<PAGE> 1
File Nos. 333-
811-
As filed with the Securities and Exchange Commission on September 16, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No.
(Check appropriate box or boxes)
VARIABLE ANNUITY ACCOUNT SEVEN
(Exact Name of Registrant)
Anchor National Life Insurance Company
(Name of Depositor)
1 SunAmerica Center
Los Angeles, California 90067-6022
(Address of Depositor's Principal Offices) (Zip Code)
Depositor's Telephone Number, including Area Code
(310) 772-6000
Susan L. Harris, Esq.
Anchor National Life Insurance Company
1 SunAmerica Center
Los Angeles, California 90067-6022
(Name and Address of Agent for Service)
Approximate date of proposed public offering:
As soon as practicable after effectiveness of the Registration Statement.
Title of securities being registered:
Interests in a Separate Account under group and individual flexible
payment deferred annuity contracts.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
shall determine.
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VARIABLE ANNUITY ACCOUNT SEVEN
Cross Reference Sheet
PART A - PROSPECTUS
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption
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<S> <C> <C>
1. Cover Page............................. Cover Page
2. Definitions............................ Glossary
3. Synopsis............................... Profile; Fee Tables;
Portfolio Expenses;
Examples
4. Condensed Financial Information........ Examples
5. General Description of Registrant,
Depositor and Portfolio Companies...... The Polaris Plus
Variable Annuity;
Other Information
6. Deductions............................. Expenses
7. General Description of
Variable Annuity Contracts............. The Polaris Plus
Variable Annuity;
Purchasing a Polaris
Plus Variable Annuity;
Investment Options
8. Annuity Period......................... Income Options
9. Death Benefit.......................... Death Benefit
10. Purchases and Contract Value........... Purchasing a Polaris Plus
Variable Annuity
11. Redemptions............................ Access To Your Money
12. Taxes.................................. Taxes
13. Legal Proceedings...................... Other Information - Legal
Proceedings
14. Table of Contents of Statement
of Additional Information.............. Table of Contents of
Statement of Additional
Information
</TABLE>
<PAGE> 3
PART B - STATEMENT OF ADDITIONAL INFORMATION
Certain information required in part B of the Registration Statement has
been included within the Prospectus forming part of this Registration Statement;
the following cross-references suffixed with a "P" are made by reference to the
captions in the Prospectus.
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption
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<S> <C> <C>
15. Cover Page............................. Cover Page
16. Table of Contents...................... Table of Contents
17. General Information and History........ The Variable
Annuity (P); Separate
Account; General Account;
Investment Options (P);
Other Information
18. Services............................... Other Information (P)
19. Purchase of Securities Being Offered... Purchasing a Polaris Plus
Variable Annuity (P)
20. Underwriters........................... Distribution of Contracts
21. Calculation of Performance Data........ Performance Data
22. Annuity Payments....................... Income Options (P);
Annuity Payments;
Annuity Unit Values
23. Financial Statements................... Depositor: Other
Information - Financial
Statements; Registrant:
Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
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[THE POLARIS PLUS PROFILE LOGO]
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
KNOW AND
CONSIDER BEFORE PURCHASING THE POLARIS PLUS VARIABLE ANNUITY. THE SECTIONS IN
THIS PROFILE
CORRESPOND TO SECTIONS IN THE ACCOMPANYING PROSPECTUS WHICH DISCUSS THE TOPICS
IN MORE DETAIL.
THE ANNUITY IS MORE FULLY DESCRIBED IN THE PROSPECTUS. PLEASE READ THE
PROSPECTUS CAREFULLY.
November , 1998
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1. THE POLARIS PLUS VARIABLE ANNUITY
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The Polaris Plus Variable Annuity is issued by Anchor National Life Insurance
Company to Participants in certain employer sponsored retirement plans qualified
subject to Section 403(b) of the Internal Revenue Code (the "IRC"). It is
designed to help you invest on a tax-deferred basis and 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.
Polaris Plus offers a diverse selection of money managers and investment
options. You may divide your money among any or all of our 26 variable
investment portfolios and 5 fixed account options. Your investment is not
guaranteed. The value of your Polaris Plus contract can fluctuate up or down,
based on the performance of the underlying investments you select. You may
experience a loss.
The variable investment Portfolios offer professionally managed investment
choices with goals ranging from capital preservation to aggressive growth. Your
choices for the various investment options are found on the next page.
The contract also offers 5 fixed account options, for different time periods.
Each may have a different interest rate. Interest rates are guaranteed by Anchor
National.
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 variable investment Portfolios to
which your money is allocated and/or the interest rate(s) earned on the fixed
account option(s) in which you invest. Subject to certain IRC restrictions 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 may receive income payments from your annuity.
Among other factors, the amount of money you are able to accumulate in your
Contract during the Accumulation Phase will affect the amount of your income
payments during the Income Phase.
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2. INCOME OPTIONS
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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 years;
(4) payments for your lifetime, but for not less than 10, 15 or 20 years; and
(5) payments for a specified period of 5 to 30 years.
You will also need to decide when your income payments begin and if you want
your income payments to fluctuate with investment performance or remain
constant. Once you begin receiving income payments, you cannot change your
income option.
For contracts which are part of a Qualified retirement Plan (including those
issued under 403(b)) using before tax dollars, the entire payment is generally
taxable as income. In addition, under certain Qualified contracts your income
option may not exceed your life expectancy.
If your Contract is part of a Non-qualified retirement plan (one that is
established with after tax dollars), payments during the Income Phase are
considered partly a return of your original investment. The "original
investment" part of each payment is not taxable as income.
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3. PURCHASING A POLARIS PLUS VARIABLE
ANNUITY CONTRACT
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You can buy a Contract with money from a direct transfer or a direct rollover
from an existing retirement plan or by establishing a salary reduction agreement
with your employer.
For Qualified contracts issued under 403(b) there is no minimum initial Purchase
Payment if you establish a salary reduction agreement with your employer. If you
fund a contract through a direct transfer or direct rollover only, the minimum
initial Purchase Payment is $2,000.
For Non-qualified contracts, the minimum initial Purchase Payment is $5,000 and
subsequent amounts of $500 or more may be added to your contract at any time
during the Accumulation Phase.
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4. INVESTMENT OPTIONS
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You may allocate money to the following variable investment Portfolios of the
Anchor Series Trust and/or the SunAmerica Series Trust:
ANCHOR SERIES TRUST
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Government and Quality Bond Portfolio
SUNAMERICA SERIES TRUST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
- Real Estate Portfolio
FIRST AMERICAN ASSET MANAGEMENT
- Equity Income Portfolio
- Equity Index Portfolio
- Small Company Value Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/ GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
You may also allocate money to the 1, 3 and 5 year market value adjustment
("MVA") fixed account options and, under certain circumstances, the 6-month and
1-year DCA fixed account options. (The 6-month DCA fixed account may not yet be
available in your state. Please contact your financial representative for more
information.)
Your contract value will be adjusted up or down for withdrawals or transfers
from the 1, 3 and 5 year MVA fixed account options prior to the end of the
guarantee period. The interest rates applicable for these fixed account options
may differ from time to time, however, we will never credit less than a 3%
annual effective rate. Once established, the rate will not change during the
selected period.
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5. EXPENSES
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We deduct insurance charges which equal 1.25% annually of the average daily
value of your contract allocated to the variable Portfolios.
As with other professionally managed investments, there are also investment
charges imposed on contracts with money allocated to the variable Portfolios. We
estimate these fees to range from .55 to 1.90.
If you take money out of your contract, you may be assessed a withdrawal charge
which is a percentage of the money you withdraw. The percentage declines over
the time the money is in the contract. The applicable withdrawal charge schedule
also varies dependent upon your employment status at the time of contract issue.
RETIRED OR SEPARATED FROM SERVICE AT TIME OF ISSUE
(SCHEDULE A)
<TABLE>
<CAPTION>
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Year 1 2 3 4 5 6
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<S> <C> <C> <C> <C> <C> <C>
WITHDRAWAL CHARGE 6% 6% 5% 5% 4% 0%
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</TABLE>
EMPLOYED AT TIME OF ISSUE (SCHEDULE B)
<TABLE>
<CAPTION>
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Year 1 2 3 4 5 6 7
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<S> <C> <C> <C> <C> <C> <C> <C>
WITHDRAWAL
CHARGE 6% 6% 5% 5% 4% 4% 0%
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</TABLE>
Each year, you are allowed to make 15 transfers without charge. After your first
15 free transfers, a $25 transfer fee ($10 in Pennsylvania and Texas) applies to
each subsequent transfer.
In a limited number of states, you may also be assessed a state premium tax of
up to 3.5% depending upon the state.
The following charts are designed to help you understand the charges in your
contract. The column "Total Annual Charges" shows the total of the 1.25%
insurance charges and the investment charges for each variable Portfolio.
The next two columns show two examples of the charges you would pay under the
contract. The examples assume that you invested $1,000 in a contract which earns
5% annually and that you withdraw your money: (1) at the end of year 1, and (2)
at the end of year 10. The premium tax is assumed to be 0% in both examples.
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<TABLE>
<CAPTION>
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EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL EXPENSES TOTAL EXPENSES
INSURANCE INVESTMENT TOTAL ANNUAL AT END OF AT END OF
ANCHOR SERIES TRUST PORTFOLIO CHARGES CHARGES CHARGES 1 YEAR 10 YEARS
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<S> <C> <C> <C> <C> <C>
Capital Appreciation 1.25% .71% 1.96%
Growth 1.25% .78% 2.03%
Government and Quality Bond 1.25% .71% 1.96%
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SUNAMERICA SERIES TRUST PORTFOLIO
Emerging Markets* 1.25% 1.90% 3.15%
International Diversified Equities 1.25% 1.35% 2.60%
Global Equities 1.25% .95% 2.20%
International Growth and Income* 1.25% 1.60% 2.85%
Aggressive Growth* 1.25% .90% 2.15%
Small Company Value* 1.25% 1.40% 2.66%
Real Estate* 1.25% 1.25% 2.50%
Putnam Growth 1.25% .91% 2.16%
Alliance Growth 1.25% .65% 1.90%
"Dogs" of Wall Street* 1.25% .85% 2.10%
Venture Value 1.25% .79% 2.04%
Federated Value* 1.25% 1.03% 2.28%
Growth-Income 1.25% .65% 1.90%
Equity Index* 1.25% .55% 1.80%
Utility* 1.25% 1.05% 2.30%
Equity Income* 1.25% .95% 2.20%
Asset Allocation 1.25% .68% 1.93%
SunAmerica Balanced* 1.25% 1.00% 2.25%
Worldwide High Income 1.25% 1.10% 2.35%
High-Yield Bond 1.25% .75% 2.00%
Corporate Bond 1.25% .91% 2.16%
Global Bond 1.25% .90% 2.15%
Cash Management 1.25% .63% 1.88%
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</TABLE>
* For these Portfolios, the adviser, SunAmerica Asset Management Corp., has
voluntarily agreed to waive fees or reimburse expenses, if necessary, to keep
operating expenses at or below an established maximum amount. All waivers or
reimbursements may be terminated at any time. For more detailed information,
see Fee Tables and Examples in the prospectus.
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6. TAXES
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Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts contributed to and earned in a Qualified Contract (one
purchased with before-tax dollars, like a TSA), are taxable when withdrawn. In a
Non-qualified contract (one that is purchased with after-tax dollars) taxes on
amounts earned are taxed upon withdrawal.
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
rate. You may be subject to a 10% IRS tax penalty for distributions or
withdrawals before age 59 1/2.
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7. ACCESS TO YOUR MONEY
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During the Accumulation Phase withdrawals from your contract may be limited by
the IRC, any applicable Plan and this Contract. Contracts issued pursuant to
Section 403(b) of the IRC are subject to specific withdrawal restrictions. SEE
SECTION 7, ACCESS TO YOUR MONEY for details regarding restrictions applicable to
withdrawals from TSAs.
Under this Contract, certain types of withdrawals are subject to a withdrawal
charge if taken within the first six or seven years a Purchase Payment has been
in the Contract. We determine the exact schedule of withdrawal charges based on
your employment status as of the date of the contract issue. Some types of
withdrawals may be exempt from these Company imposed withdrawal charges. SEE
SECTION 5, EXPENSES for details regarding possible withdrawal charge exceptions.
In all cases after your tenth Contract anniversary, Company imposed withdrawal
charges no longer apply. However the IRC or any applicable Plan may still impose
restrictions on withdrawals at that point in time.
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8. PERFORMANCE
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The value of your annuity will fluctuate depending upon the investment
performance of the Portfolio(s) you choose.
When you invest in the Polaris Plus Variable Annuity, your money is actually
invested in the underlying portfolios of the Anchor Series Trust and/or the
SunAmerica Series Trust. These trusts are older than the annuity itself and have
served as underlying investments for other variable annuity contracts. The
performance for this annuity will be derived from the performance of the
corresponding portfolios of the trusts modified to reflect the charges and
expenses associated with this contract, as if this contract had been in
existence during the time period advertised. Of course, past performance does
not guarantee future results.
As of the date of this prospectus, the sale of this contract has not yet begun.
Therefore, no performance is presented here.
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9. DEATH BENEFIT
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If you should die during the Accumulation Phase, your beneficiary will receive a
death benefit. The death benefit will be the greater of:
1. Total Purchase Payments minus total withdrawals at the time we receive
satisfactory proof of death, or;
2. Contract Value at the time we receive satisfactory proof of death.
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10. OTHER INFORMATION
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FREE LOOK: You may cancel your contract within ten days (or longer if required
by your state) by mailing it to our Annuity Service Center. Your contract will
be treated as void on the date we receive it and we will pay you an amount equal
to the value of your contract (unless otherwise required by state law). Its
value may be more or less than the money you initially invested.
ASSET ALLOCATION REBALANCING: If selected by you, this program seeks to keep
your investment in line with your goals. We will maintain your specified
allocation mix in the variable investment Portfolios and the 1-year fixed
account option by readjusting your money on a calendar quarter, semiannual or
annual basis.
SYSTEMATIC WITHDRAWAL PROGRAM: If selected by you, this program allows you to
receive either monthly, quarterly, semiannual or annual checks during the
Accumulation Phase. Systematic withdrawals may also be electronically
transferred to your bank account. Of course, withdrawals may be taxable and a
10% IRS tax penalty may apply if you are under age 59 1/2. This Program is not
available if you are not eligible to make withdrawals under the Code or
applicable Plan.
DOLLAR COST AVERAGING: If selected by you, this program allows you to invest
gradually in the equity and bond portfolios from any of the variable investment
portfolios, the 1-year MVA fixed account option, and under certain circumstances
the 6-month or the 1-year DCA fixed account options.
CONFIRMATIONS AND QUARTERLY STATEMENTS: You will receive a confirmation of each
transaction within your contract. On a quarterly basis, you will receive a
complete statement of your transactions over the past quarter and a summary of
your account values.
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11. INQUIRIES
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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
Telephone Number: (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> 8
PROSPECTUS
NOVEMBER , 1998
<TABLE>
<S> <C> <C>
Please read this prospectus carefully FLEXIBLE PAYMENT GROUP AND INDIVIDUAL DEFERRED ANNUITY
before investing and keep it for CONTRACTS
future reference. It contains issued by
important information about the ANCHOR NATIONAL LIFE INSURANCE COMPANY
Polaris Plus Variable Annuity. in connection with
VARIABLE ANNUITY ACCOUNT SEVEN
To learn more about the annuity The annuity has 31 investment choices - 5 fixed account
offered by this prospectus, obtain a options and 26 variable investment Portfolios listed below.
copy of the Statement of Additional The 5 fixed account options include market value adjustment
Information ("SAI") dated November fixed accounts for specified periods of 1, 3, and 5 years.
, 1998. The SAI is on file with the In addition there are 2 Dollar Cost Averaging Accounts for
Securities and Exchange Commission 6-month and 1-year periods. The 26 variable investment
("SEC") and is incorporated by portfolios are part of the Anchor Series Trust or the
reference into this prospectus. The SunAmerica Series Trust.
Table of Contents of the SAI appears
on page 20 of this prospectus. For a ANCHOR SERIES TRUST:
free copy of the SAI, call us at MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
(800) 445-SUN2 or write to us at our - Capital Appreciation Portfolio
Annuity Service Center, P.O. Box - Growth Portfolio
54299, Los Angeles, California 90054- - Government and Quality Bond Portfolio
0299.
