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As filed pursuant to Rule 497
under the Securities Act of 1940
Registration No. 333-65965
[POLARIS(II) A-CLASS LOGO]
Profile
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
KNOW AND CONSIDER BEFORE PURCHASING THE POLARIS(II) A-CLASS VARIABLE ANNUITY.
THE ANNUITY IS MORE FULLY DESCRIBED IN THE PROSPECTUS. PLEASE READ THE
PROSPECTUS CAREFULLY.
July 5, 2000
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1. THE POLARIS(II) A-CLASS VARIABLE ANNUITY
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The Polaris(II) A-Class Variable Annuity is a contract between you and Anchor
National Life Insurance Company. It is designed to help you invest on a
tax-deferred basis and meet long-term financial goals, such as retirement
funding. Tax deferral means all your money, including the amount you would
otherwise pay in current income taxes, remains in your contract to generate more
earnings. Your money could grow faster than it would in a comparable taxable
investment.
Polaris(II) A-Class offers a diverse selection of money managers and investment
options. You may divide your money among any or all 30 variable portfolios and 7
fixed account options. Your investment is not guaranteed. The value of your
Polaris(II) A-Class contract can fluctuate up and down, based on the performance
of the underlying investments you select, and you may experience a loss.
The variable portfolios offer professionally managed investment choices with
goals ranging from capital preservation to aggressive growth. Your choices for
the various investment options are found on the next page.
The contract also offers 7 fixed account options, for different time periods.
Each may have a different interest rate. Interest rates are guaranteed by Anchor
National.
Like most annuities, the contract has an accumulation phase and an income phase.
During the accumulation phase, you invest money in your contract. Your earnings
are based on the investment performance of the variable portfolios to which your
money is allocated and/or the interest rate(s) earned on the fixed account
option(s) in which you invest. You may withdraw money from your contract during
the accumulation phase. However, as with other tax-deferred investments, you
will pay taxes on earnings and untaxed contributions when you withdraw them. An
IRS penalty tax may apply if you make withdrawals before age 59 1/2.
During the income phase, you may receive income payments from your annuity. Your
income payments may be fixed in dollar amount, vary with investment performance
or a combination of both, depending on where your money is allocated. Among
other factors, the amount of money you are able to accumulate in your contract
during the accumulation phase will 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 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.
If your contract is part of a non-qualified retirement plan (one that is
established with after-tax dollars), payments during the income phase are
considered partly a return of your original investment. The "original
investment" part of each payment is not taxable as income. For contracts which
are part of a qualified retirement plan using before-tax dollars, the entire
income payment is taxable as income.
In addition to the above income options, you may also elect to take income
payments under the income protector program, subject to the provisions thereof.
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3. PURCHASING A POLARIS(II) A-CLASS
VARIABLE ANNUITY CONTRACT
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You can buy a contract through your financial representative, who can also help
you complete the proper forms. For non-qualified contracts, the minimum initial
gross purchase payment is $5,000 and subsequent amounts of $500 or more may be
added to your contract at any time during the accumulation phase. For qualified
contracts, the minimum initial gross purchase payment is $2,000 and subsequent
amounts of $250 or more may be added to your contract at any time during the
accumulation phase. Additionally, the optional automatic payment plan allows you
to make subsequent gross purchase payments of as little as $20.
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4. INVESTMENT OPTIONS
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You may allocate money to the following variable 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.
- Davis Venture Value Portfolio
- Real Estate Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Telecom Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
- Goldman Sachs Research Portfolio
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Mid-Cap Growth Portfolio
- MFS Growth and Income Portfolio
- MFS Total Return Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
- Technology 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
- Blue Chip Growth Portfolio
- Growth Opportunities Portfolio
You may also allocate money to the 1-year fixed account option or the 3, 5, 7
and 10-year market value adjustment ("MVA") fixed account options and, under
certain circumstances, the 6-month and 1-year Dollar Cost Averaging ("DCA")
fixed account options.
The interest rates applicable for these fixed account options may differ from
time to time, however, we will never credit less than a 3% compounded effective
yield. Once established, the rate will not change during the selected period.
Your contract value will be adjusted up or down for withdrawals or transfers
from the 3, 5, 7 and 10-year fixed account options prior to the end of the
guarantee period.
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5. EXPENSES
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We deduct insurance charges, to cover our mortality, expense and distribution
risks, which equal 0.85% annually of the average daily value of your contract
allocated to the variable portfolios. There are no insurance charges deducted
from amounts allocated to the fixed account options.
We apply an up-front sales charge against the gross purchase payments you make
to your contract. The sales charge equals a percentage of each gross purchase
payment and varies with your investment amount.
Your investment amount is determined on the day we receive a gross purchase
payment and is the greater of:
(1) The sum of (a) the gross purchase payment amount, (b) the current
contract value of this contract, and (c) the current contract values of
any eligible related contracts; or
(2) The amount, if any, you agree to contribute to this contract and your
eligible related contracts over a designated 13-month period.
<TABLE>
<CAPTION>
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SALES CHARGE AS A
PERCENTAGE OF GROSS PURCHASE
INVESTMENT AMOUNT PAYMENT INVESTED
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<S> <C>
Less than $ 50,000 5.75%
$ 50,000 - $ 99,999 4.75%
$100,000 - $249,999 3.50%
$250,000 - $499,999 2.50%
$500,000 - $999,999 2.00%
$1,000,000 or more 0.50%*
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* Additionally, a withdrawal charge of 0.50% applies to gross purchase payments
subject to a 0.50% sales charge if invested less than 12 months at the time of
withdrawal.
As with other professionally managed investments, there are investment charges
imposed on contracts with money allocated to the variable portfolios. We
estimate these fees to range from 0.53% to 1.90%.
Each year, you are allowed to make 15 transfers without charge. After your first
15 transfers, a $25 transfer fee ($10 in Pennsylvania and Texas) applies to each
subsequent transfer.
In a limited number of states, you may also be assessed a state premium tax of
up to 3.5% depending upon the state.
The following chart is designed to help you understand the charges in your
contract. The column "Total Annual Charges" shows the total of the 0.85%
insurance charges and the estimated investment fees for each variable portfolio.
The next two columns show two examples of the charges you would pay under the
contract. The examples assume that you invested $1,000 in a contract which earns
5% annually and that you withdraw your money: (1) at the end of year 1, and (2)
at the end of year 10. We assume an up-front sales charge of 5.75% and a premium
tax of 0% in both examples.
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<CAPTION>
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EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL EXPENSES TOTAL EXPENSES
INSURANCE INVESTMENT TOTAL ANNUAL AT END OF AT END OF
ANCHOR SERIES TRUST PORTFOLIO CHARGES CHARGES CHARGES 1 YEAR* 10 YEARS*
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<S> <C> <C> <C> <C> <C>
Capital Appreciation 0.85% 0.67% 1.52% $ 73 $227
Growth 0.85% 0.73% 1.58% $ 73 $233
Government and Quality Bond 0.85% 0.66% 1.51% $ 73 $226
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SUNAMERICA SERIES TRUST PORTFOLIO
Technology*** 0.85% 1.55% 2.40% $ 82 $262
Emerging Markets** 0.85% 1.90% 2.75% $ 85 $347
International Diversified Equities 0.85% 1.22% 2.07% $ 78 $282
Global Equities 0.85% 0.84% 1.69% $ 74 $244
International Growth and Income** 0.85% 1.21% 2.06% $ 78 $281
Growth Opportunities*** 0.85% 1.00% 1.85% $ 76 $219
Aggressive Growth** 0.85% 0.75% 1.60% $ 74 $235
MFS Mid-Cap Growth 0.85% 1.15% 2.00% $ 78 $275
Real Estate** 0.85% 0.92% 1.77% $ 75 $252
Blue Chip Growth*** 0.85% 0.85% 1.70% $ 75 $207
Putnam Growth 0.85% 0.80% 1.65% $ 74 $240
Goldman Sachs Research*** 0.85% 1.35% 2.20% $ 80 $247
MFS Growth and Income 0.85% 0.75% 1.60% $ 74 $235
Alliance Growth 0.85% 0.63% 1.48% $ 72 $222
"Dogs" of Wall Street** 0.85% 0.67% 1.52% $ 73 $227
Davis Venture Value 0.85% 0.74% 1.59% $ 73 $234
Federated Value** 0.85% 0.77% 1.62% $ 74 $237
Growth-Income 0.85% 0.56% 1.41% $ 72 $215
Telecom Utility**,+ 0.85% 0.84% 1.69% $ 74 $244
Asset Allocation 0.85% 0.63% 1.48% $ 72 $222
MFS Total Return 0.85% 0.75% 1.60% $ 74 $235
SunAmerica Balanced** 0.85% 0.66% 1.51% $ 73 $226
Worldwide High Income 0.85% 1.12% 1.97% $ 77 $272
High-Yield Bond 0.85% 0.67% 1.52% $ 73 $227
Corporate Bond 0.85% 0.71% 1.56% $ 73 $231
Global Bond 0.85% 0.84% 1.69% $ 74 $244
Cash Management 0.85% 0.53% 1.38% $ 71 $212
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</TABLE>
* Includes sales charge applicable to a $1,000 purchase payment, or 5.75%.
** 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.
*** This portfolio was not available for sale during the fiscal year 2000. The
Total Annual Investment Charges are based on estimated amounts for the
current fiscal year.
+ Formerly named Utility Portfolio. The name change will not result in any
modifications to the portfolio's principal investment goal or fundamental
investment policies.
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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 earned in a non-qualified contract are deferred until they are
withdrawn. In a qualified contract, all amounts are taxable when they are
withdrawn.
When you begin taking distributions or withdrawals from your contract, earnings
are considered to be taken out first and will be taxed at your ordinary income
rate. You may be subject to a 10% IRS penalty tax for distributions or
withdrawals before age 59 1/2.
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7. ACCESS TO YOUR MONEY
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Withdrawals may be made from your contract in the amount of $1,000 or more. You
may request a withdrawal in writing or by establishing systematic withdrawals.
Under systematic withdrawals, the minimum withdrawal amount is $100.
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8. PERFORMANCE
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The value of your contract will fluctuate depending upon the investment
performance of the variable portfolio(s) you choose.
When you invest in the Polaris(II) A-Class 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.
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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. You must select from the two death benefit options described
below at the time you purchase your contract. Once selected, your death benefit
may not be changed. You should discuss with your financial representative the
options available to you and which option is best for you.
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION:
The death benefit is the greater of:
(1) the value of your contract at the time we receive satisfactory proof of
death; or
(2) total gross purchase payments less withdrawals (and any fees or charges
applicable to such withdrawals); or
(3) total purchase payments less withdrawals (and any fees or charges applicable
to such withdrawals), compounded at a 4% annual growth rate until the date
of death (3% growth rate if 70 or older at the time of contract issue) plus
any purchase payments less withdrawals recorded after the date of death (and
any fees or charges applicable to such withdrawals); or
(4) the value of your contract on the seventh contract anniversary, plus any
purchase payments since the seventh anniversary and less any withdrawals
(and any fees or charges applicable to such withdrawals), all compounded at
a 4% annual growth rate until the date of death (3% if 70 or older at the
time of contract issue) plus any purchase payments less withdrawals recorded
after the date of death (and any fees or charges applicable to such
withdrawals).
OPTION 2 - MAXIMUM ANNIVERSARY OPTION:
The death benefit is the greater of:
(1) the value of your contract at the time we receive satisfactory proof of
death; or
(2) total gross purchase payments less withdrawals (and any fees or charges
applicable to such withdrawals); or
(3) the maximum anniversary value on any contract anniversary prior to your 81st
birthday. The anniversary value equals the value of your contract on a
contract anniversary plus any purchase payments and less any withdrawals
(and any fees or charges applicable to such withdrawals) since that contract
anniversary.
If you are age 90 or older at the time of death and selected the option 2 death
benefit, the death benefit will be equal to the value of your contract 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 sum of the value of your contract (unless otherwise required by state
law) and the sales charge. Its value may be more or less than the money you
initially invested.
ASSET ALLOCATION REBALANCING PROGRAM: If elected by you, this program seeks to
keep your investment in line with your goals. We will maintain your specified
allocation mix in the variable portfolios and the 1-year fixed account option by
readjusting your money on a calendar quarter, semiannual or annual basis.
SYSTEMATIC WITHDRAWAL PROGRAM: If elected by you, this program allows you to
receive either monthly, quarterly, semiannual or annual checks during the
accumulation phase. Systematic withdrawals may also be electronically
transferred to your bank account. Of course, withdrawals may be taxable and a
10% IRS penalty tax may apply if you are under age 59 1/2.
PRINCIPAL ADVANTAGE PROGRAM: If elected by you, this program allows you to
obtain growth potential without any market risk to your principal. We will
guarantee that the portion of your money allocated to the 1, 3, 5, 7 or 10-year
fixed account option will grow to equal your principal investment when it is
allocated in accordance with the program.
DOLLAR COST AVERAGING: If elected by you, this program allows you to invest
gradually in the variable portfolios from any of the variable portfolios, the
1-year fixed account option, the 6-month DCA fixed account option or the 1-year
DCA fixed account option.
AUTOMATIC PAYMENT PLAN: You can add to your contract directly from your bank
account with as little as $20 per month.
CONFIRMATIONS AND QUARTERLY STATEMENTS: During the accumulation phase, you will
receive confirmation of transactions within your contract. Transactions made
pursuant to contractual or systematic agreements, such as 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
Telephone Number: (800) 445-SUN2
If money accompanies your correspondence, you should direct it to:
Anchor National Life Insurance Company
P.O. Box 100330
Pasadena, California 91189-0001
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[POLARIS(II) A-CLASS LOGO]
PROSPECTUS
JULY 5, 2000
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<S> <C> <C>
Please read this prospectus carefully FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
before investing and keep it for issued by
future reference. It contains ANCHOR NATIONAL LIFE INSURANCE COMPANY
important information about the in connection with
Polaris(II) A-Class Variable Annuity. VARIABLE ANNUITY ACCOUNT SEVEN
The annuity has 37 investment choices -- 7 fixed account
To learn more about the annuity options and 30 Variable Portfolios listed below. The 7 fixed
offered by this prospectus, you can account options include specified periods of 1, 3, 5, 7 and
obtain a copy of the Statement of 10 years and DCA accounts for 6-month and 1-year periods.
Additional Information ("SAI") dated The 30 Variable Portfolios are part of the Anchor Series
July 5, 2000. The SAI is on file with Trust and the SunAmerica Series Trust.
the Securities and Exchange ANCHOR SERIES TRUST:
Commission ("SEC") and is MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
incorporated by reference into this - Capital Appreciation Portfolio
prospectus. The Table of Contents of - Growth Portfolio
the SAI appears on page 21 of this - Government and Quality Bond Portfolio
prospectus. For a free copy of the SUNAMERICA SERIES TRUST:
SAI, call us at (800) 445-SUN2 or MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
write to us at our Annuity Service - Global Equities Portfolio
Center, P.O. Box 54299, Los Angeles, - Alliance Growth Portfolio
California 90054-0299. - Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
In addition, the SEC maintains a - Davis Venture Value Portfolio
website (http://www.sec.gov) that - Real Estate Portfolio
contains the SAI, materials MANAGED BY FEDERATED INVESTORS
incorporated by reference and other - Federated Value Portfolio
information filed electronically with - Telecom Utility Portfolio
the SEC by Anchor National. - Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
Annuities involve risks, including GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
possible loss of principal. Annuities - Asset Allocation Portfolio
are not a deposit or obligation of, - Global Bond Portfolio
or guaranteed or endorsed by, any - Goldman Sachs Research Portfolio
bank. They are not Federally insured MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
by the Federal Deposit Insurance - MFS Mid-Cap Growth Portfolio
Corporation, the Federal Reserve - MFS Growth and Income Portfolio
Board or any other agency. - MFS Total Return Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
- Technology 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
- Blue Chip Growth Portfolio
- Growth Opportunities Portfolio
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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Anchor National's Annual Report on Form 10-K for the year ended December 31,
1999 is incorporated herein by reference.
All documents or reports filed by Anchor National under Section 13(a), 13(c),
14, or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") after the effective date of this prospectus are also incorporated by
reference. Statements contained in this prospectus and subsequently filed
documents which are incorporated by reference or deemed to be incorporated by
reference are deemed to modify or supersede documents incorporated herein by
reference.
Anchor National files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000006342.
Anchor National is subject to the informational requirements of the Securities
and Exchange Act of 1934 (as amended). We file reports and other information
with the SEC to meet those requirements. You can inspect and copy this
information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
7 World Trade Center, 13th Fl.
New York, NY 10048
To obtain copies by mail contact the Washington, D.C. location. After you pay
the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the registration
statements and exhibits. For further information regarding the separate account,
Anchor National and its general account, the Variable Portfolios and the
contract, please refer to the registration statements and exhibits.
The SEC also maintains a website (http://www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by Anchor National.
Anchor National will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of the above
documents incorporated by reference. Requests for these documents should be
directed to Anchor National's Annuity Service Center, as follows:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
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SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
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Indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") is provided to Anchor National's officers, directors and controlling
persons. The SEC has advised that it believes such indemnification is against
public policy under the Act and unenforceable. If a claim for indemnification
against such liabilities (other than for Anchor National's payment of expenses
incurred or paid by its directors, officers or controlling persons in the
successful defense of any legal action) is asserted by a director, officer or
controlling person of Anchor National in connection with the securities
registered under this prospectus, Anchor National will submit to a court with
jurisdiction to determine whether the indemnification is against public policy
under the Act. Anchor National will be governed by final judgment of the issue.
However, if in the opinion of Anchor National's counsel this issue has been
determined by controlling precedent, Anchor National will not submit the issue
to a court for determination.
2
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TABLE OF CONTENTS
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............. 2
SECURITIES AND EXCHANGE COMMISSION POSITION ON
INDEMNIFICATION............................................ 2
GLOSSARY..................................................... 3
FEE TABLES................................................... 4
Sales Charge........................................... 4
Transfer Fee........................................... 4
Contract Maintenance Fee............................... 4
Annual Separate Account Expenses....................... 4
Portfolio Expenses..................................... 4
EXAMPLES..................................................... 5
THE POLARIS(II) A-CLASS VARIABLE ANNUITY..................... 6
PURCHASING A POLARIS(II) A-CLASS VARIABLE ANNUITY............ 6
Allocation of Purchase Payments........................ 6
Accumulation Units..................................... 7
Free Look.............................................. 7
INVESTMENT OPTIONS........................................... 7
Variable Portfolios.................................... 7
Anchor Series Trust.................................... 7
SunAmerica Series Trust................................ 8
Fixed Account Options.................................. 8
Market Value Adjustment ("MVA")........................ 8
Transfers During the Accumulation Phase................ 9
Dollar Cost Averaging.................................. 10
Asset Allocation Rebalancing Program................... 10
Principal Advantage Program............................ 11
Voting Rights.......................................... 11
Substitution........................................... 11
ACCESS TO YOUR MONEY......................................... 11
Systematic Withdrawal Program.......................... 11
Minimum Contract Value................................. 11
DEATH BENEFIT................................................ 11
EXPENSES..................................................... 12
Insurance Charges...................................... 12
Sales Charge........................................... 13
Reducing Your Sales Charges............................ 13
Letter of Intent....................................... 13
Rights of Accumulation................................. 14
Purchase Payments Subject to a Withdrawal Charge....... 14
Investment Charges..................................... 14
Transfer Fee........................................... 14
Premium Tax............................................ 14
Income Taxes........................................... 15
Reduction or Elimination of Certain 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 Feature........................... 16
TAXES........................................................ 18
Annuity Contracts in General........................... 18
Tax Treatment of Distributions -
Non-Qualified Contracts............................... 18
Tax Treatment of Distributions -
Qualified Contracts................................... 18
Minimum Distributions.................................. 18
Diversification........................................ 18
PERFORMANCE.................................................. 19
OTHER INFORMATION............................................ 19
Anchor National........................................ 19
The Separate Account................................... 19
The General Account.................................... 19
Distribution of the Contract........................... 19
Administration......................................... 20
Legal Proceedings...................................... 20
Ownership.............................................. 20
Custodian.............................................. 20
Independent Accountants................................ 20
Registration Statement................................. 20
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.....
21
APPENDIX A -- CONDENSED FINANCIAL INFORMATION................ A-1
APPENDIX B -- MARKET VALUE ADJUSTMENT........................ B-1
APPENDIX C -- PREMIUM TAXES.................................. C-1
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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 income
payments.
ANNUITY DATE - The date on which income payments are to begin, as
selected by you.
ANNUITY UNITS - A measurement we use to calculate the amount of
income payments you receive from the variable portion of your
contract during the Income Phase.
BENEFICIARY - The person designated to receive any benefits under
the contract if you or the Annuitant dies.
GROSS 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. Gross Purchase Payments do not
reflect the reduction of the sales charge.
INCOME PHASE - The period during which we make income payments to
you.
IRS - The Internal Revenue Service.
NON-QUALIFIED (CONTRACT) - A contract purchased with after-tax
dollars. In general, these contracts are not under any pension
plan, specially sponsored program or individual retirement account
("IRA").
PURCHASE PAYMENTS - The portion of your Gross Purchase Payments
which we invest in your contract. We calculate this amount by
deducting the applicable sales charge from your Gross Purchase
Payments.
QUALIFIED (CONTRACT) - A contract purchased with pre-tax 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.
VARIABLE PORTFOLIO(S) - The variable investment options available
under the contract. Each Variable Portfolio has its own investment
objective and is invested in the underlying investments of the
Anchor Series Trust or the SunAmerica Series Trust.
</TABLE>
ALL FINANCIAL REPRESENTATIVES THAT SELL THE CONTRACTS OFFERED BY THIS PROSPECTUS
ARE REQUIRED TO DELIVER A PROSPECTUS.
3
<PAGE> 8
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FEE TABLES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
SALES CHARGE
<TABLE>
<CAPTION>
SALES CHARGE AS A
INVESTMENT AMOUNT (AS DEFINED PERCENTAGE OF GROSS
IN SALES CHARGE SECTION ON PAGE 14) PURCHASE PAYMENT INVESTED*
-------------------------------- --------------------------
<S> <C>
Less than $50,000.................... 5.75%
$50,000 but less than $100,000....... 4.75%
$100,000 but less than $250,000...... 3.50%
$250,000 but less than $500,000...... 2.50%
$500,000 but less than $1,000,000.... 2.00%
$1,000,000 or more................... 0.50%**
</TABLE>
* Your gross purchase payment may qualify for a reduced sales charge. SEE
EXPENSES SECTION ON PAGE 12.
** A withdrawal charge of 0.50% applies to gross purchase payments subject to a
0.50% sales charge if invested less than 12 months at the time of withdrawal.
<TABLE>
<S> <C>
TRANSFER FEE..................... No charge for first 15 transfers
each year; thereafter, fee is $25
($10 in Pennsylvania and Texas)
per transfer
</TABLE>
CONTRACT MAINTENANCE FEE . . . . . . . . . . . . . . . . . . . None
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge....................... 0.70%
Distribution Expense Charge............................. 0.15%
-----
TOTAL SEPARATE ACCOUNT EXPENSES..................... 0.85%
=====
</TABLE>
PORTFOLIO EXPENSES
ANCHOR SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S FISCAL YEAR ENDED
DECEMBER 31, 1999)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Capital Appreciation .63% .04% .67%
-----------------------------------------------------------------------------------------------------------
Growth .68% .05% .73%
-----------------------------------------------------------------------------------------------------------
Government and Quality Bond .60% .06% .66%
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
</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, 2000)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Technology**** 1.20% 0.35% 1.55%
-----------------------------------------------------------------------------------------------------------
Emerging Markets*** 1.25% 0.65% 1.90%
-----------------------------------------------------------------------------------------------------------
International Diversified Equities 1.00% 0.22% 1.22%
-----------------------------------------------------------------------------------------------------------
Global Equities 0.72% 0.12% 0.84%
-----------------------------------------------------------------------------------------------------------
International Growth and Income 0.98% 0.23% 1.21%
-----------------------------------------------------------------------------------------------------------
Growth Opportunities**** 0.75% 0.25% 1.00%
-----------------------------------------------------------------------------------------------------------
Aggressive Growth 0.70% 0.05% 0.75%
-----------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth* 0.75% 0.40% 1.15%**
-----------------------------------------------------------------------------------------------------------
Real Estate 0.80% 0.12% 0.92%
-----------------------------------------------------------------------------------------------------------
Blue Chip Growth**** 0.70% 0.15% 0.85%
-----------------------------------------------------------------------------------------------------------
Putnam Growth 0.76% 0.04% 0.80%
-----------------------------------------------------------------------------------------------------------
Goldman Sachs Research**** 1.20% 0.15% 1.35%
-----------------------------------------------------------------------------------------------------------
MFS Growth and Income 0.70% 0.05% 0.75%
-----------------------------------------------------------------------------------------------------------
Alliance Growth 0.60% 0.03% 0.63%
-----------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street*** 0.60% 0.07% 0.67%
-----------------------------------------------------------------------------------------------------------
Davis Venture Value 0.71% 0.03% 0.74%
-----------------------------------------------------------------------------------------------------------
Federated Value 0.71% 0.06% 0.77%
-----------------------------------------------------------------------------------------------------------
Growth-Income 0.53% 0.03% 0.56%
-----------------------------------------------------------------------------------------------------------
Telecom Utility+ 0.75% 0.09% 0.84%
-----------------------------------------------------------------------------------------------------------
Asset Allocation 0.58% 0.05% 0.63%
-----------------------------------------------------------------------------------------------------------
MFS Total Return 0.66% 0.09% 0.75%
-----------------------------------------------------------------------------------------------------------
SunAmerica Balanced 0.62% 0.04% 0.66%
-----------------------------------------------------------------------------------------------------------
Worldwide High Income 1.00% 0.12% 1.12%
-----------------------------------------------------------------------------------------------------------
High-Yield Bond 0.62% 0.05% 0.67%
-----------------------------------------------------------------------------------------------------------
Corporate Bond 0.62% 0.09% 0.71%
-----------------------------------------------------------------------------------------------------------
Global Bond 0.69% 0.15% 0.84%
-----------------------------------------------------------------------------------------------------------
Cash Management 0.49% 0.04% 0.53%
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
</TABLE>
* Absent fee waivers or reimbursement of expenses by the adviser, the Total
Annual Expenses during the last fiscal year for the MFS Mid-Cap Growth
Portfolio would have been (1.17%).
