<PAGE> 1
As filed with the Securities and Exchange Commission on May 2, 1997
Registration No. 33-87864
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 6
--------------------
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)
Form S-1 Item Number and Caption Heading in Prospectus
- -------------------------------------------------------------------------------
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; Profile
4. Use of Proceeds........................ The Polaris Variable
Annuity; Investment Options;
Expenses; Other Information
5. Determination of Offering Price........ Not Applicable
6. Dilution............................... Not Applicable
7. Selling Security Holders............... Not Applicable
8. Plan of Distribution................... Other Information -
Distribution
9. Description of Securities to be
Registered............................. The Polaris Variable
Annuity; Investment Options
10. Interests of Named Experts
and Counsel............................ Not Applicable
11. Information with Respect to
the Registrant......................... Other Information -
First SunAmerica;
Other Information -
Additional Information
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities........................ Not Applicable
<PAGE> 3
[POLARIS LOGO]
P R O F I L E This profile is a summary of some of the
more important points that you
should know and consider before purchasing the
Polaris Variable Annuity. The sections in this profile
May 14, 1997 correspond to sections in the accompanying prospectus which
discuss the topics in more detail. The annuity is more fully
described in the prospectus. Please read the prospectus
carefully.
1. THE POLARIS VARIABLE ANNUITY
The Polaris Variable Annuity is a contract between you and Anchor National
Life Insurance Company. It is designed to help you invest on a tax-deferred
basis and meet long-term financial goals, such as retirement funding. Tax
deferral means all your money, including the amount you would otherwise pay
in current income taxes, remains in your contract to generate more earnings.
Your money could grow faster than it would in a comparable taxable
investment.
Polaris offers a diverse selection of money managers and investment options.
You may divide your money among any or all of our 25 variable investment
portfolios and 5 fixed investment options. Your investment is not
guaranteed. The value of your Polaris contract can fluctuate up or down,
based on the performance of the underlying investments you select, and you
may experience a loss.
The variable investment portfolios offer professionally managed investment
choices with goals ranging from capital preservation to aggressive growth.
Your choices for the various investment options are found on the next page.
The contract also offers 5 fixed investment options, for different time
periods and each with a different interest rate that is guaranteed by Anchor
National.
Like most annuities, the contract has an Accumulation Phase and an Income
Phase. During the Accumulation Phase, you invest money in your contract.
Your earnings are based on the investment performance of the variable
investment portfolios to which your money is allocated and/or the interest
rate earned on the fixed investment options. You may withdraw money from
your contract during the Accumulation Phase. However, as with other
tax-deferred investments, you will pay taxes on earnings and untaxed
contributions when you withdraw them. An IRS tax penalty may apply if you
make withdrawals before age 59 1/2. During the Income Phase, you will
receive payments from your annuity. Your payments may be fixed in dollar
amount, vary with investment performance or a combination of both, depending
on the annuity income option you select. Among other factors, the amount of
money you are able to accumulate in your contract during the Accumulation
Phase will determine the amount of your payments during the Income Phase.
2. ANNUITY INCOME OPTIONS
You can select from one of five annuity income options:
(1) payments for your lifetime;
(2) payments for your lifetime and your survivor's lifetime;
(3) payments for your lifetime and your survivor's lifetime, but for not
less than 10 years;
(4) payments for your lifetime, but for not less than 10 or 20 years; and
(5) payments for a specified period of 5 to 30 years.
You will also need to decide if you want your payments to fluctuate with
investment performance or remain constant, and the date on which your
payments will begin. Once you begin receiving payments, you cannot change
your annuity option. If your contract is part of a non-qualified retirement
plan (one that is established with after tax dollars), payments during the
Income Phase are considered partly a return of your original investment. The
"original investment" part of each payment is not taxable as income. For
contracts which are part of a qualified retirement plan using before tax
dollars, the entire payment is taxable as income.
3. PURCHASING A POLARIS VARIABLE
ANNUITY CONTRACT
You can buy a contract through your financial representative, who can also
help you complete the proper forms. For Non-qualified contracts, the minimum
initial investment is $5,000 and subsequent amounts of $500 or more may be
added to your contract at any time during the Accumulation Phase. For
Qualified contracts, the minimum initial investment is $2,000 and subsequent
amounts of $250 or more may be added to your contract at any time during the
Accumulation Phase.
