<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT FIVE
(PORTION RELATING TO THE SEASONS SELECTII VARIABLE ANNUITY)
SUPPLEMENT TO THE SEASONS SELECTII PROSPECTUS
DATED DECEMBER 29, 2000
THE PORTION OF THE PROSPECTUS RELATING TO THE SEASONS REWARDS FEATURE LOCATED ON
PAGES 12-14 IS SUPPLEMENTED WITH THE FOLLOWING:
CURRENT ENHANCEMENT LEVELS
The Enhancement Levels and Upfront Payment Enhancement Rate are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
UPFRONT PAYMENT ENHANCEMENT DEFERRED PAYMENT DEFERRED PAYMENT
ENHANCEMENT LEVEL RATE ENHANCEMENT RATE ENHANCEMENT DATE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Under $ 500,000 4% 0% N/A
----------------------------------------------------------------------------------------------------------------------
$500,000 - more 5% 0% N/A
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Future Upfront Enhancement Rates may change at any time, but will never be less
than 2%. We are currently not offering a Deferred Payment Enhancement Rate.
Future Deferred Payment Enhancement Rates may increase, decrease or stay the
same; there is no minimum Deferred Payment Enhancement Rate. The Date on which
you may receive any applicable future Deferred Payment Enhancement may change;
it may be less than nine years or greater than nine years.
Date: December 29, 2000
PLEASE KEEP THIS SUPPLEMENT WITH YOUR PROSPECTUS.
<PAGE>
SEASONS SELECT II PROSPECTUS
[LOGO]
SEASONS
SELECT II
A new way to
look at money-TM-
PROSPECTUS
[logo] Anchor National
A SunAmerica Company
<PAGE>
[LOGO]
PROFILE
December 29, 2000
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS YOU SHOULD KNOW
AND CONSIDER BEFORE PURCHASING THE SEASONS SELECT(II) VARIABLE ANNUITY. THIS
VARIABLE ANNUITY PROVIDES AN OPTIONAL BONUS FEATURE CALLED "SEASONS REWARDS". IF
YOU ELECT THIS FEATURE, IN EXCHANGE FOR ANY BONUS CREDITED TO YOUR CONTRACT,
YOUR WITHDRAWAL CHARGE SCHEDULE WILL BE LONGER AND GREATER THAN IF YOU CHOSE NOT
TO ELECT THIS FEATURE. THESE WITHDRAWAL CHARGES MAY OFFSET THE VALUE OF THE
BONUS, IF YOU MAKE AN EARLY WITHDRAWAL. THE ANNUITY IS MORE FULLY DESCRIBED IN
THE PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY.
1. THE SEASONS SELECT(II) VARIABLE ANNUITY
The Seasons Select(II) Variable Annuity contract is a contract between you and
Anchor National Life Insurance Company ("Anchor National"). We designed Seasons
Select(II) to help you save on a tax-deferred basis. Seasons Select(II) provides
a means to diversify your investments among asset classes and managers as well
as a variety of investment styles to meet long-term financial goals, such as
retirement funding. Tax deferral means all your money, including the amount you
would otherwise pay in current income taxes, remains in your contract to
generate more earnings. Your money could grow faster than it would in a
comparable taxable investment. Of course, certain Qualified contracts
automatically provide tax deferral regardless of whether they are funded with an
annuity.
The Seasons Select(II) Variable Annuity is designed as a long term retirement
investment and helps you meet these goals by offering variable investment
options. There are nine multimanaged portfolios called SELECT PORTFOLIOS and
three multi-managed FOCUSED PORTFOLIOS representing a spectrum of investment
styles. In addition, there are four SEASONS STRATEGIES each managed by five
professional investment managers. The value of any portion of your contract
allocated to the SELECT PORTFOLIOS, FOCUSED PORTFOLIOS and/or SEASONS STRATEGIES
will fluctuate up or down based on the performance of the PORTFOLIOS and SEASONS
STRATEGIES you select. You may experience a loss of both principal and earnings.
Five fixed investment options, each for a different length of time and offering
different interest rates guaranteed by Anchor National, are also available. In
addition, if you do not elect to participate in the Seasons Rewards Program, the
two DCA fixed accounts are available. They offer fixed interest rates guaranteed
by Anchor National and are available under the contract strictly as source
accounts for the Dollar Cost Averaging program.
The SELECT PORTFOLIOS, FOCUSED PORTFOLIOS, SEASONS STRATEGIES and fixed
investment options are designed to be used in order to achieve your desired
investment goals. You may put money into any of the SELECT PORTFOLIOS, FOCUSED
PORTFOLIOS, SEASONS STRATEGIES and/or fixed investment options. You may make
transfers between the SELECT PORTFOLIOS, FOCUSED PORTFOLIOS, SEASONS STRATEGIES
and/or the fixed investment options without incurring a transfer charge.
Like most annuities, the contract has an Accumulation Phase and an Income Phase.
During the Accumulation Phase, you invest money in your contract. Your earnings
are based on the investment performance of the SELECT PORTFOLIOS, FOCUSED
PORTFOLIOS or SEASONS STRATEGIES to which your money is allocated and/or the
interest rate earned on the fixed investment options. You may withdraw money
from your contract during the Accumulation Phase. However, as with other
tax-deferred investments, you will pay taxes on earnings and untaxed
contributions when you withdraw them. An IRS tax penalty may apply if you make
withdrawals before age 59 1/2. During the Income Phase, you will receive
payments from your annuity. Your payments may be fixed in dollar amount, vary
with investment performance or be a combination of both, depending on where your
money is allocated. Among other factors, the amount of money you are able to
accumulate in your contract during the Accumulation Phase will determine the
amount of your payments during the Income Phase.
The Seasons Select(II) Variable Annuity and/or Seasons Rewards Program may not
be available in all states.
<PAGE>
2. INCOME OPTIONS
You can select from one of five income options:
(1) payments for your lifetime;
(2) payments for your lifetime and your survivor's lifetime;
(3) payments for your lifetime and your survivor's lifetime, but for not
less than 10 or 20 years;
(4) payments for your lifetime, but for not less than 10 or 20 years; and
(5) payments for a specified period of 5 to 30 years.
Other options may be available.
You will also need to decide if you want your payments to fluctuate with
investment performance or remain constant, and the date on which your payments
will begin. Once you begin receiving payments, you cannot change your income
option. If your contract is Non-qualified, payments during the Income Phase are
considered partly a return of your original investment. The "original
investment" part of each payment is not taxable but any gain on your original
investment is currently taxable as ordinary income upon distribution. For
Qualified contracts, the entire payment is currently taxable as ordinary income.
If elected, you may also elect to take income payments under the Income
Protector program subject to the provisions thereof.
3. PURCHASING A SEASONS SELECT(II) VARIABLE ANNUITY
You can buy a contract through your financial advisor, who can also help you
complete the proper forms. For Non-qualified contracts the minimum initial
investment is $5,000. For Qualified contracts the minimum initial investment is
$2,000. You can add $500 or more to your contract at any time during the
Accumulation Phase. You may also add $50 or more to your contract at any time
during the Accumulation Phase through the Automatic Payment Plan.
You may elect to participate in the Seasons Rewards Program when you apply for
your contract. Under this program, we add an amount to your contract (an
"Upfront Payment Enhancement") each time you make a Purchase Payment.
Additionally, we may also pay an amount to your contract at a future date (a
"Deferred Payment Enhancement"). Payment Enhancements are calculated as a
percentage of each Purchase Payment. The Seasons Rewards Program is not
available to you if you are age 81 or older at the time of contract issue.
Additionally, it may not be approved for sale in your state or through the
broker-dealer with which your financial advisor is affiliated. Please check with
your financial advisor regarding the availability of this Program.
4. INVESTMENT OPTIONS
You can put your money into any one or more of the distinct SELECT PORTFOLIOS,
FOCUSED PORTFOLIOS, SEASONS STRATEGIES and/or the fixed investment options;
however, the 6-month and 1-year DCA fixed accounts are not available if you
elect to participate in the Seasons Rewards Program. The fixed investment
options offer fixed rates of interest for specified lengths of time.
Each SELECT PORTFOLIO and FOCUSED PORTFOLIO has a distinct investment objective
utilizing a disciplined investing style and each invests in an underlying
investment portfolio. Except for the Cash Management and the Focus Growth &
Income portfolios, each underlying portfolio is multi-managed by a team of three
money managers specializing in a distinct investment style.
The nine SELECT PORTFOLIOS and the respective managers are:
<TABLE>
<S> <C>
LARGE CAP GROWTH LARGE CAP COMPOSITE
BANKERS TRUST COMPANY BANKERS TRUST
("BANKERS TRUST") SUNAMERICA ASSET
GOLDMAN SACHS ASSET MANAGEMENT CORPORATION
MANAGEMENT ("GOLDMAN ("SAAMCO")
SACHS") T. ROWE PRICE ASSOCIATES, INC.
JANUS CAPITAL CORPORATION("JANUS") ("T. ROWE PRICE")
LARGE CAP VALUE MID CAP GROWTH
BANKERS TRUST BANKERS TRUST
T. ROWE PRICE T. ROWE PRICE
WELLINGTON MANAGEMENT WELLINGTON
COMPANY LLP ("WELLINGTON")
MID CAP VALUE SMALL CAP
BANKERS TRUST BANKERS TRUST
GOLDMAN SACHS LORD ABBETT
LORD ABBETT & CO. ("LORD ABBETT") SAAMCO
INTERNATIONAL EQUITY DIVERSIFIED FIXED INCOME
BANKERS TRUST BANKERS TRUST
GOLDMAN SACHS ASSET SAAMCO
MANAGEMENT WELLINGTON
INTERNATIONAL ("GOLDMAN
SACHS INT'L")
LORD ABBETT
CASH MANAGEMENT
SAAMCO
</TABLE>
The three FOCUSED PORTFOLIOS and its managers are:
FOCUS GROWTH
FRED ALGER MANAGEMENT ("FRED ALGER")
JENNISON ASSOCIATES ("JENNISON")
MARSICO CAPITAL MANAGEMENT LLC ("MARSICO")
FOCUS GROWTH AND INCOME
MARSICO
SAAMCO
FOCUS TECHNET
DRESDNER RCM GLOBAL FUNDS ("DRESDNER")
SAAMCO
VAN WAGONER CAPITAL MANAGEMENT ("VAN WAGONER")
<PAGE>
Each SEASONS STRATEGY has a different investment objective and utilizes an asset
allocation investment approach. Each SEASONS STRATEGY invests in a combination
of underlying investment portfolios which in turn invest in a combination of
stocks, bonds and cash, to achieve its investment objective. The four investment
SEASONS STRATEGIES and their underlying investment portfolios are:
GROWTH STRATEGY
- ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC. ("PUTNAM")
- STOCK PORTFOLIO
T. ROWE PRICE
- MULTI-MANAGED GROWTH PORTFOLIO
JANUS
SAAMCO
WELLINGTON
MODERATE GROWTH STRATEGY
- ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO
PUTNAM INVESTMENT MANAGEMENT, INC.
- STOCK PORTFOLIO
T. ROWE PRICE
- MULTI-MANAGED MODERATE GROWTH PORTFOLIO
JANUS
SAAMCO
WELLINGTON
BALANCED GROWTH STRATEGY
- ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO
PUTNAM
- STOCK PORTFOLIO
T. ROWE PRICE
- MULTI-MANAGED INCOME/EQUITY PORTFOLIO
JANUS
SAAMCO
WELLINGTON
CONSERVATIVE GROWTH STRATEGY
- ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO
PUTNAM
- STOCK PORTFOLIO
T. ROWE PRICE
- MULTI-MANAGED INCOME PORTFOLIO
JANUS
SAAMCO
WELLINGTON
The percentage allocation of the underlying portfolios in which each SEASONS
STRATEGY invests is depicted in the Prospectus.
5. EXPENSES
Each year we deduct a $35 ($30 in North Dakota) contract administration fee on
your contract anniversary. We currently waive this fee if your contract value is
at least $50,000 on your contract anniversary.
We also deduct insurance charges. The insurance charge amounts to 1.40% annually
of the average daily value of your contract allocated to the SELECT PORTFOLIOS,
FOCUSED PORTFOLIOS and/or SEASONS STRATEGIES. There are also investment charges
and other expenses if you put money into the SELECT PORTFOLIOS, FOCUSED
PORTFOLIOS or SEASONS STRATEGIES, which are estimated to range from 0.85% to
1.50%, and 12b-1 fees of 0.15% annually. Investment charges may be more or less
than the percentages reflected here.
If you take your money out in excess of the "free withdrawal" amount allowed for
in your contract, we may assess a withdrawal charge that is a percentage of the
money you withdraw. The withdrawal charge schedule also varies depending on
whether you elect to participate in the Seasons Rewards Program when you
purchase your contract. The percentage declines with each year the Purchase
Payment is in the contract as follows:
WITHDRAWAL CHARGE WITHOUT THE SEASONS REWARDS PROGRAM (SCHEDULE A)
<TABLE>
<S> <C> <C> <C>
Year 1........ 7% Year 5........ 4%
Year 2........ 6% Year 6........ 3%
Year 3........ 6% Year 7........ 2%
Year 4........ 5% Year 8........ 0%
</TABLE>
WITHDRAWAL CHARGE WITH THE SEASONS REWARDS PROGRAM (SCHEDULE B)
<TABLE>
<S> <C> <C> <C>
Year 1........ 9% Year 6........ 5%
Year 2........ 8% Year 7........ 4%
Year 3........ 7% Year 8........ 3%
Year 4........ 6% Year 9........ 2%
Year 5........ 6% Year 10........ 0%
</TABLE>
The higher potential withdrawal charges may compensate us for the expenses
associated with the Seasons Rewards Program.
Additionally, if you take money out of a multi-year fixed investment option
before the end of the selected period, we may assess a market value adjustment
which could increase or decrease the value of your money.
In some states you may also be assessed a state premium tax of up to 3.5%,
depending upon the state in which you reside.
You may make transfers among the SELECT PORTFOLIOS, FOCUSED PORTFOLIOS, SEASONS
STRATEGIES and/or fixed investment options without incurring a transfer charge.
However, we reserve the right to charge a fee for such transfers in the future.
If you elect Seasons Estate Advantage, the optional enhanced death benefit, we
charge 0.25% of your daily net asset value. This fee is an annualized charge
that is deducted daily.
If you elect to enroll in the optional Income Protector program, we charge 0.10%
of your Income Benefit Base (as described in the Prospectus) from your contract
value on each contract anniversary.
The following charts are designed to help you understand the charges in your
contract. THE COLUMN "TOTAL ANNUAL CHARGES" SHOWS THE TOTAL OF THE $35 CONTRACT
ADMINISTRATION CHARGE, THE 1.40% INSURANCE CHARGE, THE 0.15% 12B-1 FEE, AND THE
INVESTMENT CHARGES FOR EACH SELECT PORTFOLIO, FOCUSED PORTFOLIO AND SEASONS
STRATEGY. WE CONVERTED THE CONTRACT ADMINISTRATION CHARGE TO A PERCENTAGE
(0.09%) USING AN ASSUMED CONTRACT SIZE OF $40,000. The actual impact of the
administration charge on your contract may differ from this percentage and may
be waived for contract values over $50,000.
<PAGE>
If you do not elect the optional Income Protector Program or Seasons Estate
Advantage:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
EXAMPLES(1)
Total Total
Expenses Expenses
at end of at end of
1 YEAR 10 YEARS
Total Without/ Without/
Annual Total Annual With With
Insurance Investment Total Seasons Seasons
Related Related Annual Rewards Rewards
Charges Charges Charges Program Program
SELECT PORTFOLIOS(2)
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
Large Cap Growth 1.49% (1.40% + .09%) 1.25% (1.10% + .15%) 2.74% $97/117 $303/303
Large Cap Composite 1.49% (1.40% + .09%) 1.25% (1.10% + .15%) 2.74% $97/117 $303/303
Large Cap Value 1.49% (1.40% + .09%) 1.25% (1.10% + .15%) 2.74% $97/117 $303/303
Mid Cap Growth 1.49% (1.40% + .09%) 1.30% (1.15% + .15%) 2.79% $98/118 $308/308
Mid Cap Value 1.49% (1.40% + .09%) 1.30% (1.15% + .15%) 2.79% $98/118 $308/308
Small Cap 1.49% (1.40% + .09%) 1.30% (1.15% + .15%) 2.79% $98/118 $308/308
International Equity 1.49% (1.40% + .09%) 1.45% (1.30% + .15%) 2.94% $99/119 $323/323
Diversified Fixed
Income 1.49% (1.40% + .09%) 1.15% (1.00% + .15%) 2.64% $96/116 $294/294
Cash Management 1.49% (1.40% + .09%) 1.00% (0.85% + .15%) 2.49% $95/115 $279/279
--------------------------------------------------------------------------------------------------------------------------
FOCUSED
PORTFOLIOS(3)
--------------------------------------------------------------------------------------------------------------------------
Focus Growth 1.49% (1.40% + .09%) 1.45% (1.30% + .15%) 2.94% $99/119 $323/323
Focus Growth and
Income 1.49% (1.40% + .09%) 1.45% (1.30% + .15%) 2.94% $99/119 $323/323
Focus TechNet 1.49% (1.40% + .09%) 1.65% (1.50% + .15%) 3.14% $101/121 $341/341
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
EXAMPLES(3)
Total Total
Expenses Expenses
at end of at end of
1 YEAR 10 YEARS
Total Without/ Without/
Annual Total Annual With With
Insurance Investment Total Seasons Seasons
Related Related Annual Rewards Rewards
Charges Charges(5) Charges Program Program
SEASONS STRATEGIES(4)
<S> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------
Growth 1.49% (1.40% + .09%) 1.29% (1.14% + .15%) 2.78% $98/118 $307/307
Moderate Growth 1.49% (1.40% + .09%) 1.27% (1.12% + .15%) 2.76% $98/118 $305/305
Balanced Growth 1.49% (1.40% + .09%) 1.27% (1.12% + .15%) 2.76% $98/118 $305/305
Conservative Growth 1.49% (1.40% + .09%) 1.25% (1.10% + .15%) 2.74% $97/117 $303/303
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The total expenses at the end of each period do not take into account any
Upfront or Deferred Payment Enhancement which may be added to your contract
if you elected the Seasons Rewards Program. If you elect the Seasons Rewards
Program, your expenses may differ from the information shown here.
(2) Absent fee waivers or reimbursement of expenses by the adviser, you would
have incurred the following expenses during the last fiscal year: Large Cap
Growth (1.30%), Large Cap Composite (1.48%), Large Cap Value (1.39%), Mid
Cap Growth (1.35%), Mid Cap Value (1.47%), Small Cap (1.45%), International
Equity (1.91%), Diversified Fixed Income (1.31%), and Cash Management
(2.95%).
(3) This portfolio was not available for sale during the entire fiscal year of
the Trust. The Total Annual Investment Related Charges are based on
estimated amounts for the current fiscal year.
(4) Absent recoupment of expenses by the adviser for the underlying investment
portfolios, you would have incurred the following expenses for the
strategies during the last fiscal year: Growth (1.28%), Moderate Growth
(1.26%), Balanced Growth (1.25%) and Conservative Growth (1.24%).
(5) Investment related charges for each SEASONS STRATEGY are based upon the
allocation to the underlying investment portfolio after the quarterly
rebalancing described in the prospectus.
<PAGE>
If you elect the optional Income Protector Program (0.10%) and Seasons Estate
Advantage (0.25%)*:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
EXAMPLES(1)
Total Total
Expenses Expenses
at end of at end of
1 YEAR 10 YEARS
Total Without/ Without/
Annual Total Annual With With
Insurance Investment Total Seasons Seasons
Related Related Annual Rewards Rewards
Charges Charges Charges Program Program
SELECT PORTFOLIOS(2)
<S> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------
Large Cap Growth 1.84% (1.40% + .09% + .10% + .25%) 1.25% (1.10% + .15%) 3.09% $101/121 $337/337
Large Cap Composite 1.84% (1.40% + .09% + .10% + .25%) 1.25% (1.10% + .15%) 3.09% $101/121 $337/337
Large Cap Value 1.84% (1.40% + .09% + .10% + .25%) 1.25% (1.10% + .15%) 3.09% $101/121 $337/337
Mid Cap Growth 1.84% (1.40% + .09% + .10% + .25%) 1.30% (1.15% + .15%) 3.14% $101/121 $341/341
Mid Cap Value 1.84% (1.40% + .09% + .10% + .25%) 1.30% (1.15% + .15%) 3.14% $101/121 $341/341
Small Cap Portfolio 1.84% (1.40% + .09% + .10% + .25%) 1.30% (1.15% + .15%) 3.14% $101/121 $341/341
International Equity 1.84% (1.40% + .09% + .10% + .25%) 1.45% (1.30% + .15%) 3.29% $103/123 $355/355
Diversified Fixed
Income 1.84% (1.40% + .09% + .10% + .25%) 1.15% (1.00% + .15%) 2.99% $100/120 $327/327
Cash Management 1.84% (1.40% + .09% + .10% + .25%) 1.00% (0.85% + .15%) 2.84% $ 98/118 $313/313
-------------------------------------------------------------------------------------------------------------------
FOCUSED
PORTFOLIOS(3)
-------------------------------------------------------------------------------------------------------------------
Focus Growth 1.84% (1.40% + .09% + .10% + .25%) 1.45% (1.30% + .15%) 3.29% $103/123 $355/355
Focus Growth and
Income 1.84% (1.40% + .09% + .10% + .25%) 1.45% (1.30% + .15%) 3.29% $103/123 $355/355
Focus TechNet 1.84% (1.40% + .09% + .10% + .25%) 1.65% (1.50% + .15%) 3.49% $105/125 $373/373
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
EXAMPLES(4)
Total Total
Expenses Expenses
at end of at end of
1 YEAR 10 YEARS
Total Without/ Without/
Annual Total Annual With With
Insurance Investment Total Seasons Seasons
Related Related Annual Rewards Rewards
Charges Charges(5) Charges Program Program
SEASONS STRATEGIES(4)
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------
Growth 1.84% (1.40% + .09% + .10% + .25%) 1.29% (1.14% + .15%) 3.13% $101/121 $340/340
Moderate Growth 1.84% (1.40% + .09% + .10% + .25%) 1.27% (1.12% + .15%) 3.11% $101/121 $339/339
Balanced Growth 1.84% (1.40% + .09% + .10% + .25%) 1.27% (1.12% + .15%) 3.11% $101/121 $339/339
Conservative Growth 1.84% (1.40% + .09% + .10% + .25%) 1.25% (1.10% + .15%) 3.09% $101/121 $337/337
--------------------------------------------------------------------------------------------------------------------
</TABLE>
* Once elected at the time of contract application, the Income Protector Program
and Seasons Estate Advantage cannot be terminated.
(1) The total expenses at the end of each period do not take into account any
Upfront or Deferred Payment Enhancement which may be added to your Contract
if you elected the Seasons Rewards feature. If you elect the Seasons Rewards
feature, your expenses may differ from the information shown here.
(2) Absent fee waivers or reimbursement of expenses by the adviser, you would
have incurred the following expenses during the last fiscal year: Large Cap
Growth (1.30%), Large Cap Composite (1.48%), Large Cap Value (1.39%), Mid
Cap Growth (1.35%), Mid Cap Value (1.47%), Small Cap (1.45%), International
Equity (1.91%), Diversified Fixed Income (1.31%), and Cash Management
(2.95%).
(3) This portfolio was not available for sale during the entire fiscal year of
the Trust. The Total Annual Investment Related Charges are based on
estimated amounts for the current fiscal year.
