. Hart Vice President
Stewart R. Polakov Vice President
Lawrence M. Goldman Assistant Secretary
Christine A. Nixon Assistant Secretary
</TABLE>
- ------------------------
*88 Bradley Road, P.O. Box 4005, Woodbridge, Connecticut 06525
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR
REGISTRANT
The Registrant is a separate account of Anchor National Life Insurance
Company (Depositor). Depositor is a subsidiary of American International Inc.
("AIG"). For a complete listing and diagram of all persons directly or
indirectly controlled by or under common control with the Depositor or
Registrant, see Exhibit 14 of the Initial Registration Statement of Variable
Annuity Account Seven and Anchor National Life Insurance Company, (file Nos.
333-65965 and 811-09003) (N-4) and (333-65965) (S-1) filed on
October 21, 1998, which is incorporated herein by reference. As of
January 4, 1999, Anchor National became an indirect wholly-owned subsidiary of
American International Group, Inc. ("AIG"). An organizational chart for AIG can
be found in Form 10-K, SEC file number 001-08787 filed March 30, 2000.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 2000, the number of contracts funded by Variable Annuity
Account Five (portion relating to the SEASONS SELECT Variable Annuity) of Anchor
National Life Insurance was 2,465; 1,059 of which were qualified contracts and
1,406 of which were non-qualified contracts.
ITEM 28. INDEMNIFICATION
None.
II-2
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER
SunAmerica Capital Services, Inc. serves as distributor to the Registrant,
Variable Annuity Account Five, Presidential Variable Account One, FS Variable
Separte Account, Variable Annuity Account One, FS Variable Annuity Account
One, Variable Annuity Account Four and Variable Annuity Account Seven.
SunAmerica Capital Services, Inc. also serves as the underwriter to the
SunAmerica Income Funds, SunAmerica Equity Funds, SunAmerica Money Market
Funds, Inc., Stlye Select Series, Inc. and the SunAmerica Stategic Investment
Series, Inc., all issued by Sunamerica Asset Management Corp.
Its principal business address is 733 Third Avenue, 4th Floor, New York, New
York 10017. The following are the directors and officers of SunAmerica Capital
Services, Inc.
<TABLE>
<CAPTION>
NAME POSITION WITH DISTRIBUTOR
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Peter A. Harbeck Director
Robert M. Zakem Director, Executive Vice President, General Counsel &
Assistant Secretary
Susan L. Harris Secretary
J. Steven Neamtz Director and President
Debbie Potash-Turner Controller
James Nickels Vice President
</TABLE>
<TABLE>
<CAPTION>
NET DISTRIBUTION COMPENSATION OR
DISCOUNTS AND REDEMPTION OR BROKERAGE
NAME OF DISTRIBUTOR COMMISSIONS ANNUITIZATION COMMISSIONS COMMISSIONS*
- ------------------------------------------------- ----------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
SunAmerica Capital Services, Inc. None None None None
</TABLE>
- ------------------------
*Distribution fee is paid by Anchor National Life Insurance Company.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Anchor National Life Insurance Company, the Depositor for the Registrant, is
located at 1 SunAmerica Center, Los Angeles, California 90067-6022. SunAmerica
Capital Services, Inc., the distributor of the Contracts, is located at 733
Third Avenue, New York, New York 10017. Each maintains those accounts and
records required to be maintained by it pursuant to Section 31(a) of the
Investment Company Act and the rules promulgated thereunder.
II-3
<PAGE>
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02100, maintains certain accounts and records pursuant to the instructions of
the Registrant.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
Registrant undertakes to (1) file post-effective amendments to this Registration
Statement as frequently as is necessary to ensure that the audited financial
statements in the Registration Statement are never more than 16 months old for
so long as payments under the variable annuity Contracts may be accepted; (2)
include either (A) as part of any application to purchase a Contract offered by
the prospectus forming a part of the Registration Statement, a space that an
applicant can check to request a Statement of Additional Information, or (B) a
postcard or similar written communication affixed to or included in the
Prospectus that the Applicant can remove to send for a Statement of Additional
Information; and (3) deliver a Statement of Additional Information and any
financial statements required to be made available under this Form N-4 promptly
upon written or oral request.
ITEM 33. REPRESENTATION
a) The Company hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
concerning the redeemability of Section 403(b) annuity Contracts (Commission
ref. IP-6-88) and that the following provisions have been complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including
the prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection
with the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment
alternatives available under the employer's Section 403(b) arrangement to
which the participant may elect to transfer his contract value.
b) REPRESENTATION PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF
1940: The Company represents that the fees and charges to be deducted under
the variable annuity contract described in the prospectus contained in this
registration statement are, in the aggregate, reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks
assumed in connection with the contract.