SUNAMERICA SERIES TRUST:
In addition, the SEC maintains a MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
website (http://www.sec.gov) that - Global Equities Portfolio
contains the SAI, materials - Alliance Growth Portfolio
incorporated by reference and other - Growth-Income Portfolio
information filed electronically with MANAGED BY DAVIS SELECTED ADVISERS, L.P.
the SEC by Anchor National. - Venture Value Portfolio
- Real Estate Portfolio
ANNUITIES INVOLVE RISKS, INCLUDING MANAGED BY FEDERATED INVESTORS
POSSIBLE LOSS OF PRINCIPAL. ANNUITIES - Federated Value Portfolio
ARE NOT A DEPOSIT OR OBLIGATION OF, - Utility Portfolio
OR GUARANTEED OR ENDORSED BY, ANY - Corporate Bond Portfolio
BANK. THEY ARE NOT FEDERALLY INSURED MANAGED BY FIRST AMERICAN ASSET MANAGEMENT
BY THE FEDERAL DEPOSIT INSURANCE - Equity Income Portfolio
CORPORATION, THE FEDERAL RESERVE - Equity Index Portfolio
BOARD OR ANY OTHER AGENCY. - Small Company Value Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
</TABLE>
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.
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TABLE OF CONTENTS
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<TABLE>
<S> <C> <C>
GLOSSARY............................................. 3
FEE TABLES........................................... 4
Owner Transaction Expenses..................... 4
Annual Separate Account Expenses............... 4
The Income Protector Expense................... 4
Portfolio Expenses............................. 4
EXAMPLES............................................. 5
1. THE POLARIS PLUS VARIABLE ANNUITY.............. 7
2. INCOME OPTIONS................................. 8
Annuity Date................................... 8
Income Options................................. 8
Fixed or Variable Income Payments.............. 8
Income Payments................................ 9
Transfers During the Income Phase.............. 9
Deferment of Payments.......................... 9
The Income Protector Program................... 9
3. PURCHASING A POLARIS PLUS VARIABLE ANNUITY..... 11
Allocation of Purchase Payments................ 11
Accumulation Units............................. 11
Free Look...................................... 12
4. INVESTMENT OPTIONS............................. 12
Variable Portfolios............................ 12
Anchor Series Trust............................ 12
SunAmerica Series Trust........................ 12
Fixed Account Options.......................... 13
Market Value Adjustment ("MVA")................ 13
Transfers During the Accumulation Phase........ 13
Dollar Cost Averaging.......................... 14
Asset Allocation Rebalancing................... 14
Voting Rights.................................. 15
Substitution................................... 15
5. EXPENSES....................................... 15
Insurance Charges.............................. 15
Withdrawal Charges............................. 15
Exceptions to Withdrawal Charge................ 15
Investment Charges............................. 16
Transfer Fee................................... 16
Premium Tax.................................... 16
Income Taxes................................... 16
Reduction or Elimination of Charges and
Expenses, and Additional Amounts Credited...... 16
6. TAXES.......................................... 16
Annuity Contracts in General................... 16
Tax Treatment of Distributions -
Qualified Contracts............................ 16
Section 403(b) Plans........................... 17
Tax Treatment of Distributions -
Non-Qualified Contracts........................ 17
Minimum Distributions.......................... 17
Diversification................................ 17
7. ACCESS TO YOUR MONEY........................... 18
Withdrawal Restrictions........................ 18
Systematic Withdrawal Program.................. 18
Loans.......................................... 19
Minimum Contract Value......................... 19
8. PERFORMANCE.................................... 19
9. DEATH BENEFIT.................................. 19
10. OTHER INFORMATION.............................. 20
The Separate Account........................... 20
The General Account............................ 20
Distribution of the Contract................... 20
Administration................................. 20
Year 2000...................................... 21
Legal Proceedings.............................. 21
Custodian...................................... 21
Additional Information......................... 21
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION.......................................... 22
APPENDIX A -- PREMIUM TAXES.......................... A-1
</TABLE>
2
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GLOSSARY
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We have capitalized some of the technical terms used in this prospectus. To help
you understand these terms, we have defined 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. For
a contract issued pursuant to IRC Section 403(b), the Participant must be the
Annuitant.
ANNUITY DATE - The date on which annuity payments are to begin, as selected by
you.
ANNUITY UNITS - A measurement we use to calculate the mount 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.
CONTRACT - The variable annuity contract issued by Anchor National Life
Insurance Company ("Anchor National"). This includes any applicable group master
contract, certificate and endorsement.
CONTRACTHOLDER - The party named as the Contractholder on the annuity Contract
issued by Anchor National. The Contractholder may be an Employer, a retirement
plan trust, an association or any other entity allowed under the law.
EMPLOYER - The organization specified in the Contract which offers the Plan to
its employees.
INCOME PHASE - The period during which we make annuity payments to you.
IRC - The Internal Revenue Code of 1986, as amended, and all regulations
thereto.
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").
PARTICIPANT - An employee or other person affiliated with the Contractholder on
whose behalf an account is maintained under the terms of the Contract.
PLAN - A retirement program offered by an Employer to its employees for which a
Contract is used to accumulate funds.
PORTFOLIO(S) - The variable investment options available under the contract.
Each Portfolio has its own investment objective and is invested in the
underlying investments of the Anchor Series Trust or the SunAmerica Series
Trust.
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").
TRUSTS - Refers to the Anchor Series Trust and the SunAmerica Series Trust
collectively.
TSA - A tax sheltered annuity, one issued in accordance with the provisions of
Section 403(b) of the IRC.
3
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FEE TABLES
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- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE (AS A PERCENTAGE OF PURCHASE PAYMENTS)
<TABLE>
<CAPTION>
YEARS: 1 2 3 4 5 6 7
<S> <C> <C> <C> <C> <C> <C> <C>
Schedule A* 6% 6 % 5 % 5 % 4 % 0 % 0%
Schedule B** 6% 6 % 5 % 5 % 4 % 4 % 0%
</TABLE>
* This Withdrawal Charge schedule applies to participants who are retired or
separated from service at the time of contract issue.
** This Withdrawal Charge schedule applies to all other participants.
THE INCOME PROTECTOR EXPENSE
(DEDUCTED ANNUALLY FROM CONTRACT VALUE)
<TABLE>
<CAPTION>
THE INCOME PROTECTOR FEE AS A PERCENTAGE OF YOUR
ALTERNATIVES INCOME BENEFIT BASE
-------------------- ---------------------------
<S> <C>
Income Protector Base.................. 0%
Income Protector Plus.................. .15%
Income Protector Max................... .30%
</TABLE>
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge Insurance Charge...... 1.25%
-----
TOTAL SEPARATE ACCOUNT EXPENSES 1.25%
=====
</TABLE>
PORTFOLIO EXPENSES
ANCHOR SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S TWELVE-MONTH PERIOD ENDED
NOVEMBER 30, 1997)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Capital Appreciation .65% .06% .71%
- -----------------------------------------------------------------------------------------------------------
Growth .72% .06% .78%
- -----------------------------------------------------------------------------------------------------------
Government and Quality Bond .62% .09% .71%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SUNAMERICA SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER REIMBURSEMENT OR WAIVER OF EXPENSES
FOR THE TRUST'S FISCAL YEAR ENDED
NOVEMBER 30, 1997)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Emerging Markets 1.25% .65% 1.90%*
- -----------------------------------------------------------------------------------------------------------
International Diversified Equities 1.00% .35% 1.35%
- -----------------------------------------------------------------------------------------------------------
Global Equities .76% .19% .95%
- -----------------------------------------------------------------------------------------------------------
International Growth and Income 1.00% .60% 1.60%*
- -----------------------------------------------------------------------------------------------------------
Aggressive Growth .76% .14% .90%
- -----------------------------------------------------------------------------------------------------------
Small Company Value*** 1.00% .40% 1.40%
- -----------------------------------------------------------------------------------------------------------
Real Estate .80% .45% 1.25%*
- -----------------------------------------------------------------------------------------------------------
Putnam Growth .83% .08% .91%
- -----------------------------------------------------------------------------------------------------------
Alliance Growth .59% .06% .65%
- -----------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street** .60% .25% .85%*
- -----------------------------------------------------------------------------------------------------------
Venture Value .74% .05% .79%
- -----------------------------------------------------------------------------------------------------------
Federated Value .80% .23% 1.03%
- -----------------------------------------------------------------------------------------------------------
Growth-Income .60% .05% .65%
- -----------------------------------------------------------------------------------------------------------
Equity Index*** .40% .15% .55%
- -----------------------------------------------------------------------------------------------------------
Utility .75% .30% 1.05%
- -----------------------------------------------------------------------------------------------------------
Equity Income*** .65% .30% .95%
- -----------------------------------------------------------------------------------------------------------
Asset Allocation .61% .07% .68%
- -----------------------------------------------------------------------------------------------------------
SunAmerica Balanced .74% .26% 1.00%
- -----------------------------------------------------------------------------------------------------------
Worldwide High Income 1.00% .10% 1.10%
- -----------------------------------------------------------------------------------------------------------
High-Yield Bond .66% .09% .75%
- -----------------------------------------------------------------------------------------------------------
Corporate Bond .70% .21% .91%
- -----------------------------------------------------------------------------------------------------------
Global Bond .72% .18% .90%
- -----------------------------------------------------------------------------------------------------------
Cash Management .54% .09% .63%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Contracts offering sales of the "Dogs" of Wall Street Portfolio did not
begin until April 1, 1998. The percentages are estimated amounts for the
current fiscal year.
*** As of the date of this prospectus, the sale of contracts offering the Small
Company Value, Equity Index and Equity Income Portfolios has not begun. The
percentages are based on estimated amounts for the current fiscal year.
THE ABOVE PORTFOLIO EXPENSES WERE PROVIDED BY THE TRUSTS. WE HAVE NOT
INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
4
<PAGE> 12
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXAMPLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You will pay the following expenses on a $1,000 investment in each Portfolio,
assuming a 5% annual return on assets and:
(a) Surrender of the contract at the end of the stated time period under
schedule A*;
(b) Surrender of the contract at the end of the stated time period under
schedule B**;
(c) If the contract is not Surrendered or annuitized.
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS
<S> <C> <C>
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Capital Appreciation (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Growth (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Government and Quality Bond (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Emerging Markets (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
International Diversified Equities (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Global Equities (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
International Growth and Income (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Aggressive Growth (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Small Company Value (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Real Estate (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Putnam Growth (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Alliance Growth (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
"Dogs" of Wall Street (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Venture Value (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Federated Value (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Growth-Income (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Equity Index (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 13
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS
<S> <C> <C>
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Utility (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Equity Income (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Asset Allocation (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
SunAmerica Balanced (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Worldwide High Income (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
High-Yield Bond (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Corporate Bond (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Global Bond (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
Cash Management (a) (a)
(b) (b)
(c) (c)
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
</TABLE>
* See Page 4 above for an explanation of Schedule A.
** See Page 4 above for an explanation of Schedule B.
6
<PAGE> 14
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract.
2. For certain Portfolios, the adviser, SunAmerica Asset Management Corp., has
voluntarily agreed to waive fees or reimburse certain expenses, if
necessary, to keep annual operating expenses at or below the lesser of the
maximum allowed by any applicable state expense limitations or the following
percentages of each Portfolio's average net assets: SunAmerica Balanced
(1.00%); Equity Index (.55%); Equity Income (.95%);"Dogs" of Wall Street
(.85%); Aggressive Growth (.90%); Federated Value (1.03%); Utility (1.05%);
Emerging Markets (1.90%); Small Company Value (1.40%); International Growth
and Income (1.60%); and Real Estate (1.25%). The adviser also may
voluntarily waive or reimburse additional amounts to increase a Portfolio's
investment return. All waivers and/or reimbursements may be terminated at
any time. Furthermore, the adviser may recoup any waivers or reimbursements
within two years after such waivers or reimbursements are granted, provided
that the Portfolio is able to make such payment and remain in compliance
with the foregoing expense limitations.
3. Absent fee waivers or reimbursement of expenses by the adviser, you would
have incurred the following expenses during the last fiscal year: Utility
(1.24%); Emerging Markets (2.60%); International Growth and Income (2.02%);
and Real Estate (1.36%).
4. The Examples assume that no transfer fees were imposed. Although premium
taxes may apply in certain states, they are not reflected in the Examples.
In addition, the examples do not reflect the fees associated with the
optional Income Protector Plus and Max features. SEE SECTION 2, INCOME
OPTIONS.
5. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
AS OF THE DATE OF THIS PROSPECTUS SALES OF THIS CONTRACT HAD NOT BEGUN,
THEREFORE NO CONDENSED FINANCIAL INFORMATION APPEARS IN THIS PROSPECTUS.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
1. THE POLARIS PLUS VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
We issue Polaris Plus, a group Contract to a Contractholder (usually your
employer) for the benefit of the Participants in the group (you and other
employees in the group), under Section 403(b) of the IRC. As a Participant in
the group, you will receive a certificate that evidences your ownership. When
you see the term Contract in this prospectus we are referring to your
certificate. In some states we issue a Contract directly to you instead of a
certificate. Such contracts are identical to the contracts described in this
prospectus, except we issue it to you directly.
An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: This means that you do not pay taxes on your earnings from
the annuity until you withdraw them. For a Qualified Plan such as a TSA
taxes on contributions are also deferred until withdrawn.
- 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.
We developed this variable annuity to help you contribute to your retirement
savings. Your contributions may come from payroll deductions arranged through
your employer and/or from direct transfers or direct rollovers from other
retirement savings plans.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase when you make payments into the
contract. The Income Phase begins when you request that we start making income
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
Portfolios which like mutual funds vary with market conditions. You can gain or
lose money if you invest in these Portfolios. The amount of money you accumulate
in your contract depends on the performance of the Portfolios in which you
invest. This contract currently offers 26 variable investment Portfolios.
The Contract also offers several fixed account options for varying time periods.
Fixed account options earn interest at a rate set and guaranteed by Anchor
National. If you allocate money to the fixed account options, the amount of
money that accumulates in the Contract depends on the total interest credited to
the particular fixed account option(s) in which you are invested.
For more information on investment options available under this contract SEE
SECTION 4, INVESTMENT OPTIONS.
Anchor National Life Insurance Company (Anchor National, The Company, Us, We)
issues the Polaris Plus Variable Annuity. When you purchase of a Polaris Plus
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 SunAmerica Inc., a Maryland corporation.
7
<PAGE> 15
- ----------------------------------------------------------------
- ----------------------------------------------------------------
2. INCOME OPTIONS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
ANNUITY DATE
During the Income Phase, the money in your contract is used to make regular
income payments to you. You may switch to the Income Phase any time after your
2nd contract anniversary, or sooner if the Company waives this two year
requirement. You select the month and year in which you want income payments to
begin. The first day of that month is the Annuity Date. You may change your
Annuity Date, so long as you do so at least seven days before the income
payments are scheduled to begin. Once you begin receiving income payments, you
cannot change your income option.
Generally, for Qualified contracts, the Annuity Date may be any day after you
reach age 59 1/2 or you separate from service. However, income payments must
begin by April 1 following the later of, the year in which you turn age 75 or
the calendar year in which you retire.
For Non-qualified contracts, 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
the latest allowable date. Certain states may require your income payments to
start earlier.
Under Section 403(b) of the IRC, an income payment is considered a withdrawal.
Therefore, IRC withdrawal restrictions limit the time at which income payments
may begin. SEE SECTION 7, ACCESS TO YOUR MONEY. Additionally, the IRC imposes
minimum distribution requirements which may impact the time at which you begin
taking income payments. SEE SECTION 6, TAXES.
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.
INCOME OPTIONS
Currently, this contract offers 5 income options. If you elect to receive income
payments but do not select an option, your income payments will be made in
accordance with option 4 for a period of 10 years. For income payments selected
for joint lives, we pay according to option 3.
We base our calculation of income payments on the life of the Annuitant and the
annuity rates set forth in your contract. Under a TSA you, as the Participant,
are always the Annuitant. UNDER CERTAIN QUALIFIED CONTRACTS THE INCOME OPTION
YOU SELECT MAY NOT EXCEED YOUR LIFE EXPECTANCY.
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 SURVIVOR LIFE ANNUITY WITH
10 YEARS GUARANTEED
This option is similar to option 2 above, with an additional guarantee of income
payments for at least 10 years. If the Annuitant and the Survivor die before all
of the guaranteed income payments have been made, the remaining payments are
made to the Beneficiary under your contract.
