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As filed with the Securities and Exchange Commission on April 12, 1996
Registration No. 33-87864
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 3
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ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
California 6311 86-0198983
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Number)
organization)
1 SunAmerica Center
Los Angeles, California 90067-6022
(310) 772-6000
(Address, including zip code, and telephone number,
including area code, or registrant's
principal executive offices)
Susan L. Harris, Esquire
Anchor National Life Insurance Company
1 SunAmerica Center
Los Angeles, California 90067-6022
(310) 772-6000
(Name, address, including zip code, and telephone number, including area code of
agent for service)
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Appropriate date of commencement of proposed sale to the public:
As soon as practicable after effectiveness of the Registration Statement
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. /X/
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
shall determine.
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CROSS REFERENCE SHEET
ANCHOR NATIONAL LIFE INSURANCE COMPANY
Cross Reference Sheet Pursuant to
Regulation S-K, Item 501(b)
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Form S-1 Item Number and Caption Heading in Prospectus
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1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus............... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus.............. Inside Front Cover
3. Summary of Information, Risk
Factors and Ratio of Earnings
to Fixed Charges....................... Front Cover; Summary; Fixed
Account Options
4. Use of Proceeds........................ Description of the
Company, the Separate
Account and the General
Account; Fixed Account
Options; Purchases,
Withdrawals and Contract
Value
5. Determination of Offering Price........ Not Applicable
6. Dilution............................... Not Applicable
7. Selling Security Holders............... Not Applicable
8. Plan of Distribution................... Purchases, Withdrawals
and Contract Value
9. Description of Securities to be
Registered............................. Description of the
Contracts; Fixed
Account Options;
Contract Charges;
Annuity Period
10. Interests of Named Experts
and Counsel............................ Not Applicable
11. Information with Respect to
the Registrant......................... Description of the
Company, the Separate
Account and the General
Account; Additional
Information about the
Company; Financial
Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities........................ Not Applicable
</TABLE>
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FLEXIBLE PAYMENT GROUP DEFERRED
ANNUITY CONTRACTS
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ISSUED BY
ANCHOR NATIONAL LIFE INSURANCE COMPANY
IN CONNECTION WITH
VARIABLE SEPARATE ACCOUNT
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CORRESPONDENCE ACCOMPANIED ALL OTHER CORRESPONDENCE,
BY PAYMENTS ANNUITY SERVICE CENTER:
P.O. BOX 100330 P.O. BOX 54299
PASADENA, CALIFORNIA 91189-0001 LOS ANGELES, CALIFORNIA 90054-0299
TELEPHONE NUMBER: (800) 445-SUN2
</TABLE>
The Contracts offered by this prospectus provide for accumulation of
Contract Values and payment of annuity benefits on a fixed and/or variable
basis. The Contracts are available for Qualified Plans and Nonqualified Plans
(See "Taxes").
Purchase Payments under the Contracts may be allocated among the Portfolios
of the Separate Account, and/or to one or more of the Fixed Account options
funded through the Company's General Account. Each of the 22 Portfolios of the
Separate Account is invested solely in shares of either (1) one of the four
Underlying Funds of Anchor Series Trust or (2) one of the eighteen Underlying
Funds of SunAmerica Series Trust:
ANCHOR SERIES TRUST
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* CAPITAL APPRECIATION PORTFOLIO * NATURAL RESOURCES PORTFOLIO
* GROWTH PORTFOLIO * GOVERNMENT AND QUALITY BOND PORTFOLIO
</TABLE>
SUNAMERICA SERIES TRUST
<TABLE>
<S> <C>
* INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO * SUNAMERICA BALANCED PORTFOLIO
* GLOBAL EQUITIES PORTFOLIO * BALANCED/PHOENIX INVESTMENT COUNSEL
* AGGRESSIVE GROWTH PORTFOLIO PORTFOLIO
* VENTURE VALUE PORTFOLIO * UTILITY PORTFOLIO
* FEDERATED VALUE PORTFOLIO * WORLDWIDE HIGH INCOME PORTFOLIO
* PROVIDENT GROWTH PORTFOLIO * HIGH-YIELD BOND PORTFOLIO
* GROWTH/PHOENIX INVESTMENT COUNSEL PORTFOLIO * GLOBAL BOND PORTFOLIO
* ALLIANCE GROWTH PORTFOLIO * CORPORATE BOND PORTFOLIO
* GROWTH-INCOME PORTFOLIO (FORMERLY THE FIXED INCOME PORTFOLIO)
* ASSET ALLOCATION PORTFOLIO * CASH MANAGEMENT PORTFOLIO
</TABLE>
The Fixed Account options pay fixed rates of interest declared by the
Company for specified Guarantee Periods from the date amounts are allocated to
the Fixed Account. As of the date of this prospectus, one, three, five, seven
and ten year options were available in most states. Please contact the Company
or the financial representative from whom this prospectus was obtained for
information as to currently available guarantee options. Declared interest rates
will vary from time to time but will not be less than 3% per annum, and, once
established for a particular allocation, will not change during the course of
the Guarantee Period. However, withdrawals, transfers or annuitizations from the
three, five, seven and ten year Fixed Account options prior to the end of the
applicable Guarantee Period(s) will generally result in the imposition of a
Market Value Adjustment. (See "Fixed Account Options -- Market Value
Adjustment").
This prospectus concisely sets forth the information a prospective investor
ought to know before investing. PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN
IT FOR YOUR FUTURE REFERENCE. Participants bear the complete investment risk for
all Purchase Payments allocated to the Separate Account. With respect to
allocations to the Fixed Account, Participants also bear the risk that amounts
prematurely withdrawn, transferred or annuitized from, the General Account prior
to the end of their respective Guarantee Periods could result in the Participant
receiving less than Purchase Payments so allocated.
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.
THE CONTRACTS OFFERED BY THIS PROSPECTUS INVOLVE RISK, INCLUDING LOSS OF
PRINCIPAL, AND ARE NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES.
This Prospectus is dated June , 1996.
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ADDITIONAL INFORMATION:
The Company has filed registration statements (the "Registration
Statements") with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended, relating to the Contracts offered
by this prospectus. This prospectus has been filed as a part of the Registration
Statements and does not contain all of the information set forth in the
Registration Statements and exhibits thereto, and reference is hereby made to
such Registration Statements and exhibits for further information relating to
the Company, the Separate Account, and the Contracts. The Company is subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended, and in accordance therewith files reports and other information with
the Commission. Such reports and other information filed by the Company can be
inspected and copied; and copies can be obtained at the public reference
facilities of the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at the regional offices in Chicago and New York. The addresses of
these regional offices are as follows: 500 West Madison Street, Chicago,
Illinois 60661, and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material also can be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington D.C. 20549, upon
payment of the fees prescribed by the rules and regulations of the Commission at
prescribed rates.
A Statement of Additional Information about the variable portion of the
Contracts has been filed with the Commission, as part of the Registration
Statements, and is incorporated herein by reference. The Statement of Additional
Information is available without charge upon written or oral request to the
Company at its Annuity Service Center at the address and telephone number given
on the prior page. The Table of Contents of the Statement of Additional
Information dated June , 1996, appears on page 52 of this prospectus.
2
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TABLE OF CONTENTS
<TABLE>
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ITEM PAGE
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DEFINITIONS............................................................................... 4
SUMMARY................................................................................... 7
FEE TABLES................................................................................ 10
UNDERLYING FUND EXPENSES.................................................................. 11
EXAMPLES.................................................................................. 12
EXPLANATION OF FEE TABLES AND EXAMPLES.................................................... 12
CONDENSED FINANCIAL INFORMATION -- ACCUMULATION UNIT VALUES............................... 13
PERFORMANCE DATA.......................................................................... 14
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT AND THE GENERAL ACCOUNT.................. 15
Company.............................................................................. 15
Separate Account..................................................................... 15
General Account...................................................................... 16
SEPARATE ACCOUNT INVESTMENTS.............................................................. 16
Underlying Funds..................................................................... 16
Anchor Trust....................................................................... 17
SunAmerica Trust................................................................... 17
Voting Rights........................................................................ 19
Substitution of Securities........................................................... 19
FIXED ACCOUNT OPTIONS..................................................................... 19
Allocations.......................................................................... 19
Renewals............................................................................. 20
Market Value Adjustment.............................................................. 20
CONTRACT CHARGES.......................................................................... 21
Mortality and Expense Risk Charge.................................................... 21
Administrative Charges............................................................... 22
Contract Administration Charge..................................................... 22
Transfer Fee....................................................................... 22
Sales Charges........................................................................ 22
Withdrawal Charge.................................................................. 22
Distribution Expense Charge........................................................ 24
Premium Taxes........................................................................ 24
Deduction for Separate Account Income Taxes.......................................... 24
Other Expenses....................................................................... 24
Reduction of Charges for Sales to Certain Groups..................................... 24
DESCRIPTION OF THE CONTRACTS.............................................................. 25
Summary.............................................................................. 25
Participant.......................................................................... 25
Annuitant............................................................................ 25
Modification of the Contract......................................................... 25
Assignment........................................................................... 25
Death Benefit........................................................................ 25
Beneficiary.......................................................................... 26
PURCHASES, WITHDRAWALS AND CONTRACT VALUE................................................. 26
Minimum Purchase Payment............................................................. 26
Automatic Payment Plan............................................................... 27
Automatic Dollar Cost Averaging Program.............................................. 27
Asset Allocation Rebalancing Program................................................. 27
Principal Advantage Program.......................................................... 27
Allocation of Purchase Payments...................................................... 28
Transfer During Accumulation Period.................................................. 28
Separate Account Accumulation Unit Value............................................. 29
Fixed Account Accumulation Value..................................................... 29
Distribution of Contracts............................................................ 29
Withdrawals (Redemptions)............................................................ 29
Systematic Withdrawal Program...................................................... 30
ERISA Plans........................................................................ 30
Deferment of Fixed Account Withdrawal Payments..................................... 30
Minimum Contract Value............................................................... 31
ANNUITY PERIOD............................................................................ 31
Annuity Date......................................................................... 31
Deferment of Payments.............................................................. 31
Payments to Participant............................................................ 31
Allocation of Annuity Payments....................................................... 31
</TABLE>
3
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<TABLE>
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ITEM PAGE
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Annuity Options...................................................................... 31
Other Options........................................................................ 33
Transfer During Annuity Period....................................................... 33
Death Benefit During Annuity Period.................................................. 33
Annuity Payments..................................................................... 33
Initial Monthly Annuity Payment.................................................... 33
Subsequent Monthly Payments........................................................ 33
ADMINISTRATION............................................................................ 34
TAXES..................................................................................... 34
General.............................................................................. 34
Withholding Tax on Distributions..................................................... 34
Diversification -- Separate Account Investments...................................... 35
Multiple Contracts................................................................... 35
Tax Treatment of Assignments......................................................... 35
Qualified Plans...................................................................... 35
Tax Treatment of Withdrawals......................................................... 37
Qualified Plans.................................................................... 37
Nonqualified Plans................................................................. 37
ADDITIONAL INFORMATION ABOUT THE COMPANY.................................................. 38
Selected Consolidated Financial Data................................................. 38
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 39
Properties........................................................................... 48
Directors and Executive Officers..................................................... 49
Executive Compensation............................................................... 49
STATE REGULATION.......................................................................... 50
CUSTODIAN................................................................................. 51
LEGAL PROCEEDINGS......................................................................... 51
REGISTRATION STATEMENTS................................................................... 51
INDEPENDENT ACCOUNTANTS................................................................... 51
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT......................................... 52
FINANCIAL STATEMENTS...................................................................... 52
APPENDIX A -- WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT............. A-1
APPENDIX B -- SAMPLE DEATH BENEFIT COMPUTATIONS........................................... B-1
</TABLE>
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DEFINITIONS
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The following terms, as used in this prospectus, have the indicated
meanings:
ACCUMULATION PERIOD -- The period between the Certificate Date and the Annuity
Date; the build-up phase under the Contract.
ACCUMULATION UNIT -- A unit of measurement which the Company uses to calculate
Contract Value under the variable portion of the Contracts during the
Accumulation Period.
ANNUITANT -- The natural person on whose life the annuity benefits under a
Certificate are based.
ANNUITIZATION -- The process by which a Participant converts from the
Accumulation Period to the Annuity Period. Upon Annuitization, the Certificate
is converted from the build-up phase to the phase during which the Participant
or other payee(s) receive periodic annuity payments.
ANNUITY DATE -- The date on which annuity payments are to begin.
ANNUITY PERIOD -- The period starting on the Annuity Date.
ANNUITY UNIT -- A unit of measurement which the Company uses to calculate the
amount of Variable Annuity payments.
BENEFICIARY(IES) -- The person(s) designated to receive any benefits under a
Certificate upon the death of the Annuitant or the Participant.
4
<PAGE> 7
CERTIFICATE -- A document that describes and evidences a Participant's rights
under a group Contract.
CERTIFICATE DATE -- The date a Certificate is issued.
COMPANY -- Anchor National Life Insurance Company, an Arizona corporation.
CONTRACT(S) -- The Flexible Payment Group Deferred Annuity Contracts offered by
this prospectus.
CONTRACT VALUE -- The value under a Contract of a Participant's account, equal
to the sum of the values of the Participant's interest in the Fixed Account and
the Separate Account.
CONTRACT YEAR -- A year starting from the Certificate Date in one calendar year
and ending on the Certificate Date in the succeeding calendar year.
CONTRIBUTION YEAR -- With respect to a given Purchase Payment, a year starting
from the date of the Purchase Payment in one calendar year and ending on the day
before the anniversary of such date in the succeeding calendar years. The
Contribution Year in which a Purchase Payment is made is "Contribution Year 0,"
subsequent Contribution Years are successively numbered beginning with
Contribution Year 1.
CURRENT INTEREST RATE -- The interest rate as declared from time to time by the
Company to be in effect for allocations to the Fixed Account for a specified
Guarantee Period. It is equal to the sum of the subsequent Guarantee Rate and
the excess interest rate, if any, declared by the Company for such allocation.
The subsequent guarantee rate will not be less than 3% per annum.
DUE PROOF OF DEATH -- (1) A certified copy of a 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 the
Company.
FIXED ACCOUNT -- Contract Values allocated to the Company's General Account
under one or more of the Fixed Account options under the Contract.
FIXED ANNUITY -- A series of payments that are fixed in amount and made during
the Annuity Period to a payee under a Certificate.
GENERAL ACCOUNT -- The Company's general investment account which contains all
the assets of the Company, with the exception of the Separate Account and other
segregated asset accounts.
GUARANTEE PERIOD -- A period during which an allocation to the Fixed Account
will earn interest at the Current Interest Rate that was in effect for that
period when the allocation was made.
GUARANTEE RATE -- The interest rate in effect for a particular allocation to the
Fixed Account for a specified Guarantee Period.
LATEST ANNUITY DATE -- The first day of the month following the 85th birthday of
the Annuitant. In the case of Contracts issued in connection with Qualified
Plans, the Code generally requires that a minimum distribution be taken by April
1 of the calendar year following the calendar year in which the Participant
attains age 70 1/2. Accordingly, the Company may require a Participant in a
Qualified Plan to annuitize prior to such date unless the Participant
demonstrates the minimum distribution is otherwise being made.
MARKET VALUE ADJUSTMENT -- An adjustment applied to amounts withdrawn,
transferred or annuitized from the three, five, seven and ten year Fixed Account
options prior to the end of the applicable Guarantee Period(s).
NONQUALIFIED PLAN -- A retirement plan which does not receive favorable tax
treatment under Sections 401, 403(b), 408 or 457 of the Internal Revenue Code.
OWNER -- The person(s) having the privileges of ownership defined in the
Contracts. Except to the extent restricted by the retirement plan pursuant to
which the Contract is issued, the Participant will be the Owner of the
Certificate.
PARTICIPANT -- The person entitled to benefits under a Contract as evidenced by
a Certificate issued to the Participant.
PORTFOLIO -- A subdivision of the Separate Account invested wholly in shares of
one of the investment series of Anchor Series Trust or SunAmerica Series Trust
(the "Anchor Trust" or "SunAmerica Trust").
PURCHASE PAYMENTS -- Amounts paid to the Company for the Contract by or on
behalf of a Participant.
QUALIFIED PLAN -- A retirement plan which receives favorable tax treatment under
Sections 401, 403(b), 408 or 457 of the Internal Revenue Code.
5
<PAGE> 8
SEPARATE ACCOUNT -- A segregated investment account of the Company entitled
"Variable Separate Account."
UNDERLYING FUND(S) -- The underlying series of Anchor Trust or SunAmerica Trust
in which the Portfolios invest.
VALUATION DATE -- Each day the New York Stock Exchange is open for business.
VALUATION PERIOD -- The period commencing at the close of normal trading on the
New York Stock Exchange ("NYSE") (currently 4:00 p.m. Eastern time) on each
Valuation Date and ending at the close of normal trading on the NYSE on the next
succeeding Valuation Date.
VARIABLE ANNUITY -- A series of payments made during the Annuity Period to a
payee under a Certificate which vary in amount in accordance with the investment
experience of the Portfolios to which Contract Values have been allocated.
WITHDRAWAL CHARGE -- The contingent deferred sales charge assessed against
certain withdrawals.
6
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SUMMARY
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This prospectus describes the uses and objectives of the Contracts, their
costs, and the rights and privileges of the Participant and Contractholder, as
applicable. It also contains information about the Company, the Fixed Account,
the Separate Account and its Portfolios, and the Underlying Funds in which the
Portfolios invest. Read it carefully and retain it and the prospectuses for the
Anchor Trust and the SunAmerica Trust for future reference. (The prospectuses
for the Anchor Trust and the SunAmerica Trust are attached to and follow this
prospectus).
WHAT IS THE CONTRACT?
The Contract offered is a tax deferred annuity which provides fixed
benefits, variable benefits or a combination of both. A group Contract is issued
to the Contractholder covering all Participants in the group. Each Participant
receives a Certificate which evidences his or her participation under the
Contract. For the purpose of determining benefits under the Contract, a
Participant's account is established for each Participant. The Owner is the
person entitled to the rights and privileges of ownership under a Certificate.
Except to the extent limited by the retirement plan pursuant to which the
Contract was issued, the Participant is the Owner. The Contract described in
this prospectus is not available in certain states and a Flexible Payment
Individual Modified Guaranteed and Variable Deferred Annuity Contract
("Individual Contract") may be available instead. The Individual Contract is
substantially similar to the Contract except that the Individual Contract is
issued directly to the Owner, rather than to a Contractholder for the benefit of
a Participant. Subject to this difference, the information contained in this
prospectus is applicable to the Individual Contract.
Individuals wishing to purchase a Certificate must complete an application
and provide an initial Purchase Payment which will be sent to the Company at its
address for correspondence accompanied by payments indicated on the cover page
of this prospectus or in such other manner as deemed acceptable to the Company.
The minimum and maximum of Purchase Payments vary depending upon the type of
Contract purchased. (See "Minimum Purchase Payment").
WHAT IS THE DIFFERENCE BETWEEN A VARIABLE ANNUITY AND A FIXED ANNUITY?
The Contract has appropriate provisions relating to variable and fixed
accumulation values and variable and fixed annuity payments. A Variable Annuity
and a Fixed Annuity have certain similarities. Both provide that Purchase
Payments, less certain deductions, will be accumulated prior to the Annuity
Date. After the Annuity Date, annuity payments will be made to a designated
payee (normally, the Participant), for the life of the Annuitant or a period
certain or a combination thereof. The Company assumes mortality and expense
risks under the Contracts, for which it receives certain compensation.
The most significant difference between a Variable Annuity and a Fixed
Annuity is that under a Variable Annuity, all investment risk before and after
the Annuity Date is assumed by the Participant or other payee; the amounts of
the annuity payments vary with the investment performance of the Portfolios of
the Separate Account selected by the Participant. Under a Fixed Annuity, in
contrast, the investment risk after the Annuity Date is assumed by the Company
and the amounts of the annuity payments do not vary. In the case of amounts
allocated to the Fixed Account prior to the Annuity Date, the Participant bears
the risks (1) that the rate credited on amounts allocated to the Fixed Account
may not exceed 3% for any Guarantee Period, and (2) that amounts withdrawn,
transferred or annuitized from the Fixed Account prior to the end of their
respective Guarantee Periods, other than withdrawals from the one year Fixed
Account option, could result in the Participant's receiving less than the
Purchase Payments so allocated (See "Fixed Account Options -- Market Value
Adjustment").
HOW MAY PURCHASE PAYMENTS BE ALLOCATED?
Purchase Payments for the Contracts may be allocated pursuant to
instructions in the application to one or more Portfolios of the Separate
Account, and/or to the Company's General Account under one or more of the Fixed
7
<PAGE> 10
Account options under the Contracts. The Separate Account invests in shares of
the following Underlying Funds (See "Separate Account Investments"):
ANCHOR TRUST
<TABLE>
<S> <C>
* CAPITAL APPRECIATION PORTFOLIO * NATURAL RESOURCES PORTFOLIO
* GROWTH PORTFOLIO * GOVERNMENT AND QUALITY BOND
PORTFOLIO
</TABLE>
SUNAMERICA TRUST
<TABLE>
<S> <C>
* INTERNATIONAL DIVERSIFIED EQUITIES * ASSET ALLOCATION PORTFOLIO
PORTFOLIO * SUNAMERICA BALANCED PORTFOLIO
* GLOBAL EQUITIES PORTFOLIO * BALANCED/PHOENIX INVESTMENT
* AGGRESSIVE GROWTH PORTFOLIO COUNSEL PORTFOLIO
* VENTURE VALUE PORTFOLIO * UTILITY PORTFOLIO
* FEDERATED VALUE PORTFOLIO * WORLDWIDE HIGH INCOME PORTFOLIO
* PROVIDENT GROWTH PORTFOLIO * HIGH-YIELD BOND PORTFOLIO
* GROWTH/PHOENIX INVESTMENT * GLOBAL BOND PORTFOLIO
COUNSEL PORTFOLIO * CORPORATE BOND PORTFOLIO
* ALLIANCE GROWTH PORTFOLIO * CASH MANAGEMENT PORTFOLIO
* GROWTH-INCOME PORTFOLIO
</TABLE>
Purchase Payments allocated to Fixed Account option(s) will earn interest
at the then Current Interest Rate(s) for the selected Guarantee Period(s). (See
"Fixed Account Options").
Prior to the Annuity Date, transfers may be made among the Portfolios
and/or the Fixed Account options. Fifteen transfers per Contract Year are
permitted before a transfer fee will be assessed. A Market Value Adjustment may
also apply in the case of a transfer from a Fixed Account option. (See
"Purchases, Withdrawals and Contract Value -- Transfer During Accumulation
Period").
MAY WITHDRAWALS BE MADE BEFORE ANNUITIZATION?
Except as explained below, Contract Value may be withdrawn at any time
during the Accumulation Period. In addition to potential losses due to
investment risks, withdrawals may be reduced by a Withdrawal Charge, and a
penalty tax and income tax may apply. Contracts in connection with Qualified
Plans may be subject to additional withdrawal restrictions imposed by the Plan.
Earnings under a Certificate may be withdrawn at any time during such period
free of Withdrawal Charge (although withdrawals from the Fixed Account other
than at the end of the applicable Guarantee Periods are generally subject to a
Market Value Adjustment). Alternatively, there is a free withdrawal amount which
applies to the first withdrawal during a Contract Year after the first Contract
Year. (See "Contract Charges -- Sales Charges -- Withdrawal Charge"). Certain
Owners of Nonqualified Plan Contracts and Contracts issued in connection with
Individual Retirement Annuities ("IRAs") may choose to withdraw amounts which in
the aggregate add up to 10% of their Purchase Payments annually pursuant to a
systematic withdrawal program without charge. (See "Purchases, Withdrawals and
Contract Value -- Withdrawals (Redemptions) -- Systematic Withdrawal Program".)
Withdrawals are taxable and a 10% federal tax penalty may apply to withdrawals
before age 59 1/2.
Participants should consult their own tax counsel or other tax adviser
regarding any withdrawals or distributions.
CAN I EXAMINE THE CONTRACT?
The Contractholder (or Participant) may return the Contract (or
Certificate, respectively) to the Company within 10 days (or longer period if
required by state law) after it is received by delivering or mailing it to the
Company's Annuity Service Center. If the Contract or Certificate is returned to
the Company, it will be terminated and, unless otherwise required by state law,
the Company will pay the Contractholder or Participant an amount equal to the
Contract Value represented by the Contract (or Certificate, respectively) on the
date it is received by the Company. The Contract Value may be more or less than
the Purchase Payments made, thus, the investment risk is borne by the
Participant. Since state laws differ as to the consequences of returning a
Contract or Certificate, purchasers should refer to the Contracts or
Certificates which they receive for information about their circumstances.
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<PAGE> 11
WHAT ARE THE CHARGES AND DEDUCTIONS UNDER A CONTRACT?
A mortality and expense risk charge is assessed daily against the assets of
each Portfolio at an annual rate of 1.37%. A distribution expense charge is
assessed daily against the assets of each Portfolio at an annual rate of 0.15%.
The Contracts also provide for certain deductions and charges, including a
contract administration charge of $35 annually, which is guaranteed not to
increase and which under certain circumstances may be waived. The Contract
permits up to 15 free transfers each Contract Year, after which point a $25
transfer fee ($10 in Texas and Pennsylvania) is applicable to each subsequent
transfer. Additionally, a Withdrawal Charge may be assessed against the Contract
Value during the first seven Contribution Years (7%-6%-5%-4%-3%-2%-1%-0%) when a
withdrawal is made. (See "Contract Charges".)
DOES THE CONTRACT PAY ANY DEATH BENEFITS?
A death benefit is provided in the event of the death of the Owner during
the Accumulation Period. The death benefit is equal to the greater of: (1) the
total of Purchase Payments made prior to the death of the Owner, minus any
partial withdrawals and/or partial annuitizations; or (2) the Contract Value
upon receipt of Due Proof of Death. In addition, where permitted by state law,
the Company will pay an enhanced death benefit equal to the greater of: (1) the
total of Purchase Payments made prior to the death of the Owner, minus any
partial withdrawals and/or partial annuitizations, all accumulated annually at
4% (3% if the Owner was age 70 or older on the Certificate Date); or (2) the
Contract Value on the seventh Certificate anniversary, plus any Purchase
Payments made thereafter, minus any partial withdrawals and/or partial
annuitizations, all accumulated annually at 4% (3% if the Owner was age 70 or
older on the Certificate Date). (See "Description of the Contracts -- Death
Benefit".)
WHAT ARE THE AVAILABLE ANNUITY OPTIONS UNDER THE CONTRACT?
There are five available annuity options under the Contract. They include
an annuity for life, a joint and survivor annuity, a joint and survivor life
annuity with 120 monthly payments guaranteed, a life annuity with 120 or 240
monthly payments guaranteed and monthly payments for a specified number of
years. The Annuity Date may not be deferred beyond an Owner's 85th birthday. If
an Owner does not elect otherwise, monthly annuity payments generally will be
made under the fourth option to provide a life annuity with 120 monthly payments
certain. (See "Annuity Period -- Annuity Options".)
DOES THE OWNER HAVE ANY VOTING RIGHTS UNDER THE CONTRACT?
Owners will have the right to vote on matters affecting the Underlying
Funds to the extent that proxies are solicited by the Anchor Trust or the
SunAmerica Trust. If the Owner does not vote, the Company will vote such
interests in the same proportion as it votes shares for which it has received
instructions. (See "Separate Account Investments -- Voting Rights".)
9
<PAGE> 12
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE (AS A PERCENTAGE OF PURCHASE PAYMENTS):
<TABLE>
<CAPTION>
CONTRIBUTION YEAR
<S> <C>
Zero.................................................................................................. 7%
One................................................................................................... 6%
Two................................................................................................... 5%
Three................................................................................................. 4%
Four.................................................................................................. 3%
Five.................................................................................................. 2%
Six................................................................................................... 1%
Seven and later....................................................................................... 0%
ANNUAL CONTRACT ADMINISTRATION CHARGE....................................................................... $35
TRANSFER FEE................................................................................................ $25*
(applies solely to transfers in excess of fifteen in a Contract Year)
</TABLE>
- ---------------
* $10 in Pennsylvania and Texas
The Owner Transaction Expenses apply to the Contract Value allocated to the
Fixed Account, as well as the Separate Account.