<PAGE> 4
4. INVESTMENT OPTIONS
You may allocate money to the following variable investment portfolios of
the Anchor Series Trust and/or the SunAmerica Series Trust:
ANCHOR SERIES TRUST
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Natural Resources Portfolio
- Government and Quality Bond Portfolio
SUNAMERICA SERIES TRUST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
- Real Estate Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
- Growth/Phoenix Investment Counsel Portfolio
- Balanced/Phoenix Investment Counsel Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
You may also allocate money to the 1, 3, 5, 7 and 10 year fixed investment
options. The interest rate may differ from time to time but will never be
less than 3%. Once established, the rate will not change during the selected
period. Your contract value will be adjusted up or down for withdrawals or
transfers from the 3, 5, 7 and 10 year fixed investment options prior to the
end of the selected period.
5. EXPENSES
Each year, we deduct a $35 contract maintenance fee from your contract. This
fee is currently waived if the value of your contract is at least $50,000.
We also deduct insurance charges which equal 1.52% annually of the average
daily value of your contract allocated to the variable portfolios. The
insurance charges include: Mortality and Expense Risk, 1.37%, and
Distribution Expense, .15%.
As with other professionally managed investments, there are also investment
charges imposed on contracts with money allocated to the variable
portfolios, which are estimated to range from .62% to 2.00%.
If you take money out in excess of the amount allowed for in your contract,
you may be assessed a withdrawal charge which is a percentage of the money
you withdraw. The percentage declines with each year the money is in the
contract as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------
YEAR 1 2 3 4 5 6 7 8+
---------------------------------------------------
WITHDRAWAL
CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
---------------------------------------------------
</TABLE>
After your first 15 free transfers, a $25 transfer fee will apply to each
subsequent transfer.
The following chart is designed to help you understand the charges in your
contract. The column "Total Annual Charges" shows the total of the 1.52%
insurance charges, the $35 contract maintenance fee and the investment
charges for each variable portfolio. We converted the contract maintenance
fee to a percentage using the current average contract size of $55,000. The
actual impact of this charge on your contract may differ from this
percentage.
The next two columns show two examples of the charges you would pay under
the contract. The examples assume that you invested $1,000 in a contract
which earns 5% annually and that you withdraw your money: (1) at the end of
year 1, and (2) at the end of year 10.
<PAGE> 5
<TABLE>
<CAPTION>
LOGO
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EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL EXPENSES TOTAL EXPENSES
INSURANCE INVESTMENT TOTAL ANNUAL AT END OF AT END OF
ANCHOR SERIES TRUST PORTFOLIO CHARGES CHARGES CHARGES 1 YEAR 10 YEARS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation 1.58% .75% 2.33% $ 94 $273
Growth 1.58% .81% 2.39% $ 94 $273
Natural Resources 1.58% .94% 2.52% $ 96 $286
Government and Quality Bond 1.58% .71% 2.29% $ 93 $263
- -----------------------------------------------------------------------------------------------------------------
SUNAMERICA SERIES TRUST PORTFOLIO
Emerging Markets 1.58% 2.00% 3.58% $106 $385
International Diversified
Equities 1.58% 1.59% 3.17% $102 $348
Global Equities 1.58% 1.03% 2.61% $ 96 $295
International Growth and
Income 1.58% 1.70% 3.28% $103 $358
Aggressive Growth 1.58% 1.05% 2.63% $ 97 $297
Real Estate 1.58% 1.15% 2.73% $ 98 $306
Putnam Growth* 1.58% .90% 2.48% $ 95 $282
Growth/Phoenix 1.58% .74% 2.32% $ 94 $266
Alliance Growth 1.58% .71% 2.29% $ 93 $263
Venture Value 1.58% .85% 2.43% $ 95 $277
Federated Value 1.58% 1.05% 2.63% $ 97 $297
Growth-Income 1.58% .72% 2.30% $ 93 $264
Utility 1.58% 1.05% 2.63% $ 97 $297
Asset Allocation 1.58% .74% 2.32% $ 94 $266
Balanced/Phoenix 1.58% .84% 2.42% $ 95 $276
SunAmerica Balanced 1.58% 1.00% 2.58% $ 96 $292
Worldwide High Income 1.58% 1.18% 2.76% $ 98 $309
High-Yield Bond 1.58% .77% 2.35% $ 94 $269
Corporate Bond 1.58% .97% 2.55% $ 96 $289
Global Bond 1.58% .89% 2.47% $ 95 $282
Cash Management 1.58% .62% 2.20% $ 92 $254
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
*Formerly named Provident Growth.