OPTION 4 - LIFE ANNUITY WITH 10, 15 OR 20 YEARS GUARANTEED
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 annuity income payments for a period ranging from 5 to 30
years. If the Annuitant dies before all of the guaranteed income payments are
made, the remaining income payments will be made to the Beneficiary for the rest
of the selected number of years.
FIXED OR VARIABLE INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. If at the date
when income payments begin you are invested in the variable Portfolios 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. Further, if you are
invested in both fixed and variable investment options when income payments
begin, your payments will be fixed and variable. If income payments are fixed,
Anchor National guarantees the amount of each payment. If the income payments
are variable the amount is not guaranteed.
8
<PAGE> 16
INCOME PAYMENTS
Your income payments will vary if you are invested in the variable Portfolios
after the Annuity date depending on four things:
- for life options, your age when payments begin, and;
- the value of your contract in the variable Portfolios on the Annuity
Date, and;
- the 3.5% assumed investment rate used in the annuity table for the
contract, and;
- the performance of the Portfolios in which you are invested during the
time you receive income payments.
If you are invested in both the fixed account options and the variable
Portfolios after the Annuity Date, the allocation of funds between the fixed and
variable options also impacts the amount of your annuity payments.
We make Income Payments on a monthly, quarterly, semi-annual or annual basis.
You instruct us to send you a check or to have the payments directly deposited
into your bank account. If state law allows, we distribute annuities with a
contract value of $5,000 or less in a lump sum. Also, if the selected income
option results in income payments of less than $50 per payment, we may decrease
the frequency of the payments, state law allowing.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one transfer per month is permitted between the
variable Portfolios. No other transfers are allowed during the Income Phase.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period.
Please read the Statement of Additional Information ("SAI") for a more detailed
discussion of the income options.
THE INCOME PROTECTOR PROGRAM
The Income Protector Program guarantees a minimum lifetime income in the form of
periodic payments under one of two income options. The Income Protector Program
has three different alternatives: (i) the Income Protector Base; (ii) the Income
Protector Plus; and (iii) the Income Protector Max.
If the Income Protector Program is available in your state, the Income Protector
Base is a standard feature of all contracts. It does not cost any additional
fees and your participation in this benefit is immediate.
The Income Protector Plus and the Income Protector Max alternatives must be
elected by you at the time you purchase your contract, or anytime thereafter,
but prior to the later of (a) your 83rd birthday or (b) your third contract
anniversary. The annual fee for participation in these alternatives is described
below.
If you elect to participate in the Income Protector Plus or the Income Protector
Max alternatives at the time you purchase a contract, your enrollment is
immediately effective. If you enroll after you purchase a contract, your
enrollment will be effective on your next contract anniversary. ONCE ENROLLED,
YOU MAY NOT TERMINATE PARTICIPATION IN THE INCOME PROTECTOR PLUS OR INCOME
PROTECTOR MAX ALTERNATIVES UNDER THE PROGRAM.
HOW DO WE CALCULATE YOUR GUARANTEED ANNUAL INCOME?
On your Annuity Date, provided you comply with the requirements to utilize the
Income Protector Program to annuitize your contract, we calculate the amount of
the guaranteed fixed income payments. We apply your Adjusted Income Benefit Base
(see definition below) as of that date, to the annuity rates set forth in the
Income Protection Program endorsement to your contract for the income option you
select.
The annuity rates used to calculate income payments under the Income Protector
Program may be lower than the annuity rates otherwise used when calculating
income payments under the contract. However, we compare (1) the income payments
you would receive based on your Adjusted Income Benefit Base under the Income
Protector Program to (2) the income payments you would otherwise receive using
your actual contract value and the same income option. You will receive the
higher of the two payments.
INCOME OPTIONS
The following income options are available if you annuitize under the Income
Protector Program:
- Life Annuity with 10 year period certain payout; or
- Joint and Survivor Annuity with 20 year period certain payout.
9
<PAGE> 17
UNDERSTANDING IMPORTANT TERMS ABOUT THE INCOME PROTECTOR PLAN
The following terms will help you understand how we determine the stream of
fixed income payments you would receive under the Income Protector Program:
INCOME BENEFIT BASE
Your Beginning Income Benefit Base is equal to either:
- your contract value at the time your participation in the Income
Protector Program is effective; or
- your contract value as of the contract anniversary you elect to "step-up"
your Income Benefit Base.
The Income Benefit Base fluctuates to take into consideration Purchase Payments,
accumulated at the applicable growth rate, and is proportionately reduced by
withdrawals from your contract.
At any point in time your Income Benefit Base is equal to (a) plus (b) minus (c)
where:
(a) is the Income Benefit Base on your prior contract anniversary,
accumulated at the applicable growth rate (or your Beginning Income Benefit
Base for the first contract anniversary following enrollment in the program
or a "step-up" in the Income Benefit Base);
(b) is the sum of all Purchase Payments made into the contract, accumulated
at the applicable growth rate, since the prior contract anniversary; and
(c) is the Total Reductions calculated as of the prior contract
anniversary, accumulated at the applicable growth rate.
Total Reductions are equal to the Income Benefit Base just prior to a
withdrawal, multiplied by the percentage reduction in contract value resulting
from such withdrawal (which includes all fees and charges applicable to such
withdrawal).
INCOME BENEFIT DATE
The Income Benefit Date is the valuation date you select to determine the fixed
income payments under the Income Protector Program. The Income Benefit Date must
be:
- at least seven years after either (i) your participation in the Income
Protector Program is effective or (ii) the contract anniversary your most
recent "step-up" in Income Benefit Base value was effective; and
- a contract anniversary.
The Annuity Date you select to begin receiving income payments must be within 30
days after the Income Benefit Date.
ADJUSTED INCOME BENEFIT BASE
Your Adjusted Income Benefit Base is your Income Benefit Base as of your Income
Benefit Date, reduced by:
(a) any Partial Withdrawals (including any charges or fees associated with
such withdrawals) since the Income Benefit Date; and
(b) any Withdrawal charges otherwise applicable to amounts in your
contract, calculated as if you fully surrendered your contract as of the
Income Benefit Date; and
(c) any applicable premium taxes.
STEP-UP OF INCOME BENEFIT BASE
If you enroll in the Income Protector Plus or Income Protector Max alternatives,
you may elect to "step-up" the value of your Income Benefit Base to your then
current contract value on any contract anniversary prior to the later of (a)
your 83rd birthday or (b) your third contract anniversary. To step-up your
Income Benefit Base, you must complete the necessary paperwork and submit it to
the Company during the 30-day period preceding your contract anniversary. When
you step up to the current contract value, the seven year waiting period before
you can annuitize your contract automatically begins again.
GROWTH RATES
The Growth Rates set forth below apply to each respective Income Protector
alternative until your 90th birthday, at which time the Growth Rate equals 0%
for all subsequent years:
<TABLE>
<CAPTION>
- ----------------------------------------------------
The Income Protector Alternatives Growth Rate
- ----------------------------------------------------
<S> <C>
Income Protector Base 0%
- ----------------------------------------------------
Income Protector Plus 3.25%
- ----------------------------------------------------
Income Protector Max 6.50%
- ----------------------------------------------------
</TABLE>
FEES ASSOCIATED WITH THE INCOME PROTECTOR PROGRAM
There are no fees associated with the Income Protector Base alternative. If you
elect to participate in the Income Protector Plus or Income Protector Max
alternatives, we deduct a fee, as described below, from your contract value on
each contract anniversary. 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.
10
<PAGE> 18
<TABLE>
<CAPTION>
- ------------------------------------------------------
The Income Protector Fee as a percentage of your
Alternatives Income Benefit Base
- ------------------------------------------------------
<S> <C>
Income Protector Base 0%
- ------------------------------------------------------
Income Protector Plus .15%
- ------------------------------------------------------
Income Protector Max .30%
- ------------------------------------------------------
</TABLE>
The Income Protector Program is not available in all states. We reserve the
right to modify, suspend or terminate the program at any time but as to future
sales only.
THE INCOME PROTECTOR PROGRAM DOES NOT GUARANTEE ANY RETURN OF PRINCIPAL OR
PURCHASE PAYMENTS AND DOES NOT GUARANTEE PERFORMANCE OF ANY INVESTMENT OPTIONS.
THE BENEFITS ASSOCIATED WITH THE INCOME PROTECTOR PROGRAM ARE AVAILABLE ONLY
UPON ANNUITIZATION UNDER YOUR CONTRACT AND IN ACCORDANCE WITH THE PROVISIONS SET
FORTH ABOVE.
ANNUITIZING USING THE INCOME PROTECTOR PROGRAM MAY OR MAY NOT RESULT IN THE MOST
FAVORABLE STREAM OF INCOME PAYMENTS UNDER YOUR CONTRACT. YOU SHOULD CONSIDER ALL
OF YOUR OPTIONS AT THE TIME YOU BEGIN THE INCOME PHASE OF YOUR CONTRACT.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
3. PURCHASING A POLARIS PLUS VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
A Purchase Payment is the money you give us to buy a contract. Any additional
money you give us to invest in your contract after purchase is a subsequent
Purchase Payment. You make payments into your contract in two ways:
- - salary reduction contributions, arranged through your employer; and/or
- - direct transfer or direct rollover from an existing retirement plans.
If you enter into a salary reduction agreement with your employer to make
Purchase Payments, there is no minimum initial payment. If you do not establish
such a salary reduction agreement, and only contribute through direct transfer
or direct rollover, the minimum initial Purchase Payment is $2,000.
You must have prior Company approval before we can accept Purchase Payments
greater than $1,000,000. We may refuse any Purchase Payment.
In general, for Qualified contracts we will not issue you a contract if you are
age 70 1/2 or older, unless you certify that the minimum distributions required
by the IRS are being made.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed and variable investment options
according to your instructions. If we receive a Purchase Payment without
allocation instructions, we will invest the money according to your last
allocation instructions. SEE SECTION 4, INVESTMENTS OPTIONS.
In order to issue your contract, we must receive your completed application,
Purchase Payment, allocation instructions and any other required paper work at
our principal place of business. We allocate your initial purchase payment
within two days of receiving it. If we do not have the complete information
necessary to issue your contract, we will contact you. If we do not have the
information necessary to issue your contract within 5 business days we will:
- Send your money back to you, or;
- Ask your permission to keep your money until we get the information
necessary to issue the contract.
ACCUMULATION UNITS
The value of the variable portion of your contract will go up and down dependent
on the investment performance of the Portfolios you choose. To calculate the
value of your contract, we use a measure called an Accumulation Unit.
We calculate the value of an Accumulation Unit each day that the New York Stock
Exchange ("NYSE") is open, as follows:
1. We determine the total value of money invested in a particular
Portfolio;
2. We subtract from that amount all applicable contract charges; and
3. We divide this amount by the number of outstanding Accumulation Units.
When you make a Purchase Payment, we credit your contract with Accumulation
Units. We determine the number of Accumulation Units credited by dividing the
Purchase Payment by the Accumulation Unit value for the specific Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Global Bond Portfolio. We determine that the value of an
Accumulation Unit for the Global Bond 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 2252.25 Accumulation Units for the Global
Bond Portfolio.
Performance of the Portfolios in which you are invested and the charges and
expenses under your contract affect your
11
<PAGE> 19
Accumulation Unit values. These factors may cause the value of your contract to
go up or down.
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. The amount refunded to you
may be more or less than the amount you originally invested.
Certain states (and all contracts issued as IRAs) require us to return your
Purchase Payments upon a free look request. With respect to those contracts, we
reserve the right to put your money in the Cash Management Portfolio or the
1-year fixed account option during the free look period. If you cancel your
contract during the free look period, we return your Purchase Payments or the
value of your contract, whichever is larger. At the end of the free look period,
we reallocate your money according to your instructions.
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4. INVESTMENT OPTIONS
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VARIABLE PORTFOLIOS
The contract currently offers 26 variable investment Portfolios. These
Portfolios invest in shares of the Anchor Series Trust and the SunAmerica Series
Trust (the "Trusts"). Additional Portfolios may be available in the future.
These Portfolios operate similarly to a mutual fund but are only available
through the purchase of certain insurance contracts.
SunAmerica Asset Management Corp., an indirect wholly owned subsidiary of
SunAmerica Inc., is the investment adviser to the Trusts. The Trusts serve as
the underlying investment vehicles for other variable annuity contracts issued
by Anchor National Life Insurance Company, and other affiliated/unaffiliated
insurance companies. Neither Anchor National nor the Trusts believe that
offering shares of the Trusts in this manner is disadvantageous to you. The
fund's management monitors the Trusts for any conflicts between contract owners.
The Portfolios along with their respective subadvisers are listed below:
ANCHOR SERIES TRUST
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust Portfolios. Anchor Series Trust has Portfolios in addition to those listed
below which are not available for investment under the contract. The 3 available
Portfolios are:
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Government and Quality Bond Portfolio
SUNAMERICA SERIES TRUST
Various subadvisers provide investment advice for the SunAmerica Series Trust
Portfolios. The 23 Portfolios and the subadvisers are:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
- Real Estate Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY FIRST AMERICAN ASSET MANAGEMENT
- Equity Income Portfolio
- Equity Index Portfolio
- Small Company Value Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/GOLDMAN
SACHS ASSET MANAGEMENT INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT, INC.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
YOU SHOULD READ THE PROSPECTUSES FOR THE TRUSTS CAREFULLY. THESE PROSPECTUSES
CONTAIN DETAILED INFORMATION ABOUT THE PORTFOLIOS, INCLUDING EACH PORTFOLIO'S
INVESTMENT OBJECTIVE AND RISK FACTORS.
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<PAGE> 20
FIXED ACCOUNT OPTIONS
The contract also offers fixed account options; the 1, 3 and 5 year fixed market
value adjustment ("MVA") fixed account options and the 6-month and 1-year Dollar
Cost Averaging ("DCA") fixed accounts. Funds invested in the fixed account
options are invested in Anchor National's general account. SEE SECTION 10, OTHER
INFORMATION.
The fixed account options are not registered under the Securities Act of 1933
and are not subject to other provisions of the Investment Company Act of 1940.
The SEC does not review the information we provide about the fixed account
options.
All 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 Anchor
National's sole discretion. We declare interest rates on a calendar year basis.
We will never credit less than a 3% annual effective rate to any of the fixed
account options.
The DCA fixed accounts are available solely for use with the Dollar Cost
Averaging Program ("DCA"). The DCA fixed accounts only accept money from direct
transfers or direct rollovers from existing retirement accounts. You cannot
transfer money already in your contract into these accounts. Like the other
fixed account options, Anchor National credits fixed annual interest rates to
these accounts. The interest rates credited to the DCA fixed accounts may differ
from one and other, as well as from those offered on the MVA fixed accounts.
See your Contract for details relating to the fixed account options.
MARKET VALUE ADJUSTMENT ("MVA")
If you take money out of the 1, 3, or 5 year MVA fixed account options before
the end of the period for which an interest rate is guaranteed, we may make an
adjustment to your contract. We call this a market value adjustment or "MVA".
This market value adjustment reflects any difference in the interest rates
between the time you originally place your money in the fixed account option and
the time when you withdraw or transfer that money. This adjustment can increase
or decrease your contract value. However, the market value adjustment will never
result in your earning less than a 3% annual effective rate.
Generally, if interest rates drop between the time you put your money into the
fixed account options and the time you take it out, we credit a positive
adjustment to your contract. Conversely, if interest rates increase during the
same period, we post a negative adjustment to your contract.
Please see your contract for more information on the MVA and how it is
calculated.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the variable
Portfolios and/or the fixed account options. Funds already in your contract
cannot be transferred into the DCA fixed accounts. You must transfer at least
$100 and at least $100 must remain in any Portfolio after a transfer.
You may request transfers of your account value between the variable Portfolios
and/or the fixed account options in writing or by telephone. We currently allow
15 free transfers per contract year. We charge $25 ($10 in Pennsylvania and
Texas) for each additional transfer in any contract year. Transfers resulting
from your participation in the DCA program count against your 15 free transfers
per contract year. However, transfers resulting from your participation in the
Automatic Asset Rebalancing program do not count against your 15 free transfers.
We accept transfer requests by telephone unless you tell us not to on your
contract application. Additionally, in the future you may be able to execute
transfers or other financial transactions over the internet.