** Annualized
*** 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 0.67% and for the Emerging Markets Portfolio (1.77%). For the
"Dogs" of Wall Street portfolio for fiscal year ended January 31, 2000,
the adviser recouped prior year expense reimbursements that were
mathematically insignificant, resulting in the expense ratio before and
after the recoupment remaining at .67%.
**** This portfolio was not available for sale during fiscal year 2000. The
percentages are based on estimated amounts for the current fiscal year.
+ Formerly named Utility Portfolio. The name change will not result in any
modifications to the portfolio's principal investment goal or fundamental
investment policies.
THE ABOVE PORTFOLIO EXPENSES WERE PROVIDED BY THE TRUSTS. WE HAVE NOT
INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
4
<PAGE> 9
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--------------------------------------------------------------------------------
EXAMPLES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
You will pay the following expenses on a $1,000 investment in each Variable
Portfolio, assuming a 5% annual return on assets and a sales charge of 5.75% as
well as investment management expenses after waiver, reimbursement or
recoupment, if applicable. At the 5.75% sales charge level, we do not deduct any
additional fees or charges when you surrender your contract.*
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Capital Appreciation $73 $103 $135 $227
-------------------------------------------------------------------------------------------------------
Growth $73 $105 $138 $233
-------------------------------------------------------------------------------------------------------
Government and Quality Bond $73 $103 $135 $226
-------------------------------------------------------------------------------------------------------
Technology $82 $125 $167 $262
-------------------------------------------------------------------------------------------------------
Emerging Markets $85 $139 $195 $347
-------------------------------------------------------------------------------------------------------
International Diversified Equities $78 $119 $162 $282
-------------------------------------------------------------------------------------------------------
Global Equities $74 $108 $144 $244
-------------------------------------------------------------------------------------------------------
International Growth and Income $78 $119 $162 $281
-------------------------------------------------------------------------------------------------------
Growth Opportunities $76 $110 $143 $219
-------------------------------------------------------------------------------------------------------
Aggressive Growth $74 $105 $139 $235
-------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth $78 $117 $159 $275
-------------------------------------------------------------------------------------------------------
Real Estate $75 $110 $148 $252
-------------------------------------------------------------------------------------------------------
Blue Chip Growth $75 $106 $136 $207
-------------------------------------------------------------------------------------------------------
Putnam Growth $74 $107 $142 $240
-------------------------------------------------------------------------------------------------------
Goldman Sachs Research $80 $120 $158 $247
-------------------------------------------------------------------------------------------------------
MFS Growth and Income $74 $105 $139 $235
-------------------------------------------------------------------------------------------------------
Alliance Growth $72 $102 $133 $222
-------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street $73 $103 $135 $227
-------------------------------------------------------------------------------------------------------
Davis Venture Value $73 $105 $139 $234
-------------------------------------------------------------------------------------------------------
Federated Value $74 $106 $140 $237
-------------------------------------------------------------------------------------------------------
Growth-Income $72 $100 $130 $215
-------------------------------------------------------------------------------------------------------
Telecom Utility $74 $108 $144 $244
-------------------------------------------------------------------------------------------------------
Asset Allocation $72 $102 $133 $222
-------------------------------------------------------------------------------------------------------
MFS Total Return $74 $105 $139 $235
-------------------------------------------------------------------------------------------------------
SunAmerica Balanced $73 $103 $135 $226
-------------------------------------------------------------------------------------------------------
Worldwide High Income $77 $116 $157 $272
-------------------------------------------------------------------------------------------------------
High-Yield Bond $73 $103 $135 $227
-------------------------------------------------------------------------------------------------------
Corporate Bond $73 $104 $137 $231
-------------------------------------------------------------------------------------------------------
Global Bond $74 $108 $144 $244
-------------------------------------------------------------------------------------------------------
Cash Management $71 $99 $128 $212
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
</TABLE>
* We do not currently charge a withdrawal charge upon annuitization, unless the
contract is annuitized using the Income Protector feature. We assess any
applicable withdrawal charge upon annuitization under the Income Protector
feature assuming a full surrender of your contract.
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract.
2. For certain Variable Portfolios, the adviser, SunAmerica Asset Management
Corp., has voluntarily agreed to waive fees or reimburse certain expenses,
if necessary, to keep annual operating expenses at or below the lesser of
the maximum allowed by any applicable state expense limitations or the
following percentages of each Variable Portfolio's average net assets:
Emerging Markets (1.90%); Goldman Sachs Research (1.35%); Blue Chip Growth
(.85%); Growth Opportunities (1.00%); Technology (1.55%); SunAmerica
Balanced (1.00%); "Dogs" of Wall Street (.85%); Aggressive Growth (.90%);
Federated Value (1.03%); Utility (1.05%); Emerging Markets (1.90%);
International Growth and Income (1.60%); Mid-Cap Growth (1.15%) and Real
Estate (1.25%). The adviser also may voluntarily waive or reimburse
additional amounts to increase a Variable 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 Variable
Portfolio is able to make such payment and remain in compliance with the
foregoing expense limitations.
3. The Examples assume that no transfer fees were imposed. Although premium
taxes may apply in certain states, they are not reflected in the Examples.
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 VALUES ARE CONTAINED IN APPENDIX A -- CONDENSED
FINANCIAL INFORMATION.
5
<PAGE> 10
----------------------------------------------------------------
----------------------------------------------------------------
THE POLARIS(II) A-CLASS VARIABLE ANNUITY
----------------------------------------------------------------
----------------------------------------------------------------
An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: This means that you do not pay taxes on your earnings from
the annuity until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer
payment of taxes on earnings until withdrawal. If you are considering funding a
tax-qualified retirement plan with an annuity, you should know that an annuity
does not provide any additional tax deferral treatment of earnings beyond the
treatment provided by the tax-qualified retirement plan itself. However,
annuities do provide other features and benefits which may be valuable to you.
You should fully discuss your purchase decision with your financial
representative.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request us to start
making income payments to you out of the money accumulated in your contract.
The contract is called a "variable" annuity because it allows you to invest in
portfolios which, like mutual funds, vary with market conditions. You can gain
or lose money if you invest in these 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 30 Variable
Portfolios.
The contract also offers seven fixed account options for varying time periods.
Fixed account options earn interest at a rate set and guaranteed by Anchor
National. If you allocate money to the fixed account options, the amount of
money that accumulates in the contract depends on the total interest credited to
the particular fixed account option(s) in which you invest.
For more information on investment options available under this contract SEE
INVESTMENT OPTIONS ON PAGE 7.
This annuity is designed to assist in contributing to retirement savings of
investors whose personal circumstances allow for a long-term investment time
horizon. As a function of the Internal Revenue Code ("IRC"), you may be assessed
a 10% federal tax penalty on any withdrawal made prior to your reaching age
59 1/2.
Anchor National Life Insurance Company (Anchor National, The Company, Us, We)
issues the Polaris(II) A-Class Variable Annuity. When you purchase a Polaris(II)
A-Class Variable Annuity, a contract exists between you and Anchor National. The
Company is a stock life insurance company organized under the laws of the state
of Arizona. Its principal place of business is 1 SunAmerica Center, Los Angeles,
California 90067. The Company conducts life insurance and annuity business in
the District of Columbia and all states except New York. Anchor National is an
indirect, wholly owned subsidiary of American International Group, Inc. ("AIG"),
a Delaware corporation.
----------------------------------------------------------------
----------------------------------------------------------------
PURCHASING A POLARIS(II) A-CLASS
VARIABLE ANNUITY
----------------------------------------------------------------
----------------------------------------------------------------
An initial Gross Purchase Payment is the money you give us to buy a contract.
Any additional money you give us to invest in the contract after purchase is a
subsequent Gross Purchase Payment.
The following chart shows the minimum initial and subsequent Gross Purchase
Payments permitted under your contract. These amounts depend upon whether a
contract is Qualified or Non-qualified for tax purposes. FOR FURTHER
EXPLANATION, SEE TAXES ON PAGE 18.
<TABLE>
<S> <C> <C>
-----------------------------------------------------------
Minimum Initial Minimum Subsequent
Gross Purchase Gross Purchase
Payment Payment
-----------------------------------------------------------
Qualified $2,000 $250
-----------------------------------------------------------
Non-Qualified $5,000 $500
-----------------------------------------------------------
</TABLE>
Prior Company approval is required to accept Gross Purchase Payments greater
than $1,500,000. The Company reserves the right to refuse any Gross Purchase
Payment including one which would cause the contract value or total Gross
Purchase Payments to exceed $1,500,000 at the time of the Gross Purchase
Payment. Additionally, the optional automatic payment plan allows you to make
subsequent Gross Purchase Payments of as little as $20.
We may refuse any Gross Purchase Payment. In general, we will not issue a
Qualified contract to anyone who is age 70 1/2 or older, unless it is shown that
the minimum distribution required by the IRS is being made. In addition we may
not issue a contract to anyone over age 90.
ALLOCATION OF PURCHASE PAYMENTS
A Purchase Payment is the portion of your Gross Purchase Payment which we invest
in your contract after we deduct the sales charge.
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 invest the money according to your last allocation
instructions. SEE INVESTMENT OPTIONS BELOW.
6
<PAGE> 11
In order to issue your contract, we must receive your completed application,
Purchase Payment allocation instructions and any other required paperwork at our
principal place of business. We allocate your initial Purchase Payment within
two days of receiving it. If we do not have complete information necessary to
issue your contract, we will contact you. If we do not have the information
necessary to issue your contract within 5 business days we will:
- Send your money back to you; or
- Ask your permission to keep your money until we get the information
necessary to issue the contract.
ACCUMULATION UNITS
When you allocate a Purchase Payment to the Variable Portfolios, we credit your
contract with Accumulation Units of the separate account funding the Polaris(II)
A-Class annuity. We base the number of Accumulation Units you receive on the
value of the Variable Portfolio as of the day we receive your money, if we
receive it before 1 p.m. Pacific Standard Time, or on the next business day's
unit value if we receive your money after 1 p.m. Pacific Standard Time. The
value of an Accumulation Unit goes up and down based on the performance of the
Variable Portfolios.
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 Variable
Portfolio;
2. We subtract from that amount all applicable insurance charges; and
3. We divide this amount by the number of outstanding Accumulation Units at
the end of the given NYSE business day.
We determine the number of Accumulation Units credited to your contract by
dividing the Purchase Payment by the Accumulation Unit value for the specific
Variable Portfolio.
EXAMPLE:
We receive a $25,000 Gross Purchase Payment from you on Wednesday which you
allocate to the Global Bond Portfolio. After we deduct the sales charge,
the net amount to be invested of your Gross Purchase Payment is $23,562.50.
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
$23,562.50 by $11.10 and credit your contract on Wednesday night with
2,122.747748 Accumulation Units for the Global Bond Portfolio.
Performance of the Variable Portfolios and the insurance charges under your
contract affect Accumulation Unit values. These factors cause the value of your
contract to go up and 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 the value of your
contract on the day we receive your request, plus the sales charge we deducted.
The amount refunded may be more or less than the amount you originally invested.
Certain states require us to return your Gross Purchase Payments upon a free
look request. Additionally, all contracts issued as an IRA require the full
return of Gross Purchase Payments upon a free look. With respect to those
contracts, we reserve the right to put your money in the Cash Management
Portfolio during the free look period. If you cancel your contract during the
free look period, we return the greater of (1) your Gross Purchase Payment; or
(2) the value of your contract plus the sales charge we deducted. At the end of
the free look period, we allocate your money according to your instructions.
----------------------------------------------------------------
----------------------------------------------------------------
INVESTMENT OPTIONS
----------------------------------------------------------------
----------------------------------------------------------------
VARIABLE PORTFOLIOS
The contract currently offers 30 Variable Portfolios. These Variable Portfolios
invest in shares of the Anchor Series Trust and the SunAmerica Series Trust (the
"Trusts"). Additional Variable Portfolios may be available in the future. The
Variable 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 AIG,
is the investment adviser to the Trusts. The Trusts serve as the underlying
investment vehicles for other variable annuity contracts issued by Anchor
National, and other affiliated/unaffiliated insurance companies. Neither Anchor
National nor the Trusts believe that offering shares of the Trusts in this
manner disadvantages you. The adviser monitors the Trusts for potential
conflicts.
The Variable Portfolios along with their respective subadvisers are listed
below:
ANCHOR SERIES TRUST
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust portfolios. Anchor Series Trust has investment portfolios in addition to
those listed below which are not available for investment under the contract.
The 3 available investment portfolios are:
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Government and Quality Bond Portfolio
7
<PAGE> 12
SUNAMERICA SERIES TRUST
Various subadvisers provide investment advice for the SunAmerica Series Trust
portfolios. SunAmerica Series Trust has investment portfolios in addition to
those listed below which are not available for investment under the contract.
The 27 available investment 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.
- Davis Venture Value Portfolio
- Real Estate Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Telecom Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/GOLDMAN
SACHS ASSET MANAGEMENT INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
- Goldman Sachs Research Portfolio
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Mid-Cap Growth Portfolio
- MFS Growth and Income Portfolio
- MFS Total Return Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
- Technology 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
- Blue Chip Growth Portfolio
- Growth Opportunities Portfolio
You should read the attached prospectuses for the Trusts carefully. These
prospectuses contain detailed information about the Variable Portfolios,
including each Variable Portfolio's investment objective and risk factors.
FIXED ACCOUNT OPTIONS
The contract also offers seven fixed account options. Anchor National will
guarantee the interest rate earned on money you allocate to any of these fixed
account options. We currently offer fixed account options for periods of one,
three, five, seven and ten years, which we call guarantee periods. Additionally,
we guarantee the interest rate for money allocated to the 6-month DCA fixed
account and/or the 1-year DCA fixed account (the "DCA fixed accounts") which are
available only in conjunction with the Dollar Cost Averaging Program. Please see
the section on DOLLAR COST AVERAGING ON PAGE 10 for additional information
about, including limitations on, and the availability and operation of the DCA
fixed accounts. The DCA fixed accounts are only available for new Purchase
Payments.
Each guarantee period may offer a different interest rate but will never be less
than an annual effective rate of 3%. Once established the rates for specified
payments do not change during the guarantee period. The guarantee period is that
period for which we credit the applicable rate (one, three, five, seven or ten
years).
There are three scenarios in which you may put money into the fixed account
options other than the DCA fixed account options. In each scenario your money
may be credited a different rate of interest as follows:
- Initial Rate: Rate credited to new Purchase Payments allocated to the
fixed account when you purchase your contract.
- Current Rate: Rate credited to subsequent Purchase Payments allocated to
the fixed account.
- Renewal Rate: Rate credited to money transferred from a fixed account or
a Variable Portfolio into a fixed account and to money remaining in a
fixed account after expiration of a guarantee period.
When a guarantee period ends, you may leave your money in the same fixed
investment option. You may also reallocate your money to another fixed
investment option (other than the DCA fixed accounts) or to the Variable
Portfolios. If you want to reallocate your money to a different fixed account
option or Variable Portfolio, you must contact us within 30 days after the end
of the current interest guarantee period and instruct us how to reallocate the
money. We do not contact you. If we do not hear from you, your money will remain
in the same fixed account option, where it will earn interest at the renewal
rate then in effect for the fixed account option.
The DCA fixed accounts also credit a fixed rate of interest. Interest is
credited to amounts allocated to the 6-month or 1-year DCA fixed account 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 ON PAGE 10 for more
information.
MARKET VALUE ADJUSTMENT ("MVA")
NOTE: THE FOLLOWING DISCUSSION APPLIES TO THE 3, 5, 7 AND 10-YEAR FIXED ACCOUNT
OPTIONS, ONLY. THESE OPTIONS ARE NOT AVAILABLE IN ALL STATES. PLEASE CONTACT
YOUR FINANCIAL REPRESENTATIVE FOR MORE INFORMATION.
If you take money out of the 3, 5, 7 or 10-year fixed account options before the
end of the guarantee period, we make an
8
<PAGE> 13
adjustment to your contract (the "MVA"). The MVA reflects any difference in the
interest rate environment between the time you place your money in the fixed
account option and the time when you withdraw or transfer that money. This
adjustment can increase or decrease your contract value. You have 30 days after
the end of each guarantee period to reallocate your funds without incurring any
MVA.
We calculate the MVA by doing a comparison between current rates and the rate
being credited to you in the fixed account option. For the current rate we use a
rate being offered by us for a guarantee period that is equal to the time
remaining in the guarantee period from which you seek withdrawal. If we are not
currently offering a guarantee period for that period of time, we determine an
applicable rate by using a formula to arrive at a number between the interest
rates currently offered for the two closest periods available.
Generally, if interest rates drop between the time you put your money into the
fixed account options and the time you take it out, we credit a positive
adjustment to your contract. Conversely, if interest rates increase during the
same period, we post a negative adjustment to your contract.
Where the MVA is negative, we first deduct the adjustment from any money
remaining in the fixed account option. If there is not enough money in the fixed
account option to meet the negative deduction, we deduct the remainder from your
withdrawal. Where the MVA is positive, we add the adjustment to your withdrawal
amount.
Anchor National does not assess a MVA against withdrawals under the following
circumstances:
- If made within 30 days after the end of a guarantee period;
- If made to pay contract charges;
- Upon payment of a death benefit; or
- Upon annuitization, if occurring on the latest Annuity Date.
APPENDIX B shows how we calculate the MVA.
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. If less than $100 will remain in any Variable Portfolio after a transfer,
that amount must be transferred as well.
You may request transfers of your account value between the Variable Portfolios
and/or the fixed account options in writing or by telephone. Additionally, you
may access your account and request transfers between Variable Portfolios and/or
the fixed account options through SunAmerica's website
(http://www.sunamerica.com). We currently allow 15 free transfers per contract
per year. We charge $25 ($10 in Pennsylvania and Texas) for each additional
transfer in any contract year. Transfers resulting from your participation in
the DCA program count against your 15 free transfers per contract year. However,
transfers resulting from your participation in the automatic asset rebalancing
program do not count against your 15 free transfers.
We accept transfer requests by telephone unless you tell us not to on your
contract application. When receiving instructions over the telephone or the
internet, 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 may limit the number of transfers in any contract year or refuse any transfer
request for you or others invested in the contract if we believe that excessive
trading or a specific transfer request or group transfer requests may have a
detrimental effect on unit values or the share prices of the underlying Variable
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 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.
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<PAGE> 14
DOLLAR COST AVERAGING
The DCA program allows you to invest gradually in the Variable Portfolios. Under
the program you systematically transfer a set dollar amount or percentage of
portfolio value from one Variable Portfolio or the 1-year fixed account option
(source accounts) to any other Variable Portfolio. 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 the 6-month and 1-year DCA fixed accounts exclusively to
facilitate this program. The DCA fixed accounts only accept new Purchase
Payments. You cannot transfer money already in your contract into these options.
When you allocate a Purchase Payment into a DCA fixed account, your money is
transferred into the Variable Portfolios over the selected 6-month or 1-year
period. You cannot change the option or the frequency of transfers once
selected.
If allocated to the 6-month DCA fixed account, we transfer your money over a
maximum of 6 monthly transfers. We base the actual number of transfers on the
total amount allocated to the account. For example, if you allocate $500 to the
6-month DCA fixed account, we transfer your money over a period of five months,
so that each payment complies with the $100 per transfer minimum.
We determine the amount of the transfers from the 1-year DCA fixed account based
on:
- the total amount of money allocated to the account; and
- the frequency of transfers selected.
For example, let's say you allocate $1,000 to the 1-year DCA fixed account. You
select monthly transfers. We completely transfer all of your money to the
selected investment options over a period of ten months.
You may terminate your DCA program at any time. If money remains in the DCA
fixed accounts, we transfer the remaining money to the 1-year fixed account
option, unless we receive different instructions from you. Transfers resulting
from a termination of this program do not count towards your 15 free transfers.
The DCA program is designed to lessen the impact of market fluctuations on your
investment. However, we cannot ensure that you will make a profit. When you
elect the DCA program, you are continuously investing in securities regardless
of fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Aggressive Growth Portfolio over six quarters.
You set up dollar cost averaging and purchase Accumulation Units at the
following values:
<TABLE>
<CAPTION>
-------------------------------------------
ACCUMULATION UNITS
QUARTER UNIT PURCHASED
-------------------------------------------
<S> <C> <C>
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
-------------------------------------------
</TABLE>
You paid an average price of only $6.67 per Accumulation Unit over six
quarters, while the average market price actually was $7.08. By investing
an equal amount of money each month, you automatically buy more
Accumulation Units when the market price is low and fewer Accumulation
Units when the market price is high. This example is for illustrative
purposes only.
ASSET ALLOCATION REBALANCING PROGRAM
Earnings in your contract may cause the percentage of your investment in each
investment option to differ from your original allocations. The Automatic Asset
Rebalancing Program addresses this situation. At your election, we periodically
rebalance your investments in the Variable Portfolios to return your allocations
to their original percentages. Asset rebalancing typically involves shifting a
portion of your money out of an investment option with a higher return into an
investment option with a lower return.
At your request, rebalancing occurs on a quarterly, semiannual or annual basis.
Transfers made as a result of rebalancing do not count against your 15 free
transfers for the contract year.
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
Variable Portfolios. You want 50% in the Corporate Bond Portfolio and 50%
in the Growth Portfolio. Over the next calendar quarter, the bond market
does very well while the stock market performs poorly. At the end of the
calendar quarter, the Corporate Bond Portfolio now represents 60% of your
holdings because it has increased in value and the Growth Portfolio
represents 40% of your holdings. If you had chosen quarterly rebalancing,
on the last day of that quarter, we would sell some of your units in the
Corporate Bond Portfolio to bring its holdings back to 50% and use the
money to buy more units in the Growth Portfolio to increase those holdings
to 50%.
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<PAGE> 15
PRINCIPAL ADVANTAGE PROGRAM
The Principal Advantage Program allows you to invest in one or more Variable
Portfolios without putting your principal at direct risk. The program
accomplishes this by allocating your investment strategically between the fixed
account options and Variable Portfolios. You decide how much you want to invest
and approximately when you want a return of principal. We calculate how much of
your Purchase Payment to allocate to the particular fixed account option to
ensure that it grows to an amount equal to your total principal invested under
this program. We invest the rest of your principal in the Variable Portfolio(s)
of your choice.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed account option after we deduct sales charges. You
want the amount allocated to the fixed account option to grow to $100,000
in 7 years. If the 7-year fixed account option is offering a 5% interest
rate, we will allocate $71,069 to the 7-year fixed account option to ensure
that this amount will grow to $100,000 at the end of the 7-year period. The
remaining $28,931 may be allocated among the Variable Portfolios, as
determined by you, to provide opportunity for greater growth.
VOTING RIGHTS
Anchor National is the legal owner of the Trusts' shares. However, when a
Variable 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 underlying Trust portfolios become unavailable for investment, we may be
required to substitute shares of another underlying portfolio. We will seek
prior approval of the SEC and give you notice before substituting shares.
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ACCESS TO YOUR MONEY
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You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. SEE INCOME OPTIONS
ON PAGE 15.
We deduct a MVA if a partial withdrawal comes from the 3, 5, 7 or 10-year fixed
account prior to the end of the guarantee period. Additionally, a withdrawal
charge may apply in limited circumstances. If you withdraw your entire contract
value, we also deduct premium taxes if applicable. SEE EXPENSES ON PAGE 12.
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made prior to age 59 1/2 may result in a
10% IRS penalty tax. SEE TAXES ON PAGE 18.
Under most circumstances, the partial withdrawal minimum is $1,000. We require
that the value left in your contract is at least $500 after the withdrawal. You
must send a written withdrawal request. Unless you provide us with different
instructions, partial withdrawals will be made pro rata from each Variable
Portfolio and the fixed account option(s) in which your contract is invested.
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
Variable 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.
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income payments
under the systematic withdrawal program. Under the program you may choose to
take monthly, quarterly, semiannual or annual payments from your contract.
Electronic transfer of these funds to your bank account is available. The
minimum amount of each withdrawal is $100. There must be at least $500 remaining
in your contract at all times. Withdrawals may be taxable and a 10% IRS penalty
tax may apply if you are under age 59 1/2. There is no additional charge for
participating in this program, although a withdrawal charge and a MVA may apply.
