<PAGE> 1
As filed pursuant to Rule 497(c)
SEC File No. 333-63511
and No. 811-09003
ANCHOR NATIONAL LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO POLARIS PLUS VARIABLE ANNUITY)
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SUPPLEMENT TO THE POLARIS PLUS PROSPECTUS
DATED DECEMBER 29, 1999
Please note the following change in Appendix C - Condensed Financial
Information:
the Ending Number of AUs for the Growth Portfolio, for the period
between 4/30/99 - 9/30/99 is 505,099.62.
In addition, the Inception Date for the Variable Portfolios in Appendix C -
Condensed Financial Information are as follows:
Capital Appreciation (Inception Date - 3/19/99)
Growth (Inception Date - 3/19/99)
Government and Quality Bond (Inception Date - 3/19/99)
Emerging Markets (Inception Date - 3/23/99)
International Diversified Equities (Inception Date - 3/19/99)
Global Equities (Inception Date - 3/19/99)
International Growth and Income (Inception Date - 3/24/99)
Aggressive Growth (Inception Date - 3/19/99)
Real Estate (Inception Date - 3/31/99)
Putnam Growth (Inception Date - 3/19/99)
Alliance Growth (Inception Date - 3/19/99)
"Dogs" of Wall Street (Inception Date - 3/19/99)
Venture Value (Inception Date - 3/19/99)
Federated Value (Inception Date - 3/19/99)
Growth-Income (Inception Date - 3/19/99)
Equity Index (Inception Date - 3/19/99)
Utility (Inception Date - 3/19/99)
Equity Income (Inception Date - 3/23/99)
Asset Allocation (Inception Date - 3/23/99)
SunAmerica Balanced (Inception Date - 3/19/99)
Worldwide High Income (Inception Date - 3/31/99)
High-Yield Bond (Inception Date - 3/19/99)
Corporate Bond (Inception Date - 3/23/99)
Global Bond (Inception Date - 3/19/99)
Small Company Value (Inception Date - 3/23/99)
Cash Management (Inception Date - 3/23/99)
Date: January 4, 2000
Please keep this Supplement with your Prospectus
<PAGE> 2
As filed pursuant to Rule 497(c)
SEC File No. 333-63511
and No. 811-09003
[THE POLARIS PLUS LOGO]
VARIABLE ANNUITY
PROFILE
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
ANNUITY IS MORE FULLY DESCRIBED IN THE PROSPECTUS. PLEASE READ THE PROSPECTUS
CAREFULLY.
December 29, 1999
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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 ("Anchor National") to Participants in certain employer sponsored
retirement plans qualified subject to Section 403(b) of the Internal Revenue
Code (the "IRC") and to certain individuals who qualify to purchase contracts
under Section 408(b). An annuity qualified under Section 403(b) of the IRC is
also known as a tax sheltered annuity ("TSA"). An annuity qualified under
Section 408(b) is commonly referred to as an Individual Retirement Annuity
("IRA").
A 403(b) Polaris Plus participant may choose to convert their 403(b) to an IRA
funded by Polaris Plus if they separate from service. Generally, all of the same
features, charges and benefits will apply to a contract issued as an IRA as was
applicable to a participant's TSA, so long as no conflict arises with the
appropriate provisions of the IRC. We will only specifically address IRA
contracts in this Profile to the extent that applicable IRC provisions and/or
any other state or federal laws, require different treatment.
This contract is designed to help you invest to meet long-term financial goals,
such as retirement funding. Your retirement plan allows you to invest money on
which you have not already paid taxes and your earnings grow tax deferred. In
addition, funding that plan with the Polaris Plus variable annuity provides a
wide range of underlying investment options and fixed accounts, a guaranteed
death benefit and an option to receive income for your lifetime.
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 several fixed account options, unless limited by any
applicable Plan. 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.
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, your ability to withdraw money is
restricted and you will generally pay taxes on earnings and untaxed
contributions when you withdraw them. A federal tax penalty will typically apply
if you make withdrawals before age 59 1/2.
During the income phase, you 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 or 20 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 TSAs and
IRAs), funded with money on which you did not paid taxes, the entire income
payment is generally taxable as income. Further, under certain qualified
contracts your income option may not exceed your life expectancy.
In addition to the above income options, you may also enroll in the Income
Protector program which provides a minimum retirement income guarantee, subject
to the provisions thereof.
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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 and/or by establishing a salary reduction
agreement with your employer.
For qualified contracts issued as TSAs 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, (without
setting up salary reduction contributions), the minimum initial purchase payment
is $2,000.
<PAGE> 3
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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
MANAGED BY 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
If applicable, your Plan may limit the investment options available to you.
You may also allocate money to the 1, 3 and 5 year market value adjustment
("MVA") fixed account options (in Washington and Oregon only a 1 year fixed
account is available) and, under certain circumstances, the 6-month and 1-year
Dollar Cost Averaging ("DCA") fixed account options. Each fixed account option
may offer a different interest rate. Interest rates are guaranteed by Anchor
National. If applicable, your Plan may also limit the fixed account options
available to you.
Your contract value may 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, annually as a percentage of the average daily value
of your contract allocated to the variable portfolios. Currently, the charges
range from .55% to 1.25%. The amount of the charge may vary by Plan or group.
The actual charge applicable to you can be obtained by calling your employer,
Plan Sponsor, financial adviser or by consulting your Contract Data page. There
are no insurance charges deducted against amounts allocated to the fixed account
options.
If you take money out of your contract, you may be assessed a withdrawal charge
which is a percentage of purchase payments withdrawn. The percentage may depend
on the number of years the withdrawn purchase payments have been invested in the
contract. If applicable, the percentage declines over the time the money is in
the contract. The applicable withdrawal charge schedule may also vary dependent
upon your employment status at the time of contract issue.
Currently, the withdrawal charges range from 0% to the maximum schedule, as
follows:
SEPARATED FROM SERVICE AT TIME OF ISSUE (SCHEDULE A)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Year 1 2 3 4 5 6
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WITHDRAWAL CHARGE 6% 6% 5% 5% 4% 0%
- -----------------------------------------------------------------------------
</TABLE>
EMPLOYED AT TIME OF ISSUE (SCHEDULE B)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Year 1 2 3 4 5 6 7
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WITHDRAWAL
CHARGE 6% 6% 5% 5% 4% 4% 0%
- --------------------------------------------------------------------------------------
</TABLE>
Withdrawal charges may vary by Plan or group contract. You can obtain
information on the withdrawal charge applicable to your contract by calling your
plan sponsor, employer, financial adviser or consulting your Contract Data page.
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.
Each year, you are allowed to make an unlimited number of transfers among the
variable portfolios without charge. We reserve the right in the future to limit
the number of transfers to 15 each year and to impose a $25.00 fee for each
transfer in excess of 15. (You will be notified of any future limitation.)
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 maximum 1.25%
insurance charges and the investment charges for each variable portfolio. If
your insurance charges are less than 1.25% your expenses will be lower.
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. In
calculating these examples we use the highest applicable insurance charges equal
to 1.25% annually (calculated daily) of the value of the variable portfolio. To
arrive at the numbers at the end of year 1, we use the highest possible
surrender charge of 6%. If the withdrawal charge or insurance charges applicable
under your contract are less, your expenses would be lower.
<PAGE> 4
<TABLE>
<CAPTION>
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EXAMPLES:
MAXIMUM MAXIMUM MAXIMUM
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
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation 1.25% .68% 1.93% $ 80 $225
Growth 1.25% .75% 2.00% $ 80 $233
Government and Quality Bond 1.25% .67% 1.92% $ 79 $224
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SUNAMERICA SERIES TRUST PORTFOLIO
Emerging Markets* 1.25% 1.90% 3.15% $ 92 $346
International Diversified Equities 1.25% 1.26% 2.51% $ 85 $285
Global Equities 1.25% .86% 2.11% $ 81 $244
International Growth and Income* 1.25% 1.46% 2.71% $ 87 $304
Aggressive Growth* 1.25% .82% 2.07% $ 81 $240
Small Company Value* 1.25% 1.40% 2.65% $ 87 $298
Real Estate* 1.25% 1.01% 2.26% $ 83 $260
Putnam Growth 1.25% .86% 2.11% $ 81 $244
Alliance Growth 1.25% .63% 1.88% $ 79 $220
"Dogs" of Wall Street* 1.25% .85% 2.10% $ 81 $243
Venture Value 1.25% .77% 2.02% $ 81 $235
Federated Value* 1.25% .86% 2.11% $ 81 $244
Growth-Income 1.25% .60% 1.85% $ 79 $217
Equity Index* 1.25% .55% 1.80% $ 78 $212
Utility* 1.25% .93% 2.18% $ 82 $251
Equity Income* 1.25% .95% 2.20% $ 82 $253
Asset Allocation 1.25% .66% 1.91% $ 79 $223
SunAmerica Balanced* 1.25% .74% 1.99% $ 80 $232
Worldwide High Income 1.25% 1.11% 2.36% $ 84 $270
High-Yield Bond 1.25% .72% 1.97% $ 80 $230
Corporate Bond 1.25% .80% 2.05% $ 81 $238
Global Bond 1.25% .97% 2.22% $ 83 $255
Cash Management 1.25% .62% 1.87% $ 79 $219
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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 or IRA), are generally taxable
when withdrawn.
You may be subject to a 10% federal 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 employer plan and this contract. Contracts issued as
qualified TSAs or IRAs are subject to specific withdrawal restrictions imposed
by the IRC. SEE ACCESS TO YOUR MONEY ON PAGE 12 for details regarding
restrictions applicable to withdrawals.
Under this contract, certain withdrawals may be subject to a withdrawal charge.
Some types of withdrawals may be exempt from Company imposed withdrawal charges.
SEE EXPENSES ON PAGE 13 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 contract 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. Some of
the advertised historical 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.
<PAGE> 5
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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 (including applicable
fees and charges) at the time we receive satisfactory proof of death,
or;
2. The 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 on the date (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 maintains your
specified allocation mix in the variable investment portfolios by readjusting
your money on a calendar quarterly, semiannual or annual basis.
SYSTEMATIC WITHDRAWAL PROGRAM: If selected by you, and allowed by any applicable
plan, 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 subject to a withdrawal charge and a 10% federal 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 IRC or an applicable employer plan.
DOLLAR COST AVERAGING: If selected by you and allowed by any applicable plan,
this program allows you to invest gradually in the variable portfolios and/or
certain fixed account options 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: During the accumulation phase, you will
receive confirmation of transactions within your contract. Transactions made
pursuant to contractual or systematic agreements, such as deduction of the
annual maintenance fee and dollar cost averaging, may be confirmed quarterly.
Purchase payments received through the automatic payment plan or a salary
reduction arrangement, may also be confirmed quarterly. For all other
transactions, we send confirmations immediately.
During the accumulation and income phases, you will receive a statement of your
transactions over the past quarter and a summary of your account values.
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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
Toll Free Telephone Number: 877-999-9205
If money accompanies your correspondence, you should direct it to:
Anchor National Life Insurance Company
P.O. Box 100330
Pasadena, California 91189-0001
<PAGE> 6
[THE POLARIS PLUS LOGO]
VARIABLE ANNUITY
PROSPECTUS
DECEMBER 29, 1999
<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 December fixed accounts for specified periods of 1, 3, and 5 years.
29, 1999. 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 22 of this prospectus. For a ANCHOR SERIES TRUST:
free copy of the SAI, call us at MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
(877) 999-9205 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
- 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.
<PAGE> 7
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TABLE OF CONTENTS
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<TABLE>
<S> <C> <C>
GLOSSARY............................................. 3
FEE TABLES........................................... 4
Owner Transaction Expenses........................... 4
The Income Protector Expense......................... 4
Annual Separate Account Expenses..................... 4
Portfolio Expenses................................... 4
EXAMPLES............................................. 5
THE POLARIS PLUS VARIABLE ANNUITY.................... 7
PURCHASING A POLARIS PLUS VARIABLE ANNUITY........... 7
Allocation of Purchase Payments...................... 8
Accumulation Units................................... 8
Free Look............................................ 8
INVESTMENT OPTIONS................................... 8
Variable Portfolios.................................. 8
Anchor Series Trust.............................. 9
SunAmerica Series Trust.......................... 9
Fixed Account Options................................ 9
Market Value Adjustment ("MVA")...................... 10
Transfers During the Accumulation Phase.............. 10
Dollar Cost Averaging ("DCA")........................ 11
Asset Allocation Rebalancing......................... 11
Voting Rights........................................ 12
Substitution......................................... 12
ACCESS TO YOUR MONEY................................. 12
Withdrawal Restrictions.............................. 12
Systematic Withdrawal Program........................ 12
Loans................................................ 13
Minimum Contract Value............................... 13
DEATH BENEFIT........................................ 13
EXPENSES............................................. 13
Insurance Charges.................................... 14
Withdrawal Charges................................... 14
Exceptions to Withdrawal Charge...................... 14
Investment Charges................................... 14
Transfer Fee......................................... 14
Premium Tax.......................................... 15
Income Taxes......................................... 15
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited........................ 15
INCOME OPTIONS....................................... 15
Annuity Date......................................... 15
Income Options....................................... 15
Fixed or Variable Income Payments.................... 16
Income Payments...................................... 16
Transfers During the Income Phase.................... 16
Deferment of Payments................................ 16
The Income Protector................................. 16
TAXES................................................ 19
Annuity Contracts in General......................... 19
Tax Treatment of Distributions -
Qualified Contracts................................ 19
TSA Plans............................................ 19
Individual Retirement Annuities...................... 19
Minimum Distributions................................ 20
Diversification...................................... 20
PERFORMANCE.......................................... 20
OTHER INFORMATION.................................... 21
The Separate Account................................. 21
The General Account.................................. 21
Distribution of the Contract......................... 21
Administration....................................... 21
Year 2000............................................ 21
Legal Proceedings.................................... 22
Custodian............................................ 22
Additional Information............................... 22
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION.......................................... 22
APPENDIX A -- PREMIUM TAXES.......................... A-1
APPENDIX B -- MARKET VALUE ADJUSTMENT................ B-1
APPENDIX C -- CONDENSED FINANCIAL INFORMATION........ C-1
</TABLE>
2
<PAGE> 8
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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. Under an IRA the owner is always 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.
COMPANY - Anchor National Life Insurance Company, Anchor National, We, Us, the
insurer that issues this contract.
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.
ERISA - Employee Retirement Income Security Act of 1974 (as amended).
INCOME PHASE - The period during which we make annuity payments to you.
IRA - An Individual Retirement Annuity qualified under and issued in accordance
with the provisions of Section 408(b) of the IRC.
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 which may or may not be regulated by ERISA.
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
IRA.
TRUSTS - Refers to the Anchor Series Trust and the SunAmerica Series Trust
collectively.
TSA - A tax sheltered annuity qualified under and issued in accordance with the
provisions of Section 403(b) of the IRC.
VARIABLE 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.
3
<PAGE> 9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES+
MAXIMUM 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 separated
from service at the time of contract issue.
** This Withdrawal Charge schedule applies to all other participants.
THE INCOME PROTECTOR EXPENSE
(THE INCOME PROTECTOR PROGRAM IS OPTIONAL AND IF ELECTED THE APPROPRIATE FEE IS
DEDUCTED ANNUALLY FROM CONTRACT VALUE)
<TABLE>
<CAPTION>
THE INCOME PROTECTOR FEE AS A PERCENTAGE OF YOUR
ALTERNATIVES INCOME BENEFIT BASE
-------------------- ---------------------------
<S> <C>
Income Protector Plus.................. .15%
Income Protector Max................... .30%
</TABLE>
MAXIMUM ANNUAL SEPARATE ACCOUNT EXPENSES+
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
<TABLE>
<S> <C>
Maximum Mortality and Expense Risk Charge Insurance
Charge.................................................... 1.25%
-----
TOTAL SEPARATE ACCOUNT EXPENSES 1.25%
=====
</TABLE>
- ---------------
+ Withdrawal and insurance charges applicable to your contract may be lower.
Consult your plan sponsor, employer, financial adviser or your Contract Data
page for details.
PORTFOLIO EXPENSES
ANCHOR SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S TWELVE-MONTH PERIOD ENDED
DECEMBER 31, 1998)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Capital Appreciation .64% .04% .68%
- -----------------------------------------------------------------------------------------------------------
Growth .70% .05% .75%
- -----------------------------------------------------------------------------------------------------------
Government and Quality Bond .61% .06% .67%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SUNAMERICA SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER REIMBURSEMENT OR WAIVER OF EXPENSES
FOR THE TRUST'S FISCAL YEAR ENDED
JANUARY 31, 1999)
<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% .26% 1.26%
- -----------------------------------------------------------------------------------------------------------
Global Equities .73% .13% .86%
- -----------------------------------------------------------------------------------------------------------
International Growth and Income 1.00% .46% 1.46%
- -----------------------------------------------------------------------------------------------------------
Aggressive Growth .72% .10% .82%
- -----------------------------------------------------------------------------------------------------------
Small Company Value*** 1.00% .40% 1.40%
- -----------------------------------------------------------------------------------------------------------
Real Estate .80% .21% 1.01%
- -----------------------------------------------------------------------------------------------------------
Putnam Growth .78% .08% .86%
- -----------------------------------------------------------------------------------------------------------
Alliance Growth+ .57% .06% .63%
- -----------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street** .60% .25% .85%
- -----------------------------------------------------------------------------------------------------------
Venture Value .72% .05% .77%
- -----------------------------------------------------------------------------------------------------------
Federated Value .75% .11% .86%
- -----------------------------------------------------------------------------------------------------------
Growth-Income .55% .05% .60%
- -----------------------------------------------------------------------------------------------------------
Equity Index*** .40% .15% .55%
- -----------------------------------------------------------------------------------------------------------
Utility .75% .18% .93%
- -----------------------------------------------------------------------------------------------------------
Equity Income*** .65% .30% .95%
- -----------------------------------------------------------------------------------------------------------
Asset Allocation .58% .08% .66%
- -----------------------------------------------------------------------------------------------------------
SunAmerica Balanced .66% .08% .74%
- -----------------------------------------------------------------------------------------------------------
Worldwide High Income 1.00% .11% 1.11%
- -----------------------------------------------------------------------------------------------------------
High-Yield Bond .62% .10% .72%
- -----------------------------------------------------------------------------------------------------------
Corporate Bond .63% .17% .80%
- -----------------------------------------------------------------------------------------------------------
Global Bond .69% .28% .97%
- -----------------------------------------------------------------------------------------------------------
Cash Management .52% .10% .62%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Absent fee waivers or reimbursement of expenses by the adviser, the Total
Annual Expenses during the last fiscal year: for Emerging Markets would have
been (2.29%).
** Absent recoupment of expenses by the adviser, the total annual expenses
during the last fiscal year for the "Dogs" of Wall Street Portfolio would
have been .74%.
*** These portfolios became part of the Trust after January 31, 1999. Therefore
these percentages are estimates 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> 10
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
either of the maximum withdrawal charge schedules;
(b) If the contract is not Surrendered or is annuitized.+
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
(a)
Capital Appreciation (a) $80 (a) $111 (a) $144 $225
(b)
(b) $20 (b) $ 61 (b) $104 $225
- -----------------------------------------------------------------------------------------------------
(a)
Growth (a) $80 (a) $113 (a) $148 $233
(b)
(b) $20 (b) $ 63 (b) $108 $233
- -----------------------------------------------------------------------------------------------------
(a)
Government and Quality Bond (a) $79 (a) $110 (a) $144 $224
(b)
(b) $19 (b) $ 60 (b) $104 $224
- -----------------------------------------------------------------------------------------------------
(a)
Emerging Markets (a) $92 (a) $147 (a) $205 $346
(b)
(b) $32 (b) $ 97 (b) $165 $346
- -----------------------------------------------------------------------------------------------------
(a)
International Diversified Equities (a) $85 (a) $128 (a) $174 $285
(b)
(b) $25 (b) $ 78 (b) $134 $285
- -----------------------------------------------------------------------------------------------------
(a)
Global Equities (a) $81 (a) $116 (a) $153 $244
(b)
(b) $21 (b) $ 66 (b) $113 $244
- -----------------------------------------------------------------------------------------------------
(a)
International Growth and Income (a) $87 (a) $134 (a) $183 $304
(b)
(b) $27 (b) $ 84 (b) $143 $304
- -----------------------------------------------------------------------------------------------------
(a)
Aggressive Growth (a) $81 (a) $115 (a) $151 $240
(b)
(b) $21 (b) $ 65 (b) $111 $240
- -----------------------------------------------------------------------------------------------------
(a)
Small Company Value (a) $87 (a) $132 (a) $181 $298
(b)
(b) $27 (b) $ 82 (b) $141 $298
- -----------------------------------------------------------------------------------------------------
(a)
Real Estate (a) $83 (a) $121 (a) $161 $260
(b)
(b) $23 (b) $ 71 (b) $121 $260
- -----------------------------------------------------------------------------------------------------
(a)
Putnam Growth (a) $81 (a) $116 (a) $153 $244
(b)
(b) $21 (b) $ 66 (b) $113 $244
- -----------------------------------------------------------------------------------------------------
(a)
Alliance Growth (a) $79 (a) $109 (a) $142 $220
(b)
(b) $19 (b) $ 59 (b) $102 $220
- -----------------------------------------------------------------------------------------------------
(a)
"Dogs" of Wall Street (a) $81 (a) $116 (a) $153 $243
(b)
(b) $21 (b) $ 66 (b) $113 $243
- -----------------------------------------------------------------------------------------------------
(a)
Venture Value (a) $81 (a) $113 (a) $149 $235
(b)
(b) $21 (b) $ 63 (b) $109 $235
- -----------------------------------------------------------------------------------------------------
(a)
Federated Value (a) $81 (a) $116 (a) $153 $244
(b)
(b) $21 (b) $ 66 (b) $113 $244
- -----------------------------------------------------------------------------------------------------
(a)
Growth-Income (a) $79 (a) $108 (a) $140 $217
(b)
(b) $19 (b) $ 58 (b) $100 $217
- -----------------------------------------------------------------------------------------------------
(a)
Equity Index (a) $78 (a) $107 (a) $137 $212
(b)
(b) $18 (b) $ 57 (b) $ 97 $212
- -----------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 11
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
(a)
Utility (a) $82 (a) $118 (a) $157 $251
(b)
(b) $22 (b) $ 68 (b) $117 $251
- -----------------------------------------------------------------------------------------------------
(a)
Equity Income (a) $82 (a) $119 (a) $158 $253
(b)
(b) $22 (b) $ 69 (b) $118 $253
- -----------------------------------------------------------------------------------------------------
(a)
Asset Allocation (a) $79 (a) $110 (a) $143 $223
(b)
(b) $19 (b) $ 60 (b) $103 $223
- -----------------------------------------------------------------------------------------------------
(a)
SunAmerica Balanced (a) $80 (a) $112 (a) $147 $232
(b)
(b) $20 (b) $ 62 (b) $107 $232
- -----------------------------------------------------------------------------------------------------
(a)
Worldwide High Income (a) $84 (a) $124 (a) $166 $270
(b)
(b) $24 (b) $ 74 (b) $126 $270
- -----------------------------------------------------------------------------------------------------
(a)
High-Yield Bond (a) $80 (a) $112 (a) $146 $230
(b)
(b) $20 (b) $ 62 (b) $106 $230
- -----------------------------------------------------------------------------------------------------
(a)
Corporate Bond (a) $81 (a) $114 (a) $150 $238
(b)
(b) $21 (b) $ 64 (b) $110 $238
- -----------------------------------------------------------------------------------------------------
(a)
Global Bond (a) $83 (a) $119 (a) $159 $255
(b)
(b) $23 (b) $ 69 (b) $119 $255
- -----------------------------------------------------------------------------------------------------
(a)
Cash Management (a) $79 (a) $109 (a) $141 $219
(b)
(b) $19 (b) $ 59 (b) $101 $219
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
* See Page 4 for an explanation of Schedule A.
** See Page 4 for an explanation of Schedule B.
+ We do not currently charge a surrender charge upon annuitization, unless the
contract is annuitized under the Income Protector program. We will assess
any applicable surrender charges upon annuitizations effected using the
Income Protector program as if you had fully surrendered your contract.
These examples assume the highest fees and charges possible.
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the maximum expenses you may
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 stated expense limitations or the
following percentages of each Portfolio's average net assets: Emerging
Markets (1.90%); International Growth and Income (1.60%); Aggressive Growth
(.90%); Small Company Value (1.40%); Real Estate (1.25%); "Dogs" of Wall
Street (.85%); Federated Value (1.03%); Equity Index (.55%); Utility
(1.05%); Equity Income (.95%); SunAmerica Balanced (1.00%). 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. 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 Program. SEE INCOME OPTIONS ON
PAGE 15.
4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE HISTORICAL ACCUMULATION UNIT VALUES ARE CONTAINED IN APPENDIX C -- CONDENSED
FINANCIAL INFORMATION.
6
<PAGE> 12
- ----------------------------------------------------------------
- ----------------------------------------------------------------
THE POLARIS PLUS VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
We issue the Polaris Plus variable annuity to certain groups and/or individuals
which qualify to purchase Contracts to fund their Tax Sheltered Annuity ("TSA")
pursuant to Section 403(b) of the Internal Revenue Code ("IRC") or IRA
retirement savings investments pursuant to Section 408(b) of the IRC. For TSA
contracts, the contract may be issued to a group contract holder (usually your
employer or plan trustee) for the benefit of the Participants in the group (you
and other employees in the group).
As a Participant under a group contract you will receive a certificate which
explains your rights under the contract. In certain situations an individual
contract will be issued directly to you. When we use the term Contract in this
prospectus we are referring to either your certificate if a group Participant or
an actual contract if an individual contract is issued.
A TSA Polaris Plus participant may choose to convert their 403(b) to an IRA if
they separate from service. Generally, all of the same features, charges and
benefits will apply to a contract converted to an IRA, as was applicable to a
participant's TSA, so long as no conflict arises with the appropriate provisions
of the IRC. We will only specifically address IRAs in this Prospectus to the
extent that applicable IRC provisions and/or any other state or federal laws,
require different treatment.
Generally, an annuity is a contract between you and an insurance company. For
Plans governed by ERISA, the Contract may be owned by Plan Sponsor, Trustee or
some other employee association. Your retirement plan allows you to invest money
on which you have not already paid taxes and your earnings grow tax deferred. In
addition, funding that Plan with a variable annuity provides certain benefits.
You should decide whether the benefits are right for you. Among other features
the contract offers:
- Investment Options: Various investment options available in one contract,
including both variable and fixed-rate investing.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: You receive a stream of income for your lifetime if
elected, 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 for TSAs. Contracts may also be funded by direct transfers or
direct rollovers from other retirement savings plans. Existing Polaris Plus
403(b) contracts may be converted to an IRA upon a separation from service.
Additionally, those IRA contract holders may make on-going contributions subject
to restrictions set forth in the IRC.
This Contract has two stages, the Accumulation Phase and the Income Phase. Your
Contract is in the Accumulation Phase when you make payments into the Contract.
During the Accumulation Phase, generally you have the advantage of making
Purchase Payments before paying taxes on the contributions. In addition, as a
function of IRC provisions, taxes on your earnings are deferred until
withdrawal. 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
Variable Portfolios which, like mutual funds, have different investment
objectives and performance which vary with market conditions. You can gain or
lose money if you invest in these Variable Portfolios. The amount of money you
accumulate in your Contract depends on the performance of the Variable
Portfolios in which you invest. This Contract currently offers 26 variable
investment Portfolios, which may be limited by any applicable Plan.
The Contract also offers several fixed account options for varying time periods
(which also may be limited by any applicable Plan). 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
INVESTMENT OPTIONS ON PAGE 8.
Anchor National is a stock life insurance company organized under the laws of
the state of Arizona. Its principal place of business is 1 SunAmerica Center,
Los Angeles, California 90067. The Company conducts life insurance and annuity
business in the District of Columbia and all states except New York. Anchor
National is an indirect, wholly owned subsidiary of American International
Group, Inc., a Delaware Corporation.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PURCHASING A 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. The Company
7
<PAGE> 13
reserves the right to refuse any Purchase Payment or subsequent Purchase
Payments, including but not limited to any Purchase Payments which would cause
the contract value to exceed $1,000,000 at the time of the Purchase Payment.
In general, we will not issue you a TSA or IRA contract if you are age 70 1/2 or
older, unless you certify that the minimum distributions required by the IRC are
being made. Upon proof satisfactory to us that minimum distribution requirements
are being satisfied or are not yet required, we may issue you a contract prior
to your reaching age 80.
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 INVESTMENTS OPTIONS ON PAGE 8.
In order to issue your Contract, we must receive your completed enrollment form,
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 Variable 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 Variable Portfolios in which you are invested and the
insurance charges and expenses under your contract affect your 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.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
INVESTMENT OPTIONS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
VARIABLE PORTFOLIOS
The Contract currently offers 26 Variable Portfolios, however an applicable Plan
may limit the number available under your Contract. 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 and 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.
Other funds may be available through the Trusts which are not available for
investment under your Contract.
8
<PAGE> 14
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. 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 available 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
- 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.
If applicable, your Plan may limit the Variable Portfolios available under your
Contract.
FIXED ACCOUNT OPTIONS
The Contract offers fixed account options; the 1, 3 and 5 year fixed market
value adjustment ("MVA") accounts (the 3 and 5 year fixed account options are
not available in Washington or Oregon). In addition we have two Dollar Cost
Averaging ("DCA") fixed accounts available under the contract.
The 1, 3 and 5 year MVA fixed account options and the 6 month and 1-year DCA
fixed accounts are not registered under the Securities Act of 1933 and are not
subject to other provisions of the Investment Company Act of 1940. If
applicable, your Plan may limit the fixed account options available under your
Contract.
The 1, 3 and 5 year MVA fixed accounts 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 will never credit less than a 3% annual
effective rate to any of the fixed investment options.
Each guarantee period may offer a different interest rate. Once established the
rates for specified payments do not change during the guarantee period. The
guarantee period is that period for which we credit the applicable rate (one,
three or five years).
There are three scenarios in which you may put money into the MVA fixed account
options. In each scenario your money may be credited a different rate of
interest as follows:
- Initial Rate: Rate credited to new purchase payments allocated to the
fixed account when you purchase your contract.
- Current Rate: Rate credited to subsequent purchase payments allocated
to the fixed account.
- Renewal Rate: Rate credited to money transferred to a fixed account
from another fixed account or from one of the Variable Portfolios.
Each of these rates may differ from one another. Once declared, the applicable
rate is guaranteed until the end of the calendar year in which the guarantee
period expires.
At the end of the calendar year during which a guarantee period ends, you may
leave your money in the same fixed account option. You may also reallocate your
money to another fixed account option or to the Variable Portfolios. If you want
to reallocate your money to a different fixed or variable investment option, you
must contact us within 30 days after the end of the current interest guarantee
period and instruct us how to reallocate the money. We do not contact you. If we
do not hear from you, your money will remain in the same fixed account option,
where it will earn
9
<PAGE> 15
interest at the renewal rate then in effect for the fixed account option.
The DCA fixed accounts also credit a fixed rate of interest for a predetermined
amount of time. The interest rate in the 1-year or 6-month DCA fixed account is
credited for one year or 6 months while your investment is systematically
transferred to the Variable Portfolios. The rates applicable to the DCA fixed
accounts may differ from each other and/or the other fixed account options. See
DOLLAR COST AVERAGING (below) for more information.
MARKET VALUE ADJUSTMENT ("MVA")
If you take money out of the 1, 3, or 5 year MVA fixed investment options before
the end of the interest crediting period, 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 investment 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 3% in any particular guarantee period.
We calculate the market value adjustment by comparing the current interest rates
being offered by us for subsequent Purchase Payments made to the same fixed
account option and the interest rate earned in your current fixed investment
option.
Generally, if interest rates drop more than one half of a percent between the
time you put your money into the fixed investment options and the time you take
it out, we credit a positive adjustment to your contract. Conversely, if
interest rates increase during the same period, we post a negative adjustment to
your contract.
Where the market value adjustment is negative, we first deduct the adjustment
from any money remaining in the fixed investment option. If there is not enough
money in the fixed investment option to meet the negative deduction, we deduct
the remainder from your withdrawal. Where the market value adjustment is
positive, we add the adjustment to your withdrawal from the fixed investment
option.
Please see Appendix B for more information on how we calculate the Market Value
Adjustment.
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 (or $0) must remain in any Portfolio after a transfer.
We do not currently limit the number of transfers you can make. We reserve the
right to limit the number of transfers in the future to 15 for all existing and
new owners. If we do impose such a limit you may be charged $25 for each
transfer in excess of that limit. We will provide notice of any limitation. If a
limit is ever imposed, transfers resulting from your participation in the DCA
program count against your allotted number of free transfers. However, transfers
resulting from your participation in the Automatic Asset Rebalancing program
would not count against your allotted number.
You may request transfers of your account value between the Variable Portfolios
and/or the fixed account options in writing or by telephone (unless you have
indicated on your enrollment form that you do not wish to make telephone
transfer requests). Internet account access and/or transactions may be available
by visiting our website at www.sunamerica.com and completing the registration
process.
When receiving instructions over the telephone or the internet/website, 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. If we fail to follow our procedures, we may be liable for any losses
due to unauthorized or fraudulent instructions.
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 a group of transfer requests
may have a detrimental effect on unit values or the share prices of the
underlying Portfolios.
Where permitted by law, we may accept your authorization for a third party to
make transfers for you subject to our rules. We reserve the right to suspend or
cancel such acceptance at any time and will notify you accordingly.