When receiving instructions over the telephone, we follow appropriate procedures
to provide reasonable assurance that the transactions executed are genuine.
Thus, we are not responsible for any claim, loss or expense from any error
resulting from instructions received over the telephone.
Upon implementation of internet account transfers we will have appropriate
procedures in place to provide reasonable assurance that the transactions
executed are genuine. Thus, we would not be responsible for any claim, loss or
expense from any error resulting from instructions received over the internet.
If we fail to follow our procedures, we may be liable for any losses due to
unauthorized or fraudulent instructions.
We can limit the number of transfers in any contract year for all existing and
new owners. We can also 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; or
- The underlying Portfolios inform us that they need to restrict the
purchase or redemption of the shares because of excessive trading or
because a specific transfer or group of transfers is deemed to have a
detrimental effect on share prices of affected 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
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<PAGE> 21
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 for you or appointed by 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.
For information regarding transfers during the Income Phase, see SECTION 2,
INCOME OPTIONS.
We reserve the right to modify, suspend, waive or terminate these transfer
provisions at any time.
DOLLAR COST AVERAGING
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the
variable Portfolios. Under the program you systematically transfer a set dollar
amount or percentage of Portfolio value from one variable Portfolio or the
1-year fixed account option (source accounts) to any other variable
Portfolio(s). Transfers may be monthly or quarterly. You may change the
frequency at any time by notifying us in writing. The minimum transfer amount
under the DCA program is $100, regardless of the source account.
We also offer a 6-month and a 1-year DCA fixed account exclusively to facilitate
this program. If you allocate a Purchase Payment into a DCA fixed account, we
transfer all your money allocated to that account into the variable Portfolios
over the selected 6-month or 1-year period. You cannot change the option or the
frequency of transfers once selected.
Any single allocation of funds placed into the 6-month DCA fixed account must be
$600.00 or larger. We transfer all of your money out of the 6-month DCA fixed
account to the variable portfolio you select by the end of the six month period.
Transfers out of the 1-year DCA fixed account must be made quarterly or monthly.
If you select monthly transfers the minimum amount you must place in the account
is $1,200. If you select quarterly transfers the minimum amount you must place
in the account is $400. The amount of each transfer from the 1-year DCA fixed
account equals the total amount of money allocated to the account divided by the
frequency of transfers selected.
You may terminate your DCA program at any time. If money remains in the DCA
fixed accounts, we transfer the remaining money to the 1-year fixed account
option, unless we receive different instructions from you. Transfers resulting
from a termination of this program do not count towards your 15 free transfers.
The DCA program is designed to lessen the impact of market fluctuations on your
investment. However, we cannot ensure that you will make a profit. When you
elect the DCA Program, you are continuously investing in securities regardless
of fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Aggressive Growth Portfolio over six quarters.
You set up dollar cost averaging and purchase Accumulation Units at the
following values:
<TABLE>
<CAPTION>
- -------------------------------------------
ACCUMULATION UNITS
QUARTER UNIT 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
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 to return your allocations to their original
percentages. You request quarterly, semi annual or annual rebalancing.
We reserve the right to modify, suspend or terminate this program at any time.
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<PAGE> 22
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Portfolios. You want 50% in the Corporate Bond Portfolio and 50% in the
Growth Portfolio. Over the next calendar quarter, the bond market does very
well while the stock market performs poorly. At the end of the calendar
quarter, the Corporate Bond Portfolio now represents 60% of your holdings
because it has increased in value and the Growth Portfolio represents 40%
of your holdings. If you had chosen quarterly rebalancing, on the last day
of that quarter, we would sell some of your units in the Corporate Bond
Portfolio to bring its holdings back to 50% and use the money to buy more
units in the Growth Portfolio to increase those holdings to 50%.
VOTING RIGHTS
Anchor National is the legal owner of the Trusts' shares. However, when a
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 Portfolios become unavailable for investment, we may be required to
substitute shares of another Portfolio. We will seek prior approval of the SEC
and give you notice before substituting shares.
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5. EXPENSES
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There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase these fees and
charges under your contract. Some states may require that we charge less than
the amounts described below.
INSURANCE CHARGES
The amount of the insurance charge is 1.25% annually of the value of your
contract invested in the variable Portfolios. We deduct this charge daily.
The insurance charge compensates us for the mortality and expense risks and the
costs of contract distribution assumed by Anchor National.
If these charges do not cover all of our expenses, we will pay the difference.
Likewise, if these charges exceed our expenses, we will keep the difference.
WITHDRAWAL CHARGES
We apply a withdrawal charge against each Purchase Payment you put into the
contract. The withdrawal charge equals a percentage of the Purchase Payment you
take out of the contract. The withdrawal charge percentage declines over time
for each Purchase Payment in the contract. The applicable withdrawal charge
schedule depends on your employment status at the time your contract is issued.
RETIRED OR SEPARATED FROM SERVICE AT CONTRACT ISSUE
(SCHEDULE A)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Year 1 2 3 4 5 6
- ----------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
WITHDRAWAL CHARGE 6% 6% 5% 5% 4% 0%
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</TABLE>
EMPLOYED AT CONTRACT ISSUE
(SCHEDULE B)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Year 1 2 3 4 5 6 7
- ----------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C>
WITHDRAWAL CHARGE 6% 6% 5% 5% 4% 4% 0%
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</TABLE>
When calculating the withdrawal charge, we treat withdrawals as coming first
from the Purchase Payments that have been in your contract the longest. However,
for tax purposes, your withdrawals are considered earnings first, then Purchase
Payments.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract. If you withdraw all of your contract value, we deduct any
applicable withdrawal charge from the amount withdrawn.
We calculate charges due on a total withdrawal on the day after we receive your
request and your contract. We return your contract value less any applicable
fees and charges. However, you will not receive the benefit of any available
free withdrawal amounts if you make a complete withdrawal of your contract.
EXCEPTIONS TO WITHDRAWAL CHARGE
A withdrawal charge is not applicable to withdrawals requested in the following
situations:
- Annuitization (except if under Income Protector Program) SEE SECTION 2,
ANNUITY INCOME OPTIONS
- Death Benefits SEE SECTION 9, DEATH BENEFIT;
- After your 10th contract anniversary;
- If you are subject to withdrawal charge Schedule A, 15% of your Purchase
Payments each year;
- Disability;
- Hardship;
- Normal retirement;
- Separation from service.
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<PAGE> 23
Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE SECTION 6,
TAXES.
INVESTMENT CHARGES
Charges are deducted from your variable portfolios for the advisory and other
expenses of the Portfolios. THE FEE TABLES LOCATED AT Page 3 illustrate these
charges and expenses. For more detailed information on these investment charges,
refer to the prospectuses for the Trusts, enclosed or attached.
TRANSFER FEE
We currently permit 15 free transfers between investment options, every year. We
charge you $25 for each transfer over 15 in any one year ($10 in Pennsylvania
and Texas). SEE SECTION 4, INVESTMENT OPTIONS.
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 make a full withdrawal or annuitize
the contract. In the future, we may assess this deduction at the time you put
Purchase Payment(s) into the contract or upon payment of a death benefit.
APPENDIX B 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 a similar determination regarding sales to its
employees, its affiliates' employees and employees of currently contracted
broker-dealers; its registered representatives and immediate family members of
all of those described.
We reserve the right to change or modify any such determination or the treatment
applied to a particular group, at any time.
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6. TAXES
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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 CAN NOT GUARANTEE THAT THE
INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE.
ANNUITY CONTRACTS IN GENERAL
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: IRAs,
TSAs, H.R. 10 Plans (referred to as Keogh Plans) as well as 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.
The IRC provides for special rules regarding the tax treatment of annuity
contracts. Generally, taxes on the earnings in your annuity contract are
deferred until you take the money out. Different rules apply depending on how
you take the money out and whether your contract is Qualified or Non-qualified.
If you do not purchase your contract under a pension plan, a specially sponsored
employer program or an individual retirement account, your contract is referred
to as a Non-qualified contract. A Non-qualified contract receives different tax
treatment than a Qualified contract. In general, your cost basis in a
Non-qualified contract is equal to the Purchase Payments you put into the
contract. You have already been taxed on the cost basis in your contract.
TAX TREATMENT OF DISTRIBUTIONS -
QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract. Any amount of money you take out as a withdrawal or as
income payments is taxable income. The IRC further provides for a 10% penalty
tax on any withdrawal or income payment paid to you other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) in a series of substantially equal
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<PAGE> 24
installments made for your life or for the joint lives of you and your
Beneficiary; (5) to the extent such withdrawals do not exceed limitations set by
the IRC for amounts paid during the taxable year for medical care; (6) to fund
higher education expenses (as defined in IRC); (7) to fund certain first-time
home purchase expenses; and, except in the case of an IRA; (8) when you separate
from service after attaining age 55; and (9) when paid to an alternate payee
pursuant to a qualified domestic relations order.
SECTION 403(b) PLANS
Section 403(b) of the IRC permits the purchase of TSA by public schools and
certain charitable, educational and scientific organizations described in
Section 501(c)(3) of the IRC. A qualifying Employer may make contributions to
the Contract for the benefit of an employee who is a Participant, and/or the
Participant may enter into a salary reduction agreement with the Participant's
Employer authorizing the Employer to contribute a percentage of the
Participant's salary to the Section 403(b) contract. All contributions made to a
Section 403(b) contract are subject to the limitations described in IRC Sections
402(g) regarding elective deferral amounts, 403(b)(2) regarding the maximum
exclusion allowance, and 415(a)(2) and 415(c) regarding the limitations on
annual additions. Most contributions to a 403(b) contract are not includible in
the Participant's gross income until the Participant receives distributions from
the Contract.
A Participant who makes a withdrawal from a Section 403(b) contract must declare
that amount in current income. Therefore it is taxed at ordinary income tax
rates. In addition, Section 403(b)(11) of the IRC requires that salary reduction
contributions made, and/or earnings credited on any salary reduction
contributions after December 31, 1988, may not be withdrawn from the
Participant's Section 403(b) contract prior to an "eligible event", such as the
Participant having (1) attained age 59 1/2, (2) separated from service, (3)
become disabled (as defined by the IRC), (4) died or (5) incurred a hardship (as
defined by the IRC). Hardship withdrawals may not include any earnings credited
after December 31, 1988 attributable to salary reduction contributions. The
Internal Revenue Service has decided in Revenue Ruling 90-24 that amounts may be
transferred between Section 403(b) investment vehicles as long as the
transferred funds retain withdrawal restrictions at least as restrictive as that
of the transferring investment vehicle. Such transferred amounts are considered
withdrawals under the Contract and will be subject to withdrawal charges, if
applicable. (See Section 5, EXPENSES for more complete information).
Section 403(b)(8) of the IRC permits tax-free rollovers from Section 403(b)
contracts to IRAs or other Section 403(b) contracts under certain circumstances.
Qualified distributions eligible for rollover treatment may be subject to a 20%
federal tax withholding depending on whether or not the distribution is paid
directly to an eligible retirement plan.
The IRC sets forth additional restrictions governing Section 403(b) contracts on
such items as transferability, distributions, nondiscrimination and withdrawals.
Competent tax advice should be obtained as to the tax treatment and suitability
of purchasing a Contract.
TAX TREATMENT OF DISTRIBUTIONS - NON-QUALIFIED CONTRACTS
If you make a withdrawal from a Non-qualified contract, the IRC treats such a
withdrawal as first coming from the earnings and then as coming from your
Purchase Payments. For annuity payments, any portion of each payment that is
considered a return of your Purchase Payment will not be taxed. Withdrawn
earnings are treated as income to you and are taxable. The IRC provides for a
10% tax penalty on any earnings that are withdrawn other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) in a series of substantially equal installments made for your life
or for the joint lives of you and you Beneficiary; (5) under an immediate
annuity; or (6) which come from Purchase Payments made prior to August 14, 1982.
MINIMUM DISTRIBUTIONS
If your Contract is issued under a Section 403(b) or other Qualified Plan,
distributions must begin by April 1 of the calendar year following the later of
(1) the calendar year in which the Participant attains age 70 1/2 or (2) the
calendar year in which the Participant retires.
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that each 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 an owner of the underlying variable
investment Portfolios.
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<PAGE> 25
Due to the uncertainty in this area, we reserve the right to modify the contract
in an attempt to maintain favorable tax treatment.
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7. ACCESS TO YOUR MONEY
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You can access money in your contract in three ways:
- by receiving income payments during the Income Phase, SEE SECTION 2,
INCOME OPTIONS; or
- by taking a loan in accordance with the provisions of your Plan and/or
this Contract; or
- subject to the restrictions described below, by making a partial or total
withdrawal.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Portfolios is not reasonably practicable; (4) the SEC, by order, so permits for
the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from a
fixed account option. Such deferrals are limited to no longer than six months.
We may deduct a withdrawal charge applicable to any total or partial withdrawal,
and a market value adjustment if a total or partial withdrawal comes from the 1,
3 or 5 year MVA fixed account unless the withdrawal qualifies as a withdrawal
charge exception. SECTION 4, INVESTMENT OPTIONS AND SECTION 5, EXPENSES.
Under most circumstances, the partial withdrawal minimum is $1,000. We require
that the value left in any investment option after the withdrawal be at least
$100. You must send a written withdrawal request. Unless you provide us with
different instructions, partial withdrawals will be made pro rata from each
variable Portfolio and each fixed account option in which you are invested.
WITHDRAWAL RESTRICTIONS
Withdrawals under Section 403(b) Contracts are subject to the limitations under
Section 403(b)(11) of the IRC and any applicable Plan document. Section 403(b)
provides that salary reduction contributions deposited and earnings credited on
any salary reduction contributions after December 31, 1988 may only be withdrawn
upon (1) death; (2) disability; (3) reaching age 59 1/2; (4) separation from
service; or (5) occurrence of a hardship. Amounts accumulated in one Section
403(b)(1) Contract may be transferred to another Section 403(b)(1) Contract or
Section 403(b)(7) custodial account without a penalty under the IRC. Amounts
accumulated in a Section 403(b)(7) custodial account and deposited in a
contract, will be subject to the same withdrawal restrictions as are applicable
to post-1988 salary reduction contributions. For more information on these
provisions see SECTION 6, TAXES.
If your Plan is subject to Title I of ERISA your withdrawal request must be
authorized by the Contractholder on your behalf. All withdrawal requests will
require the Contractholder's written authorization and written documentation
specifying the portion of your contract value which is available for
distribution to you.
If your Plan is not subject to Title I of ERISA, you must certify to Anchor
National that, one of the events listed in the IRC has occurred (and provide
supporting information, if requested) and that Anchor National may rely on such
representation in granting such a withdrawal request. The above does not apply
to transfers to other Qualified investment alternatives. See SECTION 6, TAXES.
You should consult your tax adviser as well as review the provisions of any
applicable Plan before requesting a withdrawal.
In addition to the restrictions noted above, a Plan may contain additional
withdrawal or transfer restrictions.
Early withdrawals, as defined under Section 72(q) and 72(t) of the IRC, may be
subject to 10% penalty tax.
SYSTEMATIC WITHDRAWAL PROGRAM
If you elect and the terms of your TSA allow, we use money in your contract to
pay you monthly, quarterly, semiannual or annual payments during the
Accumulation Phase. Electronic transfer of these funds to your bank account is
also available. However, any such payments you elect to receive are subject to
all applicable withdrawal charges, market value adjustments, income taxes, tax
penalties and other withdrawal restrictions affecting your contract. The minimum
amount of each withdrawal is $50. There must be a 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. 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.
WITHDRAWAL CHARGES, MARKET VALUE ADJUSTMENTS, INCOME TAXES, TAX PENALTIES AND
CERTAIN WITHDRAWAL RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL YOU MAKE, INCLUDING
SYSTEMATIC WITHDRAWALS.
LOANS
If your Plan permits, you may take a loan from your Contract during the
Accumulation Period. You may apply for a loan
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<PAGE> 26
under the contract by completing a loan application available from Anchor
National. Loans are secured by a portion of your Contract value. Under certain
Contracts, we may charge a one-time fee of up to $75 to set up a loan. More
information about loans, including interest rates, restrictions, and applicable
fees and charges is available in the Certificates, Endorsements and the Loan
Agreements as well as from Anchor National's Annuity Service Center.
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.
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8. PERFORMANCE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other variable Portfolios advertise total return, gross yield and
yield-to-maturity. These figures represent past performance of the Portfolios.