SEE EXPENSES ON PAGE 12. We reserve the right to modify, suspend or terminate
this program at any time.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals;
and (2) you have not made any Purchase Payments during the past three years. We
will provide you with sixty days written notice. At the end of the notice
period, we will distribute the contract value to you.
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DEATH BENEFIT
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If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary. At the time you purchase your contract, you must
select one of the two death benefits described below. Once selected, you can not
change
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<PAGE> 16
your death benefit option. You should discuss the available options with your
financial representative to determine which option is best for you.
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION
The death benefit is the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Gross Purchase Payments less withdrawals (and any fees or charges
applicable to such withdrawals); or
3. total Purchase Payments less withdrawals (and any fees or charges
applicable to such withdrawals), compounded at a 4% annual growth rate
until the date of death (3% growth rate if 70 or older at the time of
contract issue) plus any Purchase Payments less withdrawals recorded
after the date of death (and any fees or charges applicable to such
withdrawals); or
4. the value of your contract on the seventh contract anniversary, plus any
Purchase Payments and less any withdrawals (and any fees or charges
applicable to such withdrawals) since the seventh contract anniversary,
all compounded at a 4% annual growth rate until the date of death (3%
growth rate if age 70 or older at the time of contract issue) plus any
Purchase Payments less withdrawals recorded after the date of death (and
any fees or charges applicable to such withdrawals).
OPTION 2 - MAXIMUM ANNIVERSARY OPTION
The death benefit is the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Gross Purchase Payments less withdrawals (and any fees or charges
applicable to such withdrawals); or
3. the maximum anniversary value on any contract anniversary prior to your
81st birthday. The anniversary value equals the value of your contract
on a contract anniversary plus any Purchase Payments and less any
withdrawals (and any fees or charges applicable to such withdrawals)
since that contract anniversary.
If you are age 90 or older at the time of death and selected the option 2 death
benefit, the death benefit will be equal to the value of your contract at the
time we receive satisfactory proof of death. Accordingly, you do not get the
advantage of option 2 if:
- you are over age 80 at the time of contract issue, or
- you are 90 or older at the time of your death.
We do not pay the death benefit if you die after you switch to the Income Phase.
However, if you die during the Income Phase, your Beneficiary receives any
remaining guaranteed income payments in accordance with the income option you
selected. SEE 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.
We pay the death benefit when we receive satisfactory proof of death. We
consider the following satisfactory proof of death:
1. a certified copy of the death certificate; or
2. a certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or
3. a written statement by a medical doctor who attended the deceased at the
time of death; or
4. any other proof satisfactory to us.
We may require additional proof before we pay the death benefit.
The death benefit payment must begin immediately upon receipt of all necessary
documents. In any event, the death benefit must be paid within 5 years of the
date of death unless the Beneficiary elects to have it payable in the form of an
income option. If the Beneficiary elects an income option, it must be paid over
the Beneficiary's lifetime or for a period not extending beyond the
Beneficiary's life expectancy. Income option payments must begin within one year
of your death.
If the Beneficiary is the spouse of a deceased owner, he or she can elect to
continue the contract at the then current value. If the Beneficiary/spouse
continues the contract, we do not pay a death benefit to him or her.
If a Beneficiary does not elect a specific form of pay out within 60 days of our
receipt of proof of death, we pay a lump sum death benefit to the Beneficiary.
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EXPENSES
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There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the sales,
insurance or withdrawal charges under your contract. However, the investment
charges under your contract may increase or decrease. Some states may require
that we charge less than the amounts described below.
INSURANCE CHARGES
The amount of this charge is 0.85% annually, of the value of your contract
invested in the Variable Portfolios. We deduct the charge daily. There is no
insurance charge deducted from 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.
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<PAGE> 17
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.
SALES CHARGE
We apply an up-front sales charge against the Gross Purchase Payments you make
to your contract. The sales charge equals a percentage of each Gross Purchase
Payment and varies with your investment amount.
Your investment amount is determined on the day we receive a Gross Purchase
Payment and is the greater of:
1. The sum of (a) the Gross Purchase Payment amount, (b) the current
contract value of this contract, and (c) the current contract value of
any eligible related contracts as defined under the Rights of
Accumulation section on page 14; or
2. The amount, if any, you agree to contribute to this contract and your
eligible related contracts over a 13-month period as designated by you
in a Letter of Intent (described below).
Eligible related contracts currently include any Anchor National American
Pathway, ICAP, Polaris, Polaris(II), Polaris(II) A-Class, Seasons and Seasons
Select contracts owned by you, your spouse and/or your children under age 21.
<TABLE>
<CAPTION>
------------------------------------------------------------
SALES CHARGE AS A
PERCENTAGE OF GROSS PURCHASE
INVESTMENT AMOUNT PAYMENT INVESTED
------------------------------------------------------------
<S> <C>
Less than $ 50,000 5.75%
$ 50,000 - $ 99,999 4.75%
$100,000 - $249,999 3.50%
$250,000 - $499,999 2.50%
$500,000 - $999,999 2.00%
$1,000,000 or more 0.50%*
------------------------------------------------------------
</TABLE>
* Additionally, a withdrawal charge of 0.50% applies to gross purchase payments
subject to a 0.50% sales charge if invested less than 12 months at the time of
withdrawal. SEE PURCHASE PAYMENTS SUBJECT TO A WITHDRAWAL CHARGE ON PAGE 14.
We call the above investment levels "breakpoints." You can reduce your sales
charge by increasing your investment amount to reach the next breakpoint. For
example, an investment amount of $50,000 brings you to the first breakpoint and
entitles you to a reduced sales charge of 4.75%.
REDUCING YOUR SALES CHARGES
Our Letter of Intent and Rights of Accumulation features allow you to combine
your current Gross Purchase Payment with other Gross Purchase Payments and/or
contract values so that you may take advantage of the breakpoints in the sales
charge schedule.
LETTER OF INTENT
The Letter of Intent feature lets you establish an investment goal up-front so
that all Gross Purchase Payments you make during a designated 13-month period
receive the sales charge corresponding to your stated investment goal. When you
submit a signed Letter of Intent, we use the amount of your stated investment
goal to determine the sales charge on any Gross Purchase Payment you make during
the 13-month period as though the total amount of Gross Purchase Payments (your
investment goal) is invested as one lump-sum.
Gross Purchase Payments made to your Polaris(II) A-Class contract and purchase
payments made to any eligible related contract count towards your investment
goal. Additionally, Gross Purchase Payments made to your Polaris(II) A-Class
contract and purchase payments made to any eligible related contract within 90
days prior to our receipt of your Letter of Intent (but not prior to the issue
date of your Polaris(II) A-Class contract) may count towards meeting your
investment goal. If you use prior purchase payments towards satisfying your
investment goal, the Letter of Intent start date will be backdated to the
receipt date of the earliest prior purchase payment. If you wish to use prior
purchase payments towards meeting your investment goal, you or your financial
representative must inform us of such prior purchase payments at the time you
submit your Letter of Intent.
EXAMPLE:
Assume as part of your contract application you sign a Letter of Intent
indicating an investment goal of $50,000 over a 13-month period. The sales
charge corresponding to your investment goal is 4.75%. You make an initial
Gross Purchase Payment of $20,000. We deduct a reduced sales charge of
4.75% from your initial Gross Purchase Payment. Ten months later you make a
subsequent Gross Purchase Payment of $30,000. We again deduct a reduced
sales charge of 4.75% from your Gross Purchase Payment. Without a Letter of
Intent the sales charge for each Gross Purchase Payment would have been
5.75%.
You may submit a Letter of Intent at any time. If you choose to submit a Letter
of Intent when you apply for the contract, you must check the corresponding box
on the application and complete the appropriate form. If you elect to submit a
Letter of Intent after your contract is issued, you must complete the
appropriate form, which is available from your financial representative or our
Annuity Service Center.
You are not obligated to reach your investment goal. If you do not achieve your
investment goal by the end of the 13-month period or if you surrender or
annuitize your contract without having reached your investment goal, we will
deduct from your contract the difference between: (1) the sales charge
corresponding to the amount of Gross Purchase Payments made to your Polaris(II)
A-Class contract and purchase payments made to any eligible related contract
during the 13-month period; and (2) the sales charge you actually paid,
regardless of whether the original sales charge was based on
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<PAGE> 18
your Letter of Intent investment goal or Rights of Accumulation privileges. The
charges are deducted from your investment options in the same proportion as
their values are to your then current contract value. We will not deduct this
amount if a death benefit is paid on the contract prior to the end of the
13-month period.
You may increase your investment goal by sending us a written request at any
time during the 13-month period. Gross Purchase Payments made from the date of
such notice through the end of the original 13-month period will receive any
applicable reduction in sales charges. Sales charges on Gross Purchase Payments
received prior to the notice to increase your investment goal will not be
retroactively reduced.
The Letter of Intent feature may not be available in all states. Please contact
your financial representative regarding the availability of this feature in your
state.
We reserve the right to modify, suspend or terminate this program at any time.
RIGHTS OF ACCUMULATION
You may qualify for a reduced sales charge through Rights of Accumulation.
Rights of Accumulation involves combining your current Gross Purchase Payment
with the current contract values of this contract and eligible related contracts
so that you may reduce the sales charge on your current Gross Purchase
Payment(s) into this contract. The sales charge corresponding to this combined
investment amount is deducted from your current Gross Purchase Payment.
In order to use Rights of Accumulation to reduce your sales charge using
contracts other than your Polaris(II) A-Class contract, you or your financial
representative must inform us of the related contracts each time you make a
Gross Purchase Payment. The sales charge for Gross Purchase Payments submitted
using Rights of Accumulation privileges will be based on the breakpoint
corresponding to the sum of (1) your current Gross Purchase Payment; (2) your
current contract value; and (3) the current contract values of your eligible
related contracts.
For purposes of calculating your investment amount, the current contract value
is the value of your contract and any eligible related contracts as of the close
of the market on the last previous NYSE business day less any current day
withdrawals, adjusted for any current day transactions.
EXAMPLE:
Assume your contract has a current value of $20,000. You have a second
contract with us which qualifies for Rights of Accumulation that has a
current value of $25,000. You make a $5,000 Gross Purchase Payment and
inform us of your eligible related contracts at the time you make your
payment. The sales charge applicable to the current Gross Purchase Payment
is based on the sales charge corresponding to the sum of: (1) your current
Gross Purchase Payment ($5,000); (2) the current contract value of this
contract ($20,000); and (3) the current contract value of your related
contract ($25,000). The sum of these values is $50,000. We deduct the sales
charge corresponding to an investment amount of $50,000, or 4.75%, from
your $5,000 Gross Purchase Payment. Without the benefit of Rights of
Accumulation your sales charge would have been 5.75%.
Certain Rights of Accumulation privileges may not be available in your state.
Please contact your financial representative regarding possible state
limitations.
We reserve the right to modify, suspend or terminate this program at any time.
PURCHASE PAYMENTS SUBJECT TO A WITHDRAWAL CHARGE
Each Gross Purchase Payment qualifying for a sales charge of 0.50% (that is,
your investment amount is $1,000,000 or more) remains subject to a withdrawal
charge of 0.50%. The withdrawal charge applies to such Gross Purchase Payment or
any portion of it withdrawn if invested less than 12 months prior to such
withdrawal.
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 fully surrender your contract, we deduct any applicable
sales charge from the amount withdrawn.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit or to pay contract fees or charges. We will not assess a withdrawal
charge when you switch to the Income Phase, except when you elect to receive
income payments using the Income Protector program. If you elect to receive
income payments using the Income Protector program, we assess any applicable
withdrawal charge when calculating your Income Benefit Base. SEE INCOME OPTIONS
ON PAGE 15.
Withdrawals made prior to age 59 1/2 may result in a 10% IRS penalty tax. SEE
TAXES ON PAGE 18.
INVESTMENT CHARGES
Charges are deducted from your Variable Portfolios for the advisory and other
expenses of the Variable Portfolios. THE FEE TABLES 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 15 free transfers between investment options each contract
year. We charge you $25 for each additional transfer that contract year ($10 in
Pennsylvania and Texas). SEE INVESTMENT OPTIONS ON PAGE 7.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract. We deduct from your contract these
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<PAGE> 19
premium tax charges. Currently we deduct the charge for premium taxes when you
take a full withdrawal or begin the Income Phase of the contract. In the future,
we may assess this deduction at the time you put Purchase Payment(s) into the
contract or upon payment of a death benefit.
APPENDIX C provides more information about premium taxes.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the right
to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated individuals may
lower our administrative and/or sales expenses. We reserve the right to reduce
or waive certain charges and expenses when this type of sale occurs. In
addition, we may also credit additional interest to policies sold to such
groups. We determine which groups are eligible for such treatment. Some of the
criteria we evaluate to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that our expenses will be reduced; and/or any other
factors that we believe indicate that administrative and/or sales expenses may
be reduced.
Anchor National may make such a determination regarding sales to its employees,
it affiliates' employees and employees of currently contracted broker-dealers;
its registered representatives and immediate family members of all of those
described.
We reserve the right to change or modify any such determination or the treatment
applied to a particular group, at any time.
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INCOME OPTIONS
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ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to make
regular income payments to you. You may switch to the Income Phase any time
after your 2nd contract anniversary. You select the month and year in which you
want income payments to begin. The first day of that month is the Annuity Date.
You may change your Annuity Date, so long as you do so at least seven days
before the income payments are scheduled to begin. Once you begin receiving
income payments, you cannot change your income option. Except as indicated under
Option 5 below, once you begin receiving income payments, you cannot access your
money through a withdrawal or surrender.
Income payments must begin on or before your 90th birthday or on your tenth
contract anniversary, whichever occurs later. If you do not choose an Annuity
Date, your income payments will automatically begin on this date. Certain states
may require your income payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose its
status as an annuity under Federal tax laws. This may cause you to incur adverse
tax consequences.
In addition, most Qualified contracts require you to take minimum distributions
after you reach age 70 1/2. SEE TAXES ON PAGE 18.
INCOME OPTIONS
Currently, this contract offers five income options. If you elect to receive
income payments but do not select an option, your income payments will be made
in accordance with option 4 for a period of 10 years. For income payments based
on joint lives, we pay according to option 3, for a period of 10 years.
We base our calculation of income payments on the life of the Annuitant and the
annuity rates set forth in your contract. As the contract owner, you may change
the Annuitant at any time prior to the Annuity Date. You must notify us if the
Annuitant dies before the Annuity Date and designate a new Annuitant.
OPTION 1 - LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for the
life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop when 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
payments for at least 10 years 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 OR 20 YEARS GUARANTEED
This option is similar to option 1 above. In addition, this option provides a
guarantee that income payments will be made for at least 10 or 20 years. You
select the number of years. If the Annuitant dies before all guaranteed income
payments are made, the remaining income payments go to the Beneficiary under
your contract.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period, ranging from 5 to
30 years. If the Annuitant dies before all of the guaranteed income payments are
made, the remaining income payments are made to the Beneficiary under your
contract. Additionally, if variable income
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<PAGE> 20
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
variable income payments. Any applicable withdrawal charges will be deducted
from the discounted value as if you fully surrendered your contract.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. Since Option 5 does not contain
an element of mortality risk, no benefit is derived from this charge.
Please read the Statement of Additional Information ("SAI") for a more detailed
discussion of the income options.
FIXED OR VARIABLE INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. If at the date
when income payments begin you are invested in the Variable Portfolios only,
your income payments will be variable. If your money is only in fixed accounts
at that time, your income payments will be fixed in amount. Further, if you are
invested in both fixed and variable investment options when income payments
begin, your payments will be fixed and variable. If income payments are fixed,
Anchor National guarantees the amount of each payment. If the income payments
are variable the amount is not guaranteed.
INCOME 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.
If you are invested in the Variable Portfolios after the Annuity Date your
income payments vary 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 income payments.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one transfer per month is permitted between the
Variable Portfolios. No other transfers are allowed during the Income Phase.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period.
THE INCOME PROTECTOR FEATURE
The Income Protector feature is a future "safety net" which offers you the
ability to receive a guaranteed fixed minimum retirement income when you switch
to the Income Phase. With the Income Protector feature you know the level of
minimum income that will be available to you upon annuitization, regardless of
fluctuating market conditions.
The Income Protector is a standard feature of your contract, if available in
your state. The feature is not available in California and may not be available
in other states. There is no additional charge associated with this feature.
We reserve the right to modify, suspend or terminate the Income Protector
feature at any time.
HOW WE DETERMINE THE AMOUNT OF YOUR MINIMUM GUARANTEED INCOME
We base the amount of minimum income available to you if you elect to receive
income payments using the Income Protector feature upon a calculation we call
the income benefit base.
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 equal to, for the first year of calculation, your initial Purchase
Payment, or for each subsequent year of calculation, the income benefit
base on the prior contract anniversary, and;
(b) is equal to the sum of all subsequent Purchase Payments made into the
contract since the last contract anniversary, and;
(c) is equal to all withdrawals and applicable fees and charges since the
last contract anniversary, in an amount proportionate to the amount by
which such withdrawals decreased your contract value.
ELECTING TO RECEIVE INCOME PAYMENTS
You may elect to begin the Income Phase of your contract using the Income
Protector feature ONLY within the 30 days after the seventh or later contract
anniversary.
16
<PAGE> 21
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. Your final income benefit base is equal to (a) minus (b)
where:
(a) is equal to your income benefit base as of your income benefit date,
and;
(b) is equal to any partial withdrawals of contract value and any charges
applicable to those withdrawals and any withdrawal charges otherwise
applicable, calculated as if you fully surrender your contract as the
income benefit date, and any applicable premium taxes.
To arrive at the minimum guaranteed retirement income available to you we apply
to your final income benefit base the annuity rates stated in your Income
Protector endorsement for the income option you select. You then choose if you
would like to receive that income annually, semi-annually quarterly or monthly
for the time guaranteed under your selected income option. The income options
available when using the income protector feature to receive your retirement
income are:
- Life Annuity with 10 Years Guaranteed, or
- Joint and Survivor Life Annuity with 20 Years Guaranteed
At the time you elect to begin receiving income payments, we will calculate your
income payments using both your income benefit base and your contract value. We
will use the same income option for each calculation, however, the annuity
factors used to calculate your income under the Income Protector feature will be
different. You will receive whichever provides a greater stream of income. If
you elect to receive income payments using the Income Protector feature your
income payments will be fixed in amount. You are not required to use the Income
Protector feature to receive income payments.
NOTE TO QUALIFIED CONTRACT HOLDERS
Qualified contracts generally require that you select an income option which
does not exceed your life expectancy. That restriction, if it applies to you,
may limit your ability to use the Income Protector feature.
You may wish to consult your tax advisor for information concerning your
particular circumstances.
HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR FEATURE
This table assumes $100,000 initial investment, net of sales charges, in a
Non-qualified contract with no withdrawals, additional Purchase Payments or
premium taxes.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Minimum annual income if you elect to receive income payments
If at issue on contract anniversary . . .
you are . . . 7 10 15 20
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
Male age 60* 6,108 6,672 7,716 8,832
-------------------------------------------------------------------------------------------------
Female age 60* 5,388 5,880 6,900 8,112
-------------------------------------------------------------------------------------------------
Joint** 4,716 5,028 5,544 5,928
Male-60
Female-60
-------------------------------------------------------------------------------------------------
</TABLE>
* Life annuity with 10 years guaranteed
** Joint and survivor life annuity with 20 years guaranteed
17
<PAGE> 22
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TAXES
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----------------------------------------------------------------
Note: We prepared the following information on taxes as a general discussion of
the subject. It is not tax advice. We caution you to seek competent tax advice
about your own circumstances. We do not guarantee the tax status of your
annuity. Tax laws constantly change, therefore we cannot guarantee that the
information contained herein is complete and/or accurate.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, taxes on the earnings in your annuity
contract are deferred until you take the money out. Qualified retirement
investments automatically provide tax deferral regardless of whether the
underlying contract is an annuity. Different rules apply depending on how you
take the money out and whether your contract is Qualified or Non-qualified.
If you do not purchase your contract under a pension plan, a specially sponsored
employer program or an individual retirement account, your contract is referred
to as a Non-qualified contract. A Non-qualified contract receives different tax
treatment than a Qualified contract. In general, your cost basis in a
Non-qualified contract is equal to the Purchase Payments you put into the
contract. You have already been taxed on the cost basis in your contract.
If you purchase your contract under a pension plan, a specially sponsored
employer program or as an individual retirement account, your contract is
referred to as a Qualified contract. Examples of Qualified plans are: Individual
Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as
403(b) contracts), H.R. 10 Plans (referred to as Keogh Plans) and pension and
profit sharing plans, including 401(k) plans. Typically you have not paid any
tax on the Purchase Payments used to buy your contract and therefore, you have
no cost basis in your contract.
TAX TREATMENT OF DISTRIBUTIONS -
NON-QUALIFIED CONTRACTS
If you make a withdrawal from a Non-qualified contract, the IRC treats such a
withdrawal as first coming from the earnings and then as coming from your
Purchase Payments. For income payments, any portion of each payment that is
considered a return of your Purchase Payment will not be taxed. Withdrawn
earnings are treated as income to you and are taxable. The IRC provides for a
10% penalty tax on any earnings that are withdrawn other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) when paid in a series of substantially equal installments made for
your life or for the joint lives of you and you Beneficiary; (5) under an
immediate annuity; or (6) which come from Purchase Payments made prior to August
14, 1982.
TAX TREATMENT OF DISTRIBUTIONS - QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract. Any amount of money you take out as a withdrawal or as
income payments is taxable income. The IRC further provides for a 10% penalty
tax on any withdrawal or income payment paid to you other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) in a series of substantially equal installments made for your life
or for the joint lives of you and your Beneficiary; (5) to the extent such
withdrawals do not exceed limitations set by the IRC for amounts paid during the
taxable year for medical care; (6) to fund higher education expenses (as defined
in IRC); (7) to fund certain first-time home purchase expenses; and, except in
the case of an IRA, (8) when you separate from service after attaining age 55;
and (9) when paid to an alternate payee pursuant to a qualified domestic
relations order.
The IRC limits the withdrawal of Purchase Payments from certain Tax-Sheltered
Annuities. Withdrawals can only be made when an owner: (1) reaches age 59 1/2;
(2) leaves his or her job; (3) dies; (4) becomes disabled (as defined in the
IRC); or (5) experiences a hardship (as defined in the IRC). In the case of
hardship, the owner can only withdraw Purchase Payments.
MINIMUM DISTRIBUTIONS
Generally, the IRS requires that you begin taking annual distributions from
Qualified annuity contracts by April 1 of the calendar year following the later
of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year
in which you retire. We currently waive withdrawal charges and MVA on
withdrawals taken to meet minimum distribution requirements. Current operational
practice is to provide a free withdrawal of the required minimum distribution
amount for a particular contract.
Failure to satisfy the minimum distribution requirement may result in a tax
penalty. You should consult your tax advisor for more information.
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that each underlying Variable
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.
18
<PAGE> 23
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 Variable Portfolios. It is unknown to what extent owners
are permitted to select investments, to make transfers among Variable Portfolios
or the number and type of Variable Portfolios owners may select from. If any
guidance is provided which is considered a new position, then the guidance would
generally be applied prospectively. However, if such guidance is considered not
to be a new position, it may be applied retroactively. This would mean you, as
the owner of the contract, could be treated as the owner of the underlying
Variable 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 advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other Variable Portfolios advertise total return, gross yield and
yield-to-maturity. These figures represent past performance of the Variable
Portfolios. These performance numbers do not indicate future results.
When we advertise performance for periods prior to the date the particular
variable portfolio was incepted through the separate account, we derive the
figures from the performance of the corresponding portfolios for the Trusts, if
available. We modify these numbers to reflect charges and expenses as if the
contract was in existence during the period stated in the advertisement. Figures
calculated in this manner do not represent actual historic performance of the
particular Variable Portfolio.
Consult the SAI for more detailed information regarding the calculation of
performance data. The performance of each Variable 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 Variable 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.
----------------------------------------------------------------
----------------------------------------------------------------
OTHER INFORMATION
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----------------------------------------------------------------
ANCHOR NATIONAL
Anchor National is a stock life insurance company originally organized under the
laws of the state of California in April 1965. On January 1, 1996, Anchor
National redomesticated under the laws of the state of Arizona.
Anchor National and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, CalAmerica Life Insurance Company, SunAmerica
National Life Insurance Company, SunAmerica Asset Management Corp., Resources
Trust Company, and the SunAmerica Financial Network, Inc. broker-dealers,
specialize in retirement savings and investment products and services. Business
focuses include fixed and variable annuities, mutual funds, broker-dealer
services and trust administration services.
THE SEPARATE ACCOUNT
Anchor National originally established a separate account, Variable Annuity
Account 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
19
<PAGE> 24
the contracts. We do not expect the total commissions to exceed 5.00% of your
Gross 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. The sales charges on your contract cover the cost of
commissions we pay to the representative.
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, 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 the contracts.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact our Annuity Service Center
at 1-800-445-SUN2, if you have any comment, question or service request.
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.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the separate account. Anchor
National and its subsidiaries engage in various kinds of routine litigation. In
management's opinion, these matters are not of material importance to their
respective total assets nor are they material with respect to the separate
account.