Additionally, we may restrict the investment options available for transfers
during any period in which such third party acts for you. We notify such third
party beforehand regarding any restrictions. However, we will not enforce these
restrictions if we are satisfied that:
- such third party has been appointed by a court of competent jurisdiction
to act on your behalf; or
- such third party is a trustee/fiduciary 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
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<PAGE> 16
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 INCOME OPTIONS
ON PAGE 15.
We reserve the right to modify, suspend, waive or terminate these transfer
provisions at any time.
DOLLAR COST AVERAGING ("DCA")
The Dollar Cost Averaging program allows you to invest gradually in the Variable
Portfolios. Under the program you systematically transfer a set dollar amount or
percentage of investment option value from one Variable Portfolio or the 1-year
fixed account option (source accounts) to any other Variable Portfolio(s) or the
non-DCA fixed account options (target accounts). 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
DCA of your direct transfer and/or direct rollover Purchase Payments. If you
allocate a Purchase Payment into a DCA fixed account, we transfer all your money
allocated to that account into the Variable Portfolios or the non-DCA fixed
accounts over the selected 6-month or 1-year period. You cannot change the
option or the frequency of transfers once selected, if you are using these DCA
accounts.
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(s) you select by the end of the six month
period. Transfers out of the 6-month DCA fixed account must occur monthly
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.
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
participate in 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 in the Variable Portfolios 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.
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
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<PAGE> 17
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.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
ACCESS TO YOUR MONEY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
You can access money in your Contract in three ways:
- by receiving income payments during the Income Phase, SEE INCOME OPTIONS
ON PAGE 15; or
- by taking a loan in accordance with the provisions of your Plan and/or
this Contract (TSA only); 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 accounts unless the withdrawal qualifies for withdrawal
charge exception. SEE INVESTMENT OPTIONS ON PAGE 8 AND EXPENSES ON PAGE 13.
We may establish certain minimum withdrawal amounts or require that a minimum
amount remain in a Portfolio upon withdrawal. Please consult the Annuity Service
Center for additional information. 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 TAXES ON PAGE 19.
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 and you own a TSA, 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 TAXES ON PAGE 18. 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 from a TSA or IRA, 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 any applicable Plan and/or the IRC allow, then 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.
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<PAGE> 18
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
at the time of withdrawal. 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 you own a TSA and, if applicable, your Plan permits, you may take a loan from
your Contract during the Accumulation Period. You may apply for a loan 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, terms of repayment and applicable
fees and charges is available in the Certificate, Endorsement and the Loan
Agreement 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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DEATH BENEFIT
- ----------------------------------------------------------------
- ----------------------------------------------------------------
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary. The death benefit (unless limited by your Plan)
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 (or a portion thereof) in accordance with
the income option you selected. SEE INCOME OPTIONS ON PAGE 15.
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 on beneficiary designation
which are discussed in the Beneficiary Designation Form.
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 by December 31 of the
calendar year containing the fifth anniversary 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 on or before December 31 of the calendar year immediately
following the year of your death.
If the Beneficiary is the Participant's surviving spouse, the surviving spouse
may elect to receive the entire death benefit in equal or substantially equal
payments over their life or over a period not longer than their life expectancy,
commencing at any date prior to the later of:
(i) December 31 of the calendar year immediately following the calendar
year in which the Participant died, and
(ii) December 31 of the calendar year in which the Participant would have
attained age 70 1/2.
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EXPENSES
- ----------------------------------------------------------------
- ----------------------------------------------------------------
There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the insurance and
withdrawal fees and charges under your contract. However, investment charges may
increase or decrease. Some states may require that we charge less than the
amounts described below.
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<PAGE> 19
INSURANCE CHARGES
Insurance charges may vary by Plan or group contract. Currently, the insurance
charge on this contract ranges from .55% to a maximum of 1.25% annually of the
average daily value of your contract allocated to the Variable Portfolios. The
insurance charges applicable to your contract can be obtained by contacting your
Plan Sponsor, Employer or financial advisor or consulting your Contract Data
page. We deduct this charge daily. There is no insurance charge deducted against
amounts allocated to the fixed account options.
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
A withdrawal charge may apply against each Purchase Payment you put into the
contract if you seek withdrawal of that payment prior to the end of a specified
period.
The withdrawal charge amount may vary by Plan. If applicable, the withdrawal
charge equals a percentage of the Purchase Payment you take out of the contract.
The withdrawal charge percentage may decline over time for each Purchase Payment
in the contract. The applicable withdrawal charge schedule will appear on your
Contract Data Page.
Currently, the withdrawal charges range from 0% to the maximum withdrawal
charge, as noted:
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%
- ----------------------------------------------------------------
</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%
- ----------------------------------------------------------------
</TABLE>
You may obtain information as to the withdrawal charge applicable to your
contract by contacting your Plan Sponsor, Employer, financial adviser or by
consulting your Contract Data page.
When calculating the withdrawal charge, we treat withdrawals as coming first
from the Purchase Payments that have been in your contract the longest. However,
for tax purposes, your withdrawals are considered earnings first, then Purchase
Payments.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract. If you withdraw all of your contract value, we deduct any
applicable withdrawal charge from the amount withdrawn.
We calculate charges due on a total withdrawal as of the day after we receive
your request and your contract. We return your contract value less any
applicable fees and charges. You will not receive the benefit of any available
and prior free withdrawal amounts (applicable only to those subject to
withdrawal charge Schedule A) if you make a complete withdrawal of your
contract.
Both the insurance charges and the withdrawal charges may vary by Plan and/or
group contract based on certain objective factors. SEE REDUCTION OR ELIMINATION
OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS CREDITED.
EXCEPTIONS TO WITHDRAWAL CHARGE
If a withdrawal charge applies to your contract a withdrawal charge is not
applicable to withdrawals requested in the following situations:
- Annuitization (except if under the Income Protector Program) SEE INCOME
OPTIONS ON PAGE 15;
- Death Benefits, SEE DEATH BENEFIT ON PAGE 13;
- After your 10th contract anniversary;
- If you are subject to withdrawal charge Schedule A, 15% of your Purchase
Payments each contract year;
- Disability occurring after contract issue;
- Hardship occurring after contract issue;
- After separation from service occurring after contract issue.
- loans in accordance with the requirements of ERISA and/or the IRC, the
Plan and the Contract; and
- to avoid Federal Income Tax penalties or satisfy income tax rules
applicable to the Contract from which the withdrawal is made.
Additionally, upon conversion to an IRA from an existing Polaris Plus 403(b)
contract, IRA contract holders will receive credit for time served in their
prior Polaris Plus TSA variable annuity investment. This means we will carry
over the 403(b) Purchase Payment history with respect to any potential
withdrawal charges under the IRA.
Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE TAXES ON
PAGE 19.
INVESTMENT CHARGES
Charges are deducted from your Variable Portfolios for the advisory and other
expenses of the Portfolios. THE FEE TABLES LOCATED ON PAGE 4 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 an unlimited number of transfers between investment options,
every year. We reserve the right to limit the number of transfers to 15 per
year, in the future, for both new and existing contract holders. If we do impose
such a limit you will be charged $25 for each transfer over that limit. SEE
INVESTMENT OPTIONS ON PAGE 8.
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<PAGE> 20
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract. 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 A 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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INCOME OPTIONS
- ----------------------------------------------------------------
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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. You select
the month and year in which you want income payments to begin. The first day of
that month is the Annuity Date. You may change your Annuity Date, so long as you
do so at least seven days before the income payments are scheduled to begin.
Once you begin receiving income payments, you cannot change your income option.
Except as indicated under option 5, once you begin receiving income payments,
you cannot otherwise access your money through withdrawal or surrender.
Generally, for Qualified contracts, the Annuity Date may be any day after you
reach age 59 1/2 but not later than your 75th birthday. However, you may be
required to begin taking minimum distributions by April 1 following the later
of, the year in which you turn age 70 1/2 or the calendar year in which you
retire. SEE TAXES ON PAGE 18.
As to TSAs and IRAs, an income payment is generally considered a withdrawal.
Therefore, IRC withdrawal restrictions may limit the time at which income
payments may begin. SEE ACCESS TO YOUR MONEY ON PAGE 12.
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 an IRA You as the Owner must always be 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 OR 20 YEARS GUARANTEED
This option is similar to option 2 above, with an additional guarantee of income
payments for at least 10 or 20 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, 15 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.
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<PAGE> 21
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 5 to
30 years. If the Annuitant dies before all the guaranteed income payments are
made, the remaining income payments are made to the Beneficiary under your
contract. Additionally, if variable income payments are elected under this
option, you (or the Beneficiary under the contract if the Annuitant dies prior
to all guaranteed payments being made) may redeem the contract value after the
Annuity Date. The amount available upon such redemption would be the discounted
present value of any remaining guaranteed payments.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. Since annuity option 5, Income
for a Specified Period, does not contain an element of mortality risk, the payee
is not getting the benefit of this Charge. There shall be no right to terminate
the Contract during the Income Phase if the option elected contains an element
of mortality risk.
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. Anchor National guarantees any
amount of each payment which is invested in a fixed account during the income
phase. If the income payments are variable the amount is not guaranteed.
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 Variable 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
If you are invested in the Variable Portfolios 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
If elected, this feature provides a future "safety net" in the event that, when
you choose to begin receiving income payments, your contract has not performed
within a historically anticipated range. The Income Protector program offers you
the ability to receive a guaranteed fixed minimum retirement income upon
annuitization. With the Income Protector you can know the level of minimum
income that will be available to you if, when you chose to begin the income
phase of your contract, down markets have negatively impacted your contract
value. We reserve the right to modify, suspend or terminate the Income Protector
program at any time.
The Income Protector provides two levels of minimum retirement income. The two
available options are the Income Protector Plus and Max. If you enroll in the
Income Protector program, we charge a fee based on the level of protection you
select. The amount of the fee and how to enroll are described below. In order to
utilize the benefit of the program you must follow the provisions discussed
below.
Certain IRC restrictions on income options available to Qualified retirement
investors may have an impact on your ability to benefit from this feature.
Qualified investors should read NOTE TO QUALIFIED CONTRACT HOLDERS, below.
HOW WE DETERMINE THE AMOUNT OF YOUR MINIMUM
GUARANTEED INCOME
We base the amount of minimum income available to you if you take income
payments using the Income Protector upon a calculation we call the Income
Benefit Base. At the time your enrollment in the Income Protector program
becomes effective, your Income Benefit Base is equal to your contract value.
Your participation becomes effective on either the date of issue of the contract
(if elected at the time of application) or on the contract anniversary following
your enrollment in the program.
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<PAGE> 22
The Income Benefit Base is only a calculation. It does not represent a contract
value, nor does it guarantee performance of the Variable Portfolios in which you
invest.
Your Income Benefit Base increases if you make subsequent Purchase Payments and
decreases if you withdraw money from your contract. The exact Income Benefit
Base calculation is equal to (a) plus (b) minus (c) where:
(a) is,
- for the first year of calculation, your contract value on the date
your participation in the program became effective, or;
- for each subsequent year of calculation, the Income Benefit Base on
the prior contract anniversary, and;
(b) is the sum of all Purchase Payments made into the contract since the
last contract anniversary, and;
(c) is all withdrawals and applicable fees and charges since the last
contract anniversary (excluding any positive MVA), in an amount
proportionate to the amount by which such withdrawals decreased your
contract value.
The Income Benefit Base accumulates at one of the following annual growth rates
from the date your enrollment becomes effective through your election to begin
receiving income under the program:
<TABLE>
<CAPTION>
- ----------------------------------------------------
Options Growth Rate*
- ----------------------------------------------------
<S> <C>
The Income Protector Plus 3.25%
- ----------------------------------------------------
The Income Protector Max 5.25%
- ----------------------------------------------------
</TABLE>
* If you elect the Plus or Max feature on a subsequent anniversary, the Growth
Rates may be different.
The growth rates for the Plus or Max features cease on the contract anniversary
following the Annuitant's 90th birthday.
ENROLLING IN THE PROGRAM
If you decide that you want the protection offered by the Income Protector
program, you must elect the option of your choice by completing the Income
Protector Election Form available through our Annuity Service Center. You may
only elect one of the options, you can not change your election once made, and
you can not terminate your enrollment. In order to obtain the benefit of the
Income Protector program you may not begin the income phase for at least seven
years following your enrollment.
STEP-UP OF YOUR INCOME BENEFIT BASE
You may also have the opportunity to "Step-Up" your Income Benefit Base. The
Step-Up feature allows you to increase your Income Benefit Base to the amount of
your contract value on your contract anniversary. You can only elect to Step-Up
within the 30 days before the next contract anniversary. The seven year waiting
period required prior to electing income payments through the Income Protector
is restarted if you step-up your Income Benefit Base.
You must complete the appropriate portion of the Income Protector Election Form
to effect a Step-Up.
ELECTING TO RECEIVE INCOME PAYMENTS
You may elect to begin the Income Phase of your contract using the Income
Protector Program ONLY within the 30 days after the seventh or later contract
anniversary following the later of,
- the effective date of your enrollment in the Income Protector program, or
- the contract anniversary of your most recent Step-Up.
The contract anniversary prior to your election to begin receiving income
payments is your Income Benefit Date. This is the date as of which we calculate
your Income Benefit Base to use in determining your guaranteed minimum fixed
retirement income. To arrive at the minimum guaranteed fixed retirement income
available to you, we apply the annuity rates stated in your Income Protector
Endorsement for the income option you select to your final Income Benefit Base.
You then choose if you would like to receive that income annually, quarterly or
monthly for the time guaranteed under your selected annuity option. Your final
Income Benefit Base is equal to (a) minus (b) where:
(a) is your Income Benefit Base as your Income Benefit Date, and;
(b) is any partial withdrawals of contract value and any charges applicable
to those withdrawals (excluding any positive MVA) and any withdrawal
charges otherwise applicable, calculated as if you fully surrender your
contract as the Income Benefit Date, and any applicable premium taxes.
The income options available when using the Income Protector program to receive
your retirement income are:
- Life Annuity with 10 Year Period Certain, or
- Joint and 100% Survivor Annuity with 20 Year Period Certain
At the time you elect to begin the income phase, we will calculate your annual
income using both your final Income Benefit Base and your contract value. We
will use the same income option for each calculation, however, the annuity
factors used to calculate your income under the Income Protector will be
different. You will receive whichever provides a greater stream of income. If
you take Income Payments using the Income Protector your payments will be fixed
in amount. You are not required to use the Income Protector to receive your
Income Payments. The general provisions of your contract provide other income
options. However, we will not refund fees paid for the Income
17
<PAGE> 23
Protector if you begin taking Income Payments under the general provisions of
your contract. YOU MAY NEVER NEED TO RELY UPON THE INCOME PROTECTOR, IF YOUR
CONTRACT PERFORMS WITHIN A HISTORICALLY ANTICIPATED RANGE. HOWEVER, PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
IMPORTANT NOTE
Qualified contracts generally require that you select an income option which
does not exceed your life expectancy. That restriction may limit the benefit of
the Income Protector program. To utilize the Income Protector you must take
income payments under one of two income options. If those income options exceed
your life expectancy you may be prohibited from receiving your guaranteed fixed
income under the program. If you own a Qualified contract to which this
restriction applies and you elect the Income Protector program, you may pay for
this minimum guarantee and not be able to realize the benefit.
Generally, for qualified contracts:
- for the Life Annuity with 10 Year Period Certain, you must annuitize
before age 79, and
- for the Joint and 100% Survivor Annuity with 20 Year Period Certain, both
Annuitants must be 70 or younger or one of the annuitants must be 65 or
younger upon annuitization. Other age combinations may be available.
You should consult your tax advisor for information concerning your particular
circumstances.
FEES ASSOCIATED WITH THE INCOME PROTECTOR
We charge a fee for the Income Protector program, as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------
Fee As a % of
Your Income
Options Benefit Base
- -------------------------------------------------------
<S> <C>
Income Protector Plus .15%
- -------------------------------------------------------
Income Protector Max .30%
- -------------------------------------------------------
</TABLE>
Since the Income Benefit Base is only a calculation and does not provide a
contract value, we deduct the fee from your actual contract value beginning on
the contract anniversary on which your enrollment in the program becomes
effective.
If you elect to participate in the Income Protector program at contract issue,
we begin deducting the annual fee for the Plus or Max option when your
participation becomes effective. If you elect to participate in the Income
Protector program at some time after contract issue, we begin deducting the
annual fee on the contract anniversary of or following election. We will deduct
this charge from your contract value on every contract anniversary up to and
including your Income Benefit Date. Additionally, we deduct the entire annual
fee from any full surrender of your contract requested prior to your contract
anniversary.
After a Step-Up, the fee for the Income Protector Max or Plus will be based on
your Stepped-Up Income Benefit Base, and will be deducted from your contract
value beginning on the effective date of the step-up.
HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR
This table assumes a $100,000 initial investment in a qualified contract with no
further premiums, no withdrawals, no step-ups, no premium taxes, current growth
rates; and the election of optional Income Protector alternatives at contract
issue.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
INCOME
IF AT ISSUE ANNUAL INCOME IF YOU ANNUITIZE ON THE FOLLOWING CONTRACT ANNIVERSARIES: PROTECTOR
YOU ARE 1 - 6 7 10 15 20 LEVEL
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Unisex N/A 5,494 6,378 8,279 10,920 TIP Plus
Age 45* N/A 6,284 7,727 11,039 16,027 TIP Max
- --------------------------------------------------------------------------------------------------------------
Male, Age 45 N/A 4,879 5,601 7,115 9,168 TIP Plus
Female Age 45** N/A 5,580 6,786 9,488 13,456 TIP Max
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Life Annuity with 10 year Period Certain
** Joint and 100% Survivor Annuity with 20 Year Period Certain
The Income Protector may not be available in your state. Please consult your
financial adviser for information regarding availability of this program in your
state.
18
<PAGE> 24
- ----------------------------------------------------------------
- ----------------------------------------------------------------
TAXES
- ----------------------------------------------------------------
- ----------------------------------------------------------------
NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL DISCUSSION OF
THE SUBJECT. IT IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE
ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR
ANNUITY. TAX LAWS CONSTANTLY CHANGE, THEREFORE WE 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.
TAX TREATMENT OF DISTRIBUTIONS -
QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract. Any amount of money you take out as a withdrawal or as
income payments is taxable income. The IRC further provides for a 10% penalty
tax on any withdrawal or income payment paid to you other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) in a series of substantially equal installments made for your life
or for the joint lives of you and your Beneficiary; (5) to the extent such
withdrawals do not exceed limitations set by the IRC for amounts paid during the
taxable year for medical care; (6) to fund higher education expenses (as defined
in IRC); (7) to fund certain first-time home purchase expenses; and, except in
the case of an IRA; (8) when you separate from service after attaining age 55;
and (9) when paid to an alternate payee pursuant to a qualified domestic
relations order.
TSA 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 EXPENSES ON PAGE 14 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.
INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which will be deductible from the individual's gross income. These IRAs are
subject to limitations on eligibility, contributions, transferability and
distributions. Sales of contracts for use with IRAs are subject to special
requirements imposed by the IRC, including the requirement
19
<PAGE> 25
that certain informational disclosure be given to persons desiring to establish
an IRA. Purchasers of contracts to be qualified as IRAs should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
Under certain circumstances, the IRC may impose a 10% penalty tax on the taxable
portion of any distribution form a 408(b) arrangement.
The 10% penalty tax applies to the taxable portion of a distribution unless one
or more of the following have occurred: (1) You have attained age 59 1/2; (2)
You have become totally and permanently disabled (as defined by the IRC); (3)
You have died; (4) The distribution is rolled over in accordance with the IRC;
(5) The distribution is made in substantially equal periodic payments (at least
annually) over your life or life expectancy or the joint lives or joint life
expectancies of you and your beneficiary; (6) The distribution equals
unreimbursed medical expenses that qualify for a deduction as specified in the
IRC; (7) The distribution is used to pay for health insurance premiums for
certain unemployed individuals; (8) The amount withdrawn is for a first-time
home purchase; or (9) The amount withdrawn is for higher education expenses
Competent tax advice should be obtained as to the tax treatment and suitability
of purchasing a Contract or converting an existing contract to an IRA.
MINIMUM DISTRIBUTIONS
If your Contract is issued under a Section 403(b) or other Qualified Plan,
generally the IRS requires that you begin taking annual minimum distributions
from qualified annuity contracts 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. Failure to satisfy the
minimum distribution requirements may result in a federal tax penalty. You
should consult your tax adviser for more information.
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. Due to the uncertainty in this area, we reserve the right
to modify the contract in an attempt to maintain favorable tax treatment.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PERFORMANCE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
We may advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other Variable Portfolios may 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.
From time to time, we may 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. These Trusts have
been in existence for some time. We do this to demonstrate how the historical
investment experience of the funds affects accumulation unit values. 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.
20
<PAGE> 26
- ----------------------------------------------------------------
- ----------------------------------------------------------------
OTHER INFORMATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Anchor National is a stock life insurance company originally organized under the
laws of the state of California in April 1965. On January 1, 1996, Anchor
National redomesticated under the laws of the state of Arizona.
Anchor National and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, SunAmerica National Life Insurance Company,
SunAmerica Asset Management Company, Resources Trust Company, and six
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 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. No underwriting fees are paid in connection with the distribution
of this contract.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact our Annuity Service Center at 1-877-999-9205, if you have any comment,
question or service request.
CONFIRMATIONS AND QUARTERLY STATEMENTS: During the accumulation phase you will
receive confirmation of transactions within your contract. Transactions made
pursuant to contractual or systematic agreements, such as deduction of the
annual maintenance fee and dollar cost averaging, may be confirmed quarterly.
Purchase payments received through the automatic payment plan or a salary
reduction arrangement, may also be confirmed quarterly. For all other
transactions, we send confirmations immediately.
During the accumulation and income phases, you will receive a statement of your
transactions over the past quarter and a summary of your account values. It is
your responsibility to review these documents carefully and notify us of any
inaccuracies immediately. We investigate all inquiries. To the extent that we
believe we made an error, we retroactively adjust your contract, provided you
notify us within 30 days of receiving the transaction confirmation or quarterly
statement. Any other adjustments we deem warranted are made as of the time we
receive notice of the error.
YEAR 2000
We initiated our strategy to deal with the year 2000 challenge in 1997. At that
time, many of the computer systems and applications upon which we relied in our
daily operations were not year 2000 compliant. This means that because they
historically used only two digits to identify the year in a date, they were
unable to distinguish dates the "2000s" from dates in the "1900s". We have
incurred approximately $9.9 million of programming costs to make necessary
repairs of certain non-compliant systems. Additionally, SunAmerica Inc., our
parent company, has made capital expenditures of approximately $9.2 million on
the Company's behalf to replace certain other non-compliant systems, which will
be amortized and allocated to Anchor National over future periods. We do not
expect to incur significant additional costs because the repair or replacement
of substantially all systems was completed as of September 30, 1999. Further,
testing of both the repaired and replaced systems was substantially completed as
of September 30, 1999. Nevertheless, we will continue to test all of our
computer systems and applications throughout 1999 to ensure continued
compliance.
21
<PAGE> 27
In addition, we distributed a year 2000 questionnaire to the third parties with
which we interact significantly. These include suppliers, distributors,
facilitators, fund managers, lessors and financial institutions. The
questionnaire is designed to enable us to evaluate these third parties' year
2000 compliance plans and state of readiness and to determine the extent to
which our systems and applications may be affected by the failure of others to
remedy their own year 2000 issues. To date, however, we have received only
inconclusive feedback from these parties and have not independently confirmed
any information received from them. Therefore, we cannot assure that these
parties will complete their year 2000 conversions in a timely fashion or will
not suffer a year 2000 business disruption that may adversely affect our
financial condition and results of operations.
Although our efforts to remedy the year 2000 issues are expected to be complete
prior to any potential disruption to our business, we are developing several
contingency plans to implement in the event that the transition to the year 2000
becomes difficult.
The above discussion contains forward-looking statements. These statements are
based on our current estimates, assumptions and opinions, and are subject to
various uncertainties that could cause the results to differ materially from our
expectations. These uncertainties include, among others, costs to be incurred,
our success in identifying systems and applications that are not year 2000
compliant, the nature and amount of programming required to upgrade or replace
each of the affected systems and applications, the availability of qualified
personnel, consultants and other resources, and the success of the year 2000
conversion efforts of significant third parties.
LEGAL PROCEEDINGS
There are no pending legal proceeding affecting the Separate Account. Anchor
National and its subsidiaries engage in various kinds of routine litigation. In
management's opinion, these matters are not of material importance to their
respective total assets nor are they material with respect to the Separate
Account.
CUSTODIAN
State Street Bank and Trust Company, 255 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the Separate Account. Anchor
National pays State Street Bank for services provided, based on a schedule of
fees.
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.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
<TABLE>
<S> <C>
Separate Account.............................. 3
General Account............................... 3
Performance Data.............................. 4
Income Payments............................... 8
Annuity Unit Values........................... 8
Taxes......................................... 11
Distribution of Contracts..................... 13
Financial Statements.......................... 13
</TABLE>
22
<PAGE> 28
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A - PREMIUM TAXES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Premium taxes vary according to the state and are subject to change without
notice. In many states, there is no tax at all. Listed below are the current
premium tax rates in those states that assess a premium tax. For current
information, you should consult your tax adviser.
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
STATE CONTRACT CONTRACT
<S> <C> <C>
========================================================================================
California .50% 2.35%
- ----------------------------------------------------------------------------------------
Kentucky 2% 2%
- ----------------------------------------------------------------------------------------
Maine 0% 2%
- ----------------------------------------------------------------------------------------
Nevada 0% 3.5%
- ----------------------------------------------------------------------------------------
South Dakota 0% 1.25%
- ----------------------------------------------------------------------------------------
West Virginia 1% 1%
- ----------------------------------------------------------------------------------------
Wyoming 0% 1%
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE> 29
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX B -- MARKET VALUE ADJUSTMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The market value adjustment reflects the impact that changing interest rate have
on the value of money invested at a fixed interest rate. The longer the period
of time remaining in the term you initially agreed to leave your money in the
fixed investment option, the greater the impact of changing interest rates. The
impact of the market value adjustment can be either positive or negative, and is
computed by multiplying the amount withdrawn, transferred, or annuitized by the
following formula:
(N-T)/12
[(1+I/(1+J+0.005)] - 1
where:
I = The Guarantee Period interest rate in effect for the Guarantee
Period on the Certificate
J = The Current Interest Rate available for the same Guarantee Period
n = The original term in number of full months rounded up to the nearest
integer for the Guarantee Period to the end of the Calendar Year
t = Time expired in months rounded up to the nearest integer for the
Guarantee Period to the end of the Calendar Year
(n-t) = The number of full months remaining in the Guarantee Period to
the end of the Calendar Year.
The market value adjustment is applied only if the absolute difference between
the Guarantee Period Interest Rate in effect for the Guarantee Period and the
Current Interest Rate for a new Purchase Payment is greater than 0.50%.
Additionally, if the market value adjustment is negative, it may not reduce the
Certificate Value below the sum of Purchase payments made less withdrawals,
accumulated at an effective annual rate of 3% from the date of receipt or
withdrawal to the date of surrender. If the market value adjustment is positive,
the amount added to the Certificate Value may not exceed the amount that if
negative, could be deducted.
EXAMPLES OF THE MARKET VALUE ADJUSTMENT
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 on October 1, 1998 and
allocated it to the 5-Year Fixed MVA account option. Thus, the original
term, in number of full months, for the Guarantee Period is 63 months
(n=63).
(2) The Guarantee Period Interest rate for the Guarantee Period is 6.00%
(I=0.0600). Therefore, the Certificate Value on the date of withdrawal
is $10,884.66 (assumes 531 days of interest).
(3) You make a partial withdrawal of $5,000 on March 15, 2000, after the
funds have been in the 5-Year Fixed MVA account option for 17 1/2
months. (t=18).
(4) You have not made any transfers, additional Purchase Payments, or
withdrawals with respect to the 5-Year Fixed MVA account.
The sum of purchase payments, less withdrawals, accumulated at an annual
effective rate of 3.00% from the date of deposit or withdrawal to the date of
surrender defines the minimum remaining Certificate Value after the application
of a negative market value adjustment and is calculated as follows ($10,439.40
assumes 531 days of interest at an annual effective rate of 3.00%):
10,439.40-5,000.00=$5,439.40
Therefore, if the market value adjustment is negative, the maximum amount by
which the Certificate Value can be reduced is the Certificate Value prior to the
application of the market value adjustment less the minimum remaining
Certificate Value. Similarly, if the market value adjustment is positive, the
maximum amount by which the Certificate Value is increased, is the Certificate
Value prior to the application of the market value adjustment less the minimum
remaining Certificate Value. In the examples that follow, the maximum market
value adjustment, either positive or negative, is:
5,884.66-5,439.40=$445.26
The market value adjustment is not applied to amounts withdrawn to pay fees or
charges.
B-1
<PAGE> 30
NEGATIVE ADJUSTMENT
Assume that on the date of withdrawal, the Current Interest Rate for the same
Guarantee Period is 6.75% (J=0.0675). Because the absolute difference between
the Guarantee Period Interest Rate (6.00%) and the Current Interest Rate (6.75%)
is greater than 0.50%, the market value adjustment is applicable.
The market value adjustment (n-t)/12
factor equals: = [(1+I)/(1+J+0.0050)] - 1
(63-18)/12
= [(1.06)/(1.0675+0.0050)] - 1
45/12
= [(1.06)/(1.0725)] - 1
3.75
= (0.988345) - 1
= 0.95699 - 1
= -(0.043011)
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
-0.043011x5,000.00 = -215.05
Because the market value adjustment, in absolute value, is less than the maximum
market value adjustment ($445.26), the full market value adjustment is assessed.
The remaining Certificate Value is further reduced by withdrawal charges applied
only to the requested withdrawal amount of $5,000.00. The withdrawal charge is
not applied to the market value adjustment.
POSITIVE ADJUSTMENT
Assume that on the date of withdrawal, the Current Interest Rate for the same
Guarantee Period is 5.25% (J = 0.0525). Because the absolute difference between
the Guarantee Period Interest Rate (6.00%) and the Current Interest Rate (5.25%)
is greater than 0.50%, the market value adjustment is applicable.
The market value adjustment (n-t)/12
factor equals: = [(1+I)/(1+J+0.0050)] - 1
(63-18)/12
= [(1.06)/(1.0525+0.0050)] - 1
45/12
= [(1.06)/(1.0575)] - 1
3.75
= (1.002364) - 1
= (1.008894)-1
= (0.008894)
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
0.008894x5,000.00=44.47
Because the market value adjustment, in absolute value, is less than the maximum
market value adjustment ($445.26), the full market value adjustment is assessed.
The remaining Certificate Value is further reduced by withdrawal charges applied
only to the requested withdrawal amount of $5,000.00. The withdrawal charge is
not applied to the market value adjustment.