(4) Absent recoupment of expenses by the adviser for the underlying investment
portfolios, you would have incurred the following expenses for the
strategies during the last fiscal year: Growth (1.28%), Moderate Growth
(1.26%), Balanced Growth (1.25%) and Conservative Growth (1.24%).
(5) Investment related charges for each SEASONS STRATEGY are based upon the
allocation to the underlying investment portfolio after the quarterly
rebalancing described in the prospectus.
The examples assume that you invested $1,000 in a SELECT PORTFOLIO, FOCUSED
PORTFOLIO or SEASONS STRATEGY which earns 5% annually and that you withdrew your
money at the end of a 1 year period and at the end of a 10 year period. For year
1, the total annual charges are assessed as well as the withdrawal charge. For
year 10, the example reflects the Total Annual Charges but there is no
withdrawal charge applicable. The Annual Investment Related Charges may vary.
The amounts shown here are estimates and reflect the waiver or reimbursement of
expenses by the investment adviser. No premium taxes are reflected. Please see
the Fee Tables in the Prospectus for more detailed information regarding the
fees and expenses incurred under the contract.
<PAGE>
6. TAXES
Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts earned in a Non-qualified contract (one that is established
with after tax dollars) are deferred until they are withdrawn. In a Qualified
contract (one that is established with before tax dollars) all amounts are
taxable when they are withdrawn.
When you begin taking distributions or withdrawals from your contract, earnings
are considered to be taken out first and will be taxed at your ordinary income
tax rate. You may be subject to a 10% IRS tax penalty for distributions or
withdrawals before age 59 1/2.
7. ACCESS TO YOUR MONEY
Withdrawals may be made from your contract in the amount of $1,000 or more.
Your contract provides for a free withdrawal amount each year without being
charged a surrender penalty. However, upon a future full surrender of your
contract any previous free withdrawals would be subject to a surrender charge,
if any is applicable at the time of the full surrender.
A separate withdrawal charge schedule applies to each Purchase Payment. After a
Purchase Payment has been in the contract for seven full years, or nine years if
you participate in the Seasons Rewards Program, withdrawal charges no longer
apply to that portion of the money. Of course, upon withdrawal you may also have
to pay income taxes and a 10% IRS tax penalty may apply. Neither withdrawal
charges nor the 10% IRS tax penalty are assessed when a death benefit is paid.
8. PERFORMANCE
The value of your annuity will fluctuate depending upon the investment
performance of the SELECT PORTFOLIOS, FOCUSED PORTFOLIOS and/or SEASONS
STRATEGIES you select. From time to time we may advertise a SELECT PORTFOLIO'S,
FOCUSED PORTFOLIO'S or SEASONS STRATEGY'S total return. The following chart
shows total returns for the time period shown. These numbers reflect the
insurance charges, the contract maintenance fee and investment charges.
Withdrawal charges are not reflected in the chart. The total returns here do not
take into account the effect of any Payment Enhancement made under the Seasons
Rewards Program. The total return figures are based on historical data and are
not intended to indicate future performance.
<TABLE>
<CAPTION>
<S> <C>
-----------------------------------------------
Strategy 1999
-----------------------------------------------
Growth............................ 35.17%
Moderate Growth................... 29.46%
Balanced Growth................... 16.75%
Conservative Growth............... 10.42%
-----------------------------------------------
</TABLE>
The other investment options were not available for sale for the full calendar
year 1999.
9. DEATH BENEFIT
If you should die during the Accumulation Phase, your Beneficiary will receive a
death benefit.
The Standard Death Benefit is an automatic feature of your contract. We also
offer Seasons Estate Advantage which provides a choice of two optional enhanced
death benefits, along with an Earnings Advantage benefit. You may not elect
Seasons Estate Advantage if you are age 81 or older at time of contract issue.
Additionally, no benefit will be paid under Seasons Estate Advantage, if you die
after the latest Annuity Date. Season Estate Advantage may not be available in
all states nor through the Broker-Dealers with which your financial adviser is
affiliated. Please check with your financial adviser regarding the availability
of this Program.
10. OTHER INFORMATION
OWNERSHIP: The contract is an allocated fixed and variable group annuity
contract. A group contract is issued to a contractholder, for the benefit of the
participants in the group. You, as an owner of a Seasons Select(II) Variable
Annuity, are a participant in the group and will receive a certificate
evidencing your ownership. You, as the owner of a certificate, are entitled to
all the rights and privileges of ownership. As used in this Profile and the
Prospectus, the term contract refers to your certificate. In some states an
individual fixed and variable annuity contract may be available instead, which
is identical to the group contract described in this Profile and Prospectus
except that it is issued directly to the individual owner.
FREE LOOK: You may cancel your contract within 10 days of receiving it (or
whatever period is required by your state) by mailing it to our Annuity Service
Center. Your contract will be treated as void on the
<PAGE>
date we receive it. We will refund to you the value of your contract on the day
we receive your request minus the Free Look Payment Enhancement Deduction if you
had elected the Seasons Rewards Program.
Thus, you receive any gain and we bear any loss on any Payment Enhancement(s) if
you decide to cancel your contract during the free look period.
SYSTEMATIC WITHDRAWAL PROGRAM: If selected by you, this program allows you to
receive either monthly, quarterly, semi-annual or annual checks during the
Accumulation Phase. Systematic withdrawals may also be electronically
transferred to your bank account. Of course, withdrawals during the Accumulation
Phase may be taxable and a 10% IRS tax penalty may apply if you are under age
59 1/2.
DOLLAR COST AVERAGING: If selected by you, this program allows you to invest
gradually into one or more of the SELECT PORTFOLIO(S), FOCUSED PORTFOLIO(S)
and/or SEASONS STRATEGY(IES) from a SELECT PORTFOLIO, FOCUSED PORTFOLIO, SEASONS
STRATEGY or 1-year fixed account option. If you do not participate in the
Seasons Rewards Program you may also invest in the SELECT PORTFOLIO(S), FOCUSED
PORTFOLIO(S) and/or SEASONS STRATEGY(IES) from the 6-month DCA fixed account
option or the 1-year DCA fixed account option.
PRINCIPAL ADVANTAGE PROGRAM: If selected by you, this program allows you to put
money in a fixed investment option and one or more SELECT PORTFOLIO(S), FOCUSED
PORTFOLIO(S) or SEASONS STRATEGY(IES) and we will guarantee that the portion
allocated to the fixed investment option assuming that it remains invested in
that option, will grow to equal your principal investment at the end of the
guarantee period you have selected.
AUTOMATIC PAYMENT PLAN: You can add to your contract directly from your bank
account with as little as $50 per month.
CONFIRMATIONS AND QUARTERLY STATEMENTS: During the Accumulation Phase, you will
receive confirmation of transactions within your contract. Transactions made
pursuant to contractual or systematic agreements, such as the deduction of the
annual maintenance fee and dollar cost averaging, may be confirmed quarterly.
Purchase payments received through the Automatic Payment Plan or a salary
reduction arrangement, may also be confirmed quarterly. All other transactions
are confirmed immediately.
During the Accumulation and Income Phases, you will receive a statement of your
transactions over the past quarter and a summary of your account values.
11. INQUIRIES:
If you have questions about your contract or need to make changes, call your
financial representative or contact us at:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
800/445-SUN2
If money accompanies your correspondence, you should direct it to:
Anchor National Life Insurance Company
P.O. Box 100330
Pasadena, California 91189-0001
<PAGE>
[LOGO]
PROSPECTUS
December 29, 2000
ALLOCATED FIXED AND VARIABLE GROUP ANNUITY
issued by
VARIABLE ANNUITY ACCOUNT FIVE
and
ANCHOR NATIONAL LIFE INSURANCE COMPANY
The annuity contract has 23 investment choices - 7 fixed investment options (5
fixed investment options if the Seasons Rewards Program is elected) which offer
interest rates guaranteed by Anchor National for different periods of time, 9
variable investment SELECT PORTFOLIOS, 3 variable investment FOCUSED PORTFOLIOS
and 4 variable investment SEASONS STRATEGIES:
<TABLE>
<CAPTION>
SELECT PORTFOLIOS FOCUSED PORTFOLIOS SEASONS STRATEGIES
<S> <C> <C>
LARGE CAP GROWTH FOCUS GROWTH GROWTH
LARGE CAP COMPOSITE FOCUS GROWTH AND INCOME MODERATE GROWTH
LARGE CAP VALUE FOCUS TECHNET BALANCED GROWTH
MID CAP GROWTH CONSERVATIVE GROWTH
MID CAP VALUE
SMALL CAP
INTERNATIONAL EQUITY
DIVERSIFIED FIXED INCOME
CASH MANAGEMENT
</TABLE>
all of which invest in the underlying portfolios of
SEASONS SERIES TRUST
which is managed by:
<TABLE>
<CAPTION>
SELECT PORTFOLIOS FOCUSED PORTFOLIOS SEASONS STRATEGIES
<S> <C> <C>
BANKERS TRUST COMPANY FRED ALGER MANAGEMENT PUTNAM INVESTMENT MANAGEMENT, INC.
GOLDMAN SACHS ASSET MANAGEMENT JENNISON ASSOCIATES T. ROWE PRICE ASSOCIATES, INC.
JANUS CAPITAL CORPORATION MARSICO CAPITAL MANAGEMENT LLC JANUS CAPITAL CORPORATION
LORD, ABBETT & COMPANY DRESDNER RCM GLOBAL FUNDS SUNAMERICA ASSET MANAGEMENT CORPORATION
SUNAMERICA ASSET MANAGEMENT CORPORATION SUNAMERICA ASSET MANAGEMENT WELLINGTON MANAGEMENT COMPANY, LLP
T. ROWE PRICE ASSOCIATES, INC. CORPORATION
GOLDMAN SACHS ASSET MANAGEMENT/ VANWAGONER CAPITAL MANAGEMENT
GOLDMAN SACHS ASSET MANAGEMENT INT'L
WELLINGTON MANAGEMENT COMPANY, LLP
</TABLE>
You can put your money into any one or all of the SELECT PORTFOLIOS, FOCUSED
PORTFOLIOS, SEASONS STRATEGIES and/or fixed investment options.
Please read this prospectus carefully before investing and keep it for your
future reference. It contains important information you should know about the
Seasons Select(II) Variable Annuity. This variable annuity provides an optional
bonus feature called "Seasons Rewards." If you elect this feature, in exchange
for bonuses credited to your contract, your surrender charge schedule will be
longer and greater than if you chose not to elect this feature. These withdrawal
charges may offset the value of any bonus, if you make an early withdrawal.
To learn more about the annuity offered by this prospectus, you can obtain a
copy of the Statement of Additional Information ("SAI") dated December 29,
2000. The SAI has been filed with the Securities and Exchange Commission
("SEC") and can be considered part of this prospectus.
The table of contents of the SAI appears on page 41 of this prospectus. For a
free copy of the SAI, call us at 800/445-SUN2 or write our Annuity Service
Center at, P.O. Box 54299, Los Angeles, California 90054-0299.
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
In addition, the SEC maintains a website (http://www.sec.gov) that contains the
SAI, materials incorporated by reference and other information filed
electronically with the SEC.
ANNUITIES INVOLVE RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, AND ARE NOT A
DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
Anchor National's Annual Report on Form 10-K for the year ended
December 31, 1999, and its quarterly report on Form 10-Q for the quarters ended
March 31, 2000, June 30, 2000 and September 30, 2000, are incorporated herein by
reference.
All documents or reports filed by Anchor National under Section 13(a), 13(c),
14, or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") after the effective date of this prospectus are also incorporated by
reference. Statements contained in this prospectus and subsequently filed
documents which are incorporated by reference or deemed to be incorporated by
reference are deemed to modify or supersede documents incorporated herein by
reference.
Anchor National files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000006342.
Anchor National is subject to the informational requirements of the Securities
and Exchange Act of 1934 (as amended). We file reports and other information
with the SEC to meet those requirements. You can inspect and copy this
information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
7 World Trade Center, 13th Fl.
New York, NY 10048
To obtain copies by mail, contact the Washington, D.C. location. After you pay
the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the registration
statements and exhibits. For further information regarding the separate account,
Anchor National and its general account, the Variable Portfolios and the
contract, please refer to the registration statements and exhibits.
The SEC also maintains a website (http:// www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by Anchor National.
Anchor National will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of the documents
incorporated by reference. Requests for these documents should be directed to
Anchor National's Annuity Service Center, as follows:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
Indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") is provided to Anchor National's officers, directors and controlling
persons. The SEC has advised that it believes such indemnification is against
public policy under the Act and unenforceable. If a claim for indemnification
against such liabilities (other than for Anchor National's payment of expenses
incurred or paid by its directors, officers or controlling persons in the
successful defense of any legal action) is asserted by a director, officer or
controlling person of Anchor National in connection with the securities
registered under this prospectus, Anchor National will submit to a court with
jurisdiction to determine whether the indemnification is against public policy
under the Act. Anchor National will be governed by final judgment of the issue.
However, if in the opinion of Anchor National's counsel this issue has been
determined by controlling precedent, Anchor National will not submit the issue
to a court for determination.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY.................................................... 4
FEE TABLES.................................................. 5
Owner Transaction Expenses.............................. 5
Annual Separate Account Expenses........................ 5
The Optional Income Protector Fee....................... 5
The Optional Seasons Estate Advantage Fee............... 5
Investment Portfolio Expenses of Portfolios and Seasons
Strategies............................................. 6
EXAMPLES.................................................... 7
THE SEASONS SELECT(II) VARIABLE ANNUITY..................... 11
PURCHASING A SEASONS SELECT(II) VARIABLE ANNUITY............ 12
Allocation of Purchase Payments......................... 12
Seasons Rewards Program................................. 12
Accumulation Units...................................... 14
Free Look............................................... 15
INVESTMENT OPTIONS.......................................... 15
Variable Investment Options............................. 15
THE PORTFOLIOS........................................ 16
THE SEASONS STRATEGIES................................ 16
Market Value Adjustment................................. 19
Transfers During the Accumulation Phase................. 20
Dollar Cost Averaging................................... 21
Asset Allocation Rebalancing Program.................... 22
Principal Advantage Program............................. 22
Voting Rights........................................... 23
Substitution............................................ 23
ACCESS TO YOUR MONEY........................................ 23
Free Withdrawal Provision............................... 24
Systematic Withdrawal Program........................... 25
Minimum Contract Value.................................. 25
Qualified Contract Owners............................... 25
DEATH BENEFIT............................................... 26
Standard Death Benefit.................................. 27
Seasons Estate Advantage................................ 27
Spousal Continuation.................................... 28
EXPENSES.................................................... 29
Insurance Charges....................................... 29
Withdrawal Charges...................................... 29
Investment Charges...................................... 30
Contract Maintenance Fee................................ 30
Transfer Fee............................................ 31
Seasons Estate Advantage Fee............................ 31
Optional Income Protector Fee........................... 31
Premium Tax............................................. 31
Income Taxes............................................ 31
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited............................ 31
INCOME OPTIONS.............................................. 31
Annuity Date............................................ 31
Income Options.......................................... 32
Allocation of Annuity Payments.......................... 33
Transfers During the Income Phase....................... 33
Deferment of Payments................................... 34
The Income Protector.................................... 34
TAXES....................................................... 36
Annuity Contracts in General............................ 36
Tax Treatment of Distributions--Non-qualified
Contracts.............................................. 37
Tax Treatment of Distributions--Qualified Contracts..... 37
Minimum Distributions................................... 37
Diversification......................................... 38
PERFORMANCE................................................. 38
OTHER INFORMATION........................................... 39
Anchor National......................................... 39
The Separate Account.................................... 39
Custodian............................................... 39
The General Account..................................... 39
Distribution of the Contract............................ 39
Administration.......................................... 40
Legal Proceedings....................................... 40
INDEPENDENT ACCOUNTANTS..................................... 40
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.... 41
APPENDIX A--CONDENSED FINANCIAL INFORMATION................. A-1
APPENDIX B--SEASONS REWARDS PROGRAM EXAMPLES................ B-1
APPENDIX C--MARKET VALUE ADJUSTMENT......................... C-1
APPENDIX D--DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION... D-1
APPENDIX E--PREMIUM TAXES................................... E-1
</TABLE>
3
<PAGE>
GLOSSARY
We have capitalized some of the technical terms used in this prospectus. To help
you understand these terms, we define them in this glossary.
ACCUMULATION PHASE--The period during which you invest money in your contract.
ACCUMULATION UNITS--A measurement we use to calculate the value of the variable
portion of your contract during the Accumulation Phase.
ANNUITANT(S)--The person(s) on whose life (lives) we base annuity payments.
ANNUITY DATE--The date on which annuity payments are to begin, as selected by
you.
ANNUITY UNITS--A measurement we use to calculate the amount of annuity payments
you receive from the variable portion of your contract during the Income Phase.
BENEFICIARY(IES)--The person(s) designated to receive any benefits under the
contract if you or the Annuitant dies.
COMPANY--Anchor National Life Insurance Company ("Anchor National"), We, Us, the
issuer of this annuity contract.
INCOME PHASE--The period during which we make annuity payments to you.
IRS--The Internal Revenue Service.
NON-QUALIFIED (CONTRACT)--A contract purchased with after-tax dollars. In
general, these contracts are not under any pension plan, specially sponsored
program or individual retirement account ("IRA").
PAYMENT ENHANCEMENT(S)--The amount(s) allocated to your contract by Us under the
Seasons Rewards Program. Payment enhancements are calculated as a percentage of
your Purchase Payments and are considered earnings.
PORTFOLIO(S)--A sub-account of Variable Annuity Account Five which provides for
the variable investment options available under the contract. Each SELECT and
FOCUSED PORTFOLIO has a distinct investment objective and is invested in the
underlying investment portfolios of the Seasons Series Trust. This investment
option allocates assets to an underlying fund in which a portion of the assets
is managed by three different advisors.
PURCHASE PAYMENTS--The money you give us to buy the contract, as well as any
additional money you give us to invest in the contract after you own it.
QUALIFIED (CONTRACT)--A contract purchased with pretax dollars. These contracts
are generally purchased under a pension plan, specially sponsored program or
individual retirement account ("IRA").
STRATEGY(IES)--A sub-account of Variable Annuity Account Five which provides for
the variable investment options available under the contract. Each SEASONS
STRATEGY has its own investment objective and is invested in the underlying
investment portfolios of the Seasons Series Trust. This investment option
allocates assets to three out of six available portfolios, each of which is
managed by a different investment advisor.
4
<PAGE>
SEASONS SELECT(II) VARIABLE ANNUITY FEE TABLES
------------------------------------------------------------
OWNER TRANSACTION EXPENSES
Withdrawal Charge as a percentage of Purchase Payments:
<TABLE>
<CAPTION>
YEARS: 1 2 3 4 5 6 7 8 9 10
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Schedule A*.......... 7% 6% 6% 5% 4% 3% 2% 0% 0% 0%
Schedule B**......... 9% 8% 7% 6% 6% 5% 4% 3% 2% 0%
</TABLE>
* This schedule applies to each Purchase Payment if you are NOT participating
in the Seasons Rewards Program.
** This schedule applies to each Purchase Payment if you are participating in
the Seasons Rewards Program.
<TABLE>
<S> <C>
Contract Maintenance
Charge............... $35 each year ($30 in North Dakota)
(waived for contracts over $50,000)
</TABLE>
ANNUAL SEPARATE ACCOUNT EXPENSES
(as a percentage of daily net asset value)
<TABLE>
<S> <C>
Mortality Risk Charge........................ 0.90%
Expense Risk Charge.......................... 0.35%
Distribution Expense Charge.................. 0.15%
----
Total Separate Account Expenses........ 1.40%
</TABLE>
THE OPTIONAL INCOME PROTECTOR FEE
(The Income Protector Program is optional and
if elected the fee is deducted annually from your contract value.)
<TABLE>
<S> <C>
Fee as a percentage of
your Income Benefit
Base*.................. 0.10%
</TABLE>
* The Income Benefit Base is calculated by using your contract value on the date
of your effective enrollment in the program and then each subsequent contract
anniversary, adding purchase payments made since the prior contract anniversary,
less proportional withdrawals since the prior contract anniversary and fees and
charges applicable to those withdrawals.
THE OPTIONAL SEASONS ESTATE ADVANTAGE FEE
(Seasons Estate Advantage, which offers a choice of two enhanced death benefits
and an Earnings Advantage benefit, is optional and, if elected, the fee is an
annualized charge that is deducted daily from your contract value.)
<TABLE>
<S> <C>
Fee as a percentage of
your daily net asset
value.................. 0.25%
</TABLE>
5
<PAGE>
INVESTMENT PORTFOLIO EXPENSES OF PORTFOLIOS
(as a percentage of daily net asset value after any applicable reinbursement or
waiver of expenses, as of the fiscal year end of the Trust ending March 31,
2000)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FEE 12b-1 FEES+ EXPENSES EXPENSES
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------
SELECT PORTFOLIOS(1)
------------------------------------------------
Large Cap Growth 0.80% 0.15% 0.30% 1.25%
Large Cap Composite 0.80% 0.15% 0.30% 1.25%
Large Cap Value 0.80% 0.15% 0.30% 1.25%
Mid Cap Growth 0.85% 0.15% 0.30% 1.30%
Mid Cap Value 0.85% 0.15% 0.30% 1.30%
Small Cap 0.85% 0.15% 0.30% 1.30%
International Equity 1.00% 0.15% 0.30% 1.45%
Diversified Fixed Income 0.70% 0.15% 0.30% 1.15%
Cash Management 0.55% 0.15% 0.30% 1.00%
-------------------------------------------------------------------------------------------------------------
FOCUSED PORTFOLIOS
------------------------------------------------
Focus Growth* 1.00% 0.15% 0.30% 1.45%
Focus Growth and Income* 1.00% 0.15% 0.30% 1.45%
Focus TechNet* 1.20% 0.15% 0.30% 1.65%
-------------------------------------------------------------------------------------------------------------
</TABLE>
* This portfolio was not available for sale during the entire fiscal year of the
Trust. The percentages are based on estimated amounts for the current fiscal
year.
INVESTMENT PORTFOLIO EXPENSES BY SEASONS STRATEGY
(based on the total annual expenses of the underlying investment portfolios
reflected below after any applicable reimbursement or waiver of expenses, as of
the fiscal year end of the Trust ending March 31, 2000)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FEE 12b-1 FEES+ EXPENSES EXPENSES
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------
SEASONS STRATEGY(2)
------------------------------------------------
Growth 0.87% 0.15% 0.27% 1.29%
Moderate Growth 0.85% 0.15% 0.27% 1.27%
Balanced Growth 0.83% 0.15% 0.29% 1.27%
Conservative Growth 0.80% 0.15% 0.30% 1.25%
-------------------------------------------------------------------------------------------------------------
</TABLE>
IMPORTANT INFORMATION ABOUT PORTFOLIO EXPENSES IF INVESTED IN SEASONS
STRATEGIES:
The Investment Portfolio Expenses table set forth below identifies the total
investment expenses charged by the underlying investment portfolios of Seasons
Series Trust. Each contractholder invested in a SEASONS STRATEGY will incur only
a portion of the investment expense of those portfolios in which the SEASONS
STRATEGY invests. The table above entitled "Investment Portfolio Expenses by
SEASONS STRATEGY" shows an approximation of the total investment expenses a
contractholder may incur if invested in each respective SEASONS STRATEGY, after
the automatic quarterly rebalancing of such SEASONS STRATEGY as described on
page 17. The actual investment expenses incurred by contractholders within a
SEASONS STRATEGY will vary depending upon the daily net asset value of each
investment portfolio in which such SEASONS STRATEGY is invested.