OWNERSHIP
The Polaris(II) A-Class Variable Annuity is a Flexible Payment Group Deferred
Annuity contract. We issue a group contract to a contract holder for the benefit
of the participants in the group. As a participant in the group, you will
receive a certificate which evidences your ownership. As used in this
prospectus, the term contract refers to your certificate. In some states, a
Flexible Payment Individual Modified Guaranteed and Variable Deferred Annuity
contract is available instead. Such a contract is identical to the contract
described in this prospectus, with the exception that we issue it directly to
the owner.
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.
INDEPENDENT ACCOUNTANTS
The audited consolidated financial statements of the Company as of December 31,
1999, December 31, 1998 and September 30, 1998 and for the year ended December
31, 1999, for the three months ended December 31, 1998 and for each of the two
fiscal years in the period ended September 30, 1998; and the audited financial
statements of Variable Annuity Account Seven (Portion Relating to the
Polaris(II) A-Class Variable Annuity) for the period from inception to April 30,
2000 are incorporated by reference in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
20
<PAGE> 25
----------------------------------------------------------------
----------------------------------------------------------------
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........................... 9
Taxes......................................... 12
Distribution of Contracts..................... 16
Financial Statements.......................... 16
</TABLE>
21
<PAGE> 26
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
APPENDIX A - CONDENSED FINANCIAL INFORMATION
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATION OF UNIT VALUE AND ACCUMULATION UNITS
INCEPTION TO
POLARIS II A-CLASS PORTFOLIOS 4/30/00
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
<S> <C>
Capital Appreciation (Inception Date - 10/28/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 14.03
Ending Number of AUs...................................... 226,697
---------------------------------------------------------------------------------
Growth (Inception Date - 11/1/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 11.95
Ending Number of AUs...................................... 93,965
---------------------------------------------------------------------------------
Government and Quality Bond (Inception Date - 12/16/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 10.13
Ending Number of AUs...................................... 10,743
---------------------------------------------------------------------------------
Technology
Beginning AUV............................................. N/A
Ending AUV................................................ N/A
Ending Number of AUs...................................... N/A
---------------------------------------------------------------------------------
Emerging Markets (Inception Date - 11/10/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 11.53
Ending Number of AUs...................................... 16,356
---------------------------------------------------------------------------------
International Diversified Equities (Inception Date -
11/23/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 9.87
Ending Number of AUs...................................... 30,627
---------------------------------------------------------------------------------
Global Equities (Inception Date - 11/8/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 11.70
Ending Number of AUs...................................... 81,597
---------------------------------------------------------------------------------
International Growth and Income (Inception Date - 10/25/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 10.82
Ending Number of AUs...................................... 132,522
---------------------------------------------------------------------------------
Growth Opportunities
Beginning AUV............................................. N/A
Ending AUV................................................ N/A
Ending Number of AUs...................................... N/A
---------------------------------------------------------------------------------
Aggressive Growth (Inception Date - 11/1/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 14.14
Ending Number of AUs...................................... 49,324
---------------------------------------------------------------------------------
MFS Mid-Cap Growth (Inception Date - 11/1/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 13.69
Ending Number of AUs...................................... 30,505
---------------------------------------------------------------------------------
Real Estate (Inception Date - 2/7/00)
Beginning AUV............................................. 10.00
Ending AUV................................................ 10.77
Ending Number of AUs...................................... 2,461
---------------------------------------------------------------------------------
Blue Chip Growth
Beginning AUV............................................. N/A
Ending AUV................................................ N/A
Ending Number of AUs...................................... N/A
---------------------------------------------------------------------------------
Putnam Growth (Inception Date - 11/1/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 11.33
Ending Number of AUs...................................... 177,965
---------------------------------------------------------------------------------
Goldman Sachs Research
Beginning AUV............................................. N/A
Ending AUV................................................ N/A
Ending Number of AUs...................................... N/A
---------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE> 27
<TABLE>
<CAPTION>
ACCUMULATION OF UNIT VALUE AND ACCUMULATION UNITS
INCEPTION TO
POLARIS II A-CLASS PORTFOLIOS 4/30/00
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
<S> <C>
MFS Growth & Income (Inception Date - 11/1/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 10.49
Ending Number of AUs...................................... 114,191
---------------------------------------------------------------------------------
Alliance Growth (Inception Date - 10/28/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 11.75
Ending Number of AUs...................................... 423,804
---------------------------------------------------------------------------------
"Dogs" of Wall Street (Inception Date - 1/3/00)
Beginning AUV............................................. 10.00
Ending AUV................................................ 9.51
Ending Number of AUs...................................... 3,381
---------------------------------------------------------------------------------
Davis Venture Value (Inception Date - 10/28/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 11.61
Ending Number of AUs...................................... 353,493
---------------------------------------------------------------------------------
Federated Value (Inception Date - 11/1/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 10.03
Ending Number of AUs...................................... 49,962
---------------------------------------------------------------------------------
Growth-Income (Inception Date - 11/1/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 11.39
Ending Number of AUs...................................... 335,543
---------------------------------------------------------------------------------
Telecom Utility (Inception Date - 12/16/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 9.91
Ending Number of AUs...................................... 9,175
---------------------------------------------------------------------------------
Asset Allocation (Inception Date - 11/12/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 10.34
Ending Number of AUs...................................... 14,781
---------------------------------------------------------------------------------
MFS Total Return (Inception Date - 10/28/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 10.22
Ending Number of AUs...................................... 50,264
---------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date - 10/28/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 11.01
Ending Number of AUs...................................... 93,619
---------------------------------------------------------------------------------
Worldwide High Income (Inception Date - 11/10/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 10.42
Ending Number of AUs...................................... 3,802
---------------------------------------------------------------------------------
High-Yield Bond (Inception Date - 11/28/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 10.06
Ending Number of AUs...................................... 13,058
---------------------------------------------------------------------------------
Corporate Bond (Inception Date - 12/27/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 10.01
Ending Number of AUs...................................... 3,500
---------------------------------------------------------------------------------
Global Bond (Inception Date - 11/28/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 10.20
Ending Number of AUs...................................... 1,149
---------------------------------------------------------------------------------
Cash Management (Inception Date - 11/29/99)
Beginning AUV............................................. 10.00
Ending AUV................................................ 10.20
Ending Number of AUs...................................... 3,737
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AUV - Accumulation Unit Value
AU - Accumulation Units
A-2
<PAGE> 28
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--------------------------------------------------------------------------------
APPENDIX B - MARKET VALUE ADJUSTMENT ("MVA")
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The MVA reflects the impact that changing interest rates have on the value of
money invested at a fixed interest rate. The longer the period of time remaining
in the term you initially agreed to leave your money in the fixed account
option, the greater the impact of changing interest rates. The impact of the MVA
can be either positive or negative, and is computed by multiplying the amount
withdrawn, transferred or switched to the Income Phase by the following factor:
(N/12)
[(1+I)/(1+J+L)] - 1
The MVA formula may differ in certain states
where:
I is the interest rate you are earning on the money invested in the
fixed account option;
J is the interest rate then currently available for the period of time
equal to the number of years (rounded up to an integer) remaining in the
term you initially agreed to leave your money in the fixed account
option; and
N is the number of full months remaining in the term you initially
agreed to leave your money in the fixed account option.
L=0.005, except in PA where L=0 and FL where L=0.0025.
EXAMPLES OF THE MVA
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 (net of the sales
charge) and allocated it to the 10-year fixed account option at a rate
of 5%;
(2) You make a partial withdrawal of $4,000 when 1 1/2 years (18 months)
remain in the 10-year term you initially agreed to leave your money in
the fixed account option (N=18); and
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals.
We assume no withdrawal charge applies. If a withdrawal charge applies, it is
deducted before the MVA. The MVA is assessed on the amount withdrawn less any
withdrawal charges.
POSITIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for a new
Purchase Payments in the 1-year fixed account option is 3.5% and the 3-year
fixed account option is 4.5%. By linear interpolation, the interest rate for the
remaining 2 years (1 1/2 years rounded up to the next full year) in the contract
is calculated to be 4%.
(N/12)
The MVA factor is = [(1+I)/(1+J+L)] - 1 where L=0.005
(18/12)
= [(1.05)/(1.04+0.005)] - 1
(1.5)
= (1.004785) - 1
= 1.007186 - 1
= + 0.007186
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 x (+0.007186) = +$28.74
$28.74 represents the MVA that would be added to your withdrawal.
NEGATIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year fixed account option is 5.5% and the 3-year
fixed account option is 6.5%. By linear interpolation, the interest rate for the
remaining 2 years (1 1/2 years rounded up to the next full year) in the contract
is calculated to be 6%.
(N/12)
The MVA factor is = [(1+I)/(1+J+L)] - 1 where L=0.005
(18/12)
= [(1.05)/(1.06+0.005)] - 1
(1.5)
= (0.985915) - 1
= 0.978948 - 1
= - 0.021052
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (- 0.021052) = -$84.21
$84.21 represents the MVA that will be deducted from the money remaining in the
10-year fixed account option.
B-1
<PAGE> 29
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
APPENDIX C - PREMIUM TAXES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Premium taxes vary according to the state and are subject to change without
notice. In many states, there is no tax at all. Listed below are the current
premium tax rates in those states that assess a premium tax. For current
information, you should consult your tax adviser.
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
STATE CONTRACT CONTRACT
<S> <C> <C>
========================================================================================
California .50% 2.35%
----------------------------------------------------------------------------------------
Maine 0% 2%
----------------------------------------------------------------------------------------
Nevada 0% 3.50%
----------------------------------------------------------------------------------------
South Dakota 0% 1.25%
----------------------------------------------------------------------------------------
West Virginia 1% 1%
----------------------------------------------------------------------------------------
Wyoming 0% 1%
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
C-1
<PAGE> 30
--------------------------------------------------------------------------------
Please forward a copy (without charge) of the Polaris(II) A-Class 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> 31
As filed pursuant to Rule 497
under the Securities Act of 1940
Registration No. 333-65965
STATEMENT OF ADDITIONAL INFORMATION
FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
ISSUED BY
ANCHOR NATIONAL LIFE INSURANCE COMPANY
IN CONNECTION WITH
VARIABLE ANNUITY ACCOUNT SEVEN
This Statement of Additional Information is not a prospectus; it should be read
with the prospectus dated July 5, 2000, relating to the annuity contracts
described above. A copy of the prospectus may be obtained without charge by
calling (800) 445-SUN2 or writing us at:
ANCHOR NATIONAL LIFE INSURANCE COMPANY
ANNUITY SERVICE CENTER
P.O. BOX 54299
LOS ANGELES, CALIFORNIA 90054-0299
July 5, 2000
<PAGE> 32
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Separate Account ....................................................... 3
General Account ........................................................ 3
Performance Data ....................................................... 4
Income Payments ........................................................ 8
Annuity Unit Values .................................................... 9
Taxes .................................................................. 12
Distribution of Contracts .............................................. 16
Financial Statements ................................................... 16
</TABLE>
<PAGE> 33
SEPARATE ACCOUNT
Variable Annuity Account Seven 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 Variable Portfolios, with the
assets of each Variable Portfolio invested in the shares of one of the
underlying funds. The Company does not guarantee the investment performance of
the Separate Account, its Variable Portfolios or the underlying funds. Values
allocated to the Separate Account and the amount of variable income 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 income 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 income 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
Variable 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 income
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 income
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 income payments).
GENERAL ACCOUNT
The general account is made up of all of the general assets of the
Company other than those allocated to the Separate Account or any other
segregated asset account of the Company. A Purchase Payment may be allocated to
the 1-year non-MVA fixed account or the 3, 5, 7 or 10 year MVA fixed
-3-
<PAGE> 34
account options and the DCA (non-MVA) fixed accounts for 6-month and 1-year
periods 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 account options become
part of the Company's general account assets and are available to fund the
claims of all classes of customers of the Company, as well as of its creditors.
Accordingly, all of the Company's assets held in the general account will be
available to fund the Company's obligations under the contracts as well as such
other claims.
The Company will invest the assets of the general account in the manner
chosen by the Company and allowed by applicable state laws regarding the nature
and quality of investments that may be made by life insurance companies and the
percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit investments, within specified limits
and subject to certain qualifications, in federal, state and municipal
obligations, corporate bonds, preferred and common stocks, real estate
mortgages, real estate and certain other investments.
PERFORMANCE DATA
From time to time the Separate Account may advertise the Cash
Management Portfolio's "yield" and "effective yield." Both yield figures are
based on historical earnings and are not intended to indicate future
performance. The "yield" of the Cash Management Portfolio refers to the net
income generated for a contract funded by an investment in the Variable
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 Variable 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) 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 Variable Portfolios. Like the yield figures described above, total
return figures are based on historical data and are not intended to indicate
future performance. The "total return" is a computed rate of return that, when
compounded annually over a stated period of time and applied to a hypothetical
initial investment in a Variable 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. We may from time to time show, in addition to these
standardized returns, returns (calculated with the same methodology) with
variations on the possible fees and charges.
ACTUAL PERFORMANCE WILL VARY AND THE HYPOTHETICAL RESULTS SHOWN ARE NOT
NECESSARILY REPRESENTATIVE OF FUTURE RESULTS. Performance for periods ending
after those shown may vary substantially from those shown in the charts below.
The charts show the performance of the Accumulation Units calculated for a
specified period of time assuming an initial
-4-
<PAGE> 35
Purchase Payment of $1,000 allocated to each Variable The total return figures
reflect the effect of both non-recurring and recurring charges. The highest
up-front sales charge (5.75%) is reflected. Total return figures are derived
from historical data and are not intended to be a projection of future
performance. Variable Annuity Account Seven also funds another contract (Polaris
Plus) which has been in existence longer than the PolarisII A-Class Variable
Annuity. The majority of Variable Portfolios in the PolarisII A-Class are also
available in that other contract and have been since March 19, 1999. The since
inception numbers for the Variable Portfolios are based on Separate Account
historical data (which is adjusted for the fees and charges applicable to the
PolarisII A-Class) and represent adjusted actual performance of the Separate
Account. The performance figures also reflect the actual fees and expenses paid
by each Variable Portfolio.
For periods starting prior to the date the Separate Account funded
contracts that were first offered to the public, the total return data will be
derived from the performance of the corresponding underlying portfolios of
Anchor Series Trust and SunAmerica Series Trust, modified to reflect the charges
and expenses as if the Separate Account Variable Portfolios had been in
existence since the inception date of each respective Anchor Series Trust and
SunAmerica Series Trust underlying fund. Thus, such performance figures should
not be construed to be actual performance of the Separate Account Variable
Portfolio. Rather, they are intended to indicate the hypothetical historical
performance of the corresponding underlying funds of Anchor Series Trust and
SunAmerica Series Trust, adjusted to provide comparability to the performance of
the Variable Portfolios after the date the Separate Account funded the contracts
that 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 is computed in the manners described below.
CASH MANAGEMENT PORTFOLIO
The annualized current yield and the effective yield for the Cash
Management Portfolio for the 7 day period ending April 26, 2000, were 4.47%
and 4.57%, 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)
-5-
<PAGE> 36
The Cash Management Portfolio also quotes an "effective yield" that
differs from the current yield given above in that it takes into account the
effect of dividend reinvestment in the underlying fund. The effective yield,
like the current yield, is derived from the Base Period Return over a 7 day
period. However, the effective yield accounts for dividend reinvestment by
compounding the current yield according to the formula:
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 VARIABLE PORTFOLIOS
The Variable Portfolios of the Separate Account other than the Cash
Management Portfolio compute their performance data as "total return."
Total return for a Variable 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 Variable Portfolio
made at the beginning of the period, will produce the same contract value at the
end of the period that the hypothetical investment would have produced over the
same period. The total rate of return (T) is computed so that it satisfies the
formula:
n
[(1-SC)P](1+T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
SC = sales charge
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.
-6-
<PAGE> 37
HYPOTHETICAL ADJUSTED HISTORICAL PERFORMANCE FOR PERIOD
ENDING APRIL 30, 2000
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION OF VARIABLE ANNUITY ACCOUNT SEVEN
<TABLE>
<CAPTION>
------------------------------------------------- -------------- ----------------- ---------------- -----------------
INCEPTION 10 YEARS OR
VARIABLE PORTFOLIO DATE 1 YEAR 5 YEARS SINCE INCEPTION
------------------ ---- ------ ------- ---------------
------------------------------------------------- -------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Capital Appreciation 3/19/99 49.48% N/A 49.53%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Growth 3/19/99 14.08% N/A 14.77%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Government & Quality Bond 3/19/99 -6.06% N/A -6.00%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Technology N/A N/A N/A N/A
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Emerging Markets 3/23/99 19.84% N/A 33.71%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
International Diversified Equities 3/19/99 1.18% N/A 2.88%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Global Equities 3/19/99 19.75% N/A 18.71%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
International Growth and Income 3/24/99 3.78% N/A 11.27%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Growth Opportunities N/A N/A N/A N/A
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Aggressive Growth 3/19/99 40.17% N/A 40.02%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
MFS Mid-Cap Growth* 11/1/99 N/A N/A 28.98%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Real Estate 3/31/99 -11.76% N/A -3.09%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Blue Chip Growth N/A N/A N/A N/A
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Putnam Growth 3/19/99 10.63% N/A 9.12%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Goldman Sachs Research N/A N/A N/A N/A
------------------------------------------------- -------------- ----------------- ---------------- -----------------
MFS Growth and Income* 11/1/99 N/A N/A -1.15%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Alliance Growth 3/19/99 17.13% N/A 12.95%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
"Dogs" of Wall Street 3/19/99 -21.98% N/A -14.45%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Davis Venture Value 3/19/99 7.40% N/A 11.27%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Federated Value 3/19/99 -11.99% N/A -6.83%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Growth-Income 3/19/99 11.94% N/A 13.26%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Telecom Utility 3/19/99 -7.20% N/A -3.95%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Asset Allocation 3/23/99 -1.88% N/A 1.05%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
MFS Total Return* 10/28/99 N/A N/A -3.69%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
SunAmerica Balanced 3/19/99 4.98% N/A 4.83%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Worldwide High Income 3/31/99 1.43% N/A 6.11%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
High-Yield Bond 3/19/99 -7.69% N/A -4.98%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Corporate Bond 3/23/99 -8.05% N/A -7.47%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Global Bond 3/19/99 -6.55 N/A -5.77%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
</TABLE>
-7-
<PAGE> 38
HYPOTHETICAL ADJUSTED HISTORICAL PERFORMANCE FOR PERIOD ENDING APRIL 30, 2000
AVERAGE ANNUAL TOTAL RETURN
BASED ON UNDERLYING FUND INCEPTION (WITHIN THE UNDERLYING TRUST)
<TABLE>
<CAPTION>
------------------------------------------------- -------------- ----------------- ---------------- -----------------
INCEPTION 10 YEARS OR
VARIABLE PORTFOLIO DATE 1 YEAR 5 YEARS SINCE INCEPTION
------------------ ---- ------ ------- --------------
------------------------------------------------- -------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Capital Appreciation 3/23/87 49.48% 30.64% 23.35%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Growth 8/13/84 14.08% 24.11% 16.85%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Government & Quality Bond 8/13/84 -6.06% 4.52% 6.52%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Technology N/A N/A N/A N/A
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Emerging Markets 6/2/97 19.84% N/A -2.54%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
International Diversified Equities 10/31/94 1.18% 9.01% 7.55%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Global Equities 2/9/93 19.75% 16.73% 14.51%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
International Growth and Income 6/2/97 3.78% N/A 10.91%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Growth Opportunities N/A N/A N/A N/A
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Aggressive Growth 6/3/96 40.17% N/A 23.83%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
MFS Mid-Cap Growth 4/1/99 56.54 N/A 59.78%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Real Estate 6/2/97 -11.76% N/A -3.82%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Blue Chip Growth N/A N/A N/A N/A
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Putnam Growth 2/9/93 10.63% 23.23% 16.33%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Goldman Sachs Research N/A N/A N/A N/A
------------------------------------------------- -------------- ----------------- ---------------- -----------------
MFS Growth and Income 2/9/93 -4.65% 16.07% 12.24%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Alliance Growth 2/9/93 17.13% 31.81% 24.48%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
"Dogs" of Wall Street 4/1/98 -21.98% N/A -9.98%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Davis Venture Value 10/31/94 7.40% 21.30% 21.69%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Federated Value 6/3/96 -11.99% N/A 12.31%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Growth-Income 2/9/93 11.94% 25.54% 19.26%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Telecom Utility 6/3/96 -7.20% N/A 9.29%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Asset Allocation 7/1/93 -1.88% 11.23% 10.23%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
MFS Total Return 10/31/94 -6.79% 11.12% 11.58%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
SunAmerica Balanced 6/3/96 4.98% N/A 17.28%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Worldwide High Income 10/31/94 1.43% 8.64% 8.17%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
High-Yield Bond 2/9/93 -7.69% 5.30% 5.32%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Corporate Bond 7/1/93 -8.05% 3.85% 3.35%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
Global Bond 7/1/93 -6.55% 6.08% 5.15%
------------------------------------------------- -------------- ----------------- ---------------- -----------------
</TABLE>
-8-
<PAGE> 39
INCOME PAYMENTS
INITIAL MONTHLY INCOME 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 income 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 employee-sponsored retirement plans, such
classification is not permitted), premium taxes, if applicable, 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 income 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 income payment.
The number of Annuity Units determined for the first variable income payment
remains constant for the second and subsequent monthly variable income payments,
assuming that no reallocation of contract values is made.
SUBSEQUENT MONTHLY INCOME 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 income payment.
For variable income payments, the amount of the second and each
subsequent monthly income payment is determined by multiplying the number of
Annuity Units, as determined in connection with the determination of the initial
monthly income 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 Feature, the income benefit base is determined as described in the
prospectus. The initial income payment is determined by applying the income
benefit base to the annuity table specifically designated for use in conjunction
with the Income Protector feature, 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. 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),
premium tax, if applicable, age of the Annuitant and designated second person,
if any, and the Income Option selected.
The income benefit base is applied 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 income payment.
ANNUITY UNIT VALUES
The value of an Annuity Unit is determined independently for each
Variable 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 Variable Portfolio exceeds 3.5%, variable income payments derived from
allocations to that Variable 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
-9-
<PAGE> 40
been used, the 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 Variable 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 Variable Portfolio for a certain month is determined by
dividing (a) by (b) where:
(a) is the Accumulation Unit value of the Variable Portfolio
determined as of the end of that month, and
(b) is the Accumulation Unit value of the Variable Portfolio
determined as of the end of the preceding month.
The NIF for a Variable Portfolio for a given month is a measure of the
net investment performance of the Variable 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 Variable Portfolio invests; it is also reduced by Separate Account
asset charges.
ILLUSTRATIVE EXAMPLE
Assume that one share of a given Variable 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 Variable 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 Variable 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 income payment tables
are based. For example, if the net
-10-
<PAGE> 41
investment rate for a Variable Portfolio (reflected in the NIF) were equal to
the assumed investment rate, the variable income payments should remain constant
(i.e., the Annuity Unit value should not change). The monthly factor that
neutralizes the assumed investment rate of 3.5 percent per annum is:
(1/12)
1/[(1.035) ] = 0.99713732
In the example given above, if the Annuity Unit value for the Variable
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
To determine the initial payment, the initial income payment for
variable annuitization is calculated based on our mortality expectations and an
assumed interest rate (AIR) of 3.5%. Thus the initial variable income payment is
the same as the initial payment for a fixed interest payout annuity calculated
at an effective rate of 3.5%.
The NIF measures the performance of the funds that are the basis for
the amount of future income payments. This performance is compared to the AIR,
and if the growth in the NIF is the same as the AIR rate, the payment remains
the same as the prior month. If the rate of the NIF is different than the AIR,
then this proportion is greater than one and payments are increased. If the NIF
is less than the AIR, then this proportion is less than one and payments are
decreased.
VARIABLE 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 Variable 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 Variable 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 income 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 Variable Income 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 funds to another Variable Portfolio) 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:
-11-
<PAGE> 42
Annuity Units = $572.75/$13.256932 = 43.203812
P's second variable income payment is determined by multiplying the
number of Annuity Units by the Annuity Unit value as of the day immediately
prior to the second income payment due date and by applying a monthly factor to
neutralize the assumed investment rate of 3.5% per year.
Second Variable Income Payment =
(1/12)
43.203812 x $13.327695x1/[(1.035) ] = $574.16
The third and subsequent variable income payments are computed in a
manner similar to the second variable income payment.
Note that the amount of the first variable income payment depends on
the contract value in the relevant Variable Portfolio on the Annuity Date and
thus reflects the investment performance of the Variable 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 Income Phase
(assuming no transfers from the Variable Portfolio). The net investment
performance of the Variable Portfolio during the Income Phase is reflected in
continuing changes during this phase in the Annuity Unit value, which determines
the amounts of the second and subsequent variable income 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 income payments under the income option
elected. For a lump sum payment received as a total surrender (total
redemption), the recipient is taxed on the portion of the payment that exceeds
the cost basis of the contract. For a payment received as a withdrawal (partial
redemption), federal tax liability is determined on a last-in, first-out basis,
meaning taxable income is withdrawn before the cost basis of the contract is
withdrawn. For contracts issued in connection with Non-qualified plans, the cost
basis is generally the Purchase Payments, while for contracts issued in
connection with Qualified plans there may be no cost basis. The taxable portion
of the lump sum payment is taxed at ordinary income tax rates. Tax penalties may
also apply.