B-2
<PAGE> 31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX C - CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUES AND ACCUMULATION UNITS
INCEPTION TO FISCAL FOR THE PERIOD
POLARIS PLUS VARIABLE PORTFOLIOS YEAR END 4/30/99 4/30/99 - 9/30/99
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capital Appreciation
Beginning AUV............................................. 27.21 28.69
Ending AUV................................................ 28.69 31.21
Ending Number of AUs...................................... 52,735.90 467,958.09
- ------------------------------------------------------------------------------------------------------
Growth
Beginning AUV............................................. 27.45 28.24
Ending AUV................................................ 28.24 27.39
Ending Number of AUs...................................... 49,892.23 506,099.62
- ------------------------------------------------------------------------------------------------------
Government and Quality Bond
Beginning AUV............................................. 13.60 13.60
Ending AUV................................................ 13.60 13.38
Ending Number of AUs...................................... 180,433.96 2,428,089.30
- ------------------------------------------------------------------------------------------------------
Emerging Markets (Inception Date - 6/2/97)
Beginning AUV............................................. 6.60 7.63
Ending AUV................................................ 7.63 7.80
Ending Number of AUs...................................... 18,837.90 260,349.48
- ------------------------------------------------------------------------------------------------------
International Diversified Equities (Inception
Date - 10/31/94)
Beginning AUV............................................. 13.99 14.36
Ending AUV................................................ 14.36 14.47
Ending Number of AUs...................................... 22,527.95 197,799.35
- ------------------------------------------------------------------------------------------------------
Global Equities
Beginning AUV............................................. 21.05 21.42
Ending AUV................................................ 21.42 21.67
Ending Number of AUs...................................... 14,587.48 301,756.64
- ------------------------------------------------------------------------------------------------------
International Growth and Income (Inception Date - 6/2/97)
Beginning AUV............................................. 11.81 12.87
Ending AUV................................................ 12.87 13.21
Ending Number of AUs...................................... 14,725.35 280,354.33
- ------------------------------------------------------------------------------------------------------
Aggressive Growth (Inception Date - 6/3/96)
Beginning AUV............................................. 15.48 16.18
Ending AUV................................................ 16.18 15.89
Ending Number of AUs...................................... 28,486.50 357,741.01
- ------------------------------------------------------------------------------------------------------
Real Estate (Inception Date - 6/2/97)
Beginning AUV............................................. 9.06 9.98
Ending AUV................................................ 9.98 8.98
Ending Number of AUs...................................... 5,242.33 95,069.49
- ------------------------------------------------------------------------------------------------------
Putnam Growth
Beginning AUV............................................. 25.97 26.04
Ending AUV................................................ 26.04 25.54
Ending Number of AUs...................................... 149,215.14 1,224,471.32
- ------------------------------------------------------------------------------------------------------
Alliance Growth
Beginning AUV............................................. 40.86 40.20
Ending AUV................................................ 40.20 40.17
Ending Number of AUs...................................... 147,759.02 1,648,291.39
- ------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street (Inception Date - 4/1/98)
Beginning AUV............................................. 9.42 10.22
Ending AUV................................................ 10.22 9.36
Ending Number of AUs...................................... 30,614.54 415,828.10
- ------------------------------------------------------------------------------------------------------
Venture Value (Inception Date - 10/31/94)
Beginning AUV............................................. 25.34 26.76
Ending AUV................................................ 26.76 25.12
Ending Number of AUs...................................... 37,451.99 438,957.38
- ------------------------------------------------------------------------------------------------------
Federated Value (Inception Date - 6/3/96)
Beginning AUV............................................. 16.63 17.58
Ending AUV................................................ 17.58 15.97
Ending Number of AUs...................................... 25,264.63 231,730.16
- ------------------------------------------------------------------------------------------------------
Growth-Income
Beginning AUV............................................. 29.83 30.82
Ending AUV................................................ 30.82 30.33
Ending Number of AUs...................................... 124,671.88 1,406,789.65
- ------------------------------------------------------------------------------------------------------
</TABLE>
C-1
<PAGE> 32
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUES AND ACCUMULATION UNITS
INCEPTION TO FISCAL FOR THE PERIOD
POLARIS PLUS VARIABLE PORTFOLIOS YEAR END 4/30/99 4/30/99 - 9/30/99
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Equity Index
Beginning AUV............................................. 10.00 10.26
Ending AUV................................................ 10.26 9.62
Ending Number of AUs...................................... 400,093.36 4,175,794.34
- ------------------------------------------------------------------------------------------------------
Utility (Inception Date - 6/3/96)
Beginning AUV............................................. 14.44 14.98
Ending AUV................................................ 14.98 14.72
Ending Number of AUs...................................... 16,154.31 294,024.49
- ------------------------------------------------------------------------------------------------------
Equity Income
Beginning AUV............................................. 10.00 10.58
Ending AUV................................................ 10.58 9.66
Ending Number of AUs...................................... 36,062.72 469,624.09
- ------------------------------------------------------------------------------------------------------
Asset Allocation
Beginning AUV............................................. 18.47 19.16
Ending AUV................................................ 19.16 18.22
Ending Number of AUs...................................... 27,027.34 351,874.72
- ------------------------------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date - 6/3/96)
Beginning AUV............................................. 17.30 17.48
Ending AUV................................................ 17.48 17.21
Ending Number of AUs...................................... 254,772.99 3,078,229.61
- ------------------------------------------------------------------------------------------------------
Worldwide High Income
Beginning AUV............................................. 13.99 14.77
Ending AUV................................................ 14.77 14.51
Ending Number of AUs...................................... 4,827.60 59,210.86
- ------------------------------------------------------------------------------------------------------
High - Yield Bond
Beginning AUV............................................. 14.71 15.15
Ending AUV................................................ 15.15 14.58
Ending Number of AUs...................................... 23,707.21 224,734.08
- ------------------------------------------------------------------------------------------------------
Corporate Bond
Beginning AUV............................................. 13.09 13.15
Ending AUV................................................ 13.15 12.80
Ending Number of AUs...................................... 32,037.15 381,395.54
- ------------------------------------------------------------------------------------------------------
Global Bond
Beginning AUV............................................. 14.43 14.54
Ending AUV................................................ 14.54 14.11
Ending Number of AUs...................................... 40,453.77 355,256.18
- ------------------------------------------------------------------------------------------------------
Small Company Value
Beginning AUV............................................. 10.00 10.96
Ending AUV................................................ 10.96 11.53
Ending Number of AUs...................................... 4,634.20 114,368.71
- ------------------------------------------------------------------------------------------------------
Cash Management
Beginning AUV............................................. 11.95 11.99
Ending AUV................................................ 11.99 12.16
Ending Number of AUs...................................... 337,271.23 1,814,740.39
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUV - Accumulation Unit Value
AU - Accumulation Units
C-2
<PAGE> 33
- --------------------------------------------------------------------------------
Please forward a copy (without charge) of the Polaris Plus Variable Annuity
Statement of Additional Information to:
(Please print or type and fill in all information.)
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City/State/Zip
Date: ______________________ Signed: _________________________________
Return to: Anchor National Life Insurance Company, Annuity Service Center,
P.O. Box 52499, Los Angeles, California 90054-0299
- --------------------------------------------------------------------------------
<PAGE> 34
As filed pursuant to Rule 497(c)
SEC File No. 333-63511
and No. 811-09003
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
(Portion Relating to Polaris Plus Variable Annuity)
This Statement of Additional Information is not a prospectus; it should be read
with the prospectus of the same date relating to the annuity contracts described
above. A copy of the prospectus may be obtained without charge by calling
(877) 999-9205 or writing us at:
ANCHOR NATIONAL LIFE INSURANCE COMPANY
ANNUITY SERVICE CENTER
P.O. BOX 54299
LOS ANGELES, CALIFORNIA 90054-0299
December 29, 1999
<PAGE> 35
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>
-2-
<PAGE> 36
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
-3-
<PAGE> 37
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
PERFORMANCE INFORMATION
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 from the inception of the Separate Account. 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
-4-
<PAGE> 38
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 September 30, 1999, were 3.34%
and 3.39%, 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)/(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
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 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
-5-
<PAGE> 39
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."
HISTORICAL PERFORMANCE OF THE SEPARATE ACCOUNT
FOR THE PERIOD ENDING
SEPTEMBER 30, 1999
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
SINCE INCEPTION SINCE INCEPTION
INCEPTION (WITHOUT REDEMPTION) (WITH REDEMPTION)
-------------------- -------------------- -----------------
<S> <C> <C> <C>
Capital Appreciation 3/19/99 14.71% 8.71%
Growth 3/19/99 -0.24% -6.24%
Government and Quality Bond 3/19/99 -1.59% -7.59%
Corporate Bond 3/23/99 -2.23% -8.23%
Global Bond 3/19/99 -2.23% -8.23%
High Yield 3/19/99 -0.92% -6.92%
Worldwide High Income 3/31/99 3.68% -2.32%
Asset Allocation 3/23/99 -1.39% -7.39%
Growth & Income 3/19/99 1.68% -4.32%
Venture Value 3/19/99 -0.89% -6.89%
Putnam Growth 3/19/99 -1.67% -7.67%
Alliance Growth 3/19/99 -1.69% -7.69%
Global Equities 3/19/99 2.95% -3.05%
Federated Utility 3/19/99 1.91% -4.09%
SunAmerica Balanced 3/19/99 -0.51% -6.51%
Federated Value 3/19/99 -3.95% -9.95%
Aggressive Growth 3/19/99 2.63% -3.37%
International Diversified Equities 3/19/99 3.44% -2.56%
Emerging Markets 3/23/99 18.26% 12.26%
International Growth & Income 3/24/99 11.89% 5.89%
Real Estate 3/31/99 -0.84% -6.84%
"Dogs" of Wall Street 3/19/99 -0.59% -6.59%
Equity Income 3/23/99 -3.35% -9.35%
Equity Index 3/19/99 -3.79% -9.79%
Small Company Value 3/23/99 15.34% 9.34%
</TABLE>
ADJUSTED HISTORICAL PERFORMANCE OF UNDERLYING FUNDS FOR PERIODS ENDING
SEPTEMBER 30, 1999:
AFTER REDEMPTION
<TABLE>
<CAPTION> 10 YEARS OR
INCEPTION* 1 YEAR 5 YEAR SINCE INCEPTION
-------------------- -------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Capital Appreciation 3/23/87 44.28% 22.94% 17.63%
Growth 8/13/84 23.70% 20.61% 13.93%
Government and Quality Bond 8/13/84 -8.30% 5.94% 6.59%
Corporate Bond 7/1/93 -8.84% 5.33% 4.26%
Global Bond 7/1/93 -8.10% 7.42% 5.91%
High Yield 2/9/93 -3.23% -6.46% 6.09%
Worldwide High Income 10/31/94 11.97% N/A 7.50%
Asset Allocation 7/1/93 0.02% 11.04% 10.32%
Growth & Income 2/9/93 32.62% 23.93% 18.43%
Venture Value 10/31/94 18.37% N/A 20.45%
Putnam Growth 2/9/93 22.63% 20.34% 15.40%
Alliance Growth 2/9/93 37.27% 30.90% 23.53%
Global Equities 2/9/93 25.62% 12.82% 12.61%
Federated Utility 6/3/96 -2.13% N/A 11.44%
SunAmerica Balanced 6/3/96 14.37% N/A 16.94%
Federated Value 6/3/96 8.57% N/A 14.31%
Aggressive Growth 6/3/96 50.55% N/A 14.12%
International Diversified Equities 10/31/94 13.11% N/A 7.43%
Emerging Markets 6/2/97 41.05% N/A -12.38%
International Growth & Income 6/2/97 27.84% N/A 11.11%
Real Estate 6/2/97 -12.85% N/A -6.53%
"Dogs" of Wall Street 4/1/98 1.49% N/A -8.20
Equity Income N/A N/A N/A N/A
Equity Index N/A N/A N/A N/A
Small Company Value N/A N/A N/A N/A
</TABLE>
* For portfolios with six years of performance withdrawal charge Schedule B (as
defined in the prospectus) was used. Under withdrawal charge Schedule A (as
defined in the prospectus) no surrender charge would apply. Year six is the
only year in which the schedules differ.
BEFORE REDEMPTION
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
10 Years or
Inception 1 Year 5 Year Since Inception
----------------------------------------------------------------
Capital Appreciation 3/23/87 50.28% 23.29% 17.63%
Growth 8/13/84 29.70% 20.98% 13.93%
Government and Quality Bond 8/13/84 -2.30% 6.56% 6.59%
Corporate Bond 7/1/93 -2.84% 5.98% 4.26%
Global Bond 7/1/93 -2.10% 8.01% 5.91%
High Yield 2/9/93 2.77% 7.08% 6.09%
Worldwide High Income 10/31/94 17.97% N/A 8.10%
Asset Allocation 7/1/93 6.02% 11.56% 10.32%
Growth & Income 2/9/93 38.62% 24.27% 18.43%
Venture Value 10/31/94 24.37% N/A 20.84%
Putnam Growth 2/9/93 28.63% 20.72% 15.40%
Alliance Growth 2/9/93 43.27% 31.17% 23.53%
Global Equities 2/9/93 31.62% 13.31% 12.61%
Federated Utility 6/3/96 3.87% N/A 12.59%
SunAmerica Balanced 6/3/96 20.37% N/A 17.98%
Federated Value 6/3/96 14.57% N/A 15.40%
Aggressive Growth 6/3/96 56.55% N/A 15.21%
International Diversified Equities 10/31/94 19.11% N/A 8.04%
Emerging Markets 6/2/97 47.05% N/A -9.87%
International Growth & Income 6/2/97 33.84% N/A 12.95%
Real Estate 6/2/97 -6.85% N/A -4.21%
"Dogs" of Wall Street 4/1/98 7.49% N/A -4.06%
Equity Income N/A N/A N/A N/A
Equity Index N/A N/A N/A N/A
Small Company Value N/A N/A N/A N/A
</TABLE>
-6-
<PAGE> 40
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> 41
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).
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.
INCOME PAYMENTS
INITIAL MONTHLY ANNUITY PAYMENTS
The initial income payment is determined by applying separately that
portion of the contract value allocated to the fixed account 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 income 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 income payments, the amount of the second and each subsequent
monthly income payment is the same as that determined above for the first
monthly payment.
For variable income 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 income payment is due.
INCOME PAYMENTS UNDER THE INCOME PROTECTOR PROGRAM
If contract holders elect to begin Income Payments using the Income
Protector Program, the income benefit base if determined as described in the
prospectus. The initial Income Payment is determined by applying the income
benefit base to the annuity table specifically designated for use in conjunction
with the Income Protector Program, either in the contract or in the endorsement
to the contract. Those tables are based on a set amount per $1,000 of income
benefit base applied. Income proceeds applied. The appropriate rate must be
determined by the sex (except where, as in the case of certain Qualified
contracts and other employer-sponsored retirement plans, such classification is
not permitted) and age of the Annuitant and designated second person, if any,
and the Income Option selected.
The income benefit base is applied and then divided by 1,000 and the
result multiplied by the appropriate annuity factor appearing in the table to
compute the amount of the first monthly Income Payment. The amount of the second
and each subsequent income payment is the same as that determined above for the
first monthly payment.
ANNUITY UNIT VALUES
The value of an Annuity Unit is determined independently for each
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 income payments derived from allocations to
that Portfolio will increase over time. Conversely, if the actual rate is less
than 3.5%, variable income payments will decrease over time. If the net
investment rate equals 3.5%, the variable income payments will remain constant.
If a higher assumed investment rate had been used, the
-8-
<PAGE> 42
initial monthly payment would be higher, but the actual net investment rate
would also have to be higher in order for income 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 Variable Portfolios elected, and the amount of each income
payment will vary accordingly.
For each Variable 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
-9-
<PAGE> 43
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 INCOME 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 income payment
date is $13.327695.
P's first variable income 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 income 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 income payments are computed in a
manner similar to the second variable annuity payment.
Note that the amount of the first variable income 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
-10-
<PAGE> 44
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
-11-
<PAGE> 45
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> 46
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, 1998 and 1997 and for each of the three years in the period ended
September 30, 1998 are presented in this Statement of Additional Information.
Effective October 1, 1999, the Company changed its fiscal year end to December
31. Reflecting this change, also included in this Statement of Additional
Information is the Company's audited Transition Report as of and for the three
months ended December 31, 1998. These financial statements of the Company should
be considered only as bearing on the ability 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. Two sets of Financial Statements of the Separate Account are
also included in this Statement of Additional Information reflecting the period
from (a) inception through April 30, 1999, (b) May 1, 1999 through September 30,
1999.
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 and the Separate
Account have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
-13-
<PAGE> 47
Report of Independent Accountants
To the Board of Directors and Shareholder of
Anchor National Life Insurance Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statement of income and comprehensive income and cash flows present
fairly, in all material respects, the financial position of Anchor National Life
Insurance Company and its subsidiaries (the "Company") at December 31, 1998,
September 30, 1998 and 1997, and the results of their operations and their cash
flows for the three months ended December 31, 1998 and for each of the three
fiscal years in the period ended September 30, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
November 19, 1999
3
<PAGE> 48
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At September 30,
December 31, ------------------------------------
1998 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 3,303,454,000 $ 333,735,000 $ 113,580,000
Bonds, notes and redeemable
preferred stocks available for sale,
at fair value (amortized cost:
December 1998, $4,252,740,000;
September 1998, $1,934,863,000;
September 1997, $1,942,485,000) 4,248,840,000 1,954,754,000 1,986,194,000
Mortgage loans 388,780,000 391,448,000 339,530,000
Policy loans 320,688,000 11,197,000 10,948,000
Common stocks available for sale,
at fair value (cost: December 1998,
$1,409,000; September 1998, $115,000;
September 1997, $271,000) 1,419,000 169,000 1,275,000
Partnerships 4,577,000 4,403,000 46,880,000
Real estate 24,000,000 24,000,000 24,000,000
Other invested assets 15,185,000 15,036,000 85,894,000
--------------- --------------- ---------------
Total investments 8,306,943,000 2,734,742,000 2,608,301,000
Variable annuity assets held in separate
accounts 13,767,213,000 11,133,569,000 9,343,200,000
Accrued investment income 73,441,000 26,408,000 21,759,000
Deferred acquisition costs 866,053,000 539,850,000 536,155,000
Income taxes currently receivable -- 5,869,000 --
Receivable from brokers for sales of
securities 22,826,000 23,904,000 2,290,000
Other assets 109,857,000 85,926,000 61,524,000
--------------- --------------- ---------------
TOTAL ASSETS $23,146,333,000 $14,550,268,000 $12,573,229,000
=============== =============== ===============
</TABLE>
See accompanying notes
4
<PAGE> 49
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET (Continued)
<TABLE>
<CAPTION>
At September 30,
December 31, --------------------------------------
1998 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $ 5,500,157,000 $ 2,189,272,000 $ 2,098,803,000
Reserves for universal life insurance
contracts 2,339,194,000 -- --
Reserves for guaranteed investment
contracts 306,461,000 282,267,000 295,175,000
Payable to brokers for purchases of
securities -- 50,957,000 2,553,000
Income taxes currently payable 11,123,000 -- 32,265,000
Other liabilities 160,020,000 106,594,000 122,728,000
---------------- ---------------- ----------------
Total reserves, payables
and accrued liabilities 8,316,955,000 2,629,090,000 2,551,524,000
---------------- ---------------- ----------------
Variable annuity liabilities related to
separate accounts 13,767,213,000 11,133,569,000 9,343,200,000
---------------- ---------------- ----------------
Subordinated notes payable to affiliates 209,367,000 39,182,000 36,240,000
---------------- ---------------- ----------------
Deferred income taxes 105,772,000 95,758,000 67,047,000
---------------- ---------------- ----------------
Shareholder's equity:
Common Stock 3,511,000 3,511,000 3,511,000
Additional paid-in capital 378,674,000 308,674,000 308,674,000
Retained earnings 366,460,000 332,069,000 244,628,000
Accumulated other comprehensive
income (loss) (1,619,000) 8,415,000 18,405,000
---------------- ---------------- ----------------
Total shareholder's equity 747,026,000 652,669,000 575,218,000
---------------- ---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 23,146,333,000 $ 14,550,268,000 $ 12,573,229,000
================ ================ ================
</TABLE>
See accompanying notes
5
<PAGE> 50
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Investment income $ 54,278,000 $ 221,966,000 $ 210,759,000 $ 164,631,000
------------- ------------- ------------- -------------
Interest expense on:
Fixed annuity contracts (22,828,000) (112,695,000) (109,217,000) (82,690,000)
Guaranteed investment
contracts (3,980,000) (17,787,000) (22,650,000) (19,974,000)
Senior indebtedness (34,000) (1,498,000) (2,549,000) (2,568,000)
Subordinated notes payable to
affiliates (471,000) (3,114,000) (3,142,000) (2,556,000)
------------- ------------- ------------- -------------
Total interest expense (27,313,000) (135,094,000) (137,558,000) (107,788,000)
------------- ------------- ------------- -------------
NET INVESTMENT INCOME 26,965,000 86,872,000 73,201,000 56,843,000
------------- ------------- ------------- -------------
NET REALIZED INVESTMENT GAINS
(LOSSES) 271,000 19,482,000 (17,394,000) (13,355,000)
------------- ------------- ------------- -------------
Fee income:
Variable annuity fees 58,806,000 200,867,000 139,492,000 103,970,000
Net retained commissions 11,479,000 48,561,000 39,143,000 31,548,000
Asset management fees 8,068,000 29,592,000 25,764,000 25,413,000
Surrender charges 3,239,000 7,404,000 5,529,000 5,184,000
Other fees 1,738,000 3,938,000 3,218,000 3,390,000
------------- ------------- ------------- -------------
TOTAL FEE INCOME 83,330,000 290,362,000 213,146,000 169,505,000
------------- ------------- ------------- -------------
GENERAL AND ADMINISTRATIVE
EXPENSES (22,375,000) (96,102,000) (98,802,000) (81,552,000)
------------- ------------- ------------- -------------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS (27,070,000) (72,713,000) (66,879,000) (57,520,000)
------------- ------------- ------------- -------------
ANNUAL COMMISSIONS (6,624,000) (18,209,000) (8,977,000) (4,613,000)
------------- ------------- ------------- -------------
PRETAX INCOME 54,497,000 209,692,000 94,295,000 69,308,000
Income tax expense (20,106,000) (71,051,000) (31,169,000) (24,252,000)
------------- ------------- ------------- -------------
NET INCOME 34,391,000 138,641,000 63,126,000 45,056,000
------------- ------------- ------------- -------------
Other comprehensive income, net
of tax:
Net unrealized gains on bonds and
notes available for sale:
Net unrealized gains
identified in the current
period (10,249,000) (4,027,000) 16,605,000 (11,265,000)
Less reclassification
Adjustment for net
realized gains included
in net income 215,000 (5,963,000) 7,321,000 11,417,000
------------- ------------- ------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS) (10,034,000) (9,990,000) 23,926,000 152,000
------------- ------------- ------------- -------------
COMPREHENSIVE INCOME $ 24,357,000 $ 128,651,000 $ 87,052,000 $ 45,208,000
============= ============= ============= =============
</TABLE>
See accompanying notes
6
<PAGE> 51
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 34,391,000 $ 138,641,000 $ 63,126,000 $ 45,056,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Interest credited to:
Fixed annuity contracts 22,828,000 112,695,000 109,217,000 82,690,000
Guaranteed investment
contracts 3,980,000 17,787,000 22,650,000 19,974,000
Net realized investment losses
(gains) (271,000) (19,482,000) 17,394,000 13,355,000
Amortization (accretion) of
net premiums (discounts)
on investments (1,199,000) 447,000 (18,576,000) (8,976,000)
Amortization of goodwill 356,000 1,422,000 1,187,000 1,169,000
Provision for deferred income
taxes 15,945,000 34,087,000 (16,024,000) (3,351,000)
Change in:
Accrued investment income (1,512,000) (4,649,000) (2,084,000) (5,483,000)
Deferred acquisition costs (34,328,000) (160,926,000) (113,145,000) (60,941,000)
Other assets (21,070,000) (19,374,000) (14,598,000) (8,000,000)
Income taxes currently payable 16,992,000 (38,134,000) 10,779,000 5,766,000
Other liabilities 5,617,000 (2,248,000) 14,187,000 5,474,000
Other, net 5,510,000 (5,599,000) 418,000 (129,000)
--------------- --------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 47,239,000 54,667,000 74,531,000 86,604,000
--------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of:
Bonds, notes and redeemable
preferred stocks (392,515,000) (1,970,502,000) (2,566,211,000) (1,937,890,000)
Mortgage loans (4,962,000) (131,386,000) (266,771,000) (15,000,000)
Other investments, excluding
short-term investments (1,992,000) -- (75,556,000) (36,770,000)
Sales of:
Bonds, notes and redeemable
Preferred stocks 265,039,000 1,602,079,000 2,299,063,000 1,241,928,000
Real estate -- -- -- 900,000
Other investments, excluding
short-term investments 142,000 42,458,000 6,421,000 4,937,000
Redemptions and maturities of:
Bonds, notes and redeemable
preferred stocks 37,290,000 424,393,000 376,847,000 288,969,000
Mortgage loans 7,699,000 80,515,000 25,920,000 11,324,000
Other investments, excluding
short-term investments 853,000 67,213,000 23,940,000 20,749,000
Cash and short-term investments
acquired in coinsurance
transaction with MBL Life
Assurance Corporation 3,083,211,000 -- -- --
--------------- --------------- --------------- ---------------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES 2,994,765,000 114,770,000 (176,347,000) (420,853,000)
--------------- --------------- --------------- ---------------
</TABLE>
7
<PAGE> 52
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Premium receipts on:
Fixed annuity contracts $ 351,616,000 $ 1,512,994,000 $ 1,097,937,000 $ 741,774,000
Guaranteed investment
contracts -- 5,619,000 55,000,000 134,967,000
Net exchanges from the fixed
accounts of variable annuity
contracts (448,762,000) (1,303,790,000) (620,367,000) (236,705,000)
Withdrawal payments on:
Fixed annuity contracts (41,554,000) (191,690,000) (242,589,000) (263,614,000)
Guaranteed investment
contracts (3,797,000) (36,313,000) (198,062,000) (16,492,000)
Claims and annuity payments
on fixed annuity contracts (9,333,000) (40,589,000) (35,731,000) (31,107,000)
Net receipts from (repayments
of) other short-term
financings 9,545,000 (10,944,000) 34,239,000 (119,712,000)
Net receipt/(payment) related to
a modified coinsurance
transaction (170,436,000) 166,631,000 -- --
Receipts from issuance of
subordinated note payable
to affiliate 170,436,000 -- -- --
Capital contribution received 70,000,000 -- 28,411,000 27,387,000
Dividends paid -- (51,200,000) (25,500,000) (29,400,000)
--------------- --------------- --------------- ---------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (72,285,000) 50,718,000 93,338,000 207,098,000
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS 2,969,719,000 220,155,000 (8,478,000) (127,151,000)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD 333,735,000 113,580,000 122,058,000 249,209,000
--------------- --------------- --------------- ---------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 3,303,454,000 $ 333,735,000 $ 113,580,000 $ 122,058,000
=============== =============== =============== ===============
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid on indebtedness $ 536,000 $ 3,912,000 $ 7,032,000 $ 5,982,000
=============== =============== =============== ===============
Net income taxes paid (refunded) $ (12,302,000) $ 74,932,000 $ 36,420,000 $ 22,031,000
=============== =============== =============== ===============
</TABLE>
See accompanying notes
8
<PAGE> 53
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company (the "Company") is an
Arizona-domiciled life insurance company and conducts its business
through three segments: annuity operations, asset management operations
and broker-dealer operations. Annuity operations include the sale and
administration of fixed and variable annuities and guaranteed
investment contracts. Asset management operations, which include the
sale and management of mutual funds, is conducted by SunAmerica Asset
Management Corp. Broker-dealer operations include the sale of
securities and financial services products, and are conducted by Royal
Alliance Associates, Inc.
The operations of the Company are influenced by many factors, including
general economic conditions, monetary and fiscal policies of the
federal government, and policies of state and other regulatory
authorities. The level of sales of the Company's financial products is
influenced by many factors, including general market rates of interest,
strength, weakness and volatility of equity markets, and terms and
conditions of competing financial products. The Company is exposed to
the typical risks normally associated with a portfolio of fixed-income
securities, namely interest rate, option, liquidity and credit risk.
The Company controls its exposure to these risks by, among other
things, closely monitoring and matching the duration of its assets and
liabilities, monitoring and limiting prepayment and extension risk in
its portfolio, maintaining a large percentage of its portfolio in
highly liquid securities, and engaging in a disciplined process of
underwriting, reviewing and monitoring credit risk. The Company also is
exposed to market risk, as market volatility may result in reduced fee
income in the case of assets managed in mutual funds and held in
separate accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: At December 31, 1998, the Company was a wholly
owned indirect subsidiary of SunAmerica Inc. On January 1, 1999,
SunAmerica Inc. merged with and into American International Group, Inc.
("AIG") in a tax-free reorganization that has been treated as a pooling
of interests for accounting purposes. Thus, SunAmerica Inc. ceased to
exist on that date. However, on the date of merger, substantially all
of the net assets of SunAmerica Inc. were contributed to a newly formed
subsidiary of AIG named SunAmerica Inc. ("SunAmerica").
The accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and include
the accounts of the Company and all of its wholly owned subsidiaries.
All significant intercompany accounts and transactions are eliminated
in consolidation. Certain items have been reclassified to conform to
the current period's presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from
those estimates.
9
<PAGE> 54
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVESTMENTS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and
short-term bank participations. All such investments are carried at
cost plus accrued interest, which approximates fair value, have
maturities of three months or less and are considered cash equivalents
for purposes of reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and
common stocks are carried at aggregate fair value and changes in
unrealized gains or losses, net of tax, are credited or charged
directly to shareholder's equity. Bonds, notes and redeemable preferred
stocks are reduced to estimated net realizable value when necessary for
declines in value considered to be other than temporary. Estimates of
net realizable value are subjective and actual realization will be
dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of
provisions for estimated losses. Policy loans are carried at unpaid
balances. Limited partnerships are accounted for by the cost method of
accounting. Real estate is carried at the lower of cost or fair value.
Other invested assets include investments in separate account
investments, leveraged leases, and collateralized mortgage obligation
residuals.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined by using the specific
cost identification method. Premiums and discounts on investments are
amortized to investment income by using the interest method over the
contractual lives of the investments.
INTEREST RATE SWAP AGREEMENTS: The net differential to be paid or
received on interest rate swap agreements ("Swap Agreements") entered
into to reduce the impact of changes in interest rates is recognized
over the lives of the agreements, and such differential is classified
as Investment Income or Interest Expense in the income statement.
Initially, Swap Agreements are designated as hedges and, therefore, are
not marked to market. However, when a hedged asset/liability is sold or
repaid before the related Swap Agreement matures, the Swap Agreement is
marked to market and any gain/loss is classified with any gain/loss
realized on the disposition of the hedged asset/liability.
Subsequently, the Swap Agreement is marked to market and the resulting
change in fair value is included in Investment Income in the income
statement. When a Swap Agreement that is designated as a hedge is
terminated before its contractual maturity, any resulting gain/loss is
credited/charged to the carrying value of the asset/liability that it
hedged and is treated as a premium/discount for the remaining life of
the asset/liability.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, in relation to the incidence of estimated
gross profits to be realized over the estimated lives of the annuity
contracts. Estimated gross profits are composed of net interest income,
net realized investment gains and losses, variable annuity fees,
surrender charges and direct administrative expenses. Costs incurred to
sell mutual funds are also deferred and amortized over the
10
<PAGE> 55
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
estimated lives of the funds obtained. Deferred acquisition costs
("DAC") consist of commissions and other costs that vary with, and are
primarily related to, the production or acquisition of new business.
As debt and equity securities available for sale are carried at
aggregate fair value, an adjustment is made to DAC equal to the change
in amortization that would have been recorded if such securities had
been sold at their stated aggregate fair value and the proceeds
reinvested at current yields. The change in this adjustment, net of
tax, is included with the change in accumulated other comprehensive
income/(loss) that is credited or charged directly to shareholder's
equity. DAC has been increased by $1,400,000 at December 31, 1998,
decreased by $7,000,000 at September 30, 1998, and decreased by
$16,400,000 at September 30, 1997 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated
in separate accounts. The Company receives administrative fees for
managing the funds and other fees for assuming mortality and certain
expense risks. Such fees are included in Variable Annuity Fees in the
income statement.
GOODWILL: Goodwill, amounting to $22,983,000 at December 31, 1998, is
amortized by using the straight-line method over periods averaging 25
years and is included in Other Assets in the balance sheet. Goodwill is
evaluated for impairment when events or changes in economic conditions
indicate that the carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
contracts and guaranteed investment contracts are accounted for as
investment-type contracts in accordance with Statement of Financial
Accounting Standards No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains
and Losses from the Sale of Investments," and are recorded at
accumulated value (premiums received, plus accrued interest, less
withdrawals and assessed fees).
FEE INCOME: Variable annuity fees, asset management fees and surrender
charges are recorded in income as earned. Net retained commissions are
recognized as income on a trade date basis.
INCOME TAXES: The Company is included in the consolidated federal
income tax return of the Parent and files as a "life insurance company"
under the provisions of the Internal Revenue Code of 1986. Income taxes
have been calculated as if the Company filed a separate return.
Deferred income tax assets and liabilities are recognized based on the
difference between financial statement carrying amounts and income tax
bases of assets and liabilities using enacted income tax rates and
laws.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1997, the Financial
Accounting Standards Board (the "FASB") issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") and Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information"
("SFAS 131").
11
<PAGE> 56
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SFAS 130 establishes standards for reporting comprehensive income and
its components in a full set of general purpose financial statements.
SFAS 130 is effective for the Company as of October 1, 1998 and is
included in these financial statements.
SFAS 131 establishes standards for the disclosure of information about
the Company's operating segments. SFAS 131 is effective for the year
ending December 31, 1999 and is not included in these financial
statements.
Implementation of SFAS 131 will not have an impact on the Company's
results of operations, financial condition or liquidity.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 addresses the accounting for
derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. SFAS 133 was
postponed by SFAS 137, and now will be effective for the Company as of
January 1, 2001. Therefore, it is not included in the accompanying
financial statements. The Company has not completed its analysis of the
effect of SFAS 133, but management believes that it will not have a
material impact on the Company's results of operations, financial
condition or liquidity.
3. FISCAL YEAR CHANGE
Effective December 31, 1998, the Company changed its fiscal year end
from September 30 to December 31. Accordingly, the consolidated
financial statements include the results of operations and cash flows
for the three-month transition period ended December 31, 1998. Such
results are not necessarily indicative of operations for a full year.
The consolidated financial statements as of and for the three months
ended December 31, 1998 were originally filed as the Company's
unaudited Transition Report on Form 10-Q.
Results for the comparable prior year period are summarized below.
Three Months Ended
December 31, 1997
------------------
Investment income 59,855,000
Net investment income 26,482,000
Net realized investment gains 20,935,000
Total fee income 63,984,000
Pretax income 67,654,000
Net income 44,348,000
==========
12
<PAGE> 57
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale by major category
follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 6,033,000 $ 6,272,000
Mortgage-backed securities 546,790,000 553,990,000
Securities of public utilities 208,074,000 205,119,000
Corporate bonds and notes 2,624,330,000 2,616,073,000
Redeemable preferred stocks 6,125,000 7,507,000
Other debt securities 861,388,000 859,879,000
-------------- --------------
Total $4,252,740,000 $4,248,840,000
============== ==============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 84,377,000 $ 88,239,000
Mortgage-backed securities 569,613,000 584,007,000
Securities of public utilities 108,431,000 106,065,000
Corporate bonds and notes 883,890,000 884,209,000
Redeemable preferred stocks 6,125,000 6,888,000
Other debt securities 282,427,000 285,346,000
-------------- --------------
Total $1,934,863,000 $1,954,754,000
============== ==============
AT SEPTEMBER 30, 1997:
Securities of the United States
Government $ 18,496,000 $ 18,962,000
Mortgage-backed securities 636,018,000 649,196,000
Securities of public utilities 22,792,000 22,893,000
Corporate bonds and notes 984,573,000 1,012,559,000
Redeemable preferred stocks 6,125,000 6,681,000
Other debt securities 274,481,000 275,903,000
-------------- --------------
Total $1,942,485,000 $1,986,194,000
============== ==============
</TABLE>
13
<PAGE> 58
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS (Continued)
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale by contractual maturity,
as of December 31, 1998, follow:
<TABLE>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
Due in one year or less $ 918,639,000 $ 918,419,000
Due after one year through
five years 1,547,743,000 1,546,798,000
Due after five years through
ten years 815,959,000 816,689,000
Due after ten years 423,609,000 412,944,000
Mortgage-backed securities 546,790,000 553,990,000
-------------- --------------
Total $4,252,740,000 $4,248,840,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above due to prepayments and redemptions.