For more detailed information, see the Fee Tables and Examples in the
prospectus.
6. TAXES
Unlike taxable investments where earnings are taxed in the year they are
earned, taxes on amounts earned in a Non-qualified contract (one that is
established with after tax dollars) are deferred until they are withdrawn.
In a Qualified contract (one that is established with before tax dollars
like an IRA), all amounts are taxable when they are withdrawn.
When you begin taking distributions or withdrawals from your contract,
earnings are considered to be taken out first and will be taxed at your
ordinary income rate. You may be subject to a 10% IRS tax penalty for
distributions or withdrawals before age 59 1/2.
7. ACCESS TO YOUR MONEY
Earnings may be withdrawn at any time free of a withdrawal charge. After the
first year, the first withdrawal of the year will be free of a withdrawal
charge if it does not exceed the greater of: (1) earnings in your contract
as of the date you make the withdrawal or (2) 10% of the money you have
invested for at least one year and not yet withdrawn, less any withdrawals
made during the year.
Although amounts withdrawn using the 10% provision may reduce principal for
purposes of calculating amounts available for future withdrawals of
earnings, they do not reduce the amount of money you invested for purposes
of calculating the withdrawal charge if you withdraw your entire contract
value.
Withdrawals in excess of these limits will be assessed a withdrawal charge.
Withdrawals may be made from your contract in the amount of $1,000 or more.
You may request a withdrawal in writing or by establishing systematic
withdrawals. Under systematic withdrawals, the minimum withdrawal amount is
$250.
If you withdraw your entire contract value, you will not receive the benefit
of any free withdrawal amount. After your money has been in the contract for
seven full years, there are no withdrawal charges on that portion of the
money that you have invested for at least seven full years. Of course, you
may have to pay income tax and a 10% IRS tax penalty may apply if you are
under age 59 1/2. Additionally, withdrawal charges are not assessed when a
death benefit is paid.
8. PERFORMANCE
The value of your annuity will fluctuate depending upon the investment
performance of the portfolio(s) you choose.
The following chart shows total returns for each portfolio for the time
periods shown. These numbers reflect the insurance charges, the contract
maintenance fee and the investment charges. Withdrawals charges are not
reflected in the chart. Past performance is not a guarantee of future
results.
<PAGE> 6
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
ANCHOR SERIES CALENDAR YEAR
TRUST PORTFOLIO 1996 1995 1994 1993
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Appreciation 23.17% 32.41% (5.60)% 13.72%
Growth 23.06% 24.30% (6.27)% 11.22%
Natural Resources 12.20% 15.45% (5.93)% --
Gov't and Quality
Bond 1.35% 17.49% (4.44)% 3.68%
- ------------------------------------------------------------------
SUNAMERICA SERIES
TRUST PORTFOLIO
Emerging Markets -- -- -- --
Int'l Diversified
Equities 7.59% 8.52% (3.68)% --
Global Equities 12.37% 17.33% (1.96)% 15.93%
Int'l Growth and
Income -- -- -- --
Aggressive Growth 4.33% -- -- --
Real Estate -- -- -- --
Putnam Growth* 18.46% 22.83% (3.25)% --
Growth/Phoenix 14.12% 30.12% (9.52)% 8.91%
Alliance Growth 27.10% 41.58% (3.76)% 9.93%
Venture Value 22.86% 35.36% (1.23)% --
Federated Value 7.32% -- -- --
Growth-Income 22.11% 31.95% (4.20)% 6.65%
Utility 8.26% -- -- --
Asset Allocation 17.05% 24.33% (1.80)% 5.11%
Balanced/Phoenix 8.18% 25.51% (0.58)% --
SunAmerica Balanced 9.39% -- -- --
Worldwide High Income 23.38% 19.04% (2.39)% --
High-Yield Bond 12.71% 12.44% (6.98)% 11.35%
Corporate Bond 2.86% 15.82% (4.73)% 1.64%
Global Bond 7.58% 15.83% (6.27)% 4.22%
Cash Management 3.31% 3.85% 2.12% 0.83%
- ------------------------------------------------------------------
</TABLE>
*Formerly named Provident Growth.
Inception date for each portfolio varies.