- --------------------------------------------------------------------------------
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF DAILY NET ASSET VALUE)
<TABLE>
<S> <C>
MORTALITY RISK CHARGE
Standard................................................................................................ 0.90%
Enhanced................................................................................................ 0.12%
------
Total............................................................................................... 1.02%
EXPENSE RISK CHARGE......................................................................................... 0.35%
DISTRIBUTION EXPENSE CHARGE................................................................................. 0.15%
------
TOTAL EXPENSE CHARGE................................................................................ 1.52%
=====
</TABLE>
10
<PAGE> 13
- --------------------------------------------------------------------------------
UNDERLYING FUND EXPENSES
- --------------------------------------------------------------------------------
ANCHOR SERIES TRUST
(FUND EXPENSES, AS A PERCENTAGE OF AVERAGE NET ASSETS
FOR THE TRUST'S TWELVE-MONTH PERIOD ENDED NOVEMBER 30, 1995.)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER ANNUAL
FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
CAPITAL APPRECIATION..................................................... .70% .10% .80%
- ----------------------------------------------------------------------------------------------------------------
GROWTH................................................................... .74% .11% .85%
- ----------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES........................................................ .75% .25% 1.00%
- ----------------------------------------------------------------------------------------------------------------
GOVERNMENT & QUALITY BOND................................................ .62% .12% .74%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
SUNAMERICA SERIES TRUST
(FUND EXPENSES, AS A PERCENTAGE OF AVERAGE NET ASSETS
FOR THE TRUST'S FISCAL YEAR ENDED NOVEMBER 30, 1995.)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER ANNUAL
FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
INTERNATIONAL DIVERSIFIED EQUITIES....................................... 1.00% .70% 1.70%
- ----------------------------------------------------------------------------------------------------------------
GLOBAL EQUITIES.......................................................... .83% .31% 1.14%
- ----------------------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH*....................................................... .75% .30% 1.05%
- ----------------------------------------------------------------------------------------------------------------
VENTURE VALUE............................................................ .79% .21% 1.00%
- ----------------------------------------------------------------------------------------------------------------
FEDERATED VALUE*......................................................... .75% .30% 1.05%
- ----------------------------------------------------------------------------------------------------------------
PROVIDENT GROWTH......................................................... .83% .10% .93%
- ----------------------------------------------------------------------------------------------------------------
GROWTH/PHOENIX INVESTMENT COUNSEL........................................ .67% .09% .76%
- ----------------------------------------------------------------------------------------------------------------
ALLIANCE GROWTH.......................................................... .68% .11% .79%
- ----------------------------------------------------------------------------------------------------------------
GROWTH-INCOME............................................................ .67% .10% .77%
- ----------------------------------------------------------------------------------------------------------------
ASSET ALLOCATION......................................................... .68% .13% .81%
- ----------------------------------------------------------------------------------------------------------------
SUNAMERICA BALANCED*..................................................... .70% .30% 1.00%
- ----------------------------------------------------------------------------------------------------------------
BALANCED/PHOENIX INVESTMENT COUNSEL...................................... .70% .28% .98%
- ----------------------------------------------------------------------------------------------------------------
UTILITY*................................................................. .75% .30% 1.05%
- ----------------------------------------------------------------------------------------------------------------
WORLDWIDE HIGH INCOME.................................................... 1.00% .30% 1.30%
- ----------------------------------------------------------------------------------------------------------------
HIGH-YIELD BOND.......................................................... .69% .11% .80%
- ----------------------------------------------------------------------------------------------------------------
GLOBAL BOND.............................................................. .75% .20% .95%
- ----------------------------------------------------------------------------------------------------------------
CORPORATE BOND........................................................... .70% .26% .96%
- ----------------------------------------------------------------------------------------------------------------
CASH MANAGEMENT.......................................................... .55% .12% .67%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* As of the date of this prospectus, the sale of Contracts offering the
Aggressive Growth, Federated Value, SunAmerica Balanced and Utility Portfolios
had not commenced. The percentages are based on estimated amounts for the
current fiscal year.
For certain Portfolios, the Adviser has voluntarily agreed to waive fees or
reimburse expenses, if necessary, to keep annual operating expenses at or below
the lesser of the maximum allowable by any applicable state expense limitations
or the following percentages of each Portfolio's average net assets: Aggressive
Growth (1.05%); Federated Value (1.05%); SunAmerica Balanced (1.00%); and
Utility (1.05%). The Adviser also may voluntarily waive or reimburse additional
amounts to increase the investment return to a Portfolio's investors. The
Adviser may terminate all such waivers and/or reimbursement at any time.
Further, effective June 3, 1996, any waivers or reimbursements made by the
Adviser with respect to a Portfolio are subject to recoupment from that
Portfolio within the following two years, provided that the Portfolio is able to
effect such payment to the Adviser and remain in compliance with the foregoing
expense limitations.
THE ABOVE EXPENSES FOR THE UNDERLYING FUNDS WERE PROVIDED BY THE TRUSTS. NEITHER
THE COMPANY NOR THE SEPARATE ACCOUNT HAVE INDEPENDENTLY VERIFIED THE ACCURACY OF
SUCH INFORMATION. THE COMPANY AND THE SEPARATE ACCOUNT DISCLAIM ALL LIABILITY
FOR ANY CLAIM, LOSS OR EXPENSE RESULTING FROM ANY ALLEGED ERRONEOUS INFORMATION
ABOUT THE TRUSTS.
11
<PAGE> 14
- --------------------------------------------------------------------------------
EXAMPLES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONDITIONS
An Owner would pay the following expenses on a
$1,000 investment in each indicated Portfolio TIME PERIODS
PORTFOLIO assuming 5% annual return on assets: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
CAPITAL (a) upon surrender at the end of the stated time (a) $ 94 $ 125 $ 158 $273
APPRECIATION period.
(b) if the Contract WAS NOT surrendered (b) $ 24 $ 75 $ 128 $273
- --------------------------------------------------------------------------------------------------------------------
GROWTH SAME (a) $ 95 $ 126 $ 160 $278
(b) $ 25 $ 76 $ 130 $278
- --------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES SAME (a) $ 96 $ 131 $ 168 $292
(b) $ 26 $ 81 $ 138 $292
- --------------------------------------------------------------------------------------------------------------------
GOVERNMENT & SAME (a) $ 94 $ 123 $ 155 $267
QUALITY BOND (b) $ 24 $ 73 $ 125 $267
- --------------------------------------------------------------------------------------------------------------------
INTERNATIONAL SAME (a) $103 $ 151 $ 202 $359
DIVERSIFIED (b) $ 33 $ 101 $ 172 $359
EQUITIES
- --------------------------------------------------------------------------------------------------------------------
GLOBAL SAME (a) $ 98 $ 135 $ 174 $306
EQUITIES (b) $ 28 $ 85 $ 144 $306
- --------------------------------------------------------------------------------------------------------------------
AGGRESSIVE SAME (a) $ 97 $ 132 $ 170 $297
GROWTH (b) $ 27 $ 82 $ 140 $297
- --------------------------------------------------------------------------------------------------------------------
VENTURE VALUE SAME (a) $ 96 $ 131 $ 168 $292
(b) $ 26 $ 81 $ 138 $292
- --------------------------------------------------------------------------------------------------------------------
FEDERATED SAME (a) $ 97 $ 132 $ 170 $297
VALUE (b) $ 27 $ 82 $ 140 $297
- --------------------------------------------------------------------------------------------------------------------
PROVIDENT SAME (a) $ 96 $ 128 $ 164 $286
GROWTH (b) $ 26 $ 78 $ 134 $286
- --------------------------------------------------------------------------------------------------------------------
GROWTH/PHOENIX SAME (a) $ 94 $ 123 $ 156 $269
INVESTMENT COUNSEL (b) $ 24 $ 73 $ 126 $269
- --------------------------------------------------------------------------------------------------------------------
ALLIANCE SAME (a) $ 94 $ 124 $ 157 $272
GROWTH (b) $ 24 $ 74 $ 127 $272
- --------------------------------------------------------------------------------------------------------------------
GROWTH- SAME (a) $ 94 $ 124 $ 156 $270
INCOME (b) $ 24 $ 74 $ 126 $270
- --------------------------------------------------------------------------------------------------------------------
ASSET SAME (a) $ 94 $ 125 $ 158 $274
ALLOCATION (b) $ 24 $ 75 $ 128 $274
- --------------------------------------------------------------------------------------------------------------------
SUNAMERICA SAME (a) $ 96 $ 131 $ 168 $292
BALANCED (b) $ 26 $ 81 $ 138 $292
- --------------------------------------------------------------------------------------------------------------------
BALANCED/PHOENIX SAME (a) $ 96 $ 130 $ 167 $290
INVESTMENT COUNSEL (b) $ 26 $ 80 $ 137 $290
- --------------------------------------------------------------------------------------------------------------------
UTILITY SAME (a) $ 97 $ 132 $ 170 $297
(b) $ 27 $ 82 $ 140 $297
- --------------------------------------------------------------------------------------------------------------------
WORLDWIDE HIGH SAME (a) $ 99 $ 139 $ 182 $321
INCOME (b) $ 29 $ 89 $ 152 $321
- --------------------------------------------------------------------------------------------------------------------
HIGH-YIELD SAME (a) $ 94 $ 125 $ 158 $273
BOND (b) $ 24 $ 75 $ 128 $273
- --------------------------------------------------------------------------------------------------------------------
GLOBAL SAME (a) $ 96 $ 129 $ 165 $288
BOND (b) $ 26 $ 79 $ 135 $288
- --------------------------------------------------------------------------------------------------------------------
CORPORATE SAME (a) $ 96 $ 129 $ 166 $289
BOND (b) $ 26 $ 79 $ 136 $289
- --------------------------------------------------------------------------------------------------------------------
CASH SAME (a) $ 93 $ 121 $ 151 $260
MANAGEMENT (b) $ 23 $ 71 $ 121 $260
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
EXPLANATION OF FEE TABLES AND EXAMPLES
- --------------------------------------------------------------------------------
1. The purpose of the foregoing table and examples is to assist an investor in
understanding the various costs and expenses that he or she will bear
directly or indirectly by investing in the Separate Account. The Owner
Transaction Expenses shown under "Fee Tables" are applicable to Contract
Value allocated to the Fixed Account as well as to the Separate Account.
However, the balance of the Fee Tables apply only to investments in the
Separate Account. The Examples reflect expenses of the Separate Account as
well as the Underlying Funds. For additional information see "Contract
Charges"; see also the sections relating to management of the Underlying
Funds in their respective prospectuses. The Examples do not illustrate the
tax consequences of surrendering a Contract.
2. The Examples assume that there were no transactions which would result in
the imposition of the transfer fee. The amount of the transfer fee is $25
($10 in Pennsylvania and Texas), except that the first 15 transfers per
Contract Year are not subject to a fee. (See "Administrative
Charges -- Transfer Fee".) Premium taxes are not reflected. (See "Sales
Charges -- Premium Taxes"). Transfers from the Fixed Account may be subject
to a Market Value Adjustment even if they are not subject to a transfer fee.
3. For purposes of the amounts reported in the Examples, the Contract
Administration Charge is reflected by applying a percentage equivalent
charge, obtained by dividing the total amount of such charges anticipated to
be collected during the year by the total estimated average net assets of
the Portfolios and the Fixed Account attributable to the Contracts.
4. NEITHER THE FEE TABLES NOR THE EXAMPLES ARE REPRESENTATIONS OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
12
<PAGE> 15
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCEPTION FISCAL FISCAL
TO YEAR YEAR
PORTFOLIOS OF THE SEPARATE ACCOUNT 11/30/93 11/30/94 11/30/95
----------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
ANCHOR TRUST
Capital Appreciation*
Beginning AUV...................................... $10.00 $11.14 $10.64
End AUV............................................ $11.14 $10.64 $14.19
End # AUs.......................................... 3,606,855 8,462,152 13,247,155
Growth*
Beginning AUV...................................... $10.00 $10.78 $10.41
End AUV............................................ $10.78 $10.41 $12.95
End # AUs.......................................... 1,719,857 3,950,678 5,968,263
Natural Resources***
Beginning AUV...................................... -- $10.00 $ 9.27
End AUV............................................ -- $ 9.27 $10.78
End # AUs.......................................... -- 51,412 848,159
Government and Quality Bond*
Beginning AUV...................................... $10.00 $10.32 $ 9.81
End AUV............................................ $10.32 $ 9.81 $11.51
End # AUs.......................................... 6,479,985 7,008,717 8,504,677
SUNAMERICA TRUST
International Diversified Equities***
Beginning AUV...................................... -- $10.00 $ 9.77
End AUV............................................ -- $ 9.77 $10.07
End # AUs.......................................... -- 271,316 4,659,066
Global Equities*
Beginning AUV...................................... $10.00 $10.86 $11.43
End AUV............................................ $10.86 $11.43 $13.01
End # AUs.......................................... 3,964,021 11,705,418 12,350,883
Venture Value***
Beginning AUV...................................... -- $10.00 $ 9.77
End AUV............................................ -- $ 9.77 $13.29
End # AUs.......................................... -- 355,083 11,270,792
Provident Growth*
Beginning AUV...................................... $10.00 $ 9.92 $ 9.79
End AUV............................................ $ 9.92 $ 9.79 $12.60
End # AUs.......................................... 4,322,769 7,610,104 8,932,998
Growth/Phoenix Investment Counsel*
Beginning AUV...................................... $10.00 $10.65 $ 9.79
End AUV............................................ $10.65 $ 9.79 $12.81
End # AUs.......................................... 6,078,952 10,477,818 11,457,899
Alliance Growth*
Beginning AUV...................................... $10.00 $10.78 $10.53
End AUV............................................ $10.78 $10.53 $15.44
End # AUs.......................................... 2,153,075 4,997,778 10,560,070
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
INCEPTION FISCAL FISCAL
TO YEAR YEAR
PORTFOLIOS OF THE SEPARATE ACCOUNT 11/30/93 11/30/94 11/30/95
----------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Growth-Income*
Beginning AUV...................................... $10.00 $10.47 $10.09
End AUV............................................ $10.47 $10.09 $13.32
End # AUs.......................................... 4,302,869 8,329,322 12,560,865
Asset Allocation**
Beginning AUV...................................... $10.00 $10.30 $10.17
End AUV............................................ $10.30 $10.17 $12.64
End # AUs.......................................... 3,386,288 10,372,954 15,418,350
Balanced/Phoenix Investment Counsel***
Beginning AUV...................................... -- $10.01 $ 9.95
End AUV............................................ -- $ 9.95 $12.33
End # AUs.......................................... -- 51,759 2,441,901
Worldwide High Income***
Beginning AUV...................................... -- $10.00 $ 9.95
End AUV............................................ -- $ 9.95 $11.36
End # AUs.......................................... -- 53,315 1,040,828
High-Yield Bond*
Beginning AUV...................................... $10.00 $10.98 $10.35
End AUV............................................ $10.98 $10.35 $11.48
End # AUs.......................................... 3,812,374 5,370,944 7,075,451
Global Bond**
Beginning AUV...................................... $10.00 $10.25 $ 9.78
End AUV............................................ $10.25 $ 9.78 $11.20
End # AUs.......................................... 2,439,405 4,532,386 5,288,158
Corporate Bond (formerly, Fixed Income)**
Beginning AUV...................................... $10.00 $10.12 $ 9.63
End AUV............................................ $10.12 $ 9.63 $11.10
End # AUs.......................................... 1,152,407 1,643,694 2,623,065
Cash Management*
Beginning AUV...................................... $10.00 $10.07 $10.27
End AUV............................................ $10.07 $10.27 $10.67
End # AUs.......................................... 2,442,124 8,623,034 8,372,979
</TABLE>
- ---------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
* "Inception Date" is February 9, 1993.
** "Inception Date" is July 1, 1993.
*** "Inception Date" is October 31, 1994.
As of the date of this prospectus, the sale of Contracts offering the
Aggressive Growth, Federated Value, SunAmerica Balanced and Utility Portfolios
had not commenced, and these Portfolios had no assets. Therefore, no condensed
financial information with respect to these Portfolios of the Separate Account
is presented.
- --------------------------------------------------------------------------------
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.
In addition, the Separate Account may advertise "total return" data for its
other Portfolios. Like the yield figures described above, total return figures
are based on historical data and are not intended to indicate future
performance.
14
<PAGE> 17
For periods starting prior to the date the Contracts were first offered to
the public, the total return data for the Capital Appreciation, Growth, Natural
Resources and the Government and Quality Bond Portfolios of the Separate Account
will be derived from the performance of the corresponding Portfolios of Anchor
Trust, modified to reflect the charges and expenses as if the Separate Account
Portfolio had been in existence since the inception date of each respective
Anchor Trust Portfolio. Thus, such performance figures should not be construed
to be actual historic performance of the relevant Separate Account Portfolio.
Rather, they are intended to indicate the historic performance of the four
corresponding Portfolios of Anchor Trust, adjusted to provide direct
comparability to the performance of the Portfolios after the date the Contracts
were first offered to the public (which will reflect the effect of fees and
charges imposed under the Contracts). The Capital Appreciation, Growth, Natural
Resources and Government and Quality Bond Portfolios of Anchor 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.
More detailed information on the method used to calculate performance data
for the Separate Account is contained in the Statement of Additional
Information.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT
AND THE GENERAL ACCOUNT
- --------------------------------------------------------------------------------
COMPANY
The Company is a stock life insurance company originally organized under
the laws of the state of California in April 1965. On January 1, 1996, the
Company redomesticated under the laws of the state of Arizona. Its legal
domicile is Arizona and its principal business address is 1 SunAmerica Center,
Los Angeles, California 90067-6022. The Company is an indirect wholly owned
subsidiary of SunAmerica Inc., a Maryland corporation.
The Company and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, CalFarm Life Insurance Company, SunAmerica
Asset Management Corp., Imperial Premium Finance, Inc., Resources Trust Company
and three broker-dealers, offer a full line of financial services, including
fixed and variable annuities, mutual funds, premium finance and trust
administration services. As of December 31, 1995, the Company had $7.84 billion
in assets while SunAmerica Inc., the Company's ultimate parent, together with
its subsidiaries, held $29.67 billion of assets, consisting of $17.84 billion of
assets owned, $2.17 billion of assets managed in mutual funds and private
accounts, and $9.66 billion under custody in retirement trust accounts.
The Company may from time to time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by one or more independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service, Inc. ("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 on the relative financial strength and
operating performance of an insurance company in comparison to the norms of the
life/health insurance industry. Standard & Poor's and Duff & Phelps provide
ratings which measure the claims-paying ability of insurance companies. These
ratings are opinions of an operating insurance company's financial capacity to
meet the obligations of its insurance policies in accordance with their terms.
Claims-paying ability ratings do not refer to an insurer's ability to meet
non-policy obligations (i.e., debt/commercial paper). These ratings do not apply
to the Separate Account. However, the contractual obligations under the
Contracts are the general corporate obligations of the Company.
The Company is admitted to conduct life insurance and annuity business in
the District of Columbia and in all states except New York. It intends to market
the Contract in most of the jurisdictions in which it is admitted to conduct
annuity business. The Contracts offered by this prospectus are issued by the
Company and will be funded in the Separate Account as well as the Company's
General Account.
For more detailed information about the Company, see "Additional
Information About the Company".
SEPARATE ACCOUNT
Variable Separate Account was originally established by the Company on June
25, 1981, pursuant to the provisions of California law, as a segregated asset
account of the Company. In connection with the redomestication of the Company to
Arizona, the Separate Account was assumed intact by the Company. The Separate
Account meets the definition of a "separate account" under the federal
securities laws and is registered with the Commission as a
15
<PAGE> 18
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 Commission.
The assets of the Separate Account are the property of the Company.
However, the assets of the Separate Account, equal to its reserves and other
contract liabilities, are not chargeable with liabilities arising out of any
other business the Company may conduct. Income, gains and losses, whether or not
realized, from assets allocated to the Separate Account are credited to or
charged against the Separate Account without regard to other income, gains or
losses of the Company.
The Separate Account is divided into Portfolios, with the assets of each
Portfolio invested in the shares of one of the Underlying Funds. The Company
does not guarantee the investment performance of the Separate Account, its
Portfolios or the Underlying Funds. Values allocated to the Separate Account and
the amount of Variable Annuity payments will vary with the values of shares of
the Underlying Funds, and are also reduced by Contract charges. The Separate
Account also funds other contracts issued by the Company, which are accounted
for separately from the Contracts.
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. Guarantee Periods of one, three, five, seven and ten
years are available through the General Account. A Purchase Payment may be
allocated to one or more Guarantee Periods, as elected by the Participant at the
time of the establishment of a Participant's account. In addition, all or part
of the Participant's Contract Value may be transferred to Guarantee Periods
available under the Contract as described under "Purchases, Withdrawals and
Contract Value -- Transfer During Accumulation Period" and "Annuity
Period -- Transfer During Annuity Period". Assets supporting amounts allocated
to Guarantee Periods 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.
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT INVESTMENTS
- --------------------------------------------------------------------------------
UNDERLYING FUNDS
Each of the Portfolios of the Separate Account invests in the shares of one
of the following Underlying Funds of Anchor Trust or SunAmerica Trust, which are
investment series of open-end management investment companies registered under
the Investment Company Act of 1940:
ANCHOR TRUST
<TABLE>
<S> <C>
* CAPITAL APPRECIATION PORTFOLIO * NATURAL RESOURCES PORTFOLIO
* GROWTH PORTFOLIO * GOVERNMENT AND QUALITY BOND
PORTFOLIO
</TABLE>
SUNAMERICA TRUST
<TABLE>
<S> <C>
* INTERNATIONAL DIVERSIFIED EQUITIES * ASSET ALLOCATION PORTFOLIO
PORTFOLIO * SUNAMERICA BALANCED PORTFOLIO
* GLOBAL EQUITIES PORTFOLIO * BALANCED/PHOENIX INVESTMENT
* AGGRESSIVE GROWTH PORTFOLIO COUNSEL PORTFOLIO
* VENTURE VALUE PORTFOLIO * UTILITY PORTFOLIO
* FEDERATED VALUE PORTFOLIO * WORLDWIDE HIGH INCOME PORTFOLIO
* PROVIDENT GROWTH PORTFOLIO * HIGH-YIELD BOND PORTFOLIO
* GROWTH/PHOENIX INVESTMENT * GLOBAL BOND PORTFOLIO
COUNSEL PORTFOLIO * CORPORATE BOND PORTFOLIO
* ALLIANCE GROWTH PORTFOLIO * CASH MANAGEMENT PORTFOLIO
* GROWTH-INCOME PORTFOLIO
</TABLE>
16
<PAGE> 19
ANCHOR TRUST
Four Portfolios of the Separate Account invest solely in the shares of one
of the four currently available Underlying Funds of Anchor Trust. SunAmerica
Asset Management Corp. ("SAAMCo") is the investment adviser for Anchor Trust.
SAAMCo is an indirect wholly owned subsidiary of SunAmerica Inc. Wellington
Management Company ("Wellington") of Boston, Massachusetts, a professional
investment counseling firm, serves as Subadviser to SAAMCo. Wellington is not
affiliated with the Company.
Shares of Anchor Trust are and will be issued and redeemed only in
connection with investments in and payments under variable contracts sold by the
Company and its affiliate, First SunAmerica Life Insurance Company, as well as
two unaffiliated companies, Presidential Life Insurance Company and Phoenix
Mutual Life Insurance Company. No disadvantage to Owners is seen to arise from
the fact that Anchor Trust offers its shares in this fashion.
Anchor Trust has Underlying Funds in addition to those identified below.
However, none of such other Underlying Funds is currently available for
investment under the Contracts described in this prospectus. The four available
Underlying Funds and their investment objectives are as stated below:
CAPITAL APPRECIATION PORTFOLIO seeks long-term capital appreciation. This
Underlying Fund invests in a widely diversified group of growth equity
securities which are widely diversified by industry and company and may engage
in transactions involving stock index futures and options thereon as a hedge
against changes in market conditions.
GROWTH PORTFOLIO seeks long-term capital appreciation through investment in
growth equity securities. This Underlying Fund may engage in transactions
involving stock index futures and options thereon as a hedge against changes in
market conditions.
NATURAL RESOURCES PORTFOLIO seeks a total return in excess of the U.S. rate
of inflation as represented by the Consumer Price Index. This Underlying Fund
invests primarily in equity securities of U.S. or foreign companies which are
expected to provide favorable returns in periods of rising inflation.
GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current income,
liquidity and security of principal. This Underlying Fund invests in
obligations issued, guaranteed or insured by the U.S. Government, its agencies
or instrumentalities and in corporate debt securities rated Aa or better by
Moody's or AA or better by S&P.
SUNAMERICA TRUST
Eighteen Portfolios of the Separate Account invest solely in the shares of
one of the eighteen currently available Underlying Funds of SunAmerica Trust.
SAAMCo serves as investment adviser for all the Underlying Funds of SunAmerica
Trust. Alliance Capital Management L.P. ("Alliance") serves as Subadviser for
the Global Equities, Alliance Growth and Growth-Income Portfolios; Phoenix
Investment Counsel, Inc. serves as Subadviser for the Growth/Phoenix Investment
Counsel and Balanced/Phoenix Investment Counsel Portfolios; Provident Investment
Counsel (an autonomous wholly owned subsidiary of United Asset Management
Corporation, a financial services holding company) serves as Subadviser for the
Provident Growth Portfolio; Davis Selected Advisers, L.P., serves as Subadviser
for the Venture Value Portfolio; Federated Investment Counseling serves as
Subadviser for the Corporate Bond, Federated Value and Utility Portfolios;
Goldman Sachs Asset Management, a separate division of Goldman, Sachs & Co.,
serves as Subadviser for the Asset Allocation Portfolio; Goldman Sachs Asset
Management International, an affiliate of Goldman, Sachs & Co., serves as
Subadviser for the Global Bond Portfolio; and Morgan Stanley Asset Management
Inc. serves as Subadviser for the International Diversified Equities and
Worldwide High Income Portfolios. There is no Subadviser for the High-Yield
Bond, Aggressive Growth, SunAmerica Balanced and Cash Management Portfolios and
SAAMCo therefore performs all investment advisory services for these Portfolios.
Shares of SunAmerica Trust are and will be issued and redeemed only in
connection with investments in and payments under variable contracts sold by the
Company and its affiliate, First SunAmerica Life Insurance Company. In the
future, however, SunAmerica Trust shares may be used as the underlying
investment medium for other variable annuity contracts and for variable life
contracts offered by the Company. Neither the Company nor SunAmerica Trust
currently foresees any disadvantages to either variable annuity or variable life
contract owners arising from such usage.
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<PAGE> 20
The eighteen available Underlying Funds and their investment objectives are
as stated below:
INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO seeks long-term capital
appreciation by investing in common stocks of foreign issuers in accordance with
country weightings as determined by the Subadviser which, in the aggregate,
replicate broad country indices.
GLOBAL EQUITIES PORTFOLIO seeks long-term growth of capital through
investment primarily in common stocks or securities of U.S. and foreign issuers
with common stock characteristics which demonstrate the potential for
appreciation and through transactions in foreign currencies.
AGGRESSIVE GROWTH PORTFOLIO seeks capital appreciation by investing
primarily in equity securities of small capitalization growth companies.
VENTURE VALUE PORTFOLIO seeks to achieve growth of capital by investing
primarily in common stocks.
FEDERATED VALUE PORTFOLIO seeks growth of capital and income by investing
primarily in the securities of high quality companies.
PROVIDENT GROWTH PORTFOLIO
GROWTH/PHOENIX INVESTMENT COUNSEL PORTFOLIO
ALLIANCE GROWTH PORTFOLIO
These three Underlying Funds have the same investment objectives, policies
and restrictions and differ only as to subadvisers. The investment objective of
each Underlying Fund is to provide long-term growth of capital by investing
primarily in common stocks or securities with common stock characteristics which
demonstrate the potential for appreciation.
