<PAGE> 1
As filed with the Securities and Exchange Commission on December 24, 1997
Registration No. 33-81476
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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
--------------------
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)
----------------------
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.
<PAGE> 2
CROSS REFERENCE SHEET
ANCHOR NATIONAL LIFE INSURANCE COMPANY
Cross Reference Sheet Pursuant to
Regulation S-K, Item 501(b)
<TABLE>
<CAPTION>
Form S-1 Item Number and Caption Heading in Prospectus
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<S> <C> <C>
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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VISTA CAPITAL ADVANTAGE
FLEXIBLE PAYMENT GROUP DEFERRED
ANNUITY CONTRACTS
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ISSUED BY
ANCHOR NATIONAL LIFE INSURANCE COMPANY
IN CONNECTION WITH
VARIABLE ANNUITY ACCOUNT TWO
<TABLE>
<S> <C>
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) 90-VISTA
</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 both Qualified 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 six Portfolios of the
Separate Account described in this prospectus is invested solely in the shares
of one of the following currently available Underlying Funds of Mutual Fund
Variable Annuity Trust:
<TABLE>
<S> <C>
- International Equity - Asset Allocation
- Capital Growth - U.S. Government Income
- Growth and Income - Money Market
</TABLE>
Additional Underlying Funds may be made available in the future.
The Fixed Account options pay fixed rates of interest declared by the
Company for specified Guarantee Periods from the dates 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 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
one, 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 December 29, 1997.
<PAGE> 4
ADDITIONAL INFORMATION:
The Company has filed registration statements (the "Registration
Statements") with the Securities and Exchange Commission ("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
the 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 December 29, 1997, appears on page 50 of this prospectus.
2
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
----
<S> <C>
DEFINITIONS.......................................................................... 4
SUMMARY.............................................................................. 7
FEE TABLES........................................................................... 10
EXAMPLES............................................................................. 11
CONDENSED FINANCIAL INFORMATION -- ACCUMULATION UNIT VALUES.......................... 12
PERFORMANCE DATA..................................................................... 12
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT AND THE GENERAL ACCOUNT............. 13
Company......................................................................... 13
Separate Account................................................................ 14
General Account................................................................. 14
SEPARATE ACCOUNT INVESTMENTS......................................................... 15
Underlying Funds................................................................ 15
Voting Rights................................................................... 16
Substitution of Securities...................................................... 16
FIXED ACCOUNT OPTIONS................................................................ 17
Allocations..................................................................... 17
Renewals........................................................................ 17
Market Value Adjustment......................................................... 18
CONTRACT CHARGES..................................................................... 18
Mortality and Expense Risk Charge............................................... 19
Administrative Charges.......................................................... 19
Contract Administration Charge................................................ 19
Transfer Fee.................................................................. 19
Sales Charges................................................................... 19
Withdrawal Charge............................................................. 19
Free Withdrawals........................................................... 20
Nursing Home Waiver........................................................ 21
Distribution Expense Charge................................................... 21
Premium Taxes................................................................... 21
Deduction for Separate Account Income Taxes..................................... 21
Other Expenses.................................................................. 21
Reduction of Charges for Sales to Certain Groups................................ 22
DESCRIPTION OF THE CONTRACTS......................................................... 22
Summary......................................................................... 22
Participant..................................................................... 22
Annuitant....................................................................... 22
Modification of the Contract.................................................... 22
Assignment...................................................................... 22
Death Benefit................................................................... 23
Beneficiary..................................................................... 23
PURCHASES, WITHDRAWALS AND CONTRACT VALUE............................................ 24
Minimum Purchase Payment........................................................ 24
Automatic Payment Plan........................................................ 24
Automatic Dollar Cost Averaging Program....................................... 24
Asset Allocation Rebalancing Program.......................................... 24
Principal Advantage Program................................................... 25
Allocation of Purchase Payments................................................. 25
Transfer During Accumulation Period............................................. 26
Separate Account Accumulation Unit Value........................................ 26
Fixed Account Accumulation Value................................................ 26
Distribution of Contracts....................................................... 27
Withdrawals (Redemptions)....................................................... 27
Systematic Withdrawal Program................................................. 28
ERISA Plans................................................................... 28
Deferment of Fixed Account Withdrawal Payments................................ 28
Minimum Contract Value.......................................................... 29
ANNUITY PERIOD....................................................................... 29
Annuity Date.................................................................... 29
Deferment of Payments......................................................... 29
Payments to Participant....................................................... 29
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
ITEM PAGE
----
<S> <C>
Allocation of Annuity Payments.................................................. 29
Annuity Options................................................................. 29
Other Options................................................................... 31
Transfer During Annuity Period.................................................. 31
Death Benefit During Annuity Period............................................. 31
Annuity Payments................................................................ 31
Initial Monthly Annuity Payment............................................... 31
Subsequent Monthly Payments................................................... 31
ADMINISTRATION....................................................................... 32
TAXES................................................................................ 32
General......................................................................... 32
Withholding Tax on Distributions................................................ 33
Diversification -- Separate Account Investments................................. 33
Multiple Contracts.............................................................. 33
Tax Treatment of Assignments.................................................... 34
Qualified Plans................................................................. 34
Tax Treatment of Withdrawals.................................................... 34
Qualified Plans............................................................... 34
Nonqualified Plans............................................................ 35
ADDITIONAL INFORMATION ABOUT THE COMPANY............................................. 36
Selected Consolidated Financial Data............................................ 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS......................................................................... 37
PROPERTIES........................................................................... 46
DIRECTORS AND EXECUTIVE OFFICERS..................................................... 46
EXECUTIVE COMPENSATION............................................................... 48
Security Ownership of Certain Beneficial Owners and Management.................. 48
STATE REGULATION..................................................................... 49
CUSTODIAN............................................................................ 49
LEGAL PROCEEDINGS.................................................................... 50
REGISTRATION STATEMENTS.............................................................. 50
INDEPENDENT ACCOUNTANTS.............................................................. 50
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT.................................... 50
FINANCIAL STATEMENTS................................................................. 51
APPENDIX A -- WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT........ A-1
</TABLE>
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DEFINITIONS
- --------------------------------------------------------------------------------
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.
4
<PAGE> 7
ANNUITY UNIT -- A unit of measurement which the Company uses to calculate the
amount of Variable Annuity payments during the Annuity Period.
BENEFICIARY(IES) -- The person(s) designated to receive any benefits under a
Certificate upon the death of the Annuitant or the Participant.
CERTIFICATE -- A document that describes and evidences a Participant's rights
under a group Contract.
CERTIFICATE DATE -- The date a Certificate is issued.
CODE -- The Internal Revenue Code of 1986, as amended.
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 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 later of the first day of the month following the
90th birthday of the Owner or ten years after the Certificate Date. 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 that the
minimum distribution is otherwise being made.
5
<PAGE> 8
MARKET VALUE ADJUSTMENT -- An adjustment applied to amounts withdrawn,
transferred or annuitized from the one, 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 the 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.
SEPARATE ACCOUNT -- A segregated investment account of the Company entitled
"Variable Annuity Account Two."
TRUST -- Mutual Fund Variable Annuity Trust, an open-end management investment
company.
UNDERLYING FUND(S) -- The underlying series of the 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
<PAGE> 9
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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. We urge you to read it carefully and retain it and the
prospectus for the Trust for future reference. (The prospectus for the Trust is
attached to and follows 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 Fixed and Variable Deferred Annuity Contract ("Individual Contract")
may be available instead. The Individual Contract is substantially similar to
the group 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 the
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 Guarantee Rate to be credited on amounts allocated to the
Fixed Account may not exceed the minimum guaranteed rate of 3% for any Guarantee
Period, and (2) that amounts withdrawn, transferred or annuitized from the
three, five, seven and ten year Fixed Account options prior to the end of their
respective Guarantee Periods could result in the Participant's receiving less
than the Purchase Payments so allocated (See "Fixed Account Options -- Market
Value Adjustment").
7
<PAGE> 10
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
Account options under the Contracts. The Separate Account invests in shares of
the following Underlying Funds (see "Separate Account Investments"):
<TABLE>
<S> <C>
- INTERNATIONAL EQUITY - ASSET ALLOCATION
- CAPITAL GROWTH - U.S. GOVERNMENT INCOME
- GROWTH AND INCOME - MONEY MARKET
</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.
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 1.25%. 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 $30 annually. The Contract permits up to 15
free
8
<PAGE> 11
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 (6%-6%-5%-5%-4%-3%-2%-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 Participant
during the Accumulation Period. If the Participant was less than age 70 on the
Certificate Date, the death benefit is equal to the greater of:
(1) the total of Purchase Payments made prior to the death of the
Participant, reduced by any partial withdrawals and partial annuitizations;
or
(2) 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; or
(3) where permitted by state law, the Contract Value on that
anniversary of the Certificate Date preceding the date of death, increased
by any Purchase Payments made since that anniversary and reduced by any
partial withdrawals and partial annuitizations since that anniversary,
which results in the greatest value.
If the Participant was age 70 or older on the Certificate Date, the death
benefit will equal 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.
(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 90th birthday. If
a Contractholder 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 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").
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<PAGE> 12
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FEE TABLES
- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE (AS A PERCENTAGE OF PURCHASE PAYMENTS):
<TABLE>
<CAPTION>
CONTRIBUTION YEAR
<S> <C>
One............................................................................................... 6%
Two............................................................................................... 6%
Three............................................................................................. 5%
Four.............................................................................................. 5%
Five.............................................................................................. 4%
Six............................................................................................... 3%
Seven............................................................................................. 2%
Eight and later................................................................................... 0%
ANNUAL CONTRACT ADMINISTRATION CHARGE................................................................... $30
TRANSFER FEE............................................................................................ $25*
(applies solely to each transfers in excess of fifteen in a Contract Year)
</TABLE>
- ---------------
* $10 in Texas and Pennsylvania.
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.................................................................................. 0.90%
EXPENSE RISK CHARGE.................................................................................... 0.35%
DISTRIBUTION EXPENSE CHARGE............................................................................ 0.15%
----
TOTAL EXPENSE CHARGE............................................................................. 1.40%
====
</TABLE>
- ---------------
ANNUAL TRUST EXPENSES*
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S
FISCAL YEAR ENDED AUGUST 31, 1997):
<TABLE>
<CAPTION>
ADVISORY FEE ADMINISTRATION FEE TOTAL ANNUAL
(AFTER WAIVER OF FEE) (AFTER WAIVER OF FEE) OTHER EXPENSES EXPENSES
--------------------- --------------------- -------------- ------------
<S> <C> <C> <C> <C>
International Equity....................... 0.00% 0.00% 1.11% 1.11%
Capital Growth............................. 0.00% 0.00% .90% .90%
Growth and Income.......................... 0.00% 0.00% .90% .90%
Asset Allocation........................... 0.00% 0.00% .85% .85%
U.S. Government Income..................... 0.00% 0.00% .80% .80%
Money Market............................... 0.00% 0.00% .55% .55%
</TABLE>
- ---------------
*Reflects current waiver arrangements to maintain Total Annual Expenses at the
levels indicated above. Absent such waivers, the Advisory Fee for the
International Equity, Capital Growth, Growth and Income, Asset Allocation, U.S.
Government Income and Money Market Portfolios would be 0.80%, 0.60%, 0.60%,
0.55%, 0.50% and 0.25%, respectively, and Total Annual Expenses for the
International Equity, Capital Growth, Growth and Income, Asset Allocation, U.S.
Government Income and Money Market Portfolios would be 2.99%, 1.70%, 1.70%,
2.03%, 1.50% and 1.48%, respectively.
THE ABOVE EXPENSES FOR THE UNDERLYING FUNDS WERE PROVIDED BY THE TRUST. NEITHER
THE COMPANY NOR THE SEPARATE ACCOUNT HAVE INDEPENDENTLY VERIFIED THE ACCURACY OF
SUCH INFORMATION.
10
<PAGE> 13
- --------------------------------------------------------------------------------
EXAMPLES
- --------------------------------------------------------------------------------
An Owner would pay the following expenses on a $1,000 investment in each
indicated Portfolio assuming 5% annual return on assets, and:
(a) the Contract was surrendered at the end of the applicable time
period
(b) the Contract was not surrendered at the end of the applicable time
period
<TABLE>
<CAPTION>
TIME PERIODS
-------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
International Equity......................... (a) $ 86 $ 130 $ 177 $292
(b) $ 26 $ 80 $ 137 $292
Capital Growth............................... (a) $ 84 $ 124 $ 167 $271
(b) $ 24 $ 74 $ 127 $271
Growth and Income............................ (a) $ 84 $ 124 $ 167 $271
(b) $ 24 $ 74 $ 127 $271
Asset Allocation............................. (a) $ 84 $ 123 $ 164 $266
(b) $ 24 $ 73 $ 124 $266
U.S. Government Income....................... (a) $ 83 $ 121 $ 162 $261
(b) $ 23 $ 71 $ 122 $261
Money Market................................. (a) $ 81 $ 114 $ 149 $235
(b) $ 21 $ 64 $ 109 $235
</TABLE>
- ---------------
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, and the Examples, apply only to
investments in the Separate Account. The table reflects 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 the Trust prospectus. 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.
11
<PAGE> 14
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCEPTION TO FISCAL YEAR FISCAL YEAR
PORTFOLIOS 8/31/95 8/31/96 8/31/97
- ----------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
International Equity*
Beginning AUV...................................... $10.00 $10.81 $10.92
Ending AUV......................................... $10.81 $10.92 $11.67
Ending #AUs........................................ 3,583 87,008 133,652
Capital Growth*
Beginning AUV...................................... $10.00 $11.82 $13.95
Ending AUV......................................... $11.82 $13.95 $17.51
Ending #AUs........................................ 31,966 232,242 289,931
Growth and Income*
Beginning AUV...................................... $10.00 $11.40 $13.07
Ending AUV......................................... $11.40 $13.07 $17.47
Ending #AUs........................................ 44,573 227,688 340,235
Asset Allocation*
Beginning AUV...................................... $10.00 $10.96 $12.00
Ending AUV......................................... $10.96 $12.00 $14.49
Ending #AUs........................................ 2,555 40,986 76,458
U.S. Government Income**
Beginning AUV...................................... $10.00 $10.67 $10.79
Ending AUV......................................... $10.67 $10.79 $11.50
Ending #AUs........................................ 4,042 22,094 37,216
Money Market***
Beginning AUV...................................... $10.00 $10.10 $10.47
Ending AUV......................................... $10.10 $10.47 $10.84
Ending #AUs........................................ 28,015 13,593 163,778
</TABLE>
- ---------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
* Inception Date is March 13, 1995
** Inception Date is July 13, 1995
*** Inception Date is June 2, 1995
- --------------------------------------------------------------------------------
PERFORMANCE DATA
- --------------------------------------------------------------------------------
From time to time the Separate Account may advertise the Money Market
Portfolio's "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Money Market Portfolio refers to the net income generated for a
Contract funded by an investment in the Portfolio (which invests in shares of
the Money Market Portfolio of the Trust) over a seven-day period (which period
will be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Portfolio is assumed to be reinvested
at the end of each seven-day period. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Neither the yield nor the effective yield takes into consideration
the effect of any capital changes that might have occurred during the seven-day
period, nor do they reflect the impact of premium taxes or any Withdrawal
Charges. The impact of other recurring charges on both
12
<PAGE> 15
yield figures is, however, reflected in them to the same extent it would affect
the yield (or effective yield) for a Contract of average size.
In addition, the Separate Account may advertise "total return" data for its
other Portfolios. Like the yield figures described above, total return figures
are based on historical data and are not intended to indicate future
performance. The "total return" is a computed rate of return that, when
compounded annually over a stated period of time and applied to a hypothetical
initial investment in a Portfolio made at the beginning of the period, will
produce the same Contract Value at the end of the period that the hypothetical
investment would have produced over the same period (assuming a complete
redemption of the Contract at the end of the period). Recurring Contract charges
are reflected in the total return figures in the same manner as they are
reflected in the yield data for Contracts funded through the Money Market
Portfolio. The effect of applicable Withdrawal Charges due to the assumed
redemption will be reflected in the return figures, but may be omitted in
additional return figures given for comparison.
The Separate Account may also advertise an annualized 30-day (or one month)
yield figure for Portfolios other than the Money Market Portfolio. These yield
figures are based upon the actual performance of the Portfolio over a 30-day (or
one month) period ending on a date specified in the advertisement. Like the
total return data described above, the 30-day (or one month) yield data will
reflect the effect of all recurring Contract charges (but will not reflect any
Withdrawal Charges or premium taxes). The yield figure is derived from net
investment gain (or loss) over the period expressed as a fraction of the
investment's value at the end of the period.
More detailed information on the computation of advertised 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 four broker-dealers, offer a full line of financial services, including
fixed and variable annuities, mutual funds, premium finance, broker-dealer and
trust administration services. As of September 30, 1997 the Company owned $12.57
billion in assets while SunAmerica Inc., the Company's ultimate parent, together
with its subsidiaries, held $51.98 billion of assets, consisting of $35.64
billion of assets on its balance sheet, $2.59 billion of assets managed in
mutual funds and private accounts, and $13.75 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 ("Standard & Poor's"), 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 com-
13
<PAGE> 16
pany'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 Annuity Account Two was originally established by the Company on
May 24, 1994, 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 Securities and Exchange Commission as
a unit investment trust under the Investment Company Act of 1940. This
registration does not involve supervision of the management of the Separate
Account or the Company by the 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.
GENERAL ACCOUNT
The General Account is made up of all of the general assets of the Company
other than those allocated to the Separate Account or any other segregated asset
account of the Company. A Purchase Payment may be allocated to one or more
Guarantee Periods of one, three, five, seven and ten years available through the
General 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 all classes 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 other
such 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.
14
<PAGE> 17
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT INVESTMENTS
- --------------------------------------------------------------------------------
UNDERLYING FUNDS
Each of the Portfolios of the Separate Account invests in the shares of one
of the following Underlying Funds, which are investment series of Mutual Fund
Variable Annuity Trust, an open-end management investment company registered
under the Investment Company Act of 1940:
<TABLE>
<S> <C>
- INTERNATIONAL EQUITY - ASSET ALLOCATION
- CAPITAL GROWTH - U.S. GOVERNMENT INCOME
- GROWTH AND INCOME - MONEY MARKET
</TABLE>
The Chase Manhattan Bank ("Chase" or the "Adviser") is the investment
adviser, administrator and custodian for each of the Underlying Funds. Chase
Asset Management, Inc. ("CAM") is the investment subadviser to each of the
Portfolios except the International Equity Portfolio. Chase Asset Management
(London) Limited, an English corporation ("CAM London") is the investment
subadviser to the International Equity Portfolio. As investment adviser to the
Underlying Funds, Chase makes investment decisions subject to such policies as
the Board of Trustees of the Trust may determine. As administrator of the
Underlying Funds, Chase provides certain services including coordinating
relationships with independent contractors and agents; preparing for signature
by officers and filing of certain documents; preparing financial statements;
arranging for the maintenance of books and records; and providing office
facilities. Certain of these services have been delegated to Vista Fund
Distributors, Inc. ("VFD") which serves as sub-administrator to the Underlying
Funds. As custodian for the Underlying Funds, Chase's responsibilities include
safeguarding and controlling the Underlying Funds' cash and securities, handling
the receipt and delivery of securities, determining income and collecting
interest on investments, maintaining books of original entry and other required
books and accounts, and calculating daily net asset values.
The Underlying Funds and their investment objectives are as follows:
INTERNATIONAL EQUITY PORTFOLIO seeks to provide a total return on assets
from long-term growth of capital and from income principally through a broad
portfolio of marketable equity securities of established foreign companies
organized in countries other than the United States and foreign subsidiaries of
U.S. companies participating in foreign economies.
CAPITAL GROWTH PORTFOLIO seeks to provide long-term capital growth
primarily through diversified holdings (i.e., at least 80% of its assets under
normal circumstances) in common stocks. The Portfolio will seek to invest its
assets in stocks of issuers (including foreign issuers) with small to medium
capitalizations. The Adviser intends to utilize both quantitative and
fundamental research to identify undervalued stocks with a catalyst for positive
change. Dividend income, if any, is a consideration incidental to the
Portfolio's investment objective of growth of capital. This investment policy
involves the risks that the issues identified by the Adviser will not appreciate
or appreciate as significantly as projected.
GROWTH AND INCOME PORTFOLIO seeks to provide long-term capital appreciation
and to provide dividend income primarily through a broad portfolio (i.e., at
least 80% of its assets under normal circumstances) of common stocks. In
addition, the Portfolio may invest up to 20% of its total assets in convertible
securities. The Adviser intends to utilize both quantitative and fundamental
research to identify undervalued stocks with a catalyst for positive change. The
Adviser believes that the risk involved in seeking capital appreciation will be
moderated somewhat by the anticipated dividend returns on the stocks to be held
by the Portfolio.
ASSET ALLOCATION PORTFOLIO seeks to provide maximum total return through a
combination of long-term growth of capital and current income by investing in a
diversified portfolio of equity and debt securities, including common stocks,
convertible securities and government and corporate fixed-income obligations.
Under normal market conditions, between 35%-70% of the
15
<PAGE> 18
Portfolio's total assets will be invested in common stocks and other equity
investments and at least 25% of the Portfolio's assets will be invested in
fixed-income senior securities, defined for this purpose to include
non-convertible corporate debt securities and government obligations. The
Adviser considers both the opportunity for gain and the risk of loss in making
investments, and may alter the relative percentages of assets invested in equity
and fixed income securities from time to time, depending on the judgment of the
Adviser as to general market and economic conditions, trends and yields and
interest rates and changes in fiscal and monetary policies.
U.S. GOVERNMENT INCOME PORTFOLIO seeks to provide monthly dividends as well
as to protect the value of an investor's investment (i.e., to preserve
principal) by investing at least 65% of its assets in U.S. Treasury obligations,
obligations issued or guaranteed by U.S. government agencies or
instrumentalities if such are backed by the "full faith and credit" of the U.S.
Treasury, and securities issued or guaranteed as to principal or interest by the
U.S. government or by agencies or instrumentalities thereof. Neither the United
States nor any of its agencies insures or guarantees the market value of shares
of this Portfolio.
MONEY MARKET PORTFOLIO seeks to provide maximum current income consistent
with preservation of capital and maintenance of liquidity through investments in
U.S. dollar denominated commercial paper, obligations of foreign governments,
obligations issued or guaranteed by U.S. banks, securities issued by the U.S.
government, its agencies or its instrumentalities and repurchase agreement.
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 PROSPECTUS OF THE TRUST. AN INVESTOR SHOULD CAREFULLY
REVIEW THAT PROSPECTUS 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 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. The Trust does not 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 Trust not more than 60 days prior to the
meeting of the 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
16
<PAGE> 19
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 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 next 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.
17
<PAGE> 20
MARKET VALUE ADJUSTMENT
Contract Value withdrawn, transferred or, prior to the Annuity Date,
annuitized from the Fixed Account under the one, 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), may be
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 Rate. The MVA may be either positive or negative, and
is computed by multiplying the amount withdrawn, transferred or annuitized by
the following factor:
N/12
[(1 + I)/(1 + J + 0.005)] -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 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, the 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 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 waive any 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 provisions 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
18
<PAGE> 21
investment advisory, administrative, custodial and other fees and expenses;
those fees and expenses are described in the prospectus for the 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 1.25% of the net asset value of each Portfolio
(approximately .90% 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 of the death of the Participant; and (3) to
provide a death benefit prior to the Annuity Date.
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"). The expense risk
charge is guaranteed by the Company and cannot be increased.
ADMINISTRATIVE CHARGES
CONTRACT ADMINISTRATION CHARGE
An annual Contract Administration Charge of $30 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.
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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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>
One.................................................... 6%
Two.................................................... 6%
Three.................................................. 5%
Four................................................... 5%
Five................................................... 4%
Six.................................................... 3%
Seven.................................................. 2%
Eight 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.
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 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 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.
FREE WITHDRAWALS
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 Contract 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. Participants may take their 10% free withdrawal of
Purchase Payments (or an amount up to 10%) pursuant to the Systematic Withdrawal
Program. (See "Purchases, Withdrawals and Contract Value -- Withdrawals
(Redemptions) -- Systematic Withdrawal Program"). 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 Contract for
purposes of calculating amounts available for future withdrawal of earnings,
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<PAGE> 23
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.
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.
NURSING HOME WAIVER
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 is not 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.
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 each 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 "Fee Tables". For more
detailed information about those charges and expenses, please refer to the
prospectus for the Trust.
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<PAGE> 24
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.
- --------------------------------------------------------------------------------
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
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<PAGE> 25
assignment until written notice is received by the Company at its Annuity
Service Center. The Company is not responsible for the validity, 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 Certificate in force. If no option is selected within 60
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.
If the Participant was less than age 70 at the Certificate Date, the death
benefit is equal to the greater of:
(1) the total dollar amount of Purchase Payments made prior to the
death of the Participant, reduced by any partial withdrawals and partial
annuitizations; or
(2) 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
(3) where permitted by state law, the Contract Value on that
anniversary of the Certificate Date preceding the date of death, increased
by the dollar amount of any Purchase Payments made since that anniversary
and reduced by the dollar amount of any partial withdrawals and partial
annuitizations since that anniversary, which results in the greatest value.
If the Participant was age 70 or more at the Certificate Date, the death
benefit will equal 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.
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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<PAGE> 26
- --------------------------------------------------------------------------------
PURCHASES, WITHDRAWALS AND CONTRACT VALUE
- --------------------------------------------------------------------------------
MINIMUM PURCHASE PAYMENT
The minimum initial Purchase Payment for Contracts issued pursuant to a
Nonqualified Plan is $5,000 and the maximum is $1,000,000. The minimum initial
Purchase Payment for Contracts issued pursuant to a Qualified Plan is $2,000 and
the maximum is $1,000,000. Subsequent Purchase Payments for either a
Nonqualified Plan or Qualified Plan may be made in amounts of $250 or more ($100
or more if made in connection with an Automatic Payment Plan). 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 85 or older or under a Qualified Plan to a Participant who is age
70 1/2 or older.
AUTOMATIC PAYMENT PLAN
Owners utilizing automatic bank drafts through the Company's Automatic
Payment Plan may make scheduled subsequent Purchase Payments of $100 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 regular
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 variable 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 intervals between
transfers may be monthly, quarterly, semiannually or annually, at the option of
the Owner. 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 under the DCA Program; 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 a 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 and 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 under the program nor will it prevent or necessarily alleviate
losses in a declining market.
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<PAGE> 27
An Owner may select that rebalancing occur on a calendar quarter,
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 MVA. 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 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.
An Owner may elect to participate in the Principal Advantage Program (1) at
the time of initial purchase, by completing the instructions on the Vista
Capital Advantage 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 Participant. Participants 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 principal place of business. 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 principal place of
business. 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 Participants making initial Purchase Payments, Participants
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.
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TRANSFER DURING ACCUMULATION PERIOD
During the Accumulation Period, the Participant, or his or her designated
agent, may transfer Contract Values among Portfolios and/or the Fixed Account.
Participants may authorize telephone transfers by written request 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 Participant.
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 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 Participant.
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 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
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<PAGE> 29
the Participant's account up to and including that date. Each 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 6.50% 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.
Vista Fund Distributors, Inc. ("VFD"), located at 101 Park Avenue, New
York, New York, 10178, serves as distributor of the Contracts. VFD 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. VFD is not
affiliated with the Company or the Adviser to the Trust.
WITHDRAWALS (REDEMPTIONS)
Except as explained below, an Owner 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").
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 Participants 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.
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If the request is for total withdrawal, the Certificate (or Contract), 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. Total withdrawals not subject to a Withdrawal Charge, including
systematic withdrawals, cannot exceed the free withdrawal amount described under
"Contract Charges -- Sales Charges -- Free Withdrawal." 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. Amounts
withdrawn under the Systematic Withdrawal Program may be electronically wired to
the Participant's financial institution by completing the instructions on the
Electronic Fund Transfer Form or by written request delivered to the Company at
its Annuity Service Center. A voided check (for checking accounts), the account
number and bank ABA number must accompany all requests. Electronic transfers may
also be requested on the Systematic Withdrawal Request Form. 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 and the
availability of electronic fund transfers 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 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 Owners, accompanied by a radical
shift in interest rates. If the Company intends to withhold payment for more
than 7 days, it will notify affected Owners in writing.