14
<PAGE> 59
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS (continued)
Gross unrealized gains and losses on bonds, notes and redeemable
preferred stocks available for sale by major category follow:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Gains Losses
------------ ------------
<S> <C> <C>
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 239,000 $ --
Mortgage-backed securities 9,398,000 (2,198,000)
Securities of public utilities 926,000 (3,881,000)
Corporate bonds and notes 22,227,000 (30,484,000)
Redeemable preferred stocks 1,382,000 --
Other debt securities 2,024,000 (3,533,000)
------------ ------------
Total $ 36,196,000 $(40,096,000)
============ ============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 3,862,000 $ --
Mortgage-backed securities 15,103,000 (709,000)
Securities of public utilities 2,420,000 (4,786,000)
Corporate bonds and notes 31,795,000 (31,476,000)
Redeemable preferred stocks 763,000 --
Other debt securities 5,235,000 (2,316,000)
------------ ------------
Total $ 59,178,000 $(39,287,000)
============ ============
AT SEPTEMBER 30, 1997:
Securities of the United States
Government $ 498,000 $ (32,000)
Mortgage-backed securities 14,998,000 (1,820,000)
Securities of public utilities 141,000 (40,000)
Corporate bonds and notes 28,691,000 (705,000)
Redeemable preferred stocks 556,000 --
Other debt securities 1,569,000 (147,000)
------------ ------------
Total $ 46,453,000 $ (2,744,000)
============ ============
</TABLE>
Gross unrealized gains on equity securities available for sale
aggregated $10,000, $54,000, and $1,004,000 at December 31, 1998,
September 30, 1998, and September 30, 1997, respectively. There were no
unrealized losses at December 31, 1998, September 30, 1998, or
September 30, 1997.
15
<PAGE> 60
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS (Continued)
Gross realized investment gains and losses on sales of investments are
as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended --------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BONDS, NOTES AND
REDEEMABLE PREFERRED
STOCKS:
Realized gains $ 6,669,000 $ 28,086,000 $ 22,179,000 $ 14,532,000
Realized losses (5,324,000) (4,627,000) (25,310,000) (10,432,000)
COMMON STOCKS:
Realized gains 12,000 337,000 4,002,000 511,000
Realized losses (9,000) -- (312,000) (3,151,000)
OTHER INVESTMENTS:
Realized gains 573,000 8,824,000 2,450,000 1,135,000
IMPAIRMENT WRITEDOWNS (1,650,000) (13,138,000) (20,403,000) (15,950,000)
------------ ------------ ------------ ------------
Total net realized
investment gains
and losses $ 271,000 $ 19,482,000 $(17,394,000) $(13,355,000)
============ ============ ============ ============
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended --------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Short-term investments $ 4,649,000 $ 12,524,000 $ 11,780,000 $ 10,647,000
Bonds, notes and
redeemable preferred
stocks 39,660,000 156,140,000 163,038,000 140,387,000
Mortgage loans 7,904,000 29,996,000 17,632,000 8,701,000
Common stocks -- 34,000 16,000 8,000
Real estate 13,000 (467,000) (296,000) (196,000)
Cost-method partnerships 352,000 24,311,000 6,725,000 4,073,000
Other invested assets 1,700,000 (572,000) 11,864,000 1,011,000
------------- ------------- ------------- -------------
Total investment income $ 54,278,000 $ 221,966,000 $ 210,759,000 $ 164,631,000
============= ============= ============= =============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to
$500,000 for the three months ended December 31, 1998, $1,910,000 for
the year ended September 30, 1998, $2,050,000 for the year ended
September 30, 1997, and $1,737,000 for the year ended September 30,
1996, and are included in General and Administrative Expenses in the
income statement.
16
<PAGE> 61
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS (Continued)
At December 31, 1998, the following investments exceeded 10% of the
Company's consolidated shareholder's equity of $74,703,000:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
General Motors Acceptance Corporation 188,908,000 188,953,000
Export Development Corporation 114,895,000 114,895,000
Morgan Stanley Dean Witter 111,838,000 111,837,000
Lucent Technologies Inc. 89,901,000 89,901,000
Duke Energy Corporation 89,896,000 89,896,000
International Lease Finance Corp. 84,965,000 84,965,000
Ford Motor Corporation 79,973,000 79,976,000
Gannet Company 79,869,000 79,869,000
Exxon Asset Management Co. 78,935,000 78,935,000
General Electric Capital Corp. 78,008,000 78,008,000
Merrill Lynch & Company 75,040,000 75,042,000
Koch Industries 74,939,000 74,939,000
Government of Canada 74,928,000 74,927,000
-------------- --------------
Total $1,222,095,000 $1,222,143,000
============== ==============
</TABLE>
At December 31, 1998, mortgage loans were collateralized by properties
located in 29 states, with loans totaling approximately 20% of the
aggregate carrying value of the portfolio secured by properties located
in California and approximately 14% by properties located in New York.
No more than 8% of the portfolio was secured by properties in any other
single state.
At December 31, 1998, bonds, notes and redeemable preferred stocks
included $241,769,000 of bonds and notes not rated investment grade.
The Company had no material concentrations of non-investment-grade
assets at December 31, 1998.
At December 31, 1998, the carrying value of investments in default as
to the payment of principal or interest was $3,168,000, composed of
$2,500,000 of bonds and $668,000 of mortgage loans. Such nonperforming
investments had an estimated fair value of $1,918,000.
As a component of its asset and liability management strategy, the
Company utilizes Swap Agreements to match assets more closely to
liabilities. Swap Agreements are agreements to exchange with a
counterparty interest rate payments of differing character (for
example, variable-rate payments exchanged for fixed-rate payments)
based on an underlying principal balance (notional principal) to hedge
against interest rate changes. The Company typically utilizes Swap
Agreements to create a hedge that effectively converts floating-rate
assets and liabilities to fixed-rate instruments. At December 31, 1998,
the Company had one outstanding Swap Agreement with a notional
principal amount of $21,538,000, which matures in December 2024. The
net interest paid amounted to $54,000 for the three months ended
December 31, 1998, $278,000 for the year ended September 30, 1998, and
$125,000 for the year ended September 30, 1997, and is included in
Interest Expense on Guaranteed Investment Contracts in the income
statement. There were no outstanding Swap Agreements at September 30,
1996.
17
<PAGE> 62
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS (Continued)
At December 31, 1998, $5,305,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory
requirements.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to
reasonable estimates of the fair value of only the Company's financial
instruments. The disclosures do not address the value of the Company's
recognized and unrecognized nonfinancial assets (including its real
estate investments and other invested assets except for cost-method
partnerships) and liabilities or the value of anticipated future
business. The Company does not plan to sell most of its assets or
settle most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Selling expenses
and potential taxes are not included. The estimated fair value amounts
were determined using available market information, current pricing
information and various valuation methodologies. If quoted market
prices were not readily available for a financial instrument,
management determined an estimated fair value. Accordingly, the
estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market
transaction.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
CASH AND SHORT-TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based
principally on independent pricing services, broker quotes and other
independent information.
MORTGAGE LOANS: Fair values are primarily determined by discounting
future cash flows to the present at current market rates, using
expected prepayment rates.
COMMON STOCKS: Fair value is based principally on independent pricing
services, broker quotes and other independent information.
COST-METHOD PARTNERSHIPS: Fair value of limited partnerships accounted
for by using the cost method is based upon the fair value of the net
assets of the partnerships as determined by the general partners.
VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS: Variable annuity
assets are carried at the market value of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts are
assigned a fair value equal to current net surrender value. Annuitized
18
<PAGE> 63
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
contracts are valued based on the present value of future cash flows at
current pricing rates.
RESERVES FOR UNIVERSAL LIFE INSURANCE CONTRACTS: Universal life and
single premium life contracts are assigned a fair value equal to
current net surrender value.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on
the present value of future cash flows at current pricing rates and is
net of the estimated fair value of a hedging Swap Agreement, determined
from independent broker quotes.
RECEIVABLE FROM/PAYABLE TO BROKERS FOR PURCHASES OF SECURITIES: Such
obligations represent net transactions of a short-term nature for which
the carrying value is considered a reasonable estimate of fair value.
VARIABLE ANNUITY LIABILITIES RELATED TO SEPARATE ACCOUNTS: Fair values
of contracts in the accumulation phase are based on net surrender
values. Fair values of contracts in the payout phase are based on the
present value of future cash flows at assumed investment rates.
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on
the quoted market prices for similar issues.
19
<PAGE> 64
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Company's financial instruments at
December 31, 1998, September 30, 1998 and 1997, compared with their
respective carrying values, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
--------------- ---------------
<S> <C> <C>
DECEMBER 31, 1998:
ASSETS:
Cash and short-term investments $ 3,303,454,000 $ 3,303,454,000
Bonds, notes and redeemable
preferred stocks 4,248,840,000 4,248,840,000
Mortgage loans 388,780,000 411,230,000
Common stocks 1,419,000 1,419,000
Cost-method partnerships 4,577,000 12,802,000
Variable annuity assets held in
separate accounts 13,767,213,000 13,767,213,000
Receivable from brokers for sales
of securities 22,826,000 22,826,000
LIABILITIES:
Reserves for fixed annuity contracts 5,500,157,000 5,437,045,000
Reserves for universal life
insurance contracts 2,339,194,000 2,339,061,000
Reserves for guaranteed investment
contracts 306,461,000 306,461,000
Variable annuity liabilities related
to separate accounts 13,767,213,000 13,287,434,000
Subordinated notes payable to Parent 209,367,000 210,587,000
=============== ===============
SEPTEMBER 30, 1998:
ASSETS:
Cash and short-term investments $ 333,735,000 $ 333,735,000
Bonds, notes and redeemable
preferred stocks 1,954,754,000 1,954,754,000
Mortgage loans 391,448,000 415,981,000
Common stocks 169,000 169,000
Cost-method partnerships 4,403,000 12,744,000
Variable annuity assets held in
separate accounts 11,133,569,000 11,133,569,000
Receivable from brokers for sales
of securities 23,904,000 23,904,000
LIABILITIES:
Reserves for fixed annuity contracts 2,189,272,000 2,116,874,000
Reserves for guaranteed investment
contracts 282,267,000 282,267,000
Payable to brokers for purchases
of securities 50,957,000 50,957,000
Variable annuity liabilities related
to separate accounts 11,133,569,000 10,696,607,000
Subordinated notes payable to Parent 39,182,000 40,550,000
=============== ===============
</TABLE>
20
<PAGE> 65
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
Carrying Fair
Value Value
-------------- --------------
<S> <C> <C>
SEPTEMBER 30, 1997:
ASSETS:
Cash and short-term investments $ 113,580,000 $ 113,580,000
Bonds, notes and redeemable
preferred stocks 1,986,194,000 1,986,194,000
Mortgage loans 339,530,000 354,495,000
Common stocks 1,275,000 1,275,000
Cost-method partnerships 46,880,000 84,186,000
Variable annuity assets held in
separate accounts 9,343,200,000 9,343,200,000
Receivable from brokers for sales
of securities 2,290,000 2,290,000
LIABILITIES:
Reserves for fixed annuity contracts 2,098,803,000 2,026,258,000
Reserves for guaranteed investment
contracts 295,175,000 295,175,000
Payable to brokers for purchases
of securities 2,553,000 2,553,000
Variable annuity liabilities related
to separate accounts 9,343,200,000 9,077,200,000
Subordinated notes payable to Parent 36,240,000 37,393,000
============== ==============
</TABLE>
6. SUBORDINATED NOTES PAYABLE TO PARENT
On December 30, 1998, the Company received cash totaling $170,436,000
in exchange for issuance of a surplus note (the "Note") payable to its
immediate parent, SunAmerica Life Insurance Company (the "Parent"),
which Note has been included in Subordinated Notes Payable to
Affiliates in the accompanying consolidated balance sheet. Interest on
this note accrues at a rate of 7%.
Subordinated notes and accrued interest payable to affiliates totaled
$209,367,000 at interest rates ranging from 7% to 9% at December 31,
1998, and require principal payments of $23,060,000 in 1999, $5,400,000
in 2000, $10,000,000 in 2001 and $170,436,000 thereafter. On June 30,
1999, the Parent cancelled the Note and funds received were
reclassified to Additional Paid-in Capital.
7. REINSURANCE
On August 11, 1998, the Company entered into a modified coinsurance
transaction, approved by the Arizona Department of Insurance, which
involved the ceding of approximately $5,000,000,000 of variable
annuities to ANLIC Insurance Company (Cayman), a Cayman Islands stock
life insurance company, effective December 31, 1997. As a part of this
transaction, the Company received cash amounting to approximately
$188,700,000, and recorded a corresponding reduction of DAC related to
the coinsured annuities. As payments were made to the reinsurer, the
reduction of DAC was relieved. Certain expenses related to this
transaction were charged directly to DAC amortization in the income
statement. The net effect of this transaction in the income statement
is not material.
21
<PAGE> 66
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. REINSURANCE (Continued)
On December 31, 1998, the Company recaptured this business. As part of
this recapture, the Company paid cash of $170,436,000 and recorded an
increase in DAC of $167,202,000 with the balance of $3,234,000 being
recorded as DAC amortization in the income statement.
On December 31, 1998, the Company acquired the individual life business
and the individual and group annuity business of MBL Life Assurance
Corporation ("MBL Life"), via a 100% coinsurance transaction, for a
cash purchase price of $128,420,000. As part of this transaction, the
Company acquired assets having an aggregate fair value of
$5,718,227,000, composed primarily of invested assets totaling
$5,715,010,000. Liabilities assumed in this acquisition totaled
$5,831,266,000, including $3,460,503,000 of fixed annuity reserves,
$2,308,742,000 of universal life reserves and $24,011,000 of guaranteed
investment contract reserves. Reserves for universal life contracts are
based on fund value. The excess of the purchase price over the fair
value of net assets received amounted to $113,039,000 and is included
in Deferred Acquisition Costs in the accompanying consolidated balance
sheet.
This business was assumed from MBL life subject to existing reinsurance
ceded agreements. At December 31, 1998, the maximum retention on any
single life was $2,000,000, and a total credit of $5,057,000 was taken
against the life insurance reserves, representing predominantly yearly
renewable term reinsurance. In order to limit even further the exposure
to loss on any single insured and to recover an additional portion of
the benefits paid over such limits, the Company entered into a
reinsurance treaty effective January 1, 1999 under which the Company
retains no more than $100,000 of risk on any one insured life. With
respect to these coinsurance agreements, the Company could become
liable for all obligations of the reinsured policies if the reinsurers
were to become unable to meet the obligations assumed under the
respective reinsurance agreements.
Included in the block of business acquired from MBL Life is
approximately $250,000,000 of individual life business and $500,000,000
of group annuity business whose contract owners are residents of New
York State ("the New York Business"). Approximately six months
subsequent to completion of the transaction, the New York Business will
be acquired by the Company's New York affiliate, First SunAmerica Life
Insurance Company ("FSA"), via an assumption reinsurance agreement, and
the remainder of the business will be acquired by the Company via an
assumption reinsurance agreement with MBL Life, which will supersede
the coinsurance agreement. The $128,420,000 purchase price will be
allocated between the Company and its affiliate based on the estimated
future gross profits of the two blocks of business.
8. CONTINGENT LIABILITIES
The Company has entered into two agreements in which it has provided
liquidity support for certain short-term securities of municipalities
by agreeing to purchase such securities in the event there is no other
buyer in the short-term marketplace. In return the Company receives a
fee. The maximum liability under these guarantees at December 31,
22
<PAGE> 67
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. CONTINGENT LIABILITIES (Continued)
1998 is $210,000,000. Management does not anticipate any material
future losses with respect to these liquidity support facilities. An
additional $60,000,000 has been committed to investments in the process
of being funded or to be available in the case of certain natural
disasters, for which the Company receives a fee.
The Company is involved in various kinds of litigation common to its
businesses. These cases are in various stages of development and, based
on reports of counsel, management believes that provisions made for
potential losses relating to such litigation are adequate and any
further liabilities and costs will not have a material adverse impact
upon the Company's financial position, results of operations or cash
flows.
23
<PAGE> 68
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value
Common Stock. At December 31, 1998 and September 30, 1998, 3,511 shares
were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended -----------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balances $ 308,674,000 $ 308,674,000 $ 280,263,000 $ 252,876,000
Capital contributions
received 70,000,000 -- 28,411,000 27,387,000
------------- ------------- ------------- -------------
Ending balances $ 378,674,000 $ 308,674,000 $ 308,674,000 $ 280,263,000
============= ============= ============= =============
RETAINED EARNINGS:
Beginning balances $ 332,069,000 $ 244,628,000 $ 207,002,000 $ 191,346,000
Net income 34,391,000 138,641,000 63,126,000 45,056,000
Dividend paid -- (51,200,000) (25,500,000) (29,400,000)
------------- ------------- ------------- -------------
Ending balances $ 366,460,000 $ 332,069,000 $ 244,628,000 $ 207,002,000
============= ============= ============= =============
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(LOSS):
Beginning balances $ 8,415,000 $ 18,405,000 $ (5,521,000) $ (5,673,000)
Change in net
unrealized gains
(losses) on debt
securities
available for sale (23,791,000) (23,818,000) 57,463,000 (2,904,000)
Change in net
unrealized gains
(losses) on equity
securities
available for sale (44,000) (950,000) (55,000) 3,538,000
Change in adjustment
to deferred
acquisition costs 8,400,000 9,400,000 (20,600,000) (400,000)
Tax effects of net
changes 5,401,000 5,378,000 (12,882,000) (82,000)
------------- ------------- ------------- -------------
Ending balances $ (1,619,000) $ 8,415,000 $ 18,405,000 $ (5,521,000)
============= ============= ============= =============
</TABLE>
24
<PAGE> 69
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. SHAREHOLDER'S EQUITY (Continued)
Dividends that the Company may pay to its shareholder in any year
without prior approval of the Arizona Department of Insurance are
limited by statute. The maximum amount of dividends which can be paid
to shareholders of insurance companies domiciled in the state of
Arizona without obtaining the prior approval of the Insurance
Commissioner is limited to the lesser of either 10% of the preceding
year's statutory surplus or the preceding year's statutory net gain
from operations. Dividends in the amounts of $51,200,000, $25,500,000
and $29,400,000 were paid on June 4, 1998, April 1, 1997 and March 18,
1996, respectively. No dividends were paid in the three months ended
December 31, 1998.
Under statutory accounting principles utilized in filings with
insurance regulatory authorities, the Company's net loss for the year
ended December 31, 1998 was $98,766,000. The statutory net income for
the year ended December 31, 1997 totaled $74,407,000, and the statutory
net income for the year ended December 31, 1996 was $27,928,000. The
Company's statutory capital and surplus totaled $443,394,000 at
December 31, 1998, $537,542,000 at September 30, 1998, $567,979,000 at
December 31, 1997 and $311,176,000 at December 31, 1996.
10. INCOME TAXES
The components of the provisions for federal income taxes on pretax
income consist of the following:
<TABLE>
<CAPTION>
Net Realized
Investment
Gains (Losses) Operations Total
-------------- ------------ ------------
<S> <C> <C> <C>
Three months ended December 31, 1998:
Currently payable $ 740,000 $ 3,421,000 $ 4,161,000
Deferred (620,000) 16,565,000 15,945,000
------------ ------------ ------------
Total income tax expense $ 120,000 $ 19,986,000 $ 20,106,000
============ ============ ============
Year ended September 30, 1998:
Currently payable $ 4,221,000 $ 32,743,000 $ 36,964,000
Deferred (550,000) 34,637,000 34,087,000
------------ ------------ ------------
Total income tax expense $ 3,671,000 $ 67,380,000 $ 71,051,000
============ ============ ============
Year ended September 30, 1997:
Currently payable $ (3,635,000) $ 50,828,000 $ 47,193,000
Deferred (2,258,000) (13,766,000) (16,024,000)
------------ ------------ ------------
Total income tax expense $ (5,893,000) $ 37,062,000 $ 31,169,000
============ ============ ============
Year ended September 30, 1996:
Currently payable $ 5,754,000 $ 21,849,000 $ 27,603,000
Deferred (10,347,000) 6,996,000 (3,351,000)
------------ ------------ ------------
Total income tax expense $ (4,593,000) $ 28,845,000 $ 24,252,000
============ ============ ============
</TABLE>
25
<PAGE> 70
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. INCOME TAXES (Continued)
Income taxes computed at the United States federal income tax rate of
35% and income taxes provided differ as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Three Months Ended ---------------------------------------------------
December 31, 1998 1998 1997 1996
------------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Amount computed at
statutory rate $ 19,074,000 $ 73,392,000 $ 33,003,000 $ 24,258,000
Increases (decreases)
resulting from:
Amortization of
differences between
book and tax bases
of net assets
acquired 146,000 460,000 666,000 464,000
State income taxes,
net of federal tax
benefit 1,183,000 5,530,000 1,950,000 2,070,000
Dividends-received
deduction (345,000) (7,254,000) (4,270,000) (2,357,000)
Tax credits (1,296,000) (318,000) (257,000)
Other, net 48,000 219,000 138,000 74,000
------------ ------------ ------------ ------------
Total income tax
expense $ 20,106,000 $ 71,051,000 $ 31,169,000 $ 24,252,000
============ ============ ============ ============
</TABLE>
For United States federal income tax purposes, certain amounts from
life insurance operations are accumulated in a memorandum
policyholders' surplus account and are taxed only when distributed to
shareholders or when such account exceeds prescribed limits. The
accumulated policyholders' surplus was $14,300,000 at December 31,
1998. The Company does not anticipate any transactions which would
cause any part of this surplus to be taxable.
26
<PAGE> 71
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. INCOME TAXES (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
reporting purposes. The significant components of the liability for
Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
At September 30,
December 31, ---------------------------------
1998 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
DEFERRED TAX LIABILITIES:
Investments $ 18,174,000 $ 17,643,000 $ 13,160,000
Deferred acquisition costs 222,943,000 223,392,000 154,949,000
State income taxes 3,143,000 2,873,000 1,777,000
Other liabilities 13,906,000 144,000 --
Net unrealized gains on debt
and equity securities
available for sale -- 4,531,000 9,910,000
------------- ------------- -------------
Total deferred tax
liabilities 258,166,000 248,583,000 179,796,000
------------- ------------- -------------
DEFERRED TAX ASSETS:
Contractholder reserves (148,587,000) (149,915,000) (108,090,000)
Guaranty fund assessments (2,935,000) (2,910,000) (2,707,000)
Other assets -- -- (1,952,000)
Net unrealized losses on
debt and equity securities
available for sale (872,000) -- --
------------- ------------- -------------
Total deferred tax assets (152,394,000) (152,825,000) (112,749,000)
------------- ------------- -------------
Deferred income taxes $ 105,772,000 $ 95,758,000 $ 67,047,000
============= ============= =============
</TABLE>
11. ADOPTION OF NEW ACCOUNTING STANDARD
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") which requires the reporting of comprehensive income in addition
to net income from operations. Comprehensive income is a more inclusive
financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income. The adoption of SFAS 130 did not have an
impact on the Company's results of operations, financial condition or
liquidity. Comprehensive income amounts for the prior year are
disclosed to conform to the current year's presentation.
27
<PAGE> 72
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. ADOPTION OF NEW ACCOUNTING STANDARD (Continued)
The before tax, after tax, and tax benefit (expense) amounts for each
component of the increase or decrease in unrealized losses or gains on
debt and equity securities available for sale for both the current and
prior periods are summarized below:
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------ ------------ ------------
<S> <C> <C> <C>
THREE MONTHS ENDED DECEMBER 31,
1998:
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period $(24,345,000) $ 8,521,000 $(15,824,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 8,579,000 (3,004,000) 5,575,000
------------ ------------ ------------
Subtotal (15,766,000) 5,517,000 (10,249,000)
------------ ------------ ------------
Reclassification adjustment for:
Net realized losses included
in net income 510,000 (179,000) 331,000
Related change in deferred
acquisition costs (179,000) 63,000 (116,000)
------------ ------------ ------------
Total reclassification
adjustment 331,000 (116,000) 215,000
------------ ------------ ------------
Total other comprehensive loss $(15,435,000) $ 5,401,000 $(10,034,000)
============ ============ ============
YEAR ENDED SEPTEMBER 30, 1998:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $(10,281,000) $ 3,598,000 $ (6,683,000)
Decrease in deferred acquisition
cost adjustment identified in
the current period 4,086,000 (1,430,000) 2,656,000
------------ ------------ ------------
Subtotal (6,195,000) 2,168,000 (4,027,000)
------------ ------------ ------------
Reclassification adjustment for:
Net realized gains included
in net income (14,487,000) 5,070,000 (9,417,000)
Related change in deferred
acquisition costs 5,314,000 (1,860,000) 3,454,000
------------ ------------ ------------
Total reclassification
adjustment (9,173,000) 3,210,000 (5,963,000)
------------ ------------ ------------
Total other comprehensive loss $(15,368,000) $ 5,378,000 $ (9,990,000)
============ ============ ============
</TABLE>
28
<PAGE> 73
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. ADOPTION OF NEW ACCOUNTING STANDARD (Continued)
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------ ------------ ------------
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,1997:
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period $ 40,575,000 $(14,201,000) $ 26,374,000
Increase in deferred acquisition
cost adjustment identified in
the current period (15,031,000) 5,262,000 (9,769,000)
------------ ------------ ------------
Subtotal 25,544,000 (8,939,000) 16,605,000
------------ ------------ ------------
Reclassification adjustment for:
Net realized losses included
in net income 16,832,000 (5,891,000) 10,941,000
Related change in deferred
acquisition costs (5,569,000) 1,949,000 (3,620,000)
------------ ------------ ------------
Total reclassification
adjustment 11,263,000 (3,942,000) 7,321,000
------------ ------------ ------------
Total other comprehensive
income $ 36,807,000 $(12,881,000) $ 23,926,000
============ ============ ============
YEAR ENDED SEPTEMBER 30, 1996:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $(26,189,000) $ 9,166,000 $(17,023,000)
Decrease in deferred acquisition
cost adjustment identified in
the current period 8,858,000 (3,100,000) 5,758,000
------------ ------------ ------------
Subtotal (17,331,000) 6,066,000 (11,265,000)
------------ ------------ ------------
Reclassification adjustment for:
Net realized gains included
in net income 26,823,000 (9,388,000) 17,435,000
Related change in deferred
acquisition costs (9,258,000) 3,240,000 (6,018,000)
------------ ------------ ------------
Total reclassification
adjustment 17,565,000 (6,148,000) 11,417,000
------------ ------------ ------------
Total other comprehensive
income $ 234,000 $ (82,000) $ 152,000
============ ============ ============
</TABLE>
29
<PAGE> 74
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. RELATED-PARTY MATTERS
The Company pays commissions to five affiliated companies: SunAmerica
Securities, Inc.; Advantage Capital Corp.; Financial Services Corp.;
Sentra Securities Corp.; and Spelman & Co. Inc. Commissions paid to
these broker-dealers totaled $6,977,000 in the three months ended
December 31, 1998, and $32,946,000, $25,492,000, and $16,906,000 in the
years ended September 30, 1998, 1997 and 1996, respectively. These
broker-dealers, when combined with the Company's wholly owned
broker-dealer, represent a significant portion of the Company's
business, amounting to approximately 35.6%, 33.6%, 36.1%, and 38.3% of
premiums in the three months ended December 31, 1998, and the years
ended September 30, 1998, 1997, and 1996, respectively. The Company
also sells its products through unaffiliated broker-dealers, the
largest two of which represented approximately 14.7% and 9.4% of
premiums in the three months ended December 31, 1998, 17.3% and 8.4% of
premiums in the year ended September 30, 1998, 19.2% and 10.1% in the
year ended September 30, 1997, and 19.7% and 10.2% in the year ended
September 30, 1996, respectively.
The Company purchases administrative, investment management,
accounting, marketing and data processing services from SunAmerica
Financial, whose purpose is to provide services to the Company and its
affiliates. Amounts paid for such services totaled $21,593,000 for the
three months ended December 31, 1998, $84,975,000 for the year ended
September 30, 1998, $86,116,000 for the year ended September 30, 1997
and $65,351,000 for the year ended September 30, 1996. The marketing
component of such costs during these periods amounted to $9,906,000,
$39,482,000, $31,968,000 and $17,442,000, respectively, and are
deferred and amortized as part of Deferred Acquisition Costs. The other
components of such costs are included in General and Administrative
Expenses in the income statement.
At December 31, 1998, the Company held bonds with a fair value of
$84,965,000 which were issued by its affiliate, International Lease
Finance Corp. The amortized cost of these bonds is equal to the fair
value.
For the three months ended December 31, 1998, the Company made no
purchases or sales of invested assets to the Parent or its affiliates.
During the year ended September 30, 1998, the Company sold various
invested assets to the Parent for cash equal to their current market
value of $64,431,000. The Company recorded a net gain aggregating
$16,388,000 on such transactions.
During the year ended September 30, 1998, the Company purchased certain
invested assets from the Parent, SunAmerica Life Insurance Company and
CalAmerica Life Insurance Company for cash equal to their current
market value, which aggregated $20,666,000, $10,468,000 and $61,000,
respectively.
During the year ended September 30, 1997, the Company sold various
invested assets to SunAmerica Life Insurance Company and to CalAmerica
Life Insurance Company for cash equal to their current market value of
$15,776,000 and $15,000, respectively. The Company recorded a net gain
aggregating $276,000 on such transactions.
30
<PAGE> 75
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. RELATED-PARTY MATTERS (Continued)
During the year ended September 30, 1997, the Company purchased certain
invested assets from SunAmerica Life Insurance Company and CalAmerica
Life Insurance Company for cash equal to their current market value of
$8,717,000 and $284,000, respectively.
During the year ended September 30, 1996, the Company sold various
invested assets to the Parent and to SunAmerica Life Insurance Company
for cash equal to their current market value of $274,000 and
$47,321,000, respectively. The Company recorded a net loss aggregating
$3,000 on such transactions.
During the year ended September 30, 1996, the Company purchased certain
invested assets from SunAmerica Life Insurance Company for cash equal
to their current market value, which aggregated $28,379,000.
13. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
Total
depreciation
and
Total amortization Pretax Total
revenues expense income assets
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED
DECEMBER 31, 1998:
Annuity operations $103,626,000 $23,236,000 $ 45,962,000 $22,982,323,000
Broker-dealer
operations 11,279,000 561,000 4,444,000 59,537,000
Asset management
operations 22,974,000 4,204,000 4,091,000 104,473,000
------------ ----------- ------------ ---------------
Total $137,879,000 $28,001,000 $ 54,497,000 $23,146,333,000
============ =========== ============ ===============
YEAR ENDED
SEPTEMBER 30, 1998:
Annuity operations $443,407,000 $60,731,000 $178,120,000 $14,389,922,000
Broker-dealer
operations 47,363,000 1,770,000 22,401,000 55,870,000
Asset management
operations 41,040,000 14,780,000 9,171,000 104,476,000
------------ ----------- ------------ ---------------
Total $531,810,000 $77,281,000 $209,692,000 $14,550,268,000
============ =========== ============ ===============
YEAR ENDED
SEPTEMBER 30, 1997:
Annuity operations $332,845,000 $55,675,000 $ 74,792,000 $12,440,311,000
Broker-dealer
operations 38,005,000 689,000 16,705,000 51,400,000
Asset management
operations 35,661,000 16,357,000 2,798,000 81,518,000
------------ ----------- ------------ ---------------
Total $406,511,000 $72,721,000 $ 94,295,000 $12,573,229,000
============ =========== ============ ===============
YEAR ENDED
SEPTEMBER 30, 1996:
Annuity operations $256,681,000 $43,974,000 $ 53,827,000 $ 9,092,770,000
Broker-dealer
operations 31,053,000 449,000 13,033,000 37,355,000
Asset management
operations 33,047,000 18,295,000 2,448,000 74,410,000
------------ ----------- ------------ ---------------
Total $320,781,000 $62,718,000 $ 69,308,000 $ 9,204,535,000
============ =========== ============ ===============
</TABLE>
31
<PAGE> 76
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. SUBSEQUENT EVENTS
On June 30, 1999, the Parent cancelled the $170,436,000 Note and funds
received were reclassified to Additional Paid-in Capital. Also on June
30, 1999, the Parent forgave the total interest earned on the Note of
$4,971,000.
On July 1, 1999, the New York Business acquired from MBL Life was
transferred to FSA via an assumption reinsurance agreement and the
remainder of the business converted to assumption reinsurance, which
superseded the coinsurance arrangement. As part of this transfer,
invested assets equal to $675,303,000, life reserves equal to
$282,947,000, group pension reserves equal to $404,318,000, and other
net assets of $11,962,000 were transferred to FSA. The $128,420,000
purchase price was allocated between the Company and FSA based on the
estimated future gross profits of the two blocks of business. The
portion allocated to FSA was $10,000,000.