GROWTH-INCOME PORTFOLIO seeks growth of capital and income by investing
primarily in common stocks or securities which demonstrate the potential for
appreciation and/or dividends.
ASSET ALLOCATION PORTFOLIO seeks high total return (including income and
capital gains) consistent with preservation of capital over the long-term
through a diversified portfolio that can include common stocks and other
securities having common stock characteristics, bonds and other intermediate and
long-term fixed-income securities and money market instruments (debt securities
maturing in one year or less) in any combination.
SUNAMERICA BALANCED PORTFOLIO seeks to conserve principal by maintaining at
all times a balanced portfolio of stocks and bonds.
BALANCED/PHOENIX INVESTMENT COUNSEL PORTFOLIO seeks reasonable income,
long-term capital growth and conservation of capital by investing primarily in
common stocks and fixed income securities, with an emphasis on income-producing
securities which appear to have some potential for capital enhancement.
UTILITY PORTFOLIO seeks high current income and moderate capital
appreciation by investing primarily in the equity and debt securities of utility
companies.
WORLDWIDE HIGH INCOME PORTFOLIO seeks high current income and, secondarily,
capital appreciation, by investing primarily in a portfolio of high-yielding
fixed-income securities of issuers located throughout the world.
HIGH-YIELD BOND PORTFOLIO seeks a high level of current income and
secondarily seeks capital appreciation by investing primarily in intermediate
and long-term corporate obligations, with emphasis on higher-yielding,
higher-risk, lower-rated or unrated securities.
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<PAGE> 21
THE WORLDWIDE HIGH INCOME AND HIGH-YIELD BOND PORTFOLIOS INVEST
PREDOMINANTLY IN, AND THE BALANCED/PHOENIX INVESTMENT COUNSEL PORTFOLIO MAY
INVEST IN, LOWER-RATED AND UNRATED BONDS. BONDS OF THIS TYPE ARE TYPICALLY
SUBJECT TO GREATER MARKET FLUCTUATIONS AND RISK OF LOSS OF INCOME AND PRINCIPAL
DUE TO DEFAULT BY THE ISSUER THAN ARE INVESTMENTS IN LOWER-YIELDING,
HIGHER-RATED BONDS. SEE THE SUNAMERICA TRUST PROSPECTUS FOR MORE INFORMATION.
GLOBAL BOND PORTFOLIO seeks a high total return, emphasizing current income
and, to a lesser extent, providing opportunities for capital appreciation,
through investment in high-quality fixed-income securities of U.S. and foreign
issuers and through transactions in foreign currencies.
CORPORATE BOND PORTFOLIO seeks a high total return with only moderate price
risk by investing primarily in investment grade, fixed-income securities.
CASH MANAGEMENT PORTFOLIO seeks high current yield while preserving capital
by investing in a diversified selection of money market instruments.
There is no assurance that the investment objective of any of the
Underlying Funds will be met. Participants bear the complete investment risk for
Purchase Payments allocated to a Portfolio. Contract Values will fluctuate in
accordance with the investment performance of the Portfolio(s) to which Purchase
Payments are allocated, and in accordance with the imposition of the fees and
charges assessed under the Contracts.
DETAILED INFORMATION ABOUT THE UNDERLYING FUNDS IS CONTAINED IN THE
ACCOMPANYING CURRENT PROSPECTUSES OF THE ANCHOR TRUST AND THE SUNAMERICA TRUST.
AN INVESTOR SHOULD CAREFULLY REVIEW THOSE PROSPECTUSES BEFORE ALLOCATING AMOUNTS
TO BE INVESTED IN THE PORTFOLIOS OF THE SEPARATE ACCOUNT.
VOTING RIGHTS
To the extent required by applicable law, the Company will vote the shares
of the Underlying Funds held in the Separate Account at meetings of the
shareholders of the Anchor Trust or SunAmerica Trust in accordance with
instructions received from persons having the voting interest in the
corresponding Portfolios. The Company will vote shares for which it has not
received instructions in the same proportion as it votes shares for which it has
received instructions. Neither Anchor Trust nor SunAmerica Trust hold regular
meetings of shareholders.
The number of shares which a person has a right to vote will be determined
as of a date to be chosen by the Anchor Trust or the SunAmerica Trust not more
than 60 days prior to the meeting of the respective Underlying Fund's
shareholders. Voting instructions will be solicited by written communication in
advance of such meeting. Except as may be limited by the terms of the retirement
plan pursuant to which the Contract was issued, the person having such voting
rights will be the Participant before the Annuity Date; thereafter the payee
entitled to receive payments under the Certificate.
SUBSTITUTION OF SECURITIES
If the shares of any of the Underlying Funds should no longer be available
for investment by the Separate Account or if, in the judgment of the Company's
Board of Directors, further investment in the shares of an Underlying Fund is no
longer appropriate in view of the purposes of the Contract, the Company may
substitute shares of another mutual fund (or series thereof) for Underlying Fund
shares already purchased and/or to be purchased in the future by Purchase
Payments under the Contract. No such substitution of securities may take place
without prior approval of the Commission and under such requirements as the
Commission may impose.
- --------------------------------------------------------------------------------
FIXED ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
ALLOCATIONS
Purchase Payments may also be allocated, and Contract Values in the
Separate Account transferred, to one or more of the fixed options available
through the Company's General Account. Amounts thus applied will earn interest
for one or more of the available Guarantee Periods selected by the Owner, at
Guarantee Rates based on the Current Interest Rates set by the Company for such
Guarantee Periods. Current Interest Rates may change from time to
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<PAGE> 22
time due to changes in market conditions or other factors. However, the
Guarantee Rate in effect at the time one of these options is selected will not
change for the remainder of the Guarantee Period. THE COMPANY'S OBLIGATION TO
PAY INTEREST AT THE GUARANTEE RATE IS NOT AFFECTED BY THE PERFORMANCE OF THE
COMPANY'S GENERAL ACCOUNT INVESTMENTS.
Guarantee Periods are currently available for periods of one, three, five,
seven and ten years; not all options are available in all states. An Owner may
elect to allocate Purchase Payments to one or more of those Guarantee Periods.
Each such allocation (to the extent not withdrawn, transferred or annuitized
prior to the end of the Guarantee Period), will earn interest, credited daily,
at the annual effective Guarantee Rate established for the Guarantee Period at
the time the allocation is made. The Guarantee Rate is based on the Current
Interest Rate in effect at the time the allocation is made. The Current Interest
Rate applicable to renewals for new Guarantee Periods of amounts already
allocated to the Fixed Account, or to transfers from the Separate Account to the
Fixed Account, may differ from the Current Interest Rates applicable to Purchase
Payments. The Current Interest Rates are set at the sole discretion of the
Company. OWNERS BEAR THE RISK THAT CURRENT INTEREST RATES AVAILABLE AT FUTURE
TIMES MAY BE MORE OR LESS THAN THOSE CURRENTLY OR INITIALLY AVAILABLE. THEY ALSO
BEAR THE RISK THAT SUCH RATES MAY NOT EXCEED THE GUARANTEED MINIMUM RATE OF 3%.
RENEWALS
Within 30 days after the end of a Guarantee Period, amounts accumulated
during that Guarantee Period may be reallocated to the Fixed Account for a new
Guarantee Period of the same or of a different duration. If the new Guarantee
Period is of the same duration, the amounts will receive the Current Interest
Rate in effect for that duration as of the last day of the previous Guarantee
Period and the new Guarantee Period will begin the following business day. If
the new Guarantee Period is of a different duration and the election is received
after the expiration of the Guarantee Period, the amounts will receive the
Current Interest Rate described in the previous sentence until such time as the
election is received (at which time interest will be credited at the Current
Interest Rate then in effect for the new selected Guarantee Period). In that
case, the new Guarantee Period will begin on the day that the reallocation is
made. Also, during such 30-day period, those amounts may be withdrawn,
transferred or annuitized without application of the Market Value Adjustment
(See below). However, any such amounts withdrawn may nevertheless be subject to
the Withdrawal Charge.
At the end of a Guarantee Period, the Company will, unless the Participant
has elected otherwise, assume reallocation for the same period, unless the new
period would expire after the Annuity Date (or, if none has been selected, the
Latest Annuity Date). In the latter case, the Company will choose the longest
available Guarantee Period that will not extend beyond such date. If the renewal
occurs within one year prior to that date, interest will be credited to such
Annuity Date at the then Current Interest Rate for a one-year Guarantee Period.
MARKET VALUE ADJUSTMENT
Contract Value withdrawn, transferred or, prior to the Annuity Date,
annuitized from the Fixed Account under the three, five, seven and ten year
Fixed Account options described above prior to the expiration of the Guarantee
Period (other than withdrawals for the purpose of paying the death benefit upon
the death of the Participant, withdrawals from the one year Fixed Account option
under the Automatic Dollar Cost Averaging Program or Asset Allocation
Rebalancing Program or withdrawals made to pay Contract fees or charges), the
amounts thus withdrawn, transferred or annuitized are subject to a 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, such as a
Guarantee
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<PAGE> 23
Rate. The MVA may be either positive or negative, and is computed by multiplying
the amount withdrawn, transferred or annuitized by the following factor:
[(1 + I)/(1 + J + 0.005)]N/12 -1
where
I is the Guarantee Rate in effect;
J is the Current Interest Rate available for a period equal to the number
of years remaining in the Guarantee Period at the time of withdrawal,
transfer or annuitization (fractional years are rounded up to the next
full year); and
N is the number of full months remaining in the Guarantee Period at the
time the withdrawal, transfer or annuitization request is processed.
In general, whether the MVA will operate to increase or decrease the
Contract Value upon withdrawal, transfer or annuitization is determined by
comparing the Guarantee Rate in effect for that allocation to the Current
Interest Rate (as of the date of the transaction) that would apply for a
Guarantee Period equal to the number of full or fractional years remaining in
the Guarantee Period as of that date. (For purposes of determining the MVA, if
the Company does not offer a Guarantee Period of that duration, the applicable
Current Interest Rate will be determined by linear interpolation between Current
Interest Rates for the nearest two Guarantee Periods that are available). If the
Current Interest Rate thus determined plus one-half of one percent is greater
than the Guarantee Rate, the MVA will be negative and Contract Value will be
decreased. Similarly, if the Current Interest Rate plus one-half of one percent
is less than the Guarantee Rate, Contract Value will be increased. If the
Current Interest Rate is exactly one-half of one percent less than the Guarantee
Rate, the MVA will be zero and Contract Value will not be affected by the MVA.
The impact of the MVA is more significant the greater is the time remaining
in the Guarantee Period at the time of withdrawal, transfer or annuitization. If
the MVA is negative, it will be assessed first against any remaining value
allocated to the Fixed Account under the affected option; any remaining
unsatisfied MVA charge will be applied against the proceeds of the withdrawal,
transfer or annuitization. If the MVA is positive, it will be credited to the
amount withdrawn, transferred or annuitized. Some examples of how the MVA is
computed and its impact on Contract Value appear in Appendix A.
The Company will not assess a negative MVA for amounts allocated to the one
year Fixed Account option. That portion of the Contracts relating to allocations
to the one year Fixed Account option is not registered under the Securities Act
of 1933 (the "Act") and is therefore not subject to the restriction of the Act.
The Fixed Account options, including the one year Fixed Account, are not subject
to the provisions of the Investment Company Act of 1940.
- --------------------------------------------------------------------------------
CONTRACT CHARGES
- --------------------------------------------------------------------------------
As is more fully described below, charges under the Contract offered by
this prospectus are assessed in three ways: (1) as deductions for administrative
expenses and, if applicable, for premium taxes; (2) as charges against the
assets of the Separate Account for the assumption of mortality and expense risks
and distribution expense charges; and (3) as Withdrawal Charges (contingent
deferred sales charges). In addition, certain deductions are made from the
assets of the Underlying Funds for investment management fees and expenses;
those fees and expenses are described in the prospectuses for the Anchor Trust
and the SunAmerica Trust.
MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a Mortality and Expense Risk Charge from each Portfolio
during each Valuation Period. The aggregate Mortality and Expense Risk Charge is
equal, on an annual basis, to 1.37% of the net asset value of each Portfolio
(approximately 1.02% is for mortality risks and approximately 0.35% is for
expense risks). The Mortality and Expense Risk Charge is assessed during both
the Accumulation Period and the Annuity Period; however, it is not applied to
Contract Values allocated to the Fixed Account.
The mortality risks assumed by the Company arise from its contractual
obligations: (1) to make annuity payments after the Annuity Date for the life of
the Annuitant(s); (2) to waive the Withdrawal Charge in the event
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<PAGE> 24
of the death of the Participant; and (3) to provide both a standard and an
enhanced death benefit prior to the Annuity Date. The portion of the total
Mortality and Expense Risk Charge attributable to the Company's providing the
first two of those three benefits and providing a standard death benefit is
0.90% annually of net assets; the balance of 0.12% is assessed for providing an
enhanced death benefit. A detailed explanation of the standard and enhanced
death benefits may be found under "Description of the Contracts -- Death
Benefit".
The expense risk assumed by the Company is that the costs of administering
the Contracts and the Separate Account will exceed the amount received from the
Contract Administration Charge. (See "Administrative Charges" below). The
mortality and expense risk charges are guaranteed by the Company and cannot be
increased.
ADMINISTRATIVE CHARGES
CONTRACT ADMINISTRATION CHARGE
An annual Contract Administration Charge of $35 is charged against each
Certificate. The amount of this charge is guaranteed and cannot be increased by
the Company. This charge reimburses the Company for expenses incurred in
establishing and maintaining records relating to a Contract. The Contract
Administration Charge will be assessed on each anniversary of the Certificate
Date that occurs on or prior to the Annuity Date. In the event that a total
surrender of Contract Value is made, the Charge will be assessed as of the date
of surrender without proration. This Charge is not assessed during the Annuity
Period.
The total Contract Administration Charge is allocated between the
Portfolios and the Fixed Account in proportion to the respective Contract Values
similarly allocated. The Contract Administration Charge is at cost with no
margin included for profit.
The Company will waive the Contract Administration Charge for any
Certificate which has a Contract Value of $50,000 or greater on the anniversary
of the Certificate Date. The Company reserves the right to suspend waiver of the
Contract Administration Charge at any time and without notice.
TRANSFER FEE
In general, a transfer fee of $25 ($10 in Pennsylvania and Texas) is
assessed on each transaction effecting transfer(s) from Portfolio(s) to other
Portfolio(s), from Portfolio(s) to the Fixed Account, from the Fixed Account to
Portfolio(s), and from one Guarantee Period to another within the Fixed Account
prior to the end of a Guarantee Period. However, the first fifteen such
transactions effecting transfer(s) in any Contract Year are permitted without
the imposition of the transfer fee, which will be assessed on the sixteenth and
each subsequent transaction within the Contract Year.
This fee will be deducted from Contract Values which remain in the
Portfolio(s) (or, where applicable, the Fixed Account) from which the transfer
was made. If such remaining Contract Value is insufficient to pay the transfer
fee, then the fee will be deducted from transferred Contract Values. The
transfer fee is at cost with no margin included for profit.
SALES CHARGES
WITHDRAWAL CHARGE
Federal tax law places a number of constraints on withdrawals from annuity
contracts. Subject to those limitations, the Contract Value may be withdrawn at
any time during the Accumulation Period. Owners should consult their own tax
counsel or other tax advisers regarding any withdrawals. (See "Taxes -- Tax
Treatment of Withdrawals".)
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<PAGE> 25
A contingent deferred sales charge, which is referred to as the Withdrawal
Charge, may be imposed upon certain withdrawals. Withdrawal Charges will vary in
amount depending upon the Contribution Year of the Purchase Payment at the time
of withdrawal in accordance with the Withdrawal Charge table shown below.
WITHDRAWAL CHARGE TABLE
<TABLE>
<CAPTION>
APPLICABLE WITHDRAWAL
CONTRIBUTION YEAR CHARGE PERCENTAGE
-------------------------------------------------------------- ---------------------
<S> <C>
Zero.......................................................... 7%
First......................................................... 6%
Second........................................................ 5%
Third......................................................... 4%
Fourth........................................................ 3%
Fifth......................................................... 2%
Sixth......................................................... 1%
Seventh and later............................................. 0%
</TABLE>
The Withdrawal Charge is deducted from remaining Contract Value so that the
actual reduction in Contract Value as a result of the withdrawal will be greater
than the withdrawal amount requested and paid. For purposes of determining the
Withdrawal Charge, withdrawals will be allocated first to investment income, if
any (which may generally be withdrawn free of Withdrawal Charge), and then to
Purchase Payments on a first-in, first-out basis so that all withdrawals are
allocated to Purchase Payments to which the lowest (if any) Withdrawal Charge
applies.
Purchase Payments that are no longer subject to the Withdrawal Charge (and
not previously withdrawn), plus earnings in the Participant's account, may be
withdrawn free of Withdrawal Charges at any time.
In addition, for the first withdrawal during a Contract Year after the
first Contract Year, no Withdrawal Charge is applied to that part of the
withdrawal which does not exceed the greater of (a) earnings in the
Participant's Account or (b) 10% of Purchase Payments made more than one year
prior to the date of withdrawal that remain subject to the Withdrawal Charge and
that have not previously been withdrawn. The portion of a free withdrawal which
exceeds the sum of earnings in a Participant's account and premiums which are
both no longer subject to a Withdrawal Charge and not yet withdrawn, is assumed
to be a withdrawal against future earnings. Although amounts withdrawn free of a
Withdrawal Charge reduce principal in a Participant's account, they do not
reduce Purchase Payments for purposes of calculating the Withdrawal Charge. As a
result, a Participant will not receive the benefit of a free withdrawal in a
full surrender.
If the withdrawal request does not specify from which Portfolio(s) or
Guarantee Amount(s) the withdrawal is to be made, the request will be processed
by reducing the Contract Values in each category in proportion to their
allocations. Therefore, FAILURE TO SPECIFY AN ALLOCATION MAY RESULT IN THE
IMPOSITION OF A MARKET VALUE ADJUSTMENT IN CASES WHERE AMOUNTS ARE ALLOCATED TO
THE FIXED ACCOUNT.
For examples of how the Withdrawal Charge is applied, see Appendix A.
The Company will waive the Withdrawal Charge on any withdrawal necessary to
satisfy the minimum distribution requirements of the Code or upon payment of a
death benefit. Where legally permitted, the Withdrawal Charge may be eliminated
when a Certificate is issued to an officer, director or employee of the Company
or its affiliates or to a trustee of one of the Underlying Funds.
For Certificates issued with an appropriate endorsement, if the Owner is
confined to a nursing care facility (as defined in the endorsement) for sixty
(60) consecutive days or longer, the Company will waive the Withdrawal Charge on
certain withdrawals prior to the Annuity Date. Such confinement must begin after
the Certificate Date and the Company must receive satisfactory written evidence
of such confinement. The Company will waive the Withdrawal Charge under the
endorsement only for withdrawals made during such confinement or within ninety
(90) days after the confinement ends. The endorsement will not be available in
all states. Participants should contact the Company or the financial
representative from which this prospectus was obtained as to the availability of
this endorsement.
The amounts obtained from the Withdrawal Charge will be used to pay sales
commissions and other promotional or distribution expenses associated with the
marketing of the Contracts. To the extent that the
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<PAGE> 26
Withdrawal Charge is insufficient to cover all sales commissions and other
promotional or distribution expenses, the Company may use any of its corporate
assets, including potential profit which may arise from the Mortality and
Expense Risk Charge and the Distribution Expense Charge, to make up any
difference.
DISTRIBUTION EXPENSE CHARGE
The Company deducts a Distribution Expense Charge from each Portfolio
during each Valuation Period which is equal, on an annual basis, to 0.15% of the
net asset value of the Portfolio. This charge is designed to compensate the
Company for assuming the risk that the cost of distributing the Contracts will
exceed the revenues from the Withdrawal Charge. The Commission considers the
Distribution Expense Charge to constitute a sales charge for purposes of the
Investment Company Act of 1940. In no event will this charge be increased.
Moreover, the sum of all Withdrawal Charges described above and the Distribution
Expense Charges assessed will at no time exceed 9% of all Purchase Payments
previously made. The Distribution Expense Charge is assessed during both the
Accumulation Period and the Annuity Period; however, it is not applied to
Contract Values allocated to the Fixed Account.
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 of surrender or when annuity payments begin. The Company currently intends
to deduct premium taxes at the time of surrender, upon death of the Participant
or upon annuitization; however, it reserves the right to deduct any premium
taxes when incurred. Premium taxes generally range from 0% to 3.5%.
DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES
While the Company is not currently maintaining a provision for taxes, the
Company 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. The Company will deduct for any
taxes incurred by it as a result of the operation of the Separate Account
whether or not there was a provision for taxes and whether or not it was
sufficient. (See "Taxes".)
OTHER EXPENSES
The charges and expenses applicable to the various Underlying Funds are
borne indirectly by Participants having Contract Values allocated to the
Portfolios that invest in the respective Underlying Funds. For a summary of
current estimates of those charges and expenses, see "Underlying Fund Expenses".
For more detailed information about those charges and expenses, please refer to
the prospectus for either Anchor Trust or SunAmerica Trust, as appropriate.
REDUCTION OF CHARGES FOR SALES TO CERTAIN GROUPS
The Company may reduce the sales and administrative charges on Contracts
sold to certain groups of individuals, or to a trustee, employer or other entity
representing a group, where it is expected that such sales will result in
savings of sales or administrative expenses. The Company determines the
eligibility of groups for such reduced charges, and the amount of such
reductions for particular groups, by considering the following factors: (1) the
size of the group; (2) the total amount of Purchase Payments expected to be
received from the group; (3) the nature of the group for which the Contracts are
purchased, and the persistency expected in that group; (4) the purpose for which
the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and (5) any other circumstances which the Company
believes to be relevant to determining whether reduced sales or administrative
expenses may be expected. None of the reductions in charges for group sales is
contractually guaranteed. Such reductions may be withdrawn or modified by the
Company on a uniform basis. The Company's reductions in charges for group sales
will not be unfairly discriminatory to the interests of any Owners.
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- --------------------------------------------------------------------------------
DESCRIPTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
SUMMARY
The Contracts provide for the accumulation of Contract Values during the
Accumulation Period. (See "Purchases, Withdrawals and Contract Value"). Upon
Annuitization, benefits are payable under the Contracts in the form of an
annuity, either for the life of the Annuitant or for a fixed number of years.
(See "Annuity Period -- Annuity Options".)
PARTICIPANT
The Participant is the person normally entitled to exercise all rights of
ownership under the Contracts. The Participant is also the person entitled to
receive benefits under the Contract, although the Participant may, subject to
limitations in the case of Qualified Plans, designate an alternative payee.
ANNUITANT
The Annuitant is the person on whose life annuity payments under a
Certificate depend. The Participant may change the designated Annuitant at any
time prior to the Annuity Date. In the case of a Certificate issued in
connection with a plan qualified under Section 403(b) or 408 of the Code, the
Participant is the Annuitant. The Participant may also designate a second person
on whose life, together with that of the Annuitant, annuity payments depend. In
the case of Qualified Plans, the designated second person is generally required
to be the Participant's spouse if the Participant is married. In the event an
Annuitant dies prior to the Annuity Date, the Participant must notify the
Company and designate a new Annuitant. The Participant must attest to the
Annuitant being alive before the Company will annuitize a Contract.
MODIFICATION OF THE CONTRACT
Only the Company's President, a Vice President or Secretary may approve a
change or waive any provisions of the Contract. Any change or waiver must be in
writing. No agent has the authority to change or waive the provisions of the
Contract.
The Company reserves the right to change the terms of the Contract as may
be necessary to comply with changes in applicable law.
ASSIGNMENT
Contracts issued pursuant to Nonqualified Plans that are not subject to
Title 1 of the Employee Retirement Income Security Act of 1974 ("ERISA") may be
assigned by the Owner at any time during the lifetime of the Annuitant prior to
the Annuity Date. The Company will not be bound by any assignment until written
notice is received by the Company at its Annuity Service Center. The Company is
not responsible for the validity, or tax or other legal consequences of any
assignment. An assignment will not affect any payments the Company may make or
actions it may take before it receives notice of the assignment.
If the Contract is issued pursuant to a Qualified Plan (or a Nonqualified
Plan that is subject to Title 1 of ERISA), it may not be assigned, pledged or
otherwise transferred except under such conditions as may be allowed under
applicable law.
BECAUSE AN ASSIGNMENT MAY BE A TAXABLE EVENT, CONTRACT OWNERS SHOULD
CONSULT COMPETENT TAX ADVISERS SHOULD THEY WISH TO ASSIGN THEIR CONTRACTS.
DEATH BENEFIT
If the Participant dies during the Accumulation Period, a Death Benefit
will be payable to the Beneficiary upon receipt by the Company of Due Proof of
Death of the Participant. Provided the Beneficiary provides a written election
to the Company within 60 days of the Company's receipt of Due Proof of Death of
the Participant, the Beneficiary may alternatively elect to (i) receive the
Death Benefit in a lump sum payment, (ii) receive the Death Benefit in the form
of one of the annuity options (over the life of the Beneficiary or over a period
not extending beyond the life expectancy of the Beneficiary), with payments
commencing within one year of the Participant's death, (iii) elect to continue
the Contract and receive the entire Contract Value (adjusted for any applicable
Withdrawal Charge and Market Value Adjustment) within 5 years after the
Participant's death, or (iv) if the Participant was the Beneficiary's spouse,
elect to continue the Contract in force. If no option is selected within 60
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<PAGE> 28
days of the Company's receipt of Due Proof of Death of the Participant, the
Company will pay the Death Benefit in a single lump sum to the Beneficiary.
The standard Death Benefit is equal to the greater of:
(1) the Contract Value at the end of the Valuation Period during which
Due Proof of Death and an election of the type of payment to the
Beneficiary is received by the Company, at its Annuity Service Center; or
(2) the total dollar amount of Purchase Payments made prior to the
death of the Participant, minus the sum of:
(a) the total amount of any partial withdrawals and/or partial
annuitizations; and
(b) premium taxes incurred.
In addition, where permitted under state law, the Company will provide an
enhanced Death Benefit. The enhanced Death Benefit, which is currently available
in all states, is determined by (A) recomputing the standard Death Benefit by
accumulating all amounts under (2) above annually at 4% (3% if the Participant
was age 70 or older on the Certificate Date) to the date of death, and (B)
paying the greater of the amount so determined and the following amount, which
is deemed to be $0 if the Participant dies prior to the seventh Contract
Anniversary:
The Contract Value at the seventh Certificate anniversary, plus any
Purchase Payments made since that anniversary and before the death of the
Participant, minus the sum of:
(a) the total amount of partial withdrawals and/or partial
annuitizations since such seventh anniversary; and
(b) premium taxes incurred since the seventh anniversary,
all accumulated annually at 4% (3% if the Participant was age 70 or older
on the Certificate Date) to the date of death.
NOTE: The portion of the Mortality and Expense Risk Charge attributable to the
enhanced Death Benefit (0.12%) will be assessed against Separate Account
allocations pursuant to all Contracts issued, whether or not applicable state
law permits the Contract to offer the enhanced Death Benefit. Therefore,
purchasers of Contracts in states where the enhanced Death Benefit is not
permitted (currently none) and who allocate Contract Value to the Separate
Account will be paying for a benefit they will not receive. The standard Death
Benefit is available in all states.
For an example of how the enhanced Death Benefit is computed, see Appendix
B.
BENEFICIARY
The Participant may designate the Beneficiary(ies) to receive any amount
payable on death. The original Beneficiary(ies) will be named in the
application. Unless an irrevocable Beneficiary(ies) designation was previously
filed, the Participant may change the Beneficiary(ies) prior to the Annuity Date
by written request delivered to the Company at its Annuity Service Center or by
completing a Change of Beneficiary Form provided by the Company. Any change will
take effect when recorded by the Company. The Company is not liable for any
payment made or action taken before it records the change.