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<PAGE> 31
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.
- --------------------------------------------------------------------------------
ANNUITY PERIOD
- --------------------------------------------------------------------------------
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 such lesser time as state law may permit. 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 Participant(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 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.
29
<PAGE> 32
Annuity payments will be made monthly, unless the Owner requests annuity
payments to be at quarterly, semiannual or annual intervals. 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 (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). 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.
Participants may elect to have annuity payments electronically wired to his
or her financial institution by completing the instructions on the Electronic
Fund Transfer Form or by written request delivered to the Company at its Annuity
Service Center. A voided check (for checking accounts), the account number and
bank ABA number must accompany all requests. Electronic transfers may also be
requested on the Annuity Option Selection Form. The Company reserves the right
to modify, suspend or terminate the availability of electronic fund transfers
for annuity payments at any time.
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.
30
<PAGE> 33
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.
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 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, less any Market Value Adjustment that may apply in the
case of a premature annuitization, and 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.
31
<PAGE> 34
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 calculation of the initial monthly annuity payment,
above, by the annuity unit value, below, as of the Valuation Period next
preceding the date on which each annuity payment is due.
- --------------------------------------------------------------------------------
ADMINISTRATION
- --------------------------------------------------------------------------------
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) 90-VISTA.
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.
32
<PAGE> 35
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 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 Participant. 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 Participant 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
Participant 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 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 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
33
<PAGE> 36
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 Participants in each
Qualified Plan varies with the type of plan and terms and conditions of each
specific plan. Participants, 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.
General descriptions of the types of Qualified Plans with which the
Contracts may be used are contained in the Statement of Additional Information.
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.
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").
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 (Corporate and Self-Employed
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
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<PAGE> 37
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," page 34) 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 designated 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.
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<PAGE> 38
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE COMPANY
- --------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company and its
subsidiaries should be read in conjunction with the consolidated financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations, both of which are included in
this prospectus. Certain items have been reclassified to conform to the current
year's presentation.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net investment income........... $ 73,201 $ 56,843 $ 50,083 $ 58,996 $ 48,912
Net realized investment
losses........................ (17,394) (13,355) (4,363) (33,713) (22,247)
Fee income...................... 213,146 169,505 145,105 141,753 123,567
General and administrative
expenses...................... (98,802) (81,552) (64,457) (54,363) (50,783)
Provision for future guaranty
fund assessments.............. -- -- -- -- (4,800)
Amortization of deferred
acquisition costs............. (66,879) (57,520) (58,713) (44,195) (30,825)
Annual commissions.............. (8,977) (4,613) (2,658) (1,158) (312)
---------- ---------- ---------- ---------- ----------
Pretax income................... 94,295 69,308 64,997 67,320 63,512
Income tax expense.............. (31,169) (24,252) (25,739) (22,705) (21,794)
---------- ---------- ---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING FOR
INCOME TAXES.................. 63,126 45,056 39,258 44,615 41,718
Cumulative effect of change in
accounting for income taxes... -- -- -- (20,463) --
---------- ---------- ---------- ---------- ----------
NET INCOME...................... $ 63,126 $ 45,056 $ 39,258 $ 24,152 $ 41,718
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Investments..................... $ 2,608,301 $2,329,232 $2,114,908 $1,632,072 $2,093,100
Variable annuity assets......... 9,343,200 6,311,557 5,230,246 4,486,703 4,170,275
Deferred acquisition costs...... 536,155 443,610 383,069 416,289 336,677
Other assets.................... 83,283 120,136 55,474 67,062 71,337
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS.................... $12,570,939 $9,204,535 $7,783,697 $6,602,126 $6,671,389
========== ========== ========== ========== ==========
Reserves for fixed annuity
contracts..................... $ 2,098,803 $1,789,962 $1,497,052 $1,437,488 $1,562,136
Reserves for guaranteed
investment contracts.......... 295,175 415,544 277,095 -- --
Variable annuity liabilities.... 9,343,200 6,311,557 5,230,246 4,486,703 4,170,275
Other payables and accrued
liabilities................... 155,256 96,196 227,953 195,134 495,308
---------- ---------- ---------- ---------- ----------
Subordinated notes payable to
Parent........................ 36,240 35,832 35,832 34,712 34,432
Deferred income taxes........... 67,047 70,189 73,459 64,567 38,145
Shareholder's equity............ 575,218 485,255 442,060 383,522 371,093
---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY.......... $12,570,939 $9,204,535 $7,783,697 $6,602,126 $6,671,389
========== ========== ========== ========== ==========
</TABLE>
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- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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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, 1997 follows. In connection with
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, the Company cautions readers regarding certain forward-looking statements
contained in this report and in any other statements made by, or on behalf of,
the Company, whether or not in future filings with the Securities and Exchange
Commission (the "SEC"). Forward-looking statements are statements not based on
historical information and which relate to future operations, strategies,
financial results, or other developments. Statements using verbs such as
"expect," "anticipate," "believe" or words of similar import generally involve
forward-looking statements. Without limiting the foregoing, forward-looking
statements include statements which represent the Company's beliefs concerning
future levels of sales and redemptions of the Company's products, investment
spreads and yields, or the earnings and profitability of the Company's
activities.
Forward-looking statements are necessarily based on estimates and
assumptions that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Company's control and many of which are subject to change. These uncertainties
and contingencies could cause actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. Whether or not actual results differ materially from forward-looking
statements may depend on numerous foreseeable and unforeseeable developments.
Some may be national in scope, such as general economic conditions, changes in
tax law and changes in interest rates. Some may be related to the insurance
industry generally, such as pricing competition, regulatory developments and
industry consolidation. Others may relate to the Company specifically, such as
credit, volatility and other risks associated with the Company's investment
portfolio. Investors are also directed to consider other risks and uncertainties
discussed in documents filed by the Company with the SEC. The Company disclaims
any obligation to update forward-looking information.
RESULTS OF OPERATIONS
NET INCOME totaled $63.1 million in 1997, compared with $45.1 million in
1996 and $39.3 million in 1995.
PRETAX INCOME totaled $94.3 million in 1997, $69.3 million in 1996 and
$65.0 million in 1995. The 36.1% improvement in 1997 over 1996 primarily
resulted from increased fee income and net investment income, partially offset
by higher general and administrative expenses and increased amortization of
deferred acquisition costs. The 6.6% improvement in 1996 over 1995 primarily
resulted from increased net investment income and significantly increased fee
income, partially offset by increased net realized investment losses and
additional general and administrative expenses.
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, increased to $73.2 million in 1997 from $56.8
million in 1996 and $50.1 million in 1995. These amounts equal 2.77% on average
invested assets (computed on a daily basis) of $2.65 billion in 1997, 2.59% on
average invested assets of $2.19 billion in 1996 and 2.95% on average invested
assets of $1.70 billion in 1995.
Net investment spreads include the effect of income earned on the excess of
average invested assets over average interest-bearing liabilities. This excess
amounted to $126.5 million in 1997, $142.9 million in 1996 and $108.4 million in
1995. The difference between the Company's yield on average invested assets and
the rate paid on average interest-bearing liabilities (the "Spread Difference")
was 2.51% in 1997, 2.25% in 1996 and 2.63% in 1995.
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Investment income (and the related yields on average invested assets)
totaled $210.8 million (7.97%) in 1997, compared with $164.6 million (7.50%) in
1996 and $129.5 million (7.62%) in 1995. These increased yields in 1997 include
the effects of a greater proportion of mortgage loans in the Company's
portfolio. On average, mortgage loans have higher yields than that of the
Company's overall portfolio. In addition, the Company experienced higher returns
on its investments in partnerships. The increases in investment income in 1997
and 1996 also reflect increases in average invested assets.
Partnership income increased to $6.7 million (a yield of 15.28% on related
average assets of $44.0 million) in 1997, compared with $4.1 million (a yield of
10.12% on related average assets of $40.2 million) in 1996 and $5.1 million (a
yield of 10.60% on related average assets of $48.4 million) in 1995. Partnership
income is based upon cash distributions received from limited partnerships, the
operations of which the Company does not influence. Consequently, such income is
not predictable and there can be no assurance that the Company will realize
comparable levels of such income in the future.
Total interest expense equalled $137.6 million in 1997, $107.8 million in
1996 and $79.4 million in 1995. The average rate paid on all interest-bearing
liabilities was 5.46% in 1997, compared with 5.25% in 1996 and 4.99% in 1995.
Interest-bearing liabilities averaged $2.52 billion during 1997, compared with
$2.05 billion during 1996 and $1.59 billion during 1995.
The increases in the overall rates paid on interest-bearing liabilities
during 1997 and 1996 primarily resulted from the impact of certain promotional
one-year interest rates offered on the fixed account portion of the Company's
Polaris variable annuity product. The increase in the overall rates paid on all
interest-bearing liabilities during 1996 was also impacted by the growth in
average reserves for GICs, which generally bear higher rates of interest than
fixed annuity contracts. Average GIC reserves were $340.5 million in 1996 and
$60.8 million in 1995. Most of the Company's GICs are variable rate and are
repriced quarterly at the then-current interest rates.
GROWTH IN AVERAGE INVESTED ASSETS since 1995 primarily reflects the sales
of the Company's fixed-rate products, consisting of both fixed annuity premiums
(including those for the fixed accounts of variable annuity products) and GIC
premiums. Fixed annuity premiums totaled $1.10 billion in 1997, compared with
$741.8 million in 1996 and $284.4 million in 1995. The premiums for the fixed
accounts of variable annuities have increased primarily because of increased
sales of the Company's Polaris product and greater inflows into the one-year
fixed account of that product. The Company has observed that many purchasers of
its variable annuity contracts allocate new premiums to the one-year fixed
account and concurrently elect the option to dollar cost average into one or
more variable funds. Accordingly, the Company anticipates that it will see a
large portion of these premiums transferred into the variable funds.
GIC premiums totaled $55.0 million in 1997, $135.0 million in 1996 and
$275.0 million in 1995. GIC surrenders and maturities totaled $198.1 million in
1997, $16.5 million in 1996 and $1.6 million in 1995. The Company does not
actively market GICs, so premiums may vary substantially from period to period.
The large increase in surrenders and maturities in 1997 was primarily due to
contracts maturing in 1997. The GICs issued by the Company generally guarantee
the payment of principal and interest at fixed or variable rates for a term of
three to five years. Contracts that are purchased by banks for their long-term
portfolios, or state and local governmental entities either prohibit withdrawals
or permit scheduled book value withdrawals subject to terms of the underlying
indenture or agreement. GICs purchased by asset management firms for their short
term portfolios either prohibit withdrawals or permit withdrawals with notice
ranging from 90 to 270 days. In pricing GICs, the Company analyzes cash flow
information and prices accordingly so that it is compensated for possible
withdrawals prior to maturity.
NET REALIZED INVESTMENT LOSSES totaled $17.4 million in 1997, $13.4 million
in 1996 and $4.4 million in 1995. Net realized investment losses include
impairment writedowns of $20.4 million in 1997, $16.0 million in 1996 and $4.8
million in 1995. Therefore, net gains from sales of investments totaled $3.0
million in 1997, $2.6 million in 1996 and $0.4 million in 1995.
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The Company sold invested assets, principally bonds and notes, aggregating
$2.19 billion, $1.28 billion and $1.15 billion in 1997, 1996 and 1995,
respectively. Sales of investments result from the active management of the
Company's investment portfolio. Because sales of investments are made in both
rising and falling interest rate environments, net gains from sales of
investments fluctuate from period to period, and represent 0.11%, 0.12% and
0.02% of average invested assets for 1997, 1996 and 1995, respectively. Active
portfolio management involves the ongoing evaluation of asset sectors,
individual securities within the investment portfolio and the reallocation of
investments from sectors that are perceived to be relatively overvalued to
sectors that are perceived to be relatively undervalued. The intent of the
Company's active portfolio management is to maximize total returns on the
investment portfolio, taking into account credit interest-rate risk.
Impairment writedowns reflect $15.7 million and $15.2 million of provisions
applied to non-income producing land owned in Arizona in 1997 and 1996,
respectively. The statutory carrying value of this land had been guaranteed by
the Company's ultimate Parent, SunAmerica Inc. ("SunAmerica"). SunAmerica made
capital contributions of $28.4 million and $27.4 million on December 31, 1996
and 1995, respectively, to the Company through the Company's direct parent in
exchange for the termination of its guaranty with respect to this land.
Accordingly, the Company reduced the carrying value of this land to estimated
fair value to reflect the full termination of the guaranty. Impairment
writedowns in 1995 include $3.8 million of additional provisions applied to
defaulted bonds. Impairment writedowns represent 0.77%, 0.73% and 0.28% of
average invested assets for 1997, 1996 and 1995, respectively. For the five
years ended September 30, 1997, impairment writedowns as a percentage of average
invested assets have ranged from 0.28% to 2.20% and have averaged 1.16%. Such
writedowns are based upon estimates of the net realizable value of the
applicable assets. Actual realization will be dependent upon future events.
VARIABLE ANNUITY FEES are based on the market value of assets in separate
accounts supporting variable annuity contracts. Such fees totaled $139.5 million
in 1997, $104.0 million in 1996 and $84.2 million in 1995. These increased fees
reflect growth in average variable annuity assets, principally due to the
receipt of variable annuity premiums, increased market values and net exchanges
into the separate accounts from the fixed accounts of variable annuity
contracts, partially offset by surrenders. Variable annuity assets averaged
$7.55 billion during 1997, $5.70 billion during 1996 and $4.65 billion during
1995. Variable annuity premiums, which exclude premiums allocated to the fixed
accounts of variable annuity products, totaled $1.27 billion in 1997, $919.8
million in 1996 and $577.2 million in 1995. Sales of variable annuity products
(which include premiums allocated to the fixed accounts) ("Variable Annuity
Product Sales") amounted to $2.37 billion, $1.66 billion and $861.0 million in
1997, 1996 and 1995, respectively. Increases in Variable Annuity Product Sales
are due, in part, to market share gains through enhanced distribution efforts
and growing consumer demand for flexible retirement savings products that offer
a variety of equity, fixed income and guaranteed fixed account investment
choices. The Company has encountered increased competition in the variable
annuity marketplace during recent years and anticipates that the market will
remain highly competitive for the foreseeable future.
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 $39.1
million in 1997, $31.5 million in 1996 and $24.1 million in 1995. Broker-dealer
sales (mainly sales of general securities, mutual funds and annuities) totaled
$11.56 billion in 1997, $8.75 billion in 1996 and $5.67 billion in 1995. The
increases in sales and net retained commissions reflect a greater number of
registered representatives, due to the Company's ongoing recruitment of
representatives and to the transfer of representatives from an affiliated
broker-dealer, higher average production per representative and generally
favorable market conditions. Increases in net retained commissions may not be
proportionate to increases in sales primarily due to differences in sales mix.
SURRENDER CHARGES on fixed and variable annuities totaled $5.5 million in
1997, compared with $5.2 million in 1996 and $5.9 million in 1995. Surrender
charges generally are assessed on annuity withdrawals at declining rates during
the first seven years of an annuity contract. Withdrawal
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payments, which include surrenders and lump-sum annuity benefits, totaled $1.06
billion in 1997, compared with $898.0 million in 1996 and $908.9 million in
1995. These payments represent 11.22%, 12.44% and 15.06%, respectively, of
average fixed and variable annuity reserves. Withdrawals include variable
annuity withdrawals from the separate accounts totaling $822.0 million in 1997,
$634.1 million in 1996 and $632.1 million in 1995. Management anticipates that
withdrawal rates will remain relatively stable 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 by SunAmerica Asset Management Corp. Such fees totaled $25.8 million on
average assets managed of $2.34 billion in 1997, $25.4 million on average assets
managed of $2.14 billion in 1996 and $26.9 million on average assets managed of
$2.07 billion in 1995. Asset management fees are not proportionate to average
assets managed, principally due to changes in product mix. Sales of mutual
funds, excluding sales of money market accounts, amounted to $454.8 million in
1997, compared with $223.4 million in 1996 and $140.2 million in 1995.
Redemptions of mutual funds, excluding redemptions of money market accounts,
amounted to $412.8 million in 1997, $379.9 million in 1996 and $426.5 million in
1995. The significant increases in sales during 1997 principally resulted from
the introduction in November 1996 of the Company's "Style Select Series"
product. Higher mutual fund sales and lower redemptions in 1996 both reflect
enhanced marketing efforts and the favorable performance records of certain of
the Company's mutual funds, and heightened consumer demand for equity
investments generally.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $98.8 million in 1997, compared
with $81.6 million in 1996 and $65.3 million in 1995. General and administrative
expenses in 1997 include a $5.0 million provision for estimated programming
costs associated with the year 2000. Management believes that this provision is
adequate and does not anticipate any material future expenses associated with
this project. General and administrative expenses remain closely controlled
through a company-wide cost containment program and continue to represent less
than 1% of average total assets.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $66.9 million in 1997,
compared with $57.5 million in 1996 and $58.7 million in 1995. The increase in
amortization during 1997 was primarily due to additional fixed and variable
annuity sales and the subsequent amortization of related deferred commissions
and other direct selling costs. The decline in amortization for 1996 is due to
lower redemptions of mutual funds from the rate experienced in 1995, partially
offset by additional fixed and variable annuity and mutual fund sales in recent
years and the subsequent amortization of related deferred commissions and other
acquisition costs.
ANNUAL COMMISSIONS represent renewal commissions paid quarterly in arrears
to maintain the persistency of certain of the Company's variable annuity
contracts. Substantially all of the Company's currently available variable
annuity products allow for an annual commission payment option in return for a
lower immediate commission. Annual commissions totaled $9.0 million in 1997,
$4.6 million in 1996 and $2.7 million in 1995. The increase in annual
commissions since 1995 reflects increased sales of annuities that offer this
commission option. The Company estimates that approximately 45% of the average
balances of its variable annuity products is currently subject to such annual
commissions. Based on current sales, this percentage is expected to increase in
future periods.
INCOME TAX EXPENSE totaled $31.2 million in 1997, compared with $24.3
million in 1996 and $25.7 million in 1995, representing effective tax rates of
33% in 1997, 35% in 1996 and 40% in 1995. The higher effective tax rate in 1995
was due to a prior year tax settlement. Without such payment, the effective tax
rate would have been 33%.
FINANCIAL CONDITION AND LIQUIDITY
SHAREHOLDER'S EQUITY increased 18.5% to $575.2 million at September 30,
1997 from $485.3 million at September 30, 1996, primarily due to $63.1 million
of net income recorded in 1997 and $18.4 million of net unrealized gains on debt
and equity securities available for sale (credited directly to shareholder's
equity), versus $5.5 million of net unrealized losses on such securities
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recorded at September 30, 1996. In addition, the Company received a contribution
of capital of $28.4 million in December 1996 and paid a dividend of $25.5
million in April 1997.
INVESTED ASSETS at year end totaled $2.61 billion in 1997, compared with
$2.33 billion at year-end 1996. This 12.0% increase primarily resulted from
sales of fixed annuities and the $44.7 million net unrealized gain recorded on
debt and equity securities available for sale at September 30, 1997, versus the
$12.7 million net unrealized loss recorded on such securities at September 30,
1996.
The Company manages most of its invested assets internally. The Company's
general investment philosophy is to hold fixed-rate assets for long-term
investment. Thus, it does not have a trading portfolio. However, the Company has
determined that all of its portfolio of bonds, notes and redeemable preferred
stocks (the "Bond Portfolio") is available to be sold in response to changes in
market interest rates, changes in relative value of asset sectors and individual
securities, changes in prepayment risk, changes in the credit quality outlook
for certain securities, the Company's need for liquidity and other similar
factors.
THE BOND PORTFOLIO, which comprises 76% of the Company's total investment
portfolio (at amortized cost), had an aggregate fair value that exceeded its
amortized cost by $43.7 million at September 30, 1997. At September 30, 1996,
the amortized cost exceeded the fair value of the Bond Portfolio by $13.8
million. The net unrealized gains on the Bond Portfolio since September 30, 1996
principally reflect the lower prevailing interest rates at September 30, 1997
and the corresponding effect on the fair value of the Bond Portfolio.
At September 30, 1997, the Bond Portfolio (at amortized cost, excluding
$6.1 million of redeemable preferred stocks) included $1.82 billion of bonds
rated by Standard & Poor's Corporation ("S&P"), Moody's Investors Service
("Moody's"), Duff & Phelps Credit Rating Co. ("DCR"), Fitch Investors Service,
L.P. ("Fitch") or the National Association of Insurance Commissioners ("NAIC"),
and $124.4 million of bonds rated by the Company pursuant to statutory ratings
guidelines established by the NAIC. At September 30, 1997, approximately $1.72
billion of the Bond Portfolio was investment grade, including $650.3 million of
U.S. government/agency securities and mortgage-backed securities ("MBSs").
At September 30, 1997, the Bond Portfolio included $216.9 million (at
amortized cost with a fair value of $227.2 million) of bonds that were not
investment grade. Based on their September 30, 1997 amortized cost, these
noninvestment-grade bonds accounted for 1.7% of the Company's total assets and
8.5% of its 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 had no material concentrations of non-investment-grade securities at
September 30, 1997.
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The following table summarizes the Company's rated bonds by rating
classification as of September 30, 1997 (dollars in thousands):
RATED BONDS BY RATING CLASSIFICATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ISSUES NOT RATED BY S&P/MOODY'S/
ISSUES RATED BY S&P/MOODY'S/DCR/FITCH DCR/FITCH, BY NAIC CATEGORY TOTAL
- ------------------------------------------------- ---------------------------------- --------------------------------------
S&P/(MOODY'S)/ ESTIMATED NAIC ESTIMATED PERCENT OF ESTIMATED
[DCR]/GFITCHH AMORTIZED FAIR CATEGORY AMORTIZED FAIR AMORTIZED INVESTED FAIR
CATEGORY(1) COST VALUE (2) COST VALUE COST ASSETS(3) VALUE
- ---------------------- ---------- ---------- -------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA+ to A-
(Aaa to A3)
[AAA to A-]
GAAA to A-H......... $ 935,866 $ 953,440 1 $142,548 $143,940 $1,078,414 42.07% $1,097,380
BBB+ to BBB-
(Baal to Baa3)
[BBB+ to BBB-]
GBBB+ to BBB-H...... 494,521 504,442 2 146,548 150,521 641,069 25.01 654,963
BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
GBB+ to BB-H........ 13,080 14,597 3 13,811 13,917 26,891 1.05 28,514
B+ to B-
(B1 to B3)
[B+ to B-]
GB+ to B-H.......... 163,603 170,960 4 25,777 27,089 189,380 7.39 198,049
CCC+ to C
(Caa to C)
[CCC]
GCCC+ to C-H........ 0 0 5 0 0 0 0.00 0
C1 to D
[DD]
GDH................. 0 0 6 606 606 606 0.02 606
---------- ---------- -------- -------- ---------- ----------
Total rated issues.... $1,607,070 $1,643,439 $329,290 $336,073 $1,936,360 $1,979,512
========== ========== ======== ======== ========== ==========
</TABLE>
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(1) S&P and Fitch rate debt securities in rating categories ranging 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 rating categories ranging from Aaa (the highest) to C (extremely poor
prospects of ever attaining any 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. DCR rates debt securities in rating categories
ranging from AAA (the highest) to DD (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. Issues are
categorized based on the highest of the S&P, Moody's, D&P and Fitch ratings
if rated by multiple 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/DCR/Fitch rating groups
listed above, with categories 1 and 2 considered investment grade. The NAIC
categories include $124.4 million (at amortized cost) of assets that were
rated by the Company pursuant to applicable NAIC rating guidelines.
(3) At amortized cost.
Senior secured loans ("Secured Loans") are included in the Bond Portfolio
and their amortized cost aggregated $329.3 million at September 30, 1997.
Secured Loans are senior to subordinated debt and equity, and are secured by
assets of the issuer. At September 30, 1997, Secured Loans consisted of loans to
80 borrowers spanning 28 industries, with 17% of these assets (at amortized
cost) concentrated in financial institutions. No other industry concentration
constituted more than 10% 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. As a
result of restrictive financial covenants, Secured Loans involve greater risk of
technical default than do publicly traded investment-grade securities. However,
management believes that the risk of loss upon default for its Secured Loans is
mitigated by such
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financial covenants and the collateral values underlying the Secured Loans. The
Company's Secured Loans are rated by S&P, Moody's, DCR, Fitch, the NAIC or by
the Company, pursuant to comparable statutory ratings guidelines established by
the NAIC.
MORTGAGE LOANS aggregated $339.5 million at September 30, 1997 and
consisted of 73 commercial first mortgage loans with an average loan balance of
approximately $4.7 million, collateralized by properties located in 21 states.
Approximately 23% of this portfolio was multifamily residential, 18% was office,
14% was manufactured housing, 13% was hotels, 11% was retail, 11% was industrial
and 10% was other types. At September 30, 1997, approximately 13% and 12% of
this portfolio was secured by properties located in New York and California,
respectively, and no more than 10% of this portfolio was secured by properties
located in any other single state. At September 30, 1997, there were four
mortgage loans with outstanding balances of $10 million or more, which loans
collectively aggregated approximately 17% of this portfolio. At the time of
their origination or purchase by the Company, virtually all mortgage loans had
loan-to-value ratios of 75% or less. At September 30, 1997, approximately 23% of
the mortgage loan portfolio consisted of loans with balloon payments due before
October 1, 2000. During 1997, 1996 and 1995, loans delinquent by more than 90
days, foreclosed loans and restructured loans have not been significant in
relation to the total mortgage loan portfolio.
At September 30, 1997, approximately 18% of the mortgage loans were
seasoned loans underwritten to the Company's standards and purchased at or near
par from other financial institutions. 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 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 more immediate
effects of general economic conditions on these commercial property types.
However, due to the seasoned nature of the Company's mortgage loan portfolio,
its emphasis on multifamily loans and its strict underwriting standards, the
Company believes that it has prudently managed the risk attributable to its
mortgage loan portfolio while maintaining attractive yields.
OTHER INVESTED ASSETS aggregated $143.7 million at September 30, 1997,
including $46.9 million of investments in limited partnerships, $70.9 million of
separate account investments and an aggregate of $25.9 million of miscellaneous
investments, including policy loans, residuals and leveraged leases. The
Company's limited partnership interests, accounted for by using the cost method
of accounting, are invested primarily in a combination of debt and 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-rate investments 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-rate investments are priced over the
yield curve, and general economic conditions. Its portfolio strategy is
constructed with a view to achieve adequate risk-adjusted returns consistent
with its investment objectives of effective asset-liability matching, liquidity
and safety. The Company's fixed-rate products incorporate surrender charges or
other restrictions in order to encourage persistency. Approximately 77% of the
Company's fixed annuity and GIC reserves had surrender penalties or other
restrictions at September 30, 1997.
As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-rate assets and liabilities
under commonly used stress-test interest rate scenarios. With the results of
these computer simulations, the Company can measure the potential gain or loss
in fair value of its interest-rate sensitive instruments and seek to protect its
economic value and achieve a predictable spread between what it earns on its
invested assets and what it pays on its liabilities by designing its fixed-rate
products and conducting its investment operations to closely match the duration
of the fixed-rate assets to that of its fixed-rate liabilities. The Company's
fixed-rate assets include: cash and short-term investments; bonds, notes and
redeemable preferred
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stocks; mortgage loans; and investments in limited partnerships that invest
primarily in fixed-rate securities and are accounted for by using the cost
method. At September 30, 1997, these assets had an aggregate fair value of $2.46
billion with a duration of 3.4. The Company's fixed-rate liabilities include
fixed annuities and GICs. At September 30, 1997, these liabilities had an
aggregate fair value (determined by discounting future contractual cash flows by
related market rates of interest) of $2.32 billion with a duration of 1.3. The
Company's potential exposure due to a relative 10% increase in interest rates
prevalent at September 30, 1997 is a loss of approximately $31.2 million in fair
value of its fixed-rate assets that is not offset by an increase in the fair
value of its fixed-rate liabilities. Because the Company actively manages its
assets and liabilities and has strategies in place to minimize its exposure to
loss as interest rate changes occur, it expects that actual losses would be less
than the estimated potential loss.