For income 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 income 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
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<PAGE> 43
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) income 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
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."
-13-
<PAGE> 44
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.
PARTIAL 1035 EXCHANGES
Section 1035 of the Code provides that an annuity contract may be exchanged in
a tax-free transaction for another annuity contract. Historically, it was
presumed that only the exchange of an entire contract, as opposed to a partial
exchange, would be accorded tax-free status. In 1998 in Conway vs.
Commissioner, the Tax Court held that the direct transfer of a portion of an
annuity contract into another annuity contract qualified as a non-taxable
exchange. On November 22, 1999, the Internal Revenue Service filed an Action on
Decision which indicated that it acquiesced in the Tax Court decision in
Conway. However, in its acquiesence with the decision of the Tax Court, the
Internal Revenue Service stated that it will challenge transactions where
taxpayers enter into a series of partial exchanges and annuitizations as part
of a design to avoid application of the 10% premature distribution penalty or
other limitations imposed on annuity contracts under Section 72 of the Code. In
the absence of further guidance from the Internal Revenue Service it is unclear
what specific types of partial exchange designs and transactions will be
challenged by the Internal Revenue Service. Due to the uncertainty in this area
owners should seek their own tax advice.
QUALIFIED PLANS
The contracts offered by this prospectus are designed to be suitable
for use under various types of Qualified plans. Taxation of owners in each
Qualified plan varies with the type of plan and terms and conditions of each
specific plan. Owners, Annuitants and Beneficiaries are cautioned that benefits
under a Qualified plan may be subject to the terms and conditions of the plan,
regardless of the terms and conditions of the contracts issued pursuant to the
plan.
Following are general descriptions of the types of Qualified plans with
which the contracts may be used. Such descriptions are not exhaustive and are
for general information purposes only. The tax rules regarding Qualified plans
are very complex and will have differing applications depending on individual
facts and circumstances. Each purchaser should obtain competent tax advice prior
to purchasing a contract issued under a Qualified plan.
Contracts issued pursuant to Qualified plans include special provisions
restricting contract provisions that may otherwise be available and described in
this prospectus. Generally, contracts issued pursuant to Qualified plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified contracts.
(a) H.R. 10 PLANS
Section 401 of the Code permits self-employed individuals to
establish Qualified plans for themselves and their employees, commonly
referred to as "H.R. 10" or "Keogh" Plans. Contributions made to the
plan for the benefit of the employees will not be included in the gross
income of the employees until distributed from the plan. The tax
consequences to owners may vary depending upon the particular plan
design. However, the Code places limitations and restrictions on all
plans on such items as: amounts of allowable contributions; form,
manner and timing of distributions; vesting and nonforfeitability of
interests; nondiscrimination in eligibility and participation; and the
tax treatment of distributions, withdrawals and surrenders. Purchasers
of contracts for use with an H.R. 10 Plan should obtain competent tax
advice as to the tax treatment
-14-
<PAGE> 45
and suitability of such an investment.
(b) TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of
"tax-sheltered annuities" by public schools and certain charitable,
education and scientific organizations described in Section 501(c)(3)
of the Code. These qualifying employers may make contributions to the
contracts for the benefit of their employees. Such contributions are
not includible in the gross income of the employee until the employee
receives distributions from the contract. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by
the Code. Furthermore, the Code sets forth additional restrictions
governing such items as transferability, distributions,
nondiscrimination and withdrawals. Any employee should obtain competent
tax advice as to the tax treatment and suitability of such an
investment.
(c) INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to
contribute to an individual retirement program known as an "Individual
Retirement Annuity" ("IRA"). Under applicable limitations, certain
amounts may be contributed to an IRA which will be deductible from the
individual's gross income. These IRAs are subject to limitations on
eligibility, contributions, transferability and distributions. Sales of
contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational
disclosure be given to persons desiring to establish an IRA. Purchasers
of contracts to be qualified as IRAs should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
(d) ROTH IRAS
Section 408(a) of the Code permits an individual to contribute
to an individual retirement program called a Roth IRA. Unlike
contributions to a regular IRA under Section 408(b) of the Code,
contributions to a Roth IRA are not made on a tax-deferred basis, but
distributions are tax-free if certain requirements are satisfied. Like
regular IRAs, Roth IRAs are subject to limitations on the amount that
may be contributed, those who may be eligible and the time when
distributions may commence without tax penalty. Certain persons may be
eligible to convert a regular IRA into a Roth IRA, and the taxes on the
resulting income may be spread over four years if the conversion occurs
before January 1, 1999. If and when the contracts are made available
for use with Roth IRAs, they may be subject to special requirements
imposed by the Internal Revenue Service ("IRS"). Purchasers of the
contracts for this purpose will be provided with such supplementary
information as may be required by the IRS or other appropriate agency.
(e) CORPORATE PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit corporate
employers to establish various types of retirement plans for employees.
These retirement plans may permit the purchase of the contracts to
provide benefits under the plan. Contributions to the plan for the
benefit of employees will not be includible in the gross income of the
employee until distributed from the plan. The tax consequences to
owners may vary depending upon the particular plan design. However, the
Code places limitations on all plans on such items as amount of
allowable contributions; form, manner and timing of distributions;
vesting and nonforfeitability of interests; nondiscrimination in
eligibility and participation; and the tax treatment of distributions,
withdrawals and surrenders.
-15-
<PAGE> 46
Purchasers of contracts for use with corporate pension or profit
sharing plans should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
(f) DEFERRED COMPENSATION PLANS - SECTION 457
Under Section 457 of the Code, governmental and certain other
tax-exempt employers may establish, for the benefit of their employees,
deferred compensation plans which may invest in annuity contracts. The
Code, as in the case of Qualified plans, establishes limitations and
restrictions on eligibility, contributions and distributions. Under
these plans, contributions made for the benefit of the employees will
not be includible in the employees' gross income until distributed from
the plan. However, under a 457 plan all the plan assets shall remain
solely the property of the employer, subject only to the claims of the
employer's general creditors until such time as made available to an
owner or a Beneficiary. As of January 1, 1999, all 457 plans of state
and local governments must hold assets and income in trust (or
custodial accounts or an annuity contract) for the exclusive benefit of
participants and their Beneficiaries.
DISTRIBUTION OF CONTRACTS
The contracts are offered on a continuous basis through SunAmerica
Capital Services, Inc., located at 733 Third Avenue, 4th Floor, New York, New
York 10017. SunAmerica Capital Services, Inc. is registered as a broker-dealer
under the Securities Exchange Act of 1934, as amended, and is a member of the
National Association of Securities Dealers, Inc. The Company and SunAmerica
Capital Services, Inc. are each an indirect wholly owned subsidiary of
SunAmerica Inc. No underwriting fees are paid in connection with the
distribution of the contracts.
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company as of
December 31, 1999, December 31, 1998 and September 30, 1998 and for the year
ended December 31, 1999, for the three months ended December 31, 1998 and for
each of the two fiscal years in the period ended September 30, 1998 are
presented in this Statement of Additional Information. The financial statements
of the Company should be considered only as bearing on the ability of the
Company to meet its obligation under the contracts for amounts allocated to the
1, 3, 5, 7 or 10 year fixed account options and the DCA fixed accounts for
6-month and 1-year periods. Financial Statements for Variable Annuity Account
Seven (Portion Relating to the PolarisII A-Class Variable Annuity) for the
fiscal year ended April 30, 2000, are also presented in this Statement
of Additional information.
PricewaterhouseCoopers LLP, 400 South Hope Street, Los Angeles,
California 90071, serves as the independent accountants for the Separate Account
and the Company. The Company financial statements referred to above have been so
included in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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<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 statements of income and comprehensive income and of cash flows
present fairly, in all material respects, the financial position of Anchor
National Life Insurance Company and its subsidiaries (the "Company") at December
31, 1999, December 31, 1998, and September 30, 1998, and the results of their
operations and their cash flows for the year ended December 31, 1999, for the
three months ended December 31, 1998 and for each of the two fiscal years in the
period ended September 30, 1998, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
January 31, 2000
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<PAGE> 48
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1999 1998 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 475,162,000 $ 3,303,454,000 $ 333,735,000
Bonds, notes and redeemable
preferred stocks available for sale,
at fair value (amortized cost:
December 1999, $4,155,728,000;
December 1998, $4,252,740,000;
September 1998, $1,934,863,000) 3,953,169,000 4,248,840,000 1,954,754,000
Mortgage loans 674,679,000 388,780,000 391,448,000
Policy loans 260,066,000 320,688,000 11,197,000
Separate account seed money 141,499,000 --- ---
Common stocks available for sale,
at fair value (cost: December 1999,
$0; December 1998, $1,409,000;
September 1998, $115,000) --- 1,419,000 169,000
Partnerships 4,009,000 4,577,000 4,403,000
Real estate 24,000,000 24,000,000 24,000,000
Other invested assets 19,385,000 15,185,000 15,036,000
--------------- --------------- ---------------
Total investments 5,551,969,000 8,306,943,000 2,734,742,000
Variable annuity assets held in separate
accounts 19,949,145,000 13,767,213,000 11,133,569,000
Accrued investment income 60,584,000 73,441,000 26,408,000
Deferred acquisition costs 1,089,979,000 866,053,000 539,850,000
Receivable from brokers for sales of
securities 54,760,000 22,826,000 23,904,000
Income taxes currently receivable --- --- 5,869,000
Deferred income taxes 53,445,000 --- ---
Other assets 114,612,000 109,857,000 85,926,000
--------------- --------------- ---------------
TOTAL ASSETS $26,874,494,000 $23,146,333,000 $14,550,268,000
=============== =============== ===============
</TABLE>
See accompanying notes
-18-
<PAGE> 49
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET (Continued)
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1999 1998 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $ 3,254,895,000 $ 5,500,157,000 $ 2,189,272,000
Reserves for universal life insurance
contracts 1,978,332,000 2,339,194,000 ---
Reserves for guaranteed investment
contracts 305,570,000 306,461,000 282,267,000
Payable to brokers for purchases of
securities 139,000 --- 50,957,000
Income taxes currently payable 23,490,000 11,123,000 ---
Modified coinsurance deposit liability 140,757,000 --- ---
Other liabilities 249,224,000 160,020,000 106,594,000
---------------- ---------------- ----------------
Total reserves, payables
and accrued liabilities 5,952,407,000 8,316,955,000 2,629,090,000
---------------- ---------------- ----------------
Variable annuity liabilities related to
separate accounts 19,949,145,000 13,767,213,000 11,133,569,000
---------------- ---------------- ----------------
Subordinated notes payable to affiliates 37,816,000 209,367,000 39,182,000
---------------- ---------------- ----------------
Deferred income taxes --- 105,772,000 95,758,000
---------------- ---------------- ----------------
Shareholder's equity:
Common Stock 3,511,000 3,511,000 3,511,000
Additional paid-in capital 493,010,000 378,674,000 308,674,000
Retained earnings 551,158,000 366,460,000 332,069,000
Accumulated other comprehensive
income (loss) (112,553,000) (1,619,000) 8,415,000
---------------- ---------------- ----------------
Total shareholder's equity 935,126,000 747,026,000 652,669,000
---------------- ---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 26,874,494,000 $ 23,146,333,000 $ 14,550,268,000
================ ================ ================
</TABLE>
See accompanying notes
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<PAGE> 50
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended --------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------- ------------ ---------------
<S> <C> <C> <C> <C>
Investment income $ 521,953,000 $ 54,278,000 $ 221,966,000 $ 210,759,000
------------- ------------- ------------- -------------
Interest expense on:
Fixed annuity contracts (231,929,000) (22,828,000) (112,695,000) (109,217,000)
Universal life insurance
contracts (102,486,000) --- --- ---
Guaranteed investment
contracts (19,649,000) (3,980,000) (17,787,000) (22,650,000)
Senior indebtedness (199,000) (34,000) (1,498,000) (2,549,000)
Subordinated notes payable
to affiliates (3,474,000) (853,000) (3,114,000) (3,142,000)
------------- ------------- ------------- -------------
Total interest expense (357,737,000) (27,695,000) (135,094,000) (137,558,000)
------------- ------------- ------------- -------------
NET INVESTMENT INCOME 164,216,000 26,583,000 86,872,000 73,201,000
------------- ------------- ------------- -------------
NET REALIZED INVESTMENT
GAINS (LOSSES) (19,620,000) 271,000 19,482,000 (17,394,000)
------------- ------------- ------------- -------------
Fee income:
Variable annuity fees 306,417,000 58,806,000 200,867,000 139,492,000
Net retained commissions 51,039,000 11,479,000 48,561,000 39,143,000
Asset management fees 43,510,000 8,068,000 29,592,000 25,764,000
Universal life insurance
fees 23,290,000 --- --- ---
Surrender charges 17,137,000 3,239,000 7,404,000 5,529,000
Other fees 13,999,000 1,738,000 3,938,000 3,218,000
------------- ------------- ------------- -------------
TOTAL FEE INCOME 455,392,000 83,330,000 290,362,000 213,146,000
------------- ------------- ------------- -------------
GENERAL AND ADMINISTRATIVE
EXPENSES (154,665,000) (21,993,000) (96,102,000) (98,802,000)
------------- ------------- ------------- -------------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS (116,840,000) (27,070,000) (72,713,000) (66,879,000)
------------- ------------- ------------- -------------
ANNUAL COMMISSIONS (40,760,000) (6,624,000) (18,209,000) (8,977,000)
------------- ------------- ------------- -------------
PRETAX INCOME 287,723,000 54,497,000 209,692,000 94,295,000
Income tax expense (103,025,000) (20,106,000) (71,051,000) (31,169,000)
------------- ------------- ------------- -------------
NET INCOME 184,698,000 34,391,000 138,641,000 63,126,000
------------- ------------- ------------- -------------
Other comprehensive income
(loss), net of tax:
Net unrealized gains (losses)
on debt and equity securities
available for sale:
Net unrealized gains
(losses) identified in
the current period (118,669,000) (10,249,000) (4,027,000) 16,605,000
Less reclassification
adjustment for net
realized (gains) losses
included in net income 7,735,000 215,000 (5,963,000) 7,321,000
------------- ------------- ------------- -------------
OTHER COMPREHENSIVE INCOME
(LOSS) (110,934,000) (10,034,000) (9,990,000) 23,926,000
------------- ------------- ------------- -------------
COMPREHENSIVE INCOME $ 73,764,000 $ 24,357,000 $ 128,651,000 $ 87,052,000
============= ============= ============= =============
</TABLE>
See accompanying notes
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<PAGE> 51
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION> Year Ended September 30,
Year Ended Three Months Ended -------------------------------------
December 31, 1999 December 31, 1998 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 184,698,000 $ 34,391,000 $ 138,641,000 $ 63,126,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Interest credited to:
Fixed annuity contracts 231,929,000 22,828,000 112,695,000 109,217,000
Universal life insurance
contracts 102,486,000 --- --- ---
Guaranteed investment
contracts 19,649,000 3,980,000 17,787,000 22,650,000
Net realized investment
losses (gains) 19,620,000 (271,000) (19,482,000) 17,394,000
Amortization (accretion) of
net premiums (discounts)
on investments (18,343,000) (1,199,000) 447,000 (18,576,000)
Universal life insurance
fees (23,290,000) --- --- ---
Amortization of goodwill 776,000 356,000 1,422,000 1,187,000
Provision for deferred
income taxes (100,013,000) 15,945,000 34,087,000 (16,024,000)
Change in:
Accrued investment income 9,155,000 (1,512,000) (4,649,000) (2,084,000)
Deferred acquisition costs (208,228,000) (34,328,000) (160,926,000) (113,145,000)
Other assets (5,661,000) (21,070,000) (19,374,000) (14,598,000)
Income taxes currently
payable 12,367,000 16,992,000 (38,134,000) 10,779,000
Other liabilities 49,504,000 5,617,000 (2,248,000) 14,187,000
Other, net 15,087,000 5,510,000 (5,599,000) 418,000
--------------- --------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 289,736,000 47,239,000 54,667,000 74,531,000
--------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of:
Bonds, notes and redeemable
preferred stocks (4,130,682,000) (392,515,000) (1,970,502,000) (2,566,211,000)
Mortgage loans (331,398,000) (4,962,000) (131,386,000) (266,771,000)
Other investments, excluding
short-term investments (227,268,000) (1,992,000) --- (75,556,000)
Sales of:
Bonds, notes and redeemable
preferred stocks 2,660,931,000 265,039,000 1,602,079,000 2,299,063,000
Other investments, excluding
short-term investments 65,395,000 142,000 42,458,000 6,421,000
Redemptions and maturities of:
Bonds, notes and redeemable
preferred stocks 1,274,764,000 37,290,000 424,393,000 376,847,000
Mortgage loans 46,760,000 7,699,000 80,515,000 25,920,000
Other investments, excluding
short-term investments 33,503,000 853,000 67,213,000 23,940,000
Cash and short-term investments
acquired in coinsurance
transaction with MBL Life
Assurance Corporation --- 3,083,211,000 --- ---
Short-term investments
transferred to First
SunAmerica Life Insurance
Company in assumption
reinsurance transaction with
MBL Life Assurance Corporation (371,634,000) --- --- ---
--------------- --------------- --------------- ---------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (979,629,000) 2,994,765,000 114,770,000 (176,347,000)
--------------- --------------- --------------- ---------------
</TABLE>
-21-
<PAGE> 52
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION> Year Ended September 30,
Year Ended Three Months Ended -------------------------------------
December 31, 1999 December 31, 1998 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Premium receipts on:
Fixed annuity contracts $ 2,016,851,000 $ 351,616,000 $ 1,512,994,000 $ 1,097,937,000
Universal life insurance
contracts 78,864,000 --- --- ---
Guaranteed investment
contracts --- --- 5,619,000 55,000,000
Net exchanges from the fixed
accounts of variable annuity
contracts (1,821,324,000) (448,762,000) (1,303,790,000) (620,367,000)
Withdrawal payments on:
Fixed annuity contracts (2,232,374,000) (41,554,000) (191,690,000) (242,589,000)
Universal life insurance
contracts (81,634,000) --- --- ---
Guaranteed investment
contracts (19,742,000) (3,797,000) (36,313,000) (198,062,000)
Claims and annuity payments on:
Fixed annuity contracts (46,578,000) (9,333,000) (40,589,000) (35,731,000)
Universal life insurance
contracts (158,043,000) --- --- ---
Net receipts from (repayments
of) other short-term
financings (129,512,000) 9,545,000 (10,944,000) 34,239,000
Net receipt/(payment) related
to a modified coinsurance
transaction 140,757,000 (170,436,000) 166,631,000 ---
Receipts from issuance of
subordinated note payable
to affiliate --- 170,436,000 --- ---
Net of capital contributions
and return of capital 114,336,000 70,000,000 --- 28,411,000
Dividends paid --- --- (51,200,000) (25,500,000)
--------------- --------------- --------------- ---------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (2,138,399,000) (72,285,000) 50,718,000 93,338,000
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS (2,828,292,000) 2,969,719,000 220,155,000 (8,478,000)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD 3,303,454,000 333,735,000 113,580,000 122,058,000
--------------- --------------- --------------- ---------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 475,162,000 $ 3,303,454,000 $ 333,735,000 $ 113,580,000
=============== =============== =============== ===============
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid on indebtedness $ 3,787,000 $ 1,169,000 $ 3,912,000 $ 7,032,000
=============== =============== =============== ===============
Net income taxes paid
(refunded) $ 190,126,000 $ (12,302,000) $ 74,932,000 $ 36,420,000
=============== =============== =============== ===============
</TABLE>
See accompanying notes
-22-
<PAGE> 53
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company, including its wholly owned
subsidiaries, (the "Company") is an Arizona-domiciled life insurance
company which conducts its business through three segments: annuity
operations, asset management operations and broker-dealer operations.
Annuity operations include the sale and administration of deposit-type
insurance contracts, including fixed and variable annuities, universal
life contracts and guaranteed investment contracts. Asset management
operations, which include the distribution and management of mutual
funds, are conducted by SunAmerica Asset Management Corp. Broker-dealer
operations include the sale of securities and financial services
products, and are conducted by Royal Alliance Associates, Inc.
The Company is an indirect wholly owned subsidiary of American
International Group, Inc. ("AIG"), an international insurance and
financial services holding company. At December 31, 1998, the Company
was a wholly owned indirect subsidiary of SunAmerica Inc., a Maryland
Corporation. On January 1, 1999, SunAmerica Inc. merged with and into
AIG in a tax-free reorganization that has been treated as a pooling of
interests for accounting purposes. Thus, SunAmerica Inc. ceased to exist
on that date. However, immediately prior to the date of the merger,
substantially all of the net assets of SunAmerica Inc. were contributed
to a newly formed subsidiary of AIG named SunAmerica Holdings, Inc., a
Delaware Corporation. SunAmerica Holdings, Inc. subsequently changed its
name to SunAmerica Inc. ("SunAmerica").
The operations of the Company are influenced by many factors, including
general economic conditions, monetary and fiscal policies of the federal
government, and policies of state and other regulatory authorities. The
level of sales of the Company's financial products is influenced by many
factors, including general market rates of interest, the strength,
weakness and volatility of equity markets, and terms and conditions of
competing financial products. The Company is exposed to the typical
risks normally associated with a portfolio of fixed-income securities,
namely interest rate, option, liquidity and credit risk. The Company
controls its exposure to these risks by, among other things, closely
monitoring and matching the duration of its assets and liabilities,
monitoring and limiting prepayment and extension risk in its portfolio,
maintaining a large percentage of its portfolio in highly liquid
securities, and engaging in a disciplined process of underwriting,
reviewing and monitoring credit risk. The Company also is exposed to
market risk, as market volatility may result in reduced fee income in
the case of assets managed in mutual funds and held in separate
accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles and include the accounts of the Company and all of
its wholly owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation. Certain items have been
reclassified to conform to the current period's presentation.
-23-
<PAGE> 54
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Under generally accepted accounting principles, premiums collected on
the non-traditional life and annuity insurance products, such as those
sold by the Company, are not reflected as revenues in the Company's
statement of earnings, as they are recorded directly to policyholders
liabilities upon receipt.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the amounts reported in the financial statements
and the accompanying notes. Actual results could differ from those
estimates.
INVESTED ASSETS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and
short-term bank participations. All such investments are carried at cost
plus accrued interest, which approximates fair value, have maturities of
three months or less and are considered cash equivalents for purposes of
reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and
common stocks are carried at aggregate fair value and changes in
unrealized gains or losses, net of tax, are credited or charged directly
to shareholder's equity. Bonds, notes and redeemable preferred stocks
are reduced to estimated net realizable value when necessary for
declines in value considered to be other than temporary. Estimates of
net realizable value are subjective and actual realization will be
dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of
provisions for estimated losses. Policy loans are carried at unpaid
balances. Separate account seed money consists of seed money for mutual
funds used as investment vehicles for the Company's variable annuity
separate accounts and is valued at market. Limited partnerships are
accounted for by the cost method of accounting. Real estate is carried
at cost, reduced by impairment provisions. Other invested assets include
collateralized bond obligations.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined by using the specific
cost identification method. Premiums and discounts on investments are
amortized to investment income by using the interest method over the
contractual lives of the investments.
INTEREST RATE SWAP AGREEMENTS: The net differential to be paid or
received on interest rate swap agreements ("Swap Agreements") entered
into to reduce the impact of changes in interest rates is recognized
over the lives of the agreements, and such differential is classified as
Investment Income or Interest Expense in the income statement.
Initially, Swap Agreements are designated as hedges and, therefore, are
not marked to market. However, when a hedged asset/liability is sold or
repaid before the related Swap Agreement matures, the Swap Agreement is
marked to market and any gain/loss is classified with any gain/loss
realized on the disposition of the hedged asset/liability. Subsequently,
the Swap Agreement is marked to market and the resulting change in fair
value is included in Investment Income in the income
-24-
<PAGE> 55
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
statement. When a Swap Agreement that is designated as a hedge is
terminated before its contractual maturity, any resulting gain/loss is
credited/charged to the carrying value of the asset/liability that it
hedged and is treated as a premium/discount for the remaining life of
the asset/liability.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, in relation to the incidence of estimated
gross profits to be realized over the estimated lives of the annuity
contracts. Estimated gross profits are composed of net interest income,
net realized investment gains and losses, variable annuity fees,
universal life insurance fees, surrender charges and direct
administrative expenses. Costs incurred to sell mutual funds are also
deferred and amortized over the estimated lives of the funds obtained.
Deferred acquisition costs ("DAC") consist of commissions and other
costs that vary with, and are primarily related to, the production or
acquisition of new business.
As debt and equity securities available for sale are carried at
aggregate fair value, an adjustment is made to DAC equal to the change
in amortization that would have been recorded if such securities had
been sold at their stated aggregate fair value and the proceeds
reinvested at current yields. The change in this adjustment, net of tax,
is included with the change in accumulated other comprehensive
income/(loss) that is credited or charged directly to shareholder's
equity. DAC has been increased by $29,400,000 at December 31, 1999,
increased by $1,400,000 at December 31, 1998, and decreased by
$7,000,000 at September 30, 1998 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated
in separate accounts. The Company receives administrative fees for
managing the funds and other fees for assuming mortality and certain
expense risks. Such fees are included in Variable Annuity Fees in the
income statement.