INVESTMENT PORTFOLIO EXPENSES
FOR SEASONS STRATEGY UNDERLYING PORTFOLIOS
(as a percentage of daily net asset value of each investment portfolio as of the
fiscal year end of the
Trust ending March 31, 2000)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FEE 12b-1 FEES+ EXPENSES EXPENSES
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------
SEASONS STRATEGY UNDERLYING PORTFOLIOS
------------------------------------------------
Stock 0.85% 0.15% 0.21% 1.21%
Asset Allocation: Diversified Growth(3) 0.85% 0.15% 0.36% 1.36%
Multi-Managed Growth 0.89% 0.15% 0.26% 1.30%
Multi-Managed Moderate Growth 0.85% 0.15% 0.25% 1.25%
Multi-Managed Income/Equity(3) 0.81% 0.15% 0.29% 1.25%
Multi-Managed Income(3) 0.77% 0.15% 0.29% 1.21%
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Absent fee waivers or reimbursement of expenses by the adviser, you would
have incurred the following expenses during the last fiscal year: Large Cap
Growth (1.30%), Large Cap Composite (1.48%), Large Cap Value (1.39%), Mid
Cap Growth (1.35%), Mid Cap Value (1.47%), Small Cap (1.45%), International
Equity (1.91%), Diversified Fixed Income (1.31%), and Cash Management
(2.95%).
(2) Absent recoupment of expenses by the adviser for the underlying investment
portfolios, you would have incurred the following expenses for the
strategies during the last fiscal year: Growth (1.28%), Moderate Growth
(1.26%), Balanced Growth (1.25%) and Conservative Growth (1.24%).
(3) Absent recoupment of expenses by the adviser, you would have incurred the
following expenses during the last fiscal year: Asset Allocation:
Diversified Growth (1.16%), Multi-Managed Income (1.08%) and Multi-Managed
Income/Equity (1.09%).
+ The 12b-1 plan became effective on the commencement of sales of the Seasons
Select(II) contract. Although the 12b-1 fee is reflected in the numbers shown
here, it was not in effect on March 31, 2000.
THE ABOVE INVESTMENT PORTFOLIO EXPENSES WERE PROVIDED BY SEASONS SERIES TRUST.
WE HAVE NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
6
<PAGE>
EXAMPLES
You will pay the following expenses on a $1,000 investment, assuming a 5% annual
return on assets, Investment Portfolio Expenses after any waiver, reimbursement
or recoupment, if applicable, and you did NOT PARTICIPATE IN THE SEASONS REWARDS
PROGRAM:
(a) If the contract is surrendered at the end of the stated time period.
(b) If the contract is surrendered and you elect Seasons Estate Advantage and
the Income Protector Program.
(c) If the contract is not surrendered or is annuitized.*
(d) If the contract is not surrendered and you elect Seasons Estate Advantage
and the Income Protector Program.
<TABLE>
<CAPTION>
TIME PERIODS
-----------------------------------------------------------------------------------------------
SELECT PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Large Cap Growth (a) $ 97 (a) $144 (a) $183 (a) $303
(b) $101 (b) $154 (b) $200 (b) $337
(c) $ 27 (c) $ 84 (c) $143 (c) $303
(d) $ 31 (d) $ 94 (d) $160 (d) $337
Large Cap Composite (a) $ 97 (a) $144 (a) $183 (a) $303
(b) $101 (b) $154 (b) $200 (b) $337
(c) $ 27 (c) $ 84 (c) $143 (c) $303
(d) $ 31 (d) $ 94 (d) $160 (d) $337
Large Cap Value (a) $ 97 (a) $144 (a) $183 (a) $303
(b) $101 (b) $154 (b) $200 (b) $337
(c) $ 27 (c) $ 84 (c) $143 (c) $303
(d) $ 31 (d) $ 94 (d) $160 (d) $337
Mid Cap Growth (a) $ 98 (a) $145 (a) $186 (a) $308
(b) $101 (b) $156 (b) $203 (b) $341
(c) $ 28 (c) $ 85 (c) $146 (c) $308
(d) $ 31 (d) $ 96 (d) $163 (d) $341
Mid Cap Value (a) $ 98 (a) $145 (a) $186 (a) $308
(b) $101 (b) $156 (b) $203 (b) $341
(c) $ 28 (c) $ 85 (c) $146 (c) $308
(d) $ 31 (d) $ 96 (d) $163 (d) $341
Small Cap (a) $ 98 (a) $145 (a) $186 (a) $308
(b) $101 (b) $156 (b) $203 (b) $341
(c) $ 28 (c) $ 85 (c) $146 (c) $308
(d) $ 31 (d) $ 96 (d) $163 (d) $341
International Equity (a) $ 99 (a) $150 (a) $193 (a) $323
(b) $103 (b) $160 (b) $210 (b) $355
(c) $ 29 (c) $ 90 (c) $153 (c) $323
(d) $ 33 (d) $100 (d) $170 (d) $355
Diversified Fixed Income (a) $ 96 (a) $141 (a) $178 (a) $294
(b) $100 (b) $151 (b) $196 (b) $327
(c) $ 26 (c) $ 81 (c) $138 (c) $294
(d) $ 30 (d) $ 91 (d) $156 (d) $327
Cash Management (a) $ 95 (a) $137 (a) $171 (a) $279
(b) $ 98 (b) $147 (b) $188 (b) $313
(c) $ 25 (c) $ 77 (c) $131 (c) $279
(d) $ 28 (d) $ 87 (d) $148 (d) $313
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
<CAPTION>
FOCUSED PORTFOLIOS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Focus Growth (a) $ 99 (a) $150 (a) $193 (a) $323
(b) $103 (b) $160 (b) $210 (b) $355
(c) $ 29 (c) $ 90 (c) $153 (c) $323
(d) $ 33 (d) $100 (d) $170 (d) $355
Focus Growth and Income (a) $ 99 (a) $150 (a) $193 (a) $323
(b) $103 (b) $160 (b) $210 (b) $355
(c) $ 29 (c) $ 90 (c) $153 (c) $323
(d) $ 33 (d) $100 (d) $170 (d) $355
Focus TechNet (a) $101 (a) $156 (a) $203 (a) $341
(b) $105 (b) $166 (b) $220 (b) $373
(c) $ 31 (c) $ 96 (c) $163 (c) $341
(d) $ 35 (d) $106 (d) $180 (d) $373
-----------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------
<CAPTION>
SEASONS STRATEGY 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth (a) $ 98 (a) $145 (a) $185 (a) $307
(b) $101 (b) $156 (b) $202 (b) $340
(c) $ 28 (c) $ 85 (c) $145 (c) $307
(d) $ 31 (d) $ 96 (d) $162 (d) $340
Moderate Growth (a) $ 98 (a) $145 (a) $184 (a) $305
(b) $101 (b) $155 (b) $201 (b) $339
(c) $ 28 (c) $ 85 (c) $144 (c) $305
(d) $ 31 (d) $ 95 (d) $161 (d) $339
Balanced Growth (a) $ 98 (a) $145 (a) $184 (a) $305
(b) $101 (b) $155 (b) $201 (b) $339
(c) $ 28 (c) $ 85 (c) $144 (c) $305
(d) $ 31 (d) $ 95 (d) $161 (d) $339
Conservative Growth (a) $ 97 (a) $144 (a) $183 (a) $303
(b) $101 (b) $154 (b) $200 (b) $337
(c) $ 27 (c) $ 84 (c) $143 (c) $303
(d) $ 31 (d) $ 94 (d) $160 (d) $337
-----------------------------------------------------------------------------------------------
</TABLE>
* We do not currently charge a surrender charge upon annuitization, unless the
contract is annuitized under the Income Protector Program. We will assess any
applicable surrender charges upon annuitizations effected using the Income
Protector Program as if you had fully surrendered your contract.
8
<PAGE>
You will pay the following expenses on a $1,000 investment, assuming a 5% annual
return on assets, Investment Portfolio Expenses after any waiver, reimbursement
or recoupment, if applicable, and YOU ELECTED TO PARTICIPATE IN THE SEASONS
REWARDS PROGRAM:
(a) If the contract is surrendered at the end of the stated time period.
(b) If the contract is surrendered at the end of the stated time period and
you elect Seasons Estate Advantage and Income Protector.
(c) If the contract is not surrendered or is annuitized at the end of the
stated time period.
(d) If the contract is not surrendered at the end of the stated time period
and you elect Seasons Estate Advantage and the Income Protector Program.
<TABLE>
<CAPTION>
TIME PERIODS
-----------------------------------------------------------------------------------------------
SELECT PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Large Cap Growth (a) $117 (a) $154 (a) $203 (a) $303
(b) $121 (b) $164 (b) $220 (b) $337
(c) $ 27 (c) $ 84 (c) $143 (c) $303
(d) $ 31 (d) $ 94 (d) $160 (d) $337
Large Cap Composite (a) $117 (a) $154 (a) $203 (a) $303
(b) $121 (b) $164 (b) $220 (b) $337
(c) $ 27 (c) $ 84 (c) $143 (c) $303
(d) $ 31 (d) $ 94 (d) $160 (d) $337
Large Cap Value (a) $117 (a) $154 (a) $203 (a) $303
(b) $121 (b) $164 (b) $220 (b) $337
(c) $ 27 (c) $ 84 (c) $143 (c) $303
(d) $ 31 (d) $ 94 (d) $160 (d) $337
Mid Cap Growth (a) $118 (a) $155 (a) $206 (a) $308
(b) $121 (b) $166 (b) $223 (b) $341
(c) $ 28 (c) $ 85 (c) $146 (c) $308
(d) $ 31 (d) $ 96 (d) $163 (d) $341
Mid Cap Value (a) $118 (a) $155 (a) $206 (a) $308
(b) $121 (b) $166 (b) $223 (b) $341
(c) $ 28 (c) $ 85 (c) $146 (c) $308
(d) $ 31 (d) $ 96 (d) $163 (d) $341
Small Cap (a) $118 (a) $155 (a) $206 (a) $308
(b) $121 (b) $166 (b) $223 (b) $341
(c) $ 28 (c) $ 85 (c) $146 (c) $308
(d) $ 31 (d) $ 96 (d) $163 (d) $341
International Equity (a) $119 (a) $160 (a) $213 (a) $323
(b) $123 (b) $170 (b) $230 (b) $355
(c) $ 29 (c) $ 90 (c) $153 (c) $323
(d) $ 33 (d) $100 (d) $170 (d) $355
Diversified Fixed Income (a) $116 (a) $151 (a) $198 (a) $294
(b) $120 (b) $161 (b) $216 (b) $327
(c) $ 26 (c) $ 81 (c) $138 (c) $294
(d) $ 30 (d) $ 91 (d) $156 (d) $327
Cash Management (a) $115 (a) $147 (a) $191 (a) $279
(b) $118 (b) $157 (b) $208 (b) $313
(c) $ 25 (c) $ 77 (c) $131 (c) $279
(d) $ 28 (d) $ 87 (d) $148 (d) $313
-----------------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------------------------------
FOCUSED PORTFOLIOS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Focus Growth (a) $119 (a) $160 (a) $213 (a) $323
(b) $123 (b) $170 (b) $230 (b) $355
(c) $ 29 (c) $ 90 (c) $153 (c) $323
(d) $ 33 (d) $100 (d) $170 (d) $355
Focus Growth and Income (a) $119 (a) $160 (a) $213 (a) $323
(b) $123 (b) $170 (b) $230 (b) $355
(c) $ 29 (c) $ 90 (c) $153 (c) $323
(d) $ 33 (d) $100 (d) $170 (d) $355
Focus TechNet (a) $121 (a) $166 (a) $223 (a) $341
(b) $125 (b) $176 (b) $240 (b) $373
(c) $ 31 (c) $ 96 (c) $163 (c) $341
(d) $ 35 (d) $106 (d) $180 (d) $373
-----------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------
<CAPTION>
SEASONS STRATEGY 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth (a) $118 (a) $155 (a) $205 (a) $307
(b) $121 (b) $166 (b) $222 (b) $340
(c) $ 28 (c) $ 85 (c) $145 (c) $307
(d) $ 31 (d) $ 96 (d) $162 (d) $340
Moderate Growth (a) $118 (a) $155 (a) $204 (a) $305
(b) $121 (b) $165 (b) $221 (b) $339
(c) $ 28 (c) $ 85 (c) $144 (c) $305
(d) $ 31 (d) $ 95 (d) $161 (d) $339
Balanced Growth (a) $118 (a) $155 (a) $204 (a) $305
(b) $121 (b) $165 (b) $221 (b) $339
(c) $ 28 (c) $ 85 (c) $144 (c) $305
(d) $ 31 (d) $ 95 (d) $161 (d) $339
Conservative Growth (a) $117 (a) $154 (a) $203 (a) $303
(b) $121 (b) $164 (b) $220 (b) $337
(c) $ 27 (c) $ 84 (c) $143 (c) $303
(d) $ 31 (d) $ 94 (d) $160 (d) $337
-----------------------------------------------------------------------------------------------
</TABLE>
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you will
incur directly and indirectly by investing in the contract. The example
reflects owner transaction expenses, separate account expenses including
optional benefit fees in some examples and investment portfolio expenses
by SELECT PORTFOLIO, FOCUSED PORTFOLIO and SEASONS STRATEGY.
2. The Examples assume that no transfer fees were imposed. Premium taxes are
not reflected but may be applicable.
3. For certain underlying investment portfolios in which the SELECT
PORTFOLIOS, FOCUSED PORTFOLIOS and SEASONS STRATEGIES invest, the adviser
voluntarily agreed to waive fees or reimburse expenses, if necessary, to
keep annual operating expenses at or below the following percentages of
each of the following Portfolios' average net assets: Multi-Managed
Income/Equity Portfolio 1.29%, Multi-Managed Income Portfolio 1.21%, Asset
Allocation: Diversified Growth Portfolio 1.36%, Large Cap Growth Portfolio
1.25%, Large Cap Composite Portfolio 1.25%, Large Cap Value Portfolio
1.25%, Mid Cap Growth Portfolio 1.30%, Mid Cap Value Portfolio 1.30%,
Small Cap Portfolio 1.30%, International Equity Portfolio 1.45%,
Diversified Fixed Income Portfolio 1.15%, Focus Growth 1.45% and Cash
Management Portfolio 1.00%. The adviser also may voluntarily waive or
reimburse additional amounts to increase the investment return to a
Portfolio's investors. The adviser may terminate all such waivers and/or
reimbursements at any time. Further, any waivers or reimbursements made by
the adviser with respect to a Portfolio are subject to recoupment from
that Portfolio within the following two years, provided that the Portfolio
is able to effect such payment to the adviser and remain in compliance
with the foregoing expense limitations.
4. Examples reflecting participation in the Seasons Rewards program reflect
surrender charge Schedule B. The total expenses at the end of each period
do not take into account any Upfront Deferred Payment Enhancement which
may be added to your contract if you elect the Seasons Rewards Program. If
you elect the Seasons Rewards Program, your expenses may differ from the
information shown here.
5. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The historical accumulation unit values for the SELECT PORTFOLIOS, FOCUSED
PORTFOLIOS and SEASONS STRATEGIES are contained in Appendix A--Condensed
Financial Information.
10
<PAGE>
THE SEASONS SELECT(II) VARIABLE ANNUITY
--------------------------------------------------------------------------------
An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: You do not pay taxes on your earnings from the annuity until
you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer
payment of taxes on earnings until withdrawn. If you are considering funding a
tax-qualified retirement plan with an annuity, you should know that an annuity
does not provide any additional tax deferral treatment of earnings beyond the
treatment provided by the tax-qualified retirement plan itself. However,
annuities do provide other features and benefits which may be valuable to you.
You should fully discuss this decision with your financial advisor.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request us to start
making payments to you out of the money accumulated in your contract.
The Contract is called a "variable" annuity because it allows you to invest in
variable investment portfolios which we call SELECT PORTFOLIOS, FOCUSED
PORTFOLIOS and SEASONS STRATEGIES. The SELECT PORTFOLIOS, FOCUSED PORTFOLIOS and
SEASONS STRATEGIES, are similar to mutual funds, in that they have specific
investment objectives and their performance varies. You can gain or lose money
if you invest in these SELECT PORTFOLIOS, FOCUSED PORTFOLIOS or SEASONS
STRATEGIES. The amount of money you accumulate in your contract depends on the
performance of the SELECT PORTFOLIO(S), FOCUSED PORTFOLIO(S) or SEASONS
STRATEGY(IES) in which you invest.
The Contract also offers several fixed account options for varying time periods.
Fixed account options earn interest at a rate set and guaranteed by Anchor
National. If you allocate money to the fixed account options, the amount of
money that accumulates in your Contract depends on the total interest credited
to the particular fixed account option(s) in which you are invested.
For more information on SELECT PORTFOLIOS, FOCUSED PORTFOLIOS, SEASONS
STRATEGIES and fixed account options available under this contract, SEE
INVESTMENT OPTIONS PAGE 15.
Anchor National issues the Seasons Select(II) Variable Annuity. When you
purchase a Seasons Select(II) Variable Annuity, a contract exists between you
and Anchor National. The Company is a stock life insurance company organized
under the laws of the state of Arizona. Its principal place of business is 1
SunAmerica Center, Los Angeles, California 90067. The Company conducts life
insurance and annuity business in the District of Columbia and all states except
New York. Anchor National is an indirect, wholly owned subsidiary of American
International Group, Inc., a Delaware corporation. Seasons Select(II) may not
currently be available in all states. Please check with your financial advisor
regarding availability in your state.
This annuity is designed for investors whose personal circumstances allow for a
long-term investment time horizon, to assist in contributing to retirement
savings. As a function of the federal tax code you may be assessed a 10% federal
tax penalty on any withdrawal made prior to your reaching age 59 1/2.
Additionally, this contract provides that you will be charged a withdrawal
charge on each Purchase Payment withdrawn if that Purchase Payment has not been
invested in this contract for at least 7 years, or 9 years if you elect to
participate in the Seasons Rewards Program. Because of these potential
penalties, you should fully discuss all of the benefits and risks of this
contract with your financial adviser prior to purchase.
11
<PAGE>
PURCHASING A SEASONS SELECT(II) VARIABLE ANNUITY
--------------------------------------------------------------------------------
An initial Purchase Payment is the money you give us to buy a contract. Any
additional money you give us to invest in the contract after purchase is a
subsequent Purchase Payment.
This chart shows the minimum initial and subsequent Purchase Payments permitted
under your contract. These amounts depend upon whether a contract is Qualified
or Non-qualified for tax purposes.
<TABLE>
<CAPTION>
MINIMUM MINIMUM SUBSEQUENT
MINIMUM INITIAL SUBSEQUENT PURCHASE PAYMENT--
PURCHASE PAYMENT PURCHASE PAYMENT AUTOMATIC PAYMENT PLAN
---------------- ---------------- ----------------------
<S> <C> <C> <C>
Qualified $2,000 $500 $50
Non-qualified $5,000 $500 $50
</TABLE>
Prior Company approval is required to accept Purchase Payments greater than
$1,500,000. The Company reserves the right to refuse any Purchase Payment
including one which would cause the contract value or Purchase Payments to
exceed $1,500,000 at the time of the Purchase Payment. Also, the optional
Automatic Payment Plan allows you to make subsequent payments as small as $50.
In general, we will not issue a Qualified contract to anyone who is age 70 1/2
or older, unless they certify to us that the minimum distribution required by
the federal tax code is being made. In addition, we may not issue a contract to
anyone age 91 or older. Seasons Estate Advantage and Seasons Rewards Program is
not available to you if you are age 81 or older at the time of contract issue.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed accounts, SELECT PORTFOLIO(S),
FOCUSED PORTFOLIO(S) and/or SEASONS STRATEGY(IES) according to your
instructions. If we receive a Purchase Payment without allocation instructions,
we will invest the money according to your last allocation instructions.
Purchase Payments are applied to your contract based upon the value of the
variable investment option next determined after receipt of your money. SEE
INVESTMENT OPTIONS PAGE 15.
In order to issue your contract, we must receive your completed application,
Purchase Payment allocation instructions and any other required paper work at
our Annuity Service Center. We allocate your initial Purchase Payment within two
days of receiving it. If we do not have complete information necessary to issue
your contract, we will contact you. If we do not have the information necessary
to issue your contract within 5 business days we will:
- Send your money back to you; or
- Ask your permission to keep your money until we get the information
necessary to issue the contract.
SEASONS REWARDS PROGRAM
If you elect to participate in the Seasons Rewards Program at contract issue, we
contribute an Upfront Payment Enhancement and, if applicable, a Deferred Payment
Enhancement to your contract in conjunction with each Purchase Payment you
invest during the life of your contract. If you elect to participate in this
program, all Purchase Payments are subject to a nine year withdrawal charge
schedule. SEE WITHDRAWAL CHARGES ON PAGE 29. If you make an early withdrawal of
Purchase Payments, we may recoup a portion of any bonuses applicable to any
payment withdrawn. SEE EXPENSES, PAGE 29. The Seasons Rewards program is not
available to you if you are age 81 or older at the time of contract issue.
Additionally, it may not be approved for sale in your state or through the
broker-dealer with which your financial advisor is affiliated. Amounts we
contribute to your contract under this program are considered earnings and are
allocated to your contract as described below.
12
<PAGE>
Purchase Payments may not be invested in the 6-month or the 1-year Dollar Cost
Averaging fixed accounts if you participate in the Seasons Rewards Program.
However, you may use the 1-year fixed account option as a Dollar Cost Averaging
source account.
There may be scenarios in which due to negative market conditions and your
inability to remain invested over the long-term, a contract with the Seasons
Rewards Program may not perform as well as the contract without the feature.
ENHANCEMENT LEVELS
The Upfront Payment Enhancement Rate, Deferred Payment Enhancement Rate and
Deferred Payment Enhancement Date may be determined based on stated Enhancement
Levels. Each Enhancement Level is a range of dollar amounts which may correspond
to different enhancement rates and dates. Enhancement Levels may change from
time to time, at our sole discretion. The Enhancement Level applicable to your
initial Purchase Payment is determined by the amount of that initial Purchase
Payment. With respect to any subsequent Purchase Payments we determine your
Enhancement Level by adding to your contract value on the date we receive each
subsequent Purchase Payment the amount of that subsequent Purchase Payment.
UPFRONT PAYMENT ENHANCEMENT
An Upfront Payment Enhancement is an amount we add to your contract on the day
we receive a Purchase Payment. We calculate an Upfront Payment Enhancement
amount as a percentage (the "Upfront Payment Enhancement Rate") of each Purchase
Payment. We periodically review and establish the Upfront Payment Enhancement
Rate, which may increase or decrease at any time, but will never be less than
2%. The applicable Upfront Payment Enhancement Rate is that which is in effect
for any applicable Enhancement Level, when we receive each Purchase Payment
under your contract. The Upfront Payment Enhancement amounts are allocated among
the fixed and variable investment options according to the current allocation
instructions in effect when we receive each Purchase Payment.
DEFERRED PAYMENT ENHANCEMENT
A Deferred Payment Enhancement is an amount we may add to your contract on a
future date (the "Deferred Payment Enhancement Date"). We calculate the Deferred
Payment Enhancement amount, if any, as a percentage of each Purchase Payment
(the "Deferred Payment Enhancement Rate"). We periodically review and establish
the Deferred Payment Enhancement Rates and Deferred Payment Enhancement Dates.
The Deferred Payment Enhancement Rate being offered may increase, decrease or be
eliminated by us, at any time. The Deferred Payment Enhancement Date, if
applicable, may change at any time. The applicable Deferred Payment Enhancement
Date and Deferred Payment Enhancement Rate are those which may be in effect for
any applicable Enhancement Level, when we receive each Purchase Payment under
your contract. Any applicable Deferred Payment Enhancement, when credited, is
allocated to the Cash Management portfolio.