Duration is a common option-adjusted measure for the price sensitivity of a
fixed-maturity portfolio to changes in interest rates. It measures the
approximate percentage change in the market value of a portfolio if interest
rates change by 100 basis points, recognizing the changes in cash flows
resulting from embedded options such as policy surrenders, investment
prepayments and bond calls. It also incorporates the assumption that the Company
will continue to utilize its existing strategies of pricing its fixed annuity
and GIC products, allocating its available cash flow amongst its various
investment portfolio sectors and maintaining sufficient levels of liquidity.
Because the calculation of duration involves estimation and incorporates
assumptions, potential changes in portfolio value indicated by the portfolio's
duration will likely be different from the actual changes experienced under
given interest rate scenarios, and the differences may be material.
As a component of its asset and liability management strategy, the Company
utilizes interest rate swap agreements ("Swap Agreements") to match assets and
liabilities more closely. Swap Agreements are agreements to exchange with a
counterparty interest rate payments of differing character (for example,
variable-rate payments exchanged for fixed-rate payments) based on an underlying
principal balance (notional principal) to hedge against interest rate changes.
The Company currently utilizes Swap Agreements to create a hedge that
effectively converts fixed-rate liabilities into floating-rate instruments. At
September 30, 1997, the Company had one outstanding Swap Agreement with a
notional principal amount of $15.9 million. This agreement matures in December
2024.
The Company also seeks to provide liquidity from time to time by using
reverse repurchase agreements ("Reverse Repos") and by investing in MBSs. It
also seeks to enhance its spread income by using Reverse Repos. 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.
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
provide liquidity, enhance its spread income and match its assets and
liabilities. The primary risk associated with the Company's Reverse Repos and
Swap Agreements is counterparty risk. The Company believes, however, that the
counterparties to its Reverse Repos and Swap Agreements are financially
responsible and that the counterparty risk associated with those transactions is
minimal. In addition to counterparty risk, Swap Agreements also have interest
rate risk. However, the Company's Swap Agreements typically hedge variable-rate
assets or liabilities, and interest rate fluctuations that adversely affect the
net cash received or paid under the terms of a Swap Agreement would be offset by
increased interest income earned on the variable-rate assets or reduced interest
expense paid on the variable-rate liabilities. 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. As part of its decision to purchase an MBS, the Company
assesses the risk of prepayment by analyzing the security's projected
performance over an array of interest-rate scenarios. Once an MBS is purchased,
the Company monitors its actual prepayment experience monthly to reassess the
relative attractiveness of the security with the intent to maximize total
return.
44
<PAGE> 47
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 values 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 any collateral,
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.
DEFAULTED INVESTMENTS, comprising all investments that are in default as to
the payment of principal or interest, totaled $1.4 million at September 30, 1997
(at amortized cost after impairment writedowns, with a fair value of $1.4
million), including $0.5 million of bonds and notes and $0.9 million of mortgage
loans. At September 30, 1997, defaulted investments constituted 0.1% of total
invested assets. At September 30, 1996, defaulted investments totaled $3.1
million, including $1.6 million of bonds and notes and $1.5 million of mortgage
loans, and constituted 0.1% of total invested assets.
SOURCES OF LIQUIDITY are readily available to the Company in the form of
the Company's existing portfolio of cash and short-term investments, Reverse
Repo capacity on invested assets and, if required, proceeds from invested asset
sales. At September 30, 1997, approximately $1.80 billion of the Company's Bond
Portfolio had an aggregate unrealized gain of $46.5 million, while approximately
$139.8 million of the Bond Portfolio had an aggregate unrealized loss of $2.7
million. In addition, the Company's investment portfolio currently provides
approximately $22.5 million of monthly cash flow from scheduled principal and
interest payments. Historically, cash flows from operations and from the sale of
the Company's annuity and GIC products have been more than sufficient in amount
to satisfy the Company's liquidity needs.
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.
45
<PAGE> 48
- --------------------------------------------------------------------------------
PROPERTIES
- --------------------------------------------------------------------------------
The Company's executive offices and its principal office are in leased
premises at 1 SunAmerica Center, Los Angeles, California. The Company, through
an affiliate, also leases office space in Torrance, California and in Woodland
Hills, California. 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 the Company's
businesses.
- --------------------------------------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
The directors and principal officers of Anchor National Life Insurance
Company (the "Company") as of December 23, 1997 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>
OTHER POSITIONS AND
YEAR OTHER BUSINESS
PRESENT ASSUMED EXPERIENCE WITHIN
NAME AGE POSITION(S) POSITION(S) LAST FIVE YEARS** FROM-TO
- -------------------- --- ------------------------- ---------- ------------------------- ----------
<S> <C> <C> <C> <C> <C>
Eli Broad* 64 Chairman, 1986 Cofounded SAI
Chief Executive 1994 in 1957
Officer and President of
the Company
Chairman, Chief 1976
Executive Officer and 1986
President of
SunAmerica Inc. ("SAI")
Joseph M. Tumber* 48 Executive Vice 1996 President and Chief 1989-1995
President of the Company Executive Officer,
Vice Chairman of SAI 1995 Providian Capital
Management
Jay S. Wintrob* 40 Executive Vice President 1991 Senior Vice President 1989-1991
of the Company (Joined SAI in 1987)
Vice Chairman of SAI 1995
James R. Belardi* 40 Senior Vice President of 1992 Vice President and 1989-1992
the Company Treasurer
Executive Vice President 1995 (Joined SAI in 1986)
of SAI
Jana Waring Greer* 45 Senior Vice President of 1991 (Joined SAI in 1974)
the Company and SAI
Peter McMillan, III* 40 Executive Vice President 1994 Senior Vice President, 1989-1994
and Chief Investment SunAmerica Investments,
Officer of SunAmerica Inc.
Investments, Inc.
Scott L. Robinson* 51 Senior Vice President of 1991 (Joined SAI in 1978)
the Company
Senior Vice President and
Controller of SAI
Lorin M. Fife* 44 Senior Vice President, 1994 Vice President and 1994-1995
General Counsel and General Counsel-
Assistant Secretary of Regulatory Affairs
the
Company Senior Vice of SAI
President and Vice President and 1989-1994
General Counsel- Associate General
Regulatory Affairs 1995 Counsel of SAI
of SAI (Joined SAI in 1989)
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
OTHER POSITIONS AND
YEAR OTHER BUSINESS
PRESENT ASSUMED EXPERIENCE WITHIN
NAME AGE POSITION(S) POSITION(S) LAST FIVE YEARS** FROM-TO
- -------------------- --- ------------------------- ---------- ------------------------- ----------
<S> <C> <C> <C> <C> <C>
Susan L. Harris* 40 Senior Vice President and 1994 Vice President, 1994-1995
Secretary of the General Counsel-
Company Senior Vice Corporate Affairs and
President, General Secretary of SAI
Counsel-Corporate Affairs 1995 Vice President, 1989-1994
and Secretary of SAI Associate General
Counsel and Secretary
of SAI (Joined SAI
in 1985)
James Rowan* 35 Senior Vice President 1996 Vice President 1993-1995
of the Company Assistant to the 1992
Senior Vice President Chairman
of SAI 1995 Senior Vice President, 1990-1992
Security Pacific Corp.
N. Scott Gillis 44 Senior Vice President 1994 Vice President and 1989-1994
and Controller of the Controller, SunAmerica
Company Life Companies ("SLC")
Vice President of SAI 1997 (Joined SAI in 1985)
Edwin R. Reoliquio 40 Senior Vice President 1995 Vice President 1990-1995
and Chief Actuary Actuary, SLC
of the Company
Victor E. Akin 33 Senior Vice President 1996 Vice President, SLC 1995-1996
of the Company Director, Product
Development, SLC 1994-1995
Manager, Business
Development, SLC 1993-1994
Actuary, Milliman &
Robertson Consultant, 1992-1993
Chalke Inc. 1991-1992
Scott H. Richland 35 Vice President and 1994 Vice President 1994-1995
Treasurer 1995 and Asst. Treasurer
of the Company Vice President and 1995-1997
Senior Vice President 1997 Treasurer of SAI
and Treasurer of SAI Vice President and 1994-1995
Asst. Treasurer of SAI
Asst. Treasurer of SAI 1993-1994
Director, SunAmerica 1990-1993
Investments, Inc. (Joined
SAI in 1990)
</TABLE>
- ---------------
* Also serves as a director
** Unless otherwise indicated, officers and positions are with SunAmerica Inc.
47
<PAGE> 50
- --------------------------------------------------------------------------------
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 to all
executive officers of the Company as a group for services rendered in all
capacities to the Company during 1997:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR CAPACITIES IN ALLOCATED CASH
NUMBER IN GROUP WHICH SERVED COMPENSATION
- ---------------------------------------- ---------------------------------- --------------
<S> <C> <C>
Eli Broad Chairman, Chief Executive $1,438,587
Officer and President
Joseph M. Tumbler Executive Vice President 835,680
Jay S. Wintrob Executive Vice President 837,376
James R. Belardi Senior Vice President 357,144
Jana W. Greer Senior Vice President 630,854
All Executive Officers as a Group(14) $5,769,122
============
</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 December 15,
1997, Mr. Broad was the beneficial owner of 10,706,006 shares of Common Stock
(5.68% of the class outstanding) and 13,740,441 shares of Class B Common Stock
(84.40% of the class outstanding). Of the Common Stock, 1,063,773 shares
represent restricted shares granted under the Company's employee stock plans as
to which Mr. Broad has no investment power; and 6,949,512 shares represent
employee stock options held by Mr. Broad which are or will become exercisable on
or before February 15, 1998 and as to which he has no voting or investment
power. Of the Class B Stock, 12,684,210 shares are held directly by Mr. Broad;
and 1,056,231 shares are registered in the name of a corporation as to which Mr.
Broad exercises sole voting and dispositive powers. At December 15, 1997, all
directors and officers as a group beneficially owned 14,338,041 shares of Common
Stock (7.64% of the class outstanding) and 13,740,441 shares of Class B Common
Stock (84.40% of the class outstanding). All share numbers reflect a 3-for-2
stock split paid in the form of a stock dividend on August 29, 1997 to holders
of record on August 20, 1997.
48
<PAGE> 51
- --------------------------------------------------------------------------------
STATE REGULATION
- --------------------------------------------------------------------------------
The Company is subject to regulation and supervision by the insurance
regulatory agencies of the states in which it is authorized to transact
business. State insurance laws establish supervisory agencies with broad
administrative and supervisory powers. Principal among these powers are 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, market conduct
and other examinations, determining the reasonableness and adequacy of statutory
capital and surplus, defining acceptable accounting principles, regulating the
type, valuation and amount of investments permitted, and limiting the amount of
dividends that can be paid and the size of transactions that can be consummated
without first obtaining regulatory approval.
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 or allowing combinations between insurance companies, banks and other
entities. 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 and market conduct violations.
These initiatives include investment reserve requirements, risk-based capital
standards, codification of insurance accounting principles, new investment
standards and restrictions on an insurance company's ability to pay dividends to
its stockholders. The NAIC is also currently developing model laws relating to
product design and illustrations for annuity products. 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 SEC as a registered
investment advisor under the Investment Advisors 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 SEC. In addition, variable annuities and the related
separate accounts of the Company are subject to regulation by the Securities and
Exchange Commission (the "SEC") 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 SEC
and the National Association of Securities Dealers ("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
- --------------------------------------------------------------------------------
Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017, serves as
the custodian of the assets of the Separate Account.
49
<PAGE> 52
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 financial statements of Anchor National Life Insurance Company as of
September 30, 1997 and 1996 and for each of the three years in the period ended
September 30, 1997 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.
- --------------------------------------------------------------------------------
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 by calling
(800)90-VISTA. 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 Payments...................................................................... 5
Annuity Unit Values................................................................... 6
Qualified Plans....................................................................... 9
Distribution of Contracts............................................................. 10
Financial Statements.................................................................. 11
</TABLE>
50
<PAGE> 53
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The 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.
51
<PAGE> 54
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Anchor National Life Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated income statement and statement of cash flows present fairly, in all
material respects, the financial position of Anchor National Life Insurance
Company and its subsidiaries at September 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Los Angeles, California
November 7, 1997
52
<PAGE> 55
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
ASSETS
INVESTMENTS:
Cash and short-term investments......................... $ 113,580,000 $ 122,058,000
Bonds, notes and redeemable preferred stocks:
Available for sale, at fair value (amortized cost:
1997, $1,942,485,000; 1996, $2,001,024,000)........ 1,986,194,000 1,987,271,000
Mortgage loans.......................................... 339,530,000 98,284,000
Common stocks, at fair value (cost: 1997, $271,000;
1996, $2,911,000).................................... 1,275,000 3,970,000
Real estate............................................. 24,000,000 39,724,000
Other invested assets................................... 143,722,000 77,925,000
-------------- -------------
Total investments....................................... 2,608,301,000 2,329,232,000
Variable annuity assets................................... 9,343,200,000 6,311,557,000
Receivable from brokers for sales of securities........... -- 52,348,000
Accrued investment income................................. 21,759,000 19,675,000
Deferred acquisition costs................................ 536,155,000 443,610,000
Other assets.............................................. 61,524,000 48,113,000
-------------- -------------
TOTAL ASSETS.............................................. $12,570,939,000 $9,204,535,000
============== =============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts.................... $ 2,098,803,000 $1,789,962,000
Reserves for guaranteed investment contracts............ 295,175,000 415,544,000
Payable to brokers for purchases of securities.......... 263,000 --
Income taxes currently payable.......................... 32,265,000 21,486,000
Other liabilities....................................... 122,728,000 74,710,000
-------------- -------------
Total reserves, payables and accrued liabilities........ 2,549,234,000 2,301,702,000
-------------- -------------
Variable annuity liabilities.............................. 9,343,200,000 6,311,557,000
-------------- -------------
Subordinated notes payable to Parent...................... 36,240,000 35,832,000
-------------- -------------
Deferred income taxes..................................... 67,047,000 70,189,000
-------------- -------------
Shareholder's equity:
Common Stock............................................ 3,511,000 3,511,000
Additional paid-in capital.............................. 308,674,000 280,263,000
Retained earnings....................................... 244,628,000 207,002,000
Net unrealized gains (losses) on debt and equity
securities available for sale........................ 18,405,000 (5,521,000)
-------------- -------------
Total shareholder's equity.............................. 575,218,000 485,255,000
-------------- -------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY................ $12,570,939,000 $9,204,535,000
============== =============
</TABLE>
See accompanying notes.
53
<PAGE> 56
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
Investment income.......................... $ 210,759,000 $ 164,631,000 $129,466,000
------------- ------------- ------------
Interest expense on:
Fixed annuity contracts.................. (109,217,000) (82,690,000) (72,975,000)
Guaranteed investment contracts.......... (22,650,000) (19,974,000) (3,733,000)
Senior indebtedness...................... (2,549,000) (2,568,000) (227,000)
Subordinated notes payable to Parent..... (3,142,000) (2,556,000) (2,448,000)
------------- ------------- ------------
Total interest expense................... (137,558,000) (107,788,000) (79,383,000)
------------- ------------- ------------
NET INVESTMENT INCOME...................... 73,201,000 56,843,000 50,083,000
------------- ------------- ------------
NET REALIZED INVESTMENT LOSSES............. (17,394,000) (13,355,000) (4,363,000)
------------- ------------- ------------
Fee income:
Variable annuity fees.................... 139,492,000 103,970,000 84,171,000
Net retained commissions................. 39,143,000 31,548,000 24,108,000
Surrender charges........................ 5,529,000 5,184,000 5,889,000
Asset management fees.................... 25,764,000 25,413,000 26,935,000
Other fees............................... 3,218,000 3,390,000 4,002,000
------------- ------------- ------------
TOTAL FEE INCOME........................... 213,146,000 169,505,000 145,105,000
------------- ------------- ------------
GENERAL AND ADMINISTRATIVE EXPENSES........ (98,802,000) (81,552,000) (64,457,000)
------------- ------------- ------------
AMORTIZATION OF DEFERRED ACQUISITION
COSTS.................................... (66,879,000) (57,520,000) (58,713,000)
------------- ------------- ------------
ANNUAL COMMISSIONS......................... (8,977,000) (4,613,000) (2,658,000)
------------- ------------- ------------
PRETAX INCOME.............................. 94,295,000 69,308,000 64,997,000
Income tax expense......................... (31,169,000) (24,252,000) (25,739,000)
------------- ------------- ------------
NET INCOME................................. $ 63,126,000 $ 45,056,000 $ 39,258,000
============= ============= ============
</TABLE>
See accompanying notes
54
<PAGE> 57
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 63,126,000 $ 45,056,000 $ 39,258,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Interest credited to:
Fixed annuity contracts.............................. 109,217,000 82,690,000 72,975,000
Guaranteed investment contracts...................... 22,650,000 19,974,000 3,733,000
Net realized investment losses....................... 17,394,000 13,355,000 4,363,000
Accretion of net discounts on investments............ (18,576,000) (8,976,000) (6,865,000)
Amortization of goodwill............................. 1,187,000 1,169,000 1,168,000
Provision for deferred income taxes.................. (16,024,000) (3,351,000) (1,489,000)
Change in:
Accrued investment income................................. (2,084,000) (5,483,000) 3,373,000
Deferred acquisition costs................................ (113,145,000) (60,941,000) (7,180,000)
Other assets.............................................. (14,598,000) (8,000,000) 7,047,000
Income taxes currently payable............................ 10,779,000 5,766,000 3,389,000
Other liabilities......................................... 14,187,000 5,474,000 4,063,000
Other, net.................................................. 418,000 (129,000) 7,000
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES..................... 74,531,000 86,604,000 123,842,000
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts................................... 1,097,937,000 651,649,000 245,320,000
Guaranteed investment contracts........................... 55,000,000 134,967,000 275,000,000
Net exchanges to (from) the fixed accounts of variable
annuity contracts......................................... (620,367,000) (236,705,000) 10,475,000
Withdrawal payments on:
Fixed annuity contracts................................... (242,589,000) (173,489,000) (237,977,000)
Guaranteed investment contracts........................... (198,062,000) (16,492,000) (1,638,000)
Claims and annuity payments on fixed annuity contracts...... (35,731,000) (31,107,000) (31,237,000)
Net receipts from (repayments of) other short-term
financings................................................ 34,239,000 (119,712,000) 3,202,000
Capital contribution received............................... 28,411,000 27,387,000 --
Dividends paid.............................................. (25,500,000) (29,400,000) --
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES..................... 93,338,000 207,098,000 263,145,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred stocks.............. $(2,566,211,000) $(1,937,890,000) $(1,556,586,000)
Mortgage loans............................................ (266,771,000) (15,000,000) --
Other investments, excluding short-term investments....... (75,556,000) (36,770,000) (13,028,000)
Sales of:
Bonds, notes and redeemable preferred stocks.............. 2,299,063,000 1,241,928,000 1,026,078,000
Real estate............................................... -- 900,000 36,813,000
Other investments, excluding short-term investments....... 6,421,000 4,937,000 5,130,000
Redemptions and maturities of:
Bonds, notes and redeemable preferred stocks.............. 376,847,000 288,969,000 178,688,000
Mortgage loans............................................ 25,920,000 11,324,000 14,403,000
Other investments, excluding short-term investments....... 23,940,000 20,749,000 13,286,000
------------- ------------- -------------
NET CASH USED BY INVESTING ACTIVITIES......................... (176,347,000) (420,853,000) (295,216,000)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS.... (8,478,000) (127,151,000) 91,771,000
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD........ 122,058,000 249,209,000 157,438,000
------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD.............. $ 113,580,000 $ 122,058,000 $ 249,209,000
============= ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness............................... $ 7,032,000 $ 5,982,000 $ 3,235,000
============= ============= =============
Net income taxes paid....................................... $ 36,420,000 $ 22,031,000 $ 23,656,000
============= ============= =============
</TABLE>
See accompanying notes.
55
<PAGE> 58
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company (the "Company") is a wholly owned
indirect subsidiary of SunAmerica, Inc. (the "Parent"). The Company is an
Arizona-domiciled life insurance company and conducts its business through three
segments: annuity operations, asset management and broker-dealer operations.
Annuity operations include the sale and administration of fixed and variable
annuities and guaranteed investment contracts. Asset management, which includes
the sale and management of mutual funds, is conducted by SunAmerica Asset
Management Corp. Broker-dealer operations include the sale of securities and
financial services products, and are conducted by Royal Alliance Associates,
Inc.
The operations of the Company are influenced by many factors, including
general economic conditions, monetary and fiscal policies of the federal
government, and policies of state and other regulatory authorities. The level of
sales of the Company's financial products is influenced by many factors,
including general market rates of interest; strength, weakness and volatility of
equity markets; and terms and conditions of competing financial products. The
Company is exposed to the typical risks normally associated with a portfolio of
fixed-income securities, namely interest rate, option, liquidity and credit
risk. The Company controls its exposure to these risks by, among other things,
closely monitoring and matching the duration of its assets and liabilities,
monitoring and limiting prepayment and extension risk in its portfolio,
maintaining a large percentage of its portfolio in highly liquid securities, and
engaging in a disciplined process of underwriting, reviewing and monitoring
credit risk. The Company also is exposed to market risk, as market volatility
may result in reduced fee income in the case of assets managed in mutual funds
and held in separate accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and include the accounts of the Company and all of its wholly owned
subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation. Certain prior period amounts have been reclassified
to conform with the 1997 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
INVESTMENTS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and short-term
bank participations. All such investments are carried at cost plus accrued
interest, which approximates fair value, have maturities of three months or less
and are considered cash equivalents for purposes of reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and common
stocks are carried at aggregate fair value and changes in unrealized gains or
losses, net of tax, are credited or charged directly to shareholder's equity.
Bonds, notes and redeemable preferred stocks are reduced to estimated net
realizable value when necessary for declines in value considered to be other
than temporary. Estimates of net realizable value are subjective and actual
realization will be dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of provisions
for estimated losses. Real estate is carried at the lower of cost or fair value.
Other invested assets include investments in limited partnerships, which are
accounted for by using the cost method of accounting; separate account
investments; leveraged leases; policy loans, which are carried at unpaid
balances; and collateralized mortgage obligation residuals.
56
<PAGE> 59
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined using the specific cost
identification method. Premiums and discounts on investments are amortized to
investment income using the interest method over the contractual lives of the
investments.
INTEREST RATE SWAP AGREEMENTS: The net differential to be paid or received
on interest rate swap agreements ("Swap Agreements") entered into to reduce the
impact of changes in interest rates is recognized over the lives of the
agreements, and such differential is classified as Interest Expense in the
income statement. All outstanding Swap Agreements are designated as hedges and,
therefore, are not marked to market. However, in the event that a hedged
asset/liability were to be sold or repaid before the related Swap Agreement
matures, the Swap Agreement would be marked to market and any gain/loss
classified with any gain/loss realized on the disposition of the hedged
asset/liability. Subsequently, the Swap Agreement would be marked to market and
the resulting change in fair value would be included in Investment Income in the
income statement. In the event that a Swap Agreement that is designated as a
hedge were to be terminated before its contractual maturity, any resulting
gain/loss would be credited/charged to the carrying value of the asset/liability
that it hedged.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, in relation to the incidence of estimated gross
profits to be realized over the estimated lives of the annuity contracts.
Estimated gross profits are composed of net interest income, net realized
investment gains and losses, variable annuity fees, surrender charges and direct
administrative expenses. Costs incurred to sell mutual funds are also deferred
and amortized over the estimated lives of the funds obtained. Deferred
acquisition costs consist of commissions and other costs that vary with, and are
primarily related to, the production or acquisition of new business.
As debt and equity securities available for sale are carried at aggregate
fair value, an adjustment is made to deferred acquisition costs equal to the
change in amortization that would have been recorded if such securities had been
sold at their stated aggregate fair value and the proceeds reinvested at current
yields. The change in this adjustment, net of tax, is included with the change
in net unrealized gains or losses on debt and equity securities available for
sale that is credited or charged directly to shareholder's equity. Deferred
Acquisition Costs have been decreased by $16,400,000 at September 30, 1997 and
increased by $4,200,000 at September 30, 1996 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated in
separate accounts. The Company receives administrative fees for managing the
funds and other fees for assuming mortality and certain expense risks. Such fees
are included in Variable Annuity Fees in the income statement.
GOODWILL: Goodwill, amounting to $18,311,000 at September 30, 1997, is
amortized by using the straight-line method over periods averaging 25 years and
is included in Other Assets in the balance sheet. Goodwill is evaluated for
impairment when events or changes in economic conditions indicate that the
carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
contracts and guaranteed investment contracts are accounted for as
investment-type contracts in accordance with Statement of Financial Accounting
Standards No. 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments," and are recorded at accumulated value (premiums received, plus
accrued interest, less withdrawals and assessed fees).
FEE INCOME: Variable annuity fees, asset management fees and surrender
charges are recorded in income as earned. Net retained commissions are
recognized as income on a trade-date basis.
57
<PAGE> 60
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES: The Company is included in the consolidated federal income
tax return of the Parent and files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Income taxes have been
calculated as if the Company filed a separate return. Deferred income tax assets
and liabilities are recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and liabilities using
enacted income tax rates and laws.
3. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by major category follow:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
-------------- --------------
<S> <C> <C>
AT SEPTEMBER 30, 1997:
Securities of the United States
Government.............................. $ 18,496,000 $ 18,962,000
Mortgage-backed securities................. 636,018,000 649,196,000
Securities of public utilities............. 22,792,000 22,893,000
Corporate bonds and notes.................. 984,573,000 1,012,559,000
Redeemable preferred stocks................ 6,125,000 6,681,000
Other debt securities...................... 274,481,000 275,903,000
-------------- --------------
Total available for sale................... $1,942,485,000 $1,986,194,000
============== ==============
AT SEPTEMBER 30, 1996:
Securities of the United States
Government.............................. $ 311,458,000 $ 304,538,000
Mortgage-backed securities................. 747,653,000 741,876,000
Securities of public utilities............. 3,684,000 3,672,000
Corporate bonds and notes.................. 590,071,000 591,148,000
Redeemable preferred stocks................ 9,064,000 8,664,000
Other debt securities...................... 339,094,000 337,373,000
-------------- --------------
Total available for sale................... $2,001,024,000 $1,987,271,000
============== ==============
</TABLE>
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by contractual maturity, as of September 30,
1997, follow:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
-------------- --------------
<S> <C> <C>
Due in one year or less...................... $ 19,067,000 $ 20,575,000
Due after one year through five years........ 277,350,000 281,296,000
Due after five years through ten years....... 631,083,000 650,242,000
Due after ten years.......................... 378,967,000 384,885,000
Mortgage-backed securities................... 636,018,000 649,196,000
-------------- --------------
Total available for sale..................... $1,942,485,000 $1,986,194,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above due to prepayments and redemptions.
58
<PAGE> 61
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
Gross unrealized gains and losses on bonds, notes and redeemable preferred
stocks available for sale by major category follow:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
GAINS LOSSES
----------- ------------
<S> <C> <C>
AT SEPTEMBER 30, 1997:
Securities of the United States Government..... $ 498,000 $ (32,000)
Mortgage-backed securities..................... 14,998,000 (1,820,000)
Securities of public utilities................. 141,000 (40,000)
Corporate bonds and notes...................... 28,691,000 (705,000)
Redeemable preferred stocks.................... 556,000 --
Other debt securities.......................... 1,569,000 (147,000)
----------- ------------
Total available for sale....................... $46,453,000 $ (2,744,000)
=========== ============
AT SEPTEMBER 30, 1996:
Securities of the United States Government..... $ 284,000 $ (7,204,000)
Mortgage-backed securities..................... 7,734,000 (13,511,000)
Securities of public utilities................. 1,000 (13,000)
Corporate bonds and notes...................... 11,709,000 (10,632,000)
Redeemable preferred stocks.................... 16,000 (416,000)
Other debt securities.......................... 431,000 (2,152,000)
----------- ------------
Total available for sale....................... $20,175,000 $(33,928,000)
=========== ============
</TABLE>
At September 30, 1997, gross unrealized gains on equity securities
available for sale aggregated $1,004,000 and there were no unrealized losses. At
September 30, 1996, gross unrealized gains on equity securities available for
sale aggregated $1,368,000 and gross unrealized losses aggregated $309,000.