GOODWILL: Goodwill, amounting to $22,206,000 at December 31, 1999, is
amortized by using the straight-line method over periods averaging 25
years and is included in Other Assets in the balance sheet. Goodwill is
evaluated for impairment when events or changes in economic conditions
indicate that the carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
contracts, universal life insurance contracts and guaranteed investment
contracts are accounted for as investment-type contracts in accordance
with Statement of Financial Accounting Standards No. 97, "Accounting and
Reporting by Insurance Enterprises for Certain Long-Duration Contracts
and for Realized Gains and Losses from the Sale of Investments," and are
recorded at accumulated value (premiums received, plus accrued interest,
less withdrawals and assessed fees).
MODIFIED COINSURANCE DEPOSIT LIABILITY: Cash received as part of the
modified coinsurance transaction described in Note 8 is recorded as a
deposit liability.
-25-
<PAGE> 56
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FEE INCOME: Variable annuity fees, asset management fees, universal life
insurance fees and surrender charges are recorded in income as earned.
Net retained commissions are recognized as income on a trade date basis.
INCOME TAXES: The Company files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Its federal income tax
return is consolidated with those of its direct parent, SunAmerica Life
Insurance Company (the "Parent"), and its affiliate, First SunAmerica
Life Insurance Company. Income taxes have been calculated as if the
Company filed a separate return. Deferred income tax assets and
liabilities are recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1998, the FASB issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging
activities. SFAS 133 was postponed by SFAS 137, and now will be
effective for the Company as of January 1, 2001. Therefore, it is not
included in the accompanying financial statements. The Company has not
completed its analysis of the effect of SFAS 133, but management
believes that it will not have a material impact on the Company's
results of operations, financial condition or liquidity.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was adopted for the
year ended December 31, 1999 and is included in Note 14 of the
accompanying financial statements.
3. FISCAL YEAR CHANGE
Effective December 31, 1998, the Company changed its fiscal year end
from September 30 to December 31. Accordingly, the consolidated
financial statements include the results of operations and cash flows
for the three-month transition period ended December 31, 1998. Such
results are not necessarily indicative of operations for a full year.
The consolidated financial statements as of and for the three months
ended December 31, 1998 were originally filed as the Company's unaudited
Transition Report on Form 10-Q.
Results for the comparable prior year period are summarized below.
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1997
<S> <C>
Investment income 59,855,000
Net investment income 26,482,000
Net realized investment gains 20,935,000
Total fee income 63,984,000
Pretax income 67,654,000
Net income 44,348,000
==========
</TABLE>
-26-
<PAGE> 57
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. ACQUISITION
On December 31, 1998, the Company acquired the individual life business
and the individual and group annuity business of MBL Life Assurance
Corporation ("MBL Life") ("the Acquisition"), via a 100% coinsurance
transaction, for a cash purchase price of $128,420,000. As part of this
transaction, the Company acquired assets having an aggregate fair value
of $5,718,227,000, composed primarily of invested assets totaling
$5,715,010,000. Liabilities assumed in this acquisition totaled
$5,831,266,000, including $3,460,503,000 of fixed annuity reserves,
$2,308,742,000 of universal life reserves and $24,011,000 of guaranteed
investment contract reserves. The excess of the purchase price over the
fair value of net assets received amounted to $104,509,000 at December
31, 1999, after adjustment for the transfer of the New York business to
First SunAmerica Life Insurance Company (see below), and is included in
Deferred Acquisition Costs in the accompanying consolidated balance
sheet. The income statement for the year ended December 31, 1999
includes the impact of the Acquisition. On a pro forma basis, assuming
the Acquisition had been consummated on October 1, 1996, the beginning
of the prior-year periods discussed within, investment income would have
been $517,606,000 and net income would have been $158,887,000 for the
year ended September 30, 1998. For the year ended September 30, 1997,
investment income would have been $506,399,000 and net income would have
been $83,372,000.
Included in the block of business acquired from MBL Life were policies
whose owners are residents of New York State ("the New York Business").
On July 1, 1999, the New York Business was acquired by the Company's New
York affiliate, First SunAmerica Life Insurance Company ("FSA"), via an
assumption reinsurance agreement, and the remainder of the business
converted to assumption reinsurance in the Company, which superseded the
coinsurance agreement. As part of this transfer, invested assets equal
to $678,272,000, life reserves equal to $282,247,000, group pension
reserves equal to $406,118,000, and other net assets of $10,093,000 were
transferred to FSA.
The $128,420,000 purchase price was allocated between the Company and
FSA based on the estimated future gross profits of the two blocks of
business. The portion allocated to FSA was $10,000,000.
As part of the Acquisition, the Company received $242,473,000 from MBL
to pay policy enhancements guaranteed by the MBL Life rehabilitation
agreement to policyholders meeting certain requirements. A primary
requirement was that annuity policyholders must have converted their MBL
Life policy to a policy type currently offered by the Company or one of
its affiliates by December 31, 1999. The enhancements are to be credited
in four installments on January 1, 2000, June 30, 2001, June 30, 2002
and June 30, 2003, to eligible policies still active on each of those
dates. On December 31, 1999, the enhancement reserve for such payments
totaled $223,032,000, which includes interest accredited at 6.75% on the
original reserve. Of this amount, $69,836,000 was credited to
policyholders in February 2000 for the January 1, 2000 installment.
-27-
<PAGE> 58
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale by major category follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
AT DECEMBER 31, 1999:
Securities of the United States
Government $ 24,688,000 $ 22,884,000
Mortgage-backed securities 1,505,729,000 1,412,134,000
Securities of public utilities 114,933,000 107,596,000
Corporate bonds and notes 1,676,006,000 1,596,469,000
Redeemable preferred stocks 4,375,000 4,547,000
Other debt securities 829,997,000 809,539,000
-------------- --------------
Total $4,155,728,000 $3,953,169,000
============== ==============
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 6,033,000 $ 6,272,000
Mortgage-backed securities 546,790,000 553,990,000
Securities of public utilities 208,074,000 205,119,000
Corporate bonds and notes 2,624,330,000 2,616,073,000
Redeemable preferred stocks 6,125,000 7,507,000
Other debt securities 861,388,000 859,879,000
-------------- --------------
Total $4,252,740,000 $4,248,840,000
============== ==============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 84,377,000 $ 88,239,000
Mortgage-backed securities 569,613,000 584,007,000
Securities of public utilities 108,431,000 106,065,000
Corporate bonds and notes 883,890,000 884,209,000
Redeemable preferred stocks 6,125,000 6,888,000
Other debt securities 282,427,000 285,346,000
-------------- --------------
Total $1,934,863,000 $1,954,754,000
============== ==============
</TABLE>
-28-
<PAGE> 59
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale by contractual maturity,
as of December 31, 1999, follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
Due in one year or less $ 199,679,000 $ 199,198,000
Due after one year through
five years 552,071,000 530,289,000
Due after five years through
ten years 1,243,298,000 1,187,044,000
Due after ten years 654,951,000 624,504,000
Mortgage-backed securities 1,505,729,000 1,412,134,000
-------------- --------------
Total $4,155,728,000 $3,953,169,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above due to prepayments and redemptions.
-29-
<PAGE> 60
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. 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, 1999:
Securities of the United States
Government $ 47,000 $ (1,852,000)
Mortgage-backed securities 3,238,000 (96,832,000)
Securities of public utilities 13,000 (7,350,000)
Corporate bonds and notes 10,222,000 (89,758,000)
Redeemable preferred stocks 172,000 ---
Other debt securities 4,275,000 (24,734,000)
------------- -------------
Total $ 17,967,000 $(220,526,000)
============= =============
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 239,000 $ ---
Mortgage-backed securities 9,398,000 (2,198,000)
Securities of public utilities 926,000 (3,881,000)
Corporate bonds and notes 22,227,000 (30,484,000)
Redeemable preferred stocks 1,382,000 ---
Other debt securities 2,024,000 (3,533,000)
------------- -------------
Total $ 36,196,000 $ (40,096,000)
============= =============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 3,862,000 $ ---
Mortgage-backed securities 15,103,000 (709,000)
Securities of public utilities 2,420,000 (4,786,000)
Corporate bonds and notes 31,795,000 (31,476,000)
Redeemable preferred stocks 763,000 ---
Other debt securities 5,235,000 (2,316,000)
------------- -------------
Total $ 59,178,000 $ (39,287,000)
============= =============
</TABLE>
There were no gross unrealized gains on equity securities available for
sale at December 31, 1999. Gross unrealized gains on equity securities
available for sale aggregated $10,000 and $54,000 at December 31, 1998
and September 30, 1998, respectively. There were no unrealized losses at
December 31, 1999, December 31, 1998, or September 30, 1998.
-30-
<PAGE> 61
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
Gross realized investment gains and losses on sales of investments are
as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended -------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C>
BONDS, NOTES AND
REDEEMABLE PREFERRED
STOCKS:
Realized gains $ 8,333,000 $ 6,669,000 $ 28,086,000 $ 22,179,000
Realized losses (26,113,000) (5,324,000) (4,627,000) (25,310,000)
COMMON STOCKS:
Realized gains 4,239,000 12,000 337,000 4,002,000
Realized losses (11,000) (9,000) --- (312,000)
OTHER INVESTMENTS:
Realized gains --- 573,000 8,824,000 2,450,000
IMPAIRMENT WRITEDOWNS (6,068,000) (1,650,000) (13,138,000) (20,403,000)
------------ ------------ ------------ ------------
Total net realized
investment gains
and losses $(19,620,000) $ 271,000 $ 19,482,000 $(17,394,000)
============ ============ ============ ============
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended ---------------------------------
December 31,1999 December 31, 1998 1998 1997
---------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Short-term investments $ 61,764,000 $ 4,649,000 $ 12,524,000 $ 11,780,000
Bonds, notes and
redeemable preferred
stocks 348,373,000 39,660,000 156,140,000 163,038,000
Mortgage loans 47,480,000 7,904,000 29,996,000 17,632,000
Common stocks 7,000 --- 34,000 16,000
Real estate (525,000) 13,000 (467,000) (296,000)
Cost-method partnerships 6,631,000 352,000 24,311,000 6,725,000
Other invested assets 58,223,000 1,700,000 (572,000) 11,864,000
------------- ------------- ------------- -------------
Total investment
income $ 521,953,000 $ 54,278,000 $ 221,966,000 $ 210,759,000
============= ============= ============= =============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to
$10,014,000 for the year ended December 31, 1999, $500,000 for the three
months ended December 31, 1998, $1,910,000 for the year ended September
30, 1998 and $2,050,000 for the year ended September 30, 1997, and are
included in General and Administrative Expenses in the income statement.
Investment expenses have increased significantly because the size of the
portfolio increased as a result of the Acquisition.
-31-
<PAGE> 62
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
At December 31, 1999, the following investments exceeded 10% of the
Company's consolidated shareholder's equity of $935,126,000:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Provident Institutional Funds Inc.
Del Treasury Trust Fund 113,000,000 113,000,000
Salomon Smith Barney Repurchase
Agreement 97,000,000 97,000,000
------------ ------------
Total $210,000,000 $210,000,000
============ ============
</TABLE>
At December 31, 1999, mortgage loans were collateralized by properties
located in 29 states, with loans totaling approximately 36% of the
aggregate carrying value of the portfolio secured by properties located
in California and approximately 11% by properties located in New York.
No more than 8% of the portfolio was secured by properties in any other
single state.
At December 31, 1999, bonds, notes and redeemable preferred stocks
included $377,149,000 of bonds and notes not rated investment grade. The
Company had no material concentrations of non-investment-grade assets at
December 31, 1999.
At December 31, 1999, the carrying value of investments in default as to
the payment of principal or interest was $1,529,000, composed of
$870,000 of bonds and $659,000 of mortgage loans. Such nonperforming
investments had an estimated fair value of $872,000.
As a component of its asset and liability management strategy, the
Company utilizes Swap Agreements to match assets more closely to
liabilities. Swap Agreements are agreements to exchange with a
counterparty interest rate payments of differing character (for example,
variable-rate payments exchanged for fixed-rate payments) based on an
underlying principal balance (notional principal) to hedge against
interest rate changes. The Company typically utilizes Swap Agreements to
create a hedge that effectively converts floating-rate assets and
liabilities to fixed-rate instruments. At December 31, 1999, the Company
had one outstanding Swap Agreement with a notional principal amount of
$21,538,000, which matures in December 2024. The net interest paid
amounted to $215,000 for the year ended December 31, 1999, $54,000 for
the three months ended December 31, 1998, $278,000 for the year ended
September 30, 1998, and $125,000 for the year ended September 30, 1997,
and is included in Interest Expense on Guaranteed Investment Contracts
in the income statement.
At December 31, 1999, $7,418,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory
requirements.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to
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<PAGE> 63
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
reasonable estimates of the fair value of only the Company's financial
instruments. The disclosures do not address the value of the Company's
recognized and unrecognized nonfinancial assets (including its real
estate investments and other invested assets except for cost-method
partnerships) and liabilities or the value of anticipated future
business. The Company does not plan to sell most of its assets or settle
most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Selling expenses
and potential taxes are not included. The estimated fair value amounts
were determined using available market information, current pricing
information and various valuation methodologies. If quoted market prices
were not readily available for a financial instrument, management
determined an estimated fair value. Accordingly, the estimates may not
be indicative of the amounts the financial instruments could be
exchanged for in a current or future market transaction.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
CASH AND SHORT-TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based
principally on independent pricing services, broker quotes and other
independent information.
MORTGAGE LOANS: Fair values are primarily determined by discounting
future cash flows to the present at current market rates, using expected
prepayment rates.
SEPARATE ACCOUNT SEED MONEY: Carrying value is the market value of the
underlying securities.
COMMON STOCKS: Fair value is based principally on independent pricing
services, broker quotes and other independent information.
COST-METHOD PARTNERSHIPS: Fair value of limited partnerships accounted
for by using the cost method is based upon the fair value of the net
assets of the partnerships as determined by the general partners.
VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS: Variable annuity
assets are carried at the market value of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts are
assigned a fair value equal to current net surrender value. Annuitized
contracts are valued based on the present value of future cash flows at
current pricing rates.
RESERVES FOR UNIVERSAL LIFE INSURANCE CONTRACTS: Universal life and
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<PAGE> 64
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
single life premium life contracts are assigned a fair value equal to
current net surrender value.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the
present value of future cash flows at current pricing rates and is net
of the estimated fair value of a hedging Swap Agreement, determined from
independent broker quotes.
RECEIVABLE FROM/PAYABLE TO BROKERS FOR PURCHASES OF SECURITIES: Such
obligations represent transactions of a short-term nature for which the
carrying value is considered a reasonable estimate of fair value.
MODIFIED COINSURANCE DEPOSIT LIABILITY: Fair value is based on
discounting the liability by the appropriate cost of funds, and
therefore approximates carrying value.
VARIABLE ANNUITY LIABILITIES RELATED TO SEPARATE ACCOUNTS: Fair values
of contracts in the accumulation phase are based on net surrender
values. Fair values of contracts in the payout phase are based on the
present value of future cash flows at assumed investment rates.
SUBORDINATED NOTES PAYABLE TO AFFILIATES: Fair value is estimated based
on the quoted market prices for similar issues.
-34-
<PAGE> 65
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Company's financial instruments at
December 31, 1999, December 31, 1998 and September 30, 1998 compared
with their respective carrying values, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
--------------- ---------------
<S> <C> <C>
DECEMBER 31, 1999:
ASSETS:
Cash and short-term investments $ 475,162,000 $ 475,162,000
Bonds, notes and redeemable
preferred stocks 3,953,169,000 3,953,169,000
Mortgage loans 674,679,000 673,781,000
Separate account seed money 141,499,000 141,499,000
Common stocks --- ---
Cost-method partnerships 4,009,000 9,114,000
Variable annuity assets held in
separate accounts 19,949,145,000 19,949,145,000
Receivable from brokers for sales
of securities 54,760,000 54,760,000
LIABILITIES:
Reserves for fixed annuity contracts 3,254,895,000 3,053,660,000
Reserves for universal life insurance
contracts 1,978,332,000 1,853,442,000
Reserves for guaranteed investment
contracts 305,570,000 305,570,000
Payable to brokers for purchases
of securities 139,000 139,000
Modified coinsurance deposit
liability 140,757,000 140,757,000
Variable annuity liabilities related
to separate accounts 19,949,145,000 19,367,834,000
Subordinated notes payable to
affiliates 37,816,000 38,643,000
=============== ===============
DECEMBER 31, 1998:
ASSETS:
Cash and short-term investments $ 3,303,454,000 $ 3,303,454,000
Bonds, notes and redeemable
preferred stocks 4,248,840,000 4,248,840,000
Mortgage loans 388,780,000 411,230,000
Separate account seed money --- ---
Common stocks 1,419,000 1,419,000
Cost-method partnerships 4,577,000 12,802,000
Variable annuity assets held in
separate accounts 13,767,213,000 13,767,213,000
Receivable from brokers for sales
of securities 22,826,000 22,826,000
LIABILITIES:
Reserves for fixed annuity contracts 5,500,157,000 5,437,045,000
Reserves for universal life
insurance contracts 2,339,194,000 2,339,061,000
Reserves for guaranteed investment
contracts 306,461,000 306,461,000
Variable annuity liabilities related
to separate accounts 13,767,213,000 13,287,434,000
Subordinated notes payable to
affiliates 209,367,000 211,058,000
=============== ===============
</TABLE>
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<PAGE> 66
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
Carrying Fair
Value Value
--------------- ---------------
<S> <C> <C>
SEPTEMBER 30, 1998:
ASSETS:
Cash and short-term investments $ 333,735,000 $ 333,735,000
Bonds, notes and redeemable
preferred stocks 1,954,754,000 1,954,754,000
Mortgage loans 391,448,000 415,981,000
Separate account seed money --- ---
Common stocks 169,000 169,000
Cost-method partnerships 4,403,000 12,744,000
Variable annuity assets held in
separate accounts 11,133,569,000 11,133,569,000
Receivable from brokers for sales
of securities 23,904,000 23,904,000
LIABILITIES:
Reserves for fixed annuity contracts 2,189,272,000 2,116,874,000
Reserves for guaranteed investment
contracts 282,267,000 282,267,000
Payable to brokers for purchases
of securities 50,957,000 50,957,000
Variable annuity liabilities related
to separate accounts 11,133,569,000 10,696,607,000
Subordinated notes payable to
affiliates 39,182,000 41,272,000
=============== ===============
</TABLE>
7. SUBORDINATED NOTES PAYABLE TO AFFILIATES
At December 31, 1998, Subordinated Notes Payable to Affiliates included
a surplus note (the "Note") payable to its immediate parent, SunAmerica
Life Insurance Company (the "Parent"), for $170,436,000. On June 30,
1999, the Parent cancelled the Note and forgave the interest earned.
Funds received were reclassified to Additional Paid-in Capital in the
accompanying consolidated balance sheet.
Subordinated notes and accrued interest payable to affiliates totaled
$37,816,000 at interest rates ranging from 8% to 9% at December 31,
1999, and require principal payments of $5,400,000 in 2000, $10,000,000
in 2001 and $22,060,000 in 2002.
8. REINSURANCE
The business which was assumed from MBL Life is subject to existing
reinsurance ceded agreements. At December 31, 1998, the maximum
retention on any single life was $2,000,000, and a total credit of
$5,057,000 was taken against the life insurance reserves, representing
predominantly yearly renewable term reinsurance. In order to limit even
further the exposure to loss on any single insured and to recover an
additional portion of the benefits paid over such limits, the Company
entered into a reinsurance treaty effective January 1, 1999 under which
the Company retains no more than $100,000 of risk on any
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<PAGE> 67
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. REINSURANCE (Continued)
one insured life. At December 31, 1999, a total reserve credit of
$3,560,000 was taken against the life insurance reserves. With respect
to these coinsurance agreements, the Company could become liable for all
obligations of the reinsured policies if the reinsurers were to become
unable to meet the obligations assumed under the respective reinsurance
agreements. The Company monitors its credit exposure with respect to
these agreements. However, due to the high credit ratings of the
reinsurers, such risks are considered to be minimal.
On August 1, 1999, the Company entered into a modified coinsurance
transaction, approved by the Arizona Department of Insurance, which
involved the ceding of approximately $6,000,000,000 of variable
annuities to ANLIC Insurance Company (Hawaii), a non-affiliated stock
life insurer. The transaction is accounted for as reinsurance for
statutory reporting purposes. As part of the transaction, the Company
received cash in the amount of $150,000,000 and recorded a corresponding
deposit liability. As payments are made to the reinsurer, the deposit
liability is relieved. The cost of this program, $3,621,000 in 1999, is
classified as General and Administrative Expenses in the income
statement.
On August 11, 1998, the Company entered into a similar modified
coinsurance transaction, approved by the Arizona Department of
Insurance, which involved the ceding of approximately $6,000,000,000 of
variable annuities to ANLIC Insurance Company (Cayman), a Cayman Islands
stock life insurance company, effective December 31, 1997. As a part of
this transaction, the Company received cash amounting to approximately
$188,700,000, and recorded a corresponding reduction of DAC related to
the coinsured annuities. As payments were made to the reinsurer, the
reduction of DAC was relieved. Certain expenses related to this
transaction were charged directly to DAC amortization in the income
statement. The net effect of this transaction in the income statement
was not material.
On December 31, 1998, the Company recaptured this business. As part of
this recapture, the Company paid cash of $170,436,000 and recorded an
increase in DAC of $167,202,000 with the balance of $3,234,000 being
recorded as DAC amortization in the income statement.
9. CONTINGENT LIABILITIES
The Company has entered into four agreements in which it has provided
liquidity support for certain short-term securities of municipalities
and non-profit organizations by agreeing to purchase such securities in
the event there is no other buyer in the short-term marketplace. In
return the Company receives a fee. The maximum liability under these
guarantees is $359,400,000. The Company's Parent currently shares in the
liabilities and fees of two of these agreements. The Parent's share in
these liabilities will increase by $150,000,000 subsequent to December
31, 1999, and the Company's share will decrease to $209,400,000.
Management does not anticipate any material future losses with respect
to these liquidity support facilities.
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<PAGE> 68
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. CONTINGENT LIABILITIES (Continued)
The Company is involved in various kinds of litigation common to its
businesses. These cases are in various stages of development and, based
on reports of counsel, management believes that provisions made for
potential losses relating to such litigation are adequate and any
further liabilities and costs will not have a material adverse impact
upon the Company's financial position, results of operations or cash
flows.
The Company's current financial strength and counterparty credit ratings
from Standard & Poor's are based in part on a guarantee (the
"Guarantee") of the Company's insurance policy obligations by American
Home Assurance Company ("American Home"), a subsidiary of AIG, and a
member of an AIG intercompany pool, and the belief that the Company is
viewed as a strategically important member of AIG. The Guarantee is
unconditional and irrevocable, and policyholders have the right to
enforce the Guarantee directly against American Home.
The Company's current financial strength rating from Moody's is based in
part on a support agreement between the Company and AIG (the "Support
Agreement"), pursuant to which AIG has agreed that AIG will cause the
Company to maintain a policyholder's surplus of not less than $1 million
or such greater amount as shall be sufficient to enable the Company to
perform its obligations under any policy issued by it. The Support
Agreement also provides that if the Company needs funds not otherwise
available to it to make timely payment of its obligations under policies
issued by it, AIG will provide such funds at the request of the Company.
The Support Agreement is not a direct or indirect guarantee by AIG to
any person of any obligation of the Company. AIG may terminate the
Support Agreement with respect to outstanding obligations of the Company
only under circumstances where the Company attains, without the benefit
of the Support Agreement, a financial strength rating equivalent to that
held by the Company with the benefit of the support agreement.
Policyholders have the right to cause the Company to enforce its rights
against AIG and, if the Company fails or refuses to take timely action
to enforce the Support Agreement or if the Company defaults in any claim
or payment owed to such policyholder when due, have the right to enforce
the Support Agreement directly against AIG.
American Home does not publish financial statements, although it files
statutory annual and quarterly reports with the New York State Insurance
Department, where such reports are available to the public. AIG is a
reporting company under the Securities Exchange Act of 1934, and
publishes annual reports on Form 10-K and quarterly reports on Form
10-Q, which are available from the Securities and Exchange Commission.