These performance numbers do not indicate future results.
When we advertise performance for periods prior to the date the contracts were
first issued, we derive the figures from the performance of the corresponding
Portfolios for the Trusts, if available. We modify these numbers to reflect
charges and expenses as if the contract was in existence during the period
stated in the advertisement. Figures calculated in this manner do not represent
actual historic performance of the particular Portfolio.
Consult the SAI for more detailed information regarding the calculation of
performance data. The performance of each Portfolio may also be measured against
unmanaged market indices. The indices we use include but are not limited to the
Dow Jones Industrial Average, the Standard & Poor's 500, the Russell 1000 Growth
Index, the Morgan Stanley Capital International Europe, Australia and Far East
Index ("EAFE") and the Morgan Stanley Capital International World Index. We may
compare the Portfolios' performance to that of other variable annuities with
similar objectives and policies as reported by independent ranking agencies such
as Morningstar, Inc., Lipper Analytical Services, Inc. or Variable Annuity
Research & Data Service ("VARDS").
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.
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9. DEATH BENEFIT
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- ----------------------------------------------------------------
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary. The death benefit equals the greater of:
1. Total Purchase Payments minus total withdrawals (and any fees and
charges applicable to those withdrawals) at the time we receive
satisfactory proof of death, or;
2. Contract Value at the time we receive satisfactory proof of death.
We do not pay the death benefit if you die after you switch to the Income Phase.
However, if you die during the Income Phase, your Beneficiary receives any
remaining guaranteed income payments in accordance with the Income Option you
selected. (SEE SECTION 2, ANNUITY INCOME OPTIONS)
You name your Beneficiary. You may change the Beneficiary at any time, unless
you previously made an irrevocable Beneficiary designation. Plans subject to
Title 1 of ERISA may impose additional restrictions.
We pay the death benefit when we receive satisfactory proof of death. We
consider the following satisfactory proof of death:
1. a certified copy of the death certificate; or
2. a certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or
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 require additional proof before we pay the death benefit.
The death benefit payment must begin immediately upon receipt of all necessary
documents. In any event, the death benefit must be paid within 5 years of the
date of death unless the Beneficiary elects to have it payable in the form of an
income option. 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. Payments must begin within one year of your
death.
If the Beneficiary is the spouse of the Participant, he or she can elect to
continue the Contract at the then current value.
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Such a spouse/Beneficiary must select an income option which does not exceed the
surviving spouse's life expectancy. Income payments to the surviving spouse must
begin at any day prior to the later of:
- the calendar year following the calendar year in which the Participant
died, or;
- the calendar year in which the Participant would have turned 70 1/2.
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10. OTHER INFORMATION
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Anchor National is a stock life insurance company originally organized under the
laws of the state of California in April 1965. On January 1, 1996, Anchor
National redomesticated under the laws of the state of Arizona.
Anchor National and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, CalAmerica Life Insurance Company, SunAmerica
National Life Insurance Company, SunAmerica Asset Management, Imperial Premium
Finance, Inc., Resources Trust Company, and five broker-dealers, specialize in
retirement savings and investment products and services. Business focuses
include, fixed and variable annuities, mutual funds, premium finance,
broker-dealer services and trust administration services.
THE SEPARATE ACCOUNT
Anchor National established a separate account, Variable Annuity Account Seven
("Separate Account"), under Arizona law on August 28, 1998. 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.
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 [5%] of your Purchase Payments. We may
also pay a bonus to representatives for contracts which stay active for a
particular period of time, in addition to standard commissions. We do not deduct
commissions paid to registered representatives directly from your Purchase
Payments.
From time to time, we may pay or allow additional promotional incentives in the
form of cash or other compensation. We reserve the right to offer these
additional incentives only to certain broker-dealers that sell, or are expected
to sell, certain minimum amounts of the contract, or other contracts offered by
us. Promotional incentives may change at any time.
SunAmerica Capital Services, Inc., 733 Third Avenue, 4th Floor, New York, New
York 10017 distributes the contracts. SunAmerica Capital Services is an
affiliate of Anchor National, is registered as a broker-dealer under the
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact our Annuity Service Center at 1-800- , if you have any comment,
question or service request.
We send out transaction confirmations and quarterly statements. It is your
responsibility to review these documents carefully and notify us of any
inaccuracies immediately. We investigate all inquiries. To the extent that we
believe we made an error, we retroactively adjust your contract, provided you
notify us within 30 days of receiving the transaction confirmation or quarterly
statement. Any other adjustments we deem warranted are made as of the time we
receive notice of the error.
YEAR 2000
Anchor National relies significantly on computer systems and applications in its
daily operations. Many of these systems and applications are not presently Year
2000 compliant. Anchor National's business, financial condition and results of
operations could be materially and adversely affected by the failure of its
systems and applications (and those of third parties interfacing with Anchor
National's systems and applications) to manage dates beyond the year 1999.
However, Anchor National has a coordinated plan to repair or replace these
noncompliant systems. Part of this plan involves obtaining similar assurances
from third parties interfacing with Anchor National's systems and applications.
Anchor National expects to complete most of its plan by the end of calendar year
1998, leaving 1999 for testing.
LEGAL PROCEEDINGS
There are no pending legal proceeding affecting the Separate Account. Anchor
National and its subsidiaries engage in
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various kinds of routine litigation. In management's opinion, these matters are
not of material importance to their respective total assets nor are they
material with respect to the Separate Account.
CUSTODIAN
State Street Bank and Trust Company, 255 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the Separate Account. Anchor
National pays State Street Bank for services provided, based on a schedule of
fees.
ADDITIONAL INFORMATION
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 requested
documents are mailed.
Registration Statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the registration
statement and its exhibits. For further information regarding the Separate
Account, Anchor National and its general account, the Portfolios and the
contract, please refer to the registration statement and its exhibits.
The SEC also maintains a website (http://www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by Anchor National.
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TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
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<TABLE>
<S> <C>
Separate Account.............................. 3
General Account............................... 3
Performance Data.............................. 4
Annuity Payments.............................. 8
Annuity Unit Values........................... 8
Taxes......................................... 11
Distribution of Contracts..................... 14
Financial Statements.......................... 15
</TABLE>
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APPENDIX A - PREMIUM TAXES
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Premium taxes vary according to the state and are subject to change without
notice. In many states, there is no tax at all. Listed below are the current
premium tax rates in those states that assess a premium tax. For current
information, you should consult your tax adviser.
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
STATE CONTRACT CONTRACT
<S> <C> <C>
========================================================================================
California .50% 2.35%
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District of Columbia 2.25% 2.25%
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Kentucky 2% 2%
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Maine 0% 2%
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Nevada 0% 3.5%
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South Dakota 0% 1.25%
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West Virginia 1% 1%
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Wyoming 0% 1%
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</TABLE>
A-1
<PAGE> 30
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Please forward a copy (without charge) of the Variable Annuity Statement of
Additional Information to:
(Please print or type and fill in all information.)
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City/State/Zip
<TABLE>
<S> <C> <C> <C>
Date: ------------------------------------ Signed: ---------------------------------------
</TABLE>
Return to: Anchor National Life Insurance Company, Annuity Service Center,
P.O. Box 52499, Los Angeles, California 90054-0299
- --------------------------------------------------------------------------------
<PAGE> 31
STATEMENT OF ADDITIONAL INFORMATION
GROUP & INDIVIDUAL
FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
ISSUED BY
ANCHOR NATIONAL LIFE INSURANCE COMPANY
IN CONNECTION WITH
VARIABLE ANNUITY ACCOUNT SEVEN
This Statement of Additional Information is not a prospectus; it should be read
with the prospectus relating to the annuity contracts described above. A copy of
the prospectus may be obtained without charge by calling (800) or
writing us at:
ANCHOR NATIONAL LIFE INSURANCE COMPANY
ANNUITY SERVICE CENTER
P.O. BOX 54299
LOS ANGELES, CALIFORNIA 90054-0299
November __, 1998
<PAGE> 32
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Separate Account........................................... 3
General Account............................................ 3
Performance Data .......................................... 4
Annuity Payments........................................... 8
Annuity Unit Values........................................ 8
Taxes...................................................... 11
Distribution of Contracts.................................. 14
Financial Statements....................................... 15
</TABLE>
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<PAGE> 33
SEPARATE ACCOUNT
Variable Annuity Account Seven (the "Separate Account") was originally
established by Anchor National Life Insurance Company (the "Company") on August
28, 1998, 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 Securities
and Exchange Commission (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 Portfolios, with the assets of each
Portfolio invested in the shares of one of the underlying funds. The Company
does not guarantee the investment performance of the Separate Account, its
Portfolios or the underlying funds. Values allocated to the Separate Account and
the amount of variable annuity payments will vary with the values of shares of
the underlying funds, and are also reduced by contract charges.
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 funds, 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
Portfolios 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 by 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
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<PAGE> 34
allocated to the Separate Account or any other segregated asset account of the
Company. A Purchase Payment may be allocated to the 1, 3, or 5 year market value
adjustment fixed account options and the DCA fixed account options available
in connection with the general account, as elected by the owner at the time of
purchasing a contract or when making a subsequent Purchase Payment. Assets
supporting amounts allocated to fixed investment options 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 SunAmerica 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.
In addition, the Separate Account may advertise "total return" data for
its other Portfolios. Like the yield figures described above, total return
figures are based on historical data and are not intended to indicate future
performance. The "total return" 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 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 (assuming a complete
redemption of the contract at the end of the period). Recurring contract charges
are reflected in the total return figures in the same manner as they are
reflected in the yield data for contracts funded through the Cash Management
Portfolio.
For periods starting prior to the date the contracts were first offered
to the public, the total return data for the Portfolios of the Separate Account
will be derived from the performance of the corresponding Portfolios of Anchor
Series Trust and SunAmerica Series Trust, modified to reflect the charges and
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<PAGE> 35
expenses as if the Separate Account Portfolio had been in existence since the
inception date of each respective Anchor Series Trust and SunAmerica Series
Trust Portfolio. Thus, such performance figures should not be construed to be
actual historic performance of the relevant Separate Account Portfolio. Rather,
they are intended to indicate the historical performance of the corresponding
Portfolios of Anchor Series Trust and SunAmerica Series Trust, adjusted to
provide direct comparability to the performance of the Portfolios after the date
the contracts were first offered to the public (which will reflect the effect of
fees and charges imposed under the contracts). Anchor Series Trust and
SunAmerica Series Trust have served since their inception as underlying
investment media for Separate Accounts of other insurance companies in
connection with variable contracts not having the same fee and charge schedules
as those imposed under the contracts.
Performance data for the various Portfolios are computed in the manner
described below.
CASH MANAGEMENT PORTFOLIO
The annualized current yield and the effective yield for the Cash
Management Portfolio for the 7 day period ending November 30, 1997, were 3.79%
and 3.86%, respectively.
Current yield is computed by first determining the Base Period Return
attributable to a hypothetical contract having a balance of one Accumulation
Unit at the beginning of a 7 day period using the formula:
Base Period Return = (EV-SV-RMC)/(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
RMC = an allocated portion of the $35 annual contract maintenance
fee, prorated for 7 days
The change in the value of an Accumulation Unit during the 7 day period
reflects the income received, minus any expenses accrued, during such 7 day
period. The Records Maintenance Charge (RMC) is first allocated among the
Portfolios and the general account so that each Portfolio's allocated portion of
the charge is proportional to the percentage of the number of contract owners'
accounts that have money allocated to that Portfolio. The portion of the charge
allocable to the Cash Management Portfolio 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, 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
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<PAGE> 36
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:
365/7
Effective Yield = [(Base Period Return + 1) - 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 also compute their performance data as "total return."
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<PAGE> 37
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:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
-7-
<PAGE> 38
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5, or 10 year period as of
the end of the period (or fractional portion thereof).
The total return figures reflect the effect of recurring charges, as
discussed herein. Recurring charges are taken into account in a manner similar
to that used for the yield computations for the Cash Management Portfolio,
described above. As with the Cash Management Portfolio yield figures, total
return figures are derived from historical data and are not intended to be a
projection of future performance.
ANNUITY PAYMENTS
INITIAL MONTHLY ANNUITY PAYMENTS
The initial annuity payment is determined by applying separately that
portion of the contract value allocated to the fixed investment options and the
variable Portfolio(s), less any premium tax, and then applying it to the annuity
table specified in the contract for fixed and variable annuity payments. 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, and the annuity option selected.
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 fixed annuity payments, the amount of the second and each subsequent
monthly annuity payment is the same as that determined above for the first
monthly payment.
For variable annuity payments, the amount of the second and each
subsequent monthly annuity payment is determined by multiplying the number of
Annuity Units, as determined in connection with the determination of the initial
monthly payment, above, by the Annuity Unit value as of the day preceding the
date on which each annuity payment is due.
ANNUITY UNIT VALUES
The value of an Annuity Unit is determined independently for each
Portfolio.
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 Portfolio exceed 3.5%, variable annuity payments derived from allocations to
that Portfolio will increase over time. Conversely, if the actual rate is less
than 3.5%, variable annuity payments will decrease over time. If the net
investment rate equals 3.5%, the variable annuity payments will remain constant.
If a higher assumed investment rate had been used, the
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<PAGE> 39
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 Portfolios elected, and the amount of each annuity payment
will vary accordingly.
For each Portfolio, the value of an Annuity Unit is determined by
multiplying the Annuity Unit value for the preceding month by the Net Investment
Factor for the month for which the Annuity Unit value is being calculated. The
result is then multiplied by a second factor which offsets the effect of the
assumed net investment rate of 3.5% per annum which is assumed in the annuity
tables contained in the contract.
NET INVESTMENT FACTOR
The Net Investment Factor ("NIF") is an index applied to measure the net
investment performance of a Portfolio from one day 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 Portfolio for a certain month is determined by dividing
(a) by (b) where:
(a) is the Accumulation Unit value of the Portfolio determined as of
the end of that month, and
(b) is the Accumulation Unit value of the Portfolio determined as of
the end of the preceding month.
The NIF for a Portfolio for a given month is a measure of the net
investment performance of the Portfolio from the end of the prior month to the
end of the given month. A NIF of 1.000 results in no change; a NIF greater than
1.000 results in an increase; and a NIF less than 1.000 results in a decrease.
The NIF is increased (or decreased) in accordance with the increases (or
decreases, respectively) in the value of a share of the underlying fund in which
the Portfolio invests; it is also reduced by Separate Account asset charges.
ILLUSTRATIVE EXAMPLE
Assume that one share of a given Portfolio 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
The change in Annuity Unit value for a Portfolio 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 Portfolio for the new month. In addition, however,
the result of that computation must also be multiplied by an additional factor
that takes into account, and neutralizes, the assumed investment rate of 3.5
percent per annum upon which the annuity payment tables are based. For example,
if the net investment rate for a Portfolio (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
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<PAGE> 40
investment rate of 3.5 percent per annum is:
(1/12)
1/[(1.035) ] = 0.99713732
In the example given above, if the Annuity Unit value for the Portfolio
was $10.103523 on the last business day in August, the Annuity Unit value on the
last business day in September would have been:
$10.103523 x 1.00174825 x 0.99713732 = $10.092213
VARIABLE ANNUITY PAYMENTS
ILLUSTRATIVE EXAMPLE
Assume that a male owner, P, owns a contract in connection with which P
has allocated all of his contract value to a single Portfolio. P is also the
sole Annuitant and, at age 60, has elected to annuitize his contract under
Option 4, 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 Portfolio 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 factor
tables in P's contract, using the information assumed above. From these tables,
which supply monthly annuity factors for each $1,000 of applied contract value,
P's first variable annuity payment is determined by multiplying the factor of
$4.92 (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 = $4.92 x ($116,412.31/$1,000) = $572.75
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 = $572.75/$13.256932 = 43.203812
P's second variable annuity payment is determined by multiplying the
number of Annuity Units by the Annuity Unit value as of the day immediately
prior to the second payment due date:
Second Payment = 43.203812 x $13.327695 = $575.81
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 Portfolio on the Annuity Date and thus
reflects the investment performance of the Portfolio 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 Portfolio). The net investment performance of the
Portfolio during the Annuity Phase is reflected in continuing changes during
this phase in the Annuity Unit value, which determines the amounts of the
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<PAGE> 41
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. An 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 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 Nonqualified 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. 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 "roll over" the entire amount of an eligible rollover distribution
(including an amount equal to the 20% portion of the distribution that was
withheld) could have adverse tax consequences, including the imposition of a
penalty tax on premature withdrawals, described later in this section.