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PURCHASES, WITHDRAWALS AND CONTRACT VALUE
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MINIMUM PURCHASE PAYMENT
The minimum initial Purchase Payment for Contracts issued pursuant to a
Nonqualified Plan is $5,000 and the maximum is $500,000. Minimum subsequent
Purchase Payments may be made in amounts of $500 or more ($20 or more if made in
connection with an Automatic Payment Plan, described below). The minimum initial
Purchase Payment for a Contract issued pursuant to a Qualified Plan is $2,000
and the maximum is $500,000. Minimum subsequent Purchase Payments may be made in
amounts of $250 or more ($20 or more if made in connection with an Automatic
Payment Plan, described below). The Company reserves the right to refuse any
Purchase Payment at any time. Generally, the Company will not issue a
Certificate under a Nonqualified Plan to a Participant who is age 80 or older or
under a Qualified Plan to a Participant who is age 70 1/2 or older.
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AUTOMATIC PAYMENT PLAN
Participants utilizing automatic bank drafts through the Company's
Automatic Payment Plan may make scheduled subsequent Purchase Payments of $20 or
more per month. An enrollment form for this program is available through the
Company's Annuity Service Center.
AUTOMATIC DOLLAR COST AVERAGING PROGRAM
Owners who wish to purchase units of the Portfolios over a period of time
may be able to do so through the Automatic Dollar Cost Averaging ("DCA")
Program. Under the DCA Program, the Owner may authorize the automatic transfer
of a fixed dollar amount ($100 minimum) of his or her choice at monthly,
quarterly, semi-annual or annual intervals from a source account to one or more
of the Portfolios (other than the source account) at the unit values determined
on the dates of the transfers. Currently, all Portfolios and the one year Fixed
Account option are available as source accounts; however, the Owner must elect
to have the transfers made exclusively from one source account. The theory of
dollar cost averaging is that, if purchases are made at fluctuating prices, this
will have the effect of reducing the aggregate average cost per unit to less
than the average of the unit prices on the same purchase dates. However,
participation in the DCA Program does not assure the Owner of a greater profit
from his or her purchases; nor will it prevent or necessarily alleviate losses
in a declining market.
Another option under the DCA Program is the periodic transfer of a selected
percentage of the value of the source account to one of the Portfolios (other
than the source account). A third option is to transfer the entire Contract
Value in the source account in a stated number of transfers as selected by the
Participant.
An Owner may elect to increase, decrease or change the frequency or amount
of Purchase Payments under the DCA Program. The application and any Purchase
Payments should be sent to the Company at its Annuity Service Center. The
Company reserves the right to modify, suspend or terminate the DCA Program at
any time.
ASSET ALLOCATION REBALANCING PROGRAM
Owners may participate in the Asset Allocation Rebalancing ("AAR") Program
pursuant to which Owners authorize the Company to automatically transfer their
Contract Value on a periodic basis to maintain a particular percentage
allocation among the Portfolios or the one year Fixed Account option as selected
by the Owner. Since the Contract Value allocated to each Portfolio will grow or
decline at different rates depending on the investment experience of the
Portfolio, AAR automatically reallocates the Contract Value in the Portfolios
and the one year Fixed Account option to the allocation selected by the Owner.
One theory behind this type of reallocation is that it may help an Owner
purchase Accumulation Units low and sell Accumulation Units high. However,
participation in AAR does not assure the Owner of a greater profit from his or
her purchases nor will it prevent or necessarily alleviate losses in a declining
market.
An Owner may select that rebalancing occur on a quarterly, semiannual or
annual basis. Contract Value reallocation will occur on the last business day
before the selected period ends. If an Owner elects to participate in AAR, the
entire Contract Value must be included in the program, except for allocations to
the three, five, seven and ten year Fixed Account options. Amounts transferred
under AAR are not counted against the 15 free transfers per Contract Year or
subject to any transfer charge or Market Value Adjustment. Owners may
participate in AAR by completing an Asset Allocation Rebalancing Authorization
Form or by calling the Company at its Annuity Service Center. On the application
or form, as appropriate, the Owner must select the Portfolios or one year Fixed
Account option, the percentage of Contract Value to be allocated to each under
the program and the frequency of rebalancing. Owners may modify their
allocations or terminate participation in the program by completing an Asset
Allocation Rebalancing Authorization Form and indicating the appropriate
instructions. The Company reserves the right to modify, suspend or terminate AAR
at any time.
PRINCIPAL ADVANTAGE PROGRAM
Owners may participate in the Principal Advantage Program pursuant to which
the Owner's Purchase Payment is divided between one or more of the Fixed Account
options and one or more of the Portfolios. While the Owner selects the Fixed
Account options and the Portfolio(s), the Principal Advantage Program determines
the portion of Purchase Payments allocated to each. When determined in
accordance with the Principal Advantage Program, the portion allocated to the
Fixed Account option(s) will be guaranteed by the Company to grow to equal the
full amount of the Purchase Payment over an established period of time. The
remaining portion of Purchase Payment is then invested in the Portfolios, where
it has the potential to achieve greater growth.
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An Owner may elect to participate in the Principal Advantage Program (1) at
the time of initial purchase, by completing the instructions on the Contract
application and requesting it in the "Special Instructions" section of the
application or (2) at the time of a subsequent purchase or by reallocation of
the existing Contract Value, by contacting the Company or the financial
representative from whom this prospectus was obtained. The Company reserves the
right to modify, suspend or terminate the Principal Advantage Program at any
time.
ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments are allocated to the Fixed Account and/or the
Portfolio(s) selected by the Owner. Owners making initial Purchase Payments
should specify their allocations on the application for a Contract. If the
application is in good order, the Company will apply the initial Purchase
Payment to the Fixed Account and/or the Portfolio(s), as selected, and credit
the Contract with Accumulation Units within two business days of receipt at the
Company's address for correspondence accompanied by payments. The number of
Accumulation Units in a Portfolio attributable to a Purchase Payment is
determined by dividing that portion of the Purchase Payment which is allocated
to the Portfolio by that Portfolio's Accumulation Unit value as of the end of
the Valuation Period when the allocation occurs.
IF THE APPLICATION DOES NOT SPECIFY AN ALLOCATION, THE APPLICATION IS NOT
IN GOOD ORDER. If the application for a Contract or Certificate is not in good
order for this or any other reason, the Company will attempt to rectify it
within five business days of its receipt at the Company's address for
correspondence accompanied by payments. The Company will credit the initial
Purchase Payment within two business days after the application has been
rectified. Unless the prospective Owner consents otherwise, the application and
the initial Purchase Payment will be returned if the application cannot be put
in good order within five business days of such receipt.
Just like Owners making initial Purchase Payments, Owners making subsequent
Purchase Payments should specify how they want their payments allocated.
OTHERWISE, THE COMPANY WILL AUTOMATICALLY PROCESS THE PURCHASE PAYMENT BASED ON
THE PREVIOUS ALLOCATION.
TRANSFER DURING ACCUMULATION PERIOD
During the Accumulation Period, the Owner, or his or her agent, may
transfer Contract Values among Portfolios and/or the Fixed Account, by written
request or by telephone authorization pursuant to a duly executed Telephone
Transfer Authorization Form delivered to the Company at its Annuity Service
Center, if applicable law permits. The Company has in place procedures which are
designed to provide reasonable assurance that telephone authorizations are
genuine, including tape recording of telephone communications and requesting
identifying information. Accordingly, the Company and its affiliates disclaim
all liability for any claim, loss or expense resulting from any alleged error or
mistake in connection with a telephone transfer which was not properly
authorized by the Owner. However, if the Company fails to employ reasonable
procedures to ensure that all telephone transfers are properly authorized, the
Company may be held liable for such losses. Telephone calls authorizing
transfers must be completed by 4:00 p.m. Eastern time on a Valuation Date in
order to be effected at the price determined on such date. Transfer
authorizations, whether written or telephone, which are received after 4:00 p.m.
Eastern time will be processed as of the next Valuation Date. The Company
reserves the right to modify or discontinue at any time and without notice the
use of telephone transfers and acceptance of transfer instructions from someone
other than the Owner. This transfer privilege may be suspended, modified or
terminated at any time without notice.
The minimum partial transfer amount is $100. Also, no partial transfer may
be made if the value of the Participant's interest in the Portfolio from which a
transfer is being made (or the remaining Guarantee Amount, where applicable)
would be less than $100 after the transfer. These dollar amounts are subject to
change at the Company's option. The Company may waive the minimum partial
transfer amount in connection with preauthorized automatic transfer programs.
Both prior to and after the Annuity Date, Contract Values may be
transferred from the Separate Account to the Fixed Account. Any amounts
allocated or transferred to the Fixed Account may, however, be transferred from
the Fixed Account to the Separate Account only prior to the Annuity Date.
Transfers may be made within the Fixed Account prior to the expiration date
of one or more Guarantee Periods, by electing to have the respective Guarantee
Amount(s) applied to newly established Guarantee Periods. Such
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transfers are counted against the 15 transfer allowance on free transfers. In
addition, such transfers are generally subject to a Market Value Adjustment.
SEPARATE ACCOUNT ACCUMULATION UNIT VALUE
On each day that the New York Stock Exchange is open for business, a
separate Accumulation Unit value is determined for each Portfolio. If the
Company elects or is required to assess a charge for taxes, a separate
Accumulation Unit value may be calculated for Contracts issued in connection
with Nonqualified and Qualified Plans, respectively, within each account.
The Accumulation Unit value for each Portfolio will vary with the price of
a share in the Underlying Fund and in accordance with the Mortality and Expense
Risk Charge, Distribution Expense Charge, and any provision for taxes.
Assessments of Withdrawal Charges, transfer fees and Contract Administration
Charges are made separately for each Certificate. They are effected by
redemption of Accumulation Units and do not affect Accumulation Unit value.
The Accumulation Unit value of a Portfolio for any Valuation Period is
calculated by subtracting (2) from (1) and dividing the result by (3) where:
(1) is the total value at the end of the Valuation Period of the
assets attributable to the Accumulation Units of the Portfolio minus
liabilities;
(2) is the cumulative unpaid charge for the assumption of mortality
and expense risks and for the distribution expense; and
(3) is the number of Accumulation Units outstanding at the end of the
Valuation Period.
FIXED ACCOUNT ACCUMULATION VALUE
The accumulation value of the fixed portion of a Participant's account at
any Valuation Date is equal to the sum of the values of all amounts allocated to
the Fixed Account that have been credited to the Participant's account up to and
including that date. The amount reflects interest accumulated to the Valuation
Date at the applicable Guarantee Rate, compounded annually, less withdrawals.
DISTRIBUTION OF CONTRACTS
Contracts are sold by registered representatives of broker-dealers who are
licensed insurance agents of the Company, either individually or through an
incorporated insurance agency. Commissions on initial Purchase Payments paid to
registered representatives may vary, but are not anticipated to exceed 7.25% of
any Purchase Payment (including any promotional sales incentives). In addition,
under certain circumstances and in exchange for lower initial commission,
certain sellers of the Contracts may be paid persistency bonuses which will take
into account, among other things, the length of time Purchase Payments have been
held under a Contract, and Contract Values. A persistency bonus is not
anticipated to exceed 1.00%, on an annual basis, of the Contract Values
considered in connection with the bonus. All such commissions, incentives and
bonuses are paid by the Company.
SunAmerica Capital Services, Inc., located at 733 Third Avenue, 4th Floor,
New York, New York, 10017, serves as distributor of the Contracts. SunAmerica
Capital Services, Inc., an indirect wholly owned subsidiary of the Company, 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.
WITHDRAWALS (REDEMPTIONS)
Except as explained below, a Participant may redeem a Certificate for all
or a portion of its Contract Value during the Accumulation Period. Withdrawal
Charges may be applicable, however, which would reduce the Contract Value upon
redemption. A Market Value Adjustment may also be applied, in the case of
redemptions from the Fixed Account, which would also affect Contract Value. (See
"Contract Charges -- Sales Charges -- Withdrawal Charge" and "Fixed Account
Options -- Market Value Adjustment".)
Withdrawals and distributions from Contracts issued in connection with
certain Qualified Plans may be subject to a mandatory 20% withholding
requirement. (See "Taxes -- Withholding Tax on Distributions".)
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Withdrawals of amounts attributable to contributions made pursuant to a
salary reduction agreement (in accordance with Section 403(b)(11) of the Code)
are limited to circumstances only: when the Participant attains age 59 1/2,
separates from service, dies, becomes disabled (within the meaning of Section
72(m)(7) of the Code), or in the case of hardship. Withdrawals for hardship are
restricted to the portion of the Contract Value which represents contributions
made by the Participant and does not include any investment results. These
limitations on withdrawals apply to: (1) salary reduction contributions made
after December 31, 1988; (2) income attributable to such contributions; and (3)
income attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers or exchanges between certain Qualified
Plans. Tax penalties may also apply. While the foregoing limitations only apply
to certain Contracts issued in connection with Section 403(b) Qualified Plans,
all Owners should seek competent tax advice regarding any withdrawals or
distributions. (See "Taxes".)
Except in connection with a Systematic Withdrawal Program, described below,
the minimum partial withdrawal amount is $1,000, or, if less, the Participant's
entire interest in the Portfolio or Fixed Account option from which a withdrawal
is requested. The Participant's interest in the Portfolio or Fixed Account
option from which the withdrawal is requested must be at least $100 after the
withdrawal is completed if anything is left in that Portfolio or Fixed Account
allocation.
A written withdrawal request or Systematic Withdrawal Program enrollment
form, as the case may be, must be sent to the Company at its Annuity Service
Center. The required program form will not be in good order unless it includes
the Participant's Tax I.D. Number (e.g., Social Security Number) and provides
instructions regarding withholding of income taxes. The Company provides the
required forms.
If the request is for total withdrawal, the Certificate, or a Lost
Certificate Affidavit (which may be obtained by calling the Company at its
Annuity Service Center), must be submitted as well. The withdrawal value is
determined on the basis of the Contract Values next computed following receipt
of a request in proper order. The withdrawal value will normally be paid within
seven days after the day a proper request is received by the Company. However,
the Company may suspend the right of withdrawal from the Separate Account or
delay payment for such withdrawal more than seven days: (1) during any period
when the New York Stock Exchange ("NYSE") is closed (other than customary
weekend and holiday closings); (2) when trading on the NYSE is restricted or an
emergency exists as determined by the Commission so that disposal of the
Separate Account's investments or determination of Accumulation Unit value is
not reasonably practicable; or (3) for such other periods as the Commission, by
order, may permit for protection of Owners.
SYSTEMATIC WITHDRAWAL PROGRAM
Certain Participants of Nonqualified Plan Contracts and Contracts issued in
connection with IRAs may choose to withdraw amounts which in the aggregate add
up to a maximum of 10% of their Purchase Payments annually without charge
pursuant to a Systematic Withdrawal Program. Systematic withdrawals will not be
limited to 10% of Purchase Payments once the Withdrawal Charge is no longer
applicable. Withdrawals are taxable and a 10% federal tax penalty may apply to
withdrawals before age 59 1/2. In addition, withdrawals from the Fixed Account
prior to the end of their respective Guarantee Periods are generally subject to
a Market Value Adjustment. (See "Fixed Account Options -- Market Value
Adjustment".)
Participation in the Systematic Withdrawal Program may be elected at the
time the Certificate is issued or on any date prior to the Annuity Date.
Depending on fluctuations in the net asset value of the Portfolios, systematic
withdrawals may reduce or even exhaust Contract Value. The minimum systematic
withdrawal amount is $250 per withdrawal. Participants must complete an
enrollment form and send it to the Company at its Annuity Service Center. The
Company reserves the right to modify, suspend or terminate the Systematic
Withdrawal Program at any time.
ERISA PLANS
Spousal consent may be required when a married Participant seeks a
distribution from a Contract that has been issued in connection with a Qualified
Plan (or a Nonqualified Plan that is subject to Title 1 of ERISA). Participants
should obtain competent advice.
DEFERMENT OF FIXED ACCOUNT WITHDRAWAL PAYMENTS
In the case of withdrawals or annuity payments from the Fixed Account, the
Company may defer making payment for a period of up to six months (or the period
permitted by applicable state insurance law, if less) from the
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date the Company receives notice of such withdrawal request. Only under highly
unusual circumstances will the Company defer a withdrawal payment from the Fixed
Account for more than 7 days, and if the Company defers payment for more than 7
days, it will pay interest of at least 3% per annum on the amount deferred.
While all the circumstances under which the Company could defer payment upon
withdrawal may not be foreseeable at this time, such circumstances could
include, for example, a time of unusually high surrender rate among
Participants, accompanied by a radical shift in interest rates. If the Company
intends to withhold payment for more than 7 days, it will notify affected
Participants in writing.
MINIMUM CONTRACT VALUE
If the Contract Value is less than $500 and no Purchase Payments have been
made during the previous three full calendar years, the Company reserves the
right, after 60 days written notice to the Participant, to terminate the
Certificate and distribute its Withdrawal Value to the Participant. This
privilege will be exercised only if the Contract Value has been reduced to less
than $500 as a result of withdrawals, and state law permits. In no instance
shall such termination occur if the value has fallen below $500 due to either
decline in Accumulation Unit value or the imposition of fees and charges.
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ANNUITY PERIOD
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ANNUITY DATE
The Participant selects an Annuity Date at the time of application. The
Annuity Date must always be the first day of a calendar month and must be at
least two years after the Certificate Date, but in any event will be no later
than the Latest Annuity Date. Annuity payments will begin no later than the
Latest Annuity Date. If no Annuity Date is selected, the Annuity Date will be
the Latest Annuity Date. The Participant may change the Annuity Date at any time
at least seven days prior to the Annuity Date then indicated on the Company's
records by written notice to the Company at its Annuity Service Center.
DEFERMENT OF PAYMENTS
The Company may defer making Fixed Annuity payments for a period of up to
six months (or the period permitted by applicable state insurance law, if less).
Interest, subject to state law requirements, will be credited during the
deferral period. For a discussion of the circumstances under which the Company
could defer these payments, please refer to "Purchases, Withdrawals and Contract
Value -- Deferment of Fixed Account Withdrawal Payments".
PAYMENTS TO PARTICIPANT
The Company will make annuity payments to the Participant, unless the
Participant designates an alternate payee. Such designation must be made in
writing to the Company's Annuity Service Center and must be received more than
30 days before the Annuity Date.
ALLOCATION OF ANNUITY PAYMENTS
If all of the Contract Value on the Annuity Date is allocated to the Fixed
Account, the Annuity will be paid as a Fixed Annuity. If all of the Contract
Value on that date is allocated to the Separate Account, the Annuity will be
paid as a Variable Annuity. If the Contract Value on that date is allocated to
both the Fixed Account and the Separate Account, the Annuity will be paid as a
combination of a Fixed Annuity and a Variable Annuity to reflect the allocation
between the Portfolios and the Fixed Account. Variable Annuity payments will
reflect the investment performance of the Portfolios. The Owner(s) may, by
written notice to the Company, convert Variable Annuity payments to Fixed
Annuity payments. However, Fixed Annuity payments may not be converted to
Variable Annuity payments.
ANNUITY OPTIONS
The Participant, or any Beneficiary who is so entitled, may elect to
receive a lump sum at the end of the Accumulation Period. However, a lump sum
distribution may be deemed to be a withdrawal, and at least a portion of
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it may be subject to federal income tax. (See "Taxes -- Tax Treatment of
Withdrawals".) Alternatively, any of the annuity options listed below may be
elected. The Participant may elect an annuity option or change an annuity option
at any time prior to the Annuity Date.
If no other annuity option is elected, monthly annuity payments will be
made in accordance with annuity option 4 below, a life annuity with a 120-month
period certain (annuity option 3 in the case where payments are to be made for
the joint lives of the Annuitant and a designated second person and for the life
of the survivor). Annuity payments will be made in monthly, quarterly,
semiannual or annual installments as selected by the Participant. However, if
the amount available to apply under an annuity option is less than $5,000, and
state law permits, the Company has the right to pay the annuity in one lump sum.
In addition, if the first payment provided would be less than $50, and state law
permits, the Company shall have the right to require the frequency of payments
be at quarterly, semiannual or annual intervals so as to result in an initial
payment of at least $50.
NO WITHDRAWALS OF CONTRACT VALUE ARE PERMITTED DURING THE ANNUITY PERIOD
FOR ANY ANNUITY OPTION IN WHICH PAYMENTS ARE BASED ON A PERSON'S LIFE.
The following annuity options are generally available under the Contract.
Each is available in the form of either a Fixed Annuity or a Variable Annuity
(or a combination of both Fixed and Variable Annuity). However, there may be
restrictions in the retirement plan pursuant to which a Contract has been
purchased.
OPTION 1 -- LIFE INCOME
An annuity payable monthly during the lifetime of the Annuitant. Under this
option, no further payments are payable after the death of the Annuitant and
there is no provision for a death benefit payable to the Beneficiary. Therefore,
it is possible under option 1 for the payee to receive only one monthly annuity
payment under the Contract.
OPTION 2 -- JOINT AND SURVIVOR ANNUITY
An annuity payable monthly while both the Annuitant and a designated second
person are living. Upon the death of either person, the monthly income payable
will continue during the lifetime of the survivor at either the full amount
previously payable or as a percentage (either one-half or two-thirds) of the
full amount, as chosen by the Participant at the time of election of this
option.
Annuity payments terminate automatically and immediately upon the death of
the surviving person without regard to the number or total amount of payments
received. There is no minimum number of guaranteed payments and it is possible
to have only one annuity payment if both the Annuitant and the designated second
person die before the due date of the second payment.
OPTION 3 -- JOINT AND SURVIVOR LIFE ANNUITY --
120 MONTHLY PAYMENTS GUARANTEED
This option is similar to option 2, above, but with the additional
guarantee that payments will be made for not fewer than 120 monthly periods. If
the surviving Annuitant dies before all such payments have been made, the
balance of the guaranteed number of payments will be made to the Beneficiary.
OPTION 4 -- LIFE ANNUITY WITH 120 OR 240 MONTHLY
PAYMENTS GUARANTEED
An annuity payable monthly during the lifetime of the Annuitant, with the
guarantee that if, at the death of the Annuitant, payments have been made for
fewer than the guaranteed 120 or 240 monthly periods, as elected by the Owner,
the balance of the guaranteed number of payments will be made to the
Beneficiary.
OPTION 5 -- INCOME FOR A SPECIFIED PERIOD
Under this option, a payee can elect an annuity payable monthly for any
period of years from 3 to 30. This election must be made for full 12 month
periods. In the event the payee dies before the specified number of payments has
been made, the Beneficiary may elect to continue receiving the scheduled
payments or may alternatively elect to receive the discounted present value of
any remaining guaranteed payments as a lump sum.
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The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. (See "Contract
Charges -- Mortality and Expense Risk Charge".) Since option 5 does not contain
an element of mortality risk, the payee is not getting the benefit of the
mortality component of the Mortality and Expense Risk Charge if option 5 is
selected on a variable basis.
OTHER OPTIONS
At the sole discretion of the Company, other annuity options may be made
available. However, to the extent that Withdrawal Charges would otherwise apply
to a withdrawal or termination, the identical Withdrawal Charge may apply with
respect to any additional options.
With respect to Contracts issued under Sections 401, 403(b) or 408 of the
Internal Revenue Code, any payments will be made only to the Participant and/or
the Participant's spouse.
TRANSFER DURING ANNUITY PERIOD
During the Annuity Period, the Owner may transfer the Contract Value to the
Fixed Account and/or among Portfolios. Such transfers are subject to the same
limitations and conditions as are prescribed for transfers during the
Accumulation Period except that, in addition, no transfers may be made from the
Fixed Account to the Separate Account during the Annuity Period.
DEATH BENEFIT DURING ANNUITY PERIOD
If the Annuitant dies after the Annuity Date while the Contract is in
force, the death proceeds, if any, will depend upon the annuity option in effect
at the time of the Annuitant's death. If the Annuitant dies after the Annuity
Date and before the entire interest in the Contract has been distributed, the
remaining interest, if any, as provided for in the option elected, will be
distributed at least as rapidly as under the method of distribution in effect at
the Annuitant's death.
ANNUITY PAYMENTS
INITIAL MONTHLY ANNUITY PAYMENT
The initial annuity payment is determined by taking the Contract Value,
less any premium tax and Market Value Adjustment that may apply in the case of a
premature annuitization, and then applying it to the annuity table specified in
the Contract (or, if more favorable to the payee, the annuity tables in effect
as of the Annuity Date for similar immediate annuity contracts issued by the
Company). 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 Plans and other employer-sponsored retirement plans, such
classification is not permitted) and age of the Annuitant and designated second
person, if any.
The dollars applied are then divided by 1,000 and the result multiplied by
the appropriate annuity factor appearing in the table to compute the amount of
the first monthly annuity payment. In the case of a Variable Annuity, that
amount is divided by the value of an Annuity Unit as of the Annuity Date to
establish the number of Annuity Units representing each Variable Annuity
payment. The number of Annuity Units determined for the first Variable Annuity
payment remains constant for the second and subsequent monthly Variable Annuity
payments, assuming that no reallocation of Contract Values is made.
SUBSEQUENT MONTHLY PAYMENTS
For a Fixed Annuity, the amount of the second and each subsequent monthly
annuity payment is the same as that determined above for the first monthly
payment.
The amount of the second and each subsequent monthly Variable Annuity
payment is determined by multiplying the number of Annuity Units, as determined
in connection with the determination of the initial monthly payment, above, by
the value of an Annuity Unit as of the Valuation Period next preceding the date
on which each annuity payment is due.
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ADMINISTRATION
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The Company has primary responsibility for all administration of the
Contracts and the Separate Account. The mailing address of the Company's Annuity
Service Center is P.O. Box 54299, Los Angeles, California 90054-0299, and its
telephone number is (800) 445-SUN2. The administrative services provided
include, but are not limited to: issuance of the Contracts; maintenance of
Participant records; Participant services; calculation of unit values; and
preparation of Participant reports.
Contract statements and transaction confirmations are mailed to
Participants at least quarterly. Participants should read their statements and
confirmations carefully and verify their accuracy. Questions about periodic
statements should be communicated to the Company promptly. The Company will
investigate all complaints and make any necessary adjustments retroactively,
provided that it has received notice of a potential error within 30 days after
the date of the questioned statement. If the Company has not received notice of
a potential error within this time, any adjustment shall be made as of the date
that the Annuity Service Center receives notice of the potential error.
The Company will also provide Participants with such additional periodic
and other reports, information and prospectuses as may be required by federal
securities laws.
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING
OF CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE
COMPANY CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE
MADE. PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE
POSSIBILITY OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF
THE CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE
TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code")
governs taxation of annuities in general. A Participant is not taxed on
increases in the value of a Contract until distribution occurs, either in the
form of a non-annuity distribution or as annuity payments under the annuity
option elected. For a lump sum payment received as a total surrender (total
redemption), the recipient is taxed on the portion of the payment that exceeds
the cost basis of the Contract. For a payment received as a withdrawal (partial
redemption), federal tax liability is determined on a last-in, first-out basis,
meaning taxable income is withdrawn before the cost basis of the Contract is
withdrawn. For Contracts issued in connection with Nonqualified Plans, the cost
basis is generally the Purchase Payments, while for Contracts issued in
connection with Qualified Plans there may be no cost basis. The taxable portion
of the lump sum payment is taxed at ordinary income tax rates. Tax penalties may
also apply.
For annuity payments, the taxable portion is determined by a formula which
establishes the ratio that the cost basis of the Contract bears to the total
value of annuity payments for the term of the annuity Contract. The taxable
portion is taxed at ordinary income tax rates. Participants, Annuitants and
Beneficiaries under the Contracts should seek competent financial advice about
the tax consequences of distributions under the retirement plan under which the
Contracts are purchased.
The Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
the Company and its operations form a part of the Company.
WITHHOLDING TAX ON DISTRIBUTIONS
The Code generally requires the Company (or, in some cases, a plan
administrator) to withhold tax on the taxable portion of any distribution or
withdrawal from a Contract. For "eligible rollover distributions" from Contracts
issued under certain types of Qualified Plans, 20% of the distribution must be
withheld, unless the payee
34
<PAGE> 37
elects to have the distribution "rolled over" to another eligible plan in a
direct "trustee to trustee" transfer. This requirement is mandatory and cannot
be waived by the Owner. Withholding on other types of distributions can be
waived.