If you withdraw any portion of a Purchase Payment, to which a Deferred Payment
Enhancement applies, prior to the Deferred Payment Enhancement Date, we reduce
the amount of the corresponding Deferred Payment Enhancement in the same
proportion that your withdrawal (and any fees and charges associated with such
withdrawals) reduces that Purchase Payment. For purposes of the Deferred Payment
Enhancement, withdrawals are assumed to be taken from earnings first, then from
Purchase Payments, on a first-in-first-out basis.
APPENDIX B shows how we calculate any applicable Deferred Payment Enhancement
amount.
13
<PAGE>
90 DAY WINDOW
Contracts issued with the Seasons Rewards feature may be eligible for a
"Look-Back Adjustment." As of the 90th day after your contract was issued, we
will total your Purchase Payments made over those 90 days, without considering
any investment gain or loss in contract value on those Purchase Payments. If
your total Purchase Payments bring you to an Enhancement Level which, as of the
date we issued your contract, would have provided for a higher Upfront and/or
any applicable Deferred Payment Enhancement Rate on each Purchase Payment, you
will get the benefit of the Enhancement Rate(s) that were applicable to that
higher Enhancement Level at the time your contract was issued. We will add any
applicable Upfront Look Back Adjustment to your contract on the 90th day
following the date of contract issue. We will send you a confirmation indicating
any applicable Upfront and/or Deferred Look Back Adjustment, on or about the
90th day following the date of contract issuance. We will allocate any
applicable Upfront Look Back Adjustment according to your then-current
allocation instructions on file for subsequent Purchase Payments at the time we
make the contribution. If applicable, any Deferred Look Back Adjustment will be
allocated to the Cash Management portfolio.
We will not allocate any applicable Deferred Payment Enhancement to your
contract if any of the following circumstances occurs prior to the Deferred
Payment Enhancement Date:
- You surrender your contract;
- A death benefit it paid on your contract;
- You switch to the Income Phase of your contract; or
- You fully withdraw the corresponding Purchase Payment.
APPENDIX B provides an example of the 90 Day Window Provision.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SEASONS REWARDS PROGRAM
(IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME.
Check with your representative for information on the Upfront Payment
Enhancement Rate, Deferred Payment Enhancement Rate and Deferred Payment
Enhancement Date.
ACCUMULATION UNITS
The value of the variable portion of your contract will go up or down depending
upon the investment performance of the SELECT PORTFOLIO(S), FOCUSED PORTFOLIO(S)
or SEASONS STRATEGY(IES) you select. In order to keep track of the value of your
contract, we use a unit of measure called an Accumulation Unit which works like
a share of a mutual fund. During the Income Phase, we call them Annuity Units.
An Accumulation Unit value is determined each day that the New York Stock
Exchange ("NYSE") is open. We calculate an Accumulation Unit for each SEASONS
STRATEGY, SELECT PORTFOLIO or FOCUSED PORTFOLIO after the NYSE closes each day.
We do this by:
1. determining the total value of money invested in a particular SEASONS
STRATEGY, SELECT PORTFOLIO or FOCUSED PORTFOLIO;
2. subtracting from that amount any asset-based charges and any other
charges such as taxes we have deducted; and
3. dividing this amount by the number of outstanding Accumulation Units.
EXAMPLE (CONTRACTS WITHOUT SEASONS REWARDS):
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Focus Growth Portfolio. We determine that the value of an
Accumulation Unit for the Focus Growth Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,000 by $11.10 and credit your
contract on Wednesday night with 2,252.2523 Accumulation Units for the Focus
Growth Portfolio.
14
<PAGE>
EXAMPLE (CONTRACTS WITH SEASONS REWARDS):
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Focus Growth Portfolio. If the Upfront Payment Enhancement
is 2.00% of your Purchase Payment, we would add an Upfront Payment
Enhancement of $500 to your contract. We determine that the value of an
Accumulation Unit for the Focus Growth Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,500 by $11.10 and credit your
contract on Wednesday with 2,297.2973 Accumulation Units for the Focus
Growth Portfolio.
FREE LOOK
You may cancel your contract within ten days after receiving it (or longer if
required by state law). We call this a "free look." To cancel, you must mail the
contract along with your free look request to our Annuity Service Center at
P.O. Box 54299, Los Angeles, California 90054-0299.
We will refund to you the value of your contract on the day we receive your
request MINUS any applicable Free Look Payment Enhancement Deduction, if you had
elected the Seasons Reward program. The Free Look Payment Enhancement Deduction
is equal of the lesser of (1) the value of any Payment Enhancement(s) on the day
we receive your free look request; or (2) the Payment Enhancement amount(s), if
any, which we allocated to your contract. Thus, you receive any gain and we bear
any loss on any Payment Enhancement(s) if you decide to cancel your contract
during the free look period.
Certain states require us to return your Purchase Payments upon a free look
request. Additionally, all contracts issued as an IRA require the full return of
Purchase Payments upon a free look. With respect to those contracts, we reserve
the right to put your money in the Cash Management investment option during the
free look period and will allocate your money according to your instructions at
the end of the applicable free look period. Currently, we do not put your money
in the Cash Management investment option during the free look period unless you
allocate your money to it. If your contract was issued in a state requiring
return of Purchase Payments or as an IRA and you cancel your contract during the
free look period, we return the greater of (1) your Purchase Payments; or
(2) the value of your contract MINUS the Free Look Payment Enhancement
Deduction, if applicable. At the end of the free look period, we allocate your
money according to your instructions.
INVESTMENT OPTIONS
--------------------------------------------------------------------------------
The contract offers variable investment options which we call SELECT PORTFOLIOS,
FOCUSED PORTFOLIOS and SEASONS STRATEGIES, and fixed investment options. We
designed the contract to meet your varying investment needs over time. You can
achieve this by using the SELECT PORTFOLIOS, FOCUSED PORTFOLIOS and/or SEASONS
STRATEGIES alone or in concert with the fixed investment options. The SELECT
PORTFOLIOS, FOCUSED PORTFOLIOS and SEASONS STRATEGIES operate similar to a
mutual fund but are only available through the purchase of certain variable
annuities. A mixture of your investment in the SELECT PORTFOLIOS, FOCUSED
PORTFOLIOS and/or SEASONS STRATEGIES and fixed account options may lower the
risk associated with investing only in a variable investment option.
VARIABLE INVESTMENT OPTIONS
Each of the variable investment options of the contract invests in underlying
portfolios of Seasons Series Trust. SAAMCo, an affiliate of Anchor National,
manages Seasons Series Trust. SAAMCo has engaged sub-advisers to provide
investment advice for certain of the underlying investment portfolios.
YOU SHOULD READ THE PROSPECTUS FOR THE SEASONS SERIES TRUST CAREFULLY BEFORE
INVESTING. THE TRUST PROSPECTUS WHICH IS ATTACHED HERETO CONTAINS DETAILED
INFORMATION ABOUT THE UNDERLYING INVESTMENT PORTFOLIOS INCLUDING INVESTMENT
OBJECTIVE AND RISK FACTORS.
15
<PAGE>
THE PORTFOLIOS
The contract offers nine SELECT PORTFOLIOS, each with a distinct investment
objective, utilizing a disciplined investing style to achieve its objective.
Each SELECT PORTFOLIO invests in an underlying investment portfolio of the
Seasons Series Trust. Except for the Cash Management portfolio, each underlying
portfolio is multi-managed by a team of three money managers, one component of
the underlying portfolios is an unmanaged component that tracks a particular
target index or subset of an index. The other two components are actively
managed. The unmanaged component of each underlying portfolio is intended to
balance some of the risks associated with an actively traded portfolio.
The contract also currently offers three FOCUSED PORTFOLIOS. Each multi-managed
FOCUSED PORTFOLIO offers you at least two different professional managers, one
of which may be SAAMCo, and each of which advises a separate portion of the
FOCUSED PORTFOLIO. Each manager actively selects a limited number of stocks that
represent their best stock selections. This approach to investing results in a
more concentrated portfolio, which will be less diversified than the SELECT
PORTFOLIOS, and may be subject to greater market risks.
Each underlying PORTFOLIO and the respective managers are:
<TABLE>
<S> <C> <C> <C>
SELECT PORTFOLIOS FOCUSED PORTFOLIO
LARGE CAP GROWTH MID CAP GROWTH INTERNATIONAL EQUITY FOCUS GROWTH
Bankers Trust Bankers Trust Bankers Trust Fred Alger
Goldman Sachs T. Rowe Price Goldman Sachs Int'l Jennison
Janus Wellington Lord Abbett Marsico
LARGE CAP COMPOSITE MID CAP VALUE DIVERSIFIED FIXED INCOME FOCUS GROWTH & INCOME
Bankers Trust Bankers Trust Bankers Trust Marsico
SAAMCo Goldman Sachs SAAMCo SAAMCo
T. Rowe Price Lord Abbett Wellington
LARGE CAP VALUE SMALL CAP CASH MANAGEMENT FOCUS TECHNET
Bankers Trust Bankers Trust SAAMCo Dresdner
T. Rowe Price Lord Abbett SAAMCo
Wellington SAAMCo Van Wagoner
</TABLE>
PORTFOLIO OPERATION
Each PORTFOLIO is designed to meet a distinct investment objective facilitated
by the management philosophy of three different money managers (except for the
Focus Growth & Income portfolio and the Cash Management portfolio). Generally,
the Purchase Payments received for allocation to each PORTFOLIO will be
allocated equally among the three managers for that PORTFOLIO. Each quarter
SAAMCo will evaluate the asset allocation between the three managers of each
PORTFOLIO. If SAAMCo determines that the assets have become significantly
unequal in allocation among the managers, then the incoming cash flows may be
redirected in an attempt to stabilize the allocations. Generally, existing
PORTFOLIO assets will not be rebalanced. However, we reserve the right to do so
in the event that it is deemed necessary and not adverse to the interests of
contract owners invested in the PORTFOLIO.
THE SEASONS STRATEGIES
The contract offers four multi-manager variable investment SEASONS STRATEGIES,
each with a different investment objective. We designed the SEASONS STRATEGIES
utilizing an asset allocation approach to meet your investment needs over time,
considering factors such as your age, goals and risk tolerance. However, each
SEASONS STRATEGY is designed to achieve different levels of growth over time.
Each SEASONS STRATEGY invests in three underlying investment portfolios of the
Seasons Series Trust. The allocation of money among these investment portfolios
varies depending on the objective of the SEASONS STRATEGY.
16
<PAGE>
The underlying investment portfolios of Seasons Series Trust in which the
SEASONS STRATEGIES invest include the Asset Allocation: Diversified Growth
Portfolio, the Stock Portfolio and the Multi-Managed Growth, Multi-Managed
Moderate Growth, Multi-Managed Income/Equity and Multi-Managed Income Portfolios
(the "Multi-Managed Portfolios").
The Asset Allocation: Diversified Growth Portfolio is managed by Putnam. The
Stock Portfolio is managed by T. Rowe Price. All of the Multi-Managed Portfolios
include the same three basic investment components: a growth component managed
by Janus, a balanced component managed by SAAMCo and a fixed income component
managed by Wellington, LLP. The Growth SEASONS STRATEGY and the Moderate Growth
SEASONS STRATEGY also have an aggressive growth component which SAAMCo manages.
The percentage that any one of these components represents in each Multi-Managed
Portfolio varies in accordance with the investment objective.
Each SEASONS STRATEGY uses an investment approach based on asset allocation.
This approach is achieved by each SEASONS STRATEGY investing in distinct
percentages in three specific underlying funds of the Seasons Series Trust. In
turn, the underlying funds invest in a combination of domestic and international
stocks, bonds and cash. Based on the percentage allocation to each specific
underlying fund and each underlying fund's investment approach, each SEASONS
STRATEGY initially has a neutral asset allocation mix of stocks, bonds and cash.
SEASONS STRATEGY REBALANCING
Each SEASONS STRATEGY is designed to meet its investment objective by allocating
a portion of your money to three different investment portfolios. At the
beginning of each quarter a rebalancing occurs among the underlying funds to
realign each SEASONS STRATEGY with its distinct percentage investment in the
three underlying funds. This rebalancing is designed to help maintain the
neutral asset allocation mix for each SEASONS STRATEGY. The pie charts on the
following pages demonstrate:
- the neutral asset allocation mix for each SEASONS STRATEGY; and
- the percentage allocation in which each SEASONS STRATEGY invests.
On the first business day of each quarter (or as close to such date as is
administratively practicable) your money will be allocated among the various
investment portfolios according to the percentages set forth on the prior pages.
Additionally, within each Multi-Managed Portfolio, your money will be rebalanced
among the various components. We also reserve the right to rebalance any SEASONS
STRATEGY more frequently if rebalancing is, deemed necessary and not adverse to
the interests of contract owners invested in such SEASONS STRATEGY. Rebalancing
a SEASONS STRATEGY may involve shifting a portion of assets out of underlying
investment portfolios with higher returns into underlying investment portfolios
with relatively lower returns.
17
<PAGE>
GROWTH
GOAL: Long-term growth of capital, allocating its assets primarily to
stocks. This SEASONS STRATEGY may be best suited for those with longer periods
to invest.
<TABLE>
<S> <C>
Stocks....................................... 80%
Bonds........................................ 15%
Cash......................................... 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
<TABLE>
<S> <C>
MULTI-MANAGED GROWTH PORTFOLIO 50%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
STOCK PORTFOLIO 25%
Managed by T. Rowe Price Associates, Inc.
ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO 25%
Managed by Putnam Investment Management, Inc.
</TABLE>
MODERATE GROWTH
GOAL: Growth of capital through investments in equities, with a secondary
objective of conservation of principal by allocating more of its assets to bonds
than the Growth SEASONS STRATEGY. This SEASONS STRATEGY may be best suited for
those nearing retirement years but still earning income.
<TABLE>
<S> <C>
Stocks....................................... 70%
Bonds........................................ 25%
Cash......................................... 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
<TABLE>
<S> <C>
MULTI-MANAGED MODERATE GROWTH PORTFOLIO 55%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
STOCK PORTFOLIO 20%
Managed by T. Rowe Price Associates, Inc.
ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO 25%
Managed by Putnam Investment Management, Inc.
</TABLE>
BALANCED GROWTH
GOAL: Focuses on conservation of principal by investing in a more balanced
weighting of stocks and bonds, with a secondary objective of seeking a high
total return. This SEASONS STRATEGY may be best suited for those approaching
retirement and with less tolerance for investment risk.
<TABLE>
<S> <C>
Stocks....................................... 55%
Bonds........................................ 40%
Cash......................................... 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
<TABLE>
<S> <C>
MULTI-MANAGED INCOME/EQUITY PORTFOLIO 55%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
STOCK PORTFOLIO 20%
Managed by T. Rowe Price Associates, Inc.
ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO 25%
Managed by Putnam Investment Management, Inc.
</TABLE>
CONSERVATIVE GROWTH
GOAL: Capital preservation while maintaining some potential for growth over
the long term. This SEASONS STRATEGY may be best suited for those with lower
investment risk tolerance.
<TABLE>
<S> <C>
Stocks....................................... 42%
Bonds........................................ 53%
Cash......................................... 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
<TABLE>
<S> <C>
MULTI-MANAGED INCOME PORTFOLIO 60%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
STOCK PORTFOLIO 15%
Managed by T. Rowe Price Associates, Inc.
ASSET ALLOCATION: DIVERSIFIED GROWTH PORTFOLIO 25%
Managed by Putnam Investment Management, Inc.
</TABLE>
18
<PAGE>
FIXED INVESTMENT OPTIONS
The contract also offers seven fixed investment options (five fixed investment
options if you enroll in the Seasons Rewards Program). Anchor National will
guarantee the interest rate earned on money you allocate to any of these fixed
investment options. We currently offer fixed investment options for periods of
one, three, five, seven and ten years, which we call guarantee periods. In
Maryland, Oregon and Washington only the one year fixed account option is
available. Additionally, if you do not elect to enroll in the Seasons Rewards
Program, you have the option of allocating your money to the 6-month and/or
1-year DCA fixed account. We guarantee the interest rate for money allocated to
the 6-month DCA fixed account and/or the 1-year DCA fixed account (the "DCA
fixed accounts") which are available only in conjunction with the Dollar Cost
Averaging Program. Please see the section on the Dollar Cost Averaging Program
on page 21 for additional information about, including limitations on, the
availability and operation of the DCA fixed accounts. The DCA fixed accounts are
only available for new Purchase Payments.
All of these fixed account options pay interest at rates set and guaranteed by
Anchor National. Interest rates may differ from time to time and are set at our
sole discretion. We will never credit less than a 3% annual effective rate to
any of the fixed account options. The interest rate offered for new Purchase
Payments may differ from that offered for subsequent Purchase Payments and money
already in the fixed account options. In addition, different guarantee periods
offer different interest rates. Rates for specified payments are declared at the
beginning of the guarantee period and do not change during the specified period.
There are three scenarios in which you may put money into the fixed account
options. In each scenario your money may be credited a different rate of
interest as follows:
- INITIAL RATE: Rate credited to new Purchase Payments allocated to the
fixed account when you purchase your contract.
- CURRENT RATE: Rate credited to subsequent Purchase Payments allocated to
the fixed account.
- RENEWAL RATE: Rate credited to money remaining in a fixed account after
expiration of a guarantee period and money transferred from a fixed
account or one of the SEASONS STRATEGIES, SELECT PORTFOLIOS or FOCUSED
PORTFOLIOS into a fixed account.
Each of these rates may differ from one another. Although once declared the
applicable rate is guaranteed until your guarantee period expires.
The DCA fixed accounts also credit a fixed rate of interest. Interest is
credited to amounts allocated to the 6-month or 1-year DCA fixed account while
your investment is systematically transferred to the SELECT PORTFOLIO(S),
FOCUSED PORTFOLIO(S) and/or SEASONS STRATEGY(IES). The rates applicable to the
DCA fixed accounts may differ from each other and/or the other fixed account
options but will never be less than an effective rate of 3%. SEE DOLLAR COST
AVERAGING ON PAGE 21 for more information.
When a guarantee period ends, you may leave your money in the same guarantee
period. You may also reallocate money to another fixed investment option (other
than the DCA fixed accounts) or to any of the SELECT PORTFOLIO(S), FOCUSED
PORTFOLIO(S) or SEASONS STRATEGY(IES). If you want to reallocate your money, you
must contact us within 30 days after the end of the current guarantee period and
instruct us how to reallocate your money. If we do not hear from you, we will
keep your money in the same guarantee period where it will earn the renewal
interest rate applicable at that time.
MARKET VALUE ADJUSTMENT
NOTE: THE FOLLOWING DISCUSSION APPLIES TO THE 3, 5, 7 OR 10 YEAR FIXED
INVESTMENT OPTIONS ONLY. THESE OPTIONS ARE NOT AVAILABLE IN MARYLAND, OREGON AND
WASHINGTON AND MAY NOT BE AVAILABLE IN OTHER STATES. PLEASE CONTACT YOUR
FINANCIAL ADVISOR FOR MORE INFORMATION. THIS DISCUSSION DOES NOT APPLY TO
WITHDRAWALS TO PAY A DEATH BENEFIT OR CONTRACT FEES AND CHARGES.
19
<PAGE>
If you take money out of the 3, 5, 7 or 10 year fixed investment options before
the end of the guarantee period, we make an adjustment to your contract (the
"market value adjustment" or "MVA"). This market value adjustment reflects any
difference in the interest rate environment between the time you place your
money in the fixed investment option and the time when you withdraw or transfer
that money. This adjustment can increase or decrease your contract value. You
have 30 days after the end of each guarantee period to reallocate your funds
without incurring a market value adjustment.
We will not assess a market value adjustment against withdrawals made (1) to pay
a death benefit; (2) to pay contract fees and charges; or (3) to begin the
Income Phase of your contract on the latest Annuity Date.
We calculate the market value adjustment by doing a comparison between current
rates and the rate being credited to you in the fixed investment option. For the
current rate we use a rate being offered by us for a guarantee period that is
equal to the time remaining in the guarantee period from which you seek
withdrawal or transfer. If we are not currently offering a guarantee period for
that period of time, we determine an applicable rate by using a formula to
arrive at a number between the interest rates currently offered for the two
closest periods available.
Generally, if interest rates drop between the time you put your money into the
fixed investment options and the time you take it out, we credit a positive
adjustment to your contract. On the other hand, if interest rates increase
during the same period, we post a negative adjustment to your contract.
Where the market value adjustment is negative, we first deduct the adjustment
from any money remaining in the fixed investment option. If there is not enough
money in the fixed investment option to meet the negative deduction, we deduct
the remainder from your withdrawal or transfer amount. Where the market value
adjustments is positive, we add the adjustment to your withdrawal amount or
transfer amount. For withdrawals under the systematic withdrawal program that
result in a negative market value adjustment, the MVA amount will be deducted
from your withdrawal.
The 1-year fixed investment option and the DCA fixed accounts do not impose a
market value adjustment. These fixed investment options are not registered under
the Securities Act of 1933 and are not subject to the provisions of the
Investment Company Act of 1940.
Please see APPENDIX C for more information on how we calculate the market value
adjustment.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase, you may transfer money among the SELECT
PORTFOLIO(S), FOCUSED PORTFOLIO(S), SEASONS STRATEGY(IES) and the fixed
investment options by written request or by telephone. Additionally, you may
access your account and request transfers through our website,
www.sunamerica.com. Funds already in your contract cannot be transferred into
the DCA fixed accounts. You may make transfers among the investment options
without incurring a transfer charge. Transfers out of a 3, 5, 7 or 10 year fixed
investment option may be subject to a market value adjustment.
The minimum amount you can transfer is $100, or a lesser amount if you transfer
the entire balance from a SELECT PORTFOLIO, FOCUSED PORTFOLIO, SEASONS STRATEGY
or a fixed investment option. Any money remaining in a SELECT PORTFOLIO, FOCUSED
PORTFOLIO, SEASONS STRATEGY or fixed investment option after making a transfer
must equal at least $100. Your request for transfer must clearly state which
investment option(s) are involved and the amount you want to transfer. Please
see the section on Dollar Cost Averaging on page 21 for specific rules regarding
the DCA fixed accounts.
We will accept transfers by telephone and/or the internet unless you specify
otherwise on your contract application. We will accept transfers over the
internet unless you specify otherwise on your contract application.
20
<PAGE>
When receiving telephone and/or the internet account transfers, we follow
appropriate procedures to provide reasonable assurance that the transactions
executed are genuine. Thus, we are not responsible for any claim, loss or
expense from any error resulting from instructions received over the telephone
or the internet. If we fail to follow our procedures we may be liable for any
losses due to unauthorized or fraudulent transactions.
For information regarding transfers during the Income Phase, SEE INCOME OPTIONS
ON PAGE 32.
We may limit the number of transfers in any contract year or refuse any transfer
request for you or others invested in the contract if we believe that excessive
trading or a specific transfer request or group transfer requests may have a
detrimental effect on unit values or the share prices of the underlying
portfolios.
Where permitted by law, we may accept your authorization for a third party to
make transfers for you subject to our rules. We reserve the right to suspend or
cancel such acceptance at any time and will notify you accordingly.
Additionally, we may restrict the investment options available for transfers
during any period in which such third party acts for you. We notify such third
party beforehand regarding any restrictions. However, we will not enforce these
restrictions if we are satisfied that such third party has been appointed by a
court of competent jurisdiction to act on your behalf; or such third party is a
trustee/fiduciary appointed, by you or for you, to act on your behalf for all
your financial affairs.