9. DEATH BENEFIT
If you should die during the Accumulation Phase, your beneficiary will
receive a death benefit. The death benefit is the greater of:
(1) the value of your contract, or
(2) the money you put in less any withdrawals, all compounded at 4%
annually (3% if age 70 or older at time of issue), or
(3) the value of your contract on the seventh contract anniversary
less any withdrawals plus any additional money you put in since
the seventh anniversary, all compounded at 4% annually (3% if age
70 or older at time of issue).
10. OTHER INFORMATION
FREE LOOK: You may cancel your contract within ten days (or longer if
required by your state) by mailing it to our Annuity Service Center. Your
contract will be treated as void on the date we receive it and we will
pay you an amount equal to the value of your contract (unless otherwise
required by state law). Its value may be more or less than the money you
initially invested.
ASSET ALLOCATION REBALANCING: If selected by you, this program seeks to
keep your investment in line with your goals. We will maintain your
specified allocation mix in the variable investment portfolios and the
1-year fixed investment option by readjusting your money on a calendar
quarter, semiannual or annual basis.
SYSTEMATIC WITHDRAWAL PROGRAM: If selected by you, this program allows
you to receive either monthly, quarterly, semiannual or annual checks
during the Accumulation Phase. Systematic withdrawals may also be
electronically wired to your bank account. Of course, withdrawals may be
taxable and a 10% IRS tax penalty may apply if you are under age 59 1/2.
PRINCIPAL ADVANTAGE: If selected by you, this program allows you to
obtain growth potential without any market risk to your principal. We
will guarantee that the portion of your money allocated to the 1, 3, 5, 7
or 10 year fixed investment options will grow to equal your principal
investment when it is allocated in accordance with the program.
DOLLAR COST AVERAGING: If selected by you, this program allows you to
invest gradually in the equity and bond portfolios from any of the
variable investment portfolios or the 1-year fixed investment option.
AUTOMATIC PAYMENT PLAN: You can add to your contract directly from your
bank account with as little as $20 per month.
CONFIRMATIONS AND QUARTERLY STATEMENTS: You will receive a confirmation
of each transaction within your contract. On a quarterly basis, you will
receive a complete statement of your transactions over the past quarter
and a summary of your account values.
11. INQUIRIES
If you have questions about your contract or need to make changes, call
your financial representative or contact us at:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
If money accompanies your correspondence, you should direct it to:
Anchor National Life Insurance Company
P.O. Box 100330
Pasadena, California 91189-0001
<PAGE> 7
[POLARIS LOGO]
PROSPECTUS
MAY 14, 1997
<TABLE>
<S> <C> <C>
Please read this prospectus FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
carefully before investing and issued by
keep it for future reference. ANCHOR NATIONAL LIFE INSURANCE COMPANY
It contains important in connection with
information about the Polaris VARIABLE SEPARATE ACCOUNT
Variable Annuity. The annuity has 30 investment choices -- 5 fixed investment options
and 25 variable investment portfolios listed below. The 5 fixed
To learn more about the annuity investment options include specified periods of 1, 3, 5, 7 and 10
offered by this prospectus, you years. The 25 variable investment portfolios are part of the Anchor
can obtain a copy of the Series Trust or the SunAmerica Series Trust.
Statement of Additional ANCHOR SERIES TRUST:
Information ("SAI") dated May MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
14, 1997. The SAI has been - Capital Appreciation Portfolio
filed with the Securities and - Growth Portfolio
Exchange Commission ("SEC") and - Natural Resources Portfolio
is incorporated by reference - Government and Quality Bond Portfolio
into this prospectus. The Table SUNAMERICA SERIES TRUST:
of Contents of the SAI appears MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
on page 30 of this prospectus. - Global Equities Portfolio
For a free copy of the SAI, - Alliance Growth Portfolio
call us at (800) 445-SUN2 or - Growth-Income Portfolio
write to us at our Annuity MANAGED BY DAVIS SELECTED ADVISERS, L.P.