59
<PAGE> 62
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
Gross realized investment gains and losses on sales of investments are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
BONDS, NOTES AND REDEEMABLE
PREFERRED STOCKS:
Available for sale:
Realized gains............................... $ 22,179,000 $ 14,532,000 $ 15,983,000
Realized losses.............................. (25,310,000) (10,432,000) (21,842,000)
Held for investment:
Realized gains............................... -- -- 2,413,000
Realized losses.............................. -- -- (586,000)
COMMON STOCKS:
Realized gains.................................. 4,002,000 511,000 994,000
Realized losses................................. (312,000) (3,151,000) (114,000)
OTHER INVESTMENTS:
Realized gains.................................. 2,450,000 1,135,000 3,561,000
Realized losses................................. -- -- (12,000)
IMPAIRMENT WRITEDOWNS............................. (20,403,000) (15,950,000) (4,760,000)
------------ ------------ ------------
Total net realized investment losses.............. $(17,394,000) $(13,355,000) $ (4,363,000)
============ ============ ============
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Short-term investments............................ $ 11,780,000 $ 10,647,000 $ 8,308,000
Bonds, notes and redeemable preferred stocks...... 163,038,000 140,387,000 107,643,000
Mortgage loans.................................... 17,632,000 8,701,000 7,419,000
Common stocks..................................... 16,000 8,000 3,000
Real estate....................................... (296,000) (196,000) (51,000)
Limited partnerships.............................. 6,725,000 4,073,000 5,128,000
Other invested assets............................. 11,864,000 1,011,000 1,016,000
------------ ------------ ------------
Total investment income......................... $210,759,000 $164,631,000 $129,466,000
============ ============ ============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to $2,050,000
for the year ended September 30, 1997, $1,737,000 for the year ended September
30, 1996, and $1,983,000 for the year ended September 30, 1995 and are included
in General and Administrative Expenses in the income statement.
At September 30, 1997, no investment exceeded 10% of the Company's
consolidated shareholder's equity.
At September 30, 1997, mortgage loans were collateralized by properties
located in 21 states, with loans totaling approximately 13% of the aggregate
carrying value of the portfolio secured by properties located in New York and
approximately 12% by properties located in California. No more than 10% of the
portfolio was secured by properties in any other single state.
60
<PAGE> 63
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
At September 30, 1997, bonds, notes and redeemable preferred stocks
included $216,877,000 (fair value of $227,169,000) of bonds and notes not rated
investment grade. The Company had no material concentrations of
noninvestment-grade assets at September 30, 1997.
At September 30, 1997, the amortized cost of investments in default as to
the payment of principal or interest was $1,378,000, consisting of $500,000 of
non-investment-grade bonds and $878,000 of mortgage loans. Such nonperforming
investments had an estimated fair value of $1,378,000.
As a component of its asset and liability management strategy, the Company
utilizes Swap Agreements to match assets more closely to liabilities. Swap
Agreements are agreements to exchange with a counterparty interest rate payments
of differing character (for example, variable-rate payments exchanged for
fixed-rate payments) based on an underlying principal balance (notional
principal) to hedge against interest rate changes. The Company typically
utilizes Swap Agreements to create a hedge that effectively converts
floating-rate assets and liabilities to fixed-rate instruments. At September 30,
1997, the Company had one outstanding Swap Agreement with a notional principal
amount of $15.9 million, which matures in December, 2024. The net interest paid
amounted to $0.1 million for the year ended September 30, 1997, and is included
in Interest Expense on Guaranteed Investment Contracts in the income statement.
At September 30, 1997, $5,276,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory requirements.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to reasonable
estimates of the fair value of only the Company's financial instruments. The
disclosures do not address the value of the Company's recognized and
unrecognized nonfinancial assets (including its real estate investments and
other invested assets except for cost-method partnerships) and liabilities or
the value of anticipated future business. The Company does not plan to sell most
of its assets or settle most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Selling expenses and potential taxes
are not included. The estimated fair value amounts were determined using
available market information, current pricing information and various valuation
methodologies. If quoted market prices were not readily available for a
financial instrument, management determined an estimated fair value.
Accordingly, the estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market transaction.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND SHORT TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based
principally on independent pricing services, broker quotes and other independent
information.
MORTGAGE LOANS: Fair values are primarily determined by discounting future
cash flows to the present at current market rates, using expected prepayment
rates.
61
<PAGE> 64
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
COMMON STOCKS: Fair value is based principally on independent pricing
services, broker quotes and other independent information.
COST-METHOD PARTNERSHIPS: Fair value of limited partnerships accounted for
by using the cost method is based upon the fair value of the net assets of the
partnerships as determined by the general partners.
VARIABLE ANNUITY ASSETS: Variable annuity assets are carried at the market
value of the underlying securities.
RECEIVABLE FROM (PAYABLE TO) BROKERS FOR SALES (PURCHASES) OF
SECURITIES: Such obligations represent net transactions of a short-term nature
for which the carrying value is considered a reasonable estimate of fair value.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts and single
premium life contracts are assigned a fair value equal to current net surrender
value. Annuitized contracts are valued based on the present value of future cash
flows at current pricing rates.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the
present value of future cash flows at current pricing rates and is net of the
estimated fair value of hedging Swap Agreements, determined from independent
broker quotes.
VARIABLE ANNUITY LIABILITIES: Fair values of contracts in the accumulation
phase are based on net surrender values. Fair values of contracts in the payout
phase are based on the present value of future cash flows at assumed investment
rates.
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on the
quoted market prices for similar issues.
62
<PAGE> 65
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments at
September 30, 1997 and 1996, compared with their respective carrying values, are
as follows:
<TABLE>
<CAPTION>
CARRYING
VALUE FAIR VALUE
-------------- --------------
<S> <C> <C>
1997:
ASSETS:
Cash and short-term investments........ $ 113,580,000 $ 113,580,000
Bonds, notes and redeemable preferred
stocks.............................. 1,986,194,000 1,986,194,000
Mortgage loans......................... 339,530,000 354,495,000
Common stocks.......................... 1,275,000 1,275,000
Cost-method partnerships............... 46,880,000 84,186,000
Variable annuity assets................ 9,343,200,000 9,343,200,000
LIABILITIES:
Reserves for fixed annuity contracts... 2,098,803,000 2,026,258,000
Reserves for guaranteed investment
contracts........................... 295,175,000 295,175,000
Payable to brokers for purchases of
securities.......................... 263,000 263,000
Variable annuity liabilities........... 9,343,200,000 9,077,200,000
Subordinated notes payable to Parent... 36,240,000 37,393,000
============== ==============
1996:
ASSETS:
Cash and short-term investments........ $ 122,058,000 $ 122,058,000
Bonds, notes and redeemable preferred
stocks.............................. 1,987,271,000 1,987,271,000
Mortgage loans......................... 98,284,000 102,112,000
Common stocks.......................... 3,970,000 3,970,000
Cost-method partnerships............... 45,070,000 70,553,000
Receivable from brokers for sales of
securities.......................... 52,348,000 52,348,000
Variable annuity assets................ 6,311,557,000 6,311,557,000
LIABILITIES:
Reserves for fixed annuity contracts... 1,789,962,000 1,738,784,000
Reserves for guaranteed investment
contracts........................... 415,544,000 416,695,000
Variable annuity liabilities........... 6,311,557,000 6,117,508,000
Subordinated notes payable to Parent... 35,832,000 37,339,000
============== ==============
</TABLE>
5. SUBORDINATED NOTES PAYABLE TO PARENT
Subordinated notes payable to Parent equalled $36,240,000 at an interest
rate of 9% at September 30, 1997 and require principal payments of $7,500,000 in
1998, $23,060,000 in 1999 and $5,400,000 in 2000.
63
<PAGE> 66
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. CONTINGENT LIABILITIES
The Company has entered into three agreements in which it has provided
liquidity support for certain short-term securities of three municipalities by
agreeing to purchase such securities in the event there is no other buyer in the
short-term marketplace. In return the Company receives a fee. The maximum
liability under these guarantees is $242,600,000. Management does not anticipate
any material future losses with respect to these liquidity support facilities.
The Company is involved in various kinds of litigation common to its
businesses. These cases are in various stages of development and, based on
reports of counsel, management believes that provisions made for potential
losses relating to such litigation are adequate and any further liabilities and
costs will not have a material adverse impact upon the Company's financial
position or results of operations.
7. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value
Common Stock. At September 30, 1997 and 1996, 3,511 shares were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balance......... $280,263,000 $252,876,000 $252,876,000
Capital contributions
received............... 28,411,000 27,387,000 --
----------- ----------- -----------
Ending balance............ $308,674,000 $280,263,000 $252,876,000
=========== =========== ===========
RETAINED EARNINGS:
Beginning balance......... 207,002,000 191,346,000 152,088,000
Net income................ 63,126,000 45,056,000 39,258,000
Dividend paid............. (25,500,000) (29,400,000) --
----------- ----------- -----------
Ending balance............ $244,628,000 $207,002,000 $191,346,000
=========== =========== ===========
NET UNREALIZED GAINS/LOSSES
ON DEBT AND EQUITY
SECURITIES AVAILABLE FOR
SALE:
Beginning balance......... $ (5,521,000) $ (5,673,000) $(24,953,000)
Change in net unrealized
gains/losses on debt
securities available
for sale............... 57,463,000 (2,904,000) 71,302,000
Change in net unrealized
gains/losses on equity
securities available
for sale............... (55,000) 3,538,000 (1,240,000)
Change in adjustment to
deferred acquisition
costs.................. (20,600,000) (400,000) (40,400,000)
Tax effects of net
changes................ (12,882,000) (82,000) (10,382,000)
----------- ----------- -----------
Ending balance............ $ 18,405,000 $ (5,521,000) $ (5,673,000)
=========== =========== ===========
</TABLE>
Dividends that the Company may pay to its shareholder in any year without
prior approval of the Arizona Department of Insurance are limited by statute.
The maximum amount of dividends which
64
<PAGE> 67
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. SHAREHOLDER'S EQUITY (CONTINUED)
can be paid to shareholders of insurance companies domiciled in the state of
Arizona without obtaining the prior approval of the Insurance Commissioner is
limited to the lesser of either 10% of the preceding year's statutory surplus or
the preceding year's statutory net gain from operations. Dividends in the
amounts of $25,500,000 and $29,400,000 were paid on April 1, 1997 and March 18,
1996, respectively. No dividends were paid in fiscal year 1995.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the nine months ended
September 30, 1997 was $45,743,000. The statutory net income for the year ended
December 31, 1996 was $27,928,000 and for the year ended December 31, 1995 was
$30,673,000. The Company's statutory capital and surplus was $325,712,000 at
September 30, 1997, $311,176,000 at December 31, 1996 and $294,767,000 at
December 31, 1995.
8. INCOME TAXES
The components of the provisions for federal income taxes on pretax income
consist of the following:
<TABLE>
<CAPTION>
NET REALIZED
INVESTMENT
GAINS (LOSSES) OPERATIONS TOTAL
-------------- ------------ ------------
<S> <C> <C> <C>
1997:
Currently payable................. $ (3,635,000) $ 50,828,000 $ 47,193,000
Deferred.......................... (2,258,000) (13,766,000) (16,024,000)
------------ ------------ ------------
Total income tax
expense............... $ (5,893,000) $ 37,062,000 $ 31,169,000
============ ============ ============
1996:
Currently payable................. $ 5,754,000 $ 21,849,000 $ 27,603,000
Deferred.......................... (10,347,000) 6,996,000 (3,351,000)
------------ ------------ ------------
Total income tax
expense............... $ (4,593,000) $ 28,845,000 $ 24,252,000
============ ============ ============
1995:
Currently payable................. $ 4,248,000 $ 22,980,000 $ 27,228,000
Deferred.......................... (6,113,000) 4,624,000 (1,489,000)
------------ ------------ ------------
Total income tax
expense............... $ (1,865,000) $ 27,604,000 $ 25,739,000
============ ============ ============
</TABLE>
65
<PAGE> 68
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (CONTINUED)
Income taxes computed at the United States federal income tax rate of 35%
and income taxes provided differ as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Amount computed at statutory
rate........................... $33,003,000 $24,258,000 $22,749,000
Increases (decreases) resulting
from:
Amortization of differences
between book and tax bases
of net assets acquired...... 666,000 464,000 3,049,000
State income taxes, net of
federal tax benefit......... 1,950,000 2,070,000 437,000
Dividends-received deduction... (4,270,000) (2,357,000) --
Tax credits.................... (318,000) (257,000) (168,000)
Other, net..................... 138,000 74,000 (328,000)
----------- ----------- -----------
Total income tax
expense.............. $31,169,000 $24,252,000 $25,739,000
=========== =========== ===========
</TABLE>
For United States federal income tax purposes, certain amounts from life
insurance operations are accumulated in a memorandum policyholders' surplus
account and are taxed only when distributed to shareholders or when such account
exceeds prescribed limits. The accumulated policyholders' surplus was
$14,300,000 at September 30, 1997. The Company does not anticipate any
transactions which would cause any part of this surplus to be taxable.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. The significant
components of the liability for Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1997 1996
------------- ------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Investments.................................... $ 13,160,000 $ 15,036,000
Deferred acquisition costs..................... 154,949,000 136,747,000
State income taxes............................. 1,777,000 1,466,000
Net unrealized gains on debt and equity
securities available for sale................ 9,910,000 --
------------- ------------
Total deferred tax liabilities....... 179,796,000 153,249,000
------------- ------------
DEFERRED TAX ASSETS:
Contractholder reserves........................ (108,090,000) (77,522,000)
Guaranty fund assessments...................... (2,707,000) (1,031,000)
Other assets................................... (1,952,000) (1,534,000)
Net unrealized losses on debt and equity
securities available for sale................ -- (2,973,000)
------------- ------------
Total deferred tax assets............ (112,749,000) (83,060,000)
------------- ------------
Deferred income taxes.......................... $ 67,047,000 $ 70,189,000
============= ============
</TABLE>
66
<PAGE> 69
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. RELATED PARTY MATTERS
The Company pays commissions to two affiliated companies, SunAmerica
Securities, Inc. and Advantage Capital Corp. Commissions paid to these
broker-dealers totaled $25,492,000 in 1997, $16,906,000 in 1996, and $9,435,000
in 1995. These broker-dealers, when combined with the Company's wholly owned
broker-dealer, represent a significant portion of the Company's business,
amounting to approximately 36.1%, 38.3%, and 40.6% of premiums in 1997, 1996,
and 1995, respectively. The Company also sells its products through unaffiliated
broker-dealers, the largest two of which represented approximately 19.2% and
10.1% of premiums in 1997, 19.7% and 10.2% in 1996, and 18.8% and 4.3% in 1995,
respectively.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from SunAmerica Financial, Inc., whose
purpose is to provide services to the SunAmerica companies. Amounts paid for
such services totaled $86,116,000 for the year ended September 30, 1997,
$65,351,000 for the year ended September 30, 1996 and $42,083,000 for the year
ended September 30, 1995. Such amounts are included in General and
Administrative Expenses in the income statement.
The Parent made capital contributions of $28,411,000 in December, 1996 and
$27,387,000 in December 1995 to the Company, through the Company's direct
parent, in exchange for the termination of its guaranty with respect to certain
real estate owned in Arizona. Accordingly, the Company reduced the carrying
value of this real estate to estimated fair value to reflect the termination of
the guaranty.
During the year ended September 30, 1995, the Company sold to the Parent
real estate for cash equal to its carrying value of $29,761,000.
During the year ended September 30, 1997, the Company sold various invested
assets to SunAmerica Life Insurance Company and to CalAmerica Life Insurance
Company for cash equal to their current market values of $15,776,000 and
$15,000, respectively. The Company recorded net gains aggregating $276,000 on
such transactions.
During the year ended September 30, 1997, the Company also purchased
certain invested assets from SunAmerica Life Insurance Company and from
CalAmerica Life Insurance Company for cash equal to their current market values
of $8,717,000 and $284,000, respectively.
During the year ended September 30, 1996, the Company sold various invested
assets to the Parent and to SunAmerica Life Insurance Company for cash equal to
their current market values of $274,000 and $47,321,000, respectively. The
Company recorded net losses aggregating $3,000 on such transactions.
During the year ended September 30, 1996, the Company also purchased
certain invested assets from SunAmerica Life Insurance Company for cash equal to
their current market values, which aggregated $28,379,000.
67
<PAGE> 70
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
TOTAL
DEPRECIATION
AND
TOTAL AMORTIZATION PRETAX TOTAL
REVENUES EXPENSE INCOME ASSETS
------------ ------------ ----------- ---------------
<S> <C> <C> <C> <C>
1997:
Annuity operations................ $332,845,000 $55,675,000 $74,792,000 $12,438,021,000
Broker-dealer operations.......... 38,005,000 689,000 16,705,000 51,400,000
Asset management.................. 35,661,000 16,357,000 2,798,000 81,518,000
------------ ----------- ----------- ---------------
Total................... $406,511,000 $72,721,000 $94,295,000 $12,570,939,000
============ =========== =========== ===============
1996:
Annuity operations................ $256,681,000 $43,974,000 $53,827,000 $ 9,092,770,000
Broker-dealer operations.......... 31,053,000 449,000 13,033,000 37,355,000
Asset management.................. 33,047,000 18,295,000 2,448,000 74,410,000
------------ ----------- ----------- ---------------
Total................... $320,781,000 $62,718,000 $69,308,000 $ 9,204,535,000
============ =========== =========== ===============
1995:
Annuity operations................ $211,587,000 $38,350,000 $55,462,000 $ 7,667,946,000
Broker-dealer operations.......... 24,194,000 411,000 9,025,000 29,241,000
Asset management.................. 34,427,000 24,069,000 510,000 86,510,000
------------ ----------- ----------- ---------------
Total................... $270,208,000 $62,830,000 $64,997,000 $ 7,783,697,000
============ =========== =========== ===============
</TABLE>
68
<PAGE> 71
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 a 5% Withdrawal Charge applicable during the 3rd Contribution
Year.
(3) The amount of the Withdrawal Charge is .05 X $10,000 = $500.
(4) The Contract Administration Charge is deducted from the full
surrender amount. The amount of the full surrender is
$12,000 - $500 - $30 = $11,470.
EXAMPLE B -- PARTIAL WITHDRAWAL (IN THE AMOUNT OF $3,000):
(1) For the same reasons as given in Steps 1 and 2 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 (5%).
(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 - .05) = 0.95, less the amount required to complete the
partial withdrawal.
Withdrawal Charge = ($1,000/0.95) - $1,000
= $52.63
In this example, in order for the Owner to receive the amount requested
($3,000), a gross withdrawal of $3,052.63 must be processed with $52.63
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 3rd
Contribution Year;
A-1
<PAGE> 72
(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.
(4) The Contract Administration Charge is deducted from the full
surrender amount. The amount of the full surrender is
$19,500 - $1,000 - $30 = $18,470.
PART 2 -- GENERAL ACCOUNT -- EXAMPLES OF THE MARKET VALUE ADJUSTMENT (MVA)
The Market Value Adjustment Factor is reproduced here for convenience:
N/12
[(1 + I)/(1 + J + 0.005)] -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 7.25% (.0725);
(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 $16,632.69; and
(4) no transfers, additional Purchase Payments, or other withdrawals
have been made.
The Guarantee Amount of $16,632.69 reflects deductions for Contract
Administration Charges at each anniversary. Since the withdrawal is effected in
the Purchase Payment's 8th Contribution Year, no Withdrawal Charge is
applicable.
A-2
<PAGE> 73
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 8.25%:
N/12
The MVA factor = [(1 + I)/(1 + J + .005)] -1
(30/12)
= [(1.0725)/(1.0825 + .005)] -1
2.5
= (0.986207) -1
= 0.965873 -1
= -0.034127
The requested withdrawal amount is multiplied by the MVA factor to
determine the MVA:
MVA = $4,000 X (-0.034127) = -$136.51
$136.51 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 6.25%:
N/12
The MVA factor = [(1 + I)/(1 + J + .005)] -1
(30/12)
= [(1.0725)/(1.0625 +.005)] -1
2.5
= (1.004684) -1
= 1.011751 -1
= 0.011751
The requested withdrawal amount is multiplied by the MVA factor to
determine the MVA:
$4,000 X 0.011751 = +$47.00
$47.00 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 $14,515.97. 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 is 3% or
$300.
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 8.25%:
N/12
The MVA factor = [(1 + I)/(1 + J + .005)] -1
(54/12)
= [(1.0725)/(1.0825 + .005)] -1
4.5
= (0.986207) -1
= 0.939412 -1
= -0.060588
The Withdrawal Charge of $300 is applied first; the MVA factor is
applied against the remaining Guarantee Amount:
MVA = ($14,515.97 - $300 - $30) X (-0.060588) = -$859.50
A-3
<PAGE> 74
The net amount available upon withdrawal is the Guarantee Amount
reduced by the Withdrawal Charge, the MVA and the Contract Administration
Charge:
$14,515.97 - $300 - $859.50 - $30 = $13,326.47
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 6.25%:
N/12
The MVA factor = [(1 + I)/(1 + J + .005)] -1
(54/12)
= [(1.0725)/(1.0625 + .005)] -1
4.5
= (1.004684) -1
= 1.021251 -1
= +0.021251
The MVA is:
($14,515.97 - $300 - $30) X (+0.021251) = +$301.46
And the net amount available upon surrender is:
$14,515.97 - $300 + $301.46 - $30 = $14,487.43
A-4
<PAGE> 75
<TABLE>
<S> <C> <C>
==============================
- ------------------------------ Stamp
</TABLE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
ANNUITY SERVICE CENTER
P.O. BOX 54299
LOS ANGELES, CA 90054-0299
<PAGE> 76
Please forward a copy, without charge, of the Statement of Additional
Information concerning the Vista Capital Advantage issued by Anchor National
Life Insurance Company to:
(Please print or type and fill in all information.)
- ------------------------------------------------------------------------------
Name
- ------------------------------------------------------------------------------
Address
- ------------------------------------------------------------------------------
City/State/Zip
- ------------------------------------------------------------------------------
Date: ________________________ Signed:
<PAGE> 77
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.
-------------------------------------------
Exhibit No. Description
(1) Underwriting Agreement*
(2) Plan of Acquisition, Reorganization,
Arrangement, Liquidation or Succession**
(3) (a) Articles of Incorporation*
(b) By-Laws*
(4) (a) Vista Capital Advantage
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**
(28) Information Reports Furnished to State
Insurance Regulatory Authority**
(29) Other Exhibits**
(27) Financial Data Schedule*
Financial Statements*
* Herewith
** Not Applicable
*** Previously Filed
<PAGE> 78
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> 79
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 19th
day of December, 1997.
By: ANCHOR NATIONAL LIFE INSURANCE COMPANY
By: /s/ JAY S. WINTROB
-----------------------------------------
Jay S. Wintrob
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
JAMES W. ROWAN* Director
- ---------------------
James W. Rowan
JOSEPH M. TUMBLER* Director
- ---------------------
Joseph M. Tumbler
JAY S. WINTROB* Director
- ---------------------
Jay S. Wintrob
/s/ SUSAN L. HARRIS Director December 19, 1997
- ---------------------
Susan L. Harris
PETER McMILLAN* Director
- ----------------------
Peter McMillan
*By: /s/ SUSAN L. HARRIS Attorney-in-Fact
--------------------
Susan L. Harris
Date: December 19, 1997
</TABLE>
<PAGE> 80
EXHIBIT INDEX
Number Description
- ------ -----------
(1) Underwriting Agreement
(3) (a) Articles of Incorporation
(b) By-Laws
(4) (a) Vista Capital Advantage Fixed and Variable Contract
(b) Application for Contract
(5) Opinion of Counsel re: Legality
(included in Exhibit 23(b))
(21) Subsidiaries of Registrant
(23) (a) Consent of Independent Accountants
(b) Consent of Attorney
(27) Financial Data Schedule
<PAGE> 1
DISTRIBUTION AGREEMENT
THIS AGREEMENT, entered into as of this 28th day of February, 1995, is
among ANCHOR NATIONAL LIFE INSURANCE COMPANY ("Anchor"), a life insurance
company organized under the laws of the State of California, on behalf of itself
and VARIABLE ANNUITY ACCOUNT TWO ("Separate Account"), a separate account
established by Anchor pursuant to the insurance laws of the State of California,
and VISTA BROKER-DEALER SERVICES ("Distributor"), a corporation organized under
the laws of the State of Maryland.
WITNESSETH:
WHEREAS, Anchor intends to issue certain flexible payment deferred annuity
contracts under the name "Vista Capital Advantage" (the "Contracts") which will
permit allocation of premium payments and contract value to the Separate Account
and/or Anchor's general account ("Fixed Account Options"); and
WHEREAS, Anchor, by resolution adopted on May 24, 1994, established the
Separate Account on its books of account, for the purpose of supporting variable
benefits under the Contracts; and
WHEREAS, the Separate Account will invest in an investment company
("Trust") which will be managed by The Chase Manhattan Bank, NA ("Chase");
WHEREAS, the Separate Account has been registered with the Securities and
Exchange Commission ("Commission") as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act") (File No. 811-8626); and
WHEREAS, two registration statements for the Contracts, one on Form N-4
relating to the Separate Account and one on Form S-1 relating to the Fixed
Account Options (collectively, the "Registration Statements"), have been filed
with the Commission under the Securities Act of 1933 (the "1933 Act") (File Nos.
33-81472 and 33-81476, respectively); and
WHEREAS, the two Registration Statements include the same prospectus, and
the same definitive form of the prospectus will be used from time to time to
offer both the Separate Account and the Fixed Account Options under the
Contracts (herein, the "Prospectus"); and
WHEREAS, the Distributor, a broker-dealer registered under the Securities
Exchange Act of 1934 (the "1934 Act") and a member of the National Association
of Securities Dealers, Inc. ("NASD"), proposes to act as distributor on an
agency basis in the marketing and distribution of the Contracts;
NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and conditions set forth herein, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, Anchor, the Separate
Account and Distributor hereby agree as follows:
1. Authorization of Distributor
(a) The Distributor will serve as distributor on an agency basis for
the Contracts. This authorization is exclusive until this Agreement is
terminated or the authorization is otherwise terminated pursuant to an amendment
hereto. The Distributor represents that it will actively engage in its duties
under this Agreement on a continuous basis while the Registration Statements (or
any other registration statements filed and declared effective in lieu thereof)
for the Contracts are effective, consistent with its business and relationship
with Chase pursuant to the Omnibus Agreement described in Section 14 hereof, and
subject to applicable material market and regulatory conditions and any other
restrictions that may become applicable to its activities. Anchor reserves the
right at any time to suspend or limit the public offering of the Contracts, upon
written notice to Distributor.
(b) It is understood that Distributor has no present intention of
engaging in sales of the Contracts on a retail basis (although it reserves the
right to do so), and intends to restrict its distribution activities to
wholesaling activities, and in that regard will recruit and recommend for
appointment by Anchor duly registered broker-dealers and licensed insurance
agents (together, "Selling Broker-Dealers") to sell the Contracts on a retail
<PAGE> 2
basis directly to purchasers, subject to the provisions of this Agreement and a
selling agreement to be entered into between Anchor, Distributor and such
Selling Broker-Dealer. Distributor will provide information and marketing
assistance to Selling Broker-Dealers. Distributor shall use its reasonable best
efforts to enter into selling agreements for the Contracts with those persons
currently selling the Vista family of mutual funds.
(c) For so long as the Contracts are still being publicly offered,
Anchor will use its reasonable best efforts to assure that the Contracts are
continuously registered under the 1933 Act and, should it ever be required,
under state securities laws, and will use reasonable efforts to ensure that the
Contracts are approved under state insurance laws when and where necessary so
that the Contracts may be offered continuously in all states other than New
York. Attached hereto as Exhibit A is a list of all states in which approvals of
the Contracts have been obtained and/or in which the Contracts are cleared for
sale as of the effective date of this Agreement. Anchor shall update this list
from time to time to reflect changes therein, and shall inform Distributor of
such changes, as appropriate. Anchor shall provide internal marketing support
for Distributor's wholesaling efforts appropriate for the Contracts, including
providing wholesaler training, advanced markets and retirement plan support,
sales ideas, competitive information and other market research, and illustrative
software.