We may provide administrative or other support services to independent third
parties you authorize to make transfers on your behalf. We do not currently
charge you extra for providing these support services. This includes, but is not
limited to, transfers between investment options in accordance with market
timing strategies. Such independent third parties may or may not be appointed
with us for the sale of annuities. However, WE DO NOT ENGAGE ANY THIRD PARTIES
TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE. WE TAKE NO RESPONSIBILITY
FOR THE INVESTMENT ALLOCATION AND TRANSFERS TRANSACTED ON YOUR BEHALF BY SUCH
THIRD PARTIES OR FOR ANY INVESTMENT ALLOCATION RECOMMENDATIONS MADE BY SUCH
PARTIES.
We reserve the right to modify, suspend or terminate the transfer privileges at
any time.
DOLLAR COST AVERAGING
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the
variable investment options. Under the program you systematically transfer a set
dollar amount or percentage from any SELECT PORTFOLIO, FOCUSED PORTFOLIO and/or
SEASONS STRATEGY or the 1-year fixed account option (source accounts) to any
other SELECT PORTFOLIO, FOCUSED PORTFOLIO or SEASONS STRATEGY. Transfers may be
monthly or quarterly. You may change the frequency at any time by notifying us
in writing.
We also offer the 6-month and a 1-year DCA fixed accounts exclusively to
facilitate this program. If you elect to participate in the Seasons Rewards
Program, the 6-month and 1-year DCA fixed accounts are not available under your
contract. The DCA fixed accounts only accept new Purchase Payments. You can not
transfer money already in your contract into these options. If you allocate a
Purchase Payment into a DCA fixed account, we transfer all your money allocated
to that account into the SELECT PORTFOLIO(S), FOCUSED PORTFOLIO(S) or SEASONS
STRATEGY(IES) you select over the selected 6-month or 1-year period. You cannot
change the option or the frequency of transfers once selected. The minimum
transfer amount if you use the 6-month or 1-year DCA fixed accounts to provide
dollar cost averaging is $100.
If allocated to the 6-month DCA fixed account, we transfer your money over a
maximum of 6 monthly transfers. We base the actual number of transfers on the
total amount allocated to the account. For example, if you allocate $500 to the
6-month DCA fixed account, we transfer your money over a period of five months,
so that each payment complies with the $100 per transfer minimum.
21
<PAGE>
We determine the amount of the transfers from the 1-year DCA fixed account based
on:
- the total amount of money allocated to the account, and
- the frequency of transfers selected.
For example, let's say you allocate $1,000 to the 1-year DCA account. You select
monthly transfers. We completely transfer all of your money to the selected
investment options over a period of ten months. You may terminate your DCA
program at any time. If money remains in the DCA fixed account, we transfer the
remaining money to the 1-year fixed investment option, unless we receive
different instructions from you.
The DCA program is designed to lessen the impact of market fluctuations on your
investment. However, we cannot ensure that you will make a profit. When you
elect the DCA Program, you are continuously investing in securities regardless
of fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Mid-Cap Value SELECT PORTFOLIO over six
quarters. You set up dollar cost averaging and purchase Accumulation Units
at the following values:
<TABLE>
<CAPTION>
QUARTER ACCUMULATION UNIT UNITS PURCHASED
------- ----------------- ---------------
<S> <C> <C>
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
</TABLE>
You paid an average price of only $6.67 per Accumulation Unit over six
quarters, while the average market price actually was $7.08. By investing an
equal amount of money each month, you automatically buy more Accumulation
Units when the market price is low and fewer Accumulation Units when the
market price is high. This example is for illustrative purposes only.
ASSET ALLOCATION REBALANCING PROGRAM
Earnings in your contract may cause the percentage of your investment in each
investment option to differ from your original allocations. The Automatic Asset
Rebalancing Program addresses this situation. At your election, we periodically
rebalance your investments in the SEASONS STRATEGIES, SELECT PORTFOLIOS and/or
FOCUSED PORTFOLIOS to return your allocations to their original percentages.
Asset rebalancing typically involves shifting a portion of your money out of an
investment option with a higher return into an investment option with a lower
return. At your request, rebalancing occurs on a quarterly, semi-annual or
annual basis. We reserve the right to modify, suspend or terminate this program
at any time.
PRINCIPAL ADVANTAGE PROGRAM
The Principal Advantage Program allows you to invest in one or more of the
SELECT PORTFOLIOS, FOCUSED PORTFOLIOS or SEASONS STRATEGIES without putting your
principal at direct risk. The program accomplishes this by allocating your
investment strategically between the fixed investment options (other than the
DCA fixed accounts) and the SELECT PORTFOLIO(S), FOCUSED PORTFOLIO(S) or
22
<PAGE>
SEASONS STRATEGY(IES) you select. You decide how much you want to invest and
approximately when you want a return of principal. We calculate how much of your
Purchase Payment needs to be allocated to the particular fixed investment option
to ensure that it grows to an amount equal to your total principal invested
under this program.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed investment option. You want the amount allocated to
the fixed investment option to grow to $100,000 in 7 years. If the 7-year
fixed investment option is offering a 5% interest rate, we will allocate
$71,069 to the 7-year fixed investment option to ensure that this amount
will grow to $100,000 at the end of the 7-year period. The remaining $28,931
may be allocated among the SELECT PORTFOLIOS, FOCUSED PORTFOLIOS or SEASONS
STRATEGIES, as determined by you, to provide opportunity for greater growth.
We reserve the right to modify, suspend or terminate this program at any time.
VOTING RIGHTS
Anchor National is the legal owner of the Seasons Series Trust shares. However,
when an underlying portfolio solicits proxies in conjunction with a vote of
shareholders, we must obtain your instructions on how to vote those shares. We
vote all of the shares we own in proportion to your instructions. This includes
any shares we own on our own behalf. Should we determine that we are no longer
required to comply with these rules, we will vote the shares in our own right.
SUBSTITUTION
If any of the underlying portfolios become unavailable for investment, we may be
required to substitute shares of another investment portfolio. We will seek
prior approval of the SEC and give you notice before substituting shares.
ACCESS TO YOUR MONEY
--------------------------------------------------------------------------------
You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. SEE INCOME OPTIONS
ON PAGE 32.
Generally, we deduct a withdrawal charge applicable to any partial or total
withdrawal and a market value adjustment if a withdrawal comes from the 3, 5, 7
or 10 year fixed investment options prior to the end of a guarantee period. If
you withdraw your entire contract value, we also deduct any applicable premium
taxes and a contract maintenance fee. SEE EXPENSES ON PAGE 29. We calculate
charges due on a total withdrawal on the day after we receive your request and
other required paper work. We return your contract value less any applicable
fees and charges.
The minimum partial withdrawal amount is $1,000. We require that the value left
in any SELECT PORTFOLIO, FOCUSED PORTFOLIO, SEASONS STRATEGY or fixed account be
at least $500 after the withdrawal. You must send a written withdrawal request.
Unless you provide us with different instructions, partial withdrawals will be
made in equal amounts from each SELECT PORTFOLIO, FOCUSED
23
<PAGE>
PORTFOLIO, SEASONS STRATEGY and the fixed investment option in which your
contract is invested. Withdrawals from fixed investment options prior to the end
of the guarantee period may result in a market value adjustment.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Portfolios is not reasonably practicable; (4) the SEC, by order, so permits for
the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from a
fixed investment option. Such deferrals are limited to no longer than six
months.
FREE WITHDRAWAL PROVISION
Your contract provides for a free withdrawal amount each year. A free withdrawal
amount is the portion of your account that we allow you to take out each year
without being charged a surrender penalty. However, upon a future full surrender
of your contract, any previous free withdrawals would be subject to a surrender
charge, if any is applicable at the time of the full surrender.
If you participate in the Seasons Rewards Program, you will not receive any
applicable Deferred Payment Enhancement if you fully withdraw a Purchase Payment
or your contract value prior to the corresponding Deferred Payment Enhancement
Date. SEE SEASONS REWARDS PROGRAM ON PAGE 12.
To determine your free withdrawal amount and the amount, if any, on which we
assess a withdrawal charge, we refer to two special terms. These are
penalty-free earnings and the Total Invested Amount.
The penalty-free earnings portion of your contract is your account value less
your Total Invested Amount. The Total Invested Amount is the total of all
Purchase Payments you have made into the contract less portions of some prior
withdrawals you made. The portions of prior withdrawals that reduce your Total
Invested Amount are as follows:
1. Any prior withdrawals on which you previously paid a withdrawal charge,
plus the amount of the withdrawal charge.
2. Any prior free withdrawals in any year that were in excess of your
penalty-free earnings and were free because the Purchase Payment
withdrawn is no longer subject to surrender charges at the time of the
withdrawal.
When you make a withdrawal, we assume that it is taken from penalty-free
earnings first, then from the Total Invested Amount on a first-in, first-out
basis. This means that you can also access your Purchase Payments which are no
longer subject to a surrender charge before those Purchase Payments which are
still subject to the surrender charge.
During your first contract year your free withdrawal amount is the greater of:
1. Your penalty-free earnings, or;
2. If you are participating in the Systematic Withdrawal program, a total
of 10% of your Total Invested Amount less any prior withdrawals taken
during the contract year.
After the first contract year, you can take out the greater of the following
amounts each year:
1. Your penalty free earnings and any portion of your Total Invested Amount
no longer subject to surrender charges, or;
24
<PAGE>
2. 10% of the portion of your Total Invested Amount that has been in your
contract for at least one year less any withdrawals taken during the
contract year.
Purchase Payments withdrawn, above and beyond the amount of your free withdrawal
amount, which have been invested for less than 7 years, or 9 years if you elect
to participate in the Seasons Rewards Program, will result in your paying a
withdrawal charge. The amount of the charge and how it applies are discussed
more fully below. You should consider, before purchasing this contract, the
effect this charge will have on your investment if you need to withdraw more
money than the free withdrawal amount. You should fully discuss this decision
with your financial advisor.
The withdrawal charge percentage applicable is determined by the age of the
Purchase Payment being withdrawn. For purposes of calculating the surrender
charge in the event of a full surrender, the charge is calculated based on the
remaining Total Invested Amount still subject to surrender charge.
For example, you make an initial Purchase Payment of $100,000. For purposes of
this example, we will assume a 0% growth rate over the life of the contract, no
election of the Seasons Rewards Program, Income Protector Program or Seasons
Estate Advantage and no subsequent Purchase Payments. In contract year 2 and
year 3, you take out your maximum free withdrawal of $10,000 for each year.
After those free withdrawals your contract value is $80,000. In contract year 5
you request a full surrender of your contract. We will apply the following
calculation, A - (B X C) = D, where:
A = Your contract value at the time of your request for surrender ($80,000)
B = The amount of your Total Invested Amount still subject to surrender charge
($100,000)
C = The withdrawal charge percentage applicable to the age of each Purchase
Payment at the time of full surrender (4%) [B X C = $4,000]
D = Your full surrender value ($76,000)
SYSTEMATIC WITHDRAWAL PROGRAM
If you elect, we use money in your contract to pay you monthly, quarterly,
semi-annual or annual payments during the Accumulation Phase. Electronic
transfer of these funds to your bank account is also available. The minimum
amount of each withdrawal is $250. There must be at least $500 remaining in your
contract at all times. Withdrawals may be taxable and a 10% IRS tax penalty may
apply if you are under age 59 1/2. Any withdrawals you make using this program
count against your free withdrawal amount as described above. Withdrawals in
excess of that amount may incur a withdrawal charge. There is no additional
charge for participating in this program.
The program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals;
and (2) you have not made any Purchase Payments during the past three years. We
will provide you with sixty days written notice. At the end of the notice
period, we will distribute the contract's remaining value to you.
QUALIFIED CONTRACT OWNERS
Certain Qualified plans restrict and/or prohibit your ability to withdraw money
from your contract. SEE TAXES ON PAGE 36 for a more detailed explanation.
25
<PAGE>
DEATH BENEFIT
--------------------------------------------------------------------------------
If you should die during the Accumulation Phase, your Beneficiary will receive a
death benefit. The death benefit options are discussed in detail below.
The death benefit is not paid after you are in the Income Phase. If you die
during the Income Phase, your Beneficiary will receive any remaining guaranteed
income payments in accordance with the income option you choose. SEE INCOME
OPTIONS ON PAGE 32.
You select the Beneficiary to receive any amounts payable on death. You may
change the Beneficiary at any time, unless you previously made an irrevocable
Beneficiary designation. A new Beneficiary designation is not effective until we
record the change.
The death benefit will be paid out when we receive adequate proof of death:
(1) a certified copy of a death certificate; (2) a certified copy of a decree of
court of competent jurisdiction as to the finding of death; (3) a written
statement by a medical doctor who attended the deceased at the time of death; or
(4) any other proof satisfactory to us. We may also require additional
documentation or proof in order for the death benefit to be paid.
Generally, the death benefit payment must begin immediately upon receipt of all
necessary documents and, in any event, must be paid within 5 years of the date
of death. The Beneficiary may, in the alternative, elect to have the death
benefit payable in the form of an annuity. If the Beneficiary elects an income
option, it must be paid over the Beneficiary's lifetime or for a period not
extending beyond the Beneficiary's life expectancy. Income payments must begin
within one year of the owner's death. If the Beneficiary is the spouse of the
owner, he or she can elect to continue the contract, rather than receive a death
benefit. SEE SPOUSAL CONTINUATION ON PAGE 28. If the Beneficiary does not make a
specific election as to how they want the death benefit distributed within sixty
days of our receipt of adequate proof of death, it will be paid in a lump sum.
If the Annuitant dies before annuity payments begin, you can name a new
Annuitant. If no Annuitant is named within 30 days, you will become the
Annuitant. However, if the owner is a non-natural person (for example, a trust),
then the death of the Annuitant will be treated as the death of the owner, no
new Annuitant may be named and the death benefit will be paid.
This contract provides three death benefit options: the Standard Death Benefit
which is automatically included in your contract for no additional fee, and
Seasons Estate Advantage which offers a choice between two optional enhanced
death benefits, along with an Earnings Advantage feature, for an additional fee.
If you choose Seasons Estate Advantage, you must do so at the time of contract
application and the election cannot be terminated.
The term "Net Purchase Payment" is used frequently in explaining the death
benefit options. We define Net Purchase Payments as Purchase Payments less an
adjustment for each withdrawal.
To calculate the adjustment amount for a withdrawal, you first determine the
percentage by which the contract value is reduced by the withdrawal, on the date
of the withdrawal. This percentage is calculated by dividing the amount of each
withdrawal (including fees and charges applicable to the withdrawal) by the
contract value immediately before taking that withdrawal. The percentage amount
is then multiplied by the amount of Net Purchase Payments immediately before the
withdrawal to get the adjustment amount. This amount is subtracted from the
amount of Net Purchase Payment(s) immediately before the withdrawal.
If you have not taken any withdrawals from your contract, Net Purchase Payments
equals total Purchase Payments into your contract.
26
<PAGE>
If Seasons Rewards is elected, any payment enhancements are not considered
Purchase Payments.
STANDARD DEATH BENEFIT
The standard death benefit on your contract, if you are age 74 or younger at the
time of death, is the greater of:
1. Net Purchase Payments compounded at a 3% annual growth rate from the
date of issue until the date of death, plus any Net Purchase Payments
recorded after the date of death; or
2. the contract value at the time we receive satisfactory proof of death.
If you are age 75 or older at the time of death, the death benefit is the
greater of:
1. Net Purchase Payments compounded at a 3% annual growth rate from date of
issue until your 75th birthday plus any Net Purchase Payments recorded
after age 75 until date of death; or
2. the contract value at the time we receive satisfactory proof of death.
SEASONS ESTATE ADVANTAGE
The Seasons Estate Advantage is an optional feature that offers a choice between
two enhanced death benefits, each of which includes an Earnings Advantage
component. You must elect Seasons Estate Advantage at the time we issue your
contract and once elected it cannot be terminated by you. Seasons Estate
Advantage is not available if you are age 81 or older at the time of contract
issue.
If you elect Seasons Estate Advantage, we will pay your Beneficiary the sum of A
plus B, where:
A. is the amount payable under the selected enhanced death benefit (see
option 1 or 2 below); and
B. is the amount payable, if any, under the Earnings Advantage benefit.
A. Enhanced Death Benefit Options:
1. 5% Accumulation Option -- the death benefit is the greater of:
a. the contract value at the time we receive satisfactory proof of death;
or
b. Net Purchase Payments compounded to the earlier of 80th birthday or the
date of death, at a 5% annual growth rate, plus any subsequent Net
Purchase Payments recorded after your 80th birthday or the date of death
up to a maximum benefit of two times the Net Purchase Payments made over
the life of your contract.
If you die after the latest Annuity Date and you selected the 5%
Accumulation option, any death benefit payable under the contract will be
the Standard Death Benefit as described above. Therefore, your
beneficiary will not receive any benefit from Seasons Estate Advantage.
2. Maximum Anniversary Value Option -- the death benefit is the greater of:
a. Net Purchase Payments; or
b. the contract value at the time we receive satisfactory proof of death;
or
c. the maximum anniversary value on any contract anniversary prior to your
81st birthday plus any Net Purchase Payments recorded since that
anniversary. The anniversary value equals the contract value on a
contract anniversary.
If you are age 90 or older at the time of death and you had selected the
Maximum Anniversary Value option, the death benefit will be equal to the
contract value at the time we receive satisfactory proof of death.
Therefore, your beneficiary will not receive any benefit from Season's
Estate Advantage.
27
<PAGE>
B. Earnings Advantage Benefit:
The Earnings Advantage benefit may increase the death benefit amount. If you
have earnings in your contract at the time of death, we will add a percentage of
those earnings (the "Earnings Advantage Percentage"), subject to a maximum
dollar amount (the "Maximum Earnings Advantage Percentage"), to the death
benefit payable.
The Contract Year of Death will determine the Earnings Advantage Percentage and
the Maximum Earnings Advantage amount, as set forth below:
<TABLE>
<CAPTION>
EARNINGS ADVANTAGE MAXIMUM
CONTRACT YEAR OF DEATH PERCENTAGE EARNINGS ADVANTAGE PERCENTAGE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
Years 0-4 25% of earnings 25% of Net Purchase Payments
----------------------------------------------------------------------------------------------------
Years 5-9 40% of earnings 40% of Net Purchase Payments*
----------------------------------------------------------------------------------------------------
Years 10+ 50% of earnings 50% of Net Purchase Payments*
----------------------------------------------------------------------------------------------------
</TABLE>
*Purchase Payments must be invested for at least six months at the time of your
death to be included as part of Net Purchase Payments for the purposes of the
Maximum Earnings Advantage calculation.
WHAT IS THE CONTRACT YEAR OF DEATH?
Contract Year of Death is the number of full 12 month periods beginning with the
date your contract is issued and ending on the date of death.
WHAT IS THE EARNINGS ADVANTAGE PERCENTAGE AMOUNT?
We determine the amount of the Earnings Advantage based upon a percentage of
earnings in your contract at the time of your death. For the purpose of this
calculation, earnings are defined as (1) minus (2) where
(1) equals the contract value on the date of death; and
(2) equals Net Purchase Payments.
WHAT IS THE MAXIMUM EARNINGS ADVANTAGE?
The Earnings Advantage amount is subject to a maximum. The maximum Earnings
Advantage amount is equal to a percentage of your Net Purchase Payments.
If you select the 5% Accumulation enhanced death benefit option, the Earnings
Advantage benefit will only be paid if your date of death is prior to the latest
Annuity Date. If you select the Maximum Anniversary Value enhanced death benefit
option, the Earnings Advantage benefit will only be paid if your date of death
is prior to reaching age 90.
We assess a fee for Seasons Estate Advantage. We deduct daily the annual charge
of 0.25% of the average daily ending value of the assets you have allocated to
the SELECT PORTFOLIO(S), FOCUSED PORTFOLIO(S) and/ or SEASONS STRATEGY(IES).
This fee will terminate, if the benefit is no longer available to you based on
your age, as discussed above.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SEASONS ESTATE
ADVANTAGE FEATURE (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME.
SPOUSAL CONTINUATION
If you are the original owner of the contract and the Beneficiary is your
spouse, your Spouse may elect to continue the contract after your death. The
spouse becomes the new owner ("Continuing Spouse"). The contract and its elected
features, if any, remain the same. The Continuing Spouse is subject to the same
fees, charges and expenses applicable to the original owner of the contract. The
Continuing Spouse can only elect to continue the contract upon the death of the
original owner of the contract.
Upon continuation of the contract, we will contribute to the contract value an
amount by which the death benefit that would have been paid to the beneficiary
upon the death of the original owner exceeds the contract
28
<PAGE>
value ("Continuation Contribution"), if any. We calculate the Continuation
Contribution as of the date of the original owner's death. We will add the
Continuation Contribution as of the date we receive both the Continuing Spouse's
written request to continue the contract and proof of death of the original
owner in a form satisfactory to us ("Continuation Date"). The age of the
Continuing Spouse on the Continuation Date and on the date of the Continuing
Spouse's death will be used in determining any future death benefits under the
Contract. SEE APPENDIX D FOR FURTHER EXPLANATION OF THE DEATH BENEFIT
CALCULATION FOLLOWING A SPOUSAL CONTINUATION. The Continuation Contribution is
not considered a Purchase Payment for any other calculation except as noted in
Appendix D. To the extent the Continuing Spouse invests in the Variable
Portfolios or MVA fixed accounts, they will be subject to investment risk as was
the original owner.
Generally, the Continuing Spouse cannot change any contract provisions as the
new owner. However, on the Continuation Date, the Continuing Spouse may
terminate the original owner's election of Seasons Estate Advantage and the
available death benefit will be the Standard Death Benefit. We will terminate
Seasons Estate Advantage if the Continuing Spouse is age 81 or older on the
Continuation Date and the available death benefit will be the Standard Death
Benefit. If Seasons Estate Advantage is not terminated or discontinued and the
Continuing Spouse dies after the latest Annuity Date, the available death
benefit will be the Standard Death Benefit (if the 5% Accumulation option
applied) or contract value at the time we receive satisfactory proof of death
(if the Maximum Anniversary option applied.)
EXPENSES
--------------------------------------------------------------------------------
There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the contract
maintenance fee or withdrawal charges under your contract. However the
investment charges under your contract may increase or decrease. Some states may
require that we charge less than the amounts described below.
INSURANCE CHARGES
The amount of this charge is 1.40% annually of the value of your contract
invested in the SELECT PORTFOLIO(S), FOCUSED PORTFOLIO(S) and/or SEASONS
STRATEGY(IES). We deduct the charge daily, on a pro-rata basis, from the value
of your contract allocated to the SELECT PORTFOLIO(S), FOCUSED PORTFOLIO(S)
and/or SEASONS STRATEGY(IES). The insurance charge compensates us for the
mortality and expense risks and the costs of contract distribution assumed by
Anchor National. If these charges do not cover all of our expenses, we will pay
the difference. Likewise, if these charges exceed our expenses, we will keep the
difference.
WITHDRAWAL CHARGES
During the Accumulation Phase you may make withdrawals from your contract.