An "eligible rollover distribution" is the estimated taxable portion of any
amount received by a covered employee from a plan qualified under Section 401(a)
or 403(a) of the Code, or from a tax-sheltered annuity qualified under Section
403(b) of the Code (other than (1) annuity payments for the life (or life
expectancy) of the employee, or joint lives (or joint life expectancies) of the
employee and his or her designated Beneficiary, or for a specified period of ten
years or more; and (2) distributions required to be made under the Code).
Failure to "roll over" the entire amount of an eligible rollover distribution
(including an amount equal to the 20% portion of the distribution that was
withheld) could have adverse tax consequences, including the imposition of a
penalty tax on premature withdrawals, described later in this section.
Withdrawals or distributions from a Contract other than eligible rollover
distributions are also subject to withholding on the estimated taxable portion
of the distribution, but the Owner may elect in such cases to waive the
withholding requirement. If not waived, withholding is imposed (1) for periodic
payments, at the rate that would be imposed if the payments were wages, or (2)
for other distributions, at the rate of 10%. If no withholding exemption
certificate is in effect for the payee, the rate under (1) above is computed by
treating the payee as a married individual claiming 3 withholding exemptions.
DIVERSIFICATION -- SEPARATE ACCOUNT INVESTMENTS
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified, in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Owner with respect to earnings allocable to the Contract prior to the receipt of
payments under the Contract.
The Company expects that each of the Underlying Funds will be managed by
its respective investment adviser in such a manner as to comply with these
diversification requirements.
MULTIPLE CONTRACTS
Multiple annuity contracts which are issued within a calendar year to the
same contract owner by one company or its affiliates are treated as one annuity
contract for purposes of determining the tax consequences of any distribution.
Such treatment may result in adverse tax consequences including more rapid
taxation of the distributed amounts from such multiple contracts. The Company
believes that Congress intended to affect the purchase of multiple deferred
annuity contracts which may have been purchased to avoid withdrawal income tax
treatment. Owners should consult a tax adviser prior to purchasing more than one
annuity contract in any calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment of a Contract may have tax consequences, and may also be
prohibited by ERISA in some circumstances. Owners should therefore consult
competent legal advisers should they wish to assign their Contracts.
QUALIFIED PLANS
The Contracts offered by this prospectus are designed to be suitable for
use under various types of Qualified Plans. Taxation of Owners in each Qualified
Plan varies with the type of plan and terms and the 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 or Certificate issued under a Qualified Plan.
35
<PAGE> 38
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. (See "Tax
Treatment of Withdrawals -- Qualified Plans".)
(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.
(B) TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered
annuities" by public schools and certain charitable, educational 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.
(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.
(D) CORPORATE PENSION AND PROFIT-SHARING PLANS
Section 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 interest; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders.
(E) 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.
36
<PAGE> 39
TAX TREATMENT OF WITHDRAWALS
QUALIFIED PLANS
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion
of any early distribution from qualified retirement plans, including contracts
issued and qualified under Code Sections 401 (H.R. 10 and Corporate Pension and
Profit Sharing Plans), 403(b) (Tax-Sheltered Annuities) and 408(b) (IRAs).
The tax penalty will not apply to the following distributions: (1) if
distribution is made on or after the date on which the Owner or Annuitant (as
applicable) reaches age 59 1/2; (2) distributions following the death or
disability of the Owner or Annuitant (as applicable) (for this purpose
"disability" is defined in Section 72(m)(7) of the Code); (3) distributions that
are part of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the Owner or Annuitant (as
applicable) or the joint lives (or joint life expectancies) of such Owner or
Annuitant (as applicable) and his or her designated Beneficiary; (4)
distributions to an Owner or Annuitant (as applicable) who has separated from
service after he or she has attained age 55; (5) distributions made to the Owner
or Annuitant (as applicable) to the extent such distributions do not exceed the
amount allowable as a deduction under Code Section 213 to the Owner or Annuitant
(as applicable) for amounts paid during the taxable year for medical care; and
(6) distributions made to an alternate payee pursuant to a qualified domestic
relations order.
The exceptions stated in items (4), (5) and (6) above do not apply in the
case of an IRA.
Limitations imposed by the Code on withdrawals from tax-sheltered annuities
are described above under "Purchases, Withdrawals and Contract
Value -- Withdrawals (Redemptions)".
The taxable portion of a withdrawal or distribution from Contracts issued
under certain types of plans may, under some circumstances, be "rolled over"
into another eligible plan so as to continue to defer income tax on the taxable
portion. Effective January 1, 1993, such treatment is available for any
"eligible rollover distribution" made by certain types of plans (as described
above under "Taxes -- Withholding Tax on Distributions") that is transferred
within 60 days of receipt into a plan qualified under section 401(a) or 403(a)
of the Code, a tax-sheltered annuity, an IRA, or an individual retirement
account described in section 408(a) of the Code. Plans making such eligible
rollover distributions are also required, with some exceptions specified in the
Code, to provide for a direct "trustee to trustee" transfer of the distribution
to the transferee plan designated by the recipient.
Amounts received from IRAs may also be rolled over into other IRAs,
individual retirement accounts or certain other plans, subject to limitations
set forth in the Code.
NONQUALIFIED PLANS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate Purchase
Payments made, any amount withdrawn not in form of an annuity payment will be
treated as coming first from the earnings and then, only after the income
portion is exhausted, as coming from the principal. Withdrawn earnings are
includible in a taxpayer's gross income. Section 72 further provides that a 10%
penalty will apply to the income portion of any premature distribution. The
penalty is not imposed on amounts received: (1) after the taxpayer reaches
59 1/2; (2) upon the death of the Owner or Annuitant (as applicable); (3) if the
taxpayer is totally disabled; (4) in a series of substantially equal periodic
payments made for the life of the taxpayer or for the joint lives of the
taxpayer and his or her Beneficiary; (5) under an immediate annuity; or (6)
which are allocable to purchase payments made prior to August 14, 1982.
The above information applies to Contracts issued pursuant to Section 457
of the Code, but does not apply to other Qualified Plan Contracts. Separate tax
withdrawal penalties and restrictions apply to Qualified Plan Contracts.
37
<PAGE> 40
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE COMPANY
- --------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS)
The following selected consolidated financial information for Anchor
National Life Insurance Company, insofar as it relates to each of the years
1991-1995, has been derived from audited annual financial statements, including
the consolidated balance sheets at September 30, 1994 and 1995 and the related
consolidated statements of income and of cash flows for each of the three years
in the period ended September 30, 1995 and the notes thereto appearing elsewhere
herein. The information for the three months ended December 31, 1994 and 1995
has been derived from unaudited financial information also appearing herein and
which, in the opinion of management, includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair statement of the results
for the unaudited interim periods.
This information should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
beginning on page 39 and the consolidated financial statements and notes thereto
included in this prospectus beginning on page 54.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1994 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net investment income.................. $ 31,882 $ 36,499 $ 48,912 $ 58,996 $ 50,083 $ 10,968 $ 14,617
Net realized investment losses......... (12,744) (22,749) (22,247) (33,713) (4,363) (4,791) (12,800)
Fee income............................. 74,735 95,482 116,443 129,583 134,373 32,008 37,088
General and administrative expenses.... (58,364) (55,615) (55,142) (52,636) (61,629) (12,686) (16,997)
Provision for future guaranty fund
assessments.......................... -- -- (4,800) -- -- -- --
Amortization of deferred acquisition
costs................................ (19,010) (18,224) (30,825) (43,992) (57,005) (11,942) (12,846)
Other income and expenses.............. 14,473 10,741 11,171 9,082 3,538 2,637 213
---------- ---------- ---------- ---------- ---------- ---------- ----------
PRETAX INCOME.......................... 30,972 46,134 63,512 67,320 64,997 16,194 9,275
Income tax expense..................... (11,847) (15,361) (21,794) (22,705) (25,739) (5,607) (3,449)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from continuing operations...... 19,125 30,773 41,718 44,615 39,258 10,587 5,826
Net income of subsidiaries sold to
affiliates........................... 7,000 1,312 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING FOR INCOME
TAXES................................ 26,125 32,085 41,718 44,615 39,258 10,587 5,826
Cumulative effect of change in
accounting for income taxes.......... -- -- -- (20,463) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INCOME............................. $ 26,125 $ 32,085 $ 41,718 $ 24,152 $ 39,258 $ 10,587 $ 5,826
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
-------------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1994 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Investments............................ $1,917,719 $2,126,899 $2,093,100 $1,632,072 $2,114,908 $1,700,489 $1,964,418
Variable annuity assets................ 2,746,685 3,284,507 4,170,275 4,486,703 5,230,246 4,333,408 5,418,534
Deferred acquisition costs............. 226,192 288,264 336,677 416,289 383,069 422,880 379,922
Other assets........................... 162,855 91,588 71,337 67,062 55,474 70,376 81,466
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL ASSETS........................... $5,053,451 $5,791,258 $6,671,389 $6,602,126 $7,783,697 $6,527,153 $7,844,340
========== ========== ========== ========== ========== ========== ==========
Reserves for fixed annuity contracts... $1,957,116 $1,735,565 $1,562,136 $1,437,488 $1,497,052 $1,476,962 $1,473,964
Variable annuity liabilities........... 2,746,685 3,284,507 4,170,275 4,486,703 5,230,246 4,333,408 5,418,534
Other reserves, payables and accrued
liabilities.......................... 105,694 398,045 495,740 195,846 506,880 229,667 358,465
Subordinated notes payable to Parent... -- 15,500 34,000 34,000 34,000 34,000 34,000
Deferred income taxes.................. 16,536 35,163 38,145 64,567 73,459 61,762 72,934
Shareholder's equity................... 227,420 322,478 371,093 383,522 442,060 391,354 486,443
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY............................... $5,053,451 $5,791,258 $6,671,389 $6,602,126 $7,783,697 $6,527,153 $7,844,340
========== ========== ========== ========== ========== ========== ==========
</TABLE>
38
<PAGE> 41
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following is management's discussion and analysis of financial
condition and results of operations of Anchor National Life Insurance Company
(the "Company") for the three years in the period ended September 30, 1995.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS 1993, 1994 AND 1995
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES
totaled $39.3 million in 1995, compared with $44.6 million in 1994 and $41.7
million in 1993. The cumulative effect of the change in accounting for income
taxes resulting from the 1994 implementation of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," amounted to a
nonrecurring non-cash charge of $20.5 million. Accordingly, net income amounted
to $24.1 million in 1994.
PRETAX INCOME totaled $65.0 million in 1995, $67.3 million in 1994, and
$63.5 million in 1993. The $2.3 million decline in 1995 primarily resulted from
additional amortization of deferred acquisition costs, increased general and
administrative expenses and decreased net investment income, partially offset by
decreased net realized investment losses. The $3.8 million improvement in 1994
over 1993 primarily resulted from increased net investment income and fee
income, partially offset by increased net realized investment losses and
additional amortization of deferred acquisition costs. In addition, 1993 results
included a $4.8 million provision for future guaranty fund assessments.
NET INVESTMENT INCOME, which is the spread between the income earned on
invested assets and the interest paid on fixed annuities and other
interest-bearing liabilities, totaled $50.1 million in 1995, $59.0 million in
1994 and $48.9 million in 1993. These amounts represent net investment spreads
of 2.95% on average invested assets (computed on a daily basis) of $1.70 billion
in 1995, 3.78% on average invested assets of $1.56 billion in 1994 and 2.86% on
average invested assets of $1.71 billion in 1993. Net investment spreads include
the effect of income earned on the excess of average invested assets over
average interest-bearing liabilities. The difference between the Company's yield
on average invested assets and the rate paid on average interest-bearing
liabilities was 2.62% in 1995, 3.64% in 1994 and 2.76% in 1993.
Investment income totaled $129.5 million in 1995, $127.8 million in 1994
and $137.6 million in 1993. Investment income increased modestly in 1995 as a
result of a higher level of average invested assets, substantially offset by a
decline in investment yield. The decline in investment income in 1994 over 1993
primarily resulted from a lower level of average invested assets. The yield on
average invested assets declined to 7.62% in 1995 from 8.20% in 1994 and 8.05%
in 1993. Over the last three fiscal years, the Company's quarterly investment
yields on average invested assets have ranged from 7.17% to 8.79%; however,
there can be no assurance that the Company will achieve similar yields in future
periods.
The decline in investment yield in 1995 is primarily due to lower
contributions from the Company's investments in partnerships and a significant
decline from the $3.7 million of investment yield enhancement recorded in 1994
through the Company's use of dollar roll transactions ("Dollar Rolls"). Although
the Company continues to use Dollar Rolls, their use did not have a significant
impact on investment income in 1995. (See "Asset-Liability Matching" for
additional discussion of Dollar Rolls). Income from investments in partnerships
totaled $5.1 million in 1995, $9.5 million in 1994 and $12.1 million in 1993.
This partnership income represents a yield of 10.60% on related average assets
of $48.4 million in 1995, compared with 23.78% on related average assets of
$39.9 million in 1994 and 42.94% on related average assets of $28.1 million in
1993. The modest improvement in investment yield in 1994 primarily resulted from
a decrease in the average level of lower-yielding short-term investments.
Total interest expense aggregated $79.4 million in 1995, $68.8 million in
1994 and $88.7 million in 1993. The average rate paid on all interest-bearing
liabilities was 5.00% in 1995, compared with 4.56% in 1994 and 5.29% in 1993.
Interest-bearing liabilities averaged $1.58 billion during 1995, compared with
$1.51 billion during 1994 and $1.68 billion during 1993.
The increase in the average rate paid on all interest-bearing liabilities
during 1995 primarily resulted from increased average crediting rates on the
Company's fixed annuity contracts. Average fixed annuity crediting rates were
4.90% in 1995, 4.50% in 1994 and 5.28% in 1993. During 1995, the Company
increased its average crediting rates on fixed annuity contracts relative to
those issued in 1994 to maintain a generally competitive market rate in a
39
<PAGE> 42
rising interest rate environment. This increase was reflected in a corresponding
increase in the average crediting rate on fixed annuity contracts, the majority
of which reprice annually as interest rate guarantees are renewed. The declines
in average crediting rates in 1994 were primarily due to the decline in
prevailing interest rates that began during the latter half of the 1992 fiscal
year and continued into the first half of fiscal 1994.
NET REALIZED INVESTMENT LOSSES totaled $4.4 million in 1995, $33.7 million
in 1994 and $22.2 million in 1993, and represent 0.26%, 2.16% and 1.30%,
respectively, of average invested assets. Net realized investment losses include
impairment writedowns of $4.8 million in 1995, $14.2 million in 1994 and $37.7
million in 1993. Therefore, net gains from sales of investments totaled $0.4
million in 1995, compared with net losses of $19.5 million in 1994 and net gains
of $15.5 million in 1993.
Net losses in 1995 include $4.0 million of net losses realized on $1.11
billion of sales of bonds. These bond sales include $343.8 million of sales of
U.S. Treasury securities, $343.1 million of sales of certain collateralized
mortgage obligations ("CMOs") and asset-backed securities, $314.1 million of
sales of mortgaged-backed securities ("MBSs") and $85.2 million of sales of high
yield investments, all of which were primarily made to maximize total return.
Net losses in 1994 include $17.3 million of net losses realized on $673.6
million of sales of bonds. Bond sales include approximately $289.3 million of
sales of MBSs made primarily to acquire other MBSs that were then used in Dollar
Rolls. In addition, bond sales include $118.3 million of sales of high-yield
investments and $158.9 million of sales of CMOs and asset-backed securities,
that were made to maximize total return.
Net gains in 1993 include $17.0 million of gains realized on $1.09 billion
of sales of bonds. These bond sales include approximately $735.5 million of
sales of MBSs made primarily to acquire other MBSs that were then used in Dollar
Rolls and $155.1 million of sales of high-yield investments, that were made
primarily to maximize total return.
Impairment writedowns in 1995 include $2.0 million of additional provisions
applied to defaulted bonds and $1.8 million of additional provisions applied to
certain interest-only strips ("IOs"). IOs, a type of MBS used as an
asset-liability matching tool to hedge against rising interest rates, are
investment grade securities that give the holder the right to receive only the
interest payments on a pool of underlying mortgage loans. At September 30, 1995,
the amortized cost of the IOs held by the Company was $5.7 million and their
fair value was $7.2 million.
Impairment writedowns in 1994 of $14.2 million reflect additional
provisions applied to bonds, primarily made in response to the adverse impact of
declining interest rates on certain MBSs.
Impairment writedowns in 1993 include $5.6 million of provisions applied to
mortgage loans that were reduced to the aggregate appraised value of the
underlying real estate. Impairment writedowns in 1993 also include $30.3 million
of additional provisions applied to bonds. These bond writedowns include $28.3
million applied to certain IOs. As would be anticipated in a lower interest rate
environment, the amortized cost of these IOs became impaired as a result of
increased prepayments of the underlying loans.
VARIABLE ANNUITY FEES are based on the market value of assets supporting
variable annuity contracts in separate accounts. Such fees totaled $84.2 million
in 1995, $79.1 million in 1994 and $67.2 million in 1993. Variable annuity fees
have increased over the three years principally due to asset growth from the
receipt of variable annuity premiums and, during 1995, from increased market
values. Variable annuity assets averaged $4.65 billion during 1995, $4.40
billion during 1994 and $3.64 billion during 1993. Variable annuity premiums,
which exclude premiums allocated to the fixed accounts of variable annuity
products, totaled $577.2 million in 1995, $769.6 million in 1994 and $782.5
million in 1993. These declines in premiums can be attributed, in part, to a
heightened demand for fixed-rate investment options, including the fixed
accounts of variable annuities. The Company has encountered increased
competition in the variable annuity marketplace during 1995 and 1994 and
anticipates that the market will remain highly competitive for the foreseeable
future.
ASSET MANAGEMENT FEES, which include investment advisory fees and 12b-1
distribution fees, are based on the market value of assets managed in mutual
funds and private accounts by SunAmerica Asset Management Corp. Such fees
totaled $26.9 million on average assets managed of $2.07 billion in 1995, $31.3
million on average assets managed of $2.39 billion in 1994 and $32.3 million on
average assets managed of $2.46 billion in 1993. Asset management fees decreased
over the three years principally due to declines in assets managed, primarily
resulting from excesses of redemptions over sales. Redemptions of mutual funds,
excluding redemptions of money market and other short-term accounts, amounted to
$426.5 million in 1995, compared with $561.0 million in 1994 and $391.0
40
<PAGE> 43
million in 1993. Sales of mutual funds, excluding sales of money market and
other short-term accounts, amounted to $140.2 million in 1995, compared with
$342.6 million in 1994 and $532.4 million in 1993.
NET RETAINED COMMISSIONS are primarily derived from commissions on the
sales of nonproprietary investment products by the Company's broker-dealer
subsidiary, after deducting the substantial portion of such commissions that is
passed on to registered representatives. Net retained commissions totaled $23.3
million in 1995, $19.2 million in 1994 and $16.9 million in 1993. Broker-dealer
sales (mainly mutual funds, general securities and annuities) totaled $5.67
billion in 1995, $5.21 billion in 1994 and $4.91 billion in 1993. Net retained
commissions are not proportionate to sales primarily due to differences in sales
mix.
SURRENDER CHARGES on fixed and variable annuities totaled $5.9 million in
1995, compared with $5.0 million in 1994 and $5.3 million in 1993. Surrender
charges generally are assessed on annuity withdrawals at declining rates during
the first five to seven years of the contract. Withdrawal payments, which
include surrenders and lump-sum annuity benefits, totaled $908.9 million in
1995, $723.9 million in 1994 and $557.3 million in 1993. These payments
represent 15.0%, 12.5% and 10.7%, respectively, of average fixed and variable
annuity reserves. Withdrawals include variable annuity payments from the
separate accounts totaling $646.4 million in 1995, $459.1 million in 1994 and
$314.2 million in 1993. Variable annuity surrenders have increased over the
three years primarily due to surrenders on a closed block of business, policies
coming off surrender charge restrictions and increased competition in the
marketplace, while fixed annuity surrenders have remained relatively stable.
Management anticipates that withdrawal rates will remain relatively stable for
the foreseeable future and the Company's investment portfolio has been
structured to provide sufficient liquidity for anticipated withdrawals.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $61.6 million in 1995, compared
with $52.6 million in 1994 and $55.1 million in 1993. General and administrative
expenses in 1995 include expenses related to a national advertising campaign.
General and administrative expenses remain closely controlled through a
company-wide cost containment program and represent approximately 1% of average
total assets.
PROVISION FOR FUTURE GUARANTY FUND ASSESSMENTS totaled $4.8 million in
1993. No such provision was recorded in 1995 or in 1994. Guaranty associations
of the states in which the Company sells annuities assess insurance companies to
pay policyholder claims relating to insurer insolvencies. This provision
represents management's best estimate, based upon available industry data, of
the Company's ultimate exposure to future assessments anticipated as a result of
certain large insurance company failures that occurred prior to fiscal 1995.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $57.0 million in 1995,
$44.0 million in 1994 and $30.8 million in 1993. Such amortization has increased
during the three-year period primarily due to additional fixed and variable
annuity and mutual fund sales and the subsequent amortization of related
deferred commissions and other acquisition costs. Amortization also has been
impacted by the substantial reduction in net realized capital losses during
1995.
INCOME TAX EXPENSE totaled $25.7 million in 1995, $22.7 million in 1994 and
$21.8 million in 1993, representing effective tax rates of 40% in 1995 and 34%
in 1994 and 1993. The increase in the effective tax rate in 1995 is due to a
prior year tax settlement. Without such payment, the effective tax rate would
have been 33%.
FINANCIAL CONDITION AND LIQUIDITY AT SEPTEMBER 30, 1995
SHAREHOLDER'S EQUITY increased by $58.6 million to $442.1 million at
September 30, 1995 from $383.5 million at September 30, 1994, primarily as a
result of the $39.3 million of net income recorded in 1995 and a $19.3 million
reduction of net unrealized losses on debt and equity securities available for
sale charged directly to shareholder's equity.
TOTAL ASSETS increased by $1.18 billion to $7.78 billion at September 30,
1995 from $6.60 billion at September 30, 1994, principally due to a $743.5
million increase in the separate account for variable annuities and a $482.8
million increase in invested assets.
INVESTED ASSETS at year end totaled $2.11 billion in 1995, compared with
$1.63 billion in 1994. This $482.8 million increase primarily resulted from
sales of guaranteed investment contracts ("GICs") and fixed annuities and a
$70.1 million decrease in net unrealized losses on debt and equity securities
available for sale.
The Company manages most of its invested assets internally. The Company's
general investment philosophy is to hold fixed maturity assets for long-term
investment. Thus, it does not have a trading portfolio. The Company carries the
portion of its portfolio of bonds, notes and redeemable preferred stocks that is
available for sale (the
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"Available for Sale Portfolio") at estimated fair value. The remaining portion
of its portfolio of bonds, notes and redeemable preferred stocks is held for
investment and is carried at amortized cost.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS, including those held for
investment and the Available for Sale Portfolio (the "Bond Portfolio"), at
September 30, 1995, had an aggregate amortized cost that exceeded its fair value
by $3.7 million (including net unrealized losses of $10.8 million on the
Available for Sale Portfolio). The fair value of the Bond Portfolio was $77.8
million below its amortized cost at September 30, 1994 (including net unrealized
losses of $82.2 million on the Available for Sale Portfolio). The decrease in
net unrealized losses on the Bond Portfolio since September 30, 1994 principally
reflects the lower relative prevailing interest rates at September 30, 1995 and
their corresponding effect on the fair value of the Bond Portfolio.
Approximately $1.65 billion or 99.8% of the Bond Portfolio (at amortized
cost) at September 30, 1995 was rated by Standard & Poor's Corporation ("S&P"),
Moody's Investors Service ("Moody's") or under comparable statutory rating
guidelines established by the National Association of Insurance Commissioners
("NAIC") and implemented by either the NAIC or the Company. At September 30,
1995, approximately $1.51 billion (at amortized cost) was rated investment grade
by one or both of these agencies or under the NAIC guidelines, including $1.21
billion of U.S. government/agency securities and MBSs.
At September 30, 1995, the Bond Portfolio included $148.4 million (fair
value, $143.8 million) of bonds not rated investment grade by S&P, Moody's or
the NAIC. Based on their September 30, 1995 amortized cost, these
non-investment-grade bonds accounted for 1.90% of the Company's total assets and
6.97% of invested assets.
Non-investment-grade securities generally provide higher yields and involve
greater risks than investment-grade securities because their issuers typically
are more highly leveraged and more vulnerable to adverse economic conditions
than investment-grade issuers. In addition, the trading market for these
securities is usually more limited than for investment-grade securities. The
Company intends that its holdings of such securities not exceed current levels,
but its policies may change from time to time, including in connection with any
possible acquisition. The Company had no material concentrations of
non-investment-grade securities at September 30, 1995.
The table on the following page summarizes the Company's rated bonds by
rating classification as of
September 30, 1995.
RATED BONDS BY RATING CLASSIFICATION
(Dollars in thousands)
<TABLE>
<CAPTION>
ISSUES NOT RATED BY S&P
(MOODY'S) TOTAL
BY NAIC CATEGORY -----------------------------------
ISSUES RATED BY S&P (MOODY'S) -------------------------------- PERCENT
- -------------------------------------------------------- NAIC ESTIMATED OF
S&P (MOODY'S) AMORTIZED ESTIMATED CATEGORY AMORTIZED FAIR AMORTIZED INVESTED ESTIMATED
CATEGORY (1) COST FAIR VALUE (2) COST VALUE COST ASSETS(3) FAIR VALUE
- ------------------------------- ---------- ---------- -------- --------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA+ to A- (Aaa to A3)......... $1,004,562 $1,003,214 1 $289,856 $293,037 $1,294,418 60.82% $1,296,251
BBB+ to BBB-
(Baa1 to Baa3)............... 31,228 31,349 2 180,017 177,901 211,245 9.93 209,250
BB+ to BB- (Ba1 to Ba3)........ -- -- 3 13,711 12,859 13,711 0.64 12,859
B+ to B- (B1 to B3)............ 99,707 99,276 4 27,971 27,586 127,678 6.00 126,862
CCC+ to C- (Caa to C).......... 6,333 3,424 5 -- -- 6,333 0.30 3,424
D.............................. -- -- 6 633 633 633 0.03 633
-
---------- ---------- --------- --------- ---------- --------- ----------
Total rated issues............. $1,141,830 $1,137,263 $512,188 $512,016 $1,654,018 $1,649,279
========== ========== ======== ======== ========== ==========
</TABLE>
- ---------------
(1) S&P rates debt securities in eleven rating categories, from AAA (the
highest) to D (in payment default). A plus(+) or minus(-) indicates the
debt's relative standing within the rating category. A security rated BBB-
or higher is considered investment grade. Moody's rates debt securities in
nine rating categories, from Aaa (the highest) to C (extremely poor
prospects of attaining real investment standing). The number 1, 2 or 3
(with 1 the highest and 3 the lowest) indicates the debt's relative
standing within the rating category. A security rated Baa3 or higher is
considered investment grade. Issues are categorized based on the higher
of the S&P or Moody's rating if rated by both agencies.
(2) Bonds and short-term promissory instruments are divided into six quality
categories for NAIC rating purposes, ranging from 1 (highest) to 5 (lowest)
for nondefaulted bonds plus one category, 6, for bonds in or near default.
These six categories correspond with the S&P (Moody's) rating groups listed
above, with categories 1 and 2 considered investment grade. A substantial
portion of the assets in the NAIC categories were rated by the Company based
on its implementation of NAIC rating guidelines.
(3) At amortized cost.
SENIOR SECURED LOANS ("Secured Loans") are included in the Bond Portfolio
and their amortized cost aggregated $126.8 million at September 30, 1995.