Service Center, P.O. Box 54299, - Venture Value Portfolio
Los Angeles, California - Real Estate Portfolio
90054-0299. MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
ANNUITIES INVOLVE RISKS, - Utility Portfolio
INCLUDING POSSIBLE LOSS OF - Corporate Bond Portfolio
PRINCIPAL, AND ARE NOT A MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
DEPOSIT OR OBLIGATION OF, OR GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
GUARANTEED OR ENDORSED BY, ANY - Asset Allocation Portfolio
BANK. THEY ARE NOT FEDERALLY - Global Bond Portfolio
INSURED BY THE FEDERAL DEPOSIT MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
INSURANCE CORPORATION, THE - International Diversified Equities Portfolio
FEDERAL RESERVE BOARD OR ANY - Worldwide High Income Portfolio
OTHER AGENCY. MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
- Growth/Phoenix Investment Counsel Portfolio
- Balanced/Phoenix Investment Counsel Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 8
=============================================================
TABLE OF CONTENTS
=============================================================
<TABLE>
<S> <C> <C>
GLOSSARY.......................................... 2
FEE TABLES........................................ 3
Owner Transaction Expenses.................. 3
Annual Separate Account Expenses............ 3
Portfolio Expenses.......................... 3
EXAMPLES.......................................... 4
1. THE POLARIS VARIABLE ANNUITY................ 6
2. ANNUITY INCOME OPTIONS...................... 6
Allocation of Annuity Payments.............. 7
Annuity Payments............................ 7
Transfers During the Income Phase........... 7
Deferment of Payments....................... 7
3. PURCHASING A POLARIS VARIABLE ANNUITY....... 7
Allocation of Purchase Payments............. 7
Accumulation Units.......................... 8
Free Look................................... 8
4. INVESTMENT OPTIONS.......................... 8
Variable Investment Options................. 8
Anchor Series Trust..................... 8
SunAmerica Series Trust................. 8
Fixed Investment Options.................... 9
Market Value Adjustment................. 9
Transfers During the Accumulation Phase..... 9
Dollar Cost Averaging Program............... 10
Asset Allocation Rebalancing Program........ 10
Principal Advantage Program................. 10
Voting Rights............................... 11
Substitution................................ 11
5. EXPENSES.................................... 11
Insurance Charges........................... 11
Mortality and Expense Risk Charge....... 11
Distribution Expense Charge............. 11
Withdrawal Charges.......................... 11
Investment Charges.......................... 11
Contract Maintenance Fee.................... 11
Transfer Fee................................ 12
Premium Taxes............................... 12
Income Taxes................................ 12
Reduction or Elimination of Certain Charges. 12
6. TAXES....................................... 12
Annuity Contracts in General................ 12
Tax Treatment of Distributions--
Non-qualified Contracts..................... 12
Tax Treatment of Distributions--
Qualified Contracts......................... 13
Diversification............................. 13
7. ACCESS TO YOUR MONEY........................ 13
Systematic Withdrawal Program............... 14
Nursing Home Waiver......................... 14
Minimum Contract Value...................... 14
8. PERFORMANCE................................. 14
9. DEATH BENEFIT............................... 14
10. OTHER INFORMATION........................... 15
Anchor National............................. 15
The Separate Account........................ 15
The General Account......................... 15
Distribution................................ 15
Administration.............................. 16
Legal Proceedings........................... 16
Custodian................................... 16
Additional Information...................... 16
Selected Consolidated Financial Data........ 17
Management Discussion and Analysis.......... 18
Properties.................................. 27
Directors and Executive Officers............ 28
Executive Compensation...................... 29
Security Ownership of Owners and Management. 29
State Regulation............................ 29
Independent Accountants..................... 30
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION....................................... 30
FINANCIAL STATEMENTS.............................. 30
APPENDIX A -- CONDENSED FINANCIAL INFORMATION.....
A-1
APPENDIX B -- MARKET VALUE ADJUSTMENT............. A-2
APPENDIX C -- PREMIUM TAXES....................... A-3
</TABLE>
================================================================================
GLOSSARY
================================================================================
We have capitalized some of the technical terms used in this prospectus. To help
you understand these terms, we have defined them in this glossary.
ACCUMULATION PHASE - The period during which you invest money in your contract.
ACCUMULATION UNITS - A measurement we use to calculate the value of the variable
portion of your contract during the Accumulation Phase.
ANNUITANT(S) - The person(s) on whose life (lives) we base annuity payments.
ANNUITY DATE - The date on which annuity payments are to begin, as selected by
you.
ANNUITY UNITS - A measurement we use to calculate the amount of annuity payments
you receive from the variable portion of your contract during the Income Phase.