However, a withdrawal charge may apply. We apply a withdrawal charge upon an
early withdrawal against each Purchase Payment you put into the contract. The
withdrawal charge equals a percentage of the Purchase Payment you take out of
the contract. The contract does provide a free withdrawal amount every year. SEE
ACCESS TO YOUR MONEY ON PAGE 23. The withdrawal charge percentage declines each
year a Purchase Payment is in the contract, as follows:
WITHDRAWAL CHARGE WITHOUT THE SEASONS REWARDS PROGRAM (SCHEDULE A)
<TABLE>
<CAPTION>
YEAR 1 2 3 4 5 6 7 8
--------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Withdrawal Charge 7% 6% 6% 5% 4% 3% 2% 0%
</TABLE>
29
<PAGE>
WITHDRAWAL CHARGE WITH THE SEASONS REWARDS PROGRAM (SCHEDULE B)
<TABLE>
<CAPTION>
YEAR 1 2 3 4 5 6 7 8 9 10
--------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Withdrawal Charge 9% 8% 7% 6% 6% 5% 4% 3% 2% 0%
</TABLE>
After a Purchase Payment has been in the contract for seven complete years, or
nine complete years if you elect to participate in the Seasons Rewards Program,
the withdrawal charge no longer applies to that Purchase Payment. When
calculating the withdrawal charge, we treat withdrawals as coming first from the
Purchase Payments that have been in your contract the longest. However, for tax
purposes, your withdrawals are considered earnings first, then Purchase
Payments.
The Seasons Rewards Program is designed to reward long term investing. We expect
that if you remain committed to this investment over the long term, we will
profit as a result of fees charged over the life of your contract. However,
neither the mortality and expense fees, distribution expenses, contract
administration fee nor investment management fees are higher on the Seasons
Rewards Program than the contract without election of the Seasons Rewards
Program.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract from each of your investment options on a pro-rata basis. If you
withdraw all of your contract value, we deduct any applicable withdrawal charges
from the amount withdrawn. We will not assess a withdrawal charge for money
withdrawn to pay a death benefit. We do not currently assess a withdrawal charge
upon election to receive income payments from your contract. Withdrawals made
prior to age 59 1/2 may result in tax penalties. SEE TAXES ON PAGE 36.
INVESTMENT CHARGES
INVESTMENT MANAGEMENT FEES
Charges are deducted from the assets of the investment portfolios underlying the
SELECT PORTFOLIO(S), FOCUSED PORTFOLIO(S) or SEASONS STRATEGY(IES) for the
advisory and other expenses of the portfolios. SEE FEE TABLES ON PAGE 5.
SERVICE FEES
Portfolio shares are all subject to fees imposed under a servicing plan adopted
by the Seasons Series Trust pursuant to Rule 12b-1 under the Investment Company
Act of 1940. This service fee of 0.15%, which is also known as a 12b-1 fee, will
not increase for the life of the contract.
FOR MORE DETAILED INFORMATION ON THESE INVESTMENT CHARGES, REFER TO THE
PROSPECTUS FOR THE SEASONS SERIES TRUST, ATTACHED.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from your
account once per year. This charge compensates us for the cost of contract
administration. If your contract value is $50,000 or more on your contract
anniversary date, we will waive the charge. This waiver is subject to change
without notice. We will deduct the $35 ($30 in North Dakota) contract
maintenance fee on a pro-rata basis from your account value on your contract
anniversary. In the states of Pennsylvania, Texas and Washington a contract
maintenance fee will be deducted pro-rata from the SELECT PORTFOLIO(S), FOCUSED
PORTFOLIO(S) and/or SEASONS STRATEGY(IES) in which you are invested, only. If
you withdraw your entire contract value, we deduct the fee from that withdrawal.
30
<PAGE>
TRANSFER FEE
You may make transfers between investment options, without incurring a transfer
charge. However, we reserve the right to charge a fee for such transfers in the
future.
SEASONS ESTATE ADVANTAGE FEE
Please see page 28 of this prospectus for additional information regarding the
Seasons Estate Advantage fee.
OPTIONAL INCOME PROTECTOR FEE
Please see page 35 of this prospectus for additional information regarding the
Income Protector fee.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract. We deduct from your contract these premium tax charges. Currently we
deduct the charge for premium taxes when you fully surrender or annuitize the
contract. In the future, we may assess this deduction at the time you put
Purchase Payment(s) into the contract or upon payment of a death benefit.
APPENDIX D provides more information about premium taxes.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the right
to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated individuals may
lower our administrative and/or sales expenses. We reserve the right to reduce
or waive certain charges and expenses when this type of sale occurs. In
addition, we may also credit additional interest to policies sold to such
groups. We determine which groups are eligible for such treatment. Some of the
criteria we evaluate to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that our expenses will be reduced; and/or any other
factors that we believe indicate that administrative and/or sales expenses may
be reduced.
Anchor National may make such a determination regarding sales to its employees,
it affiliates' employees and employees of currently contracted broker-dealers;
its registered representatives and immediate family members of all of those
described.
We reserve the right to change or modify any such determination or the treatment
applied to a particular group, at any time.
INCOME OPTIONS
--------------------------------------------------------------------------------
ANNUITY DATE
During the Income Phase, the money in your Contract is used to make regular
income payments to you. You may switch to the Income Phase any time after your
second contract anniversary. You select the month and year in which you want
income payments to begin. The first day of that month is the Annuity Date. You
may change your Annuity Date, so long as you do so at least seven days before
the income payments are scheduled
31
<PAGE>
to begin. Once you begin receiving income payments, you cannot change your
Income Option. Except as discussed under Option 5, once you begin receiving
income payments, you cannot otherwise access your money through a withdrawal or
surrender.
If you participate in the Seasons Rewards Program and switch to the Income Phase
prior to a Deferred Payment Enhancement Date, if applicable, we will not
allocate any corresponding Deferred Payment Enhancement to your contract. SEE
SEASONS REWARDS PROGRAM ON PAGE 12.
Income payments must begin on or before your 90th birthday or on your tenth
contract anniversary, whichever occurs later. If you do not choose an Annuity
Date, your income payments will automatically begin on this date (latest Annuity
Date.) Certain states may require your income payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose its
status as an annuity under Federal tax laws. This may cause you to incur adverse
tax consequences. In addition, certain Qualified contracts require you to take
minimum distributions after you reach age 70 1/2. SEE TAXES ON PAGE 36.
INCOME OPTIONS
Currently, this Contract offers five Income Options. If you elect to receive
income payments but do not select an option, your income payments will be made
in accordance with Option 4 for a period of 10 years. For income payments
selected for joint lives, we pay according to Option 3.
We base our calculation of income payments on the life of the Annuitant and the
annuity rates set forth in your contract. As the contract owner, you may change
the Annuitant at any time prior to the Annuity Date. You must notify us if the
Annuitant dies before the Annuity Date and then designate a new Annuitant.
OPTION 1 - LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for the
life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop whenever the survivor dies.
OPTION 3 - JOINT AND 100% SURVIVOR LIFE ANNUITY WITH 10 YEAR PERIOD CERTAIN
This option is similar to Option 2 above, with an additional guarantee of
payments for at least 10 years. If the Annuitant and the Survivor die before all
of the payments have been made, the remaining payments are made to the
Beneficiary under your Contract.
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEAR PERIOD CERTAIN
This option is similar to Option 1 above. In addition, this option provides a
guarantee that income payments will be made for at least 10 or 20 years. You
select the number of years. If the Annuitant dies before all guaranteed income
payments are made, the remaining income payments go to the Beneficiary under
your Contract.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 5 to
30 years. If the Annuitant dies before all the guaranteed income payments are
made, the remaining income payments are made to the
32
<PAGE>
Beneficiary under your contract. Additionally, if variable income payments are
elected under this option, you (or the Beneficiary under the contract if the
Annuitant dies prior to all guaranteed payments being made) may redeem the
contract value (in full or in part) after the Annuity Date. The amount available
upon such redemption would be the discounted present value of any remaining
guaranteed payments. The value of an Annuity Unit, regardless of the option
chosen, takes into account the mortality and expense risk charge. Since Option 5
does not contain an element of mortality risk, no benefit is derived from this
charge.
We make income payments on a monthly, quarterly, semi-annual or annual basis.
You instruct us to send you a check or to have the payments direct deposited
into your bank account. If state law allows, we distribute annuities with a
contract value of $5,000 or less in a lump sum. Also, if the selected income
option results in annuity payments of less than $50 per payment, we may decrease
the frequency of the payments, state law allowing.
ALLOCATION OF ANNUITY PAYMENTS
You can choose income payments that are fixed, variable or both. If payments are
fixed, Anchor National guarantees the amounts of each payment. If the payments
are variable, the amounts are not guaranteed. They will go up and/or down based
upon the performance of the SELECT PORTFOLIO(S), FOCUSED PORTFOLIO(S) or SEASONS
STRATEGY(IES) in which you invest.
FIXED OR VARIABLE INCOME PAYMENTS
If at the date when income payments begin you are invested in the SELECT
PORTFOLIO(S), FOCUSED PORTFOLIO(S) and/or SEASONS STRATEGY(IES) only, your
income payments will be variable. If your money is only in fixed accounts at
that time, your income payments will be fixed in amount. If you are invested in
both fixed and variable options at the time you begin the Income Phase, a
portion of your income payments will be fixed and a portion will be variable.
INCOME PAYMENTS
Your income payments will vary if you are invested in the SELECT PORTFOLIO(S),
FOCUSED PORTFOLIO(S) and/or SEASONS STRATEGY(IES) after the Annuity date
depending on four factors:
- for life options, your age when payments begin,
- the value of your contract in the SELECT PORTFOLIO(S), FOCUSED
PORTFOLIO(S) and/or SEASONS STRATEGY(IES) on the Annuity Date,
- the 3.5% assumed investment rate for variable income payments used in the
annuity table for the contract, and;
- the performance of the SELECT PORTFOLIO(S), FOCUSED PORTFOLIO(S) and/or
SEASONS STRATEGY(IES) in which you are invested during the time you
receive income payments.
If you are invested in both the fixed account options and the SELECT
PORTFOLIO(S), FOCUSED PORTFOLIO(S) and/or SEASONS STRATEGY(IES) after the
Annuity Date, the allocation of funds between the fixed accounts and SELECT
PORTFOLIO(S), FOCUSED PORTFOLIO(S) and/or SEASONS STRATEGY(IES) also impacts the
amount of your annuity payments.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one (1) transfer per month is permitted between the
SELECT PORTFOLIO(S), FOCUSED PORTFOLIO(S) and SEASONS STRATEGY(IES). No other
transfers are allowed during the Income Phase.
33
<PAGE>
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period.
Please read the Statement of Additional Information, available upon request, for
a more detailed discussion of the income options.
INCOME PROTECTOR
You may elect to enroll in the Income Protector Program. The Income Protector
Program can provide a future "safety net" which offers you the ability to
receive a guaranteed fixed minimum retirement income when you choose to begin
receiving income payments. With the Income Protector you can know the level of
minimum income that will be available to you upon annuitization, regardless of
fluctuating market conditions. In order to utilize the program, you must follow
the provisions discussed below.
You are not required to use the Income Protector to receive income payments. The
general provisions of your contract provide other income options. However, we
will not refund fees paid for the Income Protector if you begin taking income
payments under the general provisions of your contract. YOU MAY NEVER NEED TO
RELY UPON INCOME PROTECTOR IF YOUR CONTRACT PERFORMS WITHIN A HISTORICALLY
ANTICIPATED RANGE. HOWEVER, PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Certain federal tax code restrictions on the income options available to
qualified retirement investors may have an impact on your ability to benefit
from this feature. Qualified investors should read NOTE TO QUALIFIED CONTRACT
HOLDERS, below.
HOW DO WE DETERMINE THE AMOUNT OF YOUR MINIMUM GUARANTEED INCOME?
We base the amount of minimum retirement income available to you if you take
income payments using the Income Protector upon a calculation we call the Income
Benefit Base. At the time your enrollment in the Income Protector program
becomes effective, your Initial Income Benefit Base is equal to your contract
value. Your participation becomes effective on either the date of issue of the
contract (if the feature is elected at the time of application) or on the
contract anniversary following your enrollment in the program.
The Income Benefit Base is only a calculation. It does not represent a contract
value, nor does it guarantee performance of the SELECT PORTFOLIO(S), FOCUSED
PORTFOLIO(S) or SEASONS STRATEGY(IES) in which you invest.
Your Income Benefit Base increases if you make subsequent Purchase Payments and
decreases if you withdraw money from your contract. The exact Income Benefit
Base calculation is equal to (a) plus (b) minus (c) where:
(a) is equal to, for the first year of calculation, your contract value on
the date your participation became effective, and for each subsequent
year of calculation, the Income Benefit Base of your prior contract
anniversary, and;
(b) is equal to the sum of all subsequent Purchase Payments made into the
contract since the prior contract anniversary, and;
(c) is equal to all withdrawals and applicable fees, charges and any
negative MVA (but excluding administration fees, mortality and expense
charges and the fee for enrollment into the program) since the prior
contract anniversary, including premium taxes, in an amount proportionate
to the amount by which such withdrawals decreased your contract value.
34
<PAGE>
ENROLLING IN THE PROGRAM
If you decide that you want the protection offered by the Income Protector
program, you must elect the Program by completing the Income Protector Election
Form. You can not terminate your enrollment once elected.
ELECTING TO RECEIVE INCOME
In order to exercise your rights under the Income Protector feature, you may not
begin the Income Phase for at least nine years following the date your
enrollment in the program became effective. Further, you may begin taking income
payments using the Income Protector feature only within 30 days after the ninth
or later contract anniversary following the effective date of your enrollment in
the Income Protector program.
The contract anniversary prior to your election to begin receiving income
payments is your Income Benefit Date. We calculate your Income Benefit Base as
of that date to use in determining your guaranteed minimum fixed retirement
income. To determine the minimum guaranteed retirement income available to you,
we apply your final Income Benefit Base to the annuity rates stated in your
Income Protector endorsement for the income option you select. You then choose
if you would like to receive the income annually, semi-annually, quarterly or
monthly for the time guaranteed under your selected income option. Your final
Income Benefit Base is equal to (a) minus (b) where:
(a) is your Income Benefit Base as of your Income Benefit Date, and;
(b) is any partial withdrawals of contract value and any charges applicable
to those withdrawals (including any negative MVA) and any withdrawal
charges otherwise applicable, calculated as if you fully surrender your
contract as of the Income Benefit Date, and any applicable premium taxes.
The income options available when using the Income Protector feature to receive
your retirement income are:
- Life Annuity with 10 years guaranteed, or
- Joint and 100% Survivor Life Annuity with 20 years guaranteed
At the time you elect to begin receiving income payments, we will calculate your
income payments using both your Income Benefit Base and your contract value. We
will use the same income option for each calculation; however, the annuity
factors used to calculate your income under the Income Protector feature will be
different. You will receive whichever provides a greater stream of income. If
you elect to receive income payments using the Income Protector feature your
income payments will be fixed in amount.
NOTE TO QUALIFIED CONTRACT HOLDERS
Qualified contracts generally require that you select an income option that does
not exceed your life expectancy. That restriction, if it applies to you, may
limit the benefit of the Income Protector program. To utilize the Income
Protector feature, you must take income payments under one of the two income
options described above. If those income options exceed your life expectancy,
you may be prohibited from receiving your guaranteed fixed income under the
program. If you own a Qualified contract to which this restriction applies and
you elect the Income Protector program, you may pay for this minimum guarantee
and not be able to realize the benefit.
Generally, for Qualified contracts:
- for the Life Annuity with 10 years guaranteed, you must annuitize before
age 79, and;
- for the Joint and 100% Survivor Annuity with 20 years guaranteed, both
annuitants must be 70 or younger or one of the annuitants must be 65 or
younger upon annuitization. Other age combinations may be available.
You may wish to consult your tax advisor for information concerning your
particular circumstances.
35
<PAGE>
FEES ASSOCIATED WITH THE INCOME PROTECTOR PROGRAM
If you elect to participate in the Income Protector program we deduct a fee
equal to 0.10% of your Income Benefit Base from your contract value on each
contract anniversary beginning with the contract anniversary following the
anniversary on which your enrollment in the program becomes effective. We will
deduct this charge from your contract value on every contract anniversary up to
and including your Income Benefit Date. Additionally, if you fully surrender
your contract prior to your contract anniversary, we will deduct the fee at the
time of surrender based on your Income Benefit Base as of the surrender date.
Once elected, the Income Protector Program and its corresponding charges may not
be terminated until full surrender or annuitization of the contract occurs.
HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR PROGRAM:
This table assumes a $100,000 initial investment in a Non-qualified contract
with no further premiums, no withdrawals, and no premium taxes, no election of
Seasons Rewards or Seasons Estate Advantage and the election of the Income
Protector program at contract issue.
<TABLE>
<CAPTION>
ANNUAL INCOME IF YOU ANNUITIZE ON THE FOLLOWING CONTRACT ANNIVERSARIES:
IF AT ISSUE YOU ARE... 1-8 9 10 15 20
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------
Male (M), Age 60* N/A 6,480 6,672 7,716 8,832
----------------------------------------------------------------------------------------------------
Female (F), Age 60* N/A 5,700 5,880 6,900 8,112
----------------------------------------------------------------------------------------------------
M and F, Age 60** N/A 4,920 5,028 5,544 5,928
----------------------------------------------------------------------------------------------------
</TABLE>
* Life Annuity with 10 Year Period Certain
** Joint and 100% Survivor Annuity with 20 Year Period Certain
The Income Protector program may not be available in all states. Check with your
financial advisor for availability in your state.
We reserve the right to modify, suspend or terminate the program at any time.
TAXES
--------------------------------------------------------------------------------
NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL DISCUSSION OF
THE SUBJECT. IT IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE
ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR
ANNUITY. TAX LAWS CONSTANTLY CHANGE, THEREFORE WE CANNOT GUARANTEE THAT THE
INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("federal tax code") provides for special rules
regarding the tax treatment of annuity contracts. Generally, taxes on the
earnings in your annuity contract are deferred until you take the money out.
Qualified retirement investments automatically provide tax deferral regardless
of whether the underlying contract is an annuity. Different rules apply
depending on how you take the money out and whether your contract is Qualified
or Non-qualified.
If you do not purchase your contract under a pension plan, a specially sponsored
employer program or an individual retirement account, your contract is referred
to as a Non-qualified contract. A Non-qualified contract receives different tax
treatment than a Qualified contract. In general, your cost basis in a
Non-qualified contract is equal to the Purchase Payments you put into the
contract. You have already been taxed on the cost basis in your contract.
36
<PAGE>
If you purchase your contract under a pension plan, a specially sponsored
employer program or as an individual retirement account, your contract is
referred to as a Qualified contract. Examples of Qualified plans are: Individual
Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as
403(b) contracts), H.R. 10 Plans (referred to as Keogh Plans) and pension and
profit sharing plans, including 401(k) plans. Typically you have not paid any
tax on the Purchase Payments used to buy your contract and therefore, you have
no cost basis in your contract.
TAX TREATMENT OF DISTRIBUTIONS--NON-QUALIFIED CONTRACTS
If you make a withdrawal from a Non-qualified contract, the federal tax code
treats such a withdrawal as first coming from the earnings and then as coming
from your Purchase Payments. For annuity payments, any portion of each payment
that is considered a return of your Purchase Payment will not be taxed.
Withdrawn earnings are treated as income to you and are taxable. The federal tax
code provides for a 10% penalty tax on any earnings that are withdrawn other
than in conjunction with the following circumstances: (1) after reaching age
59 1/2; (2) when paid to your Beneficiary after you die; (3) after you become
disabled (as defined in the federal tax code); (4) in a series of substantially
equal installments made for your life or for the joint lives of you and you
Beneficiary; (5) under an immediate annuity; or (6) which come from Purchase
Payments made prior to August 14, 1982.
TAX TREATMENT OF DISTRIBUTIONS--QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract. Any amount of money you take out as a withdrawal or as
income payments is taxable income. The federal tax code further provides for a
10% penalty tax on any withdrawal or income payment paid to you other than in
conjunction with the following circumstances: (1) after reaching age 59 1/2;
(2) when paid to your Beneficiary after you die; (3) after you become disabled
(as defined in the federal tax code); (4) in a series of substantially equal
installments made for your life or for the joint lives of you and your
Beneficiary; (5) to the extent such withdrawals do not exceed limitations set by
the federal tax code for amounts paid during the taxable year for medical care;
(6) to fund higher education expenses (as defined in federal tax code); (7) to
fund certain first-time home purchase expenses; and, except in the case of an
IRA; (8) when you separate from service after attaining age 55; and (9) when
paid to an alternate payee pursuant to a qualified domestic relations order.
The federal tax code limits the withdrawal of Purchase Payments from certain
Tax-Sheltered Annuities. Withdrawals can only be made when an owner:
(1) reaches age 59 1/2; (2) leaves his or her job; (3) dies; (4) becomes
disabled (as defined in the federal tax code); or (5) in the case of hardship.
In the case of hardship, the owner can only withdraw Purchase Payments.
MINIMUM DISTRIBUTIONS
If you have a Qualified contract, distributions must begin by April 1 of the
calendar year following the later of (1) the calendar year in which you attain
age 70 1/2 or (2) the calendar year in which you retire. Failure to satisfy the
minimum distribution requirements may result in a tax penalty. You should
contact your tax advisor for more information.
We currently waive surrender charges and MVA on withdrawals taken to meet
minimum distribution requirements. Current operational practice is to provide a
free withdrawal of the greater of the contract's maximum penalty free amount or
the required minimum distribution amount for a particular contract (but not
both).
You may elect to have the required minimum distribution amount on your contract
calculated and withdrawn each year under the automatic withdrawal option. You
may select either monthly, quarterly, semi-annual or annual withdrawals for this
purpose. This service is provided as a courtesy and we do not guarantee the
accuracy of our calculations. Accordingly, we recommend you consult your tax
advisor concerning your required
37
<PAGE>
minimum distribution. You may terminate your election for automated minimum
distribution at any time by sending a written request to our Annuity Service
Center. We reserve the right to change, modify or discontinue the service at any
time.
DIVERSIFICATION
The federal tax code imposes certain diversification requirements on the
underlying investments for a variable annuity. We believe that the underlying
Portfolios' management monitors the variable Portfolios so as to comply with
these requirements. To be treated as a variable annuity for tax purposes, the
underlying investments must meet these requirements.
The diversification regulations do not provide guidance as to the circumstances
under which you, because of the degree of control you exercise over the
underlying investments, and not Anchor National, would be considered the owner
of the shares of the Portfolios. It is unknown to what extent owners are
permitted to select investments, to make transfers among Portfolios or the
number and type of Portfolios owners may select from. If any guidance is
provided which is considered a new position, then the guidance would generally
be applied prospectively. However, if such guidance is considered not to be a
new position, it may be applied retroactively. This would mean you, as the owner
of the contract, could be treated as the owner of the underlying variable
investment Portfolios. Due to the uncertainty in this area, we reserve the right
to modify the contract in an attempt to maintain favorable tax treatment.
PERFORMANCE
--------------------------------------------------------------------------------
From time to time we will advertise the performance of the SELECT PORTFOLIOS,
FOCUSED PORTFOLIOS and/or SEASONS STRATEGIES. Any such performance results are
based on historical earnings and are not intended to indicate future
performance.
We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other SELECT PORTFOLIOS, FOCUSED PORTFOLIOS and SEASONS STRATEGIES
advertise total return, gross yield and yield-to-maturity. These figures
represent past performance of the SELECT PORTFOLIOS, FOCUSED PORTFOLIOS and
SEASONS STRATEGIES. These performance numbers do not indicate future results.
We may show performance of each SELECT PORTFOLIO, FOCUSED PORTFOLIO and/or
SEASONS STRATEGY in comparison to various appropriate indices and the
performance of other similar variable annuity products with similar objectives
as reported by such independent reporting services as Morningstar, Inc., Lipper
Analytical Services, Inc. and the Variable Annuity Research Data Service
("VARDS").
Please see the Statement of Additional Information, available upon request, for
more information regarding the methods used to calculate performance data.
Anchor National may also advertise the rating and other information assigned to
it by independent industry ratings organizations. Some of those organizations
are A.M. Best Company ("A.M. Best"), Moody's Investor's Service ("Moody's"),
Standard & Poor's Insurance Rating Services ("S&P"), and Duff & Phelps. A.M.