Secured Loans are senior to subordinated debt and equity, and
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<PAGE> 45
are secured by assets of the issuer. At September 30, 1995, Secured Loans
consisted of loans to 20 borrowers spanning 9 industries, with 37% of these
assets (at amortized cost) concentrated in the leisure industry and with no
other industry concentration constituting more than 12% of these assets.
While the trading market for Secured Loans is more limited than for
publicly traded corporate debt issues, management believes that participation in
these transactions has enabled the Company to improve its investment yield.
Although, as a result of restrictive financial covenants, Secured Loans involve
greater risk of technical default than do publicly traded investment grade
securities, management believes that the risk of loss upon default for its
Secured Loans is mitigated by their financial covenants and senior secured
positions. The majority of the Company's Secured Loans are not rated by S&P or
Moody's.
MORTGAGE LOANS aggregated $94.3 million at September 30, 1995 and consisted
of 14 first mortgage loans with an average loan balance of approximately $6.7
million, collateralized by properties located in 8 states. Approximately 24% of
the portfolio was office, 22% was hotel, 19% was retail, 18% was multifamily
residential and 17% was other types. At September 30, 1995, approximately 22% of
the portfolio was secured by properties located in Colorado, approximately 18%
by properties located in California and approximately 17% by properties in New
Jersey. No more than 13% of the portfolio was secured by properties in any other
single state. At September 30, 1995, there was one loan with an outstanding
balance of $20 million or more, which loan aggregated approximately 22% of the
portfolio. At September 30, 1995, approximately 33% of the mortgage loan
portfolio consisted of loans with balloon payments due before October 1, 1998.
At September 30, 1995, there were no loans delinquent by more than 90 days.
There were no loans foreclosed upon and transferred to real estate in the
balance sheet during 1995.
Approximately 64% of the mortgage loans in the portfolio at September 30,
1995 were seasoned loans underwritten to the Company's standards and purchased
at or near par from another financial institution which was downsizing its
portfolio. Such loans generally have higher average interest rates than loans
that could be originated today. The balance of the mortgage loan portfolio has
been originated by the Company under strict underwriting standards. Commercial
mortgage loans on properties such as offices, hotels and shopping centers
generally represent a higher level of risk for the industry than do mortgage
loans secured by multifamily residences. This greater risk is due to several
factors, including the larger size of such loans and the effects of general
economic conditions on these commercial properties. However, due to the seasoned
nature of the Company's mortgage loans and its strict underwriting standards,
the Company believes that it has reduced the risk attributable to its mortgage
loan portfolio while maintaining attractive yields.
At September 30, 1995, one mortgage loan having an aggregate carrying value
of $8.0 million had been restructured in 1992. No mortgage loans were
restructured during the 1995, 1994 or 1993 fiscal years.
REAL ESTATE aggregated $55.8 million at September 30, 1995 and consisted of
non-income producing land in the Phoenix, Arizona metropolitan area. The Company
has undertaken to dispose of this Phoenix-area land during the next one to two
years, either to affiliated or nonaffiliated parties; and SunAmerica Inc., the
ultimate parent, has guaranteed that the Company will receive its statutory
carrying value of these assets.
OTHER INVESTED ASSETS aggregated $64.4 million at September 30, 1995,
including $48.2 million of investments in limited partnerships and an aggregate
of $16.2 million of miscellaneous investments, including policy loans, CMO
residuals and leveraged leases. The Company's limited partnership interests
primarily include partnerships, accounted for by using the cost method of
accounting, that invest mainly in equity securities.
ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks
of interest rate fluctuations and disintermediation. The Company believes that
its fixed-rate liabilities should be backed by a portfolio principally composed
of fixed maturities that generate predictable rates of return. The Company does
not have a specific target rate of return. Instead, its rates of return vary
over time depending on the current interest rate environment, the slope of the
yield curve, the spread at which fixed maturities are priced over the yield
curve and general competitive conditions within the industry. Its portfolio
strategy is designed to achieve adequate risk-adjusted returns consistent with
its investment objectives of effective asset-liability matching, liquidity and
safety.
The Company designs its fixed-rate products and conducts its investment
operations in order to closely match the duration of the assets in its
investment portfolio to its annuity and GIC obligations. The Company seeks to
achieve a predictable spread between what it earns on its assets and what it
pays on its liabilities by investing principally in fixed maturities. The
Company's fixed-rate products incorporate surrender charges or other limitations
on when contracts can be surrendered for cash to encourage persistency.
Approximately 54% of the Company's fixed annuity reserves had surrender
penalties or other restrictions at September 30, 1995.
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During 1995 the Company began issuing GICs which currently guarantee the
payment of principal and interest at variable rates for a term of one year. The
Company's GICs purchased by asset management firms permit withdrawals with
notice of 90 days. Contracts purchased by bank or state and local governmental
authorities may permit scheduled book value withdrawals subject to terms of the
underlying indenture or agreement. In pricing GICs, the Company analyzes cash
flow information and prices accordingly so that it is compensated for possible
withdrawals prior to maturity. The Company expects to increase its participation
in the GIC marketplace over the coming year.
As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-maturity assets and
liabilities under commonly used stress-test interest rate scenarios. Based on
the results of these computer simulations, the investment portfolio has been
constructed with a view to maintaining a desired investment spread between the
yield on portfolio assets and the rate paid on its reserves under a variety of
possible future interest rate scenarios. At September 30, 1995 the weighted
average life of the Company's investments was approximately four years and the
duration was approximately three and one-fourth years. Weighted average life is
defined as the average time to receipt of all principal, incorporating the
effects of scheduled amortization and expected prepayments, weighted by book
value. Duration is a common measure for the price sensitivity of a fixed-income
security or portfolio to changes in interest rates. It is the weighted average
time to receipt of all expected cash flows, both principal and interest,
including the effects of scheduled amortization and expected prepayments, in
which the weight attached to each year of receipt is the proportion of the
present value of cash to be received during that year to the total present value
of the portfolio.
The Company also seeks to provide liquidity by using reverse repurchase
agreements ("Reverse Repos"), Dollar Rolls and by investing in MBSs. It also
seeks to enhance its spread by using Reverse Repos and Dollar Rolls. Reverse
Repos involve a sale of securities and an agreement to repurchase the same
securities at a later date at an agreed upon price and are generally
over-collateralized. Dollar Rolls are similar to Reverse Repos except that the
repurchase involves securities that are only substantially the same as the
securities sold and the arrangement is not collateralized, nor is it governed by
a repurchase agreement. MBSs are generally investment-grade securities
collateralized by large pools of mortgage loans. MBSs generally pay principal
and interest monthly. The amount of principal and interest payments may
fluctuate as a result of prepayments of the underlying mortgage loans.
There are risks associated with some of the techniques the Company uses to
enhance its spread income and match its assets and liabilities. The primary risk
associated with Dollar Rolls and Reverse Repos is the risk associated with
counterparty nonperformance. The Company believes, however, that the
counterparties to its Dollar Rolls and Reverse Repos are financially responsible
and that the counterparty risk associated with those transactions is minimal.
Counterparty risk associated with Dollar Rolls is further mitigated by the
Company's participation in an MBS trading clearinghouse. The sell and buy
transactions that are submitted to this clearinghouse are marked to market on a
daily basis and each participant is required to over-collateralize its net loss
position by 30% with either cash, letters of credit or government securities.
The primary risk associated with MBSs is that a changing interest rate
environment might cause prepayment of the underlying obligations at speeds
slower or faster than anticipated at the time of their purchase.
INVESTED ASSETS EVALUATION routinely includes a review by the Company of
its portfolio of debt securities. Management identifies monthly those
investments that require additional monitoring and carefully reviews the
carrying value of such investments at least quarterly to determine whether
specific investments should be placed on a nonaccrual basis and to determine
declines in value that may be other than temporary. In making these reviews for
bonds, management principally considers the adequacy of collateral (if any),
compliance with contractual covenants, the borrower's recent financial
performance, news reports and other externally generated information concerning
the creditor's affairs. In the case of publicly traded bonds, management also
considers market value quotations, if available. For mortgage loans, management
generally considers information concerning the mortgaged property and, among
other things, factors impacting the current and expected payment status of the
loan and, if available, the current fair value of the underlying collateral.
The carrying values of bonds that are determined to have declines in value
that are other than temporary are reduced to net realizable value and no further
accruals of interest are made. The valuation allowances on mortgage loans are
based on losses expected by management to be realized on transfers of mortgage
loans to real estate, on the disposition and settlement of mortgage loans and on
mortgage loans that management believes may not be collectible in full. Accrual
of interest is suspended when principal and interest payments on mortgage loans
are past due more than 90 days.
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<PAGE> 47
DEFAULTED INVESTMENTS, comprising all investments (at amortized cost) that
are in default as to the payment of principal or interest, totaled $5.0 million
(fair value, $3.5 million) at September 30, 1995. At September 30, 1995,
defaulted investments constituted 0.2% of total invested assets at amortized
cost. At September 30, 1994, defaulted investments totaled $4.4 million. At
September 30, 1994, defaulted investments constituted 0.3% of total invested
assets at amortized cost and their fair value was equal to the amortized cost.
SOURCES OF LIQUIDITY are readily available to the Company in the form of
existing cash and short-term investments, Reverse Repo capacity on invested
assets and, if required, proceeds from invested asset sales. At September 30,
1995, approximately $1.15 billion of the Company's Bond Portfolio had an
aggregate unrealized gain of $26.1 million, while approximately $510.8 million
of the Bond Portfolio had an aggregate unrealized loss of $29.8 million. In
addition, the Company's investment portfolio also currently provides
approximately $20.5 million of monthly cash flow from scheduled principal and
interest payments.
Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, the
Company's average cost of funds would increase over time as it prices its new
and renewing annuities and GICs to maintain a generally competitive market rate.
Management would seek to place new funds in investments that were matched in
duration to, and higher yielding than, the liabilities assumed. The Company
believes that liquidity to fund withdrawals would be available through incoming
cash flow, the sale of short-term or floating-rate instruments or Reverse Repos
on the Company's substantial MBS segment of the Bond Portfolio, thereby avoiding
the sale of fixed-rate assets in an unfavorable bond market.
In a declining rate environment, the Company's cost of funds would decrease
over time, reflecting lower interest crediting rates on its fixed annuities and
GICs. Should increased liquidity be required for withdrawals, the Company
believes that a significant portion of its investments could be sold without
adverse consequences in light of the general strengthening that would be
expected in the bond market.
RESULTS OF OPERATIONS FOR THE FIRST THREE MONTHS OF FISCAL 1996
NET INCOME totaled $5.8 million for the first three months of 1996 ("Fiscal
1996"), compared with $10.6 million for the first three months of 1995 ("Fiscal
1995").
PRETAX INCOME totaled $9.3 million in Fiscal 1996 and $16.2 million in
Fiscal 1995. This $6.9 million decline primarily resulted from increased net
realized investment losses and general and administrative expenses, partially
offset by an increase in net investment income and fee income.
NET INVESTMENT INCOME increased to $14.6 million in Fiscal 1996 from $11.0
million in Fiscal 1995. These amounts represent net investment spreads of 3.00%
on average invested assets (computed on a daily basis) of $1.95 billion in
Fiscal 1996 and 2.78% on average invested assets of $1.58 billion in Fiscal
1995. Net investment spreads include the effect of income earned on the excess
of average invested assets over average interest-bearing liabilities, which
excess amounted to $133.2 million in Fiscal 1996 and $91.5 million in Fiscal
1995. The difference between the Company's yield on average invested assets and
the rate paid on average interest-bearing liabilities was 2.65% in Fiscal 1996
and 2.51% in Fiscal 1995.
Investment income totaled $38.7 million in Fiscal 1996, compared with $28.2
million in Fiscal 1995. Investment income increased in Fiscal 1996 as a result
of an increase in investment yield on a higher level of average invested assets.
The yield on average invested assets increased to 7.95% in Fiscal 1996 from
7.17% in Fiscal 1995.
The increased investment yield in Fiscal 1996 primarily resulted from
increased partnership income, which amounted to $1.4 million in Fiscal 1996,
compared with $0.3 million in Fiscal 1995. This partnership income represents a
yield of 11.60% on related average assets of $48.7 million in Fiscal 1996,
compared with 2.81% on related average assets of $48.6 million in Fiscal 1995.
Total interest expense aggregated $24.0 million in Fiscal 1996 and $17.3
million in Fiscal 1995. The average rate paid on all interest-bearing
liabilities was 5.30% (5.10% on fixed annuity contracts) in Fiscal 1996,
compared with 4.66% (4.60% on fixed annuity contracts) in Fiscal 1995.
Interest-bearing liabilities averaged $1.81 billion during Fiscal 1996, compared
with $1.48 billion during Fiscal 1995.
The increase in the average rate paid on all interest-bearing liabilities
during Fiscal 1996 primarily resulted from increased average crediting rates on
the Company's fixed annuity contracts. Average fixed annuity crediting rates
were 5.10% in Fiscal 1996 and 4.60% in Fiscal 1995. The higher average crediting
rate on fixed annuity
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<PAGE> 48
contracts in Fiscal 1996 reflects the crediting rates on contracts issued and
repriced during the 1995 calendar year. In response to prevailing interest
rates, these crediting rates were generally greater than those on fixed
annuities outstanding in Fiscal 1995.
The growth in average invested assets to $1.95 billion in Fiscal 1996 from
$1.58 billion in Fiscal 1995 primarily reflects sales of the Company's
fixed-rate products, consisting of both fixed accounts of variable annuity
products and GICs. Since December 31, 1994, fixed annuity premiums have
aggregated $249.1 million. These premiums for the fixed accounts of variable
annuity products totaled $62.5 million in Fiscal 1996, compared with $58.8
million in Fiscal 1995. During 1995, the Company issued GICs totaling $275.0
million, which guarantee the payment of principal and interest at variable rates
for a term of one year.
NET REALIZED INVESTMENT LOSSES totaled $12.8 million in Fiscal 1996 and
$4.8 million in Fiscal 1995. These amounts represent 2.63% and 1.22%,
respectively, of average invested assets. Net realized investment losses include
impairment writedowns of $14.9 million in Fiscal 1996 and $1.8 million in Fiscal
1995. Therefore, net gains from sales of investments totaled $2.1 million in
Fiscal 1996, compared with $3.0 million of net losses in Fiscal 1995.
Net gains in Fiscal 1996 include $2.7 million of net gains realized on
$110.4 million of sales of bonds. These bond sales include $50.9 million of
sales of MBSs, $33.7 million of sales of high-yield investments, and $15.0
million of sales of senior secured loans, all of which were primarily made to
maximize total return.
Net losses in Fiscal 1995 include $4.2 million of net losses realized on
$46.3 million of sales of bonds. These bond sales include approximately $18.5
million of sales of CMOs and asset-backed securities, $17.6 million of sales of
high yield investments and $10.0 million of sales of U.S. Treasury securities,
all of which were primarily made to maximize total return.
Impairment writedowns in Fiscal 1996 reflect $14.9 million of provision
applied to certain real estate owned in Arizona on December 31, 1995. Prior to
that date, the statutory carrying value of this real estate had been guaranteed
by the Company's ultimate Parent, SunAmerica Inc. ("SunAmerica"). On December
31, 1995, SunAmerica made a capital contribution to the Company through the
Company's direct parent in exchange for the termination of its guaranty with
respect to this real estate. Accordingly, the Company reduced the carrying value
of this real estate to estimated fair value to reflect the termination of the
guaranty. SunAmerica continues to guarantee the statutory carrying value of the
Company's other real estate owned in Arizona.
Impairment writedowns in Fiscal 1995 include $1.8 million of additional
provisions applied to IOs. At December 31, 1995, the amortized cost of the IOs
held by the Company was $4.9 million and their fair value was $7.1 million.
VARIABLE ANNUITY FEES increased to $24.3 million in Fiscal 1996 from $20.4
million in Fiscal 1995. This increase reflects growth in average variable
annuity assets, principally due to the receipt of variable annuity premiums and
increased market values, partially offset by surrenders. Variable annuity assets
averaged $5.29 billion during Fiscal 1996 and $4.41 billion during Fiscal 1995.
Variable annuity premiums, which exclude premiums allocated to the fixed
accounts of variable annuity products, totaled $209.5 million in Fiscal 1996 and
$101.8 million in Fiscal 1995. This increase in premiums can be attributed, in
part, to a heightened demand for equity and bond investments, principally as a
result of generally improved market performance in the 1995 calendar year.
ASSET MANAGEMENT FEES totaled $6.5 million on average assets managed of
$2.15 billion in Fiscal 1996 and $7.0 million on average assets managed of $2.10
billion in Fiscal 1995. Asset management fees are not proportionate to average
assets managed primarily due to changes in product mix. Sales of mutual funds,
excluding sales of money market accounts, amounted to $36.3 million in Fiscal
1996, compared with $29.5 million in Fiscal 1995. Redemptions of mutual funds,
excluding redemptions of money market accounts, amounted to $97.6 million in
Fiscal 1996, compared with $140.5 million in Fiscal 1995.
NET RETAINED COMMISSIONS totaled $6.3 million in Fiscal 1996 and $4.6
million in Fiscal 1995. Broker-dealer sales (mainly general securities, mutual
funds and annuities) totaled $1.75 billion in Fiscal 1996 and $991.2 million in
Fiscal 1995. Net retained commissions are not proportionate to sales primarily
due to differences in sales mix.
SURRENDER CHARGES on fixed and variable annuities totaled $1.3 million in
Fiscal 1996 and $1.5 million in Fiscal 1995. Withdrawal payments, which include
surrenders and lump-sum annuity benefits, totaled $215.1 million in Fiscal 1996
and $212.5 million in Fiscal 1995. These payments represent 12.8% and 14.7%,
respectively, of average fixed and variable annuity reserves. Withdrawals
include variable annuity payments from the separate accounts totaling $154.5
million in Fiscal 1996 and $144.0 million in Fiscal 1995. Although variable
annuity surrenders have increased, principally as a result of growth in the
variable annuity separate accounts, variable
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<PAGE> 49
annuity withdrawal rates have declined. Variable annuity surrenders represent
11.7% and 13.1%, respectively, of average variable annuity liabilities in Fiscal
1996 and Fiscal 1995. The decrease in fixed annuity surrenders to $60.6 million
in Fiscal 1996 from $68.4 million in Fiscal 1995, results primarily from
unusually high surrenders in Fiscal 1995, principally due to policies coming off
surrender charge restrictions and a greater volume of surrenders on a closed
block of business in Fiscal 1995. Management anticipates that withdrawal rates
will remain relatively stable for the foreseeable future and the Company's
investment portfolio has been structured to provide sufficient liquidity for
anticipated withdrawals.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $17.0 million in Fiscal 1996,
compared with $12.7 million in Fiscal 1995. General and administrative expenses
in Fiscal 1996 include expenses related to a national advertising campaign, as
well as additional administrative expenses relating to a growing block of
business. General and administrative expenses remain closely controlled through
a company-wide cost containment program and represent approximately 1% of
average total assets.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $12.8 million in Fiscal
1996 and $11.9 million in Fiscal 1995. This increase was primarily due to
additional fixed and variable annuity and mutual fund sales and the subsequent
amortization of related deferred commissions and other acquisition costs.
INCOME TAX EXPENSE totaled $3.4 million in Fiscal 1996 and $5.6 million in
Fiscal 1995, representing effective tax rates of 37% and 35%, respectively.
FINANCIAL CONDITION AND LIQUIDITY AT DECEMBER 31, 1995
SHAREHOLDER'S EQUITY increased by $44.3 million to $486.4 million at
December 31, 1995 from $442.1 million at September 30, 1995, primarily as a
result of a $27.4 million cash contribution of capital and $5.8 million of net
income recorded in Fiscal 1996. Shareholder's equity at December 31, 1995 was
also favorably impacted by the recording of a $5.5 million net unrealized gain
on debt and equity securities available for sale, an $11.2 million improvement
over the $5.7 million net unrealized loss recorded at September 30, 1995.
TOTAL ASSETS increased by $60.6 million to $7.84 billion at December 31,
1995 from $7.78 billion at September 30, 1995, principally due to a $188.3
million increase in the separate account for variable annuities, offset by a
$150.5 million decline in invested assets.
INVESTED ASSETS at December 31, 1995 totaled $1.96 billion, compared with
$2.11 billion at September 30, 1995. This $150.5 million decrease primarily
resulted from a $173.9 million reduction in amounts payable to brokers.
Effective December 1, 1995, pursuant to guidelines issued by the Financial
Accounting Standards Board, the Company determined that all of its Bond
Portfolio is available to be sold in response to changes in market interest
rates, changes in prepayment risk, the Company's need for liquidity and other
similar factors. Accordingly, the Company does not presently classify a portion
of its Bond Portfolio as held for investment.
THE BOND PORTFOLIO had an aggregate fair value that exceeded its amortized
cost by $14.7 million at December 31, 1995. At September 30, 1995, the amortized
cost of the Bond Portfolio was $3.7 million above its fair value (including
$10.8 million of net unrealized losses on the portion of the portfolio that was
designated as available for sale). The net unrealized gains on the Bond
Portfolio since September 30, 1995 principally reflect the lower relative
prevailing interest rates at December 31, 1995 and their corresponding effect on
the fair value of the Bond Portfolio.
Approximately $1.63 billion or 99.8% of the Bond Portfolio (at amortized
cost) at December 31, 1995 was rated by S&P, Moody's or under comparable
statutory rating guidelines established by the NAIC and implemented by either
the NAIC or the Company. At December 31, 1995, approximately $1.50 billion (at
amortized cost) was rated investment grade by one or both of these agencies or
under the NAIC guidelines, including $1.24 billion of U.S. government/agency
securities and MBSs.
At December 31, 1995, the Bond Portfolio included $131.6 million (fair
value, $125.5 million) of bonds not rated investment grade by S&P, Moody's or
the NAIC. Based on their December 31, 1995 amortized cost, these non-
investment-grade bonds accounted for 1.68% of the Company's total assets and
6.74% of invested assets.
DEFAULTED INVESTMENTS totaled $5.0 million (fair value, $3.1 million),
which constituted 0.3% of total invested assets at amortized cost, at December
31, 1995. At September 30, 1995, defaulted investments totaled $5.0 million,
which constituted 0.2% of total invested assets at amortized cost.
47
<PAGE> 50
SOURCES OF LIQUIDITY continued to be readily available to the Company in
the form of existing cash and short-term investments, Reverse Repo capacity on
invested assets and, if required, proceeds from invested asset sales. At
December 31, 1995, approximately $1.32 billion of the Company's Bond Portfolio
had an aggregate unrealized gain of $37.9 million, while approximately $313.1
million of the Bond Portfolio had an aggregate unrealized loss of $23.2 million.
In addition, the Company's investment portfolio also currently provides
approximately $21.5 million of monthly cash flow from scheduled principal and
interest payments.
The Company has undertaken to dispose of $28.4 million of certain of its
real estate investments located in the Phoenix, Arizona metropolitan area during
the next year, either to affiliated or nonaffiliated parties, and SunAmerica
Inc., the ultimate parent, has guaranteed that the Company will receive its
statutory carrying value of these assets.
- --------------------------------------------------------------------------------
PROPERTIES
- --------------------------------------------------------------------------------
The Company's principal office is in leased premises at 1 SunAmerica
Center, Los Angeles, California 90067. The Company, through an affiliate, also
leases office space in Torrance, California which is utilized for certain
recordkeeping and data processing functions. The Company's broker-dealer and
asset management subsidiaries lease offices in New York, New York.
The Company believes that such properties, including the equipment located
therein, are suitable and adequate to meet the requirements of its businesses.
48
<PAGE> 51
- --------------------------------------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
The directors and principal officers of Anchor National Life Insurance
Company (the "Company") as of December 12, 1995 are listed below, together with
information as to their ages, dates of election and principal business
occupation during the last five years (if other than their present business
occupation).
<TABLE>
<CAPTION>
YEAR OTHER POSITIONS AND
ASSUMED OTHER BUSINESS EXPERIENCE
NAME AGE PRESENT POSITION(S) POSITION(S) WITHIN LAST FIVE YEARS** FROM-TO
- ----------------------- --- -------------------------------------------- --------------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Eli Broad* 62 Chairman, Chief Executive Officer 1994 Cofounded SunAmerica Inc. ("SAI")
and President of the Company in 1957
Chairman, Chief Executive Officer 1986
and President of SAI
Jay S. Wintrob* 38 Executive Vice President of the 1991 Senior Vice President 1989-1991
Company (Joined SAI in 1987)
Vice Chairman of SAI 1995
James R. Belardi* 38 Senior Vice President and 1992 Vice President and Treasurer 1989-1992
Treasurer of the Company (Joined SAI in 1986)
Executive Vice President of SAI 1995
Jana W. Greer* 43 Senior Vice President of the 1994 Vice President 1981-1991
Company and SAI (Joined SAI in 1974)
Peter McMillan, III* 38 Executive Vice President and 1994 Senior Vice President, SunAmerica 1989-1994
Chief Investment Officer of Investments, Inc.
SunAmerica Investments, Inc.
Gary W. Krat* 48 Senior Vice President of the 1992 Chairman, Royal Alliance 1991 to present
Company and SAI Associates, Inc.
Chief Executive Officer, Royal 1990 to present
Alliance Associates, Inc.
President, Integrated Resources 1986-1990
Equity Corp.
Scott L. Robinson* 49 Senior Vice President of the 1991 Vice President and Controller 1986-1991
Company (Joined SAI in 1978)
Senior Vice President and
Controller of SAI
Lorin M. Fife* 42 Senior Vice President, General 1994 Vice President and General 1994-1995
Counsel and Assistant Secretary Counsel- Regulatory Affairs of
of the Company SAI
Vice President and Associate
General
Senior Vice President and General 1995 Counsel of SAI 1989-1994
Counsel-Regulatory Affairs of SAI (Joined SAI in 1989)
Susan L. Harris* 38 Senior Vice President and 1994 Vice President, General Counsel- 1994-1995
Secretary of the Company Corporate Affairs and Secretary
of SAI
Senior Vice President, General 1995 Vice President, Associate General 1989-1994
Counsel-Corporate Affairs and Counsel and Secretary of SAI
Secretary of SAI (Joined SAI in 1985)
N. Scott Gillis 42 Senior Vice President and 1994 Vice President and Controller, 1989-1994
Controller of the Company SunAmerica Life Companies
(Joined SAI in 1985)
Edwin R. Reoliquio 38 Senior Vice President and Chief 1995 Vice President and Actuary, 1990-1995
Actuary of the Company SunAmerica Life Companies
</TABLE>
- ---------------
* Also serves as a director
** Unless otherwise indicated, officers and positions are with SunAmerica Inc.
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
All of the executive officers of the Company also serve as employees of
SunAmerica Inc. or its affiliates and receive no compensation directly from the
Company. Some of the officers also serve as officers of other companies
affiliated with the Company. Allocations have been made as to each individual's
time devoted to his or her duties as an executive officer of the Company.
The following table shows the cash compensation paid or earned, based on
these allocations, to the chief executive officer and top four executive
officers of the Company whose allocated compensation exceeds $100,000 and
49
<PAGE> 52
to all executive officers of the Company as a group for services rendered in all
capacities in the Company during 1995:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR ALLOCATED CASH
NUMBER IN GROUP CAPACITIES IN WHICH SERVED COMPENSATION
- -------------------------- ------------------------------------------------ --------------
<S> <C> <C>
Eli Broad................. Chairman, Chief Executive Officer and President $ 1,048,897
Jay S. Wintrob............ Executive Vice President 593,495
Gary W. Krat.............. Senior Vice President 441,926
Jana Greer................ Senior Vice President 257,500
James R. Belardi.......... Senior Vice President and Treasurer 218,533
All Executive Officers as
a Group (12)............ $ 3,417,815
===========
</TABLE>
Directors of the Company who are also employees of SunAmerica Inc. or its
affiliates receive no compensation in addition to their compensation as
employees of SunAmerica Inc. or its affiliates.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No shares of the Company are owned by any executive officer or director.