As of August 1, 1999, the Company ceded $6,444,871,000 billion of
variable annuity liabilities through a modified coinsurance transaction
to ANLIC Insurance Company (Hawaii). As part of this transaction, the
Company received $150,000,000 on September 9, 1999, which was credited
to Deferred Amortization Costs in the balance sheet to eliminate the
unamortized costs previously deferred with respect to the ceded
business.
On September 9, 1999, the Company paid $170,500,000 to its Parent as a
return of capital. On September 14, 1999, the Parent contributed
additional capital of $54,250,000 to the Company.
32
<PAGE> 77
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Anchor National Life Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated income statement and statement of cash flows present fairly, in all
material respects, the financial position of Anchor National Life Insurance
Company and its subsidiaries (the "Company")at September 30, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended September 30, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
November 9, 1998
-14-
<PAGE> 78
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
ASSETS
Investments:
Cash and short-term investments........................ $ 333,735,000 $ 113,580,000
Bonds, notes and redeemable preferred stocks available
for sale, at fair value (amortized cost: 1998,
$1,934,863,000; 1997, $1,942,485,000)............... 1,954,754,000 1,986,194,000
Mortgage loans......................................... 391,448,000 339,530,000
Common stocks available for sale, at fair value (cost:
1998, $115,000; 1997, $271,000)..................... 169,000 1,275,000
Real estate............................................ 24,000,000 24,000,000
Other invested assets.................................. 30,636,000 143,722,000
--------------- ---------------
Total investments...................................... 2,734,742,000 2,608,301,000
--------------- ---------------
Variable annuity assets held in separate accounts........ 11,133,569,000 9,343,200,000
Accrued investment income................................ 26,408,000 21,759,000
Deferred acquisition costs............................... 539,850,000 536,155,000
Income taxes currently receivable........................ 5,869,000 --
Other assets............................................. 85,926,000 61,524,000
--------------- ---------------
TOTAL ASSETS............................................. $14,526,364,000 $12,570,939,000
=============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts................... $ 2,189,272,000 $ 2,098,803,000
Reserves for guaranteed investment contracts........... 282,267,000 295,175,000
Payable to brokers for purchases of securities......... 27,053,000 263,000
Income taxes currently payable......................... -- 32,265,000
Other liabilities...................................... 106,594,000 122,728,000
--------------- ---------------
Total reserves, payables and accrued
liabilities.......................................... 2,605,186,000 2,549,234,000
--------------- ---------------
Variable annuity liabilities related to separate
accounts............................................... 11,133,569,000 9,343,200,000
--------------- ---------------
Subordinated notes payable to Parent..................... 39,182,000 36,240,000
--------------- ---------------
Deferred income taxes.................................... 95,758,000 67,047,000
--------------- ---------------
Shareholder's equity:
Common Stock........................................... 3,511,000 3,511,000
Additional paid-in capital............................. 308,674,000 308,674,000
Retained earnings...................................... 332,069,000 244,628,000
Net unrealized gains on debt and equity securities
available for sale.................................. 8,415,000 18,405,000
--------------- ---------------
Total shareholder's equity............................. 652,669,000 575,218,000
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............... $14,526,364,000 $12,570,939,000
=============== ===============
</TABLE>
See accompanying notes.
-15-
<PAGE> 79
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Investment income.......................... $ 221,966,000 $ 210,759,000 $ 164,631,000
------------- ------------- -------------
Interest expense on:
Fixed annuity contracts.................. (112,695,000) (109,217,000) (82,690,000)
Guaranteed investment contracts.......... (17,787,000) (22,650,000) (19,974,000)
Senior indebtedness...................... (1,498,000) (2,549,000) (2,568,000)
Subordinated notes payable to Parent....... (3,114,000) (3,142,000) (2,556,000)
------------- ------------- -------------
Total interest expense..................... (135,094,000) (137,558,000) (107,788,000)
------------- ------------- -------------
NET INVESTMENT INCOME...................... 86,872,000 73,201,000 56,843,000
------------- ------------- -------------
NET REALIZED INVESTMENT GAINS
(LOSSES)................................. 19,482,000 (17,394,000) (13,355,000)
------------- ------------- -------------
Fee income:
Variable annuity fees.................... 200,867,000 139,492,000 103,970,000
Net retained commissions................. 48,561,000 39,143,000 31,548,000
Asset management fees.................... 29,592,000 25,764,000 25,413,000
Surrender charges........................ 7,404,000 5,529,000 5,184,000
Other fees............................... 3,938,000 3,218,000 3,390,000
------------- ------------- -------------
TOTAL FEE INCOME........................... 290,362,000 213,146,000 169,505,000
------------- ------------- -------------
GENERAL AND ADMINISTRATIVE
EXPENSES................................. (96,102,000) (98,802,000) (81,552,000)
------------- ------------- -------------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS........................ (72,713,000) (66,879,000) (57,520,000)
------------- ------------- -------------
ANNUAL COMMISSIONS......................... (18,209,000) (8,977,000) (4,613,000)
------------- ------------- -------------
PRETAX INCOME.............................. 209,692,000 94,295,000 69,308,000
Income tax expense......................... (71,051,000) (31,169,000) (24,252,000)
------------- ------------- -------------
NET INCOME................................. $ 138,641,000 $ 63,126,000 $ 45,056,000
============= ============= =============
</TABLE>
See accompanying notes.
-16-
<PAGE> 80
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 138,641,000 $ 63,126,000 $ 45,056,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest credited to:
Fixed annuity contracts............................... 112,695,000 109,217,000 82,690,000
Guaranteed investment contracts....................... 17,787,000 22,650,000 19,974,000
Net realized investment (gains) losses.................. (19,482,000) 17,394,000 13,355,000
Amortization (accretion) of net premiums (discounts) on
investments........................................... 447,000 (18,576,000) (8,976,000)
Amortization of goodwill................................ 1,422,000 1,187,000 1,169,000
Provision for deferred income taxes..................... 34,087,000 (16,024,000) (3,351,000)
Change in:
Accrued investment income............................... (4,649,000) (2,084,000) (5,483,000)
Deferred acquisition costs.............................. (160,926,000) (113,145,000) (60,941,000)
Other assets............................................ (19,374,000) (14,598,000) (8,000,000)
Income taxes currently payable.......................... (38,134,000) 10,779,000 5,766,000
Other liabilities....................................... (2,248,000) 14,187,000 5,474,000
Other, net................................................ (5,599,000) 418,000 (129,000)
--------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 54,667,000 74,531,000 86,604,000
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts................................. 1,512,994,000 1,097,937,000 741,774,000
Guaranteed investment contracts......................... 5,619,000 55,000,000 134,967,000
Net exchanges from the fixed accounts of variable annuity
contracts............................................... (1,303,790,000) (620,367,000) (236,705,000)
Withdrawal payments on:
Fixed annuity contracts................................. (191,690,000) (242,589,000) (263,614,000)
Guaranteed investment contracts......................... (36,313,000) (198,062,000) (16,492,000)
Claims and annuity payments on fixed annuity contracts.... (40,589,000) (35,731,000) (31,107,000)
Net receipts from (repayments of) other short-term
financings.............................................. (10,944,000) 34,239,000 (119,712,000)
Net receipts from a modified coinsurance transaction...... 166,631,000 -- --
Capital contributions received............................ -- 28,411,000 27,387,000
Dividends paid............................................ (51,200,000) (25,500,000) (29,400,000)
--------------- --------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 50,718,000 93,338,000 207,098,000
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred stocks............ $(1,970,502,000) $(2,566,211,000) $(1,937,890,000)
Mortgage loans.......................................... (131,386,000) (266,771,000) (15,000,000)
Other investments, excluding short-term investments..... -- (75,556,000) (36,770,000)
Sales of:
Bonds, notes and redeemable preferred stocks............ 1,602,079,000 2,299,063,000 1,241,928,000
Real estate............................................. -- -- 900,000
Other investments, excluding short-term investments..... 42,458,000 6,421,000 4,937,000
Redemptions and maturities of:
Bonds, notes and redeemable preferred stocks............ 424,393,000 376,847,000 288,969,000
Mortgage loans.......................................... 80,515,000 25,920,000 11,324,000
Other investments, excluding short-term investments..... 67,213,000 23,940,000 20,749,000
--------------- --------------- ---------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES............ 114,770,000 (176,347,000) (420,853,000)
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS............................................... 220,155,000 (8,478,000) (127,151,000)
--------------- --------------- ---------------
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD...... 113,580,000 122,058,000 249,209,000
--------------- --------------- ---------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD............ $ 333,735,000 $ 113,580,000 $ 122,058,000
=============== =============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness............................. $ 3,912,000 $ 7,032,000 $ 5,982,000
=============== =============== ===============
Net income taxes paid..................................... $ 74,932,000 $ 36,420,000 $ 22,031,000
=============== =============== ===============
</TABLE>
See accompanying notes
-17-
<PAGE> 81
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company (the "Company") is a wholly owned
indirect subsidiary of SunAmerica Inc. (the "Parent"). The Company is an
Arizona-domiciled life insurance company and conducts its business through three
segments: annuity operations, asset management operations and broker-dealer
operations. Annuity operations include the sale and administration of fixed and
variable annuities and guaranteed investment contracts. Asset management
operations, which includes the sale and management of mutual funds, is conducted
by SunAmerica Asset Management Corp. Broker-dealer operations include the sale
of securities and financial services products, and are conducted by Royal
Alliance Associates, Inc.
The operations of the Company are influenced by many factors, including
general economic conditions, monetary and fiscal policies of the federal
government, and policies of state and other regulatory authorities. The level of
sales of the Company's financial products is influenced by many factors,
including general market rates of interest, strength, weakness and volatility of
equity markets, and terms and conditions of competing financial products. The
Company is exposed to the typical risks normally associated with a portfolio of
fixed-income securities, namely interest rate, option, liquidity and credit
risk. The Company controls its exposure to these risks by, among other things,
closely monitoring and matching the duration of its assets and liabilities,
monitoring and limiting prepayment and extension risk in its portfolio,
maintaining a large percentage of its portfolio in highly liquid securities, and
engaging in a disciplined process of underwriting, reviewing and monitoring
credit risk. The Company also is exposed to market risk, as market volatility
may result in reduced fee income in the case of assets managed in mutual funds
and held in separate accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and include the accounts of the Company and all of its wholly owned
subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation. Certain prior period amounts have been reclassified
to conform with the 1998 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
INVESTMENTS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and short-term
bank participations. All such investments are carried at cost plus accrued
interest, which approximates fair value, have maturities of three months or less
and are considered cash equivalents for purposes of reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and common
stocks are carried at aggregate fair value and changes in unrealized gains or
losses, net of tax, are credited or charged directly to shareholder's equity.
Bonds, notes and redeemable preferred stocks are reduced to estimated net
realizable value when necessary for declines in value considered to be other
than temporary. Estimates of net realizable value are subjective and actual
realization will be dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of provisions
for estimated losses. Real estate is carried at the lower of cost or fair value.
Other invested assets include investments in limited partnerships, which are
accounted for by using the cost method of accounting; separate account
investments; leveraged leases; policy loans, which are carried at unpaid
balances; and collateralized mortgage obligation residuals.
-18-
<PAGE> 82
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined by using the specific cost
identification method. Premiums and discounts on investments are amortized to
investment income by using the interest method over the contractual lives of the
investments.
INTEREST RATE SWAP AGREEMENTS: The net differential to be paid or received
on interest rate swap agreements ("Swap Agreements") entered into to reduce the
impact of changes in interest rates is recognized over the lives of the
agreements, and such differential is classified as Investment Income or Interest
Expense in the income statement. Initially, Swap Agreements are designated as
hedges and, therefore, are not marked to market. However, when a hedged
asset/liability is sold or repaid before the related Swap Agreement matures, the
Swap Agreement is marked to market and any gain/loss is classified with any
gain/loss realized on the disposition of the hedged asset/liability.
Subsequently, the Swap Agreement is marked to market and the resulting change in
fair value is included in Investment Income in the income statement. When a Swap
Agreement that is designated as a hedge is terminated before its contractual
maturity, any resulting gain/loss is credited/charged to the carrying value of
the asset/liability that it hedged and is treated as a premium/discount for the
remaining life of the asset/liability.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, in relation to the incidence of estimated gross
profits to be realized over the estimated lives of the annuity contracts.
Estimated gross profits are composed of net interest income, net realized
investment gains and losses, variable annuity fees, surrender charges and direct
administrative expenses. Costs incurred to sell mutual funds are also deferred
and amortized over the estimated lives of the funds obtained. Deferred
acquisition costs ("DAC") consist of commissions and other costs that vary with,
and are primarily related to, the production or acquisition of new business.
As debt and equity securities available for sale are carried at aggregate
fair value, an adjustment is made to DAC equal to the change in amortization
that would have been recorded if such securities had been sold at their stated
aggregate fair value and the proceeds reinvested at current yields. The change
in this adjustment, net of tax, is included with the change in net unrealized
gains/losses on debt and equity securities available for sale that is credited
or charged directly to shareholder's equity. DAC have been decreased by
$7,000,000 at September 30, 1998 and $16,400,000 at September 30, 1997 for this
adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated in
separate accounts. The Company receives administrative fees for managing the
funds and other fees for assuming mortality and certain expense risks. Such fees
are included in Variable Annuity Fees in the income statement.
GOODWILL: Goodwill, amounting to $23,339,000 at September 30, 1998, is
amortized by using the straight-line method over periods averaging 25 years and
is included in Other Assets in the balance sheet. Goodwill is evaluated for
impairment when events or changes in economic conditions indicate that the
carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
contracts and guaranteed investment contracts are accounted for as
investment-type contracts in accordance with Statement of Financial Accounting
Standards No. 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments," and are recorded at accumulated value (premiums received, plus
accrued interest, less withdrawals and assessed fees).
-19-
<PAGE> 83
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEE INCOME: Variable annuity fees, asset management fees and surrender
charges are recorded in income as earned. Net retained commissions are
recognized as income on a trade date basis.
INCOME TAXES: The Company is included in the consolidated federal income
tax return of the Parent and files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Income taxes have been
calculated as if the Company filed a separate return. Deferred income tax assets
and liabilities are recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and liabilities using
enacted income tax rates and laws.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1997, the Financial
Accounting Standards Board (the "FASB") issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") and Statement
of Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131").
SFAS 130 establishes standards for reporting comprehensive income and its
components in a full set of general purpose financial statements. SFAS 130 is
effective for the Company as of October 1, 1998 and is not included in these
financial statements.
SFAS 131 establishes standards for the disclosure of information about the
Company's operating segments. SFAS 131 is effective for the year ending
September 30, 1999 and is not included in these financial statements.
Implementation of SFAS 130 and SFAS 131 will not have an impact on the
Company's results of operations, financial condition or liquidity.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. SFAS 133 is effective for the Company as of October 1, 1999 and is
not included in these financial statements. The Company has not completed its
analysis of the effect of SFAS 133, but management believes that it will not
have a material impact on the Company's results of operations, financial
condition or liquidity.
-20-
<PAGE> 84
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by major category follow:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
-------------- --------------
<S> <C> <C>
AT SEPTEMBER 30, 1998:
Securities of the United States Government....... $ 84,377,000 $ 88,239,000
Mortgage-backed securities....................... 569,613,000 584,007,000
Securities of public utilities................... 108,431,000 106,065,000
Corporate bonds and notes........................ 883,890,000 884,209,000
Redeemable preferred stocks...................... 6,125,000 6,888,000
Other debt securities............................ 282,427,000 285,346,000
-------------- --------------
Total.................................... $1,934,863,000 $1,954,754,000
============== ==============
AT SEPTEMBER 30, 1997:
Securities of the United States Government....... $ 18,496,000 $ 18,962,000
Mortgage-backed securities....................... 636,018,000 649,196,000
Securities of public utilities................... 22,792,000 22,893,000
Corporate bonds and notes........................ 984,573,000 1,012,559,000
Redeemable preferred stocks...................... 6,125,000 6,681,000
Other debt securities............................ 274,481,000 275,903,000
-------------- --------------
Total.................................... $1,942,485,000 $1,986,194,000
============== ==============
</TABLE>
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by contractual maturity, as of September 30,
1998, follow:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
-------------- --------------
<S> <C> <C>
Due in one year or less............................ $ 19,124,000 $ 19,319,000
Due after one year through five years.............. 313,396,000 318,943,000
Due after five years through ten years............. 744,740,000 750,286,000
Due after ten years................................ 287,990,000 282,199,000
Mortgage-backed securities......................... 569,613,000 584,007,000
-------------- --------------
Total.................................... $1,934,863,000 $1,954,754,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above due to prepayments and redemptions.
-21-
<PAGE> 85
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
Gross unrealized gains and losses on bonds, notes and redeemable preferred
stocks available for sale by major category follow:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
GAINS LOSSES
----------- ------------
<S> <C> <C>
AT SEPTEMBER 30, 1998:
Securities of the United States Government........... $ 3,862,000 $ --
Mortgage-backed securities........................... 15,103,000 (709,000)
Securities of public utilities....................... 2,420,000 (4,786,000)
Corporate bonds and notes............................ 31,795,000 (31,476,000)
Redeemable preferred stocks.......................... 763,000 --
Other debt securities................................ 5,235,000 (2,316,000)
----------- ------------
Total........................................ $59,178,000 $(39,287,000)
=========== ============
AT SEPTEMBER 30, 1997:
Securities of the United States Government........... $ 498,000 $ (32,000)
Mortgage-backed securities........................... 14,998,000 (1,820,000)
Securities of public utilities....................... 141,000 (40,000)
Corporate bonds and notes............................ 28,691,000 (705,000)
Redeemable preferred stocks.......................... 556,000 --
Other debt securities................................ 1,569,000 (147,000)
----------- ------------
Total........................................ $46,453,000 $ (2,744,000)
=========== ============
</TABLE>
Gross unrealized gains on equity securities available for sale aggregated
$54,000 and $1,004,000 at September 30, 1998 and 1997, respectively. There were
no unrealized losses at September 30, 1998 and 1997.
Gross realized investment gains and losses on sales of investments are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
BONDS, NOTES AND REDEEMABLE PREFERRED
STOCKS:
Realized gains....................... $28,086,000 $ 22,179,000 $ 14,532,000
Realized losses...................... (4,627,000) (25,310,000) (10,432,000)
COMMON STOCKS:
Realized gains....................... 337,000 4,002,000 511,000
Realized losses...................... -- (312,000) (3,151,000)
OTHER INVESTMENTS:
Realized gains....................... 8,824,000 2,450,000 1,135,000
IMPAIRMENT WRITEDOWNS.................. (13,138,000) (20,403,000) (15,950,000)
----------- ------------ ------------
Total net realized investment
gains and losses........... $19,482,000 $(17,394,000) $(13,355,000)
=========== ============ ============
</TABLE>
-22-
<PAGE> 86
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Short-term investments................ $ 12,524,000 $ 11,780,000 $ 10,647,000
Bonds, notes and redeemable preferred
stocks.............................. 156,140,000 163,038,000 140,387,000
Mortgage loans........................ 29,996,000 17,632,000 8,701,000
Common stocks......................... 34,000 16,000 8,000
Real estate........................... (467,000) (296,000) (196,000)
Cost-method partnerships.............. 24,311,000 6,725,000 4,073,000
Other invested assets................. (572,000) 11,864,000 1,011,000
------------ ------------ ------------
Total investment income..... $221,966,000 $210,759,000 $164,631,000
============ ============ ============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to $1,910,000
for the year ended September 30, 1998, $2,050,000 for the year ended September
30, 1997, and $1,737,000 for the year ended September 30, 1996, and are included
in General and Administrative Expenses in the income statement.
At September 30, 1998, no investment exceeded 10% of the Company's
consolidated shareholder's equity.
At September 30, 1998, mortgage loans were collateralized by properties
located in 29 states, with loans totaling approximately 21% of the aggregate
carrying value of the portfolio secured by properties located in California and
approximately 14% by properties located in New York. No more than 8% of the
portfolio was secured by properties in any other single state.
At September 30, 1998, bonds, notes and redeemable preferred stocks
included $167,564,000 of bonds and notes not rated investment grade. The Company
had no material concentrations of non-investment-grade assets at September 30,
1998.
At September 30, 1998, the carrying value of investments in default as to
the payment of principal or interest was $917,000, all of which were mortgage
loans. Such nonperforming investments had an estimated fair value equal to their
carrying value.
As a component of its asset and liability management strategy, the Company
utilizes Swap Agreements to match assets more closely to liabilities. Swap
Agreements are agreements to exchange with a counterparty interest rate payments
of differing character (for example, variable-rate payments exchanged for
fixed-rate payments) based on an underlying principal balance (notional
principal) to hedge against interest rate changes. The Company typically
utilizes Swap Agreements to create a hedge that effectively converts
floating-rate assets and liabilities to fixed-rate instruments. At September 30,
1998, the Company had one outstanding Swap Agreement with a notional principal
amount of $21,538,000, which matures in December 2024. The net interest paid
amounted to $278,000 and $125,000 for the years ended September 30, 1998 and
1997, respectively, and is included in Interest Expense on Guaranteed Investment
Contracts in the income statement.
At September 30, 1998, $5,154,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory requirements.
-23-
<PAGE> 87
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
COST-METHOD PARTNERSHIPS: Fair value of limited partnerships accounted for
by using the cost method is based upon the fair value of the net assets of the
partnerships as determined by the general partners.
VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS: Variable annuity assets
are carried at the market value of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts and single
premium life contracts are assigned a fair value equal to current net surrender
value. Annuitized contracts are valued based on the present value of future cash
flows at current pricing rates.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the
present value of future cash flows at current pricing rates and is net of the
estimated fair value of a hedging Swap Agreement, determined from independent
broker quotes.
PAYABLE TO BROKERS FOR PURCHASES OF SECURITIES: Such obligations represent
net transactions of a short-term nature for which the carrying value is
considered a reasonable estimate of fair value.
VARIABLE ANNUITY LIABILITIES RELATED TO SEPARATE ACCOUNTS: Fair values of
contracts in the accumulation phase are based on net surrender values. Fair
values of contracts in the payout phase are based on the present value of future
cash flows at assumed investment rates.
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on the
quoted market prices for similar issues.
-24-
<PAGE> 88
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments at
September 30, 1998 and 1997, compared with their respective carrying values, are
as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
--------------- ---------------
<S> <C> <C>
1998:
ASSETS:
Cash and short-term investments........................ $ 333,735,000 $ 333,735,000
Bonds, notes and redeemable preferred stocks........... 1,954,754,000 1,954,754,000
Mortgage loans......................................... 391,448,000 415,981,000
Common stocks.......................................... 169,000 169,000
Cost-method partnerships............................... 4,403,000 12,744,000
Variable annuity assets held in separate accounts...... 11,133,569,000 11,133,569,000
LIABILITIES:
Reserves for fixed annuity contracts................... 2,189,272,000 2,116,874,000
Reserves for guaranteed investment contracts........... 282,267,000 282,267,000
Payable to brokers for purchases of securities......... 27,053,000 27,053,000
Variable annuity liabilities related to separate
accounts............................................ 11,133,569,000 10,696,607,000
Subordinated notes payable to Parent................... 39,182,000 40,550,000
=============== ===============
1997:
ASSETS:
Cash and short-term investments........................ $ 113,580,000 $ 113,580,000
Bonds, notes and redeemable preferred stocks........... 1,986,194,000 1,986,194,000
Mortgage loans......................................... 339,530,000 354,495,000
Common stocks.......................................... 1,275,000 1,275,000
Cost-method partnerships............................... 46,880,000 84,186,000
Variable annuity assets held in separate accounts...... 9,343,200,000 9,343,200,000
LIABILITIES:
Reserves for fixed annuity contracts................... 2,098,803,000 2,026,258,000
Reserves for guaranteed investment contracts........... 295,175,000 295,175,000
Payable to brokers for purchases of securities......... 263,000 263,000
Variable annuity liabilities related to separate
accounts............................................ 9,343,200,000 9,077,200,000
Subordinated notes payable to Parent................... 36,240,000 37,393,000
=============== ===============
</TABLE>
5. SUBORDINATED NOTES PAYABLE TO PARENT
Subordinated notes and accrued interest payable to Parent totaled
$39,182,000 at interest rates ranging from 8.5% to 9% at September 30, 1998, and
require principal payments of $23,060,000 in 1999, $5,400,000 in 2000 and
$10,000,000 in 2001.
6. REINSURANCE
On August 11, 1998, the Company entered into a modified coinsurance
transaction, approved by the Arizona Department of Insurance, which involves the
ceding of approximately $5,000,000,000 of variable annuities to ANLIC Insurance
Company (Cayman), a Cayman Islands stock life insurance company, effective
December 31, 1997. As a part of this transaction, the Company received cash
amounting to approximately $188,700,000, and recorded a corresponding reduction
of DAC related to the coinsured annuities.
-25-
<PAGE> 89
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. REINSURANCE (CONTINUED)
As payments are made to the reinsurer, the reduction of DAC is relieved.
The net reduction in DAC at September 30, 1998 was $166,631,000. Certain
expenses related to this transaction are being charged directly to DAC
amortization in the income statement. The net effect of this transaction in the
income statement is not material.
7. CONTINGENT LIABILITIES
The Company has entered into three agreements in which it has provided
liquidity support for certain short-term securities of two municipalities by
agreeing to purchase such securities in the event there is no other buyer in the
short-term marketplace. In return the Company receives a fee. The maximum
liability under these guarantees is $242,600,000. Management does not anticipate
any material future losses with respect to these liquidity support facilities.
An additional $51,000,000 has been committed to investments in the process of
being funded or to be available in the case of certain natural disasters, for
which the Company receives a fee.
The Company is involved in various kinds of litigation common to its
businesses. These cases are in various stages of development and, based on
reports of counsel, management believes that provisions made for potential
losses relating to such litigation are adequate and any further liabilities and
costs will not have a material adverse impact upon the Company's financial
position or results of operations.
-26-
<PAGE> 90
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value
Common Stock. At September 30, 1998 and 1997, 3,511 shares were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balances.................. $308,674,000 $280,263,000 $252,876,000
Capital contributions received...... -- 28,411,000 27,387,000
------------ ------------ ------------
Ending balances.................. $308,674,000 $308,674,000 $280,263,000
============ ============ ============
RETAINED EARNINGS:
Beginning balances.................. $244,628,000 $207,002,000 $191,346,000
Net income.......................... 138,641,000 63,126,000 45,056,000
Dividend paid....................... (51,200,000) (25,500,000) (29,400,000)
------------ ------------ ------------
Ending balances.................. $332,069,000 $244,628,000 $207,002,000
============ ============ ============
NET UNREALIZED GAINS (LOSSES) ON
DEBT AND EQUITY SECURITIES
AVAILABLE FOR SALE:
Beginning balances............... $ 18,405,000 $ (5,521,000) $ (5,673,000)
Change in net unrealized gains
(losses) on debt securities
available for sale............. (23,818,000) 57,463,000 (2,904,000)
Change in net unrealized gains
(losses) on equity securities
available for sale............. (950,000) (55,000) 3,538,000
Change in adjustment to deferred
acquisition costs.............. 9,400,000 (20,600,000) (400,000)
Tax effects of net changes....... 5,378,000 (12,882,000) (82,000)
------------ ------------ ------------
Ending balances................ $ 8,415,000 $ 18,405,000 $ (5,521,000)
============ ============ ============
</TABLE>
Dividends that the Company may pay to its shareholder in any year without
prior approval of the Arizona Department of Insurance are limited by statute.
The maximum amount of dividends which can be paid to shareholders of insurance
companies domiciled in the state of Arizona without obtaining the prior approval
of the Insurance Commissioner is limited to the lesser of either 10% of the
preceding year's statutory surplus or the preceding year's statutory net gain
from operations. Dividends in the amounts of $51,200,000, $25,500,000 and
$29,400,000 were paid on June 4, 1998, April 1, 1997 and March 18, 1996,
respectively.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the nine months ended
September 30, 1998 was $64,125,000. The statutory net income for the year ended
December 31, 1997 was $74,407,000, and the statutory net income for the year
ended December 31, 1996 was $27,928,000. The Company's statutory capital and
surplus was $537,542,000 at September 30, 1998, $567,979,000 at December 31,
1997 and $311,176,000 at December 31, 1996.
-27-
<PAGE> 91
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES
The components of the provisions for federal income taxes on pretax income
consist of the following:
<TABLE>
<CAPTION>
NET REALIZED
INVESTMENT
GAINS (LOSSES) OPERATIONS TOTAL
-------------- ------------ ------------
<S> <C> <C> <C>
1998:
Currently payable................... $ 4,221,000 $ 32,743,000 $ 36,964,000
Deferred............................ (550,000) 34,637,000 34,087,000
------------ ------------ ------------
Total income tax expense.... $ 3,671,000 $ 67,380,000 $ 71,051,000
============ ============ ============
1997:
Currently payable................... $ (3,635,000) $ 50,828,000 $ 47,193,000
Deferred............................ (2,258,000) (13,766,000) (16,024,000)
------------ ------------ ------------
Total income tax expense.... $ (5,893,000) $ 37,062,000 $ 31,169,000
============ ============ ============
1996:
Currently payable................... $ 5,754,000 $ 21,849,000 $ 27,603,000
Deferred............................ (10,347,000) 6,996,000 (3,351,000)
------------ ------------ ------------
Total income tax expense.... $ (4,593,000) $ 28,845,000 $ 24,252,000
============ ============ ============
</TABLE>
Income taxes computed at the United States federal income tax rate of 35%
and income taxes provided differ as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Amount computed at statutory rate........ $73,392,000 $33,003,000 $24,258,000
Increases (decreases) resulting from:
Amortization of differences between
book and tax bases of net assets
acquired............................ 460,000 666,000 464,000
State income taxes, net of federal tax
benefit............................. 5,530,000 1,950,000 2,070,000
Dividends-received deduction........... (7,254,000) (4,270,000) (2,357,000)
Tax credits............................ (1,296,000) (318,000) (257,000)
Other, net............................. 219,000 138,000 74,000
----------- ----------- -----------
Total income tax expense....... $71,051,000 $31,169,000 $24,252,000
=========== =========== ===========
</TABLE>
For United States federal income tax purposes, certain amounts from life
insurance operations are accumulated in a memorandum policyholders' surplus
account and are taxed only when distributed to shareholders or when such account
exceeds prescribed limits. The accumulated policyholders' surplus was
$14,300,000 at September 30, 1998. The Company does not anticipate any
transactions which would cause any part of this surplus to be taxable.
-28-
<PAGE> 92
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. 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,
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Investments....................................... $ 17,643,000 $ 13,160,000
Deferred acquisition costs........................ 223,392,000 154,949,000
State income taxes................................ 2,873,000 1,777,000
Other liabilities................................. 144,000 --
Net unrealized gains on debt and equity securities
available for sale............................. 4,531,000 9,910,000
------------- -------------
Total deferred tax liabilities............ 248,583,000 179,796,000
------------- -------------
DEFERRED TAX ASSETS:
Contractholder reserves........................... (149,915,000) (108,090,000)
Guaranty fund assessments......................... (2,910,000) (2,707,000)
Other assets...................................... -- (1,952,000)
------------- -------------
Total deferred tax assets................. (152,825,000) (112,749,000)
------------- -------------
DEFERRED INCOME TAXES............................... $ 95,758,000 $ 67,047,000
============= =============
</TABLE>
10. RELATED-PARTY MATTERS
The Company pays commissions to five affiliated companies, SunAmerica
Securities, Inc., Advantage Capital Corp., Financial Services Corp., Sentra
Securities Corp. and Spelman & Co. Inc. Commissions paid to these broker-dealers
totaled $32,946,000 in 1998, $25,492,000 in 1997, and $16,906,000 in 1996. These
broker-dealers, when combined with the Company's wholly owned broker-dealer,
represent a significant portion of the Company's business, amounting to
approximately 33.6%, 36.1%, and 38.3% of premiums in 1998, 1997, and 1996,
respectively. The Company also sells its products through unaffiliated
broker-dealers, the largest two of which represented approximately 17.3% and
8.4% of premiums in 1998, 19.2% and 10.1% in 1997, and 19.7% and 10.2% in 1996,
respectively.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from SunAmerica Financial, whose purpose
is to provide services to the Company and its affiliates. Amounts paid for such
services totaled $84,975,000 for the year ended September 30, 1998, $86,116,000
for the year ended September 30, 1997 and $65,351,000 for the year ended
September 30, 1996. The marketing component of such costs during these periods
amounted to $39,482,000, $31,968,000 and $17,442,000, respectively, and are
deferred and amortized as part of Deferred Acquisition Costs. The other
components of such costs are included in General and Administrative Expenses in
the income statement.
The Parent made a capital contribution of $28,411,000 in December 1996 to
the Company, through the Company's direct parent, in exchange for the
termination of its guaranty with respect to certain real estate owned in
Arizona. Accordingly, the Company reduced the carrying value of this real estate
to estimated fair value to reflect the termination of the guaranty.
During the year ended September 30, 1998, the Company sold various invested
assets to the Parent for cash equal to their current market value of
$64,431,000. The Company recorded a net gain aggregating $16,388,000 on such
transactions.