Best's and Moody's ratings reflect their current opinion of our financial
strength and performance in comparison to others in the life and health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues.
These two ratings do not measure the insurer's ability to meet non-policy
obligations. Ratings in general do not relate to the performance of the variable
Portfolios.
38
<PAGE>
OTHER INFORMATION
--------------------------------------------------------------------------------
ANCHOR NATIONAL
Anchor National is a stock life insurance company originally organized under the
laws of the state of California in April, 1965. On January 1, 1996, Anchor
National redomesticated under the laws of the state of Arizona.
Anchor National and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, SunAmerica Asset Management Corporation,
SunAmerica Trust Company, and the SunAmerica Financial Network, Inc. (comprising
six wholly owned broker-dealers), specialize in retirement savings and
investment products and services. Business focuses include fixed and variable
annuities, mutual funds, broker-dealer services and trust administration
services.
THE SEPARATE ACCOUNT
Anchor National originally established a separate account, Variable Annuity
Account Five (the "Separate Account"), under Arizona law on July 8, 1996. The
Separate Account is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940, as amended.
Anchor National owns the assets in the Separate Account. However, the assets in
the Separate Account are not chargeable with liabilities arising out of any
other business conducted by Anchor National. Income gains and losses (realized
and unrealized) resulting from assets in the Separate Account are credited to or
charged against the Separate Account without regard to other income, gains or
losses of Anchor National.
CUSTODIAN
State Street Bank and Trust Company, 255 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the Separate Account. Anchor
National pays State Street Bank for services provided, based on a schedule of
fees.
THE GENERAL ACCOUNT
Money allocated to the fixed account options goes into Anchor National's general
account. The general account consists of all of Anchor National's assets other
than assets attributable to a separate account. All of the assets in the general
account are chargeable with the claims of any Anchor National contract holders
as well as all of its creditors. The general account funds are invested as
permitted under state insurance laws.
DISTRIBUTION OF THE CONTRACT
Registered representatives of broker-dealers sell the contract. We pay
commissions to these representatives for the sale of the contracts. We do not
expect the total commissions to exceed 7.5% of your Purchase Payments. Contracts
sold with the Seasons Rewards Program may result in our paying a lower
commission. We may also pay a bonus to representatives for contracts which stay
active for a particular period of time, in addition to standard commissions. We
do not deduct commissions paid to registered representatives directly from your
Purchase Payments.
From time to time, we may pay or allow additional promotional incentives in the
form of cash or other compensation. We reserve the right to offer these
additional incentives only to certain broker-dealers that sell or are expected
to sell, certain minimum amounts of the contract, or other contracts offered by
us. Promotional incentives may change at any time.
39
<PAGE>
SunAmerica Capital Services, Inc., 733 Third Avenue, 4th Floor, New York, New
York 10017 distributes the contracts. SunAmerica Capital Services is an
affiliate of Anchor National, and is a registered as a broker-dealer under the
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc.
No underwriting fees are paid in connection with the distribution of the
contracts.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. During the
Accumulation Phase, you will receive confirmation of transactions within your
contract. Transactions made pursuant to contractual or systematic agreements,
such as deduction of the annual maintenance fee and dollar cost averaging, may
be confirmed quarterly. Purchase payments received through the Automatic Payment
Plan or a salary reduction arrangement, may also be confirmed quarterly. For all
other transactions, we send confirmations immediately.
During the Accumulation and Income Phases, you will receive a statement of your
transactions over the past quarter and a summary of your account values. Please
contact our Annuity Service Center at 1-800-445-SUN2, if you have any comment,
question or service request.
We send out transaction confirmations and quarterly statements. It is your
responsibility to review these documents carefully and notify us of any
inaccuracies immediately. We investigate all inquiries. To the extent that we
believe we made an error, we retroactively adjust your contract, provided you
notify us within 30 days of receiving the transaction confirmation or quarterly
statement. Any other adjustments we deem warranted are made as of the time we
receive notice of the error.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. Anchor
National and its subsidiaries engage in various kinds of routine litigation. In
management's opinion, these matters are not of material importance to their
respective total assets nor are they material with respect to the Separate
Account.
INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
The consolidated financial statements of Anchor National Life Insurance Company
as of December 31, 1999, December 31, 1998, and September 30, 1998 and 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, are
incorporated by reference in this prospectus and have been so included in
reliance on the reports of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting. As of
the date of this Prospectus, sale of these contracts had only recently began.
Therefore, financial statements for Variable Annuity Account Five (portion
related to the Seasons Select(II) Variable Annuity) are not contained herein.
40
<PAGE>
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Separate Account............................................ 3
General Account............................................. 4
Performance Data............................................ 4
Income Payments............................................. 9
Annuity Unit Values......................................... 10
Taxes....................................................... 13
Distribution of Contracts................................... 18
Financial Statements........................................ 18
</TABLE>
41
<PAGE>
APPENDIX A - CONDENSED FINANCIAL INFORMATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL 3/31/00
YEAR TO
SEASONS STRATEGIES INCEPTION TO 3/31/99 3/31/00 4/30/00
------------------------------------------------- ---------------------- ----------- -----------
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
Growth (Inception Date: 3/4/99)
Beginning AUV.................................. 15.05 15.89 21.30
End AUV........................................ 15.89 21.30 20.24
Ending Number of AUs........................... 31,169 1,653,495 1,871,300
-------------------------------------------------------------------------------------------------
Moderate Growth (Inception Date: 3/3/99)
Beginning AUV.................................. 14.25 15.09 19.48
End AUV........................................ 15.09 19.48 18.62
Ending Number of AUs........................... 93,136 1,559,019 1,760,865
-------------------------------------------------------------------------------------------------
Balanced Growth (Inception Date: 3/5/99)
Beginning AUV.................................. 13.80 14.05 16.68
End AUV........................................ 14.05 16.68 16.11
Ending Number of AUs........................... 85,553 991,695 1,061,795
-------------------------------------------------------------------------------------------------
Conservative Growth (Inception Date: 3/5/99)
Beginning AUV.................................. 13.03 13.21 14.89
End AUV........................................ 13.21 14.89 14.50
Ending Number of AUs........................... 33,892 623,175 629,067
-------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL 3/31/00
YEAR TO
SELECT PORTFOLIOS
--------------------------------------------------- INCEPTION TO 3/31/99 - 3/31/00 - 4/30/00
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Large Cap Growth (Inception Date: 3/1/99)
Beginning AUV.................................. 10.00 10.68 14.94
End AUV........................................ 10.68 14.94 13.99
Ending Number of AUs........................... 85,647 1,058,317 1,158,071
-------------------------------------------------------------------------------------------------
Large Cap Composite (Inception Date: 3/1/99)
Beginning AUV.................................. 10.00 10.41 12.88
End AUV........................................ 10.41 12.88 12.30
Ending Number of AUs........................... 33,347 316,855 361,941
-------------------------------------------------------------------------------------------------
Large Cap Value (Inception Date: 3/1/99)
Beginning AUV.................................. 10.00 10.32 10.75
End AUV........................................ 10.32 10.75 10.79
Ending Number of AUs........................... 34,004 531,732 571,490
-------------------------------------------------------------------------------------------------
Mid Cap Growth (Inception Date: 3/1/99)
Beginning AUV.................................. 10.00 10.62 18.41
End AUV........................................ 10.62 18.41 16.85
Ending Number of AUs........................... 27,096 529,844 612,249
-------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
FISCAL 3/31/00
YEAR TO
SELECT PORTFOLIOS
--------------------------------------------------- INCEPTION TO 3/31/99 - 3/31/00 - 4/30/00
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mid Cap Value (Inception Date: 3/1/99)
Beginning AUV.................................. 10.00 10.10 10.93
End AUV........................................ 10.10 10.93 11.14
Ending Number of AUs........................... 11,278 297,306 318,151
-------------------------------------------------------------------------------------------------
Small Cap (Inception Date: 3/1/99)
Beginning AUV.................................. 10.00 10.35 15.00
End AUV........................................ 10.35 15.00 13.56
Ending Number of AUs........................... 22,807 432,850 481,239
-------------------------------------------------------------------------------------------------
International Equity (Inception Date: 3/1/99)
Beginning AUV.................................. 10.00 10.51 13.61
End AUV........................................ 10.51 13.61 12.46
Ending Number of AUs........................... 23,961 314,634 384,946
-------------------------------------------------------------------------------------------------
Diversified Fixed Income (Inception Date: 3/10/99)
Beginning AUV.................................. 10.00 10.02 10.00
End AUV........................................ 10.02 10.00 9.96
Ending Number of AUs........................... 31,762 474,014 513,721
-------------------------------------------------------------------------------------------------
Cash Management (Inception Date: 3/26/99)
Beginning AUV.................................. 10.00 10.00 10.32
End AUV........................................ 10.00 10.32 10.35
Ending Number of AUs........................... 970 380,169 235,608
-------------------------------------------------------------------------------------------------
<CAPTION>
FOCUSED PORTFOLIOS
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Focus Growth*
Beginning AUV.................................. 0 0 0
End AUV........................................ 0 0 0
Ending Number of AUs........................... 0 0 0
Focus Growth and Income**
Beginning AUV.................................. 0 0 0
End AUV........................................ 0 0 0
Ending Number of AUs........................... 0 0 0
Focus TechNet**
Beginning AUV.................................. 0 0 0
* This portfolio was not available for sale in this product until July 5, 2000.
** This portfolio was not available for sale in this product until December 29, 2000.
-------------------------------------------------------------------------------------------------
</TABLE>
AUV-Accumulation Unit Value
AU-Accumulation Units
A-2
<PAGE>
APPENDIX B - SEASONS REWARDS PROGRAM EXAMPLES
--------------------------------------------------------------------------------
The following examples assume an initial $125,000 Purchase Payment is made and
that the Company is offering Upfront and Deferred Payment Enhancements in
accordance with this chart:
<TABLE>
<CAPTION>
UPFRONT PAYMENT DEFERRED PAYMENT DEFERRED PAYMENT
ENHANCEMENT LEVEL ENHANCEMENT RATE ENHANCEMENT RATE ENHANCEMENT DATE
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------
Under $100,000 2% 0% N/A
-----------------------------------------------------------------------------------------------
$100,000 - $499,999 2% 1% Nine years from the date we receive
each Purchase Payment.
-----------------------------------------------------------------------------------------------
$500,000 - more 2% 2% Nine years from the date we receive
each Purchase Payment.
-----------------------------------------------------------------------------------------------
</TABLE>
I. DEFERRED PAYMENT ENHANCEMENT
If you elect to participate in the Seasons Rewards Program at contract issue, we
contribute at least 2% of each Purchase Payment to your contract for each
Purchase Payment we receive, as an Upfront Payment Enhancement. Any applicable
Deferred Payment Enhancement is allocated to your contract on the corresponding
Deferred Payment Enhancement Date and, if declared by the Company, is a
percentage of your remaining Purchase Payment on the Deferred Payment
Enhancement Date. Deferred Purchase Payment Enhancements are reduced
proportionately by partial withdrawals of that Purchase Payment prior to the
Deferred Payment Enhancement Date. The Deferred Payment Enhancement Rate may
increase, decrease or be eliminated at any time.
EXAMPLE 1 - NO WITHDRAWALS ARE MADE
The Upfront Payment Enhancement allocated to your contract is $2,500 (2% of
$125,000).
On your 9th contract anniversary, the Deferred Payment Enhancement Date, your
Deferred Payment Enhancement of $1,250 (1% of your remaining Purchase Payment or
$125,000) will be allocated to your contract.
EXAMPLE 2 - WITHDRAWAL MADE PRIOR TO DEFERRED PAYMENT ENHANCEMENT DATE
As in Example 1, your Upfront Payment Enhancement is $2,500.
This example also assumes the following:
(1) Your contract value on your 5th contract anniversary is $190,000.
(2) You request a withdrawal of $75,000 on your 5th contract anniversary.
(3) No subsequent Purchase Payments have been made.
(4) No prior withdrawals have been taken.
(5) Funds are not allocated to any of the MVA Fixed Accounts.
On your 5th contract anniversary, your penalty-free earnings in the contract are
$65,000 ($190,000 contract value less your $125,000 investment in the contract).
Therefore, you are withdrawing $10,000 of your initial Purchase Payment. Your
contract value will also be reduced by a $500 withdrawal charge on the $10,000
Purchase Payment (5% of $10,000). Your gross withdrawal is $75,500 of which
$10,500 constitutes part of your Purchase Payment.
B-1
<PAGE>
The withdrawal of $10,500 of your $125,000 Purchase Payment is a withdrawal of
8.4% of your Purchase Payment. Therefore, only 91.6% or $114,500 of your initial
Purchase Payment remains in your contract.
On your 9th contract anniversary, the Deferred Payment Enhancement Date,
assuming no other transactions occur affecting the Purchase Payment, we allocate
your Deferred Payment Enhancement of $1,145 (1% of your remaining Purchase
Payment, $114,500) to your contract.
II. 90 DAY WINDOW
Contracts issued with the Seasons Rewards feature may be eligible for a
"Look-Back Adjustment." As of the 90th day after your contract was issued, we
will total your Purchase Payments remaining in your contract at that time,
without considering any investment gain or loss in contract value on those
Purchase Payments. If your total Purchase Payments bring you to an Enhancement
Level which, as of the date we issued your contract, would have provided for a
higher Upfront and/or Deferred Payment Enhancement Rate on each Purchase
Payment, you will get the benefit of the Enhancement Rate(s) that were
applicable to that higher Enhancement Level at the time your contract was
issued.
This example assumes the following:
(1) No withdrawal in the first 90 days.
(2) Initial Purchase Payment of $50,000 on November 1, 2000.
(3) Subsequent Purchase Payment of $50,000 on January 15, 2001.
(4) Subsequent Purchase Payment of $25,000 on January 28, 2001.
ENHANCEMENT AT THE TIME PURCHASE PAYMENT RECEIVED
<TABLE>
<CAPTION>
DEFERRED
PURCHASE UPFRONT DEFERRED PAYMENT
PAYMENT PAYMENT PAYMENT ENHANCEMENT
DATE OF PURCHASE PAYMENT AMOUNT ENHANCEMENT ENHANCEMENT DATE
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------
November 1, 2000 $ 50,000 2% 0% N/A
----------------------------------------------------------------------------------------------
January 15, 2001 $ 50,000 2% 1% January 15, 2010
----------------------------------------------------------------------------------------------
January 28, 2001 $ 25,000 2% 1% January 28, 2010
----------------------------------------------------------------------------------------------
</TABLE>
ENHANCEMENT ADJUSTMENTS ON THE 90TH DAY FOLLOWING CONTRACT ISSUE
The sum of all Purchase Payments made in the first 90 days of the contract
equals $125,000. According to the Enhancement Levels in effect at the time this
contract was issued, a $125,000 Purchase Payment would have received a 2%
Upfront Payment Enhancement and a 1% Deferred Payment Enhancement. Under the 90
Day
B-2
<PAGE>
Window provision all Purchase Payments made within those first 90 days would
receive the benefit of the parameters in place at the time the contract was
issued, as if all of the Purchase Payments were received on the date of issue.
Thus, the first two payment enhancements would be adjusted at the end of the
90 days as follows:
<TABLE>
<CAPTION>
DEFERRED
PURCHASE UPFRONT DEFERRED PAYMENT
PAYMENT PAYMENT PAYMENT ENHANCEMENT
DATE OF PURCHASE PAYMENT AMOUNT ENHANCEMENT ENHANCEMENT DATE
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------
November 1, 2000 $ 50,000 2% 1% November 1, 2009
---------------------------------------------------------------------------------------------
January 15, 2001 $ 50,000 2% 1% January 15, 2010
---------------------------------------------------------------------------------------------
January 28, 2001 $ 25,000 2% 1% January 28, 2010
---------------------------------------------------------------------------------------------
</TABLE>
B-3
<PAGE>
APPENDIX C - MARKET VALUE ADJUSTMENT
--------------------------------------------------------------------------------
The market value adjustment reflects the impact that changing interest rates
have on the value of money invested at a fixed interest rate. The longer the
period of time remaining in the term you initially agreed to leave your money in
the fixed investment option, the greater the impact of changing interest rates.
The impact of the market value adjustment can be either positive or negative,
and is computed by multiplying the amount withdrawn, transferred or annuitized
by the following factor:
[(1+I/(1+J+L)](to the power of N/12) - 1
THE MARKET VALUE ADJUSTMENT FORMULA
MAY DIFFER IN CERTAIN STATES
where:
I is the interest rate you are earning on the money invested in
the fixed investment option;
J is the interest rate then currently available for the period
of time equal to the number of years remaining in the term you initially agreed
to leave your money in the fixed investment option; and
L is equal to 0.005, except in Florida where it is equal to
.0025.
N is the number of full months remaining in the term you
initially agreed to leave your money in the fixed investment option.
EXAMPLES OF THE MARKET VALUE ADJUSTMENT
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to the
10-year fixed investment option at a rate of 5%;
(2) You make a partial withdrawal of $4,000 when 1 year (12 months) remain
in the 10-year term you initially agreed to leave your money in the fixed
investment option (N=12); and
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals.
No withdrawal charges are reflected because your Purchase Payment has been in
the contract for nine full years. If a withdrawal charge applies, it is deducted
before the market value adjustment. The market value adjustment is assessed on
the amount withdrawn less any withdrawal charges.
POSITIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for a new
Purchase Payments in the 1-year fixed investment option is 4%.
The market value adjustment factor is
= [(1+I/(1+J+0.005)](to the power of N/12) - 1
= [(1.05)/(1.04+0.005)](to the power of 12/12) - 1
= (1.004785)(to the power of 1) - 1
= 1.004785 - 1
= +0.004785
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
$4,000 X (+0.004785) = +$19.14
$19.14 represents the market value adjustment that would be added to your
withdrawal.
C-1
<PAGE>
NEGATIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year fixed investment option is 6%.
The market value adjustment factor is
= [(1+I)/(1+J+0.005)](to the power of N/12) - 1
= [(1.05)/(1.06+0.005)](to the power of 12/12) - 1
= (0.985915)(to the power of 1) - 1
= 0.985915 - 1
= -0.014085
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
$4,000 X (-0.014085) = -$56.34
$56.34 represents the market value adjustment that will be deducted from the
money remaining in the 10-year fixed investment option.
C-2
<PAGE>
APPENDIX D - DEATH BENEFITS FOLLOWING SPOUSAL CONTINUATION
--------------------------------------------------------------------------------
Capitalized terms used in the Appendix have the same meaning as they have in the
Death Benefit section starting on page 26 of the prospectus.
The term "Continuation Net Purchase Payment" is used frequently to describe the
death benefit options payable to the beneficiary of a Continuing Spouse. We
define Continuation Net Purchase Payment as Net Purchase Payments made as of the
Continuation Date. For the purposes of calculating Continuation Net Purchase
Payments, the amount that equals the contract value on the Continuation Date,
including the Continuation Contribution is considered a Purchase Payment. If the
Continuing Spouse makes no additional Purchase Payments or withdrawals,
Continuation Net Purchase Payments equal the contract value on the Continuation
Date, including the Continuation Contribution.
STANDARD DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH
If the Standard Death Benefit is applicable upon the Continuing Spouse's death
and the Continuing Spouse is age 74 or younger at the time of death, we will pay
the beneficiary the greater of:
1. Continuation Net Purchase Payments compounded at a 3% annual growth rate
until the date of death, plus any Net Purchase Payments recorded after the
date of death; or
2. The contract value at the time we receive satisfactory proof of death.
If the Continuing Spouse is age 75 or older at the time of death, the Standard
Death Benefit is the greater of:
1. Continuation Net Purchase Payments compounded at a 3% annual growth until
the Continuing Spouse's 75th birthday, plus any Net Purchase Payments
recorded after age 75 until the date of death; or
2. The contract value at the time we receive satisfactory proof of death.
SEASONS ESTATE ADVANTAGE DEATH BENEFIT PAYABLE UPON CONTINUING SPOUSE'S DEATH
If Seasons Estate Advantage is applicable upon the Continuing Spouse's death, we
will pay the Beneficiary the sum of A plus B, where:
A. equals the amount payable under the selected enhanced death benefit
(option 1 or 2 below, as selected by the original owner); and
B. equals the amount payable, if any, under the Earnings Advantage benefit.
A. Enhanced Death Benefit Options for Spousal Continuation:
1. 5% Accumulation Option -- the death benefit is the greater of:
a. The contract value on the date we receive satisfactory proof of the
Continuing Spouse's death; or
b. Net Purchase Payments made from the original contract issue date
including the Continuation Contribution, compounded to the earlier of
the Continuing Spouse's 80(th) birthday or the date of death at a 5%
annual growth rate, plus any Net Purchase Payments recorded after the
Continuing Spouse's 80th birthday or the date of death, up to a
maximum benefit of two times the Net Purchase Payments.
If the Continuing Spouse dies after the latest Annuity Date and the 5%
Accumulation option applied, any death benefit payable under the contract will
be the Standard Death Benefit as described above. The Continuing Spouse's
beneficiary will not receive any benefit from Seasons Estate Advantage.
2. Maximum Anniversary Value Option -- if the Continuing Spouse is younger
than age 90 at the time of death, the death benefit is the greater of:
D-1
<PAGE>
a. Continuation Net Purchase Payments; or
b. The contract value at the time we receive satisfactory proof of the
Continuing Spouse's death; or
c. The maximum anniversary value on any contract anniversary occurring
after the Continuation Date prior to the earlier of the Continuing
Spouse's 81st birthday or date of death. The anniversary value equals
the value of the contract anniversary plus any Net Purchase Payments
recorded since that anniversary. Contract anniversary is defined as
any anniversary following the full 12 month period after the original
contract issue date.
If the Continuing Spouse is age 90 or older at the time of death and the Maximum
Anniversary Value option applied, the death benefit will be equal to the
contract value at the time we receive satisfactory proof of death. The
Continuing Spouse's beneficiary will not receive any benefit from Seasons Estate
Advantage.
B. Earnings Advantage Benefit for Spousal Continuation:
The Earnings Advantage benefit may increase the death benefit amount. The
Earnings Advantage benefit is only available if the original owner elected
Seasons Estate Advantage and it has not been discontinued or terminated. If the
Continuing Spouse had earnings in the contract at the time of his/her death, we
will add a percentage of those earnings (the "Earnings Advantage Percentage"),
subject to a maximum dollar amount (the "Maximum Earnings Advantage
Percentage"), to the death benefit payable.
The Contract Year of Death (from Continuation Date forward) will determine the
Earnings Advantage Percentage and the Maximum Earnings Advantage amount, as set
forth below:
<TABLE>
-----------------------------------------------------------------------------------------------------
EARNINGS
ADVANTAGE
CONTRACT YEAR OF DEATH PERCENTAGE MAXIMUM EARNINGS ADVANTAGE PERCENTAGE
<S> <C> <C>
-----------------------------------------------------------------------------------------------------
Years 0-4 25% of earnings 25% of Continuation Net Purchase Payments
-----------------------------------------------------------------------------------------------------
Years 5-9 40% of earnings 40% of Continuation Net Purchase Payments*
-----------------------------------------------------------------------------------------------------
Years 10+ 50% of earnings 50% of Continuation Net Purchase Payments*
-----------------------------------------------------------------------------------------------------
</TABLE>
*PURCHASE PAYMENTS MUST BE INVESTED FOR AT LEAST SIX MONTHS AT THE TIME OF YOUR
DEATH TO BE INCLUDED AS PART OF CONTINUATION NET PURCHASE PAYMENTS FOR PURPOSES
OF THE MAXIMUM EARNINGS ADVANTAGE CALCULATION.