The Company is an indirect wholly owned subsidiary of SunAmerica Inc. Except for
Mr. Broad, the percentage of shares of SunAmerica Inc. beneficially owned by any
director does not exceed one percent of the class outstanding. At March 31,
1996, Mr. Broad was the beneficial owner of 2,149,694 shares of Common Stock
(approximately 4.7% of the class outstanding) and 8,857,081 shares of Class B
Common Stock (approximately 86.5% of the class outstanding). Of the Common
Stock, 237,909 shares represent restricted shares granted under the Company's
employee stock plans as to which Mr. Broad has no investment power; 506,250
shares are held by a trust formed by Mr. Broad of which he is a beneficiary; and
1,344,234 shares represent employee stock options held by Mr. Broad which are or
will become exercisable within the next 60 days and as to which he has no voting
or investment power. Of the Class B Stock, 843,750 shares are held by a trust
formed by Mr. Broad of which he is a beneficiary; 32,568 shares are held by a
foundation of which Mr. Broad is a director and as to which he has shared voting
and investment power; and 2,902,500 shares are registered in the name of a
corporation as to which Mr. Broad exercises voting and investment power. At
March 31, 1996, all directors and officers as a group beneficially owned
3,645,981 shares of Common Stock (approximately 8.0% of the class outstanding)
and 8,857,081 shares of Class B Common Stock (approximately 86.5% of the class
outstanding).
- --------------------------------------------------------------------------------
STATE REGULATION
- --------------------------------------------------------------------------------
The Company is subject to regulation and supervision by the states in which
it is authorized to transact business. State insurance laws establish
supervisory agencies with broad administrative and supervisory powers related to
granting and revoking licenses to transact business, regulating marketing and
other trade practices, operating guaranty associations, licensing agents,
approving policy forms, regulating certain premium rates, regulating insurance
holding company systems, establishing reserve requirements, prescribing the form
and content of required financial statements and reports, performing financial
and other examinations, determining the reasonableness and adequacy of statutory
capital and surplus, regulating the type and amount of investments permitted,
limiting the amount of dividends that can be paid and the size of transactions
that can be consummated without first obtaining regulatory approval and other
related matters.
During the last decade, the insurance regulatory framework has been placed
under increased scrutiny by various states, the federal government and the NAIC.
Various states have considered or enacted legislation that changes, and in many
cases increases, the states' authority to regulate insurance companies.
Legislation has been introduced from time to time in Congress that could result
in the federal government assuming some role in the regulation of insurance
companies. In recent years, the NAIC has approved and recommended to the states
for adoption and implementation several regulatory initiatives designed to
reduce the risk of insurance company insolvencies. These initiatives include new
investment reserve requirements, risk-based capital standards and restrictions
on an insurance company's ability to pay dividends to its stockholders. The NAIC
is also currently
50
<PAGE> 53
developing model laws to govern insurance company investments. Current proposals
are still being debated and the Company is monitoring developments in this area
and the effects any changes would have on the Company.
SunAmerica Asset Management is registered with the Securities and Exchange
Commission (the "Commission") as a registered investment adviser under the
Investment Advisers Act of 1940. The mutual funds that it markets are subject to
regulation under the Investment Company Act of 1940. SunAmerica Asset Management
and the mutual funds are subject to regulation and examination by the
Commission. In addition, variable annuities and the related separate accounts of
the Company are subject to regulation by the Commission under the Securities Act
of 1933 and the Investment Company Act of 1940.
The Company's broker-dealer subsidiary is subject to regulation and
supervision by the states in which it transacts business, as well as by the
National Association of Securities Dealers, Inc. (the "NASD"). The NASD has
broad administrative and supervisory powers relative to all aspects of business
and may examine the subsidiary's business and accounts at any time.
- --------------------------------------------------------------------------------
CUSTODIAN
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, serves as the custodian of the assets of the Separate
Account. The custodian is remunerated by the Company based on a schedule of fees
under an agreement between the custodian and the Company.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no pending legal proceedings affecting the Separate Account. The
Company and its subsidiaries are engaged in various kinds of routine litigation
which, in management's judgment, is not of material importance to their
respective total assets or material with respect to the Separate Account.
- --------------------------------------------------------------------------------
REGISTRATION STATEMENTS
- --------------------------------------------------------------------------------
Registration statements have been filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 as amended, with
respect to the Contracts offered by this prospectus. This prospectus does not
contain all the information set forth in the registration statements and the
exhibits filed as part of the registration statements, to all of which reference
is hereby made for further information concerning the Separate Account, the
General Account, the Company, the Underlying Funds, the Contract and the
Certificates. Statements found in this prospectus as to the terms of the
Contracts, the Certificates and other legal instruments are summaries, and
reference is made to such instruments as filed.
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The consolidated financial statements of Anchor National Life Insurance
Company as of September 30, 1995 and 1994 and for each of the three years in the
period ended September 30, 1995 included in this prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
51
<PAGE> 54
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
Additional information concerning the operations of the Separate Account is
contained in a Statement of Additional Information, which is available without
charge upon written request addressed to the Company at its Annuity Service
Center, P.O. Box 54299, Los Angeles, California 90054-0299 or (800) 445-SUN2.
The contents of the Statement of Additional Information are tabulated below.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Performance Data.......................................................................... 3
Annuity Unit Values; Annuity Payments..................................................... 5
Distribution of Contracts................................................................. 7
Financial Statements...................................................................... 7
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The consolidated financial statements of the Company which are included in
this prospectus should be considered only as bearing on the ability of the
Company to meet its obligations with respect to amounts allocated to the General
Account and with respect to the death benefit and the Company's assumption of
the mortality and expense risks and the risk that the Withdrawal Charge will be
insufficient to cover the cost of distributing the Contracts. They should not be
considered as bearing on the investment performance of the Underlying Fund
shares held in the Portfolios of the Separate Account. The value of the
interests of Owners, Participants, Annuitants, payees and Beneficiaries under
the variable portion of the Contracts is affected primarily by the investment
results of the Underlying Funds.
52
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Anchor National Life Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated income statement and statement of cash flows present fairly, in all
material respects, the financial position of Anchor National Life Insurance
Company and its subsidiaries at September 30, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 7, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," in fiscal 1994.
Price Waterhouse LLP
Los Angeles, California
November 6, 1995
53
<PAGE> 56
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1995
SEPTEMBER 30, SEPTEMBER 30, --------------
1994 1995
-------------- -------------- (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Investments:
Cash and short-term investments.............. $ 157,438,000 $ 249,209,000 $ 127,286,000
Bonds, notes and redeemable preferred stocks:
Available for sale, at fair value
(amortized cost:
September 1994, $1,108,271,000;
September 1995, $1,500,062,000; December
1995, $1,633,937,000)................... 1,026,120,000 1,489,213,000 1,648,656,000
Held for investment, at amortized cost
(fair value:
September 1994, $180,247,000; September
1995, $165,004,000)..................... 175,885,000 157,901,000 --
Mortgage loans............................... 108,332,000 94,260,000 92,909,000
Common stocks, at fair value (cost: September
1994, $8,789,000; September 1995,
$6,576,000; December 1995, $5,173,000).... 7,550,000 4,097,000 3,312,000
Real estate.................................. 89,539,000 55,798,000 40,899,000
Other invested assets........................ 67,208,000 64,430,000 51,356,000
-------------- -------------- --------------
Total investments............................ 1,632,072,000 2,114,908,000 1,964,418,000
Variable annuity assets........................ 4,486,703,000 5,230,246,000 5,418,534,000
Receivable from brokers for sales of
securities................................... -- -- 18,000,000
Accrued investment income...................... 17,565,000 14,192,000 15,575,000
Deferred acquisition costs..................... 416,289,000 383,069,000 379,922,000
Other assets................................... 49,497,000 41,282,000 47,891,000
-------------- -------------- --------------
TOTAL ASSETS................................... $6,602,126,000 $7,783,697,000 $7,844,340,000
============== ============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts......... $1,437,488,000 $1,497,052,000 $1,473,964,000
Reserves for guaranteed investment
contracts................................. -- 277,095,000 277,167,000
Payable to brokers for purchases of
securities................................ 124,624,000 155,861,000 --
Income taxes currently payable............... 12,331,000 15,720,000 21,469,000
Other liabilities............................ 58,891,000 58,204,000 59,829,000
-------------- -------------- --------------
Total reserves, payables and accrued
liabilities............................... 1,633,334,000 2,003,932,000 1,832,429,000
-------------- -------------- --------------
Variable annuity liabilities................... 4,486,703,000 5,230,246,000 5,418,534,000
-------------- -------------- --------------
Subordinated notes payable to Parent........... 34,000,000 34,000,000 34,000,000
-------------- -------------- --------------
Deferred income taxes.......................... 64,567,000 73,459,000 72,934,000
-------------- -------------- --------------
Shareholder's equity:
Common Stock................................. 3,511,000 3,511,000 3,511,000
Additional paid-in capital................... 252,876,000 252,876,000 280,263,000
Retained earnings............................ 152,088,000 191,346,000 197,172,000
Net unrealized gains (losses) on debt and
equity
securities available for sale............. (24,953,000) (5,673,000) 5,497,000
-------------- -------------- --------------
Total shareholder's equity................... 383,522,000 442,060,000 486,443,000
-------------- -------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY..... $6,602,126,000 $7,783,697,000 $7,844,340,000
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
54
<PAGE> 57
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------------ ---------------------------
1993 1994 1995 1994 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Investment income.......... $137,591,000 $127,758,000 $129,466,000 $ 28,245,000 $ 38,653,000
------------ ------------ ------------ ------------ ------------
Interest expense on:
Fixed annuity
contracts............. (87,479,000) (66,311,000) (72,975,000) (16,666,000) (18,936,000)
Guaranteed investment
contracts............. -- -- (3,733,000) -- (4,272,000)
Senior indebtedness...... (34,000) (71,000) (227,000) (16,000) (195,000)
Subordinated notes
payable to Parent..... (1,166,000) (2,380,000) (2,448,000) (595,000) (633,000)
------------ ------------ ------------ ------------ ------------
Total interest expense... (88,679,000) (68,762,000) (79,383,000) (17,277,000) (24,036,000)
------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME...... 48,912,000 58,996,000 50,083,000 10,968,000 14,617,000
------------ ------------ ------------ ------------ ------------
NET REALIZED INVESTMENT
LOSSES................... (22,247,000) (33,713,000) (4,363,000) (4,791,000) (12,800,000)
------------ ------------ ------------ ------------ ------------
Fee income:
Variable annuity fees.... 67,222,000 79,101,000 84,171,000 20,357,000 24,290,000
Asset management fees.... 32,293,000 31,302,000 26,935,000 7,025,000 6,503,000
Net retained
commissions........... 16,928,000 19,180,000 23,267,000 4,626,000 6,295,000
------------ ------------ ------------ ------------ ------------
TOTAL FEE INCOME........... 116,443,000 129,583,000 134,373,000 32,008,000 37,088,000
------------ ------------ ------------ ------------ ------------
Other income and expenses:
Surrender charges........ 5,306,000 5,034,000 5,889,000 1,457,000 1,261,000
General and
administrative
expenses.............. (55,142,000) (52,636,000) (61,629,000) (12,686,000) (16,997,000)
Provision for future
guaranty fund
assessments........... (4,800,000) -- -- -- --
Amortization of deferred
acquisition costs..... (30,825,000) (43,992,000) (57,005,000) (11,942,000) (12,846,000)
Other, net............... 5,865,000 4,048,000 (2,351,000) 1,180,000 (1,048,000)
------------ ------------ ------------ ------------ ------------
TOTAL OTHER INCOME AND
EXPENSES................. (79,596,000) (87,546,000) (115,096,000) (21,991,000) (29,630,000)
------------ ------------ ------------ ------------ ------------
PRETAX INCOME.............. 63,512,000 67,320,000 64,997,000 16,194,000 9,275,000
Income tax expense......... (21,794,000) (22,705,000) (25,739,000) (5,607,000) (3,449,000)
------------ ------------ ------------ ------------ ------------
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME
TAXES.................... 41,718,000 44,615,000 39,258,000 10,587,000 5,826,000
Cumulative effect of change
in accounting for income
taxes.................... -- (20,463,000) -- -- --
------------ ------------ ------------ ------------ ------------
NET INCOME................. $ 41,718,000 $ 24,152,000 $ 39,258,000 $ 10,587,000 $ 5,826,000
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
55
<PAGE> 58
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------------------- -----------------------------
1993 1994 1995 1994 1995
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 41,718,000 $ 24,152,000 $ 39,258,000 $ 10,587,000 $ 5,826,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Interest credited to:
Fixed annuity contracts................... 87,479,000 66,311,000 72,975,000 16,666,000 18,936,000
Guaranteed investment contracts........... -- -- 3,733,000 -- 4,272,000
Net realized investment losses.............. 22,247,000 33,713,000 4,363,000 4,791,000 12,800,000
Accretion of net discounts on investments... (9,149,000) (2,050,000) (6,865,000) (1,658,000) (1,669,000)
Amortization of goodwill.................... 1,167,000 1,169,000 1,168,000 292,000 293,000
Provision for deferred income taxes......... 2,982,000 19,395,000 (1,489,000) (1,323,000) (6,541,000)
Cumulative effect of change in accounting
for income taxes.......................... -- 20,463,000 -- -- --
Change in:
Accrued investment income................. -- -- -- (1,135,000) (3,683,000)
Deferred acquisition costs................ (48,413,000) (34,612,000) (7,180,000) (1,291,000) (5,853,000)
Other assets.............................. 3,017,000 5,133,000 7,047,000 (4,568,000) (6,902,000)
Income taxes receivable/payable........... 23,479,000 6,559,000 3,389,000 7,401,000 5,749,000
Other liabilities......................... 11,596,000 46,000 2,231,000 (51,000) 428,000
Other, net.................................. 466,000 (950,000) 3,380,000 153,000 85,000
------------- ------------- ------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES....... 136,589,000 139,329,000 122,010,000 29,864,000 23,741,000
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts..................... 63,796,000 138,526,000 245,320,000 59,979,000 62,536,000
Guaranteed investment contracts............. -- -- 275,000,000 -- --
Net exchanges to (from) the fixed accounts of
variable annuity contracts.................. (45,516,000) (29,286,000) 10,475,000 38,242,000 (36,865,000)
Withdrawal payments on:
Fixed annuity contracts..................... (245,250,000) (269,412,000) (237,977,000) (68,459,000) (60,577,000)
Guaranteed investment contracts............. -- -- (1,638,000) -- (4,200,000)
Claims and annuity payments on fixed annuity
contracts................................... (33,938,000) (31,146,000) (31,237,000) (7,106,000) (7,202,000)
Net increase in subordinated notes payable to
Parent...................................... 18,500,000 -- -- -- --
Net receipts from (repayments of) other
short-term financings....................... 38,857,000 (166,685,000) 5,034,000 28,567,000 (131,379,000)
Capital contributions received................ -- -- -- -- 27,387,000
------------- ------------- ------------- ------------- -------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES.................................... (203,551,000) (358,003,000) 264,977,000 51,223,000 (150,300,000)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred stocks
available for sale........................ (1,254,755,000) (1,197,743,000) (1,556,586,000) (82,598,000) (230,071,000)
Bonds, notes and redeemable preferred stocks
held for investment....................... (64,167,000) (209,000) -- -- --
Mortgage loans.............................. (39,100,000) (10,666,000) -- -- --
Other investments, excluding short-term
investments............................... (31,674,000) (26,108,000) (13,028,000) (4,102,000) (2,698,000)
Sales of:
Bonds, notes and redeemable preferred stocks
available for sale........................ 878,277,000 877,068,000 1,026,078,000 43,732,000 186,979,000
Bonds, notes and redeemable preferred stocks
held for investment....................... 82,014,000 -- -- -- --
Real estate................................. 38,333,000 33,443,000 36,813,000 31,269,000 --
Other investments, excluding short-term
investments............................... 21,616,000 2,353,000 5,130,000 269,000 1,397,000
Redemptions and maturities of:
Bonds, notes and redeemable preferred stocks
available for sale........................ 255,787,000 139,691,000 157,195,000 15,400,000 44,872,000
Bonds, notes and redeemable preferred stocks
held for investment....................... 184,925,000 34,072,000 21,493,000 5,313,000 71,000
Investment in real estate separate
account................................... 92,130,000 -- -- -- --
Mortgage loans.............................. 17,614,000 10,087,000 14,403,000 -- --
Other investments, excluding short-term
investments............................... 6,962,000 13,500,000 13,286,000 7,328,000 4,086,000
Payment of holdback liability for 1990
purchase of annuity business................ (14,250,000) -- -- -- --
------------- ------------- ------------- ------------- -------------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES.................................... 173,712,000 (124,512,000) (295,216,000) 16,611,000 4,636,000
------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS................................... 106,750,000 (343,186,000) 91,771,000 97,698,000 (121,923,000)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF
PERIOD........................................ 393,874,000 500,624,000 157,438,000 157,438,000 249,209,000
------------- ------------- ------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS AT END OF
PERIOD........................................ $ 500,624,000 $ 157,438,000 $ 249,209,000 $ 255,136,000 $ 127,286,000
============= ============= ============= ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness................. $ 34,000 $ 1,175,000 $ 3,235,000 $ 340,000 $ 661,000
============= ============= ============= ============= =============
Income taxes paid (recovered)................. $ (6,736,000) $ (3,328,000) $ 23,656,000 $ (537,000) $ 4,247,000
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
56
<PAGE> 59
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL: Anchor National Life Insurance Company (the "Company") is a wholly
owned indirect subsidiary of SunAmerica Inc. (the "Parent").
The consolidated financial statements include the accounts of the Company
and all significant subsidiaries, including Anchor Investment Advisor, Inc.;
SunAmerica Asset Management Corp.; SunAmerica Capital Services, Inc.; Saamsun
Holdings Corp.; SAM Holdings Corporation; SunRoyal Holding Corporation; and
Royal Alliance Associates, Inc. All significant intercompany transactions have
been eliminated. Certain items have been reclassified to conform to the current
year's presentation.
The interim financial information is unaudited; however, in the opinion of
the Company, the interim information includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair statement of the results
for the interim periods.
INVESTMENTS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and short-term
bank participations. All such investments are carried at cost plus accrued
interest, which approximates fair value, have maturities of three months or less
and are considered cash equivalents for purposes of reporting cash flows. Bonds,
notes and redeemable preferred stocks available for sale and common stocks are
carried at aggregate fair value and changes in unrealized gains or losses, net
of tax, are credited or charged directly to shareholder's equity. It is
management's intent, and the Company has the ability, to hold the remainder of
bonds, notes and redeemable preferred stocks until maturity, and therefore,
these investments are carried at amortized cost. Bonds, notes and redeemable
preferred stocks, whether available for sale or held for investment, 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 dependant upon future events. Mortgage
loans are carried at amortized unpaid balances, net of provisions for estimated
losses. Real estate is carried at the lower of cost or fair value. Other
invested assets include investments in limited partnerships, most of which are
accounted for by using the cost method of accounting; separate account
investments; leveraged leases; policy loans, which are carried at unpaid
balances; and collateralized mortgage obligation residuals. Realized gains and
losses on the sale of investments are recognized in operations at the date of
sale and are determined using the specific cost identification method. Premiums
and discounts on investments are amortized to investment income using the
interest method over the contractual lives of the investments.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, over the estimated lives of the contracts in relation
to the present value of estimated gross profits, which are composed of net
interest income, net realized investment gains and losses, variable annuity
fees, surrender charges and direct administrative expenses. Costs incurred to
sell mutual funds are also deferred and amortized over the estimated lives of
the funds obtained. Deferred acquisition costs consist of commissions and other
costs which vary with, and are primarily related to, the production or
acquisition of new business.
As debt and equity securities available for sale are carried at aggregate
fair value, an adjustment is made to deferred acquisition costs equal to the
change in amortization that would have been recorded if such securities had been
sold at their stated aggregate fair value and the proceeds reinvested at current
yields. The change in this adjustment, net of tax, is included with the change
in net unrealized gains or losses on debt and equity securities available for
sale that is credited or charged directly to shareholder's equity. At September
30, 1995 and 1994, deferred acquisition costs have been increased by $4,600,000
and $45,000,000, respectively, 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 $20,647,000 at September 30, 1995, is
amortized by using the straight-line method over a period averaging 25 years and
is included in Other Assets in the balance sheet.
57
<PAGE> 60
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
contracts and guaranteed investment contracts are accounted for as
investment-type contracts in accordance with Statement of Financial Accounting
Standards No. 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments," and are recorded at accumulated value (premiums received, plus
accrued interest, less withdrawals and assessed fees).
FEE INCOME: Variable Annuity fees and asset management fees are recognized
in income as earned. Net retained commissions are recognized on a trade date
basis.
INCOME TAXES: The Company is included in the consolidated federal income
tax return of the Parent and files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Income taxes have been
calculated as if the Company filed a separate return. Effective October 1, 1993
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.
2. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale and held for investment by major category
follow:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
-------------- --------------
<S> <C> <C>
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States Government............ $ 63,701,000 $ 65,195,000
Mortgage-backed securities............................ 1,144,645,000 1,134,361,000
Securities of public utilities........................ 792,000 774,000
Corporate bonds and notes............................. 290,924,000 288,883,000
-------------- --------------
Total available for sale........................... $1,500,062,000 $1,489,213,000
============= =============
HELD FOR INVESTMENT:
Securities of the United States Government............ $ 10,379,000 $ 10,797,000
Mortgage-backed securities............................ 8,378,000 8,378,000
Corporate bonds and notes............................. 105,980,000 112,665,000
Other debt securities................................. 33,164,000 33,164,000
-------------- --------------
Total held for investment.......................... $ 157,901,000 $ 165,004,000
============= =============
AT SEPTEMBER 30, 1994:
AVAILABLE FOR SALE:
Securities of the United States Government............ $ 16,623,000 $ 16,379,000
Mortgage-backed securities............................ 833,445,000 765,946,000
Securities of public utilities........................ 13,423,000 12,837,000
Corporate bonds and notes............................. 243,405,000 229,411,000
Redeemable preferred stocks........................... 1,375,000 1,547,000
-------------- --------------
Total available for sale........................... $1,108,271,000 $1,026,120,000
============= =============
HELD FOR INVESTMENT:
Securities of the United States Government............ $ 10,370,000 $ 10,320,000
Mortgage-backed securities............................ 8,831,000 8,725,000
Corporate bonds and notes............................. 126,333,000 130,851,000
Other debt securities................................. 30,351,000 30,351,000
-------------- --------------
Total held for investment.......................... $ 175,885,000 $ 180,247,000
============= =============
</TABLE>
58
<PAGE> 61
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale and held for investment by contractual
maturity follow:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
-------------- --------------
<S> <C> <C>
AT SEPTEMBER 30, 1995;
AVAILABLE FOR SALE:
Due in one year or less....................................... $ 10,243,000 $ 11,285,000
Due after one year through five years......................... 52,644,000 52,922,000
Due after five years through ten years........................ 223,820,000 222,362,000
Due after ten years........................................... 68,710,000 68,283,000
Mortgage-backed securities.................................... 1,144,645,000 1,134,361,000
-------------- --------------
Total available for sale................................... $1,500,062,000 $1,489,213,000
============= =============
HELD FOR INVESTMENT:
Due in one year or less....................................... $ 500,000 $ 500,000
Due after one year through five years......................... 33,465,000 35,103,000
Due after five years through ten years........................ 67,109,000 70,970,000
Due after ten years........................................... 48,449,000 50,053,000
Mortgage-backed securities.................................... 8,378,000 8,378,000
-------------- --------------
Total held for investment.................................. $ 157,901,000 $ 165,004,000
============= =============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above because of prepayments and redemptions.
59
<PAGE> 62
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS (CONTINUED)
Gross unrealized gains and losses on bonds, notes and redeemable preferred
stocks available for sale and held for investment by major category follow:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
GAINS LOSSES
----------- ------------
<S> <C> <C>
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States Government......................... $ 1,545,000 $ (51,000)
Mortgage-backed securities......................................... 12,117,000 (22,401,000)
Securities of public utilities..................................... -- (18,000)
Corporate bonds and notes.......................................... 5,344,000 (7,385,000)
----------- ------------
Total available for sale........................................ $19,006,000 $(29,855,000)
=========== ============
HELD FOR INVESTMENT:
Securities of the United States Government......................... $ 432,000 $ (14,000)
Corporate bonds and notes.......................................... 6,685,000 --
----------- ------------
Total held for investment....................................... $ 7,117,000 $ (14,000)
=========== ============
AT SEPTEMBER 30, 1994:
AVAILABLE FOR SALE:
Securities of the United States Government......................... $ -- $ (244,000)
Mortgage-backed securities......................................... 2,852,000 (70,351,000)
Securities of public utilities..................................... -- (586,000)
Corporate bonds and notes.......................................... 753,000 (14,747,000)
Redeemable preferred stocks........................................ 172,000 --
----------- ------------
Total available for sale........................................ $ 3,777,000 $(85,928,000)
=========== ============
HELD FOR INVESTMENT:
Securities of the United States Government......................... $ 85,000 $ (135,000)
Mortgage-backed securities......................................... 7,000 (113,000)
Corporate bonds and notes.......................................... 4,619,000 (101,000)
----------- ------------
Total held for investment....................................... $ 4,711,000 $ (349,000)
=========== ============
</TABLE>
At September 30, 1995, gross unrealized gains on equity securities
aggregated $1,082,000 and gross unrealized losses aggregated $3,561,000. At
September 30, 1994, gross unrealized gains on equity securities aggregated
$878,000 and gross unrealized losses aggregated $2,117,000.
60
<PAGE> 63
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS (CONTINUED)
Gross realized investment gains and losses on sales of all types of
investments are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Bonds, notes and redeemable preferred stocks:
Available for sale:
Realized gains................................. $ 15,983,000 $ 12,760,000 $ 20,193,000
Realized losses................................ (21,842,000) (31,066,000) (8,132,000)
Held for Investment:
Realized gains................................. 2,413,000 890,000 5,194,000
Realized losses................................ (586,000) (1,913,000) (257,000)
Equities:
Realized gains.................................... 994,000 467,000 2,445,000
Realized losses................................... (114,000) (303,000) (2,653,000)
Other investments:
Realized gains.................................... 3,561,000 -- 255,000
Realized losses................................... (12,000) (358,000) (1,573,000)
Impairment writedowns............................... (4,760,000) (14,190,000) (37,719,000)
------------ ------------ ------------
Total net realized investment losses................ $ (4,363,000) $(33,713,000) $(22,247,000)
============ ============ ============
</TABLE>
The net realized gains and losses included in bonds, notes and redeemable
preferred stocks held for investment in 1995 and 1994 reflect net gains and
losses realized upon redemptions, the net of which amounted to gains of
$1,827,000 in 1995 and losses of $1,023,000 in 1994. In 1993, the net gains of
$4,937,000 were realized on sales of securities totaling $77,077,000.
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Short-term investments.............................. $ 8,308,000 $ 4,648,000 $ 7,278,000
Bonds, notes and redeemable preferred stocks........ 107,643,000 98,935,000 106,013,000
Mortgage loans...................................... 7,419,000 12,133,000 9,418,000
Common stocks....................................... 3,000 1,000 15,000
Real estate......................................... (51,000) 1,379,000 302,000
Limited partnerships................................ 5,128,000 9,487,000 12,064,000
Other invested assets............................... 1,016,000 1,175,000 2,501,000
------------ ------------ ------------
Total investment income........................... $129,466,000 $127,758,000 $137,591,000
============ ============ ============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to $1,983,000
for the year ended September 30, 1995, $1,714,000 for the year ended September
30, 1994, and $1,478,000 for the year ended September 30, 1993 and are included
in General and Administrative Expenses in the income statement.
At September 30, 1995, no investment exceeded 10% of the Company's
consolidated shareholder's equity.
At September 30, 1995, mortgage loans were collateralized by properties
located in 8 states, with loans totaling approximately 22% of the aggregate
carrying value of the portfolio secured by properties located in Colorado,
approximately 18% by properties located in California and approximately 17% by
properties located in New Jersey. No more than 13% of the portfolio was secured
by properties in any other single state.