-29-
<PAGE> 93
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED-PARTY MATTERS (CONTINUED)
During the year ended September 30, 1998, the Company purchased certain
invested assets from the Parent, SunAmerica Life Insurance Company and
CalAmerica Life Insurance Company for cash equal to their current market value,
which aggregated $20,666,000, $10,468,000 and $61,000, respectively.
During the year ended September 30, 1997, the Company sold various invested
assets to SunAmerica Life Insurance Company and to CalAmerica Life Insurance
Company for cash equal to their current market value of $15,776,000 and $15,000,
respectively. The Company recorded a net gain aggregating $276,000 on such
transactions.
During the year ended September 30, 1997, the Company purchased certain
invested assets from SunAmerica Life Insurance Company and CalAmerica Life
Insurance Company for cash equal to their current market value of $8,717,000 and
$284,000, respectively.
During the year ended September 30, 1996, the Company sold various invested
assets to the Parent and to SunAmerica Life Insurance Company for cash equal to
their current market value of $274,000 and $47,321,000, respectively. The
Company recorded a net loss aggregating $3,000 on such transactions.
During the year ended September 30, 1996, the Company purchased certain
invested assets from SunAmerica Life Insurance Company for cash equal to their
current market value, which aggregated $28,379,000.
11. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
TOTAL
DEPRECIATION
AND
TOTAL AMORTIZATION PRETAX TOTAL
REVENUES EXPENSE INCOME ASSETS
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
1998:
Annuity operations......... $443,407,000 $60,731,000 $178,120,000 $14,366,018,000
Broker-dealer operations... 47,363,000 1,770,000 22,401,000 55,870,000
Asset management
operations.............. 41,040,000 14,780,000 9,171,000 104,476,000
------------ ----------- ------------ ---------------
Total.............. $531,810,000 $77,281,000 $209,692,000 $14,526,364,000
============ =========== ============ ===============
1997:
Annuity operations......... $332,845,000 $55,675,000 $ 74,792,000 $12,438,021,000
Broker-dealer operations... 38,005,000 689,000 16,705,000 51,400,000
Asset management
operations.............. 35,661,000 16,357,000 2,798,000 81,518,000
------------ ----------- ------------ ---------------
Total.............. $406,511,000 $72,721,000 $ 94,295,000 $12,570,939,000
============ =========== ============ ===============
1996:
Annuity operations......... $256,681,000 $43,974,000 $ 53,827,000 $ 9,092,770,000
Broker-dealer operations... 31,053,000 449,000 13,033,000 37,355,000
Asset management
operations.............. 33,047,000 18,295,000 2,448,000 74,410,000
------------ ----------- ------------ ---------------
Total.............. $320,781,000 $62,718,000 $ 69,308,000 $ 9,204,535,000
============ =========== ============ ===============
</TABLE>
-30-
<PAGE> 94
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS
On July 15, 1998, the Company entered into a definitive agreement to
acquire the individual life business and the individual and group annuity
business of MBL Life Assurance Corporation ("MBL Life") via a 100% coinsurance
transaction for approximately $130,000,000 in cash. The transaction will include
approximately $2,000,000,000 of universal life reserves and $3,000,000,000 of
fixed annuity reserves. The Company plans to reinsure a large portion of the
mortality risk associated with the acquired block of universal life business.
Completion of this acquisition is expected by the end of calendar year 1998 and
is subject to customary conditions and required approvals. Included in this
block of business is approximately $250,000,000 of individual life business and
$500,000,000 of group annuity business whose contract owners are residents of
New York State ("the New York Business"). Approximately six months subsequent to
completion of the transaction, the New York Business will be acquired by the
Company's New York affiliate, First SunAmerica Life Insurance Company, and the
remainder of the business will be acquired by the Company via assumption
reinsurance agreements between MBL Life and the respective companies, which will
supersede the coinsurance agreement. The $130,000,000 purchase price will be
allocated between the Company and its affiliate based on their respective
assumed life insurance reserves.
On August 20, 1998, the Parent announced that it has entered into a
definite agreement to merge with and into American International Group, Inc.
("AIG"). Under the terms of the agreement, each share of the Parent's common
stock (including Nontransferable Class B) will be exchanged for 0.855 shares of
AIG's common stock. The transaction will be treated as a pooling of interests
for accounting purposes and will be a tax-free reorganization. The transaction
was approved by both the Parent's and AIG's shareholders on November 18, 1998,
and, subject to various regulatory approvals, will be completed in late 1998 or
early 1999.
-31-
<PAGE> 95
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
APRIL 30, 1999
<PAGE> 96
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Anchor National Life Insurance Company
and the Contractholders of its separate account, Variable Annuity Account Seven
(Portion Relating to the POLARIS PLUS Variable Annuity)
In our opinion, the accompanying statement of net assets, including the schedule
of portfolio investments, and the related statements of operations and of
changes in net assets present fairly, in all material respects, the financial
position of each of the Variable Accounts constituting Variable Annuity Account
Seven (Portion Relating to the POLARIS PLUS Variable Annuity), a separate
account of Anchor National Life Insurance Company (the "Separate Account") at
April 30, 1999, the results of their operations and the changes in their net
assets for the period from inception to April 30, 1999, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Separate Account's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities owned at April 30, 1999 by
correspondence with the custodian, provides a reasonable basis for the opinion
expressed above.
December 22, 1999
<PAGE> 97
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
APRIL 30, 1999
<TABLE>
<CAPTION>
Government International
Capital and Diversified
Appreciation Growth Quality Bond Equities
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 1,513,086 $ 1,409,055 $ 2,453,338 $ 0
Investments in SunAmerica Series Trust,
at market value 0 0 0 323,471
Liabilities 0 0 0 0
-------------------------------------------------------------
Net Assets $ 1,513,086 $ 1,409,055 $ 2,453,338 $ 323,471
=============================================================
Accumulation units outstanding 52,736 49,892 180,434 22,528
=============================================================
Unit value of accumulation units $ 28.69 $ 28.24 $ 13.60 $ 14.36
=============================================================
</TABLE>
<TABLE>
<CAPTION>
Global Aggressive Venture
Equities Growth Value
Portfolio Portfolio Portfolio
-------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 312,480 460,938 1,002,167
Liabilities 0 0 0
-------------------------------------------
Net Assets $ 312,480 $ 460,938 $1,002,167
===========================================
Accumulation units outstanding 14,587 28,487 37,452
===========================================
Unit value of accumulation units $ 21.42 $ 16.18 $ 26.76
===========================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 98
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
APRIL 30, 1999
(Continued)
<TABLE>
<CAPTION>
Federated Putnam Alliance Growth-
Value Growth Growth Income
Portfolio Portfolio Portfolio Portfolio
----------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 444,168 3,885,349 5,939,255 3,842,077
Liabilities 0 0 0 0
----------------------------------------------------------
Net Assets $ 444,168 $3,885,349 $5,939,255 $3,842,077
==========================================================
Accumulation units outstanding 25,265 149,215 147,759 124,672
==========================================================
Unit value of accumulation units $ 17.58 $ 26.04 $ 40.20 $ 30.82
==========================================================
</TABLE>
<TABLE>
<CAPTION>
Asset SunAmerica
Allocation Balanced Utility
Portfolio Portfolio Portfolio
------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 517,764 4,453,288 241,949
Liabilities 0 0 0
------------------------------------------
Net Assets $ 517,764 $4,453,288 $ 241,949
==========================================
Accumulation units outstanding 27,027 254,773 16,154
==========================================
Unit value of accumulation units $ 19.16 $ 17.48 $ 14.98
==========================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 99
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
APRIL 30, 1999
(Continued)
<TABLE>
<CAPTION>
Worldwide High-Yield Global Corporate
High Income Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio
----------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 71,319 359,207 588,388 421,131
Liabilities 0 0 0 0
----------------------------------------------------
Net Assets $ 71,319 $359,207 $588,388 $421,131
====================================================
Accumulation units outstanding 4,828 23,707 40,454 32,037
====================================================
Unit value of accumulation units $ 14.77 $ 15.15 $ 14.54 $ 13.15
====================================================
</TABLE>
<TABLE>
<CAPTION>
International Emerging Real
Growth & Income Markets Estate
Portfolio Portfolio Portfolio
-------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 189,579 143,825 52,291
Liabilities 0 0 0
-------------------------------------------
Net Assets $189,579 $143,825 $ 52,291
===========================================
Accumulation units outstanding 14,725 18,838 5,242
===========================================
Unit value of accumulation units $ 12.87 $ 7.63 $ 9.98
===========================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 100
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
APRIL 30, 1999
(Continued)
<TABLE>
<CAPTION>
"Dogs" of Equity Equity Small Company
Wall Street Income Index Value
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 312,870 381,598 4,105,709 50,808
Liabilities 0 0 0 0
-------------------------------------------------------------
Net Assets $ 312,870 $ 381,598 $4,105,709 $ 50,808
=============================================================
Accumulation units outstanding 30,615 36,063 400,093 4,634
=============================================================
Unit value of accumulation units $ 10.22 $ 10.58 $ 10.26 $ 10.96
=============================================================
</TABLE>
<TABLE>
<CAPTION>
Cash
Management
Portfolio TOTAL
-----------------------------
<S> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 5,375,479
Investments in SunAmerica Series Trust,
at market value 4,042,366 32,141,997
Liabilities 0 0
-----------------------------
Net Assets $ 4,042,366 $37,517,476
=============================
Accumulation units outstanding 337,271
============
Unit value of accumulation units $ 11.99
============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 101
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
APRIL 30, 1999
<TABLE>
<CAPTION>
Market Value Market
Variable Accounts Shares Per Share Value Cost
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ANCHOR SERIES TRUST:
Capital Appreciation Portfolio 38,490 $ 39.31 $ 1,513,086 $ 1,514,182
Growth Portfolio 39,834 35.37 1,409,055 1,408,698
Government and Quality Bond Portfolio 168,082 14.60 2,453,338 2,459,135
----------- -----------
5,375,479 5,382,015
----------- -----------
SUNAMERICA SERIES TRUST:
International Diversified Equities Portfolio 23,571 13.72 323,471 316,853
Global Equities Portfolio 16,477 18.96 312,480 312,676
Aggressive Growth Porfolio 27,290 16.89 460,938 461,621
Venture Value Portfolio 37,660 26.61 1,002,167 972,227
Federated Value Portfolio 24,791 17.92 444,168 438,728
Putnam Growth Portfolio 163,667 23.74 3,885,349 3,966,295
Alliance Growth Portfolio 171,807 34.57 5,939,255 6,138,217
Growth-Income Portfolio 131,482 29.22 3,842,077 3,821,545
Asset Allocation Portfolio 33,045 15.67 517,764 516,033
SunAmerica Balanced Portfolio 253,142 17.59 4,453,288 4,470,754
Utility Portfolio 16,167 14.97 241,949 237,834
Worldwide High Income Portfolio 6,321 11.28 71,319 69,457
High-Yield Bond Portfolio 30,605 11.74 359,207 352,441
Global Bond Portfolio 49,191 11.96 588,388 586,891
Corporate Bond Portfolio 35,432 11.89 421,131 421,208
International Growth & Income Portfolio 14,700 12.90 189,579 182,418
Emerging Markets Portfolio 18,503 7.77 143,825 136,844
Real Estate Portfolio 5,168 10.12 52,291 51,343
"Dogs" of Wall Street Portfolio 30,111 10.39 312,870 299,008
Equity Income Portfolio 33,726 11.31 381,598 374,421
Equity Index Portfolio 352,663 11.64 4,105,709 4,085,771
Small Company Value Portfolio 5,208 9.76 50,808 48,185
Cash Management Portfolio 375,139 10.78 4,042,366 4,036,992
----------- -----------
32,141,997 32,297,762
----------- -----------
$37,517,476 $37,679,777
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 102
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION
TO APRIL 30, 1999
<TABLE>
<CAPTION>
Government International
Capital and Diversified
Appreciation Growth Quality Bond Equities
Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 0 $ 0 $ 0 $ 0
-----------------------------------------------------------------
Total investment income 0 0 0 0
-----------------------------------------------------------------
Expenses:
Mortality risk charge (493) (474) (896) (160)
Expense risk charge (185) (178) (336) (60)
Distribution expense charge (93) (88) (168) (30)
-----------------------------------------------------------------
Total expenses (771) (740) (1,400) (250)
-----------------------------------------------------------------
Net investment loss (771) (740) (1,400) (250)
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 90 36 435 73
Cost of shares sold (88) (36) (436) (72)
-----------------------------------------------------------------
Net realized gains (losses) from
securities transactions 2 0 (1) 1
-----------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period 0 0 0 0
End of period (1,096) 357 (5,797) 6,618
-----------------------------------------------------------------
Change in net unrealized appreciation/depreciation
of investments (1,096) 357 (5,797) 6,618
-----------------------------------------------------------------
Increase (decrease) in net assets from operations $ (1,865) $ (383) $ (7,198) $ 6,369
=================================================================
</TABLE>
<TABLE>
<CAPTION>
Global Aggressive Venture
Equities Growth Value
Portfolio Portfolio Portfolio
---------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 0 $ 0 $ 0
---------------------------------------------
Total investment income 0 0 0
---------------------------------------------
Expenses:
Mortality risk charge (93) (140) (397)
Expense risk charge (35) (52) (149)
Distribution expense charge (18) (26) (75)
---------------------------------------------
Total expenses (146) (218) (621)
---------------------------------------------
Net investment loss (146) (218) (621)
---------------------------------------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 52 29 75
Cost of shares sold (52) (29) (74)
---------------------------------------------
Net realized gains (losses) from
securities transactions 0 0 1
---------------------------------------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period 0 0 0
End of period (196) (683) 29,940
---------------------------------------------
Change in net unrealized appreciation/depreciation
of investments (196) (683) 29,940
---------------------------------------------
Increase (decrease) in net assets from operations $ (342) $ (901) $ 29,320
=============================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 103
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION
TO APRIL 30, 1999
(Continued)
<TABLE>
<CAPTION>
Federated Putnam Alliance Growth-
Value Growth Growth Income
Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 0 $ 0 $ 0 $ 0
------------------------------------------------------------
Total investment income 0 0 0 0
------------------------------------------------------------
Expenses:
Mortality risk charge (91) (1,052) (1,990) (1,423)
Expense risk charge (34) (395) (746) (534)
Distribution expense charge (17) (197) (374) (266)
------------------------------------------------------------
Total expenses (142) (1,644) (3,110) (2,223)
------------------------------------------------------------
Net investment loss (142) (1,644) (3,110) (2,223)
------------------------------------------------------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 421 6,503 6,323 4,134
Cost of shares sold (419) (6,413) (6,234) (4,082)
------------------------------------------------------------
Net realized gains (losses) from
securities transactions 2 90 89 52
------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period 0 0 0 0
End of period 5,440 (80,946) (198,962) 20,532
------------------------------------------------------------
Change in net unrealized appreciation/depreciation
of investments 5,440 (80,946) (198,962) 20,532
------------------------------------------------------------
Increase (decrease) in net assets from operations $ 5,300 $ (82,500) $(201,983) $ 18,361
============================================================
</TABLE>
<TABLE>
<CAPTION>
Asset SunAmerica
Allocation Balanced Utility
Portfolio Portfolio Portfolio
-----------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 0 $ 0 $ 0
-----------------------------------------
Total investment income 0 0 0
-----------------------------------------
Expenses:
Mortality risk charge (81) (1,334) (52)
Expense risk charge (30) (500) (20)
Distribution expense charge (15) (251) (10)
-----------------------------------------
Total expenses (126) (2,085) (82)
-----------------------------------------
Net investment loss (126) (2,085) (82)
-----------------------------------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 29 7,768 33
Cost of shares sold (29) (7,755) (33)
-----------------------------------------
Net realized gains (losses) from
securities transactions 0 13 0
-----------------------------------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period 0 0 0
End of period 1,731 (17,466) 4,115
-----------------------------------------
Change in net unrealized appreciation/depreciation
of investments 1,731 (17,466) 4,115
-----------------------------------------
Increase (decrease) in net assets from operations $ 1,605 $(19,538) $ 4,033
=========================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 104
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION
TO APRIL 30, 1999
(Continued)
<TABLE>
<CAPTION>
Worldwide High-Yield Global Corporate International
High Income Bond Bond Bond Growth & Income
Portfolio Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 0 $ 0 $ 0 $ 0 $ 0
--------------------------------------------------------------------------
Total investment income 0 0 0 0 0
--------------------------------------------------------------------------
Expenses:
Mortality risk charge (23) (196) (197) (177) (61)
Expense risk charge (9) (74) (74) (66) (23)
Distribution expense charge (4) (37) (37) (33) (12)
--------------------------------------------------------------------------
Total expenses (36) (307) (308) (276) (96)
--------------------------------------------------------------------------
Net investment loss (36) (307) (308) (276) (96)
--------------------------------------------------------------------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 27 4,157 143 102 60
Cost of shares sold (26) (4,145) (143) (101) (58)
--------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions 1 12 0 1 2
--------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period 0 0 0 0 0
End of period 1,862 6,766 1,497 (77) 7,161
--------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation
of investments 1,862 6,766 1,497 (77) 7,161
--------------------------------------------------------------------------
Increase (decrease) in net assets from operations $ 1,827 $ 6,471 $ 1,189 $ (352) $ 7,067
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
Emerging Real
Markets Estate
Portfolio Portfolio
-----------------------
<S> <C> <C>
Investment income:
Dividends and capital gains distributions $ 0 $ 0
-----------------------
Total investment income 0 0
-----------------------
Expenses:
Mortality risk charge (40) (8)
Expense risk charge (15) (3)
Distribution expense charge (7) (1)
-----------------------
Total expenses (62) (12)
-----------------------
Net investment loss (62) (12)
-----------------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 11 2
Cost of shares sold (10) (2)
-----------------------
Net realized gains (losses) from
securities transactions 1 0
-----------------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period 0 0
End of period 6,981 948
-----------------------
Change in net unrealized appreciation/depreciation
of investments 6,981 948
-----------------------
Increase (decrease) in net assets from operations $ 6,920 $ 936
=======================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 105
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION
TO APRIL 30, 1999
(Continued)
<TABLE>
<CAPTION>
"Dogs" of Equity Equity Small Company
Wall Street Income Index Value
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 0 $ 0 $ 0 $ 0
-------------------------------------------------------------------
Total investment income 0 0 0 0
-------------------------------------------------------------------
Expenses:
Mortality risk charge (108) (110) (1,202) (17)
Expense risk charge (40) (41) (451) (6)
Distribution expense charge (20) (21) (225) (3)
-------------------------------------------------------------------
Total expenses (168) (172) (1,878) (26)
-------------------------------------------------------------------
Net investment loss (168) (172) (1,878) (26)
-------------------------------------------------------------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 1,531 23 451 14
Cost of shares sold (1,570) (23) (443) (14)
-------------------------------------------------------------------
Net realized gains (losses) from
securities transactions (39) 0 8 0
-------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period 0 0 0 0
End of period 13,862 7,177 19,938 2,623
-------------------------------------------------------------------
Change in net unrealized appreciation/depreciation
of investments 13,862 7,177 19,938 2,623
-------------------------------------------------------------------
Increase (decrease) in net assets from operations $ 13,655 $ 7,005 $ 18,068 $ 2,597
===================================================================
</TABLE>
<TABLE>
<CAPTION>
Cash
Management
Portfolio TOTAL
-------------------------------
<S> <C> <C>
Investment income:
Dividends and capital gains distributions $ 0 $ 0
-------------------------------
Total investment income 0 0
-------------------------------
Expenses:
Mortality risk charge (1,286) (12,101)
Expense risk charge (482) (4,538)
Distribution expense charge (242) (2,270)
-------------------------------
Total expenses (2,010) (18,909)
-------------------------------
Net investment loss (2,010) (18,909)
-------------------------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 1,325 33,847
Cost of shares sold (1,324) (33,611)
-------------------------------
Net realized gains (losses) from
securities transactions 1 236
-------------------------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period 0 0
End of period 5,374 (162,301)
-------------------------------
Change in net unrealized appreciation/depreciation
of investments 5,374 (162,301)
-------------------------------
Increase (decrease) in net assets from operations $ 3,365 $(180,974)
===============================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 106
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION
TO APRIL 30, 1999
<TABLE>
<CAPTION>
Government International
Capital and Diversified
Appreciation Growth Quality Bond Equities
Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (771) $ (740) $ (1,400) $ (250)
Net realized gains (losses) from
securities transactions 2 0 (1) 1
Change in net unrealized appreciation/
depreciation of investments (1,096) 357 (5,797) 6,618
------------------------------------------------------------------------
Increase (decrease) in net assets from
operations (1,865) (383) (7,198) 6,369
------------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 1,482,144 1,407,498 2,582,141 316,608
Cost of units redeemed (326) (593) (5,718) 0
Net transfers 33,133 2,533 (115,887) 494
------------------------------------------------------------------------
Increase in net assets
from capital transactions 1,514,951 1,409,438 2,460,536 317,102
------------------------------------------------------------------------
Increase in net assets 1,513,086 1,409,055 2,453,338 323,471
Net assets at beginning of period 0 0 0 0
------------------------------------------------------------------------
Net assets at end of period $ 1,513,086 $ 1,409,055 $ 2,453,338 $ 323,471
========================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 51,615 49,826 189,356 22,494
Units redeemed (12) (22) (419) 0
Units transferred 1,133 88 (8,503) 34
------------------------------------------------------------------------
Increase in units outstanding 52,736 49,892 180,434 22,528
Beginning units 0 0 0 0
------------------------------------------------------------------------
Ending units 52,736 49,892 180,434 22,528
========================================================================
</TABLE>
<TABLE>
<CAPTION>
Global Aggressive Venture
Equities Growth Value
Portfolio Portfolio Portfolio
-----------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (146) $ (218) $ (621)
Net realized gains (losses) from
securities transactions 0 0 1
Change in net unrealized appreciation/
depreciation of investments (196) (683) 29,940
-----------------------------------------------------
Increase (decrease) in net assets from
operations (342) (901) 29,320
-----------------------------------------------------
From capital transactions:
Net proceeds from units sold 309,878 462,895 951,070
Cost of units redeemed (25) 0 (210)
Net transfers 2,969 (1,056) 21,987
-----------------------------------------------------
Increase in net assets
from capital transactions 312,822 461,839 972,847
-----------------------------------------------------
Increase in net assets 312,480 460,938 1,002,167
Net assets at beginning of period 0 0 0
-----------------------------------------------------
Net assets at end of period $ 312,480 $ 460,938 $ 1,002,167
=====================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 14,448 28,552 36,627
Units redeemed (1) 0 (8)
Units transferred 140 (65) 833
-----------------------------------------------------
Increase in units outstanding 14,587 28,487 37,452
Beginning units 0 0 0
-----------------------------------------------------
Ending units 14,587 28,487 37,452
=====================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 107
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION
TO APRIL 30, 1999
(Continued)
<TABLE>
<CAPTION>
Federated Putnam Alliance Growth-
Value Growth Growth Income
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (142) $ (1,644) $ (3,110) $ (2,223)
Net realized gains (losses) from
securities transactions 2 90 89 52
Change in net unrealized appreciation/
depreciation of investments 5,440 (80,946) (198,962) 20,532
-------------------------------------------------------------------
Increase (decrease) in net assets from operations 5,300 (82,500) (201,983) 18,361
-------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 439,371 3,958,840 6,110,435 3,828,749
Cost of units redeemed (503) (9,477) (9,509) (5,912)
Net transfers 0 18,486 40,312 879
-------------------------------------------------------------------
Increase in net assets
from capital transactions 438,868 3,967,849 6,141,238 3,823,716
-------------------------------------------------------------------
Increase in net assets 444,168 3,885,349 5,939,255 3,842,077
Net assets at beginning of period 0 0 0 0
-------------------------------------------------------------------
Net assets at end of period $ 444,168 $ 3,885,349 $ 5,939,255 $ 3,842,077
===================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 25,294 148,918 147,006 124,852
Units redeemed (29) (382) (242) (200)
Units transferred 0 679 995 20
-------------------------------------------------------------------
Increase in units outstanding 25,265 149,215 147,759 124,672
Beginning units 0 0 0 0
-------------------------------------------------------------------
Ending units 25,265 149,215 147,759 124,672
===================================================================
</TABLE>
<TABLE>
<CAPTION>
Asset SunAmerica
Allocation Balanced Utility
Portfolio Portfolio Portfolio
----------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (126) $ (2,085) $ (82)
Net realized gains (losses) from
securities transactions 0 13 0
Change in net unrealized appreciation/
depreciation of investments 1,731 (17,466) 4,115
----------------------------------------------------
Increase (decrease) in net assets from operations 1,605 (19,538) 4,033
----------------------------------------------------
From capital transactions:
Net proceeds from units sold 488,277 4,406,305 237,916
Cost of units redeemed (340) (6,921) 0
Net transfers 28,222 73,442 0
----------------------------------------------------
Increase in net assets
from capital transactions 516,159 4,472,826 237,916
----------------------------------------------------
Increase in net assets 517,764 4,453,288 241,949
Net assets at beginning of period 0 0 0
----------------------------------------------------
Net assets at end of period $ 517,764 $ 4,453,288 $ 241,949
====================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 25,572 250,997 16,154
Units redeemed (18) (405) 0
Units transferred 1,473 4,181 0
----------------------------------------------------
Increase in units outstanding 27,027 254,773 16,154
Beginning units 0 0 0
----------------------------------------------------
Ending units 27,027 254,773 16,154
====================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 108
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION
TO APRIL 30, 1999
(Continued)
<TABLE>
<CAPTION>
Worldwide High-Yield Global Corporate International
High Income Bond Bond Bond Growth & Income
Portfolio Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (36) $ (307) $ (308) $ (276) $ (96)
Net realized gains (losses) from
securities transactions 1 12 0 1 2
Change in net unrealized appreciation/
depreciation of investments 1,862 6,766 1,497 (77) 7,161
-------------------------------------------------------------------------------
Increase (decrease) in net assets from
operations 1,827 6,471 1,189 (352) 7,067
-------------------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 69,492 352,908 587,687 421,483 171,201
Cost of units redeemed 0 (172) (527) 0 (363)
Net transfers 0 0 39 0 11,674
-------------------------------------------------------------------------------
Increase in net assets
from capital transactions 69,492 352,736 587,199 421,483 182,512
-------------------------------------------------------------------------------
Increase in net assets 71,319 359,207 588,388 421,131 189,579
Net assets at beginning of period 0 0 0 0 0
-------------------------------------------------------------------------------
Net assets at end of period $ 71,319 $ 359,207 $ 588,388 $ 421,131 $ 189,579
===============================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 4,828 23,718 40,487 32,037 13,835
Units redeemed 0 (11) (36) 0 (29)
Units transferred 0 0 3 0 919
-------------------------------------------------------------------------------
Increase in units outstanding 4,828 23,707 40,454 32,037 14,725
Beginning units 0 0 0 0 0
-------------------------------------------------------------------------------
Ending units 4,828 23,707 40,454 32,037 14,725
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
Emerging Real
Markets Estate
Portfolio Portfolio
---------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (62) $ (12)
Net realized gains (losses) from
securities transactions 1 0
Change in net unrealized appreciation/
depreciation of investments 6,981 948
---------------------------
Increase (decrease) in net assets from
operations 6,920 936
---------------------------
From capital transactions:
Net proceeds from units sold 136,905 51,355
Cost of units redeemed 0 0
Net transfers 0 0
---------------------------
Increase in net assets
from capital transactions 136,905 51,355
---------------------------
Increase in net assets 143,825 52,291
Net assets at beginning of period 0 0
---------------------------
Net assets at end of period $ 143,825 $ 52,291
===========================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 18,838 5,242
Units redeemed 0 0
Units transferred 0 0
---------------------------
Increase in units outstanding 18,838 5,242
Beginning units 0 0
---------------------------
Ending units 18,838 5,242
===========================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 109
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION
TO APRIL 30, 1999
(Continued)
<TABLE>
<CAPTION>
"Dogs" of Equity Equity Small Company
Wall Street Income Index Value
Portfolio Portfolio Portfolio Portfolio
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (168) $ (172) $ (1,878) $ (26)
Net realized gains (losses) from
securities transactions (39) 0 8 0
Change in net unrealized appreciation/
depreciation of investments 13,862 7,177 19,938 2,623
----------------------------------------------------------------------
Increase (decrease) in net assets
from operations 13,655 7,005 18,068 2,597
----------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 301,308 370,857 4,068,548 48,211
Cost of units redeemed (262) 0 (4,403) 0
Net transfers (1,831) 3,736 23,496 0
----------------------------------------------------------------------
Increase in net assets
from capital transactions 299,215 374,593 4,087,641 48,211
----------------------------------------------------------------------
Increase in net assets 312,870 381,598 4,105,709 50,808
Net assets at beginning of period 0 0 0 0
----------------------------------------------------------------------
Net assets at end of period $ 312,870 $ 381,598 $ 4,105,709 $ 50,808
======================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 30,856 35,710 398,231 4,634
Units redeemed (26) 0 (425) 0
Units transferred (215) 353 2,287 0
----------------------------------------------------------------------
Increase in units outstanding 30,615 36,063 400,093 4,634
Beginning units 0 0 0 0
----------------------------------------------------------------------
Ending units 30,615 36,063 400,093 4,634
======================================================================
</TABLE>
<TABLE>
<CAPTION>
Cash
Management
Portfolio TOTAL
--------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (2,010) $ (18,909)
Net realized gains (losses) from
securities transactions 1 236
Change in net unrealized appreciation/
depreciation of investments 5,374 (162,301)
--------------------------------
Increase (decrease) in net assets
from operations 3,365 (180,974)
--------------------------------
From capital transactions:
Net proceeds from units sold 4,375,057 37,937,139
Cost of units redeemed (279) (45,540)
Net transfers (335,777) (193,149)
--------------------------------
Increase in net assets
from capital transactions 4,039,001 37,698,450
--------------------------------
Increase in net assets 4,042,366 37,517,476
Net assets at beginning of period 0 0
--------------------------------
Net assets at end of period $ 4,042,366 $ 37,517,476
================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 365,310
Units redeemed (23)
Units transferred (28,016)
-------------
Increase in units outstanding 337,271
Beginning units 0
-------------
Ending units 337,271
=============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 110
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Annuity Account Seven (Portion Relating to the POLARIS PLUS
Variable Annuity) of Anchor National Life Insurance Company (the
"Separate Account") is a segregated investment account of Anchor
National Life Insurance Company (the "Company"). The Company is an
indirect, wholly owned subsidiary of SunAmerica Inc. Effective January
1, 1999, SunAmerica Inc. merged with and into American International
Group, Inc. in a tax-free reorganization that has been treated as a
pooling of interests for accounting purposes. Immediately prior to the
merger, SunAmerica Inc. transferred substantially all of its net assets
to its wholly owned subsidiary SunAmerica Holdings, Inc., a Delaware
Corporation. On January 4, 1999, SunAmerica Holdings, Inc. changed its
name to SunAmerica Inc. The Separate Account is registered as a
segregated unit investment trust pursuant to the provisions of the
Investment Company Act of 1940, as amended.
The Separate Account is composed of twenty-six variable portfolios (the
"Variable Accounts"). Each of the Variable Accounts is invested solely
in the shares of either (1) one of the three currently available
investment portfolios of Anchor Series Trust ("Anchor Trust") or (2)
one of the twenty-three currently available investment portfolios of
SunAmerica Series Trust ("SunAmerica Trust"). The Anchor Trust and the
SunAmerica Trust (the "Trusts") are each diversified, open-end,
affiliated investment companies, which retain investment advisers to
assist in the investment activities of the Trusts. The participant may
elect to have investments allocated to any of five guaranteed-interest
funds of the Company (the "General Account"), which are not a part of
the Separate Account. The financial statements include balances
allocated by the participant to the twenty-six Variable Accounts and do
not include balances allocated to the General Account.
The inception date of the Cash Management, Corporate Bond, Asset
Allocation, Equity Income, Emerging Markets, and Small Company Value
Portfolios was March 23, 1999. The inception date of the International
Growth & Income Portfolio was March 24, 1999. The inception date of the
Worldwide High Income and Real Estate Portfolios was March 31, 1999.
The inception date of the remaining portfolios was March 19, 1999.
<PAGE> 111
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The investment objectives and policies of the three portfolios of the
Anchor Trust are summarized below:
The CAPITAL APPRECIATION PORTFOLIO seeks long-term capital
appreciation. This portfolio invests in growth equity securities which
are widely diversified by industry and company using a wide-ranging and
flexible stock picking approach; may be concentrated and will generally
have less investments in large company securities than the Growth
Portfolio.
The GROWTH PORTFOLIO seeks capital appreciation. This portfolio invests
in core equity securities that are widely diversified by industry and
company.
The GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current
income, liquidity and security of principal. This portfolio invests in
obligations issued, guaranteed or insured by the U.S. Government, its
agencies or instrumentalities and in high quality corporate fixed
income securities.
Anchor Trust has portfolios in addition to those identified above;
however, none of these other portfolios is currently available for
investment under the Separate Account.
The investment objectives and policies of the twenty-three portfolios
of the SunAmerica Trust are summarized below:
The INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO seeks long-term
capital appreciation. This portfolio invests (in accordance with
country weightings as determined by the Subadviser) in common stocks of
foreign issuers which, in the aggregate, replicate broad country and
sector indices.
The GLOBAL EQUITIES PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in common stocks or securities of U.S. and
foreign issuers with common stock characteristics which demonstrate the
potential for appreciation and engages in transactions in foreign
currencies.