2. Authorization of Selling Broker-Dealers
Anchor and the Distributor shall enter into selling agreements
("Selling Agreements") with Selling Broker-Dealers, which shall be
broker-dealers registered under the 1934 Act and authorized by applicable state
insurance law to sell variable annuity contracts. Selling Agreements shall
contain the written representations of Selling Broker-Dealers that all
individuals who offer and sell the Contracts pursuant to the Selling Agreements
on behalf of such Selling Broker-Dealers are duly registered representatives of
such Broker-Dealers and are fully licensed as insurance agents under applicable
state insurance laws. Anchor alone shall be responsible for appointing Selling
Broker-Dealers and all persons selling the Contracts on their behalf in
accordance with applicable state insurance law, it being understood that Anchor
may refuse to appoint a person or to pay appointment fees with respect to the
appointment of a person, to the extent consistent with Anchor's internal
policies applicable to all persons selling its products. Distributor shall have
no responsibility in this regard. Anchor alone shall be responsible for
communicating to all Selling Broker- Dealers and their personnel all policies
and procedures applicable to them as such appointed agents of Anchor.
3. Distributor's Compliance with Applicable Law
Distributor shall be responsible for its compliance, in connection with
its duties as distributor of the Contracts under this Agreement, with the
requirements of: (a) the 1934 Act; (b) any state securities laws to the extent
broker-dealer registration requirements imposed thereby are applicable to it in
performing such duties; (c) NASD filing requirements with respect to any
advertisements and sales literature for the Contracts, regardless of which
person prepared such material; and (d) all applicable state insurance laws and
regulations relating to licensed insurance agents, it being understood that a
person associated with Distributor, rather than Distributor itself may hold a
corporate insurance agent's license in certain states in which the performance
of such duties requires an insurance agent's license. Without limiting the
foregoing, Distributor shall be responsible for ensuring that all individuals
associated with Distributor who are offering and selling the Contracts on its
behalf are licensed as insurance agents under applicable state insurance laws.
Anchor shall appoint and maintain the appointment of Distributor as necessary or
appropriate for Distributor to engage in the offer and sale of the Contracts
during the term of this Agreement, and in that regard shall appoint any
individuals associated with Distributor and designated by Distributor as agents
acting on its behalf, provided, however, that Anchor reserves the right to
refuse to appoint any such person, consistent with its duties and
responsibilities under applicable insurance law. Anchor shall be responsible for
the payment of a fees and the making of all filings required to effect such
appointments during the term of this Agreement. Distributor shall conduct its
affairs in accordance with the Rules of Fair Practice of the NASD.
<PAGE> 3
4. Representations and Warranties
(a) Anchor represents and warrants to Distributor on the effective date
of this Agreement that:
(i) Anchor is validly existing as a corporation in good standing
under the laws of the state of California with power (corporate or otherwise) to
own its properties and conduct its business in the manner described in the
Registration Statements, is duly qualified to transact the business of a life
insurance company and to issue variable annuity products, and is in good
standing, in each state other than New York.
(ii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action by Anchor, and when so executed and
delivered this Agreement shall be the valid and binding obligation of Anchor
enforceable in accordance with its terms.
(iii) Consummation of the transactions contemplated by this
Agreement, and the fulfillment of the terms of this Agreement, will not conflict
with, result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time) a default under, the articles of
incorporation or bylaws of Anchor, or any indenture, agreement, mortgage, deed
of trust, or other instrument to which Anchor is a party or by which it is
bound, or violate any law, or, to the best of Anchor's knowledge, any order,
rule or regulation applicable to Anchor of any court or of any federal or State
regulatory body, administrative agency or any other governmental instrumentality
having jurisdiction over Anchor or any of its properties.
(b) Anchor further represents and warrants to Distributor, on the
effective date of each Registration Statement for the Contracts, that:
(1) Anchor has filed with the Commission all statements, notices,
and other documents required for registration of the Contracts, the Separate
Account and the Fixed Account Option under the provisions of the 1933 Act and
the 1940 Act and regulations thereunder, and, in particular, but not by way of
limitation, has filed as exhibits thereto, all contracts or documents of Anchor
relating to the Contracts or the Separate Account or Fixed Account Option which
are required to be filed as exhibits thereto by the 1933 Act or the 1940 Act or
regulations thereunder. Notwithstanding the foregoing, the parties recognize
that this Agreement, in the form in which it is executed, has not been filed
with the Registration Statement (an earlier form having been so filed) and it is
the intention of Anchor to file a form of this Agreement with the first
post-effective amendment to the Registration Statement.
(2) Anchor has obtained all necessary orders of exemption or
approval from the Commission to permit the distribution of the Contracts
pursuant to this Agreement and to permit the establishment and operation of the
Separate Account as contemplated in the Registration Statements, and such orders
apply to Distributor, as principal underwriter for the Contracts and for the
Separate Account.
(3) Each Registration Statement has been declared effective by the
Commission or has become effective in accordance with applicable regulations.
Anchor has not received any notice from the Commission with respect to either
Registration Statement pursuant to Section 8(e) of the 1940 Act, and no stop
order under the 1933 Act has been issued, and no proceeding therefor has been
instituted or threatened by the Commission.
(4) Each Registration Statement complies in all material respects
with applicable provisions of the 1933 Act and the 1940 Act and regulations
thereunder, and no Registration Statement contains an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, in light of the
circumstances in which they were made; provided, however, that none of the
representations and warranties in this Section 5 shall apply to statements or
omissions from a Registration Statement made in reliance upon and in conformity
with information furnished to Anchor by Distributor expressly for use therein.
<PAGE> 4
(5) The Contracts have been duly and validly authorized and, when
issued and delivered against payment therefor, will be duly and validly issued
and will conform in all material respects to the description of such Contracts
in the Registration Statement.
(6) The Separate Account has been duly established by Anchor and
conforms to the description thereof in the Registration Statement.
(7) The form of the Contracts have been duly approved to the
extent required by the California insurance commission and by the insurance
commission, agency or other governmental body charged with the regulation of
insurance (herein, "insurance commission") in every state identified in Exhibit
A or otherwise have been cleared for the sale of the Contracts in such state.
(8) The Contracts and the Separate Account have been duly
registered with each state securities commission, agency or other governmental
body charged with the regulation of securities (herein, "securities commission")
to the extent required by such state, except where failure to effect such
registration would not have a material adverse effect on the marketing of the
Contracts.
(9) No other consent, approval, authorization or order of any
court or governmental authority or agency is required for the issuance or sale
of the Contracts, the establishment or operation of the Separate Account, or for
the consummation of the transactions contemplated by this Agreement, that has
not been obtained, except where the failure to obtain such consent, approval or
authorization would not have a material adverse effect on the marketing of the
Contracts.
(c) Distributor represents and warrants to Anchor that:
(1) Distributor is validly existing as a corporation in good
standing under the laws of the State of Maryland, with power (corporate or
other) to own its properties and conduct its business as a broker-dealer in
securities and has been duly qualified for the transaction of such business and
is in good standing under the laws of each other jurisdiction in which it owns
or leases properties, or conducts any business, so as to require such
qualification;
(2) Distributor is registered as a broker-dealer with all federal
and state authorities with which such registration is required to carry out its
obligations as contemplated by this Agreement, and either Distributor or an
associated person thereof is licensed as an insurance agent with all state
authorities with whom such licensing is required for Distributor to carry out
its obligations as contemplated by this Agreement;
(3) The execution and delivery of this Agreement and the
consumption of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action by Distributor, and when so
executed and delivered, this Agreement shall be the valid and binding obligation
of Distributor enforceable in accordance with its terms.
(4) Consummation of the transactions contemplated by this
Agreement, and the fulfillment of the terms of this Agreement, will not conflict
with, result in any breach of any of the terms or provisions of or constitute
(with or without notice or lapse of time) a default under, the articles of
incorporation or by-laws of Distributor, or any indenture, agreement, mortgage,
deed of trust, or other instrument to which Distributor is a party or by which
Distributor is bound, or violate any law, or, to the best of Distributor's
knowledge, any order, rule or regulation applicable to Distributor of any court
or of any federal or State regulatory body, administrative agency or any other
governmental instrumentality having jurisdiction over Distributor or any of its
properties; and
(5) There are no material legal or governmental proceedings
pending to which Distributor is a party or of which any property of Distributor
is the subject which, if determined adversely to Distributor, would individually
or in the aggregate have a material adverse effect on the financial position,
surplus or operations of Distributor.
<PAGE> 5
(6) To the extent that any statements or omissions made in any
Registration Statement for the Contracts, or any amendment or supplement
thereto, are made in reliance upon and in conformity with information furnished
to Anchor by Distributor expressly for use therein, such information shall
conform in all material respects to the requirements of the Act and the rules
and regulations of the Commission thereunder and, with respect to the
presentation of such information, will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
5. Undertakings of Anchor
(a) For so long as the Contracts are being publicly offered, Anchor
shall use its best efforts to maintain the registration of the Contracts, the
Fixed Account Option and the Separate Account with the Commission and to
maintain any registrations and approvals of the Contracts, the Fixed Account
Option and the Separate Account with any securities or insurance commission or
agency of any state whose securities or insurance laws require registration or
approval of the Contracts, the Fixed Account Option or the Separate Account for
purposes of the distribution contemplated by this Agreement (except where
failure to effect or maintain such registration with a state would not have a
material adverse effect on the marketing of the Contracts), such efforts to
include, without limitation, best efforts to prevent a stop order from being
issued by the Commission or any such state commission or, if a stop order has
been issued, to cause such stop order to be withdrawn.
(b) Anchor shall take all action required to cause the Separate Account
to comply, and to continue to comply, with the provisions of the 1940 Act and
regulations and exemptions thereunder applicable to the Separate Account as a
registered investment company classified as a unit investment trust and a
separate account under the 1940 Act, and shall not take any action unilaterally,
in its capacity as depositor for the Separate Account, that would cause
Distributor to be in violation of the 1940 Act.
(c) Anchor shall provide Distributor with a preliminary draft of any
amendment to a Registration Statement, supplement to the Prospectus, exemptive
application or no-action request to be filed with the Commission in connection
with the Contracts, the Fixed Account Option and/or the Separate Account. Anchor
shall provide Distributor with a reasonable opportunity to review and comment on
any such draft before any such material is filed with the Commission. Anchor
shall furnish Distributor with copies of any such material or amendment thereto,
as filed with the Commission, promptly after the filing thereof, and any
Commission communication or order with respect thereto, promptly after receipt
thereof. Anchor shall maintain and keep on file in its principal executive
office any file memoranda or any supplemental materials referred to in any such
Registration Statement, Prospectus, exemptive application and no-action request
and shall, as necessary, amend such memoranda or materials and shall provide or
otherwise make available copies of such memoranda and materials to the
Distributor.
(d) Anchor shall provide Distributor access to such records, officers
and employees of Anchor at reasonable times as Distributor may request is
necessary to enable Distributor to fulfill its obligation, as the underwriter
under the 1933 Act for the Contracts and as principal underwriter for the
Separate Account under the 1940 Act, to perform due diligence and to use
reasonable care.
(e) Anchor shall timely file each post-effective amendment to a
Registration Statement, Prospectus, Rule 24f-2 notice, annual report on Form
N-SAR, and all other reports, notices, statements, and amendments required to be
filed by or for Anchor and/or the Separate Account with the Commission under the
1933 Act, the 1934 Act and/or the 1940 Act or any applicable regulations, and
shall pay all filing or registration fees payable in connection therewith. To
the extent there occurs an event or development (including, without limitation,
a change of applicable law, regulation or administrative interpretation), which
in Anchor's reasonable judgment warrants an amendment to either the Registration
Statement or a supplement to the Prospectus, Anchor shall endeavor to prepare,
subject to the Distributor's right to review such material provided in Section
5(c), and file such amendment or supplement with the Commission with all
deliberate speed.
<PAGE> 6
6. Notification of Material Developments
(a) Anchor and Distributor each agree to notify the other in writing
upon (i) being apprised of the institution of any proceeding, investigation or
hearing involving the offer or sale of the Contracts, (ii) the happening of any
material event, if known by such notifying party, which makes untrue any
statement made in a Registration Statement or which requires the making of a
change therein in order to make any statement made therein not materially
misleading, or (iii) upon becoming aware that any Prospectus, sales literature
or other printed matter or material used in marketing and distributing any
Contract contains an untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements made therein, in light
of the circumstances in which they were made, not misleading.
(b) In addition, Anchor shall notify the Distributor immediately or in
any event as soon as possible under the following circumstances:
(1) Of any request by the Commission for any amendment to a
Registration Statement, for any supplement to the Prospectus, or for additional
information relating to the Contracts;
(2) Of the issuance by the Commission of any stop order with
respect to a Registration Statement or any amendment thereto, or the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration and/or offering of the Contracts;
(3) Of any loss or suspension of the approval of the Contracts or
distribution thereof by an insurance commission of any state, any loss or
suspension of Anchor's certificate of authority to do business or to issue
variable annuity products in any state.
7. Books and Records
With respect to the issuance and servicing of the Contracts, and
execution of transactions thereunder carried out by Anchor (or a person acting
pursuant to its authorization), Anchor shall keep records and books relating
thereto in a manner and form prescribed by and in accordance with Rules 17a-3
and 17a-4 under the 1934 Act as are required to be maintained by Distributor as
a registered broker-dealer acting as distributor for the Contracts. Anchor
acknowledges that it shall maintain such records and books on behalf of
Distributor and shall make such records and books of account available for
inspection by the Commission. Distributor shall have the right to inspect and
make copies of such records and books of account at any time on demand.
8. Authorized Marketing Materials
(a) Subsequent to having been notified by Anchor to commence offers and
sales of the Contracts, the Distributor, in connection with its distribution
activities hereunder, will utilize no Prospectus purporting to meet the
requirements of Section 10(a) of the 1933 Act other than the one so designated
by Anchor. As to other types of sales material used in connection with its
distribution activities, the Distributor agrees that it will use, and pursuant
to Selling Agreements will require Selling Broker-Dealers to use, only sales
materials as have been authorized in writing for use by Anchor, and which have
been filed by Distributor with the NASD, and approved where necessary or
required. For purposes of this Agreement, the phrase "sales material" includes,
but is not limited to, advertisements (such as material published, or designed
for use in, a newspaper, magazine, or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards, motion
pictures, or other public media), sales literature (i.e., any written
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters, form
letters, seminar texts, reprints or excerpts of any other advertisement, sales
literature, or published article), Registration Statements, Prospectuses,
Statements of Additional Information, shareholder reports, and proxy materials.
(b) The Distributor will not distribute any Prospectus, sales material,
or any other printed matter or material in the marketing and distribution of any
Contract if, to the knowledge of the Distributor, any of
<PAGE> 7
the foregoing contains any untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements made therein, in the
light of the circumstances with which they were made, not misleading.
9. Compensation
The Distributor, as distributor of the Contracts, shall not be entitled
to any remuneration from Anchor or its affiliates.
10. Remittance of Premium Payments
All premium payments collected on the sale of the Contracts by the
Distributor, if any, shall be transmitted to Anchor for immediate allocation to
the Separate Account and/or Fixed Account Option in accordance with the
directions furnished by the purchasers of such Contracts.
11. Termination
This Agreement will terminate automatically upon its assignment to any
person. This Agreement shall terminate, without the payment of any penalty.by
any party.
(a) at the option of Anchor, upon 60 days' advance written notice
to the Distributor; or
(b) at the option of the Distributor upon 60 days' advance written
notice to Anchor; or
(c) at the option of Anchor upon written notice of such termination to
the Distributor, if formal proceedings against the Distributor involving the
offer or sale of the Contracts by the NASD or by the Commission are institute;
or
(d) at the option of the Distributor upon written notice of such
termination to Anchor, if formal proceedings against Anchor by a state insurance
regulatory agency initiating seizure or with respect to the Contracts are
instituted; or
(e) at the option of either party if the offering and sale of the
Contracts is terminated or if the Omnibus Agreement defined in Section 14 hereof
is terminated; or
(f) at the option of either party upon written notice of such
termination to the other parties, if any other party or any representative
thereof at any time (i) in connection with the offer or sale of the Contracts
(A) employs any device, scheme, or artifice to defraud; (B) makes any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements made, in light of the circumstances under which
they were made, not misleading; or (C) engages in any act, practice, or course
of business which operates or would operate as a fraud or deceit upon any
person; or (ii) breaches its representations or warranties under this Agreement.
12. Notice
Each notice required by this Agreement shall be given in writing and
shall be deemed to have been given if delivered personally, given by facsimile
or mailed by registered or certified mail (return receipt requested) or by
Federal Express or other overnight delivery as follows:
if to Anchor or the Separate Account:
c/o SunAmerica Inc.
1 SunAmerica Center
Century City
Los Angeles, California 90067-6022
Attention: James W. Rowan
Vice President
<PAGE> 8
with copy to:
SunAmerica Inc.
1 SunAmerica Center
Century City
Los Angeles, California 90067-6022
Attention: Susan L Harris
Vice President, General Counsel -
Corporate Affairs and Secretary
if to Distributor.
Vista Broker-Dealer Services, Inc.
125 W. 55th Street
New York, New York 10019
Attention:
with a copy to:
Attention:
13. Indemnification
(a) Anchor shall indemnify and hold harmless Distributor and its
affiliates and each of their respective directors and officers and each person,
if any, who controls Distributor and its affiliates against any and all losses,
claims, damages, liabilities or litigation (including legal and other expenses),
arising out of activities undertaken pursuant to this Agreement, to which
Distributor and its affiliates or such directors, officers or controlling
persons may become subject, under any statute, at common law, or otherwise,
which (i) may be based upon any wrongful act or breach of this Agreement by
Anchor, or any of its employees or representatives (other than any insurance
agents appointed pursuant to this Agreement or a Selling Agreement), any
affiliate of or any person acting on behalf of Anchor; (ii) may be based upon a
breach of the warranties made by Anchor set forth in this Agreement; or (iii)
may be based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statements, Prospectus or Statement of
Additional Information for the Contracts or any other written sales material
prepared exclusively by Anchor which is utilized by the Distributor in
connection with the sale of Contracts or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading (but
not if such untrue statement or alleged untrue statement or omission or alleged
omission was made in conformity with information furnished to Anchor by
Distributor specifically for use therein), provided, however, that in no case is
Anchor's indemnity in favor of a director or officer or any other person deemed
to protect such director or officer or other person against any liability to
which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his or her
duties or by reason of his or her reckless disregard of obligations and duties
under this Agreement.
(b) Distributor shall indemnify and hold harmless Anchor and its
affiliates and each of their respective directors and officers and each person,
if any, who controls Anchor against any and all losses, claims, damages,
liabilities or litigation (including legal and other expenses) arising out of
activities undertaken pursuant to this Agreement, to which Anchor or its
affiliates, or such directors, officers or controlling person may become
subject, under any statute, at common law, or otherwise, which (i) may be based
upon any wrongful act or breach of this Agreement by Distributor or any of its
employees or representatives any affiliate or any person acting on behalf of
Distributor; (ii) may be based upon a breach of the warranties made by
Distributor set forth in this Agreement; or (iii) may be based on an untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statements, Prospectus or Statement of Additional Information for
the Contracts or any other written sales material utilized in connection with
the sale of the Contracts or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading
<PAGE> 9
(but only to the extent such untrue statement or alleged untrue statement or
omission or alleged omission was made in conformity with information furnished
to Anchor by Distributor specifically for use therein); provided, however, that
in no case is Distributor's indemnity in favor of a director or officer or any
other person deemed to protect such director or officer or other person against
any liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations and
duties under this Agreement.
(c) The indemnification provision of this Section 13 shall survive any
termination of this Agreement.
14. Omnibus Agreement
As between Anchor and Distributor, this Agreement, together with a
certain letter agreement dated as of even date herewith between Anchor and
Distributor, constitutes the entire agreement, verbal and written, of the
parties insofar as this Agreement is in furtherance of discharging their
respective obligations under that certain agreement dated February 28, 1995 by
and among Anchor, Chase, Distributor and First SunAmerica Life Insurance Company
("Omnibus Agreement"). As between Anchor and Distributor, accordingly, this
Agreement supersedes and annuls all other agreements between the parties
relating to the distribution of the Contracts except for the Selling Agreements
described in Section 2 hereinabove, the letter agreement referred to herein and
the Omnibus Agreement.
15. Amendments
This Agreement may be amended from time to time by the mutual
agreement and consent of the undersigned parties; provided that such amendment
shall not affect the rights of existing Contract Owners, and that such amendment
must be in writing and duly executed.
16. No Third Party Beneficiary
None of the provisions of this Agreement shall inure to the benefit of
any person other than the parties hereto or their respective successors, or be
deemed to create any rights, benefits or privileges in favor of any person
except the parties hereto.
17. No Agency Created Hereby
Except to the extent their duties under this Agreement otherwise
require, none of the provisions of this Agreement shall be deemed to designate
or appoint any party hereto as the agent of any other party or to authorize or
empower any party hereto to act for or to create or incur any obligations on
behalf of any other party.
18. Counterparts
This Agreement may be executed and delivered in any one or more
counterparts, and each such counterpart so delivered and bearing the original
signature of a party hereto shall be binding as to such party, and all
counterparts shall together constitute one original and the same instrument.
19. Interpretation
This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of California and shall be interpreted in
such a manner as to be effective and valid under the laws of the State of
California. If any provision of this Agreement shall be deemed to be prohibited
by law or invalid, such provision shall be ineffective only to the extent of the
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
20. Waiver
The waiver by one party of the performance in observance of any
covenant or condition to be performed or observed by any other hereunder shall
not invalidate this Agreement, nor constitute a waiver by such party of any
other covenant or condition to be performed or observed by any other
<PAGE> 10
hereunder. The exercise by any party hereto of any right, privilege or remedy
provided by this Agreement shall not constitute a waiver by such party of any
other covenant or condition to be performed or observed by any other party under
this Agreement. The exercise by any party hereto of any right, privilege or
remedy provided by this Agreement or otherwise by law shall not exclude the
exercise of any other right, privilege or remedy.
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed and
attested on the date first stated above.
ANCHOR NATIONAL LIFE
INSURANCE COMPANY
By: /s/ JAMES W. ROWAN
-----------------------------
VARIABLE ANNUITY ACCOUNT TWO
By: ANCHOR NATIONAL LIFE
INSURANCE COMPANY
By: /s/ JAMES W. ROWAN
-----------------------------
VISTA BROKER-DEALER SERVICES, INC.
By: /s/ JOSEPH F. KISSELL
-----------------------------
<PAGE> 1
EXHIBIT 3A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
AND ARTICLES OF REDOMESTICATION
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
We, the undersigned, acting as incorporators for the purpose of
redomesticating Anchor National Life Insurance Company, a California
corporation, which intends to continue its existence, without interruption, as a
corporation organized under the laws of the State of Arizona pursuant to Arizona
Revised Statutes Section 20-231.A, do hereby adopt the following Amended and
Restated Articles of Incorporation and Articles of Redomestication for said
corporation.
ARTICLE I
The name of the corporation shall be Anchor National Life Insurance
Company.
ARTICLE II
The corporation was incorporated in the State of California on April 12,
1965.
ARTICLE III
The existence of the corporation shall be perpetual.
ARTICLE IV
Upon the approval of these Amended and Restated Articles of
Incorporation and Articles of Redomestication by the necessary regulatory
authorities, Anchor National Life Insurance Company shall be and continue to be
possessed of all privileges, franchises and powers to the same extent as if it
had been originally incorporated under the laws of the State of Arizona; and all
privileges, franchises and powers belonging to said corporation, and all
property, real, personal and mixed, and all debts due on whatever account, all
Certificates of Authority, agent appointments, and all chooses in action, shall
be and the same are hereby ratified, approved, confirmed and assured to Anchor
National Life Insurance Company with like effect and to all intents and purposes
as if it had been originally incorporated under the laws of the State of
Arizona. Said corporation shall be given recognition as a domestic corporation
of the State of Arizona from and after April 12, 1965, and as a domestic insurer
of the State of Arizona from and after December 2, 1966, the dates of its
initial incorporation and authorization to transact insurance business under the
laws of the State of California, effective the latter of January 1, 1996 or the
date of filing with the Arizona Corporation Commission.
ARTICLE V
The nature of the business to be transacted and the objects and purposes
for which this corporation is organized include the transaction of any and all
lawful business for which insurance corporations may be incorporated under the
laws of the State of Arizona without limitation, and as said laws may be amended
from time to time, and specifically said corporation shall be authorized to
transact life insurance, disability insurance and annuities, as defined under
Arizona Revised Statutes, Section 20-254, 20-253 and 20-254.01 respectively,
together with such other kinds of insurance as the corporation may from time to
time be authorized to transact, and to act as a reinsurer of business for which
it is duly authorized. Consistent with the applicable federal and state
requirements, the Company may issue funding agreements and guaranteed investment
contracts as defined under Arizona Revised Statutes, Section 20-208.
ARTICLE VI
The authorized capital of the corporation shall be $4,000,000, and shall
consist of 4,000 shares of voting common stock with a par value of
<PAGE> 2
$1,000.00 per share. No holders of stock of the corporation shall have any
preferential right to subscription to any shares or securities convertible into
shares of stock of the corporation, nor any right of subscription to any thereof
other than such, if any, as the Board of Directors in its discretion may
determine, and at such price as the Board of Directors in its discretion may
fix; and any shares or convertible securities which the Board of Directors may
determine to offer for subscription to the holders of stock at the time
existing.
Nothing herein contained shall be construed as prohibiting the
corporation from issuing any shares of authorized but unissued common stock for
such consideration as the Board of Directors may determine, provided such
issuance is approved by the shareholders of the corporation by a majority of the
votes entitled to be cast at any annual or special meeting of shareholders
called for that purpose. No such authorized but unissued stock may, however, be
issued to the shareholders of the corporation by way of a stock dividend,
split-up or in any other manner of distribution unless the same ratable stock
dividend, stock split-up or other distribution be declared or made in voting
common stock to the holder of such voting common stock at the time outstanding.
Each holder of common stock shall be entitled to participate share for share in
any cash dividends which may be declared from time to time on the common stock
of the corporation by the Board of Directors and to receive pro rata the net
assets of the corporation on liquidation.
ARTICLE VII
The affairs of the corporation shall be conducted by a Board of
Directors consisting of not less than five (5) nor more than fifteen (15)
directors as fixed by the bylaws, and such officers as said directors may at any
time elect or appoint. No officer or director need be a shareholder of this
corporation. Ten (10) directors shall constitute the initial Board of Directors.