At September 30, 1995, bonds, notes and redeemable preferred stocks
included $148,355,000 (at amortized cost, with fair value of $143,778,000) of
investments not rated investment grade by either Standard & Poor's
61
<PAGE> 64
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS (CONTINUED)
Corporation, Moody's Investors Service or under National Association of
Insurance Commissioners' guidelines. The Company had no material concentrations
of non-investment-grade assets at September 30, 1995.
At September 30, 1995, the amortized cost of investments in default as to
the payment of principal or interest was $4,958,000 and the fair value was
$3,500,000, all of which are unsecured non-investment-grade-bonds.
At September 30, 1995, $5,108,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory requirements.
The Company has undertaken to dispose of certain real estate investments,
having an aggregate carrying value of $55,798,000, during the next one to two
years, to affiliated or nonaffiliated parties, and the Parent has guaranteed
that the Company will receive its current carrying value for these assets.
3. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to the
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 other invested
assets, equity investments and real estate investments) 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.
VARIABLE ANNUITY ASSETS: Variable annuity assets are carried at the market
value of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts and single
premium life contracts are assigned fair value equal to current net surrender
value. Annuitized contracts are valued based on the present value of future cash
flows at current pricing rates.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the
present value of future cash flows at current pricing rates.
PAYABLE TO BROKERS FOR PURCHASES OF SECURITIES: Such obligations represent
net transactions of a short-term nature for which the carrying value is
considered a reasonable estimate of fair value.
VARIABLE ANNUITY LIABILITIES: Fair values of contracts in the accumulation
phase are based on net surrender values. Fair values of contracts in the payout
phase are based on the present value of future cash flows at assumed investment
rates.
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on the
quoted market prices for similar issues.
62
<PAGE> 65
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments at
September 1995 and 1994, compared with their respective carrying values are as
follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------------- --------------
<S> <C> <C>
1995:
Assets:
Cash and short-term investments............................... $ 249,209,000 $ 249,209,000
Bonds, notes and redeemable preferred stocks.................. 1,647,114,000 1,654,217,000
Mortgage loans................................................ 94,260,000 95,598,000
Variable annuity assets....................................... 5,230,246,000 5,230,246,000
Liabilities:
Reserves for fixed annuity contracts.......................... 1,497,052,000 1,473,757,000
Reserves for guaranteed investment contracts.................. 277,095,000 277,095,000
Payable to brokers for purchases of securities................ 155,861,000 155,861,000
Variable annuity liabilities.................................. 5,230,246,000 5,077,257,000
Subordinated notes payable to Parent.......................... 34,000,000 34,620,000
============== ==============
1994:
Assets:
Cash and short-term investments............................... $ 157,438,000 $ 157,438,000
Bonds, notes and redeemable preferred stocks.................. 1,202,005,000 1,206,367,000
Mortgage loans................................................ 108,332,000 104,835,000
Variable annuity assets....................................... 4,486,703,000 4,486,703,000
Liabilities:
Reserves for fixed annuity contracts.......................... 1,437,488,000 1,411,117,000
Payable to brokers for purchases of securities................ 124,624,000 124,624,000
Variable annuity liabilities.................................. 4,486,703,000 4,335,753,000
Subordinated notes payable to Parent.......................... 34,000,000 33,897,000
============== ==============
</TABLE>
4. SUBORDINATED NOTES PAYABLE TO PARENT
Subordinated notes payable to Parent bear interest at a weighted average
rate of 7.20% (with rates ranging from 7.00% to 9.00%) and require principal
payments of $22,500,000 in 1996, $4,000,000 in 1997 and $7,500,000 in 1998.
5. CONTINGENT LIABILITIES
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 are adequate and any further liabilities and costs will not have a
material adverse impact upon the Company's financial position or results of
operations.
63
<PAGE> 66
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value
Common Stock. At September 30, 1995, 1994 and 1993, 3,511 shares are
outstanding. Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
RETAINED EARNINGS:
Beginning balance................................. $152,088,000 $127,936,000 $ 86,218,000
Net income........................................ 39,258,000 24,152,000 41,718,000
------------ ------------ ------------
Ending balance.................................... $191,346,000 $152,088,000 $127,936,000
============ ============ ============
NET UNREALIZED GAINS (LOSSES)
ON DEBT AND EQUITY SECURITIES AVAILABLE FOR SALE:
Beginning balance................................. $(24,953,000) $(13,230,000) $(20,127,000)
Change in net unrealized
gains (losses) on debt securities available for
sale........................................... 71,302,000 (69,407,000) 4,998,000
Change in net unrealized
gains (losses) on equity securities available
for sale....................................... (1,240,000) (753,000) 1,899,000
Change in adjustment to
deferred acquisition costs..................... (40,400,000) 45,000,000 --
Tax effects of net changes........................ (10,382,000) 13,437,000 --
------------ ------------ ------------
Ending balance.................................... $ (5,673,000) $(24,953,000) $(13,230,000)
============ ============ ============
</TABLE>
Dividends which the Company may pay to its shareholder in any year without
prior approval of the California Insurance Commissioner are limited by statute.
Under California insurance law, without prior approval of the insurance
commissioner, dividends and distributions to shareholders are limited to the
greater of (i) 10% of the preceding December 31 balance of statutory surplus as
regards policyholders or (ii) the prior calendar year's net statutory gain from
operations. In addition, new law requires prior notice of any dividend and
grants the commissioner authority to order that a dividend not be paid. No
dividends were paid in fiscal years 1995, 1994 or 1993.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the nine months ended
September 30, 1995 was $34,477,000. The statutory net income for the year ended
December 31, 1994 was $35,060,000 and for the year ended December 31, 1993 was
$51,686,000. The Company's statutory capital and surplus was $260,454,000 at
September 30, 1995, $219,577,000 at December 31, 1994 and $199,082,000 at
December 31, 1993.
64
<PAGE> 67
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. 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>
1995:
Currently payable...................................... $ 4,248,000 $22,980,000 $27,228,000
Deferred............................................... (6,113,000) 4,624,000 (1,489,000)
----------- ----------- -----------
Total income tax expense............................... $ (1,865,000) $27,604,000 $25,739,000
=========== =========== ===========
1994:
Currently payable...................................... $ (6,825,000) $10,135,000 $ 3,310,000
Deferred............................................... (1,320,000) 20,715,000 19,395,000
----------- ----------- -----------
Total income tax expense............................... $ (8,145,000) $30,850,000 $22,705,000
=========== =========== ===========
1993:
Currently payable...................................... $ (836,000) $19,648,000 $18,812,000
Deferred............................................... (6,819,000) 9,801,000 2,982,000
----------- ----------- -----------
Total income tax expense............................... $ (7,655,000) $29,449,000 $21,794,000
=========== =========== ===========
</TABLE>
Income taxes computed at the United States federal income tax rate of 35%
for 1995 and 1994 and 34.75% for 1993 and income taxes provided differ as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Amount computed at statutory rate...................... $22,749,000 $23,562,000 $22,000,000
Increases (decreases) resulting from:
Amortization of differences between book and tax
bases of net assets acquired...................... 3,049,000 465,000 1,423,000
State income taxes, net of federal tax benefit....... 437,000 (662,000) (223,000)
Tax credits.......................................... (168,000) (612,000) (1,849,000)
Other................................................ (328,000) (48,000) 443,000
----------- ----------- -----------
Total income tax expense............................... $25,739,000 $22,705,000 $21,794,000
=========== =========== ===========
</TABLE>
For United States federal income tax purposes, certain amounts from life
insurance operations are accumulated in a memorandum policyholders' surplus
account and are taxed only when distributed to shareholders or when such account
exceeds prescribed limits. The accumulated policyholders' surplus was
$14,300,000 at September 30, 1995. The Company does not anticipate any
transactions which would cause any part of this surplus to be taxable.
Effective October 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Accordingly, the cumulative effect of this change in accounting for income taxes
was recorded during the quarter ended December 31, 1993 to increase the
liability for deferred income taxes by $20,463,000.
65
<PAGE> 68
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. The significant
components of the liability for deferred income taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Investments....................................................... $ 14,181,000 $ 17,079,000
Deferred acquisition costs........................................ 118,544,000 117,200,000
State income taxes................................................ 1,847,000 2,917,000
------------- -------------
Total deferred tax liabilities.................................... 134,572,000 137,196,000
============ ============
Deferred tax assets:
Contractholder reserves........................................... (55,910,000) (54,819,000)
Guaranty fund assessments......................................... (1,123,000) (1,197,000)
Deferred expenses................................................. (1,025,000) (3,177,000)
Net unrealized losses on certain debt and equity securities....... (3,055,000) (13,436,000)
------------- -------------
Total deferred tax assets......................................... (61,113,000) (72,629,000)
------------- -------------
Deferred income taxes............................................... $ 73,459,000 $ 64,567,000
============ ============
</TABLE>
8. RELATED PARTY MATTERS
The Company pays commissions to two affiliated companies, SunAmerica
Securities, Inc. and Royal Alliance Associates, Inc. These broker-dealers
represent a significant portion of the Company's business, amounting to
approximately 28.2%, 28.3% and 30.6% of premiums in 1995, 1994 and 1993,
respectively. Commissions paid to these broker-dealers totaled $19,828,000 in
1995, $18,725,000 in 1994 and $17,541,000 in 1993.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from SunAmerica Financial, Inc., whose
purpose is to provide services to the SunAmerica companies. Amounts paid for
such services totaled $42,083,000 for the year ended September 30, 1995,
$36,934,000 for the year ended September 30, 1994 and $32,711,000 for the year
ended September 30, 1993.
During the year ended September 30, 1994, the Company sold to the Parent
real estate for cash equal to its carrying value of $29,761,000. During the year
ended September 30, 1993, the Company sold to the Parent various invested assets
for cash equal to their carrying values of $88,488,000 (including real estate of
$45,668,000).
During the year ended September 30, 1993, the Company sold to SunAmerica
Life Insurance Company various invested assets with carrying values of
$46,332,000 for cash of $46,334,000 and recorded net gains of $2,000.
66
<PAGE> 69
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. BUSINESS SEGMENTS
The Company has three business segments: annuity operations, asset
management, and broker-dealer operations. Respectively, these include the sale
of fixed and variable annuities; the management and marketing of mutual funds;
and the sale of securities and financial services products. Summarized data for
the years ended September 30, 1995, 1994 and 1993 follow:
<TABLE>
<CAPTION>
TOTAL
DEPRECIATION
AND
TOTAL AMORTIZATION PRETAX TOTAL
REVENUES EXPENSE INCOME ASSETS
------------ ------------ ----------- --------------
<S> <C> <C> <C> <C>
1995:
Annuity operations......................... $205,698,000 $ 36,642,000 $55,462,000 $7,667,946,000
Asset management........................... 30,253,000 24,069,000 510,000 86,510,000
Broker-dealer operations................... 23,525,000 411,000 9,025,000 29,241,000
------------ ----------- ----------- --------------
Total................................. $259,476,000 $ 61,122,000 $64,997,000 $7,783,697,000
============ =========== =========== ==============
1994:
Annuity operations......................... $171,553,000 $ 26,298,000 $52,284,000 $6,473,065,000
Asset management........................... 32,803,000 19,330,000 7,916,000 102,192,000
Broker-dealer operations................... 19,272,000 408,000 7,120,000 26,869,000
------------ ----------- ----------- --------------
Total................................. $223,628,000 $ 46,036,000 $67,320,000 $6,602,126,000
============ =========== =========== ==============
1993:
Annuity operations......................... $181,057,000 $ 23,634,000 $42,682,000 $6,545,966,000
Asset management........................... 33,826,000 8,853,000 14,806,000 98,137,000
Broker-dealer operations................... 16,904,000 440,000 6,024,000 27,286,000
------------ ----------- ----------- --------------
Total................................. $231,787,000 $ 32,927,000 $63,512,000 $6,671,389,000
============ =========== =========== ==============
</TABLE>
67
<PAGE> 70
APPENDIX A
WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1 -- SEPARATE ACCOUNT (THE MARKET VALUE ADJUSTMENT DOES NOT APPLY TO THE
SEPARATE ACCOUNT)
These examples assume the following:
(1) The Initial Purchase Payment was $10,000, allocated solely to one
Portfolio;
(2) The date of full surrender or partial withdrawal occurs during the
3rd Contribution Year;
(3) The Owner's Contract Value at the time of surrender or withdrawal
is $12,000; and
(4) No other Purchase Payments or previous partial withdrawals have
been made.
EXAMPLE A -- FULL SURRENDER:
(1) Earnings in the Portfolio ($12,000 - $10,000 = $2,000) are not
subject to the Withdrawal Charge.
(2) The balance of the full surrender ($12,000 - $2,000 = $10,000) is
subject to the Withdrawal Charge applicable during the 3rd Contribution
Year (4%, from the Withdrawal Charge Table).
(3) The amount of the Withdrawal Charge is .04 X $10,000 = $400.
(4) The amount of the full surrender is $12,000 - $400 = $11,600.
EXAMPLE B -- PARTIAL WITHDRAWAL (IN THE AMOUNT OF $3,000):
(1) For the same reason as given in Step 1 of Example A, above, $2,000
can be withdrawn free of the Withdrawal Charge.
(2) Although 10% of the Purchase Payment is available without
imposition of a Withdrawal Charge (.10 X $10,000 = $1,000), this free
withdrawal amount is, like the Withdrawal Charge, applied first to
earnings. Since the earnings exceed the free withdrawal amount, only the
earnings can be withdrawn free of the scheduled Withdrawal Charge.
(3) The balance of the requested partial withdrawal
($3,000 - $2,000 = $1,000) is subject to the Withdrawal Charge applicable
during the 3rd Contribution Year (4%).
(4) The amount of the Withdrawal Charge is equal to the amount
required to complete the partial withdrawal ($3,000 - $2,000 = $1,000)
divided by (1 - .04) = 0.96, less the amount required to complete the
partial withdrawal.
Withdrawal Charge = ($1,000/0.96) - $1,000
= $41.67
In this example, in order for the Owner to receive the amount requested
($3,000), a gross withdrawal of $3,041.67 must be processed with $41.67
representing the Withdrawal Charge calculated above.
Examples C and D assume the following:
(1) The Initial Purchase Payment was $20,000, allocated solely to one
Portfolio;
(2) The full surrender or partial withdrawal occurs during the 2nd
Contribution Year;
(3) The Owner's Contract Value at the time of surrender or withdrawal
is $21,500; and
(4) No other Purchase Payments or partial withdrawals have been made.
EXAMPLE C -- PARTIAL WITHDRAWAL (IN THE MAXIMUM AMOUNT AVAILABLE WITHOUT
WITHDRAWAL CHARGE):
(1) Earnings in the Portfolio ($21,500 - $20,000 = $1,500) are not
subject to the Withdrawal Charge.
(2) An Additional Free Withdrawal of 10% of the Purchase Payments less
earnings (.10 X $20,000 - $1,500 = $500) is also available free of the
Withdrawal Charge, so that
(3) The maximum partial withdrawal without Withdrawal Charge is the
sum of the Earnings and the Additional Free Withdrawal
($1,500 + $500 = $2,000).
EXAMPLE D -- FULL SURRENDER IMMEDIATELY FOLLOWING THE PARTIAL WITHDRAWAL IN
EXAMPLE C:
(1) The Owner's Contract Value after the partial withdrawal in Example C
is $21,500 - $2,000 = $19,500.
(2) The Purchase Payment amount for calculating the Withdrawal Charge
is the original $20,000 (Additional Free Withdrawal amounts do not reduce
the Purchase Payment amount for purposes of calculating the Withdrawal
Charge).
(3) The amount of the Withdrawal Charge is .05 X $20,000 = $1,000.
A-1
<PAGE> 71
(4) The amount of the full surrender is $19,500 - $1,000 = $18,500.
PART 2 -- GENERAL ACCOUNT -- EXAMPLES OF THE MARKET VALUE ADJUSTMENT (MVA)
The Market Value Adjustment Factor is reproduced here for convenience:
[(1 + I)/(1 + J + 0.005)]N/12 -1
where
I is the Guarantee Rate in effect;
J is the Current Interest Rate available for a period equal to the
number of years remaining in the Guarantee Period at the time of
withdrawal, transfer or annuitization (fractional years are rounded up
to the next full year); and
N is the number of full months remaining in the Guarantee Period at the
time the withdrawal, transfer or annuitization request is processed.
These examples assume the following:
(1) An initial Purchase Payment of $10,000 was made and allocated to a
ten year Guarantee Period with a Guarantee Rate of 7% (.07);
(2) a partial withdrawal of $4,000 is requested 2 1/2 years (30
months) from the expiration date (i.e., N = 30);
(3) the accumulated value attributable to the Purchase Payment (i.e.,
the Guarantee Amount) on the date of withdrawal is $16,297.02; and
(4) no transfers, additional Purchase Payments, or other withdrawals
have been made.
The Guarantee Amount of $16,297.02 reflects deductions for Contract
Administration Charges at each anniversary. Since the withdrawal is effected in
the Purchase Payment's 7th contribution year, no Withdrawal Charge is
applicable.
EXAMPLE OF A NEGATIVE MVA:
Assume that on the date of withdrawal, the Current Interest Rate for a
new Guarantee Period of 3 years (2 1/2 years rounded up to the next full
year) is 8%:
The MVA factor = [(1 + I)/(1 + J + .005)]N/12 -1
= [(1.07)/(1.08 + .005)](30/12) -1
= (0.986175)2.5 -1
= 0.965795 -1
= -0.034205
The requested withdrawal amount is multiplied by the MVA factor to
determine the MVA:
MVA = $4,000 X (-0.034205) = -$136.82
$136.82 represents the MVA that will be deducted from the remaining
accumulated value.
EXAMPLE OF A POSITIVE MVA:
Assume that on the date of withdrawal, the Current Interest Rate for a
new Guarantee Period of 3 years is 6%:
The MVA factor = [(1 + I)/(1 + J + .005)]N/12 -1
= [(1.07)/(1.06 +.005)](30/12) -1
= (1.004695)2.5 -1
= 1.011778 -1
= +0.011778
The requested withdrawal amount is multiplied by the MVA factor to
determine the MVA:
$4,000 X 0.011778 = +$47.11
$47.11 represents the MVA that would be added to the amount withdrawn.
PART 3 -- GENERAL ACCOUNT -- EXAMPLE OF FULL WITHDRAWAL WITH MVA AND WITHDRAWAL
CHARGE
Assume the same facts as in Part 2, above, except that under assumption (2)
a complete withdrawal is requested with 4 1/2 years (54 months) remaining in the
Guarantee Period (i.e., N = 54). The Guarantee Amount on the date of withdrawal
is $14,299.91. As was the case with the Examples in Part 1, above, the earnings
may be withdrawn free of Withdrawal Charge, leaving the initial Purchase Payment
of $10,000 subject to the Charge. The applicable Withdrawal Charge, from the
table on page 22 of the prospectus, is 2% or $200.
A-2
<PAGE> 72
EXAMPLE OF A NEGATIVE MVA:
Assume that on the date of withdrawal the Current Interest Rate for a
new Guarantee Period of 5 years is 8%:
The MVA factor = [(1 + I)/(1 + J + .005)]N/12 -1
= [(1.07)/(1.08 + .005)](54/12) -1
= (0.986175)4.5 -1
= 0.939276 -1
= -0.060724
The Withdrawal Charge of $200 is applied first; the MVA factor is
applied against the remaining Guarantee Amount:
MVA = ($14,299.91 - $200) X (-0.060724) = -$856.20
The net amount available upon withdrawal is the Guarantee Amount
reduced by the Withdrawal Charge, the MVA, and the Contract Administration
Charge:
$14,299.91 - $200 - $856.20 - $35 = $13,208.71.
EXAMPLE OF A POSITIVE MVA:
Assume that on the date of withdrawal the Current Interest Rate for a
new Guarantee Period of 5 years is 6%:
The MVA factor = [(1 + I)/(1 + J + .005)]N/12 -1
= [(1.07)/(1.06 + .005)](54/12) -1
= (1.004695)4.5 -1
= 1.021301 -1
= +0.021301
The MVA is:
($14,299.91 - $200) X (0.021301) = $300.34
And the net amount available upon withdrawal is the Guarantee Amount
reduced by the Withdrawal Charge and Contract Administration Charge and
increased by the MVA:
$14,299.91 - $200 + $300.34 - $35 = $14,365.25
A-3
<PAGE> 73
APPENDIX B
SAMPLE DEATH BENEFIT COMPUTATIONS
Assume that P, at age 55, purchases a Certificate on September 1, 1992,
with an initial Purchase Payment of $10,000. P makes no additional Purchase
Payments and effects no withdrawals or annuitizations; ten years later, P dies.
If P's Contract Value had experienced a positive net investment experience
over the ten-year period, the standard Death Benefit would be P's Account Value
at his death. However, if the overall investment experience had been negative,
so that P's Contract Value at his death was less than his $10,000 Purchase
Payment, the standard Death Benefit would be the amount of the Purchase Payment
($10,000).
Under the terms of the enhanced Death Benefit provisions, which are
currently applicable in all states, the minimum guaranteed benefit at P's death
(regardless of the investment experience of his Contract Value in the
intervening years) would be his $10,000 Purchase Payment accumulated at 4%
annually over the ten-year period until his death, computed as follows:
$10,000 X (1.04)10
= $10,000 X 1.480244
= $14,802.44 (A)
Of course, if P's Contract Value had experienced an overall return over the
ten-year period greater than the equivalent of 4% compounded annually, P's
Contract Value at his death would have been greater than the $14,802.44 as
computed above; the enhanced Death Benefit under those circumstances would be at
least such greater amount. For example, if P's Contract Value had increased each
year by 5% of its value at the beginning of the year, the Contract Value at his
death would have been:
$10,000 X (1.05)10
= $10,000 X 1.628895
= $16,288.95 (B)
In addition, the enhanced Death Benefit contains a provision alternatively
setting the minimum benefit at P's Contract Value on the seventh Certificate
anniversary (September 1, 1999), accumulated thereafter at 4% per annum. In the
example given immediately above, P's Contract Value at September 1, 1999 would
have been:
$10,000 X (1.05)7
= $10,000 X 1.40710
= $14,071.00
That amount, accumulated at 4% per annum for the next 3 years until P's
death, is:
$14,071.00 X (1.04)3
= $14,071.00 X 1.124864
= $15,827.96 (C)
The greatest of (A), (B) or (C) computed above is (B) (P's Contract Value
at his death), i.e., $16,288.95. Accordingly, P's enhanced Death Benefit would
be that amount.
In the example above, the provision relating to Contract Value at the
seventh Contract Anniversary did not affect the amount of the enhanced Death
Benefit. However, if P's Contract Value had declined in value (or increased at a
rate less than 4% per annum) since the seventh Certificate anniversary, instead
of continuing to appreciate at the rate of 5% per annum as was assumed, the
Contract Value at his death would have been less than the Contract Value at the
seventh Contract Anniversary as accumulated to P's death. In this last
circumstance, the enhanced Death Benefit would have been set at $15,827.96, as
computed in (C) above.
B-1
<PAGE> 74
Please forward a copy (without charge) of the Statement of Additional
Information concerning POLARIS
Variable Annuity Contracts 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 54299, Los Angeles, California 90054-0299.
<PAGE> 75
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
Not Applicable
Item 14. Indemnification of Directors and Officers.
Not Applicable
Item 15. Recent Sales of Unregistered Securities.
Not Applicable
Item 16. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
(1) Form of Underwriting Agreement***
(2) Plan of Acquisition, Reorganization,
Arrangement, Liquidation or Succession***
(3) (a) Articles of Incorporation***
(b) By-Laws***
(4) (a) Polaris Fixed and Variable
Contract***
(b) Application for Contract***
(5) Opinion of Counsel re: Legality***
(6) Opinion re Discount on Capital Shares**
(7) Opinion re Liquidation Preference**
(8) Opinion re Tax Matters**
(9) Voting Trust Agreement**
(10) Material Contracts**
(11) Statement re Computation of Per Share
Earnings**
(12) Statement re Computation of Ratios**
(14) Material Foreign Patents**
(15) Letter re Unaudited Financial Information**
(16) Letter re Change in Certifying Accountant**
(21) Subsidiaries of Registrant***
(23) (a) Consent of Independent Accountants*
(b) Consent of Attorney***
(24) Powers of Attorney***
(25) Statement of Eligibility of Trustee**
(26) Invitation for Competitive Bids**
(27) Financial Data Schedules*
(28) Information Reports Furnished to State
Insurance Regulatory Authority**
(29) Other Exhibits**
</TABLE>
Financial Statements*
* Herewith
** Not Applicable
*** Previously Filed
<PAGE> 76
Item 17. Undertakings.
The undersigned registrant, Anchor National Life Insurance
Company, hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment hereof) which, individually or in the
aggregate, represents a fundamental change in the
information in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
<PAGE> 77
SIGNATURES
As required by the Securities Act of 1933, the Registrant has caused
this Post-Effective Amendment to the Registration Statement to be signed on its
behalf, in the City of Los Angeles, and the State of California, on this 10th
day of April, 1996.
By: ANCHOR NATIONAL LIFE INSURANCE COMPANY
By: /s/ Joseph M. Tumbler
-----------------------------------------
Joseph M. Tumbler
Executive Vice President
As required by the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed by the following persons
in the capacity and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
ELI BROAD* President, Chief Executive
- ------------------- Officer, & Chairman of
Eli Broad Board
(Principal Executive Officer)
SCOTT L. ROBINSON* Senior Vice President &
- ------------------- Director
Scott L. Robinson (Principal Financial Officer)
N. SCOTT GILLIS* Senior Vice President &
- ------------------- Controller
N. Scott Gillis (Principal Accounting Officer)
JAMES R. BELARDI* Director
- -------------------
James R. Belardi
LORIN M. FIFE* Director
- -------------------
Lorin M. Fife
JANA W. GREER* Director
- -------------------
Jana W. Greer
GARY W. KRAT* Director
- -------------------
Gary W. Krat
JAY S. WINTROB* Director
- -------------------
Jay S. Wintrob
/s/ SUSAN L. HARRIS Director April 10, 1996
- -------------------
Susan L. Harris
</TABLE>
<PAGE> 78
<TABLE>
<S> <C>
PETER McMILLAN* Director
- -------------------
Peter McMillan
*By: /s/ SUSAN L. HARRIS Attorney-in-Fact
-------------------
Susan L. Harris
Date: April 10, 1996
</TABLE>
<PAGE> 79
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description Page
- ------ ----------- ----
<S> <C> <C>
(23)(a) Consent of Independent Accountants
(27) Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT (23)(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 for Variable Separate Account (Portion
Relating to the POLARIS Variable Annuity) of Anchor National Life Insurance
Company, of our report dated November 6, 1995 relating to the consolidated
financial statemnets of Anchoe national Life Insurance Company, which appears
in such Prospectus. We also consent to the reference to us under the heading
"Independent Accounts" in such Prospectus.
PRICE WATERHOUSE LLP
Los Angeles, Califonia
April 9, 1996
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT OF ANCHOR NATIONAL LIFE INSURANCE COMPANY'S FORM 10-Q
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 1,648,656,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 3,312,000
<MORTGAGE> 92,909,000
<REAL-ESTATE> 40,899,000
<TOTAL-INVEST> 1,964,418,000
<CASH> 127,286,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 379,922,000
<TOTAL-ASSETS> 7,844,340,000
<POLICY-LOSSES> 1,751,131,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 34,000,000
0
0
<COMMON> 3,511,000
<OTHER-SE> 482,932,000
<TOTAL-LIABILITY-AND-EQUITY> 7,844,340,000
0
<INVESTMENT-INCOME> 37,825,000
<INVESTMENT-GAINS> (12,800,000)
<OTHER-INCOME> 37,088,000
<BENEFITS> 23,208,000
<UNDERWRITING-AMORTIZATION> 12,846,000
<UNDERWRITING-OTHER> (213,000)
<INCOME-PRETAX> 9,275,000
<INCOME-TAX> 3,449,000
<INCOME-CONTINUING> 5,826,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,826,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