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<PAGE> 69
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value
Common Stock. At December 31, 1999, December 31, 1998 and September 30,
1998, 3,511 shares were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended ---------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
ADDITIONAL PAID-IN
CAPITAL:
Beginning balances $ 378,674,000 $ 308,674,000 $ 308,674,000 $ 280,263,000
Reclassification of
Note by the Parent 170,436,000 --- --- ---
Return of capital (170,500,000) --- --- ---
Capital contributions
received 114,250,000 70,000,000 --- 28,411,000
Contribution of
partnership
investment 150,000 --- --- ---
------------- ------------- ------------- -------------
Ending balances $ 493,010,000 $ 378,674,000 $ 308,674,000 $ 308,674,000
============= ============= ============= =============
RETAINED EARNINGS:
Beginning balances $ 366,460,000 $ 332,069,000 $ 244,628,000 $ 207,002,000
Net income 184,698,000 34,391,000 138,641,000 63,126,000
Dividends paid --- --- (51,200,000) (25,500,000)
------------- ------------- ------------- -------------
Ending balances $ 551,158,000 $ 366,460,000 $ 332,069,000 $ 244,628,000
============= ============= ============= =============
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(LOSS):
Beginning balances $ (1,619,000) $ 8,415,000 $ 18,405,000 $ (5,521,000)
Change in net
unrealized gains
(losses) on debt
securities
available for sale (198,659,000) (23,791,000) (23,818,000) 57,463,000
Change in net
unrealized gains
(losses) on equity
securities
available for sale (10,000) (44,000) (950,000) (55,000)
Change in adjustment
to deferred
acquisition costs 28,000,000 8,400,000 9,400,000 (20,600,000)
Tax effects of net
changes $ 59,735,000 5,401,000 5,378,000 (12,882,000)
------------- ------------- ------------- -------------
Ending balances $(112,553,000) $ (1,619,000) $ 8,415,000 $ 18,405,000
============= ============= ============= =============
</TABLE>
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<PAGE> 70
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. SHAREHOLDER'S EQUITY (Continued)
Dividends that the Company may pay to its shareholder in any year
without prior approval of the Arizona Department of Insurance are
limited by statute. The maximum amount of dividends which can be paid to
shareholders of insurance companies domiciled in the state of Arizona
without obtaining the prior approval of the Insurance Commissioner is
limited to the lesser of either 10% of the preceding year's statutory
surplus or the preceding year's statutory net gain from operations less
equity in undistributed income or loss of subsidiaries included in net
investment income if, after paying the dividend, the Company's capital
and surplus would be adequate in the opinion of the Arizona Department
of Insurance. No dividends were paid in the year ended December 31, 1999
or the three months ended December 31, 1998. Dividends in the amounts of
$51,200,000 and $25,500,000 were paid on June 4, 1998 and April 1, 1997,
respectively. Dividends of $69,000,000 were paid on March 1, 2000.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the year ended
December 31, 1999 was $261,539,000. The statutory net loss for the year
ended December 31, 1998 was $98,766,000. The statutory net income for
the year ended December 31, 1997 totaled $74,407,000. The Company's
statutory capital and surplus totaled $694,621,000 at December 31, 1999,
$443,394,000 at December 31, 1998 and $537,542,000 at September 30,
1998.
On June 30, 1999, the Parent cancelled the Company's surplus note
payable of $170,436,000 and funds received were reclassified to
Additional Paid-in Capital in the accompanying consolidated balance
sheet. On September 9, 1999, the Company paid $170,500,000 to its Parent
as a return of capital. On September 14, 1999 and October 25, 1999, the
Parent contributed additional capital to the Company in the amounts of
$54,250,000 and $60,000,000, respectively. Also on December 31, 1999,
the Parent made a $150,000 contribution of partnership investments.
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<PAGE> 71
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. INCOME TAXES
The components of the provisions for federal income taxes on pretax
income consist of the following:
<TABLE>
<CAPTION>
Net Realized
Investment
Gains (Losses) Operations Total
------------- ------------- -------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Currently payable $ 6,846,000 $ 196,192,000 $ 203,038,000
Deferred (13,713,000) (86,300,000) (100,013,000)
------------- ------------- -------------
Total income tax expense
(benefit) $ (6,867,000) $ 109,892,000 $ 103,025,000
============= ============= =============
THREE MONTHS ENDED DECEMBER 31, 1998:
Currently payable $ 740,000 $ 3,421,000 $ 4,161,000
Deferred (620,000) 16,565,000 15,945,000
------------- ------------- -------------
Total income tax expense $ 120,000 $ 19,986,000 $ 20,106,000
============= ============= =============
YEAR ENDED SEPTEMBER 30, 1998:
Currently payable $ 4,221,000 $ 32,743,000 $ 36,964,000
Deferred (550,000) 34,637,000 34,087,000
------------- ------------- -------------
Total income tax expense $ 3,671,000 $ 67,380,000 $ 71,051,000
============= ============= =============
YEAR ENDED SEPTEMBER 30, 1997:
Currently payable $ (3,635,000) $ 50,828,000 $ 47,193,000
Deferred (2,258,000) (13,766,000) (16,024,000)
------------- ------------- -------------
Total income tax expense
(benefit) $ (5,893,000) $ 37,062,000 $ 31,169,000
============= ============= =============
</TABLE>
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<PAGE> 72
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. INCOME TAXES (Continued)
Income taxes computed at the United States federal income tax rate of
35% and income taxes provided differ as follows:
<TABLE>
<CAPTION> Years Ended September 30,
Year Ended Three Months Ended ---------------------------------
December 31, 1999 December 31, 1998 1998 1997
---------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Amount computed at
statutory rate $ 100,703,000 $ 19,074,000 $ 73,392,000 $ 33,003,000
Increases (decreases)
resulting from:
Amortization of
differences between
book and tax bases
of net assets
acquired 609,000 146,000 460,000 666,000
State income taxes,
net of federal tax
benefit 7,231,000 1,183,000 5,530,000 1,950,000
Dividends-received
deduction (3,618,000) (345,000) (7,254,000) (4,270,000)
Tax credits (1,346,000) (1,296,000) (318,000)
Other, net (554,000) 48,000 219,000 138,000
------------- ------------- ------------- -------------
Total income tax
expense $ 103,025,000 $ 20,106,000 $ 71,051,000 $ 31,169,000
============= ============= ============= =============
</TABLE>
For United States federal income tax purposes, certain amounts from life
insurance operations are accumulated in a memorandum policyholders'
surplus account and are taxed only when distributed to shareholders or
when such account exceeds prescribed limits. The accumulated
policyholders' surplus was $14,300,000 at December 31, 1999. The Company
does not anticipate any transactions which would cause any part of this
surplus to be taxable.
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<PAGE> 73
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. 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>
December 31, December 31, September 30,
1999 1998 1998
------------- ------------- -------------
<S> <C> <C> <C>
DEFERRED TAX LIABILITIES:
Investments $ 23,208,000 $ 18,174,000 $ 17,643,000
Deferred acquisition costs 272,697,000 222,943,000 223,392,000
State income taxes 5,203,000 3,143,000 2,873,000
Other liabilities 18,658,000 13,906,000 144,000
Net unrealized gains on debt
and equity securities
available for sale --- --- 4,531,000
------------- ------------- -------------
Total deferred tax liabilities $ 319,766,000 258,166,000 248,583,000
------------- ------------- -------------
DEFERRED TAX ASSETS:
Contractholder reserves (261,781,000) (148,587,000) (149,915,000)
Guaranty fund assessments (2,454,000) (2,935,000) (2,910,000)
Deferred income (48,371,000) --- ---
Other assets --- --- ---
Net unrealized losses on
debt and equity securities
available for sale (60,605,000) (872,000) ---
------------- ------------- -------------
Total deferred tax assets (373,211,000) (152,394,000) (152,825,000)
------------- ------------- -------------
Deferred income taxes $ (53,445,000) $ 105,772,000 $ 95,758,000
============= ============= =============
</TABLE>
12. COMPREHENSIVE INCOME
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") which requires the reporting of comprehensive income in addition
to net income from operations. Comprehensive income is a more inclusive
financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income. The adoption of SFAS 130 did not have an
impact on the Company's results of operations, financial condition or
liquidity. Comprehensive income amounts for the prior years are
disclosed to conform to the current year's presentation.
-43-
<PAGE> 74
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. COMPREHENSIVE INCOME (Continued)
The before tax, after tax, and tax benefit (expense) amounts for each
component of the increase or decrease in unrealized losses or gains on
debt and equity securities available for sale for both the current and
prior periods are summarized below:
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------- ------------- -------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1999:
Net unrealized losses on debt and
equity securities available
for sale identified in the
current period $(217,259,000) $ 76,041,000 $(141,218,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 34,690,000 (12,141,000) 22,549,000
------------- ------------- -------------
Subtotal (182,569,000) 63,900,000 (118,669,000)
------------- ------------- -------------
Reclassification adjustment for:
Net realized losses included
in net income 18,590,000 (6,507,000) 12,083,000
Related change in deferred
acquisition costs (6,690,000) 2,342,000 (4,348,000)
------------- ------------- -------------
Total reclassification
adjustment 11,900,000 (4,165,000) 7,735,000
------------- ------------- -------------
Total other comprehensive
loss $(170,669,000) $ 59,735,000 $(110,934,000)
============= ============= =============
THREE MONTHS ENDED DECEMBER 31,
1998:
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period $ (24,345,000) $ 8,521,000 $ (15,824,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 8,579,000 (3,004,000) 5,575,000
------------- ------------- -------------
Subtotal (15,766,000) 5,517,000 (10,249,000)
------------- ------------- -------------
Reclassification adjustment for:
Net realized losses included
in net income 510,000 (179,000) 331,000
Related change in deferred
acquisition costs (179,000) 63,000 (116,000)
------------- ------------- -------------
Total reclassification
adjustment 331,000 (116,000) 215,000
------------- ------------- -------------
Total other comprehensive loss $ (15,435,000) $ 5,401,000 $ (10,034,000)
============= ============= =============
</TABLE>
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<PAGE> 75
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMPREHENSIVE INCOME (Continued)
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------ ------------ ------------
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
1998:
Net unrealized losses on debt and
equity securities available
for sale identified in the
current period $(10,281,000) $ 3,598,000 $ (6,683,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 4,086,000 (1,430,000) 2,656,000
------------ ------------ ------------
Subtotal (6,195,000) 2,168,000 (4,027,000)
------------ ------------ ------------
Reclassification adjustment for:
Net realized losses included
in net income (14,487,000) 5,070,000 (9,417,000)
Related change in deferred
acquisition costs 5,314,000 (1,860,000) 3,454,000
------------ ------------ ------------
Total reclassification
adjustment (9,173,000) 3,210,000 (5,963,000)
------------ ------------ ------------
Total other comprehensive loss $(15,368,000) $ 5,378,000 $ (9,990,000)
============ ============ ============
YEAR ENDED SEPTEMBER 30,
1997:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $ 40,575,000 $(14,201,000) $ 26,374,000
Decrease in deferred acquisition
cost adjustment identified in
the current period (15,031,000) 5,262,000 (9,769,000)
------------ ------------ ------------
Subtotal 25,544,000 (8,939,000) 16,605,000
------------ ------------ ------------
Reclassification adjustment for:
Net realized losses included
in net income 16,832,000 (5,891,000) 10,941,000
Related change in deferred
acquisition costs (5,569,000) 1,949,000 (3,620,000)
------------ ------------ ------------
Total reclassification
adjustment 11,263,000 (3,942,000) 7,321,000
------------ ------------ ------------
Total other comprehensive
income $ 36,807,000 $(12,881,000) $ 23,926,000
============ ============ ============
</TABLE>
-45-
<PAGE> 76
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED-PARTY MATTERS
The Company pays commissions to five affiliated companies: SunAmerica
Securities, Inc.; Advantage Capital Corp.; Financial Services Corp.;
Sentra Securities Corp.; and Spelman & Co. Inc. Commissions paid to
these broker-dealers totaled $37,435,000 in the year ended December 31,
1999, $6,977,000 in the three months ended December 31, 1998, and
$32,946,000 in the year ended September 30, 1998 and $25,492,000 in the
year ended September 30, 1997. These broker-dealers, when combined with
the Company's wholly owned broker-dealer, represent a significant
portion of the Company's business, amounting to approximately 35.6% of
premiums in the year ended December 31, 1999 and the three months ended
December 31, 1998, 33.6% in the year ended September 30, 1998 and 36.1%
in the year ended September 30, 1997.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from its Parent and SunAmerica,
an indirect parent. Amounts paid for such services totaled $105,059,000
for the year ended December 31, 1999, $21,593,000 for the three months
ended December 31, 1998, $84,975,000 for the year ended September 30,
1998 and $86,116,000 for the year ended September 30, 1997. The
marketing component of such costs during these periods amounted to
$53,385,000, $9,906,000, $39,482,000 and $31,968,000, respectively, and
are deferred and amortized as part of Deferred Acquisition Costs. The
other components of such costs are included in General and
Administrative Expenses in the income statement.
At December 31, 1999 and 1998, the Company held bonds with a fair value
of $50,000 and $84,965,000, respectively, which were issued by its
affiliate, International Lease Finance Corp. The amortized cost of these
bonds is equal to the fair value. At September 30, 1998 and 1997, the
Company held no investments issued by any of its affiliates.
During the year ended December 31, 1999, the Company transferred
short-term investments and bonds to FSA with an aggregate fair value of
$634,596,000 as part of the transfer of the New York Business from the
Acquisition (See Note 4). The Company recorded a net realized loss of
$5,144,000 on the transfer of these assets.
During the year ended December 31, 1999, the Company purchased certain
invested assets from SunAmerica for cash equal to their current market
value of $161,159,000.
For the three months ended December 31, 1998, the Company made no
purchases or sales of invested assets from or to the Parent or its
affiliates.
During the year ended September 30, 1998, the Company sold various
invested assets to SunAmerica for cash equal to their current market
value of $64,431,000. The Company recorded a net gain aggregating
$16,388,000 on such transactions.
During the year ended September 30, 1998, the Company purchased certain
invested assets from SunAmerica, the Parent and CalAmerica Life
Insurance Company ("CalAmerica"), a wholly-owned subsidiary of the
Parent that has since merged into the Parent, for cash equal to their
current market value which aggregated $20,666,000, $10,468,000
-46-
<PAGE> 77
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. RELATED-PARTY MATTERS (Continued)
and $61,000, respectively.
During the year ended September 30, 1997, the Company sold various
invested assets to the Parent and CalAmerica for cash equal to their
current market value of $15,776,000 and $15,000, respectively. The
Company recorded a net gain aggregating $276,000 on such transactions.
During the year ended September 30, 1997, the Company purchased certain
invested assets from the Parent and CalAmerica for cash equal to their
current market value of $8,717,000 and $284,000, respectively.
14. BUSINESS SEGMENTS
Effective January 1, 1999, the Company adopted Statement of Financial
Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information," which requires the reporting
of certain financial information by business segment. For the purpose of
providing segment information, the Company has three business segments:
annuity operations, asset management operations and broker-dealer
operations. The annuity operations focus primarily on the marketing of
variable annuity products and the administration of the universal life
business acquired from MBL Life in 1998 (See Note 4). The Company's
variable annuity products offer investors a broad spectrum of fund
alternatives, with a choice of investment managers, as well as
guaranteed fixed-rate account options. The Company earns fee income on
investments in the variable options and net investment income on the
fixed-rate options. The asset management operations are conducted by the
Company's registered investment advisor subsidiary, SunAmerica Asset
Management Corp. ("SunAmerica Asset Management"), and its related
distributor. SunAmerica Asset Management earns fee income by
distributing and managing a diversified family of mutual funds, by
managing certain subaccounts within the Company's variable annuity
products and by providing professional management of individual,
corporate and pension plan portfolios. The broker-dealer operations are
conducted by the Company's broker-dealer subsidiary, Royal Alliance
Associates, Inc. ("Royal"), which sells proprietary annuities and mutual
funds, as well as a full range of non-proprietary investment products.
-47-
<PAGE> 78
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
Asset Broker
Annuity Management Dealer
Operations Operations Operations Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Total assets $ 26,649,310,000 $ 150,966,000 $ 74,218,000 $ 26,874,494,000
Expenditures for long-
lived assets --- 2,563,000 2,728,000 5,291,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 790,697,000 54,652,000 41,185,000 886,534,000
Intersegment revenue --- 62,998,000 8,193,000 71,191,000
---------------- ---------------- ---------------- ----------------
Total revenue 790,697,000 117,650,000 49,378,000 957,725,000
================ ================ ================ ================
Investment income 511,914,000 9,072,000 967,000 521,953,000
Interest expense (354,263,000) (3,085,000) (389,000) (357,737,000)
Depreciation and
amortization expense (95,408,000) (23,249,000) (3,234,000) (121,891,000)
Income from unusual
transactions --- --- --- ---
Pretax income 199,333,000 67,779,000 20,611,000 287,723,000
Income tax expense (65,445,000) (28,247,000) (9,333,000) (103,025,000)
Income from extraordinary
items --- --- --- ---
Net income $ 133,888,000 $ 39,532,000 $ 11,278,000 $ 184,698,000
================ ================ ================ ================
Significant non-cash
items $ --- $ --- $ --- $ ---
================ ================ ================ ================
</TABLE>
-48-
<PAGE> 79
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
Asset Broker-
Annuity Management Dealer
Operations Operations Operations Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED
DECEMBER 31, 1998:
Total assets $ 22,982,323,000 $ 104,473,000 $ 59,537,000 $ 23,146,333,000
Expenditures for long-
lived assets --- 328,000 1,005,000 1,333,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 103,626,000 11,103,000 9,605,000 124,334,000
Intersegment revenue --- 11,871,000 1,674,000 13,545,000
---------------- ---------------- ---------------- ----------------
Total revenue 103,626,000 22,974,000 11,279,000 137,879,000
================ ================ ================ ================
Investment income 53,149,000 971,000 158,000 54,278,000
Interest expense (26,842,000) (752,000) (101,000) (27,695,000)
Depreciation and
amortization expense (23,236,000) (4,204,000) (561,000) (28,001,000)
Income from unusual
transactions --- --- --- ---
Pretax income 36,961,000 13,092,000 4,444,000 54,497,000
Income tax expense (12,978,000) (5,181,000) (1,947,000) (20,106,000)
Income from extraordinary
items --- --- --- ---
Net income $ 23,983,000 $ 7,911,000 $ 2,497,000 $ 34,391,000
================ ================ ================ ================
Significant non-cash
item $ --- $ --- $ --- $ ---
================ ================ ================ ================
</TABLE>
-49-
<PAGE> 80
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
Asset Broker-
Annuity Management Dealer
Operations Operations Operations Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1998:
Total assets $ 14,389,922,000 $ 104,476,000 $ 55,870,000 $ 14,550,268,000
Expenditures for long-
lived assets --- 477,000 5,289,000 5,766,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 410,011,000 34,396,000 39,729,000 484,136,000
Intersegment revenue --- 40,040,000 7,634,000 47,674,000
---------------- ---------------- ---------------- ----------------
Total revenue 410,011,000 74,436,000 47,363,000 531,810,000
================ ================ ================ ================
Investment income 218,044,000 2,839,000 1,083,000 221,966,000
Interest expense (131,980,000) (2,709,000) (405,000) (135,094,000)
Depreciation and
amortization expense (60,731,000) (14,780,000) (1,770,000) (77,281,000)
Income from unusual
transactions --- --- --- ---
Pretax income 148,084,000 39,207,000 22,401,000 209,692,000
Income tax expense (44,706,000) (15,670,000) (10,675,000) (71,051,000)
Income from extraordinary
items --- --- --- ---
Net income $ 103,378,000 $ 23,537,000 $ 11,726,000 $ 138,641,000
================ ================ ================ ================
Significant non-cash
items $ --- $ --- $ --- $ ---
================ ================ ================ ================
</TABLE>
-50-
<PAGE> 81
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
Asset Broker-
Annuity Management Dealer
Operations Operations Operations Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1997:
Total assets $ 12,440,311,000 $ 81,518,000 $ 51,400,000 $ 12,573,229,000
Expenditures for long-
lived assets --- 804,000 4,527,000 5,331,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 317,061,000 28,655,000 31,678,000 377,394,000
Intersegment revenue --- 22,790,000 6,327,000 29,117,000
---------------- ---------------- ---------------- ----------------
Total revenue 317,061,000 51,445,000 38,005,000 406,511,000
================ ================ ================ ================
Investment income 208,382,000 1,445,000 932,000 210,759,000
Interest expense (134,416,000) (2,737,000) (405,000) (137,558,000)
Depreciation and
amortization expense (55,675,000) (16,357,000) (689,000) (72,721,000)
Income from unusual
transactions --- --- --- ---
Pretax income 58,291,000 19,299,000 16,705,000 94,295,000
Income tax expense (16,318,000) (7,850,000) (7,001,000) (31,169,000)
Income from extraordinary
items --- --- --- ---
Net income $ 41,973,000 $ 11,449,000 $ 9,704,000 $ 63,126,000
================ ================ ================ ================
Significant non-cash
items $ --- $ --- $ --- $ ---
================ ================ ================ ================
</TABLE>
Substantially all of the Company's revenues are derived from the United
States.
The accounting policies of the segments are as described in the summary
of significant accounting policies (Note 2). The Parent makes
expenditures for long-lived assets for the annuity operations segment
and allocates depreciation of such assets to the annuity operations
segment. The annuity operations and asset management operations pay
commissions to Royal for sales of their proprietary products.
Approximately 90% of these commission payments are in turn paid to
registered representatives of Royal, with the remainder of the revenue
reflected in Net Retained Commissions. In addition, premiums from
variable annuity policies sold by the Company are held in trusts that
are owned by the Company, although the assets directly support
policyholder obligations. SunAmerica Asset Management is the Investment
Advisor for all of the subaccounts of these trusts, for which service it
receives fees which are direct expenses of the trusts. Such fees are
reported as Variable Annuity Fees in the consolidated income statement
and are shown as intersegment revenues in the business segments
disclosure above, although there is no corresponding expense on the
books of any segment.
The annuity operations segment's products are marketed through over 800
independent broker-dealers, full-service securities firms and financial
institutions, in addition to the Company's affiliated broker-dealers.
Those independent selling organizations
-51-
<PAGE> 82
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
responsible for over 10% of sales represented 12.0% of sales in the year
ended December 31, 1999, 14.7% in the three months ended December 31,
1998, 16.8% in the year ended September 30, 1998, and 18.4% and 10.2% in
the year ended September 30, 1997. Registered representatives sell
products for the Company's asset management operations and sell products
offered by the broker-dealer operations. Revenue from any single
registered representative or group of registered representatives do not
compose a material percentage of total revenues in either the asset
management operations or the broker-dealer operations.
15. SUBSEQUENT EVENTS
On March 1, 2000, the Company paid dividends of $69,000,000 to the
Parent.
-52-
<PAGE> 83
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 II A-CLASS Variable Annuity)
In our opinion, the accompanying statement of net assets, including the schedule
of portfolio investments, and the related statements of operations and changes
in net assets present fairly, in all material respects, the financial position
of the Variable Accounts constituting Variable Annuity Account Seven (Portion
Relating to the POLARIS II A-CLASS Variable Annuity), a separate account of
Anchor National Life Insurance Company (the "Separate Account") at April 30,
2000, the results of their operations and the changes in their net assets for
the period from inception to April 30, 2000, in conformity with accounting
principles generally accepted in the United States. 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 auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities owned at
April 30, 2000 by correspondence with the custodian, provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
June 19, 2000
53
<PAGE> 84
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS II A-CLASS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
APRIL 30, 2000
<TABLE>
<CAPTION>
Government International
Capital and Diversified Global Aggressive Venture
Appreciation Growth Quality Bond Equities Equities Growth Value
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series
Trust, at market value $3,180,278 $1,122,960 $ 108,797 $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica
Series Trust, at market value 0 0 0 302,432 954,953 697,487 4,104,084
Liabilities 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------------
Net Assets $3,180,278 $1,122,960 $ 108,797 $ 302,432 $ 954,953 $ 697,487 $4,104,084
==============================================================================================
Accumulation units outstanding 226,697 93,965 10,743 30,627 81,597 49,324 353,493
==============================================================================================
Unit value of accumulation units $ 14.03 $ 11.95 $ 10.13 $ 9.87 $ 11.70 $ 14.14 $ 11.61
==============================================================================================
</TABLE>
See accompanying notes to financial statements.
54
<PAGE> 85
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS II A-CLASS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
APRIL 30, 2000
(Continued)
<TABLE>
<CAPTION>
Federated Putnam MFS Growth Alliance Growth- Asset SunAmerica
Value Growth and Income Growth Income Allocation Balanced
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series
Trust, at market value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica
Series Trust, at market value 500,927 2,015,749 1,197,632 4,978,877 3,823,235 152,777 1,030,378
Liabilities 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------------
Net Assets $ 500,927 $2,015,749 $1,197,632 $4,978,877 $3,823,235 $ 152,777 $1,030,378
==============================================================================================
Accumulation units outstanding 49,962 177,965 114,191 423,804 335,543 14,781 93,619
==============================================================================================
Unit value of accumulation units $ 10.03 $ 11.33 $ 10.49 $ 11.75 $ 11.39 $ 10.34 $ 11.01
==============================================================================================
</TABLE>
See accompanying notes to financial statements.
55
<PAGE> 86
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS II A-CLASS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
APRIL 30, 2000
(Continued)
<TABLE>
<CAPTION>
International
MFS Total Worldwide High-Yield Global Corporate Growth and
Return Utility High Income Bond Bond Bond Income
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series
Trust, at market value $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica
Series Trust, at market value 513,605 90,902 39,622 131,342 11,720 35,029 1,433,493
Liabilities 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------------
Net Assets $ 513,605 $ 90,902 $ 39,622 $ 131,342 $ 11,720 $ 35,029 $1,433,493
==============================================================================================
Accumulation units outstanding 50,264 9,175 3,802 13,058 1,149 3,500 132,522
==============================================================================================
Unit value of accumulation units $ 10.22 $ 9.91 $ 10.42 $ 10.06 $ 10.20 $ 10.01 $ 10.82
==============================================================================================
</TABLE>
See accompanying notes to financial statements.