The names and addresses of the persons who are to serve as directors until the
next annual meeting of shareholders or until their successors are elected and
qualified, and of the persons who are to serve as officers until the next annual
meeting of the directors or until their successors are elected and qualify, are:
Board of Directors
------------------
Eli Broad, Chairman
1 SunAmerica Center, Century City
Los Angeles, California 90067-6022
James Richard Belardi, Director
1 SunAmerica Center, Century City
Los Angeles, California 90067-6022
Lorin Merrill Fife, III, Director
1 SunAmerica Center, Century City
Los Angeles, California 90067-6022
Jana Waring Greer, Director
1 SunAmerica Center, Century City
Los Angeles, California 90067-6022
Susan Louis Harris, Director
1 SunAmerica Center, Century City
Los Angeles, California 90067-6022
Gary Walden Krat, Director
1 SunAmerica Center, Century City
Los Angeles, California 90067-6022
, Director (Vacant)
1 SunAmerica Center, Century City
Los Angeles, California 90067-6022
Peter McMillian, Director
1 SunAmerica Center, Century City
Los Angeles, California 90067-6022
Scott Lawrence Robinson, Director
1 SunAmerica Center, Century City
Los Angeles, California 90067-6022
Jay Steven Wintrob, Director
1 SunAmerica Center, Century City
<PAGE> 3
Los Angeles, California 90067-6022
Officers
--------
Victor Edward Akin, Vice President
Eli Broad, President and Chief Executive Officer
James Richard Belardi, Senior Vice President
Lorin Merrill Fife, III, Senior Vice President, General Counsel
and Assistant Secretary
Michael Lee Fowler, Vice President Nelson Scott Gillis, Vice President
and Controller Jana Waring Greer, Senior Vice President J. Franklin
Grey, Vice President Susan Louise Harris, Senior Vice President and
Secretary Keith Bernard Jones, Vice President Gary Walden Krat, Senior
Vice President Michael Lee Lindquist, Vice President Edward Poli Nolan,
Jr., Vice President Gregory Mark Outcalt, Vice President Edwin Raquel
Reoliquio, Senior Vice President and Actuary Scott Harris Richland, Vice
President and Treasurer Scott Lawrence Robinson, Senior Vice President
James Warren Rowan, Vice President
Jay Steven Wintrob, Executive Vice President
The directors shall have the power to adopt, amend, alter and repeal the
Bylaws, to manage the corporate affairs and make all rules and regulations
expedient for the management of the affairs of the corporation, to remove any
officer and to fill all vacancies occurring in the Board of Directors and
offices for any cause, and to appoint from their own number an executive
committee and other committees and vest said committees with all the powers
permitted by the Bylaws.
ARTICLE VIII
Subject to the further provisions hereof, the corporation shall
indemnify any and all of its existing and former directors and officers and
their spouses against all expenses incurred by them and each of them, including
but not confined to legal fees, judgments and penalties which may be incurred,
rendered or levied in any legal or administrative action brought against any of
them, for or on account of any action or omission alleged to have been committed
while acting within the scope of employment as a director or officer of the
corporation to the fullest extent allowable pursuant to A.R.S. ss. 10-005, et
al. as my be amended from time to time. Whenever any such person has grounds to
believe that he may incur any such aforementioned expense, he shall promptly
make a full report of the matter to the President and the Secretary of the
Corporation. Thereafter, the Board of Directors of the corporation shall, within
a reasonable time, determine if such person acted, or failed to act, in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. If the
Board of Directors determines that such person acted, or failed to act, in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful, then
indemnification shall be mandatory and shall be automatically extended as
specified herein, provided, however, that the corporation shall have the right
to refuse indemnification, wholly or partially, in any instance in which the
person to whom indemnification would otherwise have been applicable shall have
unreasonably refused to permit the corporation, at its own expense and through
counsel of its own choosing, to defend him in the action, or shall have
unreasonable refused to cooperate in the defense of such action.
ARTICLE IX
All directors of the corporation shall be elected at the annual meeting
of the shareholders, which shall be held on the third Thursday of March of each
year or such other date and time as may be determined by the Board of Directors,
unless such day falls on a holiday, in which event the regular annual meeting
shall be held on the next succeeding business day.
ARTICLE X
The principal place of business of the corporation shall be located in
<PAGE> 4
the City of Phoenix, Maricopa County, Arizona, but it may have other places of
business and transact business, and its Board of Directors or shareholders may
meet for the transaction of business, at such other place or places within or
without the State of Arizona which its Board of Directors may designate.
ARTICLE XI
The fiscal year of the corporation shall be the calendar year.
ARTICLE XII
In no event shall the corporation incur indebtedness in excess of the
amount authorized by law.
ARTICLE XIII
The shares of the corporation, when issued, shall be non-assessable,
except to the extent required by the Constitution, specifically, but not in
limitation thereof, as provided by Article XIV, Section 11 of the Constitution
of the State of Arizona and the laws of the State of Arizona.
ARTICLE XIV
The private property of the shareholders, directors and officers of the
corporation shall be forever exempt from debts and obligations of the
corporation.
ARTICLE XV
The Bylaws of the corporation may be repealed, altered amended, or
substitute Bylaws may be adopted, by the directors or the shareholders, in
accordance with the provisions contained in said Bylaws.
ARTICLE XVI
J. Michael Low of 2999 North 44th Street, Suite 250, Phoenix, Arizona,
85018, having been a bona fide resident of Arizona for at least three (3) years,
is hereby appointed the statutory agent of this corporation in the State of
Arizona, upon whom notices and processes, including service of summons, may be
served, and which, when so served shall have lawful personal service on the
corporation. The Board of Directors may revoke this appointment at any time, and
shall fill the vacancy in such position whenever one exists.
ARTICLE XVII
The names and addresses of the incorporators of the corporation are:
J. Michael Low
Low & Childers, P.C.
2999 North 44th Street, Suite 250
Phoenix, Arizona 85018
S. David Childers
Low & Childers, P.C.
2999 North 44th Street, Suite 250
Phoenix, Arizona 85018
Steven R. Henry
Low & Childers, P.C.
2999 North 44th Street, Suite 250
Phoenix, Arizona 85018
Carrie M. McDonald
Low & Childers, P.C.
2999 North 44th Street, Suite 250
Phoenix, Arizona 85018
Kathy A. Steadman
Low & Childers, P.C.
2999 North 44th Street, Suite 250
Phoenix, Arizona 85018
All individual incorporators are eighteen (18) years of age or older.
<PAGE> 5
All powers, duties and responsibilities of the incorporators shall cease
at the time of delivery of these Amended and Restated Articles of Incorporation
and Articles of Redomestication to the Arizona Corporation Commission for
filing.
IN WITNESS WHEREOF, we hereunto affix our signatures as of the 14th day
of December, 1995.
/s/ J. Michael Low /s/ S. David Childers
- ------------------------------ ---------------------------
J. Michael Low S. David Childers
/s/ Steven R. Henry /s/ Carrie M. McDonald
- ------------------------------ ---------------------------
Steven R. Henry Carrie M. McDonald
/s/ Kathy A. Steadman
- ------------------------------
Kathy A. Steadman
Subscribed, sworn to and acknowledged before me this 14th day of
December, 1995.
/s/ Lori Marlow
--------------------------
Notary Public
My Commission Expires:
August 15, 1999
- ----------------------
<PAGE> 6
APPOINTMENT OF STATUTORY AGENT
I, J. Michael Low, being a resident of the State of Arizona for at least
three (3) years preceding this appointment, do hereby accept appointment as
Statutory Agent for Anchor National Life Insurance Company in accordance with
the Arizona Revised Statutes until appointment of a successor Statutory Agent
and removal.
DATED, this 14th day of December, 1995.
/s/ J. Michael Low
------------------------------
J. Michael Low, Esq.
Low & Childers, P.C.
<PAGE> 1
EXHIBIT 3B
AMENDED AND RESTATED
BYLAWS
of
ANCHOR NATIONAL LIFE INSURANCE COMPANY
ARTICLE I.
Shareholders.
Section 1. Annual Meetings. The annual meeting of the
shareholders of the Corporation shall be held on the fourth Thursday in April of
each year or such other dates and times as may be determined. Not less than ten
(10) nor more than fifty (50) days' written or printed notice stating the place,
day and hour of each annual meeting shall be given in the manner provided in
Section 1 of Article IX hereof. The business to be transacted at the annual
meeting shall include the election of directors, consideration and action upon
the reports of officers and directors and any other business within the power of
the Corporation. All annual meetings shall be general meetings.
Section 2. Special Meetings Called by President or Board of
Directors. At any time in the interval between annual meetings, special meetings
of shareholders may be called by the President, the Secretary or by two (2) or
more directors, upon ten (10) days' written or printed notice, stating the
place, day and hour of such meeting and the business proposed to be transacted
thereat. Such notice shall be given in the manner provided in Section 1 of
Article IX. No business shall be transacted at any special meeting except that
named in the notice.
Section 3. Special Meeting Called by Shareholders. Upon the
request in writing delivered to the President or Secretary of the Corporation by
the holders of ten percent (10%) or more of all shares outstanding and entitled
to vote, it shall be the duty of the President or Secretary of the Corporation
to call forthwith a special meeting of the shareholders. Such request shall
state the purpose or purposes of such meeting and the matters proposed to be
acted on thereat. The Secretary of the Corporation shall inform such
shareholders of the reasonably estimated cost of preparing and mailing the
notice of the meeting. If upon payment of such costs to the corporation, the
person to whom such request in writing shall have been delivered shall fail to
issue a call for such meeting within ten (10) days after the receipt of such
request and payment of costs, then the shareholders owning ten percent (10%) or
more of the voting shares may do so upon giving fifteen (15) days' notice of the
time, place and object of the meeting in the manner provided in Section 1 of
Article IX.
Section 4. Removal of Directors. At any special meeting of the
shareholders called in the manner provided for by this Article, the
shareholders, by a vote of a majority of all shares of stock outstanding and
entitled to vote, may remove any director or the entire Board of Directors from
office and may elect a successor or successors to fill any resulting vacancies
for the remainder of his or their terms.
Section 5. Voting; Proxies; Record Date. At all
meetings of shareholders any shareholder entitled to vote may vote by proxy.
Such proxy shall be in writing and signed by the shareholder or by his duly
authorized attorney in fact. It shall be dated, but need not be sealed,
witnessed or acknowledged. The Board of Directors may fix the record date for
the determination of shareholders entitled to vote in the manner provided in
Section 4 of Article IX hereof.
Section 6. Quorum. The presence in person or by proxy of the
persons entitled to vote a majority of the voting shares of any meeting shall
constitute a quorum for the transaction of business. If at any annual or special
meeting of shareholders a quorum shall fail to attend in person or by proxy, a
majority in interest attending in person or by proxy may adjourn the meeting
from time to time, not exceeding thirty (30) days in all, and thereupon any
business may be transacted which might have been transacted at the meeting
originally called had the same been held at the time so called.
Section 7. Filing Proxies. At all meetings of
shareholders, the proxies shall be filed with and be verified by the
Secretary of the Corporation or, if the meeting shall so decide, by the
Secretary of the
<PAGE> 2
meeting.
Section 8. Place of Meetings. All meetings of shareholders shall
be held at such place, either within or without the State of Arizona, on such
date and at such time as may be determined from time to time by the Board of
Directors (or the Chairman in the absence of a designation by the Board of
Directors).
Section 9. Order of Business. The order of business
at all meetings of shareholders shall be as determined by the Chairman of the
meeting.
Section 10. Action Without Meeting. Directors may be elected
without a shareholders' meeting by a consent in writing, setting forth the
action so taken, signed by all persons entitled to vote for the election of
directors; provided, however, that the foregoing shall not limit the power of
directors to fill vacancies in the Board of Directors, and that a director may
be elected to fill a vacancy not filled by the directors by written consent in
the manner provided by the General Corporation Law.
Any other action, which under any provision of the General
Corporation Law, may be taken at a meeting of the shareholders, may be taken
without a meeting, and without notice except as hereinafter set forth, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted.
All written consents shall be filed with the Secretary of the
Corporation. Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares of a personal representative of the
shareholder or their respective proxyholders, may revoke the consent by a
writing receiving by the Corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary of the Corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the Corporation.
<PAGE> 3
ARTICLE II.
Directors.
Section 1. Powers. The Board of Directors shall have the control
and management of the affairs, business and properties of the Corporation. They
shall have and exercise in the name of the Corporation and on behalf of the
Corporation all the rights and privileges legally exercisable by the
Corporation, except as otherwise provided by law, by the Charter or by these
Bylaws. A director need not be a shareholder or a resident of Arizona.
Section 2. Number; Term of Office; Removal. The number of
directors of the Corporation shall be not less than five (5) nor more than
fifteen (15). The number to be elected at each annual meeting shall be fixed by
resolution of the directors and stated in the notice of the meeting, subject,
however, to approval by the shareholders voting at the meeting. The directors
shall hold office for the term of one year, or until their successors are
elected and qualify. A director may be removed from office as provided in
Section 4 of Article I hereof.
Section 3. Vacancies. If the office of a director becomes vacant,
or if the number of directors is increased, such vacancy may be filled by the
Board by a vote of a majority of directors then in office though not less than a
quorum. The shareholders may, however, at any time during the term of such
director, elect some other person to fill said vacancy and thereupon the
election by the Board shall be superseded and such election by the shareholders
shall be deemed a filling of the vacancy and not a removal and may be made at
any special meeting called for that purpose.
Section 4. Organization Meetings; Regular Meetings. The Board of
Directors shall meet for the election of officers and any other business as soon
as practicable after the adjournment of the annual meeting of the shareholders.
No notice of the organization meeting shall be required if it is held at the
same place and immediately following the annual meeting of the shareholders.
Other regular meetings of the Board of Directors may be held at such intervals
as the Board may from time to time prescribe.
Any action required or permitted to be taken at a meeting of the
Board of Directors or of a committee of the Board may be taken without a
meeting, if a unanimous written consent which sets forth the action is signed by
each member of the Board or committee and filed with the minutes of proceedings
of the Board or committee.
Unless otherwise restricted by the Articles of Incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or such committee, as the case may be, by means of telephone conference or
similar communications equipment by means of which are persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 5. Special Meetings. Special meetings of the Board may be
called by the President or by a majority of the directors. At least twenty-four
(24) hours' notice shall be given of all special meetings; with the consent of
the majority of the directors, a shorter notice may be given.
<PAGE> 4
Section 6. Quorum. A majority of the Board of Directors shall
constitute a quorum for the transaction of business, but such number may be
decreased and/or increased at any time or from time to time by vote of a
majority of the entire Board to any number not less than two (2) directors or
not less than one-third of the directors, whichever is greater.
Section 7. Place of Meetings. The Board of Directors shall hold
its meetings at such place, either within or without the State of Arizona, and
at such time as may be determined from time to time by the Board of Directors
(or the Chairman in the absence of a determination by the Board of Directors).
Section 8. Rules and Regulations. The Board of Directors may
adopt such rules and regulations for the conduct of its meetings and the
management of the affairs of the Corporation as the Board may deem proper and
not inconsistent with the laws of the State of Arizona or these Bylaws or the
Charter.
Section 9. Compensation. The directors, as such, may receive a
stated salary for their services and/or a fixed sum and expenses of attendance
may be allowed for attendance at each regular or special meeting of the Board of
Directors. Such stated salary and/or attendance fee shall be determined by
resolution of the Board unless the shareholders have adopted a resolution
relating thereto, provided that nothing herein contained shall be construed to
preclude a director from serving in any other capacity and receiving
compensation therefor.
Section 10. Chairman of the Board. The Board of Directors shall
provide for a Chairman of the Board from among its members. So long as there
shall be a person so active, he shall preside at all meetings of the Board and
at all joint meetings of officers and directors. In the absence of the Chairman,
the Vice Chairman, if any, or in his absence, the President, shall preside at
all meetings of the Board and all joint meetings of officers and directors.
Section 11. Investment Committee. There shall be an Investment
Committee consisting of the President of the Corporation ex officio and such
members of the Board of Directors and/or officers and employees as the Board may
by resolution prescribe. No investments or loans (other than policy loans or
annuity contract loans) shall be made unless the same be authorized or approved
by the Board of Directors or the Investment Committee. The Investment Committee
shall maintain minutes of its meetings and shall submit regular reports to the
Board of Directors.
Section 12. Executive Committee. The Board of Directors may
appoint from among its members an Executive Committee composed of three (3) or
more directors, and may delegate to such Committee, in the interval between the
meetings of the Board of Directors, any and all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation,
except the power to declare dividends, issue stock, select directors to fill
vacancies in the membership of the Executive Committee or recommend to
shareholders any action requiring shareholders' approval. The members of such
Committee shall constitute a quorum for the transaction of business at any
meeting and the act of a majority of the members present at any meeting at which
the quorum requirement is satisfied shall be the act of the Board of Directors.
In the absence of any member of the Executive Committee necessary to constitute
a quorum, the members thereof present at any meeting, whether or not they
constitute a quorum, may, with telephonic approval of one of the absent members
of the Executive Committee, appoint a member of the Board of Directors to act in
place of such absent member.
Section 13. Other Committees. The Board of Directors may appoint
from its own members and, where permitted by law, from the Corporation's
officers and/or employees, such standing, temporary, special or ad hoc
committees as the Board may determine, investing such committees with such
powers, duties and functions as the Board may prescribe. All such committees
shall include the President, ex officio.
Section 14. Advisory Board. The Board of Directors may elect an
Advisory Board to serve until the next annual meeting of the Board of Directors
or until their successors are elected and qualify. Such Board shall consist of a
number as determined from time to time by the Board of Directors, and they shall
be advised of the meetings of the Board of Directors and authorized to attend
the meetings and counsel with them, but shall have no vote. The Board of
Directors (and between meeting of the Board of Directors, the Executive
Committee) shall have the authority to increase or decrease the number of
members to the Advisory Board and to elect one or more members to the
<PAGE> 5
Advisory Board to serve until the next meeting of the Board of Directors and
until their successors are elected and qualify, and may provide for the
compensation and other rules and regulations with respect to such Board.
Section 15. Procedures; Meetings. The Committees shall keep
minutes of their proceedings and shall report the same to the Board of Directors
at the meeting next succeeding, and any action by the Committees shall be
subject to revision and alteration by the Board of Directors, provided that no
rights of third persons shall be affected by any such revision or alteration.
ARTICLE III.
Officers.
Section 1. In General. The officers of the Corporation shall
consist of a President, one or more Vice Presidents, a Secretary, a Treasurer,
and one or more Assistant Secretaries and Assistant Treasurers, and such other
officers bearing such titles as may be fixed pursuant to these Bylaws. The
President, Vice Presidents, Secretary, and Treasurer shall be chosen by the
Board of Directors and, except those persons holding contracts for fixed terms,
shall hold office only during the pleasure of the Board or until their
successors are chosen and qualify. The President may from time to time appoint
Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers, and
other officers bearing such titles and exercising such authority as he may from
time to time deem appropriate, and except those persons holding contracts for
fixed terms, those officers appointed by the President shall hold office only
during his pleasure or until their successors are appointed and qualify. Any two
(2) officers, except those of President, Executive Vice President and Secretary,
may be held by the same persons, but no officer shall execute, acknowledge or
verify any instrument in more than one capacity when such instrument is required
to be executed, acknowledged, or verified by any two (2) or more officers. The
Board of Directors or the President may from time to time appoint other agents
and employees, with such powers and duties as they may deem proper.
Section 2. President. The President shall be Chief Executive
Officer of the Corporation and shall have the general management of the
Corporation's business in all departments. In the absence of the Chairman of the
Board, the President shall preside at all meetings of the Board of Directors and
shall call to order all meetings of shareholders. The President shall perform
such other duties as the Board of Directors may direct.
Section 3. Vice Presidents. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as designated by
the Board of Directors or, if not ranked, the Vice President designated by the
Board of Directors, shall perform all the duties of the President, and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the President. The Vice Presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the Board of Directors or the Bylaws.
Section 4. Treasurer. Unless there shall be a financial Vice
President designated by the Board of Directors as the chief financial officer of
the Corporation, having general supervision over its finances, the Treasurer
shall be the chief financial officer with such authority. He shall also have
authority to attest to the seal of the Corporation and shall perform such other
duties as may be assigned to him by the Board of Directors.
Section 5. Secretary of the Corporation. The Secretary of the
Corporation shall keep the minutes of the meetings of the shareholders and of
the Board of Directors, and shall attend to the giving and serving of all
notices of the Corporation required by law or these Bylaws. The Secretary shall
maintain at all times in the principal office of the Corporation at least one
copy of the Bylaws with all amendments to date, and shall make the same,
together with the minutes of the meetings of the shareholders, the annual
statement of the affairs of the Corporation and any voting trust agreement on
file at the office of the Corporation, available for inspection by any officer,
director, or shareholder during reasonable business hours. The Secretary shall
have authority to attest to the seal of the Corporation and shall perform such
other duties as may be assigned to the Secretary by the Board of Directors.
Section 6. Other Secretaries, Assistant Treasurers and Assistant
Secretaries. Secretaries other than the Secretary of the Corporation, the
Assistant Treasurers and the Assistant Secretaries shall have
<PAGE> 6
authority to attest to the seal of the Corporation and shall perform such other
duties as may from time to time be assigned to them by the Board of Directors or
the President.
Section 7. Substitutes. The Board of Directors may from time to
time in the absence of any one of said officers or, at any other time, designate
any other person or persons on behalf of the Corporation, to sign any contracts,
deeds, notes, or other instruments in the place or stead of any of said
officers, and designate any person to fill any one of said offices, temporarily
or for any particular purpose; and any instruments so signed in accordance with
a resolution of the Board shall be the valid act of this Corporation as fully as
if executed by any regular officer.
ARTICLE IV.
Resignation.
Any director or officer may resign his office at any time. Such
resignation shall be made in writing and shall take effect from the time of its
receipt by the Corporation, unless some time be fixed in the resignation, and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
ARTICLE V.
Indemnification of Directors and Officers.
The Corporation shall indemnify any and all of its existing and
former directors and officers and their spouses against all expenses incurred by
them and each of them, including but not confined to legal fees, judgments and
penalties which may be incurred, rendered or levied in any legal or
administrative action brought against any of then, for or on account of any
action or omission alleged to have been committed while acting within the scope
of employment as director of officer of the Corporation to the fullest extent
allowable pursuant to the Arizona General Corporation Law as may be amended from
time to time. Whenever any such person has grounds to believe that he may incur
any such aforementioned expense, he shall promptly make a full report of the
matter to the President and the Secretary of the Corporation. Thereafter, the
Board of Directors of the Corporation shall, within a reasonable time, determine
if such person acted, or failed to act, in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. If the Board of Directors
determines that such person acted, or failed to act, in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, then indemnification shall
be mandatory and shall be automatically extended as specified herein, provided,
however, that the Corporation shall have the right to refuse indemnification,
wholly or partially, in any instance in which the person to whom indemnification
would otherwise have been applicable shall have unreasonably refused to permit
the Corporation, at its own expense and through counsel of its own choosing, to
defend him in the action, or shall have unreasonably refused to cooperate in the
defense of such action.
ARTICLE VI.
Fiscal Year.
The fiscal year of the Corporation shall be the calendar year.
ARTICLE VII.
Seal.
The seal of the Corporation shall be a circular disc inscribed
with the name of the Corporation, "Anchor National Life Insurance Company" and
the word "Incorporated".
ARTICLE VIII.
<PAGE> 7
Miscellaneous Provisions - Stock.
Section 1. Issue. All certificates of shares of the
Corporation shall be signed by the manual or facsimile signatures of the
President or any Vice President, and countersigned by the Treasurer or
Secretary of the Corporation and sealed with the seal or facsimile seal of
the Corporation. Any stock certificates bearing the facsimile signatures of the
officers above named shall be manually signed by an authorized representative of
the Corporation's duly constituted transfer agent. If an officer whose signature
appears on a certificate ceases to be an officer before the certificate is
issued, it may, nevertheless, be issued with the same effect as if such officer
were still in office.
Section 2. Transfers. No transfers of shares shall be recognized
or binding upon the Corporation until recorded on the transfer books of the
Corporation upon surrender and cancellation of certificates for a like number of
shares. All transfers shall be effected only by the holder of record of such
shares or by his legal representative, or by his attorney thereunto authorized
by power of attorney duly executed. The person in whose name shares shall stand
on the books of the Corporation may be deemed by the Corporation the owner
thereof for all purposes. The Corporation's transfer agent shall maintain a
stock transfer book, shall record therein all stock transfers and shall forward
copies of all transfer sheets at regular prompt intervals to the Corporation's
registrar, if there be one, or, if not, then to the Corporation's principal
office for transcription on the stock registry books.
Section 3. Form of Certificates; Procedure. The Board of
Directors shall have power and authority to determine the form of stock
certificates (except insofar as prescribed by law), and to make all such rules
and regulations as the Board may deem expedient concerning the issue; transfer
and registration of said certificates, and to appoint one or more transfer
agents and/or registrars to countersign and register the same. The transfer
agent and registrar may be the same party.
Section 4. Record Dates for Dividends and Shareholders' Meetings.
The Board of Directors may fix the time, not exceeding twenty (20) days
preceding the date of any meeting of shareholders, any dividend payment date or
any date for the allotment of rights, during which the books of the Corporation
shall be closed against transfers of stock, or the Board of Directors may fix a
date not exceeding forty (40) days preceding the date of any meeting of
shareholders, any dividend payment date or any date for the allotment of rights,
as a record date for the determination of the shareholders entitled to notice of
and to vote at such meeting, or entitled to receive such dividends or rights, as
the case may be, and only shareholders of record on such date shall be entitled
to notice of and to vote at such meeting or to receive such dividends or rights,
as the case may be. In the case of a meeting of shareholders, the record date
shall be fixed not less than ten (10) days prior to the date of the meeting.
Section 5. Lost Certificates. In case any certificate of shares
is lost, mutilated or destroyed, the Board of Directors may issa new certificate
in place thereof, upon indemnity to the Corporation against loss and upon such
other terms and conditions as the Board of Directors may deem advisable.
ARTICLE IX.
Notice.
Section 1. Notice to Shareholders. Whenever by law or these
Bylaws notice is required to be given to any shareholder, such notice may be
given to each shareholder, whether or not such shareholder is entitled to vote,
by leaving the same with him or at his residence or usual place of business, or
by mailing it, postage prepaid, and addressed to him at his
address as it appears on the books of the Corporation. Such leaving or mailing
of notice shall be deemed the time of giving such notice.
Section 2. Notice to Directors and Officers. Whenever by law of
these Bylaws notice is required to be given to any director or officer, such
notice may be given in any one of the following ways: by personal notice to such
director or officer; by telephone communication with such director or officer
personally; by wire, addressed to such director or officer at his then address
or at his address as it appears on the books of the Corporation; or by
depositing the same in writing in the post office or in a letter box in a
postage paid, sealed wrapper addressed to such director or officer at his then
address or at his address as it appears on the books of the
<PAGE> 8
Corporation; and the time when such notice shall be mailed or consigned to a
telegraph company for delivery shall be deemed to be the time of the giving of
such notice.
ARTICLE X.
Voting of Securities in Other Corporations.
Any stock or other voting securities in other corporations, which
may from time to time be held by the Corporation, may be represented and voted
at any meeting of shareholders of such other corporation by the President, any
Vice President, or the Treasurer, or by proxy or proxies appointed by the
President, any Vice President, or the Treasurer, or otherwise pursuant to
authorization thereunto given by a resolution of the Board of Directors.
ARTICLE XI.
Amendments.
These Bylaws may be added to, altered, amended or repealed by a
majority vote of the entire Board of Directors at any regular meeting of the
Board or at any special meeting called for that purpose. Any action of the Board
of Directors in adding to, altering, amending or repealing these Bylaws shall be
reported to the shareholders at the next annual meeting and may be changed or
rescinded by majority vote of all of the stock then outstanding and entitled to
vote, without, however, affecting the validity of any action taken in the
meanwhile in reliance on these Bylaws so added to, altered, amended or repealed
as aforesaid by the Board of Directors. In no event shall the Board of Directors
have any power to amend this Article.
<PAGE> 1
EXHIBIT 4A
ANCHOR NATIONAL LIFE INSURANCE COMPANY
A STOCK COMPANY LOS ANGELES, CALIFORNIA
CERTIFICATE NUMBER P9999999999
PARTICIPANT JOHN DOE
EXECUTIVE OFFICE ANNUITY SERVICE CENTER
1 SUNAMERICA CENTER P.O. BOX 54299
CENTURY CITY LOS ANGELES, CA 90054-0299
LOS ANGELES, CA 90067
ANCHOR NATIONAL LIFE INSURANCE COMPANY ("We", "Us" or the "Company" or "Anchor
National") agrees to provide benefits to the Participant in the Group Contract,
subject to the provisions set forth in this Certificate and in consideration of
the Participant's Enrollment Form and Purchase Payments We receive.
THIS CERTIFICATE IS EVIDENCE OF COVERAGE UNDER THE GROUP CONTRACT IF A
PARTICIPANT ENROLLMENT FORM IS ATTACHED. THE COVERAGE WILL BEGIN AS OF THE
CERTIFICATE DATE, SHOWN ON THE CERTIFICATE DATA PAGE.