WHAT IS THE CONTRACT YEAR OF DEATH?
Contract Year of Death is the number of full 12 month periods starting on the
Continuation Date and ending on the Continuing Spouse's date of death.
WHAT IS THE EARNINGS ADVANTAGE AMOUNT?
We determine the Earnings Advantage amount based upon a percentage of earnings
in the contract at the time of the Continuing Spouse's death. For the purpose of
this calculation, earnings are defined as (1) minus (2) where
(1) equals the contract value on the Continuing Spouse's date of death;
(2) equals the Continuation Net Purchase Payment(s).
WHAT IS THE MAXIMUM EARNINGS ADVANTAGE AMOUNT?
The Earnings Advantage amount is subject to a maximum. The Maximum Earnings
Advantage amount is a percentage of the Continuation Net Purchase Payments.
If the 5% Accumulation enhanced death benefit option applied, the Earnings
Advantage benefit will only be paid if the Continuing Spouse's date of death is
prior to the latest Annuity Date. If the Maximum Anniversary Value enhanced
death benefit option applied, the Earnings Advantage benefit will only be paid
if the Continuing Spouse's date of death is prior to reaching age 90.
WE RESERVE THE RIGHT TO MODIFY, SUSPEND OR TERMINATE THE SPOUSAL CONTINUATION
PROVISION (IN ITS ENTIRETY OR ANY COMPONENT) AT ANY TIME.
D-2
<PAGE>
APPENDIX E - PREMIUM TAXES
--------------------------------------------------------------------------------
Premium taxes vary according to the state and are subject to change without
notice. In many states, there is no tax at all. Listed below are the current
premium tax rates in those states that assess a premium tax. For current
information, you should consult your tax adviser.
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
STATE CONTRACT CONTRACT
----- --------- -------------
<S> <C> <C>
California.................................................. 0.50% 2.35%
Maine....................................................... 0% 2.00%
Nevada...................................................... 0% 3.50%
South Dakota................................................ 0% 1.25%
West Virginia............................................... 1.00% 1.00%
Wyoming..................................................... 0% 1.00%
</TABLE>
E-1
<PAGE>
Please forward a copy (without charge) of the Seasons Select(II) Variable
Annuity Statement of Additional Information to:
(Please print or type and fill in all information.)
--------------------------------------------------------------------------------
Name
--------------------------------------------------------------------------------
Address
--------------------------------------------------------------------------------
City/State/Zip
--------------------------------------------------------------------------------
Date: ___________________ Signed: _____________________________________________
Return to: Anchor National Life Insurance Company, Annuity Service Center,
P.O. Box 52499, Los Angeles, California 90054-0299
<PAGE>
[LOGO]
SEASONS SELECT II
A NEW WAY TO LOOK AT MONEY-TM-
1-800-445-SUN2
WWW.SUNAMERICA.COM
ISSUED BY ANCHOR NATIONAL LIFE INSURANCY COMPANY
P.O. BOX 54299, LOS ANGELES, CA 90054-0299
DISTRIBUTED BY SUNAMERICA CAPITAL SERVICES, INC.
733 THIRD AVENUE, NEW YORK, NY 10017
1-800-858,8850
[LOGO] AIG MEMBER of AMERICAN INTERNATIONAL GROUP, INC.
[LOGO]
RETIRE ON YOUR TERMS -TM-
VARIABLE ANNUITIES
J-2476-PRO(R 12/00)
[LOGO] SUNAMERICA Presorted
THE RETIREMENT SPECIALIST Standard
1 SunAmerica Center U.S. Postage Paid
Los Angeles, CA 90067-6022 Towne, Inc.
ADDRESS SERVICE REQUESTED
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FIXED AND VARIABLE GROUP DEFERRED ANNUITY CONTRACTS ISSUED BY
VARIABLE ANNUITY ACCOUNT FIVE
(portion relating to the Seasons Select II Variable Annuity)
DEPOSITOR: ANCHOR NATIONAL LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus; it should be read
with the prospectus dated December 29, 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 DECEMBER 29, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Separate Account............................................ 3
General Account............................................. 3
Performance Data............................................ 4
Annuity Payments............................................ 8
Annuity Unit Values......................................... 9
Taxes....................................................... 11
Distribution of Contracts................................... 15
Financial Statements........................................ 15
</TABLE>
2
<PAGE>
SEPARATE ACCOUNT
--------------------------------------------------------------------------------
Variable Annuity Account Five was originally established by Anchor National Life
Insurance Company (the "Company") on July 3, 1996 pursuant to the provisions of
Arizona law, as a segregated asset account of the Company. The separate account
meets the definition of a "separate account" under the federal securities laws
and is registered with the SEC as a unit investment trust under the Investment
Company Act of 1940. This registration does not involve supervision of the
management of the separate account or the Company by the SEC.
The assets of the separate account are the property of the Company. However, the
assets of the separate account, equal to its reserves and other contract
liabilities, are not chargeable with liabilities arising out of any other
business the Company may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to the
separate account are credited to or charged against the separate account without
regard to other income, gains, or losses of the Company.
The separate account is divided into SELECT PORTFOLIOS, FOCUSED PORTFOLIOS and
STRATEGIES, with the assets of each SELECT PORTFOLIO, FOCUSED 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, FOCUSED 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, FOCUSED 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 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 6-month or 1-year DCA
fixed account(s)
3
<PAGE>
available in connection with the general account, as elected by the owner
purchasing a contract. The 6-month and 1-year DCA fixed accounts are not
available if the Seasons Reward Program is elected. 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, FOCUSED 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, FOCUSED 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, FOCUSED 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. The
annualized current yield and effective yield for the Cash Management Portfolio
for the seven day period ended April 30, 2000, were as follows:
<TABLE>
<CAPTION>
CURRENT YIELD EFFECTIVE YIELD
------------- ---------------
<S> <C> <C>
A. For contracts without the Seasons Rewards Program...... 3.79% 3.87%
B. For contracts with the Seasons Rewards Program......... 5.87% 5.95%
</TABLE>
4
<PAGE>
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:
For contracts without the Seasons Rewards Program:
--------------------------------------------------
Base Period Return = (EV - SV - CMF)/(SV)
For contracts with the Seasons Rewards Program:
------------------------------------------------
Base Period Return = (EV - SV - CMF + E)/(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
E =Premium Enhancement Rate, 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 SELECT PORTFOLIOS,
FOCUSED PORTFOLIOS and/or STRATEGIES and the general account so that each SELECT
PORTFOLIO'S, FOCUSED PORTFOLIO'S and/or STRATEGY's allocated portion of the fee
is proportional to the percentage of the number of accounts that have money
allocated to that SELECT PORTFOLIO, FOCUSED PORTFOLIO and/or STRATEGY. 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)
The Cash Management Portfolio also quotes an "effective yield" that differs from
the current yield given above in that it takes into account the effect of
dividend reinvestment in the underlying fund. The effective yield, like the
current yield, is derived from the Base Period Return over a 7 day period.
However, the effective yield accounts for dividend reinvestment by compounding
the current yield according to the formula:
Effective Yield = [(Base Period Return + 1) TO THE POWER OF 365/7 - 1]
The yield quoted should not be considered a representation of the yield of the
Cash Management Portfolio in the future since the yield is not fixed. Actual
yields will depend on the type, quality and maturities of the investments held
by the underlying fund and changes in interest rates on such investments.
Yield information may be useful in reviewing the performance of the Cash
Management Portfolio and for providing a basis for comparison with other
investment alternatives. However, the Cash Management Portfolio's yield
fluctuates, unlike bank deposits or other investments that typically pay a fixed
yield for a stated period of time.
OTHER PORTFOLIOS
The Portfolios of the separate account other than the Cash Management Portfolio
compute their performance data as "total return."
5
<PAGE>
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:
For contracts without the Seasons Rewards Program:
--------------------------------------------------
P (1 + T) TO THE POWER OF n = ERV
For contracts with the Seasons Rewards Program:
------------------------------------------------
[P (1 + E)](1 + T) TO THE POWER OF n = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
E = Payment Enhancement Rate
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)
Standardized performance for the Portfolios and Strategies available in this
contract reflect total returns using the method of computation discussed below:
- Using the seven year surrender charge schedule available on contracts
issued without the Seasons Rewards Program. No enhancement is reflected
under the calculation, as the Payment Enhancement is not available unless
the Seasons Rewards is elected; AND
- Using the nine year surrender charge schedule available on contracts
issued with the Seasons Rewards Program, including the minimum Upfront
Payment Enhancement of 2% of Purchase Payments and calculating the value
after redemption only based on the initial $1,000 Purchase Payment.
We may, from time to time, advertise other variations of performance along
with the standardized performance as described above. We may, in sales
literature, show performance only applicable to one surrender charge schedule
to a contract holder who has already the contract with or without the Seasons
Rewards Program. However, we will not report performance for the contract
featuring the Seasons Rewards Program, unless net of withdrawal charges.
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 two other contracts (Seasons and Seasons Select) which have
been in existence longer than the Seasons Select II Variable Annuity. The
STRATEGIES in Seasons Select II have been available in the Seasons contract
since April 15, 1997 and in the Seasons Select contract since March 1, 1999.
The SELECT PORTFOLIOS have been available since March 1, 1999 and the FOCUSED
PORTFOLIOS since July 5, 2000 in the Seasons Select contract. Sales of
Seasons Select II began on October 16, 2000. The one year and since inception
numbers for the STRATEGIES and PORTFOLIOS are based on Seasons and Seasons
Select historical data (which are adjusted for the fees and charges
applicable to Seasons Select II) and represent adjusted actual performance of
the separate account.
6
<PAGE>
TOTAL ANNUAL RETURN FOR THE PERIOD ENDING APRIL 30, 2000 (RETURN WITH/WITHOUT
REDEMPTION) FOR CONTRACTS WITHOUT THE SEASONS REWARDS PROGRAM*
<TABLE>
<CAPTION>
1 YEAR RETURN SINCE FUND INCEPTION**
----------------------------------- ----------------------------------
STRATEGIES INCEPTION DATE W W/O W W/O
---------- -------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Growth................... 4/15/97 16.53 23.53 24.89 25.92
Moderate Growth.......... 4/15/97 13.02 20.02 21.39 22.49
Balanced Growth.......... 4/15/97 5.22 12.22 15.59 16.80
Conservative Growth...... 4/15/97 0.78 7.78 11.50 12.80
<CAPTION>
1 YEAR RETURN SINCE FUND INCEPTION
----------------------------------- ----------------------------------
SELECT PORTFOLIOS INCEPTION DATE W W/O W W/O
----------------- -------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Large Cap Growth......... 3/1/99 20.41 27.41 28.24 33.16
Large Cap Composite...... 3/1/99 7.27 14.27 14.20 19.21
Large Cap Value.......... 3/1/99 -11.88 -4.88 1.36 6.47
Mid Cap Growth........... 3/1/99 46.05 53.05 51.40 56.18
Mid Cap Value............ 3/1/99 -6.33 0.67 4.36 9.44
Small Cap................ 3/1/99 16.32 23.32 24.70 29.64
International Equity..... 3/1/99 5.31 12.31 15.51 20.51
Diversified Fixed
Income................... 3/10/99 -8.08 -1.08 -5.87 -0.59
FOCUSED PORTFOLIOS
-------------------------
Focus Growth*............ N/A N/A N/A N/A N/A
Focus Growth and Income*. N/A N/A N/A N/A N/A
Focus TechNet*........... N/A N/A N/A N/A N/A
</TABLE>
TOTAL ANNUAL RETURN FOR THE PERIOD ENDING APRIL 30, 2000 (RETURN WITH/WITHOUT
REDEMPTION) FOR CONTRACTS WITH THE SEASONS REWARDS PROGRAM*
<TABLE>
<CAPTION>
1 YEAR RETURN SINCE FUND INCEPTION***
----------------------------------- ----------------------------------
STRATEGIES INCEPTION DATE W W/O W W/O
---------- -------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Growth................... 4/15/97 17.00 26.00 25.52 26.74
Moderate Growth.......... 4/15/97 13.42 22.42 21.99 23.29
Balanced Growth.......... 4/15/97 5.46 14.46 16.13 17.56
Conservative Growth...... 4/15/97 0.94 9.94 11.99 13.54
<CAPTION>
1 YEAR RETURN SINCE FUND INCEPTION
----------------------------------- ----------------------------------
SELECT PORTFOLIOS INCEPTION DATE W W/O W W/O
----------------- -------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Large Cap Growth......... 3/1/99 20.96 29.96 28.90 35.44
Large Cap Composite...... 3/1/99 7.56 16.56 14.58 21.25
Large Cap Value.......... 3/1/99 -11.98 -2.98 1.49 8.29
Mid Cap Growth........... 3/1/99 47.11 56.11 52.49 58.85
Mid Cap Value............ 3/1/99 -6.32 2.68 4.54 11.31
Small Cap................ 3/1/99 16.79 25.79 25.29 31.86
International Equity..... 3/1/99 5.56 14.56 15.92 22.57
Diversified Fixed
Income................... 3/10/99 -8.10 0.90 -5.88 1.15
FOCUSED PORTFOLIOS**
-------------------------
Focus Growth............. N/A N/A N/A N/A N/A
Focus Growth and Income.. N/A N/A N/A N/A N/A
Focus TechNet............ N/A N/A N/A N/A N/A
</TABLE>
* These rates of return do not reflect election of the optional Income Protector
Program or Seasons Estate Advantage. The rates of return would be lower if these
optional features were included in the calculations.
** These portfolios were not available for sale in fiscal year 2000.
*** These rates of return were calculated utilizing Seasons rates for the
related periods, adjusting for differences in fees.
7
<PAGE>
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.
INCOME PAYMENTS UNDER THE INCOME PROTECTOR FEATURE
If contract holders elect to begin Income Payments using the Income Protector
feature, the Income Benefit Base is determined as described in the prospectus.
The initial monthly Income Payment is determined by applying the annuitization
factor specifically designated for use in conjunction with the Income Protector
feature (either in the Contract or in the Endorsement) to the Income Benefit
Base and then dividing by 1,000. The Income Benefit Base must be divided by
1,000 since the annuitization factors included in those tables are based on a
set amount per $1,000 of Income Benefit Base. The amount of the second and each
subsequent Income Payment is the same as the first monthly payment. The
appropriate rate must be determined by the gender (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
Joint Annuitant, if any, and the Income Option selected.
ANNUITY UNIT VALUES
--------------------------------------------------------------------------------
The value of an Annuity Unit is determined independently for each SELECT
PORTFOLIO, FOCUSED 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, FOCUSED PORTFOLIO or
STRATEGY exceeds 3.5010, variable annuity payments derived from allocations to
that SELECT PORTFOLIO, FOCUSED 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
8
<PAGE>
variable annuity payments will remain constant. If a higher assumed investment
rate had been used, the initial monthly payment would be higher, but the actual
net investment rate would also have to be higher in order for annuity payments
to increase (or not to decrease).
The payee receives the value of a fixed number of Annuity Units each month. The
value of a fixed number of Annuity Units will reflect the investment performance
of the SELECT PORTFOLIOS, FOCUSED PORTFOLIOS and/or STRATEGIES elected, and the
amount of each annuity payment will vary accordingly.
For each SELECT PORTFOLIO, FOCUSED 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, FOCUSED 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, FOCUSED 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, FOCUSED PORTFOLIO or
STRATEGY determined as of the end of that month, and
(b) is the Accumulation Unit value of the SELECT PORTFOLIO, FOCUSED PORTFOLIO or
STRATEGY determined as of the end of the preceding month.
The NIF for a SELECT PORTFOLIO, FOCUSED PORTFOLIO or STRATEGY for a given month
is a measure of the net investment performance of the SELECT PORTFOLIO, FOCUSED
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, FOCUSED PORTFOLIO or STRATEGY invests; it is also
reduced by separate account asset charges.
ILLUSTRATIVE EXAMPLE
Assume that one share of a given SELECT PORTFOLIO, FOCUSED 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
ILLUSTRATIVE EXAMPLE
The change in Annuity Unit value for a SELECT PORTFOLIO, FOCUSED 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,
FOCUSED 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
9
<PAGE>
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, FOCUSED 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,
FOCUSED 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, FOCUSED
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, FOCUSED
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 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:
10
<PAGE>
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, FOCUSED PORTFOLIO or STRATEGY
on the Annuity Date and thus reflects the investment performance of the SELECT
PORTFOLIO, FOCUSED 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, FOCUSED PORTFOLIO or STRATEGY). The net
investment performance of the SELECT PORTFOLIO, FOCUSED 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.
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
11
<PAGE>
entire amount of an eligible rollover distribution (including an amount equal to
the 20% portion of the distribution that was withheld) could have adverse tax
consequences, including the imposition of a penalty tax on premature
withdrawals, described later in this section.
Withdrawals or distributions from a contract other than eligible rollover
distributions are also subject to withholding on the estimated taxable portion
of the distribution, but the owner may elect in such cases to waive the
withholding requirement. If not waived, withholding is imposed (1) for periodic
payments, at the rate that would be imposed if the payments were wages, or (2)
for other distributions, at the rate of 10%. If no withholding exemption
certificate is in effect for the payee, the rate under (1) above is computed by
treating the payee as a married individual claiming 3 withholding exemptions.
DIVERSIFICATION--SEPARATE ACCOUNT INVESTMENTS
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified, in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the contract as
an annuity contract would result in imposition of federal income tax to the
owner with respect to earnings allocable to the contract prior to the receipt of
payments under the contract. The Code contains a safe harbor provision which
provides that annuity contracts such as the contracts meet the diversification
requirements if, as of the close of each calendar quarter, the underlying assets
meet the diversification standards for a regulated investment company, and no
more than 55% of the total assets consist of cash, cash items, U.S. government
securities and securities of other regulated investment companies.
The Treasury Department has issued regulations which establish diversification
requirements for the investment portfolios underlying annuity variable contracts
such as the contracts. The regulations amplify the diversification requirements
for variable annuity contracts set forth in the Code and provide an alternative
to the safe harbor provision described above. Under the regulations an
investment portfolio will be deemed adequately diversified if (1) no more than
55% of the value of the total assets of the portfolio is represented by any one
investment; (2) no more than 70% of the value of the total assets of the
portfolio is represented by any two investments; (3) no more than 80% of the
value of the total assets of the portfolio is represented by any three
investments; and (4) no more than 90% of the value of the total assets of the
portfolio is represented by any four investments. For purposes of determining
whether or not the diversification standards imposed on the underlying assets of
variable contracts by Section 817(h) of the Code have been met, "each United
States government agency or instrumentality shall be treated as a separate
issuer."
MULTIPLE CONTRACTS
Multiple annuity contracts which are issued within a calendar year to the same
contract owner by one company or its affiliates are treated as one annuity
contract for purposes of determining the tax consequences of any distribution.
Such treatment may result in adverse tax consequences including more rapid
taxation of the distributed amounts from such multiple contracts. The Company
believes that Congress intended to affect the purchase of multiple deferred
annuity contracts which may have been purchased to avoid withdrawal income tax
treatment. Owners should consult a tax adviser prior to purchasing more than one
annuity contract in any calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment of a contract may have tax consequences, and may also be
prohibited by ERISA in some circumstances. Owners should therefore consult
competent legal advisers should they wish to assign their contracts.
12
<PAGE>
PARTIAL 1035 EXCHANGES
Section 1035 of the Code provides that an annuity contract may be exchanged in a
tax-free transaction for another annuity contract. Historically, it was presumed
that only the exchange of an entire contract, as opposed to a partial exchange,
would be accorded tax-free status. In 1998 in CONWAY VS. COMMISSIONER, the Tax
Court held that the direct transfer of a portion of an annuity contract into
another annuity contract qualified as a non-taxable exchange. On November 22,
1999, the Internal Revenue Service filed an Action on Decision which indicated
that it acquiesced in the Tax Court decision in CONWAY. However, in its
acquiescence with the decision of the Tax Court, the Internal Revenue Service
stated that it will challenge transactions where taxpayers enter into a series
of partial exchanges and annuitizations as part of a design to avoid application
of the 10% premature distribution penalty or other limitations imposed on
annuity contracts under Section 72 of the Code. In the absence of further
guidance from the Internal Revenue Service it is unclear what specific types of
partial exchange designs and transactions will be challenged by the Internal
Revenue Service. Due to the uncertainty in this area owners should seek their
own tax advice.
QUALIFIED PLANS
The contracts offered by this prospectus are designed to be suitable for use
under various types of Qualified plans. Taxation of owners in each Qualified
plan varies with the type of plan and terms and conditions of each specific
plan. Owners, Annuitants and Beneficiaries are cautioned that benefits under a
Qualified plan may be subject to the terms and conditions of the plan,
regardless of the terms and conditions of the contracts issued pursuant to the
plan.
Following are general descriptions of the types of Qualified plans with which
the contracts may be used. Such descriptions are not exhaustive and are for
general information purposes only. The tax rules regarding Qualified plans are
very complex and will have differing applications depending on individual facts
and circumstances. Each purchaser should obtain competent tax advice prior to
purchasing a contract issued under a Qualified plan.
Contracts issued pursuant to Qualified plans include special provisions
restricting contract provisions that may otherwise be available and described in
this prospectus. Generally, contracts issued pursuant to Qualified plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified contracts.
(a) H.R. 10 PLANS
Section 401 of the Code permits self-employed individuals to establish Qualified
plans for themselves and their employees, commonly referred to as "H.R. 10" or
"Keogh" Plans. Contributions made to the plan for the benefit of the employees
will not be included in the gross income of the employees until distributed from
the plan. The tax consequences to owners may vary depending upon the particular
plan design. However, the Code places limitations and restrictions on all plans
on such items as: amounts of allowable contributions; form, manner and timing of
distributions; vesting and nonforfeitability of interests; nondiscrimination in
eligibility and participation; and the tax treatment of distributions,
withdrawals and surrenders. Purchasers of contracts for use with an H.R. 10 Plan
should obtain competent tax advice as to the tax treatment and suitability of
such an investment.
(b) TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, education and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employee until the
employee receives distributions from the contract. The
13
<PAGE>
amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions, non-
discrimination and withdrawals. Any employee should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
(c) INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which will be deductible from the individual's gross income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. Sales of contracts for use with IRAs are subject to special
requirements imposed by the Code, including the requirement that certain
informational disclosure be given to persons desiring to establish an IRA.
Purchasers of contracts to be qualified as IRAs should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
(d) ROTH 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.
14
<PAGE>
DISTRIBUTION OF CONTRACTS
--------------------------------------------------------------------------------
The contracts are offered through SunAmerica Capital Services, Inc., located at
733 Third Avenue, 4th Floor, New York, New York 10017. SunAmerica Capital
Services, Inc. is registered as a broker-dealer under the Securities Exchange
Act of 1934, as amended, and is a member of the National Association of
Securities Dealers, Inc. The Company and SunAmerica Capital Services, Inc. are
each an indirect wholly owned subsidiary of SunAmerica Inc. No underwriting fees
are paid in connection with the distribution of the contracts. Contracts are
offered on a continuous basis.
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. 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. As of the date of
this Statement of Additional Information, sale of Seasons Select II contracts
had only recently begun. Therefore, financial statements for Variable Annuity
Account Five (portion relating to the Seasons Select II Variable Annuity) are
not contained herein.
Documents incorporated by reference for filing purposes will still appear at the
end of this document when it is distributed upon request.
PricewaterhouseCoopers LLP, 21650 Oxnard Street, Suite 1900, Woodland Hills,
California 91367, serves as the independent accountants for the Separate
Account and the Company. The financial statements referred to above have been
so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
15
<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