Withdrawals or distributions from a contract other than eligible
rollover distributions are also subject to withholding on the estimated taxable
portion of the distribution, but the owner may elect in such cases to waive the
withholding requirement. If not waived, withholding is imposed (1) for periodic
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<PAGE> 42
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
any payments under the contract. The Code contains a safe harbor provision which
provides that annuity contracts, such as your contract, 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 variable
contracts such as the contracts. The regulations amplify the diversification
requirements for variable 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> 43
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.
Contracts are offered on a continuous basis.
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company as of
September 30, 1997 and 1996 and for each of the three years in the period ended
September 30, 1997 are presented in this Statement of Additional Information.
The consolidated financial statements of the Company should be considered only
as bearing on the ability
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<PAGE> 44
of the Company to meet its obligation under the contracts for amounts allocated
to the 1, 3, and 5 year market value adjustment fixed account options and the
1-year and 6-month DCA fixed accounts. As of the date of this Statement of
Additional Information, sales of this contract have not yet begun. Therefore
financial statements for Variable Annuity Account Seven are not included.
PricewaterhouseCoopers LLP, 400 South Hope Street, Los Angeles,
California 90071, serves as the independent accountants for the Separate Account
and the Company. The financial statements of the Company 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.
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<PAGE> 45
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Anchor National Life Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated income statement and statement of cash flows present fairly, in all
material respects, the financial position of Anchor National Life Insurance
Company and its subsidiaries at September 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Los Angeles, California
November 7, 1997
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<PAGE> 46
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
ASSETS
INVESTMENTS:
Cash and short-term investments......................... $ 113,580,000 $ 122,058,000
Bonds, notes and redeemable preferred stocks:
Available for sale, at fair value (amortized cost:
1997, $1,942,485,000; 1996, $2,001,024,000)........ 1,986,194,000 1,987,271,000
Mortgage loans.......................................... 339,530,000 98,284,000
Common stocks, at fair value (cost: 1997, $271,000;
1996, $2,911,000).................................... 1,275,000 3,970,000
Real estate............................................. 24,000,000 39,724,000
Other invested assets................................... 143,722,000 77,925,000
-------------- -------------
Total investments....................................... 2,608,301,000 2,329,232,000
Variable annuity assets................................... 9,343,200,000 6,311,557,000
Receivable from brokers for sales of securities........... -- 52,348,000
Accrued investment income................................. 21,759,000 19,675,000
Deferred acquisition costs................................ 536,155,000 443,610,000
Other assets.............................................. 61,524,000 48,113,000
-------------- -------------
TOTAL ASSETS.............................................. $12,570,939,000 $9,204,535,000
============== =============
</TABLE>
See accompanying notes.
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<PAGE> 47
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts.................... $ 2,098,803,000 $1,789,962,000
Reserves for guaranteed investment contracts............ 295,175,000 415,544,000
Payable to brokers for purchases of securities.......... 263,000 --
Income taxes currently payable.......................... 32,265,000 21,486,000
Other liabilities....................................... 122,728,000 74,710,000
-------------- -------------
Total reserves, payables and accrued liabilities........ 2,549,234,000 2,301,702,000
-------------- -------------
Variable annuity liabilities.............................. 9,343,200,000 6,311,557,000
-------------- -------------
Subordinated notes payable to Parent...................... 36,240,000 35,832,000
-------------- -------------
Deferred income taxes..................................... 67,047,000 70,189,000
-------------- -------------
Shareholder's equity:
Common Stock............................................ 3,511,000 3,511,000
Additional paid-in capital.............................. 308,674,000 280,263,000
Retained earnings....................................... 244,628,000 207,002,000
Net unrealized gains (losses) on debt and equity
securities available for sale........................ 18,405,000 (5,521,000)
-------------- -------------
Total shareholder's equity.............................. 575,218,000 485,255,000
-------------- -------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY................ $12,570,939,000 $9,204,535,000
============== =============
</TABLE>
See accompanying notes.
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<PAGE> 48
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
Investment income.......................... $ 210,759,000 $ 164,631,000 $129,466,000
------------- ------------- ------------
Interest expense on:
Fixed annuity contracts.................. (109,217,000) (82,690,000) (72,975,000)
Guaranteed investment contracts.......... (22,650,000) (19,974,000) (3,733,000)
Senior indebtedness...................... (2,549,000) (2,568,000) (227,000)
Subordinated notes payable to Parent..... (3,142,000) (2,556,000) (2,448,000)
------------- ------------- ------------
Total interest expense................... (137,558,000) (107,788,000) (79,383,000)
------------- ------------- ------------
NET INVESTMENT INCOME...................... 73,201,000 56,843,000 50,083,000
------------- ------------- ------------
NET REALIZED INVESTMENT LOSSES............. (17,394,000) (13,355,000) (4,363,000)
------------- ------------- ------------
Fee income:
Variable annuity fees.................... 139,492,000 103,970,000 84,171,000
Net retained commissions................. 39,143,000 31,548,000 24,108,000
Surrender charges........................ 5,529,000 5,184,000 5,889,000
Asset management fees.................... 25,764,000 25,413,000 26,935,000
Other fees............................... 3,218,000 3,390,000 4,002,000
------------- ------------- ------------
TOTAL FEE INCOME........................... 213,146,000 169,505,000 145,105,000
------------- ------------- ------------
GENERAL AND ADMINISTRATIVE EXPENSES........ (98,802,000) (81,552,000) (64,457,000)
------------- ------------- ------------
AMORTIZATION OF DEFERRED ACQUISITION
COSTS.................................... (66,879,000) (57,520,000) (58,713,000)
------------- ------------- ------------
ANNUAL COMMISSIONS......................... (8,977,000) (4,613,000) (2,658,000)
------------- ------------- ------------
PRETAX INCOME.............................. 94,295,000 69,308,000 64,997,000
Income tax expense......................... (31,169,000) (24,252,000) (25,739,000)
------------- ------------- ------------
NET INCOME................................. $ 63,126,000 $ 45,056,000 $ 39,258,000
============= ============= ============
</TABLE>
See accompanying notes
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<PAGE> 49
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 63,126,000 $ 45,056,000 $ 39,258,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Interest credited to:
Fixed annuity contracts.............................. 109,217,000 82,690,000 72,975,000
Guaranteed investment contracts...................... 22,650,000 19,974,000 3,733,000
Net realized investment losses....................... 17,394,000 13,355,000 4,363,000
Accretion of net discounts on investments............ (18,576,000) (8,976,000) (6,865,000)
Amortization of goodwill............................. 1,187,000 1,169,000 1,168,000
Provision for deferred income taxes.................. (16,024,000) (3,351,000) (1,489,000)
Change in:
Accrued investment income................................. (2,084,000) (5,483,000) 3,373,000
Deferred acquisition costs................................ (113,145,000) (60,941,000) (7,180,000)
Other assets.............................................. (14,598,000) (8,000,000) 7,047,000
Income taxes currently payable............................ 10,779,000 5,766,000 3,389,000
Other liabilities......................................... 14,187,000 5,474,000 4,063,000
Other, net.................................................. 418,000 (129,000) 7,000
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES..................... 74,531,000 86,604,000 123,842,000
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts................................... 1,097,937,000 651,649,000 245,320,000
Guaranteed investment contracts........................... 55,000,000 134,967,000 275,000,000
Net exchanges to (from) the fixed accounts of variable
annuity contracts......................................... (620,367,000) (236,705,000) 10,475,000
Withdrawal payments on:
Fixed annuity contracts................................... (242,589,000) (173,489,000) (237,977,000)
Guaranteed investment contracts........................... (198,062,000) (16,492,000) (1,638,000)
Claims and annuity payments on fixed annuity contracts...... (35,731,000) (31,107,000) (31,237,000)
Net receipts from (repayments of) other short-term
financings................................................ 34,239,000 (119,712,000) 3,202,000
Capital contribution received............................... 28,411,000 27,387,000 --
Dividends paid.............................................. (25,500,000) (29,400,000) --
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES..................... 93,338,000 207,098,000 263,145,000
------------- ------------- -------------
</TABLE>
See accompanying notes.
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<PAGE> 50
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred stocks.............. $(2,566,211,000) $(1,937,890,000) $(1,556,586,000)
Mortgage loans............................................ (266,771,000) (15,000,000) --
Other investments, excluding short-term investments....... (75,556,000) (36,770,000) (13,028,000)
Sales of:
Bonds, notes and redeemable preferred stocks.............. 2,299,063,000 1,241,928,000 1,026,078,000
Real estate............................................... -- 900,000 36,813,000
Other investments, excluding short-term investments....... 6,421,000 4,937,000 5,130,000
Redemptions and maturities of:
Bonds, notes and redeemable preferred stocks.............. 376,847,000 288,969,000 178,688,000
Mortgage loans............................................ 25,920,000 11,324,000 14,403,000
Other investments, excluding short-term investments....... 23,940,000 20,749,000 13,286,000
------------- ------------- -------------
NET CASH USED BY INVESTING ACTIVITIES......................... (176,347,000) (420,853,000) (295,216,000)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS.... (8,478,000) (127,151,000) 91,771,000
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD........ 122,058,000 249,209,000 157,438,000
------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD.............. $ 113,580,000 $ 122,058,000 $ 249,209,000
============= ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness............................... $ 7,032,000 $ 5,982,000 $ 3,235,000
============= ============= =============
Net income taxes paid....................................... $ 36,420,000 $ 22,031,000 $ 23,656,000
============= ============= =============
</TABLE>
See accompanying notes.
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<PAGE> 51
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company (the "Company") is a wholly owned
indirect subsidiary of SunAmerica, Inc. (the "Parent"). The Company is an
Arizona-domiciled life insurance company and conducts its business through three
segments: annuity operations, asset management and broker-dealer operations.
Annuity operations include the sale and administration of fixed and variable
annuities and guaranteed investment contracts. Asset management, which includes
the sale and management of mutual funds, is conducted by SunAmerica Asset
Management Corp. Broker-dealer operations include the sale of securities and
financial services products, and are conducted by Royal Alliance Associates,
Inc.
The operations of the Company are influenced by many factors, including
general economic conditions, monetary and fiscal policies of the federal
government, and policies of state and other regulatory authorities. The level of
sales of the Company's financial products is influenced by many factors,
including general market rates of interest; strength, weakness and volatility of
equity markets; and terms and conditions of competing financial products. The
Company is exposed to the typical risks normally associated with a portfolio of
fixed-income securities, namely interest rate, option, liquidity and credit
risk. The Company controls its exposure to these risks by, among other things,
closely monitoring and matching the duration of its assets and liabilities,
monitoring and limiting prepayment and extension risk in its portfolio,
maintaining a large percentage of its portfolio in highly liquid securities, and
engaging in a disciplined process of underwriting, reviewing and monitoring
credit risk. The Company also is exposed to market risk, as market volatility
may result in reduced fee income in the case of assets managed in mutual funds
and held in Separate Accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and include the accounts of the Company and all of its wholly owned
subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation. Certain prior period amounts have been reclassified
to conform with the 1997 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
-21-
<PAGE> 52
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and short-term
bank participations. All such investments are carried at cost plus accrued
interest, which approximates fair value, have maturities of three months or less
and are considered cash equivalents for purposes of reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and common
stocks are carried at aggregate fair value and changes in unrealized gains or
losses, net of tax, are credited or charged directly to shareholder's equity.
Bonds, notes and redeemable preferred stocks are reduced to estimated net
realizable value when necessary for declines in value considered to be other
than temporary. Estimates of net realizable value are subjective and actual
realization will be dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of provisions
for estimated losses. Real estate is carried at the lower of cost or fair value.
Other invested assets include investments in limited partnerships, which are
accounted for by using the cost method of accounting; Separate Account
investments; leveraged leases; policy loans, which are carried at unpaid
balances; and collateralized mortgage obligation residuals.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined using the specific cost
identification method. Premiums and discounts on investments are amortized to
investment income 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 Interest Expense in the
income statement. All outstanding Swap Agreements are designated as hedges and,
therefore, are not marked to market. However, in the event that a hedged
asset/liability were to be sold or repaid before the related Swap Agreement
matures, the Swap Agreement would be marked to market and any gain/loss
classified with any gain/loss realized on the disposition of the hedged
asset/liability. Subsequently, the Swap Agreement would be marked to market and
the resulting change in fair value would be included in Investment Income in the
income statement. In the event that a Swap Agreement that is designated as a
hedge were to be terminated before its contractual maturity, any resulting
gain/loss would be credited/charged to the carrying value of the asset/liability
that it hedged.
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
-22-
<PAGE> 53
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
investment gains and losses, variable annuity fees, surrender charges and direct
administrative expenses. Costs incurred to sell mutual funds are also deferred
and amortized over the estimated lives of the funds obtained. Deferred
acquisition costs 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 deferred acquisition costs equal to the
change in amortization that would have been recorded if such securities had been
sold at their stated aggregate fair value and the proceeds reinvested at current
yields. The change in this adjustment, net of tax, is included with the change
in net unrealized gains or losses on debt and equity securities available for
sale that is credited or charged directly to shareholder's equity. Deferred
Acquisition Costs have been decreased by $16,400,000 at September 30, 1997 and
increased by $4,200,000 at September 30, 1996 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 $18,311,000 at September 30, 1997, is
amortized by using the straight-line method over periods averaging 25 years and
is included in Other Assets in the balance sheet. Goodwill is evaluated for
impairment when events or changes in economic conditions indicate that the
carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
contracts and guaranteed investment contracts are accounted for as
investment-type contracts in accordance with Statement of Financial Accounting
Standards No. 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments," and are recorded at accumulated value (premiums received, plus
accrued interest, less withdrawals and assessed fees).
FEE INCOME: Variable annuity fees, asset management fees and surrender
charges are recorded in income as earned. Net retained commissions are
recognized as income on a trade-date basis.
INCOME TAXES: The Company is included in the consolidated federal income
tax return of the Parent and files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Income taxes have been
calculated as if the Company filed a separate return. Deferred
-23-
<PAGE> 54
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
3. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by major category follow:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
-------------- --------------
<S> <C> <C>
AT SEPTEMBER 30, 1997:
Securities of the United States
Government.............................. $ 18,496,000 $ 18,962,000
Mortgage-backed securities................. 636,018,000 649,196,000
Securities of public utilities............. 22,792,000 22,893,000
Corporate bonds and notes.................. 984,573,000 1,012,559,000
Redeemable preferred stocks................ 6,125,000 6,681,000
Other debt securities...................... 274,481,000 275,903,000
-------------- --------------
Total available for sale................... $1,942,485,000 $1,986,194,000
============== ==============
AT SEPTEMBER 30, 1996:
Securities of the United States
Government.............................. $ 311,458,000 $ 304,538,000
Mortgage-backed securities................. 747,653,000 741,876,000
Securities of public utilities............. 3,684,000 3,672,000
Corporate bonds and notes.................. 590,071,000 591,148,000
Redeemable preferred stocks................ 9,064,000 8,664,000
Other debt securities...................... 339,094,000 337,373,000
-------------- --------------
Total available for sale................... $2,001,024,000 $1,987,271,000
============== ==============
</TABLE>
-24-
<PAGE> 55
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by contractual maturity, as of September 30,
1997, follow:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
-------------- --------------
<S> <C> <C>
Due in one year or less...................... $ 19,067,000 $ 20,575,000
Due after one year through five years........ 277,350,000 281,296,000
Due after five years through ten years....... 631,083,000 650,242,000
Due after ten years.......................... 378,967,000 384,885,000
Mortgage-backed securities................... 636,018,000 649,196,000
-------------- --------------
Total available for sale..................... $1,942,485,000 $1,986,194,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above due to prepayments and redemptions.