THE VALUE OF AMOUNTS ALLOCATED TO THE SEPARATE ACCOUNT DURING THE ACCUMULATION
AND ANNUITY PERIODS IS NOT GUARANTEED, AND WILL INCREASE OR DECREASE BASED UPON
THE INVESTMENT EXPERIENCE OF THE FUND UNDERLYING THE SEPARATE ACCOUNT. THE VALUE
OF THE CASH SURRENDER BENEFIT INCREASES OR DECREASES BASED ON THE APPLICATION OF
THE MARKET VALUE ADJUSTMENT. THE UNADJUSTED CASH SURRENDER BENEFIT IS AVAILABLE
FOR 30 DAYS AFTER THE END OF THE GUARANTEE PERIOD.
TEN DAY RIGHT TO EXAMINE CERTIFICATE - YOU MAY RETURN THIS CERTIFICATE TO OUR
ANNUITY SERVICE CENTER WITHIN 10 DAYS AFTER YOU RECEIVE IT. THE COMPANY WILL
REFUND THE CERTIFICATE VALUE FOR THE VALUATION PERIOD IN WHICH THE CERTIFICATE
IS RECEIVED.
THIS IS A LEGAL CONTRACT. READ IT CAREFULLY.
/s/ SUSAN L. HARRIS /s/ ELI BROAD
-------------------- ------------------
Susan L. Harris Eli Broad
Secretary President
ALLOCATED FIXED AND
VARIABLE GROUP ANNUITY CERTIFICATE
Nonparticipating
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
CERTIFICATE DATA PAGE...................................................................PAGE 3
DEFINITIONS.............................................................................PAGE 5
GENERAL PROVISIONS......................................................................PAGE 8
Conformity With State Laws; Changes in Law; Assignment; Misstatement of Age or Sex;
Written Notice; Proof of Age, Sex or Survival; Non-Participating; Periodic Reports; Premium
Taxes; Change of Annuitant; Deferment of Payments; Suspension of Payments; Purchase
Payments; Substitution of Fund; Separate Account
ACCUMULATION PROVISIONS............................................................... PAGE 10
Separate Account Accumulation Value Number of Accumulation Units; Accumulation Unit Value
(AUV); Fixed Account Accumulation Value; Fixed Account Guarantee Period Options; Market
Value Adjustment
CHARGES AND DEDUCTIONS ................................................................PAGE 12
Contract Administration Charge; Contingent Deferred Sales Charge; Expense Risk Charge;
Distribution Expense Charge; Mortality Risk Charge
TRANSFER PROVISION ....................................................................PAGE 13
Transfers of Accumulation Units Between Variable Accounts; Transfers of Accumulation Units
To and From the Fixed Account
WITHDRAWAL PROVISION ..................................................................PAGE 14
Contingent Deferred Sales Charge
DEATH BENEFIT PROVISION ...............................................................PAGE 16
Proof of Death; Amount of Death Benefit; Beneficiary; Death of Participant
ANNUITY PROVISIONS ....................................................................PAGE 18
Payments to Participant; Fixed Annuity Payments; Amount of Fixed Annuity Payments; Amount of
Variable Annuity Payments
ANNUITY OPTIONS .......................................................................PAGE 20
</TABLE>
2
<PAGE> 3
CERTIFICATE DATA PAGE
CERTIFICATE NUMBER: ANNUITY SERVICE CENTER:
P9999999999 P.O. BOX 54299
LOS ANGELES, CA 90054-0299
PARTICIPANT:
JOHN DOE
ANNUITANT: FIRST PURCHASE PRICE:
JOHN DOE $10,000.00
BENEFICIARY: DATE OF ISSUE:
DECEMBER 09, 1992
ANNUITY DATE: SEPTEMBER 1, 2050
AGE AT ISSUE: FIXED ACCOUNT -
35 Subsequent Guarantee Rate:
(3.0%)
FUNDS UNDERLYING VARIABLE
SEPARATE ACCOUNT:
MUTUAL FUND VARIABLE
ANNUITY TRUST
ANNUAL CONTRACT ADMINISTRATION CHARGE:
$30.00
SEPARATE ACCOUNTS:
VARIABLE ANNUITY ACCOUNT TWO
MARKET VALUE ADJUSTMENT
All payments and values based on the Fixed Account are subject to a Market Value
Adjustment formula, the operation of which may result in upward and downward
adjustments in amounts payable. The Market Value Adjustment formula will not be
applied:
(1) for the payment of the Death Benefit,
(2) for the amounts withdrawn to pay fees or charges,
(3) for amounts withdrawn within 30 days after the end of the Guarantee Period,
(4) for annuitizations on the latest Annuity Date,
(5) in connection with the Automatic Dollar Cost Averaging Program.
3
<PAGE> 4
PURCHASE PAYMENT ALLOCATION
<TABLE>
<CAPTION>
Variable Account Options Fixed Account Options
------------------------ ---------------------
<S> <C> <C> <C> <C>
Mutual Fund Variable Guarantee
Annuity Trust Period
100.00% International Equity 0.00% 1 Year Fixed
0.00% Capital Growth 0.00% 3 Year Fixed
0.00% Growth and Income 0.00% 5 Year Fixed
0.00% Asset Allocation 0.00% 7 Year Fixed
0.00% U.S. Treasury Income 0.00% 10 Year Fixed
0.00% Money Market
</TABLE>
4
<PAGE> 5
DEFINITIONS
ACCUMULATION UNIT
A unit of measurement used to compute the Certificate Value in a Variable
Account prior to the Annuity Date.
ANNUITANT
The natural person on whose life the annuity benefit for the Certificate is
based.
ANNUITY DATE
The date on which annuity payments to the Payee are to start. The latest
possible Annuity Date will be set by Us.
ANNUITY SERVICE CENTER As specified on the Certificate Data Page.
ANNUITY UNIT
A unit of measurement used to compute annuity payments in a Separate Account.
AUTOMATIC DOLLAR COST AVERAGING PROGRAM
A program under which the Owner may authorize the automatic transfer of a fixed
dollar amount of his or her choice at regular intervals from a source account to
one or more portfolios (other than the source account) at the unit values
determined on the dates of transfers. The Company reserves the right to change
the terms and conditions.
CERTIFICATE
This form which describes Your interest in the Group Contract.
CERTIFICATE DATE
The date Your Certificate is issued, shown on the Certificate Data Page.
CERTIFICATE VALUE
The sum of Your share of the Variable Accounts' Accumulation Values and Fixed
Account Accumulation Values.
CERTIFICATE 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
A year stating from the date of the Purchase Payment in one calendar year and
ending on 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 sum of the Subsequent Guarantee Rate and the Excess Interest Rate declared
by Us for any Guarantee Period.
5
<PAGE> 6
DEFERRED ANNUITY
An annuity Contract under which the start of annuity payments is deferred to a
future date.
EXCESS INTEREST RATE
A rate of interest declared by Us in excess of the Subsequent Guarantee Rate for
any Guarantee Period.
FIXED ANNUITY
A series of periodic payments for the benefit of the Participant of
predetermined amounts that do not vary with investment experience. Such payments
are made out of the general account assets of the Company.
FIXED ACCOUNT
The Fixed Account is the Company's general asset account. It contains all of the
assets of the Company except for the Separate Account and other segregated asset
accounts. Amounts in the Fixed Account are guaranteed by the Company.
FUND
A collective term used to represent an investment entity, a portfolio of which
may be selected by the Participant to be an underlying investment of the
Participant's Certificate.
GUARANTEE PERIOD
The period for which the Current Interest Rate is credited.
IRC
The Internal Revenue Code of 1986, as amended, as the same may be amended or
superseded.
PARTICIPANT
The person named in the Certificate who is entitled to exercise all rights and
privileges of ownership under the Certificate.
PAYEE
Any person receiving payment of annuity benefits under this Certificate during
the Annuity Period.
PORTFOLIO
A separate investment portfolio of a Fund which has distinct investment
objectives. Each Portfolio serves as an underlying investment medium for
Purchase Payments and allocations made to one of the Variable Accounts of the
Separate Account.
PURCHASE PAYMENTS
Payments made by or on behalf of the Participant to the Company for the
Certificate.
SEPARATE ACCOUNT
A segregated asset account named on the Certificate Data Page, established by
the Company in accordance with California law. The Separate Account consists of
several Variable Accounts, each investing in a Portfolio of a Fund. The
Prospectus should be read for complete details regarding Separate Account
contracts.
6
<PAGE> 7
SUBSEQUENT GUARANTEE RATE
The rate of interest established by the Company for the applicable subsequent
Guarantee Period, but in no event less than the rate specified on the
Certificate Data Page.
VALUATION PERIOD
The period beginning at the close of the New York Stock Exchange on each day
that the New York Stock Exchange is open for regular trading and ending at the
close of the next succeeding business day of the New York Stock Exchange.
VARIABLE ACCOUNT
A division of the Separate Account, the assets of which consist of shares of a
specified Portfolio of a Fund. The available Variable Accounts are shown on the
Certificate Data Page.
VARIABLE ANNUITY
A series of periodic payments which vary in amount according to the investment
experience of a one or more Variable Accounts.
WE, OUR, US, THE COMPANY
Anchor National Life Insurance Company.
YOU, YOUR
The Participant.
7
<PAGE> 8
GENERAL PROVISIONS
CONFORMITY WITH STATE LAWS
This Certificate will be interpreted under the law of the state in which it is
delivered. Any provision which, on the Certificate Date, is in conflict with the
law of such state is amended to conform to the minimum requirements of such law.
A detailed statement of how We calculate the values in this Certificate has been
filed with the insurance department where the Certificate was delivered. These
values are at least as great as those required by law.
CHANGES IN LAW
If laws governing this Certificate or the taxation of benefits under the
Certificate change, We will amend the Group Contract and this Certificate to
comply with these changes.
ASSIGNMENT
The Participant may assign this Certificate before the Annuity Date, but We will
not be bound by an assignment unless it is in writing and We have received it.
Participant's rights and those of any other person referred to in this
Certificate will be subject to the assignment. We assume no responsibility for
the validity or tax consequences of any assignment.
MISSTATEMENT OF AGE OR SEX
If the age or sex of any Annuitant has been misstated, future payments will be
adjusted using the correct age and sex, according to Our rates in effect on the
date that annuity payments were determined. Any overpayment from the Fixed
Account, plus interest at the rate of 4% per year, will be deducted from the
next payment(s) due. Any underpayment from the Fixed Account, plus interest at
the rate of 4% per year, will be paid in full with the next payment due. Any
overpayment from the Variable Accounts will be deducted from the next payment(s)
due. Any underpayment from the Variable Accounts will be paid in full with the
next payment due.
WRITTEN NOTICE
Any notice We send to the Participant will be sent to the Participant's address
shown in the Application unless the Participant requests otherwise. Any written
request or notice to Us must be sent to Our Annuity Service Center, as specified
on the Certificate Data Page.
PROOF OF AGE, SEX OR SURVIVAL
The Company may require satisfactory proof of correct age or sex at any time. If
any payment under this Certificate depends on the Annuitant being alive, the
Company may require satisfactory proof of survival.
NON-PARTICIPATING
This Certificate does not share in Our surplus.
PERIODIC REPORTS
The Company will furnish the Owner with a statement of the Variable and Fixed
Account balances periodically.
8
<PAGE> 9
PREMIUM TAXES
The Company may deduct from the Certificate Value any premium or other taxes
payable to a state or other government entity. Should We advance any amount so
due, We are not waiving any right to collect such amounts at a later date. The
Company will deduct any withholding taxes required by applicable law.
CHANGE OF ANNUITANT
Prior to the Annuity Date, the Owner may change the Annuitant. To be effective,
such a change must be received by Us in a written form acceptable to Us.
DEFERMENT OF PAYMENTS
We may defer making payments from the Fixed Account for up to 6 months.
Interest, subject to state requirements, will be credited during the deferral
period.
SUSPENSION OF PAYMENTS
We may suspend or postpone any payments from the Variable Accounts if any of the
following occur:
(a) the New York Stock Exchange is closed,
(b) trading on the New York Stock Exchange is restricted,
(c) an emergency exists such that it is not reasonably practical to dispose
of securities in the Separate Account or to determine the value of its
assets, or
(d) the Securities and Exchange Commission, by order, so permits for the
protection of security holders.
Conditions in (b) and (c) will be decided by or in accordance with rules of the
Securities and Exchange Commission.
PURCHASE PAYMENTS
Purchase Payments are flexible. This means that You, subject to Company declared
minimums and maximums, may change the amounts, frequency or timing of Purchase
Payments. Purchase Payments may be allocated to the Fixed Account and one or
more Variable Accounts in accordance with instructions from You. We reserve the
right to specify the minimum that may be allocated to a Variable Account under
the Certificate.
SUBSTITUTION OF FUND
If the shares of any of the Funds or any Portfolio of a Fund 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 a Fund is no
longer appropriate in view of the purpose of the Contract, the Company may
substitute shares of another mutual fund or separate investment series thereof,
for Fund shares already purchased or to be purchased in the future by Purchase
Payments under the Contract. No substitution of securities may take place
without prior approval of the Securities and Exchange Commission and under such
requirements as it may impose.
9
<PAGE> 10
SEPARATE ACCOUNT
The Separate Account is a separate investment account of the Company. It is
shown on the Certificate Data Page. The assets of the Separate Account are the
property of the Company. However, they are not chargeable with the liabilities
arising out of any other business the Company may conduct. Each Variable Account
is not chargeable with liabilities arising out of any other Variable Account.
ACCUMULATION PROVISIONS
SEPARATE ACCOUNT ACCUMULATION VALUE
The Separate Account Accumulation Value under the Certificate shall be the sum
of the values of the Accumulation Units held in the Variable Accounts for the
Participant.
NUMBER OF ACCUMULATION UNITS
For each Variable Account, the number of Accumulation Units is the sum of:
Each Purchase Payment and transfer allocated to the Variable Account, reduced by
applicable premium taxes, if any:
Divided by
The Accumulation Unit Value for that Variable Account as of the Valuation Period
in which the Purchase Payment or transfer amount is received.
The number of Accumulation Units will be similarly adjusted for withdrawals,
annuitizations, transfers, and charges. Adjustments will be made as of the end
of the Valuation Period in which We receive all requirements for the
transaction, as appropriate.
ACCUMULATION UNIT VALUE (AUV)
The AUV of a Variable Account 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 given Valuation Period of the
assets attributable to the Accumulation Units of the Variable Account
minus the total liabilities;
(2) is the cumulative unpaid charge for assumption of mortality expense and
distribution expense risks (See CHARGES AND DEDUCTIONS);
(3) is the number of Accumulation Units outstanding at the end of the given
Valuation Period.
FIXED ACCOUNT ACCUMULATION VALUE
Under a Certificate, the Fixed Account Accumulation Value shall be the sum of
all monies allocated or transferred to the Fixed Account, reduced by any
applicable premium taxes, plus all interest credited on the Fixed Account during
the period that the Certificate has been in effect. This amount shall be
adjusted for withdrawals, annuitizations, transfers, and charges.
10
<PAGE> 11
FIXED ACCOUNT GUARANTEE PERIOD OPTIONS
For any amounts allocated to the Fixed Account, the Participant will select the
duration of the Guarantee Period(s) from those listed on the Certificate Data
Page. Such amounts will earn interest at the Current Interest Rate for the
chosen duration, compounded annually during the entire Guarantee Period. In no
event will the Current Interest Rate be less than the Subsequent Guarantee Rate
specified on the Certificate Data Page.
You may allocate Purchase Payments, or make transfers from the Variable Account
Options, to the Fixed Account at any time prior to the Annuity Date. However, no
Guarantee Period other than one year may be chosen which extends beyond the
Annuity Date. For thirty (30) days following the date of expiration of the
current Guarantee Period, You may renew for the same or any other Guarantee
Period at the then Current Interest Rate or may transfer all or a portion of the
amount to the Variable Accounts. Transfers from the Fixed Account may take place
thirty (30) days following the end of a Guarantee Period without being subject
to a Market Value Adjustment (MVA).
If the Participant does not specify a Guarantee Period at the time of renewal,
We will select the same Guarantee Period as has just expired, so long as such
Guarantee Period does not extend beyond the Annuity Date. If a renewal occurs
within one year of the latest Annuity Date We will credit interest up to the
Annuity Date at the then Current Interest Rate for the one year Guarantee
Period.
11
<PAGE> 12
MARKET VALUE ADJUSTMENT
Any amount withdrawn, transferred or annuitized prior to the end of that
Guarantee Period may be subject to a MVA.
The MVA will be calculated by multiplying the amount withdrawn, transferred or
annuitized by the formula described below:
N/12
{(1 + I)/(1+J+0.0050)} -1
I = The interest rate currently in effect for that Guarantee Period.
J = The Current Interest Rate available for the Guarantee Period equal to the
number of years (rounded up to an integer) remaining in the current Guarantee
Period at the time of withdrawal, transfer or annuitization. In the
determination of J, if the Company currently does not offer the applicable
Guarantee Period, then the rate will be determined by linear interpolation of
the current rates for the nearest two Guarantee Periods that are available.
N = The number of full months remaining in the current Guarantee Period at the
time the withdrawal or annuitization request is processed.
If a Contingent Deferred Sales Charge (CDSC) is applied to a withdrawal, then
the Market Value Adjustment (MVA) will be applied to the Net Withdrawal Amount.
The Net Withdrawal Amount is the Accumulated Value, less CDSC.
There will be no Market Value Adjustment on withdrawals from the Fixed Account
in the following situations: (1) Death Benefit paid upon death of the
Participant; (2) amounts withdrawn to pay fees or charges; (3) amounts withdrawn
from the Fixed Account within thirty (30) days after the end of the Guarantee
Period; (4) annuitizations on the latest Annuity Date; (5) in connection with
the Automatic Dollar Cost Averaging Program. A detailed description has been
filed with the Department of Insurance.
CHARGES AND DEDUCTIONS
We will deduct the following charges from the Certificate:
CONTRACT ADMINISTRATION CHARGE
The charge specified on the Certificate Data Page will be deducted on each
Certificate anniversary that occurs on or prior to the Annuity Date. It will
also be deducted when the Certificate Value is withdrawn in full if withdrawal
is not on a Certificate anniversary. We reserve the right to assess a charge on
a class basis which is less than the charge specified on the Certificate Data
Page.
CONTINGENT DEFERRED SALES CHARGE
This charge may be deducted upon withdrawal of the Certificate Value, in whole
or in part. See WITHDRAWAL PROVISIONS.
EXPENSE RISK CHARGE
On an annual basis this charge equals 0.35% of the average daily total net asset
value of the Variable Accounts. This charge is to compensate Us for assuming the
expense risks under the Certificate.
DISTRIBUTION EXPENSE CHARGE
On an annual basis this charge equals 0.15% of the average daily total net asset
value of the Variable Account. This charge is to compensate Us for all
distribution expenses associated with the Certificate.
12
<PAGE> 13
MORTALITY RISK CHARGE
On an annual basis this charge equals 0.9% of the average daily total net asset
value of the Variable Account. This charge is to compensate Us for assuming the
mortality risks under the Certificate.
TRANSFER PROVISION
Prior to the Annuity Date, You may transfer all or part of Your Certificate
Value to any of the Variable Accounts or the Fixed Account, subject to certain
restrictions.
We reserve the right to charge a fee for transfers if the number of transfers
exceeds the limit specified by Us.
Transfers will be effected at the end of the Valuation Period in which We
receive Your request for the transfer.
TRANSFERS OF ACCUMULATION UNITS BETWEEN VARIABLE ACCOUNTS
Both prior to and after the Annuity Date, You may transfer all or a portion of
Your investment in one Variable Account to another Variable Account. A transfer
will result in the purchase of Accumulation Units in a Variable Account and the
redemption of Accumulation Units in the other Variable Account.
The minimum amount which can be transferred between Variable Accounts and the
amount that remain in the Variable Account is subject to Company limits.
13
<PAGE> 14
TRANSFERS OF ACCUMULATION UNITS TO AND FROM THE FIXED ACCOUNT Both prior to and
after the Annuity Date, You may transfer all or any part of the Certificate
Value from the Variable Account(s) to the Fixed Account of the Certificate.
After the Annuity Date no transfers from the Fixed Account to the Variable
Account are allowed. For transfers from the Fixed Account prior to the Annuity
Date see ACCUMULATION PROVISIONS - FIXED ACCOUNT ACCUMULATION VALUE.
During the Annuity Period, the amount transferred to the Fixed Account from a
Variable Account will be equal to the annuity reserve for the Payee's interest
in that Variable Account. The annuity reserve is the product of (a) multiplied
by (b) multiplied by (c), where
(a) is the number of Annuity Units representing the Participant's interest
in the Variable Account;
(b) is the Annuity Unit Value for the Variable Account; and
(c) is the present value of $1.00 per payment period as of the age of the
Annuitant at the time of transfer for the Annuity Option, determined
using the 1983a Annuity Mortality Tables with interest at 3.5% per year.
Amounts transferred to the Fixed Account will be applied under the Annuity
Option at the age of the Annuitant at the time of the transfer. All amounts and
Annuity Unit Values will be determined as of the end of the Valuation Period
preceding the effective date of the transfer.
WITHDRAWAL PROVISION
Prior to the Annuity Date while the Annuitant is living, You may withdraw all or
part of the Certificate Value amounts under this Certificate by informing Us at
Our Annuity Service Center. For full withdrawal, this Certificate must be
returned to Our Annuity Service Center.
Absent written notification to the contrary, withdrawals and any applicable
charge will be deducted from the Certificate Value in proportion to its
allocation among the Fixed Account and the Variable Accounts. Withdrawals will
be based on values at the end of the valuation Period in which the request for
withdrawal and the Certificate (in the case of a full withdrawal), are received
at the Annuity Service Center. Unless the SUSPENSION OF PAYMENTS or DEFERMENT OF
PAYMENTS sections are in effect, payment of withdrawals will be made within
seven days.
14
<PAGE> 15
CONTINGENT DEFERRED SALES CHARGE
Withdrawal of all or part of the Certificate Value may be subject to a Continent
Deferred Sales Charge (CDSC). However, no CDSC is made on an amount withdrawn
which is considered to be a withdrawal of earnings.
In addition, for the first withdrawal during a Certificate Year, after the first
Certificate Year, no Contingent Deferred Sales Charge is applied to such part of
the withdrawal which does not exceed the greater of (a) earnings in the
Certificate or (b) the Free Corridor. The Free Corridor is equal to 10% of the
sum of Purchase Payments made more than one year prior to the date of withdrawal
still subject to CDSC, and are not yet withdrawn. The portion of a free
withdrawal, which exceeds the sum of earnings attributable to the Participant
and premiums which are both no longer subject to CDSC and not yet withdrawn, is
assumed to be a withdrawal against future earnings.
For the purpose of determining the CDSC, a withdrawal will be attributed to
amounts in the following order: (1) earnings in the Certificate, (2) Purchase
Payments which are both no longer subject to CDSC and are not yet withdrawn, and
(3) Purchase Payments subject to CDSC. Purchase Payments, when withdrawn, are
assumed to be withdrawn on a first-in first-out (FIFO) basis. The charge applied
to any withdrawal subject to CDSC will depend on the age of the Purchase Payment
to which the withdrawal is attributed.
<TABLE>
<CAPTION>
Number of Full Contribution Years Elapsed Contingent
Between Contribution Year of Withdrawal Deferred
and Contribution Year of Purchase Payment Sales Charge
- -------------------------------------------------------------------------------
<S> <C>
0 6%
1 6%
2 5%
3 5%
4 4%
5 3%
6 2%
7+ 0%
</TABLE>
The CDSC will be assessed against the Variable Accounts and the Fixed Account in
the same proportion as the remaining Certificate Value is allocated unless the
allocation is specified by the Participant. If the remaining Certificate Value
is insufficient to cover the Contingent Deferred Sales Charge, any remaining
balance will be deducted from the dollar amount requested.
15
<PAGE> 16
DEATH BENEFIT PROVISION
We will pay a Death Benefit to the Beneficiary upon Our receiving due proof that
the Participant died prior to the Annuity Date. The Death Benefit shall be
reduced by premium taxes incurred by the Company, if any. The Beneficiary may
elect to receive a single sum distribution or to receive annuity payments. If a
single sum payment is requested, payment will be in accordance with any
applicable laws and regulations governing payments on death. If an Annuity
Option is desired, an Option must be elected within 60 days of Our receipt of
due proof of the Participant's death at Our Annuity Service Center; otherwise a
single sum payment will be made at the end of such 60 day period. Funds will
remain allocated pursuant to the last allocation and instructions in effect at
the Participant's death until Our Annuity Service Center receives new written
instructions.
PROOF OF DEATH Due Proof of Death means:
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
Participant at the time of death; OR
4. any other proof satisfactory to Us.
AMOUNT OF DEATH BENEFIT
TIn the case of a Participant less than age 70 on the Certificate Date, the
Death Benefit shall be the greatest of :
1. 100% of the total amount of Purchase Payments, less any partial
withdrawals and partial annuitizations made; OR
2. the Certificate Value at the end of the Valuation Period during which We
receive at Our Annuity Service Center due proof of the Participant's
death and an election of the type of payment to be made; OR
3. the Certificate Value realized on that anniversary of the Certificate
Date prior to death, increased by Purchase Payments made since such
anniversary, and reduced by any partial withdrawals and partial
annuitizations since such anniversary, which will yield the greatest
result.
In the case of a Participant age 70 or greater on the Certificate Date, the
Death Benefit shall be the Certificate Value at the end of the Valuation Period
during which We receive at Our Annuity Service Center due proof of the
Participant's death and an election of the type of Payment to be made.
16
<PAGE> 17
BENEFICIARY
The Beneficiary is as stated in the Application unless later changed by the
Participant. If two or more persons are named, those surviving the Participant
will share equally unless otherwise stated. If the Annuitant survives the
Participant, and there are no surviving Beneficiaries, the Annuitant will be
deemed the Beneficiary. If the Participant is also the Annuitant and there are
no surviving Beneficiaries at the death of the Participant, the Death Benefit
will be paid to the estate of the Participant.
While the Participant is living and before the Annuity Date, the Participant may
change the Beneficiary by written notice in a form satisfactory to Us. The
change will take effect on the date We receive the notice.
DEATH OF PARTICIPANT
If the Participant dies before the Annuity Date, the Beneficiary will have the
following options:
1. Collect the Death Benefit in a lump sum payment, OR
2. Collect the Death Benefit in the form of one of the Annuity Options. The
payments must be over the life expectancy of the Beneficiary or over a
period of not extending beyond the life of the Beneficiary. This option
must be selected and payments must commence within one year after
Participant's death, OR
3. Collect the entire Death Benefit at any time or from time to time within
5 years of the date of death of the Participant, OR
4. If the Beneficiary is the Participant's spouse, the Beneficiary may
continue the Certificate in force.
If there is no surviving Beneficiary, the Death Benefit will be paid in a lump
sum to Participant's estate. If there is more than one surviving Beneficiary,
the Beneficiaries must choose to receive their respective portions of the Death
Benefit according to either (1), (2) or (3) above.
17
<PAGE> 18
ANNUITY PROVISIONS
ANNUITY DATE
The Participant selects an Annuity Date (the date on which the payments are to
begin) at the time of application. The Annuity Date must always be the first day
of the calendar month and must be at least two years after the Issue 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, as set by the Company. If no
Annuity Date is selected, the Annuity will be the latest Annuity Date, as set by
the Company. The Owner 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.
PAYMENTS TO PARTICIPANT
Unless otherwise requested by the Participant, the Company will make annuity
payments to the Participant. If the Participant wants the annuity payments to be
made to some other Payee, We will make such payments subject to the following:
(a) A written request must be filed at the Annuity Service Center.
(b) Such request must be filed not later than thirty (30) days before the
due date of the first annuity payment.
Any such request is subject to the rights of any assignee. No payments available
to or being paid to the Payee while the Annuitant is alive can be transferred,
commuted, anticipated or encumbered.
FIXED ANNUITY PAYMENTS
To the extent a fixed annuity option has been elected, the proceeds payable
under this Certificate less any applicable premium taxes, shall be applied to
the payment of the Annuity Option elected at whichever of the following is more
favorable to the Payee: (a) the annuity rates based upon the applicable tables
in the Certificate; or (b) the then current rates provided by the Company on
Certificates of this type on the Annuity Date. In no event will the fixed
annuity payments be changed once they begin.