The AGGRESSIVE GROWTH PORTFOLIO seeks capital appreciation. This
portfolio invests primarily in equity securities of high growth
companies including small companies with market capitalizations under
$1 billion.
2
<PAGE> 112
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The VENTURE VALUE PORTFOLIO seeks growth of capital. This portfolio
invests primarily in common stocks of companies with market
capitalizations of at least $5 billion.
The FEDERATED VALUE PORTFOLIO seeks growth of capital and income. This
portfolio invests primarily in the securities of high quality
companies.
The PUTNAM GROWTH PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in common stocks or securities with common
stock characteristics that its Subadviser believes have above-average
growth prospects.
The ALLIANCE GROWTH PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in equity securities of a limited number of
large, carefully selected, high quality U.S. companies that are judged
likely to achieve superior earnings.
The GROWTH-INCOME PORTFOLIO seeks growth of capital and income. This
portfolio invests primarily in common stocks or securities which
demonstrate the potential for appreciation and/or dividends.
The ASSET ALLOCATION PORTFOLIO seeks high total return (including
income and capital gains) consistent with preservation of capital over
the long term. This portfolio invests in a diversified selection of
common stocks and other securities having common stock characteristics,
bonds and other intermediate and long-term fixed-income securities and
money market instruments (debt securities maturing in one year or less)
in any combination.
The SUNAMERICA BALANCED PORTFOLIO seeks to conserve principal. This
portfolio maintains at all times a balanced portfolio of stocks and
bonds, with at least 25% invested in fixed income securities.
The UTILITY PORTFOLIO seeks high current income and moderate capital
appreciation. This portfolio invests primarily in the equity and debt
securities of utility companies.
The WORLDWIDE HIGH INCOME PORTFOLIO seeks high current income and,
secondarily, capital appreciation. This portfolio invests primarily in
a selection of high-yielding fixed-income securities of issuers located
throughout the world.
3
<PAGE> 113
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The HIGH-YIELD BOND PORTFOLIO seeks a high level of current income and,
secondarily, seeks capital appreciation. This portfolio invests
primarily in intermediate and long-term corporate obligations, with
emphasis on higher-yielding, higher-risk, lower-rated or unrated
securities with a primary focus on "B" rated high-yield bonds.
The GLOBAL BOND PORTFOLIO seeks a high total return, emphasizing
current income and, to a lesser extent, providing opportunities for
capital appreciation. This portfolio invests in high quality
fixed-income securities of U.S. and foreign issuers and engages in
transactions in foreign currencies.
The CORPORATE BOND PORTFOLIO seeks a high total return with only
moderate price risk. This portfolio invests primarily in investment
grade fixed-income securities.
The INTERNATIONAL GROWTH AND INCOME PORTFOLIO seeks growth of capital
with current income as a secondary objective. This portfolio invests
primarily in common stocks traded on markets outside the United States.
The EMERGING MARKETS PORTFOLIO seeks long-term capital appreciation.
This portfolio invests mainly in the common stocks and other equity
securities of companies that its Subadviser believes have above-average
growth prospects primarily in emerging markets outside the United
States.
The REAL ESTATE PORTFOLIO seeks to achieve total return through a
combination of growth and income. This portfolio invests primarily in
securities of companies principally engaged in or related to the real
estate industry or which own significant real estate assets or which
primarily invest in real estate financial instruments.
The "DOGS" OF WALL STREET PORTFOLIO seeks total return (including
capital appreciation and current income) primarily through the annual
selection of thirty high dividend yielding common stocks from the Dow
Jones Industrial Average and the broader market.
The EQUITY INCOME PORTFOLIO seeks long-term capital appreciation and
income. This portfolio invests primarily in equity securities that are
expected to pay above-average dividends.
4
<PAGE> 114
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The EQUITY INDEX PORTFOLIO seeks investment results that correspond
with the performance of the Standard and Poor's 500 Composite Stock
Price Index ("S&P 500"). This portfolio invests primarily in common
stocks included in the S&P 500.
The SMALL COMPANY VALUE PORTFOLIO seeks capital appreciation. This
portfolio invests in a broadly diversified portfolio of equity
securities of small companies generally with market capitalizations of
less than $1 billion.
The CASH MANAGEMENT PORTFOLIO seeks high current yield while preserving
capital. This portfolio invests in a diversified selection of money
market instruments.
The SunAmerica Trust has portfolios in addition to those identified
above; however, none of these other portfolios is currently available
for investment under the Separate Account.
Purchases and sales of shares of the portfolios of the Trusts are
valued at the net asset values of the shares on the date the shares are
purchased or sold. Dividends and capital gains distributions are
recorded when received. Realized gains and losses on the sale of
investments in the Trusts are recognized at the date of sale and are
determined on an average cost basis.
Accumulation unit values are computed daily based on the total net
assets of the Variable Accounts.
2. CHARGES AND DEDUCTIONS
WITHDRAWAL CHARGE: The contract value may be withdrawn at any time
during the accumulation period subject to the limitations under Section
403 (b) (11) of the Internal Revenue Code (IRC) and any applicable Plan
document. A withdrawal charge applies against each purchase payment put
into the contract with a few exceptions. A withdrawal charge is not
applicable to withdrawals due to annuitization or death benefits.
Additionally, withdrawal charges do not apply after the participant's
tenth contract anniversary or after separation from service occurring
after contract issue. Withdrawal charges are not deducted when
withdrawals are requested due to disability or hardship. Finally,
fifteen percent of the purchase payments each contract year are exempt
from withdrawal charges for participants who were separated from
service at the time the contract was issued.
5
<PAGE> 115
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
CHARGES AND DEDUCTIONS (continued)
Withdrawal charges vary in amount depending upon the number of years
since the purchase payment being withdrawn was made. The applicable
withdrawal charge schedule varies depending upon your employment status
at the time of contract issue. The withdrawal charge is deducted from
the remaining contract value so that the actual reduction in contract
value as a result of the withdrawal will be greater than the withdrawal
amount requested and paid. For purposes of determining the withdrawal
charge, withdrawals will be allocated first to investment income, if
any (which may generally be withdrawn free of a withdrawal charge), and
then to the oldest purchase payments first so that all withdrawals are
allocated to purchase payments to which the lowest (if any) withdrawal
charge applies.
Any amount withdrawn may be subject to a withdrawal charge in
accordance with the withdrawal charge tables shown below:
SEPARATED FROM SERVICE AT CONTRACT ISSUE
Years Since Purchase Applicable Withdrawal
Payment Charge Percentage
-------------------- ---------------------
First 6%
Second 6%
Third 5%
Fourth 5%
Fifth 4%
Sixth and beyond 0%
EMPLOYED AT CONTRACT ISSUE
Years Since Purchase Applicable Withdrawal
Payment Charge Percentage
-------------------- ---------------------
First 6%
Second 6%
Third 5%
Fourth 5%
Fifth 4%
Sixth 4%
Seventh and beyond 0%
6
<PAGE> 116
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
CHARGES AND DEDUCTIONS (continued)
TRANSFER FEE: A transfer fee of $25 ($10 in Pennsylvania and Texas) is
assessed on each transfer of funds in excess of fifteen transactions
within a contract year.
PREMIUM TAXES: Premium taxes or other taxes payable to a state or other
governmental entity will be charged against the contract values. Some
states assess premium taxes at the time purchase payments are made;
others assess premium taxes at the time annuity payments begin. The
Company currently intends to deduct premium taxes at the time of
surrender or upon annuitization; however, it reserves the right to
deduct any premium taxes when incurred or upon the payment of the death
benefit.
MORTALITY AND EXPENSE RISK CHARGE: The Company deducts mortality and
expense risk charges, which total to an annual rate of 1.10% of the net
asset value of each portfolio, computed on a daily basis. The mortality
risk charge is compensation for the mortality risks assumed by the
Company from its contractual obligations to make annuity payments after
the contract has annuitized for the life of the annuitant and to
provide death benefits, and for assuming the risk that the current
charges will be insufficient in the future to cover the cost of
administering the contract.
DISTRIBUTION EXPENSE CHARGE: The Company deducts a distribution expense
charge at an annual rate of 0.15% of the net asset value of each
portfolio, computed on a daily basis. This charge is for all expenses
associated with the distribution of the contract. These expenses
include preparing the contract, confirmations and statements, providing
sales support and maintaining contract records. If this charge is not
enough to cover the costs of distributing the contract, the Company
will bear the loss.
SEPARATE ACCOUNT INCOME TAXES: The Company currently does not maintain
a provision for taxes, but has reserved the right to establish such a
provision for taxes in the future if it determines, in its sole
discretion, that it will incur a tax as a result of the operation of
the Separate Account.
7
<PAGE> 117
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
CHARGES AND DEDUCTIONS (continued)
INCOME PROTECTOR FEE: The Company offers two levels of income
protection to participants. If elected, the Income Protector Plus and
the Income Protector Max can provide increased levels of minimum
guaranteed income. An annual fee is charged for the Plus and Max
options, as a percentage of an "income benefit base" calculation, in
the amount of 0.15% and 0.30%, respectively. The "income benefit base"
calculation is equal to the contract's value on the election date, plus
all subsequent purchase payments, less all withdrawals and applicable
fees and charges in an amount proportionate to the amount by which such
withdrawals decrease the contract's value. The "income benefit base"
also accumulates at an annual growth rate of 3.25% and 5.25% for the
Plus and the Max options, respectively.
8
<PAGE> 118
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENT IN ANCHOR TRUST AND SUNAMERICA TRUST
The aggregate cost of the Trusts' shares acquired and the aggregate
proceeds from shares sold during the period from inception to April 30,
1999 consist of the following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Variable Accounts Acquired Shares Sold
--------------------------- ----------------------------------------------
<S> <C> <C>
ANCHOR TRUST:
Capital Appreciation Portfolio $ 1,514,270 $ 90
Growth Portfolio 1,408,734 36
Government and Quality Bond Portfolio 2,459,571 435
SUNAMERICA TRUST:
International Diversified Equities Portfolio 316,925 73
Global Equities Portfolio 312,728 52
Aggressive Growth Portfolio 461,650 29
Venture Value Portfolio 972,301 75
Federated Value Portfolio 439,147 421
Putnam Growth Portfolio 3,972,708 6,503
Alliance Growth Portfolio 6,144,451 6,323
Growth-Income Portfolio 3,825,627 4,134
Asset Allocation Portfolio 516,062 29
SunAmerica Balanced Portfolio 4,478,509 7,768
Utility Portfolio 237,867 33
Worldwide High Income Portfolio 69,483 27
High-Yield Bond Portfolio 356,586 4,157
Global Bond Portfolio 587,034 143
Corporate Bond Portfolio 421,309 102
International Growth & Income Portfolio 182,476 60
Emerging Markets Portfolio 136,854 11
Real Estate Portfolio 51,345 2
"Dogs" of Wall Street Portfolio 300,578 1,531
Equity Income Portfolio 374,444 23
Equity Index Portfolio 4,086,214 451
Small Company Value Portfolio 48,199 14
Cash Management Portfolio 4,038,316 1,325
</TABLE>
9
<PAGE> 119
4. FEDERAL INCOME TAXES
The Company qualifies for federal income tax treatment granted to life
insurance companies under subchapter L of the Internal Revenue Service
Code (the "Code"). The operations of the Separate Account are part of
the total operations of the Company and are not taxed separately. The
Separate Account is not treated as a regulated investment company under
the Code.
10
<PAGE> 120
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
<PAGE> 121
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Anchor National Life Insurance Company and the
Contractholders of its separate account, Variable Annuity Account Seven (Portion
Relating to the POLARIS PLUS Variable Annuity)
In our opinion, the accompanying statement of net assets, including the schedule
of portfolio investments, and the related statements of operations and of
changes in net assets present fairly, in all material respects, the financial
position of each of the Variable Accounts constituting Variable Annuity Account
Seven (Portion Relating to the POLARIS PLUS Variable Annuity), a separate
account of Anchor National Life Insurance Company (the "Separate Account") at
September 30, 1999, the results of their operations and the changes in their net
assets for the five month period from May 1, 1999 to September 30, 1999, and the
changes in their net assets for the period from inception to April 30, 1999, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Separate Account's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities owned at
September 30, 1999 by correspondence with the custodian, provides a reasonable
basis for the opinion expressed above.
December 22, 1999
<PAGE> 122
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Government International
Capital and Diversified
Appreciation Growth Quality Bond Equities
Portfolio Portfolio Portfolio Portfolio
------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $14,607,225 $13,833,838 $32,495,085 $ 0
Investments in SunAmerica Series Trust,
at market value 0 0 0 2,862,058
Liabilities 0 0 0 0
----------- ----------- ----------- -----------
Net Assets $14,607,225 $13,833,838 $32,495,085 $ 2,862,058
=========== =========== =========== ===========
Accumulation units outstanding 467,958 505,100 2,428,089 197,799
=========== =========== =========== ===========
Unit value of accumulation units $ 31.21 $ 27.39 $ 13.38 $ 14.47
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Global Aggressive Venture
Equities Growth Value
Portfolio Portfolio Portfolio
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 6,540,341 5,685,101 11,026,074
Liabilities 0 0 0
----------- ----------- -----------
Net Assets $ 6,540,341 $ 5,685,101 $11,026,074
=========== =========== ===========
Accumulation units outstanding 301,757 357,741 438,957
=========== =========== ===========
Unit value of accumulation units $ 21.67 $ 15.89 $ 25.12
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 123
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
Federated Putnam Alliance Growth-
Value Growth Growth Income
Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 3,701,372 31,271,740 66,205,983 42,674,012
Liabilities 0 0 0 0
----------- ----------- ----------- -----------
Net Assets $ 3,701,372 $31,271,740 $66,205,983 $42,674,012
=========== =========== =========== ===========
Accumulation units outstanding 231,730 1,224,471 1,648,291 1,406,790
=========== =========== =========== ===========
Unit value of accumulation units $ 15.97 $ 25.54 $ 40.17 $ 30.33
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Asset SunAmerica
Allocation Balanced Utility
Portfolio Portfolio Portfolio
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 6,409,516 52,983,908 4,327,372
Liabilities 0 0 0
----------- ----------- -----------
Net Assets $ 6,409,516 $52,983,908 $ 4,327,372
=========== =========== ===========
Accumulation units outstanding 351,875 3,078,230 294,024
=========== =========== ===========
Unit value of accumulation units $ 18.22 $ 17.21 $ 14.72
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 124
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
Worldwide High-Yield Global Corporate
High Income Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 858,872 3,275,531 5,012,560 4,881,942
Liabilities 0 0 0 0
---------- ---------- ---------- ----------
Net Assets $ 858,872 $3,275,531 $5,012,560 $4,881,942
========== ========== ========== ==========
Accumulation units outstanding 59,211 224,734 355,256 381,396
========== ========== ========== ==========
Unit value of accumulation units $ 14.51 $ 14.58 $ 14.11 $ 12.80
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
International Emerging Real
Growth & Income Markets Estate
Portfolio Portfolio Portfolio
--------------- ---------- ----------
<S> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 3,703,671 2,031,514 853,939
Liabilities 0 0 0
---------- ---------- ----------
Net Assets $3,703,671 $2,031,514 $ 853,939
========== ========== ==========
Accumulation units outstanding 280,354 260,349 95,069
========== ========== ==========
Unit value of accumulation units $ 13.21 $ 7.80 $ 8.98
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 125
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
"Dogs" of Equity Equity Small Company
Wall Street Income Index Value
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Assets:
Investments in Anchor
Series Trust, at market value $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica
Series Trust, at market value 3,892,249 4,538,800 40,173,305 1,319,122
Liabilities 0 0 0 0
------------ ------------ ------------ ------------
Net Assets $ 3,892,249 $ 4,538,800 $ 40,173,305 $ 1,319,122
============ ============ ============ ============
Accumulation units outstanding 415,828 469,624 4,175,794 114,369
============ ============ ============ ============
Unit value of accumulation units $ 9.36 $ 9.66 $ 9.62 $ 11.53
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Cash
Management
Portfolio TOTAL
------------ ------------
<S> <C> <C>
Assets:
Investments in Anchor
Series Trust, at market value $ 0 $ 60,936,148
Investments in SunAmerica
Series Trust, at market value 22,065,908 326,294,890
Liabilities 0 0
------------ ------------
Net Assets $ 22,065,908 $387,231,038
============ ============
Accumulation units outstanding 1,814,740
============
Unit value of accumulation units $ 12.16
============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 126
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Market Value Market
Variable Accounts Shares Per Share Value Cost
- ----------------- --------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
ANCHOR SERIES TRUST:
Capital Appreciation Portfolio 356,142 $ 41.02 $ 14,607,225 $ 14,761,338
Growth Portfolio 429,927 32.18 13,833,838 15,004,174
Government and Quality Bond Portfolio 2,368,267 13.72 32,495,085 33,703,798
------------- --------------
60,936,148 63,469,310
------------- --------------
SUNAMERICA SERIES TRUST:
International Diversified Equities Portfolio 210,334 13.61 2,862,058 2,846,539
Global Equities Portfolio 369,983 17.68 6,540,341 6,808,700
Aggressive Growth Portfolio 374,049 15.20 5,685,101 5,846,734
Venture Value Portfolio 459,178 24.01 11,026,074 11,896,450
Federated Value Portfolio 237,288 15.60 3,701,372 4,095,321
Putnam Growth Portfolio 1,383,188 22.61 31,271,740 32,302,345
Alliance Growth Portfolio 2,096,728 31.58 66,205,983 70,086,131
Growth-Income Portfolio 1,559,084 27.37 42,674,012 45,001,961
Asset Allocation Portfolio 467,438 13.71 6,409,516 6,927,324
SunAmerica Balanced Portfolio 3,103,016 17.07 52,983,908 54,000,135
Utility Portfolio 310,585 13.93 4,327,372 4,586,971
Worldwide High Income Portfolio 87,867 9.77 858,872 896,080
High-Yield Bond Portfolio 320,576 10.22 3,275,531 3,506,849
Global Bond Portfolio 465,373 10.77 5,012,560 5,259,974
Corporate Bond Portfolio 439,965 11.10 4,881,942 4,998,354
International Growth & Income Portfolio 280,053 13.22 3,703,671 3,690,147
Emerging Markets Portfolio 254,401 7.99 2,031,514 2,075,601
Real Estate Portfolio 96,582 8.84 853,939 923,906
"Dogs" of Wall Street Portfolio 419,349 9.28 3,892,249 4,276,504
Equity Income Portfolio 447,790 10.14 4,538,800 4,844,697
Equity Index Portfolio 3,661,183 10.97 40,173,305 41,978,349
Small Company Value Portfolio 128,480 10.27 1,319,122 1,320,907
Cash Management Portfolio 2,053,578 10.75 22,065,908 22,143,484
------------- --------------
326,294,890 340,313,463
------------- --------------
$ 387,231,038 $ 403,782,773
============= ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 127
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
INTERIM STATEMENT OF OPERATIONS
FOR THE FIVE MONTH PERIOD FROM MAY 1, 1999 TO
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Government International
Capital and Diversified
Appreciation Growth Quality Bond Equities
Portfolio Portfolio Portfolio Portfolio
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 596,332 $ 841,147 $ 1,371,824 $ 33,105
----------- ----------- ----------- -----------
Total investment income 596,332 841,147 1,371,824 33,105
----------- ----------- ----------- -----------
Expenses:
Mortality risk charge (25,831) (24,604) (55,106) (4,840)
Expense risk charge (9,687) (9,226) (20,665) (1,815)
Distribution expense charge (4,843) (4,613) (10,332) (908)
----------- ----------- ----------- -----------
Total expenses (40,361) (38,443) (86,103) (7,563)
----------- ----------- ----------- -----------
Net investment income (loss) 555,971 802,704 1,285,721 25,542
----------- ----------- ----------- -----------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 314 717 21,490 14,349
Cost of shares sold (305) (712) (21,436) (14,047)
----------- ----------- ----------- -----------
Net realized gains (losses) from
securities transactions 9 5 54 302
----------- ----------- ----------- -----------
Net unrealized appreciation (depreciation) of investments:
Beginning of period (1,096) 357 (5,797) 6,618
End of period (154,113) (1,170,336) (1,208,713) 15,519
----------- ----------- ----------- -----------
Change in net unrealized appreciation/
depreciation of investments (153,017) (1,170,693) (1,202,916) 8,901
----------- ----------- ----------- -----------
Increase (decrease) in net assets from operations $ 402,963 $ (367,984) $ 82,859 $ 34,745
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Global Aggressive Venture
Equities Growth Value
Portfolio Portfolio Portfolio
----------- ----------- -----------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 275,450 $ 235,001 $ 278,500
----------- ----------- -----------
Total investment income 275,450 235,001 278,500
----------- ----------- -----------
Expenses:
Mortality risk charge (9,959) (8,472) (18,793)
Expense risk charge (3,735) (3,177) (7,047)
Distribution expense charge (1,867) (1,588) (3,524)
----------- ----------- -----------
Total expenses (15,561) (13,237) (29,364)
----------- ----------- -----------
Net investment income (loss) 259,889 221,764 249,136
----------- ----------- -----------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 60,635 40,006 100
Cost of shares sold (62,982) (41,502) (98)
----------- ----------- -----------
Net realized gains (losses) from
securities transactions (2,347) (1,496) 2
----------- ----------- -----------
Net unrealized appreciation (depreciation) of investments:
Beginning of period (196) (683) 29,940
End of period (268,359) (161,633) (870,376)
----------- ----------- -----------
Change in net unrealized appreciation/
depreciation of investments (268,163) (160,950) (900,316)
----------- ----------- -----------
Increase (decrease) in net assets from operations $ (10,621) $ 59,318 $ (651,178)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 128
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
INTERIM STATEMENT OF OPERATIONS
FOR THE FIVE MONTH PERIOD FROM MAY 1, 1999 TO
SEPTEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
Federated Putnam Alliance Growth-
Value Growth Growth Income
Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 96,195 $ 665,388 $ 3,245,699 $ 1,302,192
----------- ----------- ----------- -----------
Total investment income 96,195 665,388 3,245,699 1,302,192
----------- ----------- ----------- -----------
Expenses:
Mortality risk charge (6,204) (57,060) (109,316) (71,809)
Expense risk charge (2,326) (21,398) (40,993) (26,928)
Distribution expense charge (1,163) (10,699) (20,497) (13,465)
----------- ----------- ----------- -----------
Total expenses (9,693) (89,157) (170,806) (112,202)
----------- ----------- ----------- -----------
Net investment income (loss) 86,502 576,231 3,074,893 1,189,990
----------- ----------- ----------- -----------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 3,715 1,522 695 15,729
Cost of shares sold (3,640) (1,530) (693) (15,902)
----------- ----------- ----------- -----------
Net realized gains (losses) from
securities transactions 75 (8) 2 (173)
----------- ----------- ----------- -----------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period 5,440 (80,946) (198,962) 20,532
End of period (393,949) (1,030,605) (3,880,148) (2,327,949)
----------- ----------- ----------- -----------
Change in net unrealized appreciation/
depreciation of investments (399,389) (949,659) (3,681,186) (2,348,481)
----------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations $ (312,812) $ (373,436) $ (606,291) $(1,158,664)
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Asset SunAmerica
Allocation Balanced Utility
Portfolio Portfolio Portfolio
----------- ----------- -----------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 310,778 $ 593,187 $ 139,526
----------- ----------- -----------
Total investment income 310,778 593,187 139,526
----------- ----------- -----------
Expenses:
Mortality risk charge (10,458) (90,700) (6,959)
Expense risk charge (3,922) (34,012) (2,610)
Distribution expense charge (1,960) (17,006) (1,304)
----------- ----------- -----------
Total expenses (16,340) (141,718) (10,873)
----------- ----------- -----------
Net investment income (loss) 294,438 451,469 128,653
----------- ----------- -----------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 3,816 207,246 5,139
Cost of shares sold (3,707) (197,096) (5,464)
----------- ----------- -----------
Net realized gains (losses) from
securities transactions 109 10,150 (325)
----------- ----------- -----------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period 1,731 (17,466) 4,115
End of period (517,808) (1,016,227) (259,599)
----------- ----------- -----------
Change in net unrealized appreciation/
depreciation of investments (519,539) (998,761) (263,714)
----------- ----------- -----------
Increase (decrease) in net assets
from operations $ (224,992) $ (537,142) $ (135,386)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 129
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
INTERIM STATEMENT OF OPERATIONS
FOR THE FIVE MONTH PERIOD FROM MAY 1, 1999 TO
SEPTEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
Worldwide High-Yield Global Corporate
High Income Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 50,858 $ 196,650 $ 224,717 $ 104,204
--------- --------- --------- ---------
Total investment income 50,858 196,650 224,717 104,204
--------- --------- --------- ---------
Expenses:
Mortality risk charge (1,304) (5,777) (8,822) (7,155)
Expense risk charge (489) (2,166) (3,308) (2,683)
Distribution expense charge (245) (1,084) (1,654) (1,342)
--------- --------- --------- ---------
Total expenses (2,038) (9,027) (13,784) (11,180)
--------- --------- --------- ---------
Net investment income (loss) 48,820 187,623 210,933 93,024
--------- --------- --------- ---------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 2,771 16,922 22,010 585
Cost of shares sold (2,913) (17,010) (22,765) (586)
--------- --------- --------- ---------
Net realized gains (losses) from
securities transactions (142) (88) (755) (1)
--------- --------- --------- ---------
Net unrealized appreciation (depreciation) of investments:
Beginning of period 1,862 6,766 1,497 (77)
End of period (37,208) (231,318) (247,414) (116,412)
--------- --------- --------- ---------
Change in net unrealized appreciation/
depreciation of investments (39,070) (238,084) (248,911) (116,335)
--------- --------- --------- ---------
Increase (decrease) in net assets from operations $ 9,608 $ (50,549) $ (38,733) $ (23,312)
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
International Emerging Real
Growth & Income Markets Estate
Portfolio Portfolio Portfolio
--------------- --------- ---------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 12,987 $ 73 $ 14,160
--------- --------- ---------
Total investment income 12,987 73 14,160
--------- --------- ---------
Expenses:
Mortality risk charge (5,704) (3,414) (1,216)
Expense risk charge (2,139) (1,280) (456)
Distribution expense charge (1,069) (640) (228)
--------- --------- ---------
Total expenses (8,912) (5,334) (1,900)
--------- --------- ---------
Net investment income (loss) 4,075 (5,261) 12,260
--------- --------- ---------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 8,517 191,068 134
Cost of shares sold (8,270) (179,152) (134)
--------- --------- ---------
Net realized gains (losses) from
securities transactions 247 11,916 0
--------- --------- ---------
Net unrealized appreciation (depreciation) of investments:
Beginning of period 7,161 6,981 948
End of period 13,524 (44,087) (69,967)
--------- --------- ---------
Change in net unrealized appreciation/
depreciation of investments 6,363 (51,068) (70,915)
--------- --------- ---------
Increase (decrease) in net assets from operations $ 10,685 $ (44,413) $ (58,655)
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 130
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
INTERIM STATEMENT OF OPERATIONS
FOR THE FIVE MONTH PERIOD FROM MAY 1, 1999 TO
SEPTEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
"Dogs" of Equity Equity
Wall Street Income Index
Portfolio Portfolio Portfolio
------------ ------------ ------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 71,148 $ 60,304 $ 3,000
------------ ------------ ------------
Total investment income 71,148 60,304 3,000
------------ ------------ ------------
Expenses:
Mortality risk charge (6,817) (7,250) (72,417)
Expense risk charge (2,556) (2,719) (27,156)
Distribution expense charge (1,278) (1,359) (13,579)
------------ ------------ ------------
Total expenses (10,651) (11,328) (113,152)
------------ ------------ ------------
Net investment income (loss) 60,497 48,976 (110,152)
------------ ------------ ------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 4,419 5,961 112,794
Cost of shares sold (4,311) (5,923) (112,540)
------------ ------------ ------------
Net realized gains (losses) from
securities transactions 108 38 254
------------ ------------ ------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period 13,862 7,177 19,938
End of period (384,255) (305,897) (1,805,044)
------------ ------------ ------------
Change in net unrealized appreciation/
depreciation of investments (398,117) (313,074) (1,824,982)
------------ ------------ ------------
Increase (decrease) in net assets from operations $ (337,512) $ (264,060) $ (1,934,880)
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Small Company Cash
Value Management
Portfolio Portfolio TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 3,094 $ 339,461 $ 11,064,980
------------ ------------ ------------
Total investment income 3,094 339,461 11,064,980
------------ ------------ ------------
Expenses:
Mortality risk charge (1,935) (46,599) (668,521)
Expense risk charge (726) (17,475) (250,694)
Distribution expense charge (362) (8,737) (125,346)
------------ ------------ ------------
Total expenses (3,023) (72,811) (1,044,561)
------------ ------------ ------------
Net investment income (loss) 71 266,650 10,020,419
------------ ------------ ------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 6,004 4,026,147 4,772,805
Cost of shares sold (5,780) (4,011,673) (4,740,171)
------------ ------------ ------------
Net realized gains (losses) from
securities transactions 224 14,474 32,634
------------ ------------ ------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period 2,623 5,374 (162,301)
End of period (1,785) (77,576) (16,551,735)
------------ ------------ ------------
Change in net unrealized appreciation/
depreciation of investments (4,408) (82,950) (16,389,434)
------------ ------------ ------------
Increase (decrease) in net assets from operations $ (4,113) $ 198,174 $ (6,336,381)
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 131
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
INTERIM STATEMENT OF CHANGES IN NET ASSETS
FOR THE FIVE MONTH PERIOD FROM MAY 1, 1999 TO
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Government International
Capital and Diversified
Appreciation Growth Quality Bond Equities
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 555,971 $ 802,704 $ 1,285,721 $ 25,542
Net realized gains (losses) from
securities transactions 9 5 54 302
Change in net unrealized appreciation/
depreciation of investments (153,017) (1,170,693) (1,202,916) 8,901
------------ ------------ ------------ ------------
Increase (decrease) in net assets from operations 402,963 (367,984) 82,859 34,745
------------ ------------ ------------ ------------
From capital transactions:
Net proceeds from units sold 10,048,570 11,140,352 26,888,483 2,004,671
Cost of units redeemed (62,740) (69,565) (191,771) (9,570)
Net transfers 2,705,346 1,721,980 3,262,176 508,741
------------ ------------ ------------ ------------
Increase in net assets
from capital transactions 12,691,176 12,792,767 29,958,888 2,503,842
------------ ------------ ------------ ------------
Increase in net assets 13,094,139 12,424,783 30,041,747 2,538,587
Net assets at beginning of period 1,513,086 1,409,055 2,453,338 323,471
------------ ------------ ------------ ------------
Net assets at end of period $ 14,607,225 $ 13,833,838 $ 32,495,085 $ 2,862,058
============ ============ ============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 330,277 396,774 2,017,434 140,411
Units redeemed (2,009) (2,462) (14,385) (669)
Units transferred 86,954 60,896 244,606 35,529
------------ ------------ ------------ ------------
Increase in units outstanding 415,222 455,208 2,247,655 175,271
Beginning units 52,736 49,892 180,434 22,528
------------ ------------ ------------ ------------
Ending units 467,958 505,100 2,428,089 197,799
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Global Aggressive Venture
Equities Growth Value
Portfolio Portfolio Portfolio
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 259,889 $ 221,764 $ 249,136
Net realized gains (losses) from
securities transactions (2,347) (1,496) 2
Change in net unrealized appreciation/
depreciation of investments (268,163) (160,950) (900,316)
------------ ------------ ------------
Increase (decrease) in net assets from operations (10,621) 59,318 (651,178)
------------ ------------ ------------
From capital transactions:
Net proceeds from units sold 5,048,887 4,543,157 8,207,912
Cost of units redeemed (19,704) (23,293) (36,381)
Net transfers 1,209,299 644,981 2,503,554
------------ ------------ ------------
Increase in net assets
from capital transactions 6,238,482 5,164,845 10,675,085
------------ ------------ ------------
Increase in net assets 6,227,861 5,224,163 10,023,907
Net assets at beginning of period 312,480 460,938 1,002,167
------------ ------------ ------------
Net assets at end of period $ 6,540,341 $ 5,685,101 $ 11,026,074
============ ============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 232,995 290,360 309,177
Units redeemed (902) (1,489) (1,371)
Units transferred 55,077 40,383 93,699
------------ ------------ ------------
Increase in units outstanding 287,170 329,254 401,505
Beginning units 14,587 28,487 37,452
------------ ------------ ------------
Ending units 301,757 357,741 438,957
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 132
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
INTERIM STATEMENT OF CHANGES IN NET ASSETS
FOR THE FIVE MONTH PERIOD FROM MAY 1, 1999 TO
SEPTEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
Federated Putnam Alliance Growth-
Value Growth Growth Income
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 86,502 $ 576,231 $ 3,074,893 $ 1,189,990
Net realized gains (losses) from
securities transactions 75 (8) 2 (173)
Change in net unrealized appreciation/
depreciation of investments (399,389) (949,659) (3,681,186) (2,348,481)
------------ ------------ ------------ ------------
Increase (decrease) in net assets
from operations (312,812) (373,436) (606,291) (1,158,664)
------------ ------------ ------------ ------------
From capital transactions:
Net proceeds from units sold 2,856,120 23,260,301 50,751,557 33,247,837
Cost of units redeemed (9,314) (162,661) (200,018) (317,674)
Net transfers 723,210 4,662,187 10,321,480 7,060,436
------------ ------------ ------------ ------------
Increase in net assets
from capital transactions 3,570,016 27,759,827 60,873,019 39,990,599
------------ ------------ ------------ ------------
Increase in net assets 3,257,204 27,386,391 60,266,728 38,831,935