-25-
<PAGE> 56
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
Gross unrealized gains and losses on bonds, notes and redeemable preferred
stocks available for sale by major category follow:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
GAINS LOSSES
----------- ------------
<S> <C> <C>
AT SEPTEMBER 30, 1997:
Securities of the United States Government..... $ 498,000 $ (32,000)
Mortgage-backed securities..................... 14,998,000 (1,820,000)
Securities of public utilities................. 141,000 (40,000)
Corporate bonds and notes...................... 28,691,000 (705,000)
Redeemable preferred stocks.................... 556,000 --
Other debt securities.......................... 1,569,000 (147,000)
----------- ------------
Total available for sale....................... $46,453,000 $ (2,744,000)
=========== ============
AT SEPTEMBER 30, 1996:
Securities of the United States Government..... $ 284,000 $ (7,204,000)
Mortgage-backed securities..................... 7,734,000 (13,511,000)
Securities of public utilities................. 1,000 (13,000)
Corporate bonds and notes...................... 11,709,000 (10,632,000)
Redeemable preferred stocks.................... 16,000 (416,000)
Other debt securities.......................... 431,000 (2,152,000)
----------- ------------
Total available for sale....................... $20,175,000 $(33,928,000)
=========== ============
</TABLE>
At September 30, 1997, gross unrealized gains on equity securities
available for sale aggregated $1,004,000 and there were no unrealized losses. At
September 30, 1996, gross unrealized gains on equity securities available for
sale aggregated $1,368,000 and gross unrealized losses aggregated $309,000.
-26-
<PAGE> 57
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
Gross realized investment gains and losses on sales of investments are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
BONDS, NOTES AND REDEEMABLE
PREFERRED STOCKS:
Available for sale:
Realized gains............................... $ 22,179,000 $ 14,532,000 $ 15,983,000
Realized losses.............................. (25,310,000) (10,432,000) (21,842,000)
Held for investment:
Realized gains............................... -- -- 2,413,000
Realized losses.............................. -- -- (586,000)
COMMON STOCKS:
Realized gains.................................. 4,002,000 511,000 994,000
Realized losses................................. (312,000) (3,151,000) (114,000)
OTHER INVESTMENTS:
Realized gains.................................. 2,450,000 1,135,000 3,561,000
Realized losses................................. -- -- (12,000)
IMPAIRMENT WRITEDOWNS............................. (20,403,000) (15,950,000) (4,760,000)
------------ ------------ ------------
Total net realized investment losses.............. $(17,394,000) $(13,355,000) $ (4,363,000)
============ ============ ============
</TABLE>
-27-
<PAGE> 58
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Short-term investments............................ $ 11,780,000 $ 10,647,000 $ 8,308,000
Bonds, notes and redeemable preferred stocks...... 163,038,000 140,387,000 107,643,000
Mortgage loans.................................... 17,632,000 8,701,000 7,419,000
Common stocks..................................... 16,000 8,000 3,000
Real estate....................................... (296,000) (196,000) (51,000)
Limited partnerships.............................. 6,725,000 4,073,000 5,128,000
Other invested assets............................. 11,864,000 1,011,000 1,016,000
------------ ------------ ------------
Total investment income......................... $210,759,000 $164,631,000 $129,466,000
============ ============ ============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to $2,050,000
for the year ended September 30, 1997, $1,737,000 for the year ended September
30, 1996, and $1,983,000 for the year ended September 30, 1995 and are included
in General and Administrative Expenses in the income statement.
At September 30, 1997, no investment exceeded 10% of the Company's
consolidated shareholder's equity.
At September 30, 1997, mortgage loans were collateralized by properties
located in 21 states, with loans totaling approximately 13% of the aggregate
carrying value of the portfolio secured by properties located in New York and
approximately 12% by properties located in California. No more than 10% of the
portfolio was secured by properties in any other single state.
At September 30, 1997, bonds, notes and redeemable preferred stocks
included $216,877,000 (fair value of $227,169,000) of bonds and notes not rated
investment grade. The Company had no material concentrations of
non-investment-grade assets at September 30, 1997.
At September 30, 1997, the amortized cost of investments in default as to
the payment of principal or interest was $1,378,000, consisting of $500,000 of
non-investment-grade bonds and $878,000 of mortgage loans. Such nonperforming
investments had an estimated fair value of $1,378,000.
-28-
<PAGE> 59
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
As a component of its asset and liability management strategy, the Company
utilizes Swap Agreements to match assets more closely to liabilities. Swap
Agreements are agreements to exchange with a counterparty interest rate payments
of differing character (for example, variable-rate payments exchanged for
fixed-rate payments) based on an underlying principal balance (notional
principal) to hedge against interest rate changes. The Company typically
utilizes Swap Agreements to create a hedge that effectively converts
floating-rate assets and liabilities to fixed-rate instruments. At September 30,
1997, the Company had one outstanding Swap Agreement with a notional principal
amount of $15.9 million, which matures in December, 2024. The net interest paid
amounted to $0.1 million for the year ended September 30, 1997, and is included
in Interest Expense on Guaranteed Investment Contracts in the income statement.
At September 30, 1997, $5,276,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory requirements.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to reasonable
estimates of the fair value of only the Company's financial instruments. The
disclosures do not address the value of the Company's recognized and
unrecognized nonfinancial assets (including its real estate investments and
other invested assets except for cost-method partnerships) and liabilities or
the value of anticipated future business. The Company does not plan to sell most
of its assets or settle most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Selling expenses and potential taxes
are not included. The estimated fair value amounts were determined using
available market information, current pricing information and various valuation
methodologies. If quoted market prices were not readily available for a
financial instrument, management determined an estimated fair value.
Accordingly, the estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market transaction.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND SHORT TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based
principally on independent pricing services, broker quotes and other independent
information.
MORTGAGE LOANS: Fair values are primarily determined by discounting future
cash flows to the present at current market rates, using expected prepayment
rates.
COMMON STOCKS: Fair value is based principally on independent pricing
services, broker quotes and other independent information.
-29-
<PAGE> 60
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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: Variable annuity assets are carried at the market
value of the underlying securities.
RECEIVABLE FROM (PAYABLE TO) BROKERS FOR SALES (PURCHASES) OF
SECURITIES: Such obligations represent net transactions of a short-term nature
for which the carrying value is considered a reasonable estimate of fair value.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts and single
premium life contracts are assigned a fair value equal to current net surrender
value. Annuitized contracts are valued based on the present value of future cash
flows at current pricing rates.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the
present value of future cash flows at current pricing rates and is net of the
estimated fair value of hedging Swap Agreements, determined from independent
broker quotes.
VARIABLE ANNUITY LIABILITIES: Fair values of contracts in the accumulation
phase are based on net surrender values. Fair values of contracts in the payout
phase are based on the present value of future cash flows at assumed investment
rates.
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on the
quoted market prices for similar issues.
-30-
<PAGE> 61
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments at
September 30, 1997 and 1996, compared with their respective carrying values, are
as follows:
<TABLE>
<CAPTION>
CARRYING
VALUE FAIR VALUE
-------------- --------------
<S> <C> <C>
1997:
ASSETS:
Cash and short-term investments........ $ 113,580,000 $ 113,580,000
Bonds, notes and redeemable preferred
stocks.............................. 1,986,194,000 1,986,194,000
Mortgage loans......................... 339,530,000 354,495,000
Common stocks.......................... 1,275,000 1,275,000
Cost-method partnerships............... 46,880,000 84,186,000
Variable annuity assets................ 9,343,200,000 9,343,200,000
LIABILITIES:
Reserves for fixed annuity contracts... 2,098,803,000 2,026,258,000
Reserves for guaranteed investment
contracts........................... 295,175,000 295,175,000
Payable to brokers for purchases of
securities.......................... 263,000 263,000
Variable annuity liabilities........... 9,343,200,000 9,077,200,000
Subordinated notes payable to Parent... 36,240,000 37,393,000
============== ==============
1996:
ASSETS:
Cash and short-term investments........ $ 122,058,000 $ 122,058,000
Bonds, notes and redeemable preferred
stocks.............................. 1,987,271,000 1,987,271,000
Mortgage loans......................... 98,284,000 102,112,000
Common stocks.......................... 3,970,000 3,970,000
Cost-method partnerships............... 45,070,000 70,553,000
Receivable from brokers for sales of
securities.......................... 52,348,000 52,348,000
Variable annuity assets................ 6,311,557,000 6,311,557,000
LIABILITIES:
Reserves for fixed annuity contracts... 1,789,962,000 1,738,784,000
Reserves for guaranteed investment
contracts........................... 415,544,000 416,695,000
Variable annuity liabilities........... 6,311,557,000 6,117,508,000
Subordinated notes payable to Parent... 35,832,000 37,339,000
============== ==============
</TABLE>
-31-
<PAGE> 62
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. SUBORDINATED NOTES PAYABLE TO PARENT
Subordinated notes payable to Parent equalled $36,240,000 at an interest
rate of 9% at September 30, 1997 and require principal payments of $7,500,000
in 1998, $23,060,000 in 1999 and $5,400,000 in 2000.
6. CONTINGENT LIABILITIES
The Company has entered into three agreements in which it has provided
liquidity support for certain short-term securities of three municipalities by
agreeing to purchase such securities in the event there is no other buyer in the
short-term marketplace. In return the Company receives a fee. The maximum
liability under these guarantees is $242,600,000. Management does not anticipate
any material future losses with respect to these liquidity support facilities.
The Company is involved in various kinds of litigation common to its
businesses. These cases are in various stages of development and, based on
reports of counsel, management believes that provisions made for potential
losses relating to such litigation are adequate and any further liabilities and
costs will not have a material adverse impact upon the Company's financial
position or results of operations.
7. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value
Common Stock. At September 30, 1997 and 1996, 3,511 shares were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balance......... $280,263,000 $252,876,000 $252,876,000
Capital contributions
received............... 28,411,000 27,387,000 --
----------- ----------- -----------
Ending balance............ $308,674,000 $280,263,000 $252,876,000
=========== =========== ===========
RETAINED EARNINGS:
Beginning balance......... 207,002,000 191,346,000 152,088,000
Net income................ 63,126,000 45,056,000 39,258,000
Dividend paid............. (25,500,000) (29,400,000) --
----------- ----------- -----------
Ending balance............ $244,628,000 $207,002,000 $191,346,000
=========== =========== ===========
</TABLE>
-32-
<PAGE> 63
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. SHAREHOLDER'S EQUITY (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET UNREALIZED GAINS/LOSSES
ON DEBT AND EQUITY
SECURITIES AVAILABLE FOR
SALE:
Beginning balance......... $ (5,521,000) $ (5,673,000) $(24,953,000)
Change in net unrealized
gains/losses on debt
securities available
for sale............... 57,463,000 (2,904,000) 71,302,000
Change in net unrealized
gains/losses on equity
securities available
for sale............... (55,000) 3,538,000 (1,240,000)
Change in adjustment to
deferred acquisition
costs.................. (20,600,000) (400,000) (40,400,000)
Tax effects of net
changes................ (12,882,000) (82,000) (10,382,000)
----------- ----------- -----------
Ending balance............ $ 18,405,000 $ (5,521,000) $ (5,673,000)
=========== =========== ===========
</TABLE>
Dividends that the Company may pay to its shareholder in any year without
prior approval of the Arizona Department of Insurance are limited by statute.
The maximum amount of dividends which can be paid to shareholders of insurance
companies domiciled in the state of Arizona without obtaining the prior approval
of the Insurance Commissioner is limited to the lesser of either 10% of the
preceding year's statutory surplus or the preceding year's statutory net gain
from operations. Dividends in the amounts of $25,500,000 and $29,400,000 were
paid on April 1, 1997 and March 18, 1996, respectively. No dividends were paid
in fiscal year 1995.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the nine months ended
September 30, 1997 was $45,743,000. The statutory net income for the year ended
December 31, 1996 was $27,928,000 and for the year ended December 31, 1995 was
$30,673,000. The Company's statutory capital and surplus was $325,712,000 at
September 30, 1997, $311,176,000 at December 31, 1996 and $294,767,000 at
December 31, 1995.
-33-
<PAGE> 64
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. 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>
1997:
Currently payable................. $ (3,635,000) $ 50,828,000 $ 47,193,000
Deferred.......................... (2,258,000) (13,766,000) (16,024,000)
------------ ------------ ------------
Total income tax
expense............... $ (5,893,000) $ 37,062,000 $ 31,169,000
============ ============ ============
1996:
Currently payable................. $ 5,754,000 $ 21,849,000 $ 27,603,000
Deferred.......................... (10,347,000) 6,996,000 (3,351,000)
------------ ------------ ------------
Total income tax
expense............... $ (4,593,000) $ 28,845,000 $ 24,252,000
============ ============ ============
1995:
Currently payable................. $ 4,248,000 $ 22,980,000 $ 27,228,000
Deferred.......................... (6,113,000) 4,624,000 (1,489,000)
------------ ------------ ------------
Total income tax
expense............... $ (1,865,000) $ 27,604,000 $ 25,739,000
============ ============ ============
</TABLE>
-34-
<PAGE> 65
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. 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
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Amount computed at statutory
rate........................... $33,003,000 $24,258,000 $22,749,000
Increases (decreases) resulting
from:
Amortization of differences
between book and tax bases
of net assets acquired...... 666,000 464,000 3,049,000
State income taxes, net of
federal tax benefit......... 1,950,000 2,070,000 437,000
Dividends-received deduction... (4,270,000) (2,357,000) --
Tax credits.................... (318,000) (257,000) (168,000)
Other, net..................... 138,000 74,000 (328,000)
----------- ----------- -----------
Total income tax
expense.............. $31,169,000 $24,252,000 $25,739,000
=========== =========== ===========
</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 September 30, 1997. The Company does not anticipate any
transactions which would cause any part of this surplus to be taxable.
-35-
<PAGE> 66
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. The significant
components of the liability for Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1997 1996
------------- ------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Investments.................................... $ 13,160,000 $ 15,036,000
Deferred acquisition costs..................... 154,949,000 136,747,000
State income taxes............................. 1,777,000 1,466,000
Net unrealized gains on debt and equity
securities available for sale................ 9,910,000 --
------------- ------------
Total deferred tax liabilities....... 179,796,000 153,249,000
------------- ------------
DEFERRED TAX ASSETS:
Contractholder reserves........................ (108,090,000) (77,522,000)
Guaranty fund assessments...................... (2,707,000) (1,031,000)
Other assets................................... (1,952,000) (1,534,000)
Net unrealized losses on debt and equity
securities available for sale................ -- (2,973,000)
------------- ------------
Total deferred tax assets............ (112,749,000) (83,060,000)
------------- ------------
Deferred income taxes.......................... $ 67,047,000 $ 70,189,000
============= ============
</TABLE>
-36-
<PAGE> 67
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. RELATED PARTY MATTERS
The Company pays commissions to two affiliated companies, SunAmerica
Securities, Inc. and Advantage Capital Corp. Commissions paid to these
broker-dealers totaled $25,492,000 in 1997, $16,906,000 in 1996, and $9,435,000
in 1995. 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 36.1%, 38.3%, and 40.6% of premiums in 1997, 1996,
and 1995, respectively. The Company also sells its products through unaffiliated
broker-dealers, the largest two of which represented approximately 19.2% and
10.1% of premiums in 1997, 19.7% and 10.2% in 1996, and 18.8% and 4.3% in 1995,
respectively.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from SunAmerica Financial, Inc., whose
purpose is to provide services to the SunAmerica companies. Amounts paid for
such services totaled $86,116,000 for the year ended September 30, 1997,
$65,351,000 for the year ended September 30, 1996 and $42,083,000 for the year
ended September 30, 1995. Such amounts are included in General and
Administrative Expenses in the income statement.
The Parent made capital contributions of $28,411,000 in December, 1996 and
$27,387,000 in December 1995 to the Company, through the Company's direct
parent, in exchange for the termination of its guaranty with respect to certain
real estate owned in Arizona. Accordingly, the Company reduced the carrying
value of this real estate to estimated fair value to reflect the termination of
the guaranty.
During the year ended September 30, 1995, the Company sold to the Parent
real estate for cash equal to its carrying value of $29,761,000.
During the year ended September 30, 1997, the Company sold various invested
assets to SunAmerica Life Insurance Company and to CalAmerica Life Insurance
Company for cash equal to their current market values of $15,776,000 and
$15,000, respectively. The Company recorded net gains aggregating $276,000 on
such transactions.
During the year ended September 30, 1997, the Company also purchased
certain invested assets from SunAmerica Life Insurance Company and from
CalAmerica Life Insurance Company for cash equal to their current market values
of $8,717,000 and $284,000, respectively.
During the year ended September 30, 1996, the Company sold various invested
assets to the Parent and to SunAmerica Life Insurance Company for cash equal to
their current market values of $274,000 and $47,321,000, respectively. The
Company recorded net losses aggregating $3,000 on such transactions.