AMOUNT OF FIXED ANNUITY PAYMENTS
The amount of each Fixed Annuity payment will be determined by applying the
portion of the Certificate Value allocated to Fixed Annuity payments less any
applicable premium taxes or other charges to the annuity table applicable to the
Annuity Option chosen.
AMOUNT OF VARIABLE ANNUITY PAYMENTS
(a) FIRST VARIABLE PAYMENT: The dollar amount of the first monthly annuity
payment will be determined by applying the portion of the Certificate
Value allocated to Variable Annuity payments, less any applicable
premium taxes or other charges, to the annuity table applicable to the
Annuity Option chosen. If more than one Variable Account has been
selected, the value of the Participant's interest in each Variable
Account is applied separately to the annuity table to determine the
amount of the first annuity payment attributable to the Variable
Account.
18
<PAGE> 19
(b) NUMBER OF VARIABLE ANNUITY UNITS: The number of Annuity Units for each
applicable Variable Account is the amount of the first annuity payment
attributable to that Variable Account divided by the value of the
applicable Annuity Unit for that Variable Account as of the Annuity
Date. The number will not change as a result of investment experience.
(c) VALUE OF EACH VARIABLE ANNUITY UNIT: The initial value of an Annuity
Unit of each Variable Account was arbitrarily set at $10 when the
Variable Accounts were established. The value may increase or decrease
from one Valuation Period to the next. For any Valuation Period, the
value of an Annuity Unit of a particular Variable Account is the value
of that Annuity Unit during the last Valuation Period, multiplied by the
Net Investment Factor for that Variable Account for the current
Valuation Period.
The Net Investment Factor for any Variable Account for any Valuation Period is
determined by dividing (a) by (b) and then subtracting (c) from the result
where:
(a) is the net result of:
(1) the net asset value of a Portfolio of the Fund share
held in the Variable Account determined as of the end of
the Valuation Period, plus
(2) the per share amount of a dividend or other distribution
declared by the Portfolio of the Fund on the shares held
in the Variable Account if the "ex-dividend" date occurs
during the Valuation Period, plus or minus
(3) a per share credit or charge with respect to any taxes
paid or reserved for by the Company during the Valuation
Period which are determined by the Company to be
attributable to the operation of the Variable Account
(no federal income taxes are applicable under present
law);
(b) is the net asset value of a Portfolio of the Fund share held in
the Variable Account determined as of the end of the preceding
Valuation Period; and
(c) is the asset charge factor determined by the Company for the
Valuation Period to reflect the Expense Risk Charge, Distribution
Expense Charge and Mortality Risk Charge.
The result is then multiplied by a factor that neutralizes the Assumed
Investment Rate.
19
<PAGE> 20
(d) SUBSEQUENT VARIABLE ANNUITY PAYMENTS: After the first Variable Annuity
payment, payments will vary in amount according to the investment performance of
the applicable Variable Accounts. The amount may change from month to month. The
amount of each subsequent payment is the sum of:
The number of Annuity Units for each Variable Account as determined for the
first annuity payment
Multiplied by
The value of an Annuity Unit for that Variable Account at the end of the
Valuation Period immediately preceding in which payment is due.
The Company guarantees that the amount of each Variable Annuity payment will not
be affected by variations in expenses or mortality experience.
ANNUITY OPTIONS
Upon written election filed with the Company at its Annuity Service Center, all
or part of the Contract Value may be applied to provide one of the following
options or any Annuity Option that is mutually agreeable.
OPTION 1 - LIFE ANNUITY, LIFETIME MONTHLY PAYMENTS GUARANTEED
Monthly payments payable to the Payee during the lifetime of the Annuitant. No
further payments are payable after the death of the Annuitant and there is no
provision for a Death Benefit payable to the Beneficiary.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
Monthly payments payable to the Payee during the joint lifetime of the Annuitant
and a designated second person and during the lifetime of the survivor.
If a reduced payment to the survivor is desired, Variable Annuity payments to
the survivor will be determined using either one-half or two-thirds of the
number of each type of Annuity Unit credited to the Certificate. Fixed monthly
payments to the survivor will be equal to either one-half or two-thirds of the
fixed monthly payment payable during the joint lifetime of the Annuitant and the
designated second person.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY - 120 MONTHLY PAYMENTS GUARANTEED
Monthly payments payable to the Payee during the joint lifetime of the Annuitant
and designated second person and continuing during the remaining lifetime of the
survivor, with the guarantee that if, at the death of the survivor, payments
have been made for less than 120 monthly periods, any remaining guaranteed
annuity payments will be continued to the Beneficiary named on the Annuity
Option Selection Form. In the event of death of the Annuitant and the designated
second person under this option, the Company shall in most instances, calculate
the discounted value of the remaining guaranteed annuity payments and pay them
in one sum.
20
<PAGE> 21
OPTION 4 - LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED
An annuity payable monthly to the Payee during the lifetime of the Annuitant
with the guarantee that if, at the death of the Annuitant, payments have been
made for less than the 120 or 240 monthly periods, as selected, payments will be
made in the same manner as provided under OPTION 3 above. In the event of death
of the Annuitant under this option, the Company shall in most instances,
calculate the discounted value of the remaining guaranteed annuity payments and
pay them in one sum.
OPTION 5 - FIXED PAYMENTS FOR A SPECIFIED PERIOD CERTAIN
Fixed monthly payments payable to the Payee for any specified period of time
(three (3) years or more, but not exceeding thirty (30) years), as elected. The
election must be made for full twelve month periods. In the event of death of
the Payee under this option, the Company shall in most instances, calculate the
discounted value of the remaining guaranteed annuity payments and pay them in
one sum.
BASIS OF COMPUTATION
The actuarial basis for the Table of Guaranteed Annuity Rates is the 1983a
Annuity Mortality Table, without projection with interest at 3.5%. The Table of
Guaranteed Annuity Rates does not include any applicable premium tax.
21
<PAGE> 22
OPTIONS 1 & 4 - TABLE OF MONTHLY INSTALLMENTS
(Monthly installments for ages not shown will be furnished upon
request.)
<TABLE>
<CAPTION>
OPTION 1 OPTION 4 OPTION 4
AGE OF LIFE ANNUITY LIFE ANNUITY
PAYEE LIFE ANNUITY (W/120 PAYMENTS GUARANTEED) (W/240 PAYMENTS GUARANTEED)
MALE FEMALE MALE FEMALE MALE FEMALE
<S> <C> <C> <C> <C> <C> <C>
55 4.99 4.54 4.91 4.51 4.66 4.38
56 5.09 4.62 5.00 4.58 4.72 4.44
57 5.20 4.71 5.10 4.66 4.78 4.51
58 5.32 4.80 5.20 4.75 4.85 4.57
59 5.44 4.90 5.31 4.84 4.91 5.64
60 5.57 5.00 5.42 4.93 4.97 4.70
61 5.71 5.11 5.54 5.03 5.04 4.77
62 5.86 5.23 5.67 5.14 5.10 4.84
63 6.02 5.36 5.80 5.25 5.16 4.91
64 6.20 5.49 5.94 5.37 5.22 4.98
65 6.38 5.64 6.08 5.50 5.28 5.05
66 6.58 5.79 6.23 5.63 5.33 5.12
67 6.79 5.95 6.38 5.77 5.38 5.19
68 7.02 6.13 6.54 5.91 5.43 5.25
69 7.26 6.32 6.71 6.07 5.48 5.32
70 7.52 6.53 6.87 6.23 5.52 5.37
71 7.80 6.75 7.04 6.41 5.55 5.43
72 8.09 6.99 7.22 6.58 5.59 5.48
73 8.41 7.26 7.39 6.76 5.62 5.52
74 8.75 7.54 7.57 6.95 5.64 5.56
75 9.12 7.85 7.75 7.14 5.66 5.60
76 9.51 8.18 7.92 7.34 5.68 5.63
77 9.92 8.54 8.09 7.54 5.70 5.66
78 10.37 8.94 8.26 7.74 5.71 5.68
79 10.85 9.36 8.42 7.94 5.72 5.70
80 11.37 9.82 8.57 8.13 5.73 5.71
81 11.92 10.32 8.71 8.32 5.74 5.72
82 12.50 10.87 8.85 8.50 5.74 5.73
83 13.12 11.46 8.97 8.67 5.75 5.74
84 13.78 12.09 9.09 8.83 5.75 5.74
85 14.47 12.78 9.20 8.97 5.75 5.75
</TABLE>
22
<PAGE> 23
OPTION 3 - TABLE OF MONTHLY INSTALLMENTS
(MONTHLY INSTALLMENTS FOR AGES NOT SHOWN WILL BE FURNISHED UPON
REQUEST.)
JOINT & 100% SURVIVOR ANNUITY
<TABLE>
<CAPTION>
AGE OF
MALE
PAYEE AGE OF FEMALE PAYEE
------ --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
55 60 65 70 75 80 85
55 4.16 4.34 4.51 4.66 4.78 4.86 4.92
60 4.27 4.51 4.76 4.99 5.19 5.33 5.44
65 4.35 4.66 4.99 5.34 5.66 5.92 6.11
70 4.42 4.78 5.20 5.67 6.16 6.60 6.96
75 4.47 4.86 5.35 5.95 6.63 7.33 7.95
80 4.50 4.92 5.46 6.17 7.04 8.04 9.02
85 4.52 4.95 5.53 6.31 7.34 8.63 10.05
</TABLE>
<TABLE>
<CAPTION>
OPTION 5 - TABLE OF MONTHLY INSTALLMENTS
FIXED PAYMENT FOR SPECIFIED PERIOD
NUMBER MONTHLY NUMBER MONTHLY NUMBER MONTHLY NUMBER MONTHLY
OF YEARS PAYMENT OF YEARS PAYMENT OF YEARS PAYMENT OF YEARS PAYMENT
-------- ------ -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
3 29.19 10 9.83 17 6.47 24 5.09
4 22.27 11 9.03 18 6.20 25 4.96
5 18.12 12 8.46 19 5.97 26 4.84
6 15.35 13 7.94 20 5.75 27 4.73
7 13.38 14 7.49 21 5.56 28 4.63
8 11.90 15 7.10 22 5.39 29 4.53
9 10.75 16 6.76 23 5.24 30 4.45
</TABLE>
23
<PAGE> 1
EXHIBIT 4B
[ANCHOR NATIONAL LOGO]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PARTICIPATION ENROLLMENT FORM R-5425CMB (7/94)
Please print or type. Do not use highlighters on this application.
<S> <C>
A. PARTICIPANT DOE JOHN B.
----------------------------------------------------------------------------------------------------------------
LAST NAME/CUSTODIAN/TRUST/PLAN NAME FIRST NAME MIDDLE INITIAL
111 MAIN STREET
----------------------------------------------------------------------------------------------------------------
STREET ADDRESS
ANYTOWN CA 92729 (213) 445-6500
----------------------------------------------------------------------------------------- ------------------
CITY STATE ZIP CODE TELEPHONE NUMBER
NO. DAY YR. [x] M [ ] F ###-##-####
---------------------------------- --------------- ---------------------------------------
DATE OF BIRTH SEX SOCIAL SECURITY OR TAX ID NUMBER
JOINT
PARTICIPANT ----------------------------------------------------------------------------------------------------------------
(If applicable) LAST NAME FIRST NAME MIDDLE INITIAL
(Must be spouse
of participant) --------------------------------------------------------------------------------------------------------------
STREET ADDRESS
----------------------------------------------------------------------------------------- ------------------
CITY STATE ZIP CODE TELEPHONE NUMBER
NO. DAY YR. [ ] M [ ] F
---------------------------------- --------------- ---------------------------------------
DATE OF BIRTH SEX SOCIAL SECURITY OR TAX ID NUMBER
B. ANNUITANT
(Complete only if ----------------------------------------------------------------------------------------------------------------
different from LAST NAME FIRST NAME MIDDLE INITIAL
participant. This
product does not --------------------------------------------------------------------------------------------------------------
provide for joint STREET ADDRESS
annuitants)
----------------------------------------------------------------------------------------- ------------------
CITY STATE ZIP CODE TELEPHONE NUMBER
NO. DAY YR. [ ] M [ ] F
---------------------------------- --------------- ---------------------------------------
DATE OF BIRTH SEX SOCIAL SECURITY OR TAX ID NUMBER
C. BENEFICIARY DOE SALLY A. SISTER PRIMARY/CONTINGENT
----------------------------------------------------------------------------------------------------------------
LAST NAME FIRST NAME MIDDLE INITIAL RELATIONSHIP CIRCLE ONE
PRIMARY[circled]/CONTINGENT
----------------------------------------------------------------------------------------------------------------
LAST NAME FIRST NAME MIDDLE INITIAL RELATIONSHIP CIRCLE ONE
D. TYPE OF [X] NONQUALIFIED.
CONTRACT Is this a 1035 exchange? [ ] YES [X] NO
Is this a Transfer of Assets (funds to be transferred from a mutual fund, CD, etc.)? [ ] YES [X] NO
If either of the above is a yes, please complete a "Request for Transfer or 1035 Exchange" (G-2500NB).
[ ] QUALIFIED, as indicated below. Is this a direct transfer?
If yes, please complete a "Request for Transfer or 1035 Exchange" (G-2500NB). [ ] YES [ ] NO
[ ] SEP [ ] 403(b) [ ] Terminal funding [ ] 457 plan [ ] 401 retirement plan
[ ] IRA Tax year ______ [ ] IRA Rollover [ ] IRA Transfer [ ] Other_______________________________________
PLEASE SPECIFY
E. ANNUITY DATE MO. DAY YR. Date annuity payout will begin. (Note: Maximum age 85. If left blank, the date will
-------------------------- default to age 85 for nonqualified and 70-1/2 for qualified contracts.)
ANNUITY DATE
F. PURCHASE [ ] INITIAL PAYMENT: $ 5,000
PAYMENT(S) ---------
Minimum initial payment is $5,000 for nonqualified contracts; [$2,000] for qualified contracts.
Payments may be wired or mailed. Make check payable to Anchor National Life Insurance Company.
[ ] AUTOMATIC PAYMENTS: $_____________________
To establish automatic bank drafts, include a completed "Automatic Payment Authorization"
(G-2233POS), a voided check and initial premium for the policy.
G. SPECIAL [ ] SYSTEMATIC WITHDRAWAL; Check the box at left and include a completed "Systematic Withdrawal
FEATURES Application" (R-5550SW).
[ ] AUTOMATIC DOLLAR COST AVERAGING; Check the box at left and include a completed "Dollar Cost
Averaging" Application (R-5551DCA).
[ ] PRINCIPAL ADVANTAGE: Check the box at left. In Section H, indicate the fixed account desired and
specify other allocations as percentages.
R-5425CMB (7/94) (OVER) Group Allocated
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
R-5425CMB (Side 2)
- -------------------------------------------------------------------------------------------------------------------------
PARTICIPANT ENROLLMENT FORM
- -------------------------------------------------------------------------------------------------------------------------
H. INVESTMENT __________ Fixed Account Options __________ __________ Variable Account Options __________
INSTRUCTIONS
(Allocations must be 10% 1 yr. % 3 yr. 10% 5 yr. _________________ Portfolio __________________
expressed in whole -- --
percentages and total 30% International Equity
allocations must $ 7 yr. % 10 yr. % Capital Growth
equal 100%) -- -- --
30% Growth and Income
--
% Asset Allocation
20% U.S. Treasury Income
--
% Money Market
I. TELEPHONE Do you wish to authorize telephone transfers, subject to the conditions set
TRANSACTION forth below? [ ] YES [X] NO
AUTHORIZATION
Do you wish to authorize telephone withdrawals, subject to the conditions
set forth below? [ ] YES [X] NO
(If no election is indicated the Company will default to yes for transfers
and no for withdrawals.)
If indicated above, I authorize the Company to accept telephone instructions for transfers in
any amount among subaccounts and/or for partial redemptions from $1,000.00 - $50,000.00 from
anyone providing proper identification subject to restrictions and limitations contained in the
contract and related prospectus, if any. I understand that I bear the risk of loss in the event
of a telephone instruction not authorized by me. The Company will not be responsible for any
losses resulting from unauthorized transactions if it follows reasonable procedures designed
to verify the identity of the caller and therefore, that the Company will record telephone
conversations containing transaction instructions, request personal identification information
before acting upon telephone instructions and send written confirmation statements of
transactions to the address of record.
J. SPECIAL
REQUESTS ________________________________________________________________________________________________
K. STATEMENT OF I certify that this Certificate [ ] WILL [X] WILL NOT replace in whole or in part any existing
PARTICIPANT life insurance or annuity contract. (If so, indicate by issuing company and contract number
below.)
__________________________________________________________________________ ____________________
COMPANY NAME CONTRACT NUMBER
I hereby represent my answers to the above questions to be correct and true to the best of my
knowledge and belief and agree that this Enrollment Form shall be a part of any Certificate
issued by the Company. I verify my understanding that all payments and values provided by the
Certificate, when based on investment experience of a variable account(s), are variable and not
guaranteed as to dollar amount. I understand that all payments and values based on the General
Account are subject to a Market Value Adjustment formula, which may result in upward and
downward adjustments in amounts payable. I further verify that I (1) was not offered any advice or
recommendation on investing in the certificate by any commercial bank; and (2) understand that
(I) the certificate is not insured by the FDIC or Federal Reserve Board or any other agency;
(II) the certificate is not a deposit or obligation of, or endorsed, nor guaranteed by, Chase
or any commercial bank. I acknowledge receipt of the current prospectus for the Vista Capital
Advantage and its underlying funds. I have read it carefully and understand its contents.
Signed at ANYTOWN CA 7/1/94
------------------------------------------------------------ ------------------------
CITY STATE DATE
JOHN DOE JOE AGENT
------------------------------------------------------------------------------------------------
PARTICIPANT'S SIGNATURE REGISTERED REPRESENTATIVES SIGNATURE
----------------------------------------------------
JOINT PARTICIPANT'S SIGNATURE (IF APPLICABLE)
L. REGISTERED Will this certificate replace in whole or in part any existing life insurance
REPRESENTATIVES or annuity contract? [ ] YES [ ] NO
INFORMATION
AGENT JOE F. ###-##-####
-------------------------------------------------------------------------- -------------------
REPRESENTATIVE'S LAST NAME FIRST NAME MIDDLE INITIAL SOC. SEC. NUMBER
222 MAIN ST. ANYTOWN CA 92729
------------------------------------------------------------------------- --------------------
REPRESENTATIVE'S STREET ADDRESS CITY STATE ZIP CODE
DEALER'S ANONYMOUS (213) 445-5500 345TIN
--------------------------------------------- ------------------------------ -----------------
BRANCH OFFICE REPRESENTATIVE'S TELEPHONE NO. AGENT ID NUMBER
FRAUD WARNING: ANY PERSON WHO WITH INTENT TO DEFRAUD OR KNOWING THAT HE IS FACILITATING A FRAUD
AGAINST AN INSURER, SUBMITS AN APPLICATION OR FILES A CLAIM CONTAINING A FALSE OR DECEPTIVE
R-5425CMB (7/94) STATEMENT IS GUILTY OF INSURANCE FRAUD.
</TABLE>
<PAGE> 1
EXHIBIT 21
SunAmerica Inc. (a Maryland corporation) owns 100% of SunAmerica Financial,
Inc. (a Georgia corporation); Resources Trust Company (a Colorado
corporation, which owns 100% of Resources Consolidated Inc. (a Colorado
corporation); SunAmerica Life Insurance Company (an Arizona corporation);
Imperial Premium Finance, Inc. (a Delaware corporation); SA Investment Group,
Inc. (a California corporation); SunAmerica Capital Trust I (a Delaware
business trust); SunAmerica Capital Trust II (a Delaware business trust);
SunAmerica Capital Trust III (a Delaware business trust); SunAmerica Capital
Trust IV (a Delaware business trust); SunAmerica Capital Trust V (a Delaware
business trust); SunAmerica Capital Trust VI (a Delaware business trust);
SunAmerica Affordable Housing Finance Corp. (a Delaware corporation);
Stanford Ranch, Inc. (a Delaware corporation) which owns 100% of Stanford
Ranch, Inc. (a Califoria corporation); Arrowhead SAHP Corp. (a New Mexico
corporation); Bear Run SAHP Corp. (a Delaware corporation); Chelsea SAHP
Corp. (a Florida corporation); Tierra Vista SAHP Corp. (a Florida
corporation); Westwood SAHP Corp. (a New Mexico corporation); Bryton SAHP
Corp. (a Delaware close corporation); Crossings SAHP Corp. (a Delaware close
corporation); Emerald SAHP Corp. (a Delaware close corporation); Forest SAHP
Corp. (a Delaware close corporation); Pleasant SAHP Corp. (a Delaware close
corporation); Westlake SAHP Corp. (a Delaware close corporation);
Williamsburg SAHP Corp. (a Delaware close corporation); and Willow SAHP Corp.
(a Delaware close corporation). In addition, SunAmerica Inc. owns 80% of
AMSUN Realty Holdings (a California corporation); and 33% of New California
Life Holdings, Inc. (a Delaware corporation) which owns 100% of Aurora
National Life Assurance Company (a California corporation).
SunAmerica Financial, Inc. owns 100% of SunAmerica Marketing, Inc. (a
Maryland corporation); SunAmerica Advertising, Inc. (a Georgia corporation);
SunAmerica Investments, Inc. (a Delaware corporation) which owns 100% of
Accelerated Capital Corp. (a Florida corporation); 1401 Sepulveda Corp. (a
California corporation); SunAmerica Louisiana Properties, Inc. (a California
corporation); SunAmerica Real Estate and Office Administration, Inc. (a
Delaware corporation); SunAmerica Affordable Housing Partners, Inc. (a
California corporation); Hampden I & II Corp. (a California corporation);
Sunport Holdings, Inc. (a California corporation) which owns 100% of Sunport
Property Co. (a Florida corporation); SunAmerica Mortgages, Inc. (a Delaware
corporation); Sun Princeton II, Inc. (a California corporation) which owns
100% of Sun Princeton I (a California corporation); Advantage Capital
Corporation (a New York corporation); SunAmerica Planning, Inc. (a Maryland
corporation which owns 100% of SunAmerica Securities, Inc. (a Delaware
corporation) and 100% of Anchor Insurance Services, Inc. (a Hawaii
corporation) which owns 50% of Royal Alliance Associates Inc. (a Delaware
corporation); SunAmerica Insurance Company (Cayman), Ltd. (a Cayman Islands
corporation); Sun Mexico Holdings, Inc. (a Delaware corporation) which owns
100% of Sun Cancun I, Inc. (a Delaware corporation), Sun Cancun II, Inc. (a
Delaware corporation), Sun Ixtapa I, Inc. (a Delaware corporation) and Sun
Ixtapa II, Inc. (a Delaware corporation); Sun Hechs, Inc. (a California
corporation); and SunAmerica Travel Services, Inc. (a California
corporation); SAI Investment Adviser, Inc. (a Delaware corporation); Sun GP
Corp. (a California corporation); The Financial Group, Inc. (a Georgia
Corporation) which owns 100% of Keogler, Morgan Co., Keogler Investment
Advisory, Inc., and Keogler, Morgan investment Inc. (all Georgia
Corporations); Sun CRC, Inc. (a California corporation); Sun-Dollar, Inc. (a
California close corporation); and 70% of Home Systems Partners (a California
limited partnership) which owns 100% of Extraneous Holdings Corp. (a Delaware
corporation).
SunAmerica Life Insurance Company owns 100% of First SunAmerica Life Insurance
Company (a New York corporation); SunAmerica National Life Insurance Company (an
Arizona corporation); John Alden Life Insurance Company of New York (a New York
corporation); CalAmerica Life Insurance Company (a California corporation);
Anchor National Life Insurance Company (a California corporation) which owns
100% of Anchor Pathway Fund, Anchor Series Trust, SunAmerica Series Trust, and
Seasons Series Trust, (all Massachusetts business trusts); UG Corporation (a
Georgia corporation); Export Leasing FSC, Inc. (a U.S. Virgin Islands
corporation); SunAmerica Virginia Properties, Inc. (a California corporation);
SAL Investment Group (a California corporation); and Saamsun Holding Corporation
(a Delaware corporation) which
<PAGE> 2
owns 100% of SAM Holdings Corporation (a California corporation) which owns
100% of SunAmerica Asset Management Corp. (a Delaware corporation),
SunAmerica Capital Services, Inc. (a Delaware corporation), SunAmerica Fund
Services, Inc. (a Delaware corporation), ANF Property Holdings, Inc. (a
California corporation), Capitol Life Mortgage Corp. (a Delaware corporation)
and Sun Royal Holdings Corporation (a California corporation) which owns 50%
of Royal Alliance Associates, Inc. In addition, SunAmerica Life Insurance
Company owns 80% of SunAmerica Realty Partners (a California corporation) and
33% of New California Life Holdings, Inc. (a Delaware corporation) which owns
100% of Aurora National Life Assurance Company (a California corporation; and
88.75% of Sun Quorum L.L.C. (a Delaware limited liability company).
Imperial Premium Finance, Inc. (Delaware) owns 100% of Imperial Premium
Finance, Inc. (a California corporation); Imperial Premium Funding, Inc. (a
Delaware corporation); and SunAmerica Financial Resources, Inc. (a Delaware
corporation).
Updated As of 10/21/97
<PAGE> 1
EXHIBIT 23A
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated November 7, 1997
relating to the consolidated financial statements of Anchor National Life
Insurance Company, which appears in such Prospectus. We also consent to the
reference to us under the heading "Independent Accountants" in such Prospectus.
PRICE WATERHOUSE LLP
Los Angeles, California
December 24, 1997
<PAGE> 1
EXHIBIT 23B
Anchor National Life
Insurance Company
1 SunAmerica Center
Los Angeles, CA 90067-6022
310.772.6000
ANCHOR NATIONAL LOGO
Mailing Address A SunAmerica Company
P.O. Box 54197
Los Angeles, CA 90054-0197
VIA EDGAR
- ---------
December 18, 1997
Division of Investment Management
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Madam/Sir:
Referring to this Registration Statement on Form S-1 (the "Registration
Statement") filed by Anchor National Life Insurance Company ("Anchor National")
with the Securities and Exchange Commission, under the Securities Act of 1933,
as amended, and having examined and being familiar with the articles of
incorporation, by-laws and other pertinent records and documents of Anchor
National, I am of the opinion that:
1) Anchor National is a duly organized and existing stock
life insurance company under the laws of the State of Arizona; and
2) the annuity contracts being registered by the Registration Statement
will, upon sale thereof, be legally issued, fully paid and
nonassessable, and, to the extent that they are construed to constitute
debt securities, will be binding obligations of Anchor National, except
as enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors
generally.
I am licensed to practice law only in the State of California, and the
foregoing opinions are limited to the laws of the State of California, the
general corporate law of the State of Arizona and federal law. I hereby consent
to the filing of this opinion with the Securities and Exchange Commission in
connection with the Registration Statement.
Very truly yours,
/s/ SUSAN L. HARRIS
Susan L. Harris
Senior Vice President and Secretary
<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-K
FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 1,986,194,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,275,000
<MORTGAGE> 339,530,000
<REAL-ESTATE> 24,000,000
<TOTAL-INVEST> 2,608,301,000
<CASH> 113,580,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 536,155,000
<TOTAL-ASSETS> 12,570,939,000
<POLICY-LOSSES> 2,393,978,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 36,240,000
0
0
<COMMON> 3,511,000
<OTHER-SE> 571,707,000
<TOTAL-LIABILITY-AND-EQUITY> 12,570,939,000
0
<INVESTMENT-INCOME> 205,068,000
<INVESTMENT-GAINS> (17,394,000)
<OTHER-INCOME> 213,146,000
<BENEFITS> 131,867,000
<UNDERWRITING-AMORTIZATION> 66,879,000
<UNDERWRITING-OTHER> 8,977,000
<INCOME-PRETAX> 94,295,000
<INCOME-TAX> 31,169,000
<INCOME-CONTINUING> 63,126,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,126,000
<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>