II-4
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on
its behalf, in the City of Los Angeles, and the State of California, on this
7th day of April, 2000.
VARIABLE ANNUITY ACCOUNT FIVE
(Registrant)
By: ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Depositor)
By: /s/ JAY S. WINTROB
-------------------------------------------
Jay S. Wintrob
EXECUTIVE VICE PRESIDENT
ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Depositor)
By: /s/ JAY S. WINTROB
-------------------------------------------
Jay S. Wintrob
EXECUTIVE VICE PRESIDENT
II-5
<PAGE>
As required by the Securities Act of 1933, this the Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
ELI BROAD* Officer and Chairman of
- ------------------------------ the Board (Principal April 7, 2000
Eli Broad Executive Officer)
MARC H. GAMSIN* Senior Vice President and
- ------------------------------ Director (Principal
Marc H. Gamsin Financial Officer)
N. SCOTT GILLIS* Senior Vice President and
- ------------------------------ Director (Principal
N. Scott Gillis Accounting Officer)
JAMES R. BELARDI*
- ------------------------------ Director
James R. Belardi
JANA W. GREER*
- ------------------------------ Director
Jana W. Greer
/s/ SUSAN L. HARRIS
- ------------------------------ Director
Susan L. Harris
JAY S. WINTROB*
- ------------------------------ Director
Jay S. Wintrob
/s/ SUSAN L. HARRIS
- ------------------------------ Attorney-in-Fact
Susan L. Harris
</TABLE>
*Attorney-in-Fact
April 7, 2000
II-6
<PAGE>
** KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below hereby constitutes and appoints SUSAN L. HARRIS AND CHRISTINE
A. NIXON or each of them, as his true and lawful attorneys-in fact and
agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, as fully to all intents as he might or
could do in person, including specifically, but without limiting the
generality of the foregoing, to (I) take any action to comply with any rules,
regulations or requirements of the Securities and Exchange Commission under
the federal securities laws; (ii) make application for and secure any
exemptions from the federal securities laws; (iii) register additional
annuity contracts under the federal securities laws, if registration is
deemed necessary. The undersigned hereby ratifies and confirms all that said
attorneys-in-fact and agents or any of them, or their substitutes, shall do
or cause to be done by virtue thereof.
**/s/ GREGORY M. OUTCALT
- ------------------------------ Senior Vice President and April 7, 2000
Gregory M. Outcalt Controller
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------
<S> <C>
(10) Consent of Independent Accountants
(14) Diagram and Listing of All Persons Directly or Indirectly
Controlled by or Under Common Control with Anchor National
Life Insurance Company, The Depositor or Registrant
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Registration Statement on Form N-4 for Variable
Annuity Account Five (Portion Relating to the SEASONS SELECT Variable Annuity)
of Anchor National Life Insurance Company of our report dated January 31, 2000,
relating to the financial statements of Anchor National Life Insurance Company,
and the incorporation by reference of our report dated June 28, 1999, relating
to the financial statements of Variable Annuity Account Five (Portion Relating
to the SEASONS SELECT Variable Annuity). We also consent to the incorporation by
reference of our report dated November 9, 1998, relating to the financial
statements of Anchor National Life Insurance Company, into the Prospectus which
constitutes part of this Registration Statement. 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 and
to the reference to us under the heading "Independent Accountants" in such
Prospectus.
PricewaterhouseCoopers LLP
Los Angeles, California
April 7, 2000
<PAGE>
EXHIBIT 14
DIAGRAM AND LISTING OF ALL PERSONS DIRECTLY OR INDIRECTLY
CONTROLLED BY OR UNDER COMMON CONTROL WITH ANCHOR NATIONAL LIFE
INSURANCE COMPANY, THE DEPOSITOR OF REGISTRANT
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR
REGISTRANT
The Registrant is a separate account of Anchor National Life Insurance
Company (Depositor). Depositor is a subsidiary of American International Inc.
("AIG"). For a complete listing and diagram of all persons directly or
indirectly controlled by or under common control with the Depositor or
Registrant, see Exhibit 14 of the Initial Registration Statement of Variable
Annuity Account Seven and Anchor National Life Insurance Company,
(file Nos. 333-65965 and 811-09003) (N-4) and (333-65965) (S-1) filed on
October 21, 1998, which is incorporated herein by reference. As of
January 4, 1999, Anchor National became an indirect wholly-owned subsidiary of
American International Group, Inc. ("AIG"). An organizational chart for AIG can
be found in Form 10-K, SEC file number 001-08787 filed March 30, 2000.