Net assets at beginning of period 444,168 3,885,349 5,939,255 3,842,077
------------ ------------ ------------ ------------
Net assets at end of period $ 3,701,372 $ 31,271,740 $ 66,205,983 $ 42,674,012
============ ============ ============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 165,002 903,106 1,253,925 1,068,772
Units redeemed (531) (6,212) (4,888) (10,253)
Units transferred 41,994 178,362 251,495 223,599
------------ ------------ ------------ ------------
Increase in units outstanding 206,465 1,075,256 1,500,532 1,282,118
Beginning units 25,265 149,215 147,759 124,672
------------ ------------ ------------ ------------
Ending units 231,730 1,224,471 1,648,291 1,406,790
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Asset SunAmerica
Allocation Balanced Utility
Portfolio Portfolio Portfolio
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 294,438 $ 451,469 $ 128,653
Net realized gains (losses) from
securities transactions 109 10,150 (325)
Change in net unrealized appreciation/
depreciation of investments (519,539) (998,761) (263,714)
------------ ------------ ------------
Increase (decrease) in net assets
from operations (224,992) (537,142) (135,386)
------------ ------------ ------------
From capital transactions:
Net proceeds from units sold 4,721,301 42,777,637 3,496,156
Cost of units redeemed (38,147) (401,795) (23,468)
Net transfers 1,433,590 6,691,920 748,121
------------ ------------ ------------
Increase in net assets
from capital transactions 6,116,744 49,067,762 4,220,809
------------ ------------ ------------
Increase in net assets 5,891,752 48,530,620 4,085,423
Net assets at beginning of period 517,764 4,453,288 241,949
------------ ------------ ------------
Net assets at end of period $ 6,409,516 $ 52,983,908 $ 4,327,372
============ ============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 250,753 2,463,931 230,088
Units redeemed (2,013) (23,142) (1,550)
Units transferred 76,108 382,668 49,332
------------ ------------ ------------
Increase in units outstanding 324,848 2,823,457 277,870
Beginning units 27,027 254,773 16,154
------------ ------------ ------------
Ending units 351,875 3,078,230 294,024
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 133
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
INTERIM STATEMENT OF CHANGES IN NET ASSETS
FOR THE FIVE MONTH PERIOD FROM MAY 1, 1999 TO
SEPTEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
Worldwide High-Yield Global Corporate
High Income Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 48,820 $ 187,623 $ 210,933 $ 93,024
Net realized gains (losses) from
securities transactions (142) (88) (755) (1)
Change in net unrealized appreciation/
depreciation of investments (39,070) (238,084) (248,911) (116,335)
----------- ----------- ----------- -----------
Increase (decrease) in net assets from operations 9,608 (50,549) (38,733) (23,312)
----------- ----------- ----------- -----------
From capital transactions:
Net proceeds from units sold 688,642 2,722,267 3,703,361 3,903,126
Cost of units redeemed (2,253) (40,698) (22,289) (16,438)
Net transfers 91,556 285,304 781,833 597,435
----------- ----------- ----------- -----------
Increase in net assets
from capital transactions 777,945 2,966,873 4,462,905 4,484,123
----------- ----------- ----------- -----------
Increase in net assets 787,553 2,916,324 4,424,172 4,460,811
Net assets at beginning of period 71,319 359,207 588,388 421,131
----------- ----------- ----------- -----------
Net assets at end of period $ 858,872 $ 3,275,531 $ 5,012,560 $ 4,881,942
=========== =========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 48,155 184,405 261,083 304,121
Units redeemed (156) (2,756) (1,580) (1,284)
Units transferred 6,384 19,378 55,299 46,522
----------- ----------- ----------- -----------
Increase in units outstanding 54,383 201,027 314,802 349,359
Beginning units 4,828 23,707 40,454 32,037
----------- ----------- ----------- -----------
Ending units 59,211 224,734 355,256 381,396
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
International Emerging Real
Growth & Income Markets Estate
Portfolio Portfolio Portfolio
--------------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 4,075 $ (5,261) $ 12,260
Net realized gains (losses) from
securities transactions 247 11,916 0
Change in net unrealized appreciation/
depreciation of investments 6,363 (51,068) (70,915)
----------- ----------- -----------
Increase (decrease) in net assets from operations 10,685 (44,413) (58,655)
----------- ----------- -----------
From capital transactions:
Net proceeds from units sold 2,800,688 1,842,209 790,602
Cost of units redeemed (8,738) (24,861) (2,301)
Net transfers 711,457 114,754 72,002
----------- ----------- -----------
Increase in net assets
from capital transactions 3,503,407 1,932,102 860,303
----------- ----------- -----------
Increase in net assets 3,514,092 1,887,689 801,648
Net assets at beginning of period 189,579 143,825 52,291
----------- ----------- -----------
Net assets at end of period $ 3,703,671 $ 2,031,514 $ 853,939
=========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 213,029 229,196 82,463
Units redeemed (660) (2,959) (233)
Units transferred 53,260 15,274 7,597
----------- ----------- -----------
Increase in units outstanding 265,629 241,511 89,827
Beginning units 14,725 18,838 5,242
----------- ----------- -----------
Ending units 280,354 260,349 95,069
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 134
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
INTERIM STATEMENT OF CHANGES IN NET ASSETS
FOR THE FIVE MONTH PERIOD FROM MAY 1, 1999 TO
SEPTEMBER 30, 1999
(Continued)
<TABLE>
<CAPTION>
"Dogs" of Equity Equity
Wall Street Income Index
Portfolio Portfolio Portfolio
------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 60,497 $ 48,976 $ (110,152)
Net realized gains (losses) from
securities transactions 108 38 254
Change in net unrealized appreciation/
depreciation of investments (398,117) (313,074) (1,824,982)
------------- ------------- -------------
Increase (decrease) in net assets from operations (337,512) (264,060) (1,934,880)
------------- ------------- -------------
From capital transactions:
Net proceeds from units sold 3,326,251 3,846,257 32,033,901
Cost of units redeemed (10,606) (23,892) (198,008)
Net transfers 601,246 598,897 6,166,583
------------- ------------- -------------
Increase in net assets
from capital transactions 3,916,891 4,421,262 38,002,476
------------- ------------- -------------
Increase in net assets 3,579,379 4,157,202 36,067,596
Net assets at beginning of period 312,870 381,598 4,105,709
------------- ------------- -------------
Net assets at end of period $ 3,892,249 $ 4,538,800 $ 40,173,305
============= ============= =============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 326,745 377,121 3,182,714
Units redeemed (1,046) (2,337) (19,605)
Units transferred 59,514 58,777 612,592
------------- ------------- -------------
Increase in units outstanding 385,213 433,561 3,775,701
Beginning units 30,615 36,063 400,093
------------- ------------- -------------
Ending units 415,828 469,624 4,175,794
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Small Company Cash
Value Management
Portfolio Portfolio TOTAL
------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 71 $ 266,650 $ 10,020,419
Net realized gains (losses) from
securities transactions 224 14,474 32,634
Change in net unrealized appreciation/
depreciation of investments (4,408) (82,950) (16,389,434)
------------- ------------- -------------
Increase (decrease) in net assets from operations (4,113) 198,174 (6,336,381)
------------- ------------- -------------
From capital transactions:
Net proceeds from units sold 1,122,550 22,736,687 308,509,482
Cost of units redeemed (1,519) (562,547) (2,480,251)
Net transfers 151,396 (4,348,772) 50,020,712
------------- ------------- -------------
Increase in net assets
from capital transactions 1,272,427 17,825,368 356,049,943
------------- ------------- -------------
Increase in net assets 1,268,314 18,023,542 349,713,562
Net assets at beginning of period 50,808 4,042,366 37,517,476
------------- ------------- -------------
Net assets at end of period $ 1,319,122 $ 22,065,908 $ 387,231,038
============= ============= =============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 96,888 1,883,456
Units redeemed (124) (46,379)
Units transferred 12,971 (359,608)
------------- -------------
Increase in units outstanding 109,735 1,477,469
Beginning units 4,634 337,271
------------- -------------
Ending units 114,369 1,814,740
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 135
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION
TO APRIL 30, 1999
<TABLE>
<CAPTION>
Government International
Capital and Diversified
Appreciation Growth Quality Bond Equities
Portfolio Portfolio Portfolio Portfolio
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (771) $ (740) $ (1,400) $ (250)
Net realized gains (losses) from
securities transactions 2 0 (1) 1
Change in net unrealized appreciation/
depreciation of investments (1,096) 357 (5,797) 6,618
----------- ----------- ----------- -----------
Increase (decrease) in net assets from operations (1,865) (383) (7,198) 6,369
----------- ----------- ----------- -----------
From capital transactions:
Net proceeds from units sold 1,482,144 1,407,498 2,582,141 316,608
Cost of units redeemed (326) (593) (5,718) 0
Net transfers 33,133 2,533 (115,887) 494
----------- ----------- ----------- -----------
Increase in net assets
from capital transactions 1,514,951 1,409,438 2,460,536 317,102
----------- ----------- ----------- -----------
Increase in net assets 1,513,086 1,409,055 2,453,338 323,471
Net assets at beginning of period 0 0 0 0
----------- ----------- ----------- -----------
Net assets at end of period $ 1,513,086 $ 1,409,055 $ 2,453,338 $ 323,471
=========== =========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 51,615 49,826 189,356 22,494
Units redeemed (12) (22) (419) 0
Units transferred 1,133 88 (8,503) 34
----------- ----------- ----------- -----------
Increase in units outstanding 52,736 49,892 180,434 22,528
Beginning units 0 0 0 0
----------- ----------- ----------- -----------
Ending units 52,736 49,892 180,434 22,528
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Global Aggressive Venture
Equities Growth Value
Portfolio Portfolio Portfolio
----------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (146) $ (218) $ (621)
Net realized gains (losses) from
securities transactions 0 0 1
Change in net unrealized appreciation/
depreciation of investments (196) (683) 29,940
----------- ----------- -----------
Increase (decrease) in net assets from operations (342) (901) 29,320
----------- ----------- -----------
From capital transactions:
Net proceeds from units sold 309,878 462,895 951,070
Cost of units redeemed (25) 0 (210)
Net transfers 2,969 (1,056) 21,987
----------- ----------- -----------
Increase in net assets
from capital transactions 312,822 461,839 972,847
----------- ----------- -----------
Increase in net assets 312,480 460,938 1,002,167
Net assets at beginning of period 0 0 0
----------- ----------- -----------
Net assets at end of period $ 312,480 $ 460,938 $ 1,002,167
=========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 14,448 28,552 36,627
Units redeemed (1) 0 (8)
Units transferred 140 (65) 833
----------- ----------- -----------
Increase in units outstanding 14,587 28,487 37,452
Beginning units 0 0 0
----------- ----------- -----------
Ending units 14,587 28,487 37,452
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 136
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION
TO APRIL 30, 1999
(Continued)
<TABLE>
<CAPTION>
Federated Putnam Alliance Growth-
Value Growth Growth Income
Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (142) $ (1,644) $ (3,110) $ (2,223)
Net realized gains (losses) from
securities transactions 2 90 89 52
Change in net unrealized appreciation/
depreciation of investments 5,440 (80,946) (198,962) 20,532
----------- ----------- ----------- -----------
Increase (decrease) in net assets from operations 5,300 (82,500) (201,983) 18,361
----------- ----------- ----------- -----------
From capital transactions:
Net proceeds from units sold 439,371 3,958,840 6,110,435 3,828,749
Cost of units redeemed (503) (9,477) (9,509) (5,912)
Net transfers 0 18,486 40,312 879
----------- ----------- ----------- -----------
Increase in net assets
from capital transactions 438,868 3,967,849 6,141,238 3,823,716
----------- ----------- ----------- -----------
Increase in net assets 444,168 3,885,349 5,939,255 3,842,077
Net assets at beginning of period 0 0 0 0
----------- ----------- ----------- -----------
Net assets at end of period $ 444,168 $ 3,885,349 $ 5,939,255 $ 3,842,077
=========== =========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 25,294 148,918 147,006 124,852
Units redeemed (29) (382) (242) (200)
Units transferred 0 679 995 20
----------- ----------- ----------- -----------
Increase in units outstanding 25,265 149,215 147,759 124,672
Beginning units 0 0 0 0
----------- ----------- ----------- -----------
Ending units 25,265 149,215 147,759 124,672
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Asset SunAmerica
Allocation Balanced Utility
Portfolio Portfolio Portfolio
----------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (126) $ (2,085) $ (82)
Net realized gains (losses) from
securities transactions 0 13 0
Change in net unrealized appreciation/
depreciation of investments 1,731 (17,466) 4,115
----------- ----------- -----------
Increase (decrease) in net assets from operations 1,605 (19,538) 4,033
----------- ----------- -----------
From capital transactions:
Net proceeds from units sold 488,277 4,406,305 237,916
Cost of units redeemed (340) (6,921) 0
Net transfers 28,222 73,442 0
----------- ----------- -----------
Increase in net assets
from capital transactions 516,159 4,472,826 237,916
----------- ----------- -----------
Increase in net assets 517,764 4,453,288 241,949
Net assets at beginning of period 0 0 0
----------- ----------- -----------
Net assets at end of period $ 517,764 $ 4,453,288 $ 241,949
=========== =========== ===========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 25,572 250,997 16,154
Units redeemed (18) (405) 0
Units transferred 1,473 4,181 0
----------- ----------- -----------
Increase in units outstanding 27,027 254,773 16,154
Beginning units 0 0 0
----------- ----------- -----------
Ending units 27,027 254,773 16,154
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 137
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION
TO APRIL 30, 1999
(Continued)
<TABLE>
<CAPTION>
Worldwide High-Yield Global Corporate
High Income Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (36) $ (307) $ (308) $ (276)
Net realized gains (losses) from
securities transactions 1 12 0 1
Change in net unrealized appreciation/
depreciation of investments 1,862 6,766 1,497 (77)
--------- --------- --------- ---------
Increase (decrease) in net assets from operations 1,827 6,471 1,189 (352)
--------- --------- --------- ---------
From capital transactions:
Net proceeds from units sold 69,492 352,908 587,687 421,483
Cost of units redeemed 0 (172) (527) 0
Net transfers 0 0 39 0
--------- --------- --------- ---------
Increase in net assets
from capital transactions 69,492 352,736 587,199 421,483
--------- --------- --------- ---------
Increase in net assets 71,319 359,207 588,388 421,131
Net assets at beginning of period 0 0 0 0
--------- --------- --------- ---------
Net assets at end of period $ 71,319 $ 359,207 $ 588,388 $ 421,131
========= ========= ========= =========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 4,828 23,718 40,487 32,037
Units redeemed 0 (11) (36) 0
Units transferred 0 0 3 0
--------- --------- --------- ---------
Increase in units outstanding 4,828 23,707 40,454 32,037
Beginning units 0 0 0 0
--------- --------- --------- ---------
Ending units 4,828 23,707 40,454 32,037
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
International Emerging Real
Growth & Income Markets Estate
Portfolio Portfolio Portfolio
--------------- --------- ---------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (96) $ (62) $ (12)
Net realized gains (losses) from
securities transactions 2 1 0
Change in net unrealized appreciation/
depreciation of investments 7,161 6,981 948
--------- --------- ---------
Increase (decrease) in net assets from operations 7,067 6,920 936
--------- --------- ---------
From capital transactions:
Net proceeds from units sold 171,201 136,905 51,355
Cost of units redeemed (363) 0 0
Net transfers 11,674 0 0
--------- --------- ---------
Increase in net assets
from capital transactions 182,512 136,905 51,355
--------- --------- ---------
Increase in net assets 189,579 143,825 52,291
Net assets at beginning of period 0 0 0
--------- --------- ---------
Net assets at end of period $ 189,579 $ 143,825 $ 52,291
========= ========= =========
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 13,835 18,838 5,242
Units redeemed (29) 0 0
Units transferred 919 0 0
--------- --------- ---------
Increase in units outstanding 14,725 18,838 5,242
Beginning units 0 0 0
--------- --------- ---------
Ending units 14,725 18,838 5,242
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 138
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS PLUS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION
TO APRIL 30, 1999
(Continued)
<TABLE>
<CAPTION>
"Dogs" of Equity Equity
Wall Street Income Index
Portfolio Portfolio Portfolio
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (168) $ (172) $ (1,878)
Net realized gains (losses) from
securities transactions (39) 0 8
Change in net unrealized appreciation/
depreciation of investments 13,862 7,177 19,938
------------ ------------ ------------
Increase (decrease) in net assets from operations 13,655 7,005 18,068
------------ ------------ ------------
From capital transactions:
Net proceeds from units sold 301,308 370,857 4,068,548
Cost of units redeemed (262) 0 (4,403)
Net transfers (1,831) 3,736 23,496
------------ ------------ ------------
Increase in net assets
from capital transactions 299,215 374,593 4,087,641
------------ ------------ ------------
Increase in net assets 312,870 381,598 4,105,709
Net assets at beginning of period 0 0 0
------------ ------------ ------------
Net assets at end of period $ 312,870 $ 381,598 $ 4,105,709
============ ============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 30,856 35,710 398,231
Units redeemed (26) 0 (425)
Units transferred (215) 353 2,287
------------ ------------ ------------
Increase in units outstanding 30,615 36,063 400,093
Beginning units 0 0 0
------------ ------------ ------------
Ending units 30,615 36,063 400,093
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Small Company Cash
Value Management
Portfolio Portfolio TOTAL
------------- ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment loss $ (26) $ (2,010) $ (18,909)
Net realized gains (losses) from
securities transactions 0 1 236
Change in net unrealized appreciation/
depreciation of investments 2,623 5,374 (162,301)
------------ ------------ ------------
Increase (decrease) in net assets from operations 2,597 3,365 (180,974)
------------ ------------ ------------
From capital transactions:
Net proceeds from units sold 48,211 4,375,057 37,937,139
Cost of units redeemed 0 (279) (45,540)
Net transfers 0 (335,777) (193,149)
------------ ------------ ------------
Increase in net assets
from capital transactions 48,211 4,039,001 37,698,450
------------ ------------ ------------
Increase in net assets 50,808 4,042,366 37,517,476
Net assets at beginning of period 0 0 0
------------ ------------ ------------
Net assets at end of period $ 50,808 $ 4,042,366 $ 37,517,476
============ ============ ============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 4,634 365,310
Units redeemed 0 (23)
Units transferred 0 (28,016)
------------ ------------
Increase in units outstanding 4,634 337,271
Beginning units 0 0
------------ ------------
Ending units 4,634 337,271
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 139
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Annuity Account Seven (Portion Relating to the POLARIS PLUS
Variable Annuity) of Anchor National Life Insurance Company (the
"Separate Account") is a segregated investment account of Anchor
National Life Insurance Company (the "Company"). The Company is an
indirect, wholly owned subsidiary of SunAmerica Inc. Effective January
1, 1999, SunAmerica Inc. merged with and into American International
Group, Inc. in a tax-free reorganization that has been treated as a
pooling of interests for accounting purposes. Immediately prior to the
merger, SunAmerica Inc. transferred substantially all of its net assets
to its wholly owned subsidiary SunAmerica Holdings, Inc., a Delaware
Corporation. On January 4, 1999, SunAmerica Holdings, Inc. changed its
name to SunAmerica Inc. The Separate Account is registered as a
segregated unit investment trust pursuant to the provisions of the
Investment Company Act of 1940, as amended.
The Separate Account is composed of twenty-six variable portfolios (the
"Variable Accounts"). Each of the Variable Accounts is invested solely
in the shares of either (1) one of the three currently available
investment portfolios of Anchor Series Trust ("Anchor Trust") or (2)
one of the twenty-three currently available investment portfolios of
SunAmerica Series Trust ("SunAmerica Trust"). The Anchor Trust and the
SunAmerica Trust (the "Trusts") are each diversified, open-end,
affiliated investment companies, which retain investment advisers to
assist in the investment activities of the Trusts. The participant may
elect to have investments allocated to any of five guaranteed-interest
funds of the Company (the "General Account"), which are not a part of
the Separate Account. The financial statements include balances
allocated by the participant to the twenty-six Variable Accounts and do
not include balances allocated to the General Account.
The inception date of the Cash Management, Corporate Bond, Asset
Allocation, Equity Income, Emerging Markets, and Small Company Value
Portfolios was March 23, 1999. The inception date of the International
Growth & Income Portfolio was March 24, 1999. The inception date of the
Worldwide High Income and Real Estate Portfolios was March 31, 1999.
The inception date of the remaining portfolios was March 19, 1999.
The fiscal year-end of the Separate Account is April 30. Accordingly,
the accompanying interim statement of operations and interim
statement of changes in net assets for the five month period from
May 1, 1999 to September 30, 1999 do not represent a full year's
activity for the Separate Account.
<PAGE> 140
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The investment objectives and policies of the three portfolios of the
Anchor Trust are summarized below:
The CAPITAL APPRECIATION PORTFOLIO seeks long-term capital
appreciation. This portfolio invests in growth equity securities which
are widely diversified by industry and company using a wide-ranging and
flexible stock picking approach; may be concentrated and will generally
have less investments in large company securities than the Growth
Portfolio.
The GROWTH PORTFOLIO seeks capital appreciation. This portfolio invests
in core equity securities that are widely diversified by industry and
company.
The GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current
income, liquidity and security of principal. This portfolio invests in
obligations issued, guaranteed or insured by the U.S. Government, its
agencies or instrumentalities and in high quality corporate fixed
income securities.
Anchor Trust has portfolios in addition to those identified above;
however, none of these other portfolios is currently available for
investment under the Separate Account.
The investment objectives and policies of the twenty-three portfolios
of the SunAmerica Trust are summarized below:
The INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO seeks long-term
capital appreciation. This portfolio invests (in accordance with
country weightings as determined by the Subadviser) in common stocks of
foreign issuers which, in the aggregate, replicate broad country and
sector indices.
The GLOBAL EQUITIES PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in common stocks or securities of U.S. and
foreign issuers with common stock characteristics which demonstrate the
potential for appreciation and engages in transactions in foreign
currencies.
The AGGRESSIVE GROWTH PORTFOLIO seeks capital appreciation. This
portfolio invests primarily in equity securities of high growth
companies including small companies with market capitalizations under
$1 billion.
2
<PAGE> 141
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The VENTURE VALUE PORTFOLIO seeks growth of capital. This portfolio
invests primarily in common stocks of companies with market
capitalizations of at least $5 billion.
The FEDERATED VALUE PORTFOLIO seeks growth of capital and income. This
portfolio invests primarily in the securities of high quality
companies.
The PUTNAM GROWTH PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in common stocks or securities with common
stock characteristics that its Subadviser believes have above-average
growth prospects.
The ALLIANCE GROWTH PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in equity securities of a limited number of
large, carefully selected, high quality U.S. companies that are judged
likely to achieve superior earnings.
The GROWTH-INCOME PORTFOLIO seeks growth of capital and income. This
portfolio invests primarily in common stocks or securities which
demonstrate the potential for appreciation and/or dividends.
The ASSET ALLOCATION PORTFOLIO seeks high total return (including
income and capital gains) consistent with preservation of capital over
the long term. This portfolio invests in a diversified selection of
common stocks and other securities having common stock characteristics,
bonds and other intermediate and long-term fixed-income securities and
money market instruments (debt securities maturing in one year or less)
in any combination.
The SUNAMERICA BALANCED PORTFOLIO seeks to conserve principal. This
portfolio maintains at all times a balanced portfolio of stocks and
bonds, with at least 25% invested in fixed income securities.
The UTILITY PORTFOLIO seeks high current income and moderate capital
appreciation. This portfolio invests primarily in the equity and debt
securities of utility companies.
The WORLDWIDE HIGH INCOME PORTFOLIO seeks high current income and,
secondarily, capital appreciation. This portfolio invests primarily in
a selection of high-yielding fixed-income securities of issuers located
throughout the world.
3
<PAGE> 142
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The HIGH-YIELD BOND PORTFOLIO seeks a high level of current income and,
secondarily, seeks capital appreciation. This portfolio invests
primarily in intermediate and long-term corporate obligations, with
emphasis on higher-yielding, higher-risk, lower-rated or unrated
securities with a primary focus on "B" rated high-yield bonds.
The GLOBAL BOND PORTFOLIO seeks a high total return, emphasizing
current income and, to a lesser extent, providing opportunities for
capital appreciation. This portfolio invests in high quality
fixed-income securities of U.S. and foreign issuers and engages in
transactions in foreign currencies.
The CORPORATE BOND PORTFOLIO seeks a high total return with only
moderate price risk. This portfolio invests primarily in investment
grade fixed-income securities.
The INTERNATIONAL GROWTH AND INCOME PORTFOLIO seeks growth of capital
with current income as a secondary objective. This portfolio invests
primarily in common stocks traded on markets outside the United States.
The EMERGING MARKETS PORTFOLIO seeks long-term capital appreciation.
This portfolio invests mainly in the common stocks and other equity
securities of companies that its Subadviser believes have above-average
growth prospects primarily in emerging markets outside the United
States.
The REAL ESTATE PORTFOLIO seeks to achieve total return through a
combination of growth and income. This portfolio invests primarily in
securities of companies principally engaged in or related to the real
estate industry or which own significant real estate assets or which
primarily invest in real estate financial instruments.
The "DOGS" OF WALL STREET PORTFOLIO seeks total return (including
capital appreciation and current income) primarily through the annual
selection of thirty high dividend yielding common stocks from the Dow
Jones Industrial Average and the broader market.
The EQUITY INCOME PORTFOLIO seeks long-term capital appreciation and
income. This portfolio invests primarily in equity securities that are
expected to pay above-average dividends.
4
<PAGE> 143
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The EQUITY INDEX PORTFOLIO seeks investment results that correspond
with the performance of the Standard and Poor's 500 Composite Stock
Price Index ("S&P 500"). This portfolio invests primarily in common
stocks included in the S&P 500.
The SMALL COMPANY VALUE PORTFOLIO seeks capital appreciation. This
portfolio invests in a broadly diversified portfolio of equity
securities of small companies generally with market capitalizations of
less than $1 billion.
The CASH MANAGEMENT PORTFOLIO seeks high current yield while preserving
capital. This portfolio invests in a diversified selection of money
market instruments.
The SunAmerica Trust has portfolios in addition to those identified
above; however, none of these other portfolios is currently available
for investment under the Separate Account.
Purchases and sales of shares of the portfolios of the Trusts are
valued at the net asset values of the shares on the date the shares are
purchased or sold. Dividends and capital gains distributions are
recorded when received. Realized gains and losses on the sale of
investments in the Trusts are recognized at the date of sale and are
determined on an average cost basis.
Accumulation unit values are computed daily based on the total net
assets of the Variable Accounts.
2. CHARGES AND DEDUCTIONS
WITHDRAWAL CHARGE: The contract value may be withdrawn at any time
during the accumulation period subject to the limitations under Section
403(b)(11) of the Internal Revenue Code (IRC) and any applicable Plan
document. A withdrawal charge applies against each purchase payment put
into the contract with a few exceptions. A withdrawal charge is not
applicable to withdrawals due to annuitization or death benefits.
Additionally, withdrawal charges do not apply after the participant's
tenth contract anniversary or after separation from service occurring
after contract issue. Withdrawal charges are not deducted when
withdrawals are requested due to disability or hardship. Finally,
fifteen percent of the purchase payments each contract year are exempt
from withdrawal charges for participants who were separated from
service at the time the contract was issued.
5
<PAGE> 144
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
CHARGES AND DEDUCTIONS (continued)
Withdrawal charges vary in amount depending upon the number of years
since the purchase payment being withdrawn was made. The applicable
withdrawal charge schedule varies depending upon your employment status
at the time of contract issue. The withdrawal charge is deducted from
the remaining contract value so that the actual reduction in contract
value as a result of the withdrawal will be greater than the withdrawal
amount requested and paid. For purposes of determining the withdrawal
charge, withdrawals will be allocated first to investment income, if
any (which may generally be withdrawn free of a withdrawal charge), and
then to the oldest purchase payments first so that all withdrawals are
allocated to purchase payments to which the lowest (if any) withdrawal
charge applies.
Any amount withdrawn may be subject to a withdrawal charge in
accordance with the withdrawal charge tables shown below:
SEPARATED FROM SERVICE AT CONTRACT ISSUE
<TABLE>
<CAPTION>
Years Since Purchase Applicable Withdrawal
Payment Charge Percentage
-------------------- ---------------------
<S> <C>
First 6%
Second 6%
Third 5%
Fourth 5%
Fifth 4%
Sixth and beyond 0%
</TABLE>
EMPLOYED AT CONTRACT ISSUE
<TABLE>
<CAPTION>
Years Since Purchase Applicable Withdrawal
Payment Charge Percentage
-------------------- ---------------------
<S> <C>
First 6%
Second 6%
Third 5%
Fourth 5%
Fifth 4%
Sixth 4%
Seventh and beyond 0%
</TABLE>
6
<PAGE> 145
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
CHARGES AND DEDUCTIONS (continued)
TRANSFER FEE: A transfer fee of $25 ($10 in Pennsylvania and Texas) is
assessed on each transfer of funds in excess of fifteen transactions
within a contract year.
PREMIUM TAXES: Premium taxes or other taxes payable to a state or other
governmental entity will be charged against the contract values. Some
states assess premium taxes at the time purchase payments are made;
others assess premium taxes at the time annuity payments begin. The
Company currently intends to deduct premium taxes at the time of
surrender or upon annuitization; however, it reserves the right to
deduct any premium taxes when incurred or upon the payment of the death
benefit.
MORTALITY AND EXPENSE RISK CHARGE: The Company deducts mortality and
expense risk charges, which total to an annual rate of 1.10% of the net
asset value of each portfolio, computed on a daily basis. The mortality
risk charge is compensation for the mortality risks assumed by the
Company from its contractual obligations to make annuity payments after
the contract has annuitized for the life of the annuitant and to
provide death benefits, and for assuming the risk that the current
charges will be insufficient in the future to cover the cost of
administering the contract.
DISTRIBUTION EXPENSE CHARGE: The Company deducts a distribution expense
charge at an annual rate of 0.15% of the net asset value of each
portfolio, computed on a daily basis. This charge is for all expenses
associated with the distribution of the contract. These expenses
include preparing the contract, confirmations and statements, providing
sales support and maintaining contract records. If this charge is not
enough to cover the costs of distributing the contract, the Company
will bear the loss.
SEPARATE ACCOUNT INCOME TAXES: The Company currently does not maintain
a provision for taxes, but has reserved the right to establish such a
provision for taxes in the future if it determines, in its sole
discretion, that it will incur a tax as a result of the operation of
the Separate Account.
7
<PAGE> 146
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
CHARGES AND DEDUCTIONS (continued)
INCOME PROTECTOR FEE: The Company offers two levels of income
protection to participants. If elected, the Income Protector Plus and
the Income Protector Max can provide increased levels of minimum
guaranteed income. An annual fee is charged for the Plus and Max
options, as a percentage of an "income benefit base" calculation, in
the amount of 0.15% and 0.30%, respectively. The "income benefit base"
calculation is equal to the contract's value on the election date, plus
all subsequent purchase payments, less all withdrawals and applicable
fees and charges in an amount proportionate to the amount by which such
withdrawals decrease the contract's value. The "income benefit base"
also accumulates at an annual growth rate of 3.25% and 5.25% for the
Plus and the Max options, respectively.
8
<PAGE> 147
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENT IN ANCHOR TRUST AND SUNAMERICA TRUST
The aggregate cost of the Trusts' shares acquired and the aggregate
proceeds from shares sold during the period from inception to September
30, 1999 consist of the following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Variable Accounts Acquired Shares Sold
----------------- -------------- -------------
<S> <C> <C>
ANCHOR TRUST:
Capital Appreciation Portfolio $13,247,461 $ 314
Growth Portfolio 13,596,188 717
Government and Quality Bond Portfolio 31,266,099 21,490
SUNAMERICA TRUST:
International Diversified Equities Portfolio 2,543,733 14,349
Global Equities Portfolio 6,559,006 60,635
Aggressive Growth Portfolio 5,426,615 40,006
Venture Value Portfolio 10,924,321 100
Federated Value Portfolio 3,660,233 3,715
Putnam Growth Portfolio 28,337,580 1,522
Alliance Growth Portfolio 63,948,607 695
Growth-Income Portfolio 41,196,318 15,729
Asset Allocation Portfolio 6,414,998 3,816
SunAmerica Balanced Portfolio 49,726,477 207,246
Utility Portfolio 4,354,601 5,139
Worldwide High Income Portfolio 829,536 2,771
High-Yield Bond Portfolio 3,171,418 16,922
Global Bond Portfolio 4,695,848 22,010
Corporate Bond Portfolio 4,577,732 585
International Growth & Income Portfolio 3,515,999 8,517
Emerging Markets Portfolio 2,117,909 191,068
Real Estate Portfolio 872,697 134
"Dogs" of Wall Street Portfolio 3,981,807 4,419
Equity Income Portfolio 4,476,199 5,961
Equity Index Portfolio 38,005,118 112,794
Small Company Value Portfolio 1,278,502 6,004
Cash Management Portfolio 22,118,165 4,026,147
</TABLE>
9
<PAGE> 148
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS PLUS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
4. FEDERAL INCOME TAXES
The Company qualifies for federal income tax treatment granted to life
insurance companies under subchapter L of the Internal Revenue Service
Code (the "Code"). The operations of the Separate Account are part of
the total operations of the Company and are not taxed separately. The
Separate Account is not treated as a regulated investment company under
the Code.
10