During the year ended September 30, 1996, the Company also purchased
certain invested assets from SunAmerica Life Insurance Company for cash equal to
their current market values, which aggregated $28,379,000.
-37-
<PAGE> 68
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
TOTAL
DEPRECIATION
AND
TOTAL AMORTIZATION PRETAX TOTAL
REVENUES EXPENSE INCOME ASSETS
------------ ------------ ----------- ---------------
<S> <C> <C> <C> <C>
1997:
Annuity operations................ $332,845,000 $55,675,000 $74,792,000 $12,438,021,000
Broker-dealer operations.......... 38,005,000 689,000 16,705,000 51,400,000
Asset management.................. 35,661,000 16,357,000 2,798,000 81,518,000
------------ ----------- ----------- ---------------
Total................... $406,511,000 $72,721,000 $94,295,000 $12,570,939,000
============ =========== =========== ===============
1996:
Annuity operations................ $256,681,000 $43,974,000 $53,827,000 $ 9,092,770,000
Broker-dealer operations.......... 31,053,000 449,000 13,033,000 37,355,000
Asset management.................. 33,047,000 18,295,000 2,448,000 74,410,000
------------ ----------- ----------- ---------------
Total................... $320,781,000 $62,718,000 $69,308,000 $ 9,204,535,000
============ =========== =========== ===============
1995:
Annuity operations................ $211,587,000 $38,350,000 $55,462,000 $ 7,667,946,000
Broker-dealer operations.......... 24,194,000 411,000 9,025,000 29,241,000
Asset management.................. 34,427,000 24,069,000 510,000 86,510,000
------------ ----------- ----------- ---------------
Total................... $270,208,000 $62,830,000 $64,997,000 $ 7,783,697,000
============ =========== =========== ===============
</TABLE>
11. SUBSEQUENT EVENTS (unaudited)
On August 11, 1998, the Company entered into a modified coinsurance
transaction, approved by the Arizona Department of Insurance, which involves
the ceding of approximately $5,000,000,000 of variable annuities to ANLIC
Insurance Company (Cayman), a Cayman Islands stock life insurance company. As a
part of this transaction, the Company received cash amounting to approximately
$188,700,000, and recorded a corresponding reduction of deferred acquisition
costs related to the coinsured annuities.
On July 15, 1998, the Company entered into a definitive agreement to
acquire the individual life business and the individual and group annuity
business of MBL Life Assurance Corporation ("MBL Life") via a 100% coinsurance
transaction for approximately $130,000,000 in cash. The transaction will
include approximately $2,000,000,000 of universal life reserves and
$3,000,000,000 of fixed annuity reserves. The Company plans to reinsure a large
portion of the mortality risk associated with the acquired block of universal
life business. Completion of this acquisition is expected by the end of
calendar year 1998 and is subject to customary conditions and required
approvals. Included in this block of business is approximately $250,000,000 of
individual life business and $500,000,000 of group annuity business whose
contractowners are residents of New York State ("the New York Business)".
Approximately six months subsequent to completion of the transaction, the New
York Business will be acquired by the Company's New York affiliate, First
SunAmerica Life Insurance Company, and the remainder of the business will be
acquired by the Company via assumption reinsurance agreements between MBL Life
and the respective companies, which will supersede the coinsurance agreement.
The $130,000,000 purchase price will be allocated between the Company and its
affiliate based on their respective assumed reserves.
-38-
<PAGE> 69
PART C -- OTHER INFORMATION
Item 24. Financial Statements And Exhibits
(a) Financial Statements
The following financial statements are included in Part A of the
Registration Statement:
None
The following financial statements are included in Part B of the
Registration Statement:
Consolidated financial statements of Anchor National Life
Insurance Company
(b) Exhibits
(1) Resolutions Establishing Separate Account.............. Filed Herewith
(2) Custody Agreements..................................... Not Applicable
(3) (a) Form of Distribution Contract...................... To Be Filed
(b) Form of Selling Agreement.......................... To Be Filed
(4) (a) Variable Annuity Contract.......................... To Be Filed
(b) Variable Annuity Certificate....................... To Be Filed
(c) Tax Sheltered Annuity (403(b)) Endorsement......... To Be Filed
(5) Application for Contract............................... To Be Filed
(6) Depositor -- Corporate Documents
(a) Certificate of Incorporation....................... To Be Filed
(b) By-Laws............................................ To Be Filed
(7) Reinsurance Contract................................... Not Applicable
(8) Form of Fund Participation Agreement................... To Be Filed
(9) Opinion of Counsel..................................... To Be Filed
Consent of Counsel..................................... To Be Filed
(10) Consent of Independent Accountants..................... Filed Herewith
(11) Financial Statements Omitted from Item 23.............. None
(12) Initial Capitalization Agreement....................... Not Applicable
(13) Performance Computations............................... Not Applicable
(14) Diagram and Listing of All Persons Directly
or Indirectly Controlled By or Under Common
Control with Anchor National Life Insurance
Company, the Depositor of Registrant................... To Be Filed
(15) Powers of Attorney..................................... Filed Herewith
(included with
signature
page)
Item 25. Directors and Officers of the Depositor
The officers and directors of Anchor National Life Insurance Company
are listed below. Their principal business address is 1 SunAmerica Center, Los
Angeles, California 90067-6022, unless otherwise noted.
NAME POSITION
- ---- --------
Eli Broad Chairman, President and
Chief Executive Officer
Jay S. Wintrob Director and Executive Vice
President
Jana W. Greer Director and Senior Vice President
Peter McMillan Director
James R. Belardi Director and Senior Vice President
Lorin M. Fife Director, Senior Vice President,
General Counsel
and Assistant Secretary
Susan L. Harris Director, Senior Vice President
and Secretary
Scott L. Robinson Director and Senior Vice President
N. Scott Gillis Senior Vice President and Controller
II-1
<PAGE> 70
NAME POSITION
- ---- --------
Edwin R. Reoliquio Senior Vice President and
Chief Actuary
James W. Rowan Senior Vice President
Victor E. Akin Senior Vice President
J. Franklin Grey Vice President
Keith B. Jones Vice President
Michael L. Lindquist Vice President
Edward P. Nolan* Vice President
Gregory M. Outcalt Vice President
Scott H. Richland Vice President
David R. Bechtel Vice President and Treasurer
- ------------------------
* 88 Bradley Road, P.O. Box 4005, Woodbridge, Connecticut 06525
Item 26. Persons Controlled By or Under Common Control With Depositor or
Registrant
The Registrant is a Separate Account of Anchor National Life Insurance
Company (Depositor). For a complete listing and diagram of all persons directly
or indirectly controlled by or under common control with the Depositor or
Registrant, see Exhibit 14 which is incorporated herein by reference.
Item 27. Number Of Contract Owners
None.
Item 28. Indemnification
None.
Item 29. Principal Underwriter
SunAmerica Capital Services, Inc. serves as distributor to the
Registrant.
Its principal business address is 733 Third Avenue, 4th Floor, New York,
New York 10017. The following are the directors and officers of SunAmerica
Capital Services, Inc.
Name Position with Distributor
- ---- -------------------------
Peter A. Harbeck President
Robert M. Zakem Executive Vice President,
General Counsel &
Assistant Secretary
Steven Rothstein Treasurer
Susan L. Harris Secretary
Lorin M. Fife Assistant Secretary
J. Steven Neamtz President
Net Distribution Compensation on
Name of Discounts and Redemption or Brokerage
Distributor Commissions Annuitization Commissions Commissions*
- ----------- ---------------- --------------- ----------- ------------
SunAmerica None None None None
Capital
Services, Inc.
- --------------------
*Distribution fee is paid by Anchor National Life Insurance Company.
Item 30. Location of Accounts and Records
Anchor National Life Insurance Company, the Depositor for the
Registrant, is located at 1 SunAmerica Center, Los Angeles, California
90067-6022. SunAmerica Capital Services, Inc., the distributor of the Contracts,
is located at 733 Third Avenue, New York, New York 10017. Each maintains those
accounts and records required to be maintained by it pursuant to Section 31(a)
of the Investment Company Act and the rules promulgated thereunder.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02100, maintains certain accounts and records pursuant to the
instructions of the Registrant.
II-2
<PAGE> 71
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
Registrant undertakes to (1) file post-effective amendments to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the variable annuity Contracts may be
accepted; (2) include either (A) as part of any application to purchase a
Contract offered by the prospectus forming a part of the Registration Statement,
a space that an applicant can check to request a Statement of Additional
Information, or (B) a postcard or similar written communication affixed to or
included in the Prospectus that the Applicant can remove to send for a Statement
of Additional Information; and (3) deliver a Statement of Additional Information
and any financial statements required to be made available under this Form N-4
promptly upon written or oral request. Further, Registrant undertakes to deduct
mortality and expense risk charges, distribution expense charges, withdrawal
charges (contingent deferred sales charges), contract maintenance fees and
transfer fees that are in the aggregate (1) reasonable in relation to the risks
assumed by the Company and (2) reasonable in relation to the services rendered;
and (3) reasonable in relation to the expenses expected to be incurred. Those
determinations are based on the Company's analysis of publicly available
information about similar industry practices, and by taking into consideration
factors such as current contract levels and benefits provided, the existence of
expense charges, guarantees and guaranteed annuity rates.
Item 33. Representation
The Company hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
concerning the redeemability of Section 403(b) annuity Contracts (Commission
ref. IP-6-88) and that the following provisions have been complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including
the prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in
connection with the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed
statement acknowledging the participant's understanding of (1) the
restrictions on redemption imposed by Section 403(b)(11), and (2) other
investment alternatives available under the employer's Section 403(b)
arrangement to which the participant may elect to transfer his contract
value.
II-3
<PAGE> 72
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant has caused this Registration Statement to be signed
on its behalf, in the City of Los Angeles, and the State of California, on this
8th day of September, 1998.
VARIABLE ANNUITY ACCOUNT SEVEN
(Registrant)
By: ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Depositor)
By: /s/ Jay S. Wintrob
--------------------------
Jay S. Wintrob
Executive Vice President
ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Depositor)
By: /s/ Jay S. Wintrob
--------------------------
Jay S. Wintrob
Executive Vice President
POWER-OF-ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints SUSAN L. HARRIS AND CHRISTINE A.
NIXON or each of them, as his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, as fully to all intents as he or she might or could do
in person, including specifically, but without limiting the generality of the
foregoing, to (i) take any action to comply with any rules, regulations or
requirements of the Securities and Exchange Commission under the federal
securities laws; (ii) make application for and secure any exemptions from the
federal securities laws; (iii) register additional annuity contracts under the
federal securities laws, if registration is deemed necessary. The undersigned
hereby ratifies and confirms all that said attorneys-in-fact and agents or any
of them, or their substitutes, shall do or cause to be done by virtue thereof.
II-4
<PAGE> 73
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacity and on the dates
indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Eli Broad President, Chief September 8, 1998
- -------------------- Executive Officer and
Eli Broad Chairman of the Board
(Principal Executive
Officer)
/s/ Scott L. Robinson Senior Vice President September 8, 1998
- --------------------- and Director
Scott L. Robinson (Principal Financial
Officer)
/s/ N. Scott Gillis Senior Vice President September 8, 1998
- -------------------- and Controller
N. Scott Gillis (Principal Accounting
Officer)
/s/ James R. Belardi Director September 8, 1998
- --------------------
James R. Belardi
/s/ Lorin M. Fife Director September 8, 1998
- --------------------
Lorin M. Fife
/s/ Jana W. Greer Director September 8, 1998
- --------------------
Jana W. Greer
/s/ Susan L. Harris Director September 8, 1998
- --------------------
Susan L. Harris
/s/ Peter McMillan Director September 8, 1998
- --------------------
Peter McMillan
/s/ James W. Rowan Director September 8, 1998
- --------------------
James W. Rowan
/s/ Jay S. Wintrob Director September 8, 1998
- --------------------
Jay S. Wintrob
II-5
<PAGE> 1
EXHIBIT 1
ANCHOR NATIONAL LIFE INSURANCE COMPANY
UNANIMOUS WRITTEN CONSENT
OF THE EXECUTIVE COMMITTEE
OF THE BOARD OF DIRECTORS
Pursuant to the Bylaws of this corporation, the undersigned, constituting
all of the members of the Executive Committee of the Board of Directors of
ANCHOR NATIONAL LIFE INSURANCE COMPANY, an Arizona corporation (this
"Corporation"), hereby unanimously consent in writing to and hereby adopt the
following resolutions, effective this 28th day of August 1998:
RESOLVED, that the officers of this Corporation be, and they hereby are
authorized to establish for the account of this corporation Variable Annuity
Account Seven ("Variable Annuity Account Seven") in accordance with the
insurance laws of the State of Arizona, to provide the investment medium for
certain annuity contracts to be issued by this Corporation ("Contracts") as
may be designated as participating therein. The Variable Annuity Account Seven
shall receive, hold, invest and reinvest only the monies arising from: (1)
premiums, contributions or payments made pursuant to Contracts participating
therein; and (2) such assets of this Corporation as may be deemed necessary
for the orderly operation of such Variable Annuity Account Seven; and (3) the
dividends, interest and gains produced by the foregoing; and
RESOLVED FURTHER, that the Variable Annuity Account Seven shall be
administered and accounted for as part of the general business of this
Corporation; and
RESOLVED FURTHER, that the officers of this Corporation be, and they
thereby are, authorized:
i) to take whatever actions are necessary to see to it that the
Contracts are registered under the provisions of the Securities Act of
1993 to the extent that they shall determine that such registration is
necessary;
ii) to take whatever actions are necessary to assure that such Variable
Annuity Account Seven is properly registered with the Securities and
Exchange Commission under the provisions of the Investment Company Act of
1940, if any;
<PAGE> 2
iii) to prepare, execute and file such amendments to any registration
statements filed under the aforementioned Acts (including such
pre-effective and post-effective amendments), supplements and exhibits
thereto as they may deem necessary or desirable;
iv) to apply for exemption from those provisions of the aforementioned
Acts and the rules promulgated thereunder as they may deem necessary or
desirable and to take any and all other actions which they may deem
necessary, desirable or appropriate in connection with such Acts;
v) to take whatever actions are necessary to assure that the Contracts
are filed with the appropriate state insurance regulatory authorities and
to prepare and execute all necessary documents to obtain approval of the
insurance regulatory authorities;
vi) to prepare or have prepared and execute all necessary documents to
obtain approval of, or clearance with, or other appropriate actions
required by, any other regulatory authority that may be necessary in
connection with the foregoing matters;
vii) to enter into fund participation agreements with trusts which will
be advised by SunAmerica Asset Management Corp.; and
RESOLVED FURTHER, that the form of any resolutions required by any state
authority to be filed in connection with any of the documents or instruments
referred to in any of the preceding resolutions be, and the same hereby are,
adopted as fully set forth herein if (i) in the opinion of the officers of
this Corporation the adoption of the resolutions is advisable; and (ii) the
Corporate Secretary or Assistant Secretary of this Corporation evidences such
adoption by inserting into these minutes copies of such resolutions; and
RESOLVED FURTHER, that the officers of this Corporation, and each of them
are hereby authorized to prepare and to execute the necessary documents; and
RESOLVED FURTHER, that the officer of this Corporation, and each of them,
acting individually, are hereby authorized to execute and deliver on behalf of
this Corporation any fund participation agreements
<PAGE> 3
and any such other agreements, certificates, documents or instruments as may
be appropriate or required in connection therewith, all to be in such form and
with such changes or revisions as may be approved by the officer executing and
delivering the same, such execution and delivery being conclusive evidence of
such approval; and
RESOLVED FURTHER, that this Corporation hereby ratifies any and all
actions that may have previously been taken by the officers of this
Corporation in connection with the foregoing resolutions and authorizes the
officers of this Corporation to take any and all such further actions as may
be appropriate to reflect these resolutions and to carry out their tenor
effect and intent.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the date stated above.
/s/ ELI BROAD
------------------------------
Eli Broad
/s/ JAMES R. BELARDI
------------------------------
James R. Belardi
/s/ JAY S. WINTROB
------------------------------
Jay S. Wintrob
<PAGE> 1
EXHIBIT 10
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Registration Statement on Form N-4 of our report dated
November 7, 1997 relating to the consolidated financial statements of Anchor
National Life Insurance Company, which appears in such Statement of Additional
Information. We also consent to the reference to us under the heading "Financial
Statements" in such Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Los Angeles, California
September 14, 1998