56
<PAGE> 87
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS II A-CLASS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
APRIL 30, 2000
(Continued)
<TABLE>
<CAPTION>
Emerging Real "Dogs" of MFS Mid-Cap Cash
Markets Estate Wall Street Growth Management
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series
Trust, at market value $ 0 $ 0 $ 0 $ 0 $ 0 $ 4,412,035
Investments in SunAmerica Series
Trust, at market value 188,660 26,496 32,148 417,469 38,119 22,717,136
Liabilities 0 0 0 0 0 0
--------------------------------------------------------------------------------------
Net Assets $ 188,660 $ 26,496 $ 32,148 $ 417,469 $ 38,119 $27,129,171
======================================================================================
Accumulation units outstanding 16,356 2,461 3,381 30,505 3,737
=======================================================================
Unit value of accumulation units $ 11.53 $ 10.77 $ 9.51 $ 13.69 $ 10.20
=======================================================================
</TABLE>
See accompanying notes to financial statements.
57
<PAGE> 88
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS II A-CLASS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
APRIL 30, 2000
<TABLE>
<CAPTION>
Market Value Market
Portfolio Investment Shares Per Share Value Cost
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ANCHOR SERIES TRUST:
Capital Appreciation Portfolio 52,878 $ 60.14 $ 3,180,278 $ 3,105,336
Growth Portfolio 27,837 40.34 1,122,960 1,069,370
Government and Quality Bond Portfolio 7,805 13.94 108,797 108,499
----------- -----------
4,412,035 4,283,205
----------- -----------
SUNAMERICA SERIES TRUST:
International Diversified Equities Portfolio 20,782 14.55 302,432 316,455
Global Equities Portfolio 42,818 22.30 954,953 943,364
Aggressive Growth Portfolio 30,136 23.14 697,487 776,287
Venture Value Portfolio 140,225 29.27 4,104,084 3,810,192
Federated Value Portfolio 31,160 16.08 500,927 496,838
Putnam Growth Portfolio 74,179 27.17 2,015,749 1,992,709
MFS Growth and Income Portfolio 86,288 13.88 1,197,632 1,177,858
Alliance Growth Portfolio 126,200 39.45 4,978,877 4,762,182
Growth-Income Portfolio 115,260 33.17 3,823,235 3,694,531
Asset Allocation Portfolio 10,140 15.07 152,777 149,356
SunAmerica Balanced Portfolio 53,137 19.39 1,030,378 1,035,586
MFS Total Return Portfolio 35,398 14.51 513,605 497,524
Utility Portfolio 6,491 14.00 90,902 94,318
Worldwide High Income Portfolio 3,684 10.76 39,622 38,720
High-Yield Bond Portfolio 12,585 10.44 131,342 132,954
Global Bond Portfolio 1,061 11.04 11,720 11,623
Corporate Bond Portfolio 3,141 11.15 35,029 35,242
International Growth and Income Portfolio 110,524 12.97 1,433,493 1,447,452
Emerging Markets Portfolio 18,896 9.98 188,660 204,784
Real Estate Portfolio 2,875 9.22 26,496 24,800
"Dogs" of Wall Street Portfolio 3,827 8.40 32,148 30,724
MFS Mid-Cap Growth Portfolio 23,757 17.57 417,469 400,714
Cash Management Portfolio 3,439 11.08 38,119 37,678
----------- -----------
22,717,136 22,111,891
----------- -----------
$27,129,171 $26,395,096
=========== ===========
</TABLE>
See accompanying notes to financial statements.
58
<PAGE> 89
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS II A-CLASS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION TO
APRIL 30, 2000
<TABLE>
<CAPTION>
Government International
Capital and Diversified Global Aggressive Venture
Appreciation Growth Quality Bond Equities Equities Growth Value
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains
distributions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
----------------------------------------------------------------------------------------------
Total investment income 0 0 0 0 0 0 0
----------------------------------------------------------------------------------------------
Expenses:
Mortality risk charge (1,479) (520) (38) (136) (359) (297) (1,956)
Guarantee death benefit charge (772) (271) (20) (71) (187) (155) (1,021)
Expense risk charge (2,250) (791) (58) (208) (546) (453) (2,977)
Distribution expense charge (964) (338) (24) (89) (233) (194) (1,275)
----------------------------------------------------------------------------------------------
Total expenses (5,465) (1,920) (140) (504) (1,325) (1,099) (7,229)
----------------------------------------------------------------------------------------------
Net investment income (loss) (5,465) (1,920) (140) (504) (1,325) (1,099) (7,229)
----------------------------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 50,464 3,079 98 1,597 258 980 637
Cost of shares sold (40,593) (3,008) (98) (1,649) (242) (954) (615)
----------------------------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions 9,871 71 0 (52) 16 26 22
----------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 0 0 0 0 0 0 0
End of period 74,942 53,590 298 (14,023) 11,589 (78,800) 293,892
----------------------------------------------------------------------------------------------
Change in net unrealized
appreciation/depreciation of
investments 74,942 53,590 298 (14,023) 11,589 (78,800) 293,892
----------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 79,348 $ 51,741 $ 158 $ (14,579) $ 10,280 $ (79,873) $ 286,685
==============================================================================================
</TABLE>
See accompanying notes to financial statements.
59
<PAGE> 90
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS II A-CLASS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION TO
APRIL 30, 2000
(Continued)
<TABLE>
<CAPTION>
Federated Putnam MFS Growth Alliance Growth- Asset SunAmerica
Value Growth and Income Growth Income Allocation Balanced
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains
distributions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
---------------------------------------------------------------------------------------------
Total investment income 0 0 0 0 0 0 0
---------------------------------------------------------------------------------------------
Expenses:
Mortality risk charge (202) (1,113) (730) (2,288) (1,690) (69) (467)
Guarantee death benefit charge (106) (581) (381) (1,194) (882) (36) (244)
Expense risk charge (308) (1,693) (1,111) (3,481) (2,572) (105) (710)
Distribution expense charge (132) (725) (476) (1,491) (1,102) (45) (304)
---------------------------------------------------------------------------------------------
Total expenses (748) (4,112) (2,698) (8,454) (6,246) (255) (1,725)
---------------------------------------------------------------------------------------------
Net investment income (loss) (748) (4,112) (2,698) (8,454) (6,246) (255) (1,725)
---------------------------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 3,513 14,811 20,681 38,448 49,926 201 2,968
Cost of shares sold (3,588) (9,897) (13,210) (36,709) (48,176) (182) (2,952)
---------------------------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions (75) 4,914 7,471 1,739 1,750 19 16
---------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 0 0 0 0 0 0 0
End of period 4,089 23,040 19,774 216,695 128,704 3,421 (5,208)
---------------------------------------------------------------------------------------------
Change in net unrealized
appreciation/depreciation of
investments 4,089 23,040 19,774 216,695 128,704 3,421 (5,208)
---------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 3,266 $ 23,842 $ 24,547 $ 209,980 $ 124,208 $ 3,185 $ (6,917)
=============================================================================================
</TABLE>
See accompanying notes to financial statements.
60
<PAGE> 91
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS II A-CLASS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION TO
APRIL 30, 2000
(Continued)
<TABLE>
<CAPTION>
International
MFS Total Worldwide High-Yield Global Corporate Growth and
Return Utility High Income Bond Bond Bond Income
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains
distributions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 48,900
---------------------------------------------------------------------------------------------
Total investment income 0 0 0 0 0 0 48,900
---------------------------------------------------------------------------------------------
Expenses:
Mortality risk charge (211) (41) (28) (78) (5) (9) (772)
Guarantee death benefit charge (110) (21) (15) (41) (2) (5) (403)
Expense risk charge (320) (62) (43) (119) (7) (13) (1,175)
Distribution expense charge (137) (27) (18) (50) (3) (5) (504)
---------------------------------------------------------------------------------------------
Total expenses (778) (151) (104) (288) (17) (32) (2,854)
---------------------------------------------------------------------------------------------
Net investment income (loss) (778) (151) (104) (288) (17) (32) 46,046
---------------------------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 3,736 150 261 1,575 15 727 6,452
Cost of shares sold (3,733) (142) (247) (1,561) (15) (730) (6,785)
---------------------------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions 3 8 14 14 0 (3) (333)
---------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 0 0 0 0 0 0 0
End of period 16,081 (3,416) 902 (1,612) 97 (213) (13,959)
---------------------------------------------------------------------------------------------
Change in net unrealized
appreciation/depreciation of
investments 16,081 (3,416) 902 (1,612) 97 (213) (13,959)
---------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 15,306 $ (3,559) $ 812 $ (1,886) $ 80 $ (248) $ 31,754
=============================================================================================
</TABLE>
See accompanying notes to financial statements.
61
<PAGE> 92
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS II A-CLASS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION TO
APRIL 30, 2000
(Continued)
<TABLE>
<CAPTION>
Emerging Real "Dogs" of MFS Mid-Cap Cash
Markets Estate Wall Street Growth Management
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains
distributions $ 0 $ 0 $ 0 $ 985 $ 0 $ 49,885
-------------------------------------------------------------------------------
Total investment income 0 0 0 985 0 49,885
-------------------------------------------------------------------------------
Expenses:
Mortality risk charge (82) (8) (13) (156) (34) (12,781)
Guarantee death benefit charge (43) (4) (7) (82) (18) (6,672)
Expense risk charge (125) (12) (20) (238) (51) (19,448)
Distribution expense charge (53) (5) (9) (102) (21) (8,326)
-------------------------------------------------------------------------------
Total expenses (303) (29) (49) (578) (124) (47,227)
-------------------------------------------------------------------------------
Net investment income (loss) (303) (29) (49) 407 (124) 2,658
-------------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions:
Proceeds from shares sold 3,323 22 10,407 3,934 44,595 262,858
Cost of shares sold (3,219) (21) (9,568) (3,852) (44,223) (235,969)
-------------------------------------------------------------------------------
Net realized gains (losses) from
securities transactions 104 1 839 82 372 26,889
-------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments:
Beginning of period 0 0 0 0 0 0
End of period (16,124) 1,696 1,424 16,755 441 734,075
-------------------------------------------------------------------------------
Change in net unrealized appreciation/
depreciation of investments (16,124) 1,696 1,424 16,755 441 734,075
-------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ (16,323) $ 1,668 $ 2,214 $ 17,244 $ 689 $ 763,622
===============================================================================
</TABLE>
See accompanying notes to financial statements.
62
<PAGE> 93
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS II A-CLASS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION TO
APRIL 30, 2000
<TABLE>
<CAPTION>
Government International
Capital and Diversified Global Aggressive Venture
Appreciation Growth Quality Bond Equities Equities Growth Value
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (5,465) $ (1,920) $ (140) $ (504) $ (1,325) $ (1,099) $ (7,229)
Net realized gains (losses) from
securities transactions 9,871 71 0 (52) 16 26 22
Change in net unrealized
appreciation/depreciation of
investments 74,942 53,590 298 (14,023) 11,589 (78,800) 293,892
---------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations 79,348 51,741 158 (14,579) 10,280 (79,873) 286,685
---------------------------------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 2,167,870 623,778 87,118 287,653 641,308 672,754 2,660,852
Cost of units redeemed (8,581) (7,832) 0 0 (2,049) (2,772) (15,329)
Net transfers 941,641 455,273 21,521 29,358 305,414 107,378 1,171,876
---------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from capital
transactions 3,100,930 1,071,219 108,639 317,011 944,673 777,360 3,817,399
---------------------------------------------------------------------------------------------
Increase (decrease) in net assets 3,180,278 1,122,960 108,797 302,432 954,953 697,487 4,104,084
Net assets at beginning of period 0 0 0 0 0 0 0
---------------------------------------------------------------------------------------------
Net assets at end of period $ 3,180,278 $ 1,122,960 $ 108,797 $ 302,432 $ 954,953 $ 697,487 $ 4,104,084
=============================================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 160,160 55,021 8,632 27,746 55,468 42,092 248,459
Units redeemed (604) (688) 0 0 (171) (181) (1,395)
Units transferred 67,141 39,632 2,111 2,881 26,300 7,413 106,429
---------------------------------------------------------------------------------------------
Increase (decrease) in units
outstanding 226,697 93,965 10,743 30,627 81,597 49,324 353,493
Beginning units 0 0 0 0 0 0 0
---------------------------------------------------------------------------------------------
Ending units 226,697 93,965 10,743 30,627 81,597 49,324 353,493
=============================================================================================
</TABLE>
See accompanying notes to financial statements.
63
<PAGE> 94
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS II A-CLASS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION TO
APRIL 30, 2000
(Continued)
<TABLE>
<CAPTION>
Federated Putnam MFS Growth Alliance Growth- Asset SunAmerica
Value Growth and Income Growth Income Allocation Balanced
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (748) $ (4,112) $ (2,698) $ (8,454) $ (6,246) $ (255) $ (1,725)
Net realized gains (losses) from
securities transactions (75) 4,914 7,471 1,739 1,750 19 16
Change in net unrealized
appreciation/depreciation of
investments 4,089 23,040 19,774 216,695 128,704 3,421 (5,208)
-----------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations 3,266 23,842 24,547 209,980 124,208 3,185 (6,917)
-----------------------------------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 361,056 1,524,562 865,186 3,477,842 2,789,113 62,103 760,488
Cost of units redeemed (1,741) (6,686) (3,412) (16,243) (13,457) (260) (8,514)
Net transfers 138,346 474,031 311,311 1,307,298 923,371 87,749 285,321
-----------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from capital
transactions 497,661 1,991,907 1,173,085 4,768,897 3,699,027 149,592 1,037,295
-----------------------------------------------------------------------------------------------
Increase (decrease) in net assets 500,927 2,015,749 1,197,632 4,978,877 3,823,235 152,777 1,030,378
Net assets at beginning of period 0 0 0 0 0 0 0
-----------------------------------------------------------------------------------------------
Net assets at end of period $ 500,927 $ 2,015,749 $ 1,197,632 $ 4,978,877 $ 3,823,235 $ 152,777 $ 1,030,378
===============================================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 36,172 136,817 84,252 310,600 253,475 6,202 68,730
Units redeemed (172) (582) (326) (1,424) (1,213) (25) (768)
Units transferred 13,962 41,730 30,265 114,628 83,281 8,604 25,657
-----------------------------------------------------------------------------------------------
Increase (decrease) in units
outstanding 49,962 177,965 114,191 423,804 335,543 14,781 93,619
Beginning units 0 0 0 0 0 0 0
-----------------------------------------------------------------------------------------------
Ending units 49,962 177,965 114,191 423,804 335,543 14,781 93,619
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
64
<PAGE> 95
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS II A-CLASS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION TO
APRIL 30, 2000
(Continued)
<TABLE>
<CAPTION>
International
MFS Total Worldwide High-Yield Global Corporate Growth and
Return Utility High Income Bond Bond Bond Income
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (778) $ (151) $ (104) $ (288) $ (17) $ (32) $ 46,046
Net realized gains (losses) from
securities transactions 3 8 14 14 0 (3) (333)
Change in net unrealized
appreciation/depreciation of
investments 16,081 (3,416) 902 (1,612) 97 (213) (13,959)
-----------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations 15,306 (3,559) 812 (1,886) 80 (248) 31,754
-----------------------------------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 296,228 73,095 35,912 105,193 708 11,649 1,020,846
Cost of units redeemed (3,622) 0 (166) (1,331) 0 0 (3,628)
Net transfers 205,693 21,366 3,064 29,366 10,932 23,628 384,521
-----------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from capital
transactions 498,299 94,461 38,810 133,228 11,640 35,277 1,401,739
-----------------------------------------------------------------------------------------------
Increase (decrease) in net assets 513,605 90,902 39,622 131,342 11,720 35,029 1,433,493
Net assets at beginning of period 0 0 0 0 0 0 0
-----------------------------------------------------------------------------------------------
Net assets at end of period $ 513,605 $ 90,902 $ 39,622 $ 131,342 $ 11,720 $ 35,029 $ 1,433,493
===============================================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 29,994 7,085 3,528 10,312 71 1,156 96,760
Units redeemed (370) 0 (16) (131) 0 0 (343)
Units transferred 20,640 2,090 290 2,877 1,078 2,344 36,105
-----------------------------------------------------------------------------------------------
Increase (decrease) in units
outstanding 50,264 9,175 3,802 13,058 1,149 3,500 132,522
Beginning units 0 0 0 0 0 0 0
-----------------------------------------------------------------------------------------------
Ending units 50,264 9,175 3,802 13,058 1,149 3,500 132,522
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
65
<PAGE> 96
VARIABLE ANNUITY ACCOUNT SEVEN
(Portion Relating to the POLARIS II A-CLASS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION TO
APRIL 30, 2000
(Continued)
<TABLE>
<CAPTION>
Emerging Real "Dogs" of MFS Mid-Cap Cash
Markets Estate Wall Street Growth Management
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (303) $ (29) $ (49) $ 407 $ (124) $ 2,658
Net realized gains (losses) from
securities transactions 104 1 839 82 372 26,889
Change in net unrealized
appreciation/depreciation of
investments (16,124) 1,696 1,424 16,755 441 734,075
--------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations (16,323) 1,668 2,214 17,244 689 763,622
--------------------------------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 135,059 19,300 11,160 336,200 65,546 19,092,579
Cost of units redeemed 0 0 0 (528) 0 (96,151)
Net transfers 69,924 5,528 18,774 64,553 (28,116) 7,369,121
--------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from capital
transactions 204,983 24,828 29,934 400,225 37,430 26,365,549
--------------------------------------------------------------------------------------------
Increase (decrease) in net assets 188,660 26,496 32,148 417,469 38,119 27,129,171
Net assets at beginning of period 0 0 0 0 0 0
--------------------------------------------------------------------------------------------
Net assets at end of period $ 188,660 $ 26,496 $ 32,148 $ 417,469 $ 38,119 $ 27,129,171
============================================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 10,749 1,928 1,276 25,709 6,543 1,688,937
Units redeemed 0 0 0 (39) 0 (8,448)
Units transferred 5,607 533 2,105 4,835 (2,806) 645,732
--------------------------------------------------------------------------------------------
Increase (decrease) in units
outstanding 16,356 2,461 3,381 30,505 3,737 2,326,221
Beginning units 0 0 0 0 0 0
--------------------------------------------------------------------------------------------
Ending units 16,356 2,461 3,381 30,505 3,737 2,326,221
============================================================================================
</TABLE>
See accompanying notes to financial statements.
66
<PAGE> 97
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS II A-CLASS 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 II
A-Class 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 American International Group, Inc.
("AIG"), an international insurance and financial services company. At
December 31, 1998, the Company was a wholly owned indirect subsidiary of
SunAmerica Inc., a Maryland Corporation. On January 1, 1999, SunAmerica
Inc. merged with and into AIG in a tax-free reorganization that has been
treated as a pooling of interests for accounting purposes. Thus,
SunAmerica Inc. ceased to exist on that date. However, immediately prior
to the effectiveness of the merger, substantially all of the net assets
of SunAmerica Inc. were contributed to a newly formed subsidiary of AIG
named SunAmerica Holdings, Inc., a Delaware corporation. SunAmerica
Holdings, Inc. subsequently changed its name to SunAmerica Inc. 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 payments allocated to any of seven 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 Real Estate Portfolio was February 7, 2000.
The inception date of the "Dogs" of Wall Street Portfolio was January 3,
2000. The inception date of the Corporate Bond Portfolio was December
27, 1999. The inception date of the Government and Quality Bond and
Utility Portfolios was December 16, 1999. The inception date of the
Global Bond, High-Yield Bond, and Cash Management Portfolios was
November 29, 1999. The inception date of the International Diversified
Equities Portfolio was November 23, 1999. The inception date of the
Asset Allocation Portfolio was November 12, 1999. The inception date of
the Worldwide High Income and Emerging Markets Portfolios was November
10, 1999. The inception date of the Global Equities Portfolio was
November 8,
67
<PAGE> 98
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS II A-CLASS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1999. The inception date of the Growth, Putnam Growth, MFS Growth &
Income, Federated Value, Aggressive Growth, MFS Mid-Cap Growth, and
Growth-Income Portfolios was November 1, 1999. The inception date of the
Capital Appreciation, Alliance Growth, Venture Value, SunAmerica
Balanced, International Growth & Income, and MFS Total Return Portfolios
was October 28, 1999.
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 that demonstrate the potential for appreciation and
engage in transactions in foreign currencies.
68
<PAGE> 99
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS II A-CLASS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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 MFS GROWTH AND INCOME PORTFOLIO seeks reasonable current income and
long-term growth of capital and income. This portfolio invests primarily
in equity securities.
The ALLIANCE GROWTH PORTFOLIO seeks long term growth of capital. This
portfolio invests primarily in common stocks or 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 that
demonstrate the potential for appreciation and/or dividends.
The ASSET ALLOCATION PORTFOLIO seeks high total return (including income
and capital gains) consistent with long-term preservation of capital.
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.
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.
69
<PAGE> 100
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS II A-CLASS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The MFS TOTAL RETURN PORTFOLIO seeks reasonable current income,
long-term capital growth and conservation of capital. This portfolio
invests primarily in common stocks and fixed-income securities, with an
emphasis on income-producing securities which appear to have some
potential for capital enhancement.
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 (junk bonds) of
issuers located throughout the world.
The HIGH-YIELD BOND PORTFOLIO seeks a high level of current income and,
secondarily, 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 (junk
bonds) 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, 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.
70
<PAGE> 101
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS II A-CLASS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 MFS MID-CAP GROWTH PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in equity securities of medium-sized
companies, generally with market capitalizations between $1 billion and
$5 billion, that its Subadviser believes have above-average growth
potential.
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.
INCOME PROTECTOR FEATURE: The Income Protector Feature is a "safety net"
which offers the ability to receive a guaranteed fixed minimum
retirement income when the participant switches to the Income Phase. The
Income Protector is a standard feature at no additional charge. The
minimum guaranteed income is determined upon calculation of the "income
benefit base." The "income benefit base" calculation is equal to the
initial purchase payment 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.
71
<PAGE> 102
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS II A-CLASS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS
Charges and deductions are applied against the current value of the
Separate Account and are paid as follows:
WITHDRAWAL CHARGE: The contract value may be withdrawn at any time
during the accumulation period. Generally, purchase payments are not
subject to a withdrawal charge. However, a withdrawal charge of 0.50%
applies to gross purchase payments of $1,000,000 or more if invested
less than 12 months at the time of withdrawal.
SALES CHARGE: An up-front sales charge is applied against the gross
purchase payments made to the contract. The sales charge equals a
percentage of each gross purchase payment and varies with the investment
amount in accordance with the table shown below:
<TABLE>
<CAPTION>
Sales Charge as a
Percentage of Gross Purchase
Investment Amount Payment Invested
-------------------------------------------------------------
<S> <C>
Less than $ 50,000 5.75%
$ 50,000-$ 99,999 4.75%
$100,000-$249,999 3.50%
$250,000-$499,999 2.50%
$500,000-$999,999 2.00%
$1,000,000 or more 0.50%
</TABLE>
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.
72
<PAGE> 103
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS II A-CLASS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
CHARGES AND DEDUCTIONS (continued)
MORTALITY RISK, GUARANTEE DEATH BENEFIT AND EXPENSE RISK CHARGES: The
Company deducts mortality risk, guarantee death benefit and expense risk
charges, which total to an annual rate of 0.70% of the net asset value
of each portfolio, computed on a daily basis. The mortality risk charge
of 0.23% 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. The guarantee
death benefit and expense risk charges of 0.12% and 0.35%, respectively,
are compensation 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.
73
<PAGE> 104
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS II A-CLASS 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 shares acquired and the aggregate proceeds
from shares sold during the period from inception to April 30, 2000
consist of the following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Portfolio Investment Acquired Shares Sold
-------------------- --------------------------------
<S> <C> <C>
ANCHOR TRUST:
Capital Appreciation Portfolio $3,145,929 $ 50,464
Growth Portfolio 1,072,378 3,079
Government and Quality Bond Portfolio 108,597 98
SUNAMERICA TRUST:
International Diversified Equities Portfolio 318,104 1,597
Global Equities Portfolio 943,606 258
Aggressive Growth Portfolio 777,241 980
Venture Value Portfolio 3,810,807 637
Federated Value Portfolio 500,426 3,513
Putnam Growth Portfolio 2,002,606 14,811
MFS Growth and Income Portfolio 1,191,068 20,681
Alliance Growth Portfolio 4,798,891 38,448
Growth-Income Portfolio 3,742,707 49,926
Asset Allocation Portfolio 149,538 201
SunAmerica Balanced Portfolio 1,038,538 2,968
MFS Total Return Portfolio 501,257 3,736
Utility Portfolio 94,460 150
Worldwide High Income Portfolio 38,967 261
High-Yield Bond Portfolio 134,515 1,575
Global Bond Portfolio 11,638 15
Corporate Bond Portfolio 35,972 727
International Growth and Income Portfolio 1,454,237 6,452
Emerging Markets Portfolio 208,003 3,323
Real Estate Portfolio 24,821 22
"Dogs" of Wall Street Portfolio 40,292 10,407
MFS Mid-Cap Growth Portfolio 404,566 3,934
Cash Management Portfolio 81,901 44,595
</TABLE>
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.
74
<PAGE> 105
VARIABLE ANNUITY ACCOUNT SEVEN
(PORTION RELATING TO THE POLARIS II A-CLASS 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.
40