BENEFICIARY (IES) - The person(s) designated to receive any benefits under the
contract if you or the Annuitant dies.
INCOME PHASE - The period during which we make annuity payments to you.
IRS - The Internal Revenue Service.
NON-QUALIFIED (CONTRACT) - A contract purchased with after-tax dollars. In
general, these contracts are not under any pension plan, specially sponsored
program or individual retirement account ("IRA").
PORTFOLIO(S) - The variable investment options available under the contract.
Each Portfolio has its own investment objective and is invested in the
underlying investments of the Anchor Series Trust or the SunAmerica Series
Trust.
PURCHASE PAYMENTS - The money you give us to buy the contract, as well as any
additional money you give us to invest in the contract after you own it.
QUALIFIED (CONTRACT) - A contract purchased with pretax dollars. These contracts
are generally purchased under a pension plan, specially sponsored program or
individual retirement account ("IRA").
TRUSTS - Refers to the Anchor Series Trust and the SunAmerica Series Trust
collectively.
2
<PAGE> 9
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FEE TABLES
================================================================================
OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C> <C>
WITHDRAWAL CHARGE (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)
Year 1........... 7% Year 5............... 3%
Year 2........... 6% Year 6............... 2%
Year 3........... 5% Year 7............... 1%
Year 4........... 4% Year 8+.............. 0%
TRANSFER FEE........... No charge for first 15 transfers
each year; thereafter, fee is $25
($10 in Pennsylvania and Texas)
CONTRACT MAINTENANCE FEE*.... $35 ($30 in North Dakota
and Utah)
*waived if contract value is $50,000 or more
</TABLE>
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF DAILY NET ASSET VALUE)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge............... 1.37%
Distribution Expense Charge..................... 0.15%
-----
TOTAL SEPARATE ACCOUNT EXPENSES............. 1.52%
=====
</TABLE>
PORTFOLIO EXPENSES
ANCHOR SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S TWELVE-MONTH PERIOD ENDED
NOVEMBER 30, 1996)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
====================================================================================================
Capital Appreciation .67% .08% .75%*
----------------------------------------------------------------------------------------------------
Growth .73% .08% .81%*
----------------------------------------------------------------------------------------------------
Natural Resources .75% .19% .94%*
----------------------------------------------------------------------------------------------------
Government and Quality Bond .62% .09% .71%*
====================================================================================================
</TABLE>
SUNAMERICA SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S FISCAL YEAR ENDED
NOVEMBER 30, 1996)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
====================================================================================================
Emerging Markets** 1.25% .75% 2.00%
----------------------------------------------------------------------------------------------------
International Diversified Equities 1.00% .59% 1.59%
----------------------------------------------------------------------------------------------------
Global Equities .80% .23% 1.03%
----------------------------------------------------------------------------------------------------
International Growth and Income** 1.00% .70% 1.70%
----------------------------------------------------------------------------------------------------
Aggressive Growth .75% .30% 1.05%*
----------------------------------------------------------------------------------------------------
Real Estate** .80% .35% 1.15%
----------------------------------------------------------------------------------------------------
Putnam Growth*** .82% .08% .90%
----------------------------------------------------------------------------------------------------
Growth/Phoenix .66% .08% .74%
----------------------------------------------------------------------------------------------------
Alliance Growth .64% .07% .71%
----------------------------------------------------------------------------------------------------
Venture Value .77% .08% .85%
----------------------------------------------------------------------------------------------------
Federated Value .75% .30% 1.05%*
----------------------------------------------------------------------------------------------------
Growth-Income .64% .08% .72%
----------------------------------------------------------------------------------------------------
Utility .75% .30% 1.05%*
----------------------------------------------------------------------------------------------------
Asset Allocation .65% .09% .74%
----------------------------------------------------------------------------------------------------
Balanced/Phoenix .70% .14% .84%
----------------------------------------------------------------------------------------------------
SunAmerica Balanced .70% .30% 1.00%*
----------------------------------------------------------------------------------------------------
Worldwide High Income 1.00% .18% 1.18%
----------------------------------------------------------------------------------------------------
High-Yield Bond .68% .09% .77%
----------------------------------------------------------------------------------------------------
Corporate Bond .70% .27% .97%
----------------------------------------------------------------------------------------------------
Global Bond .73% .16% .89%
----------------------------------------------------------------------------------------------------
Cash Management .54% .08% .62%
====================================================================================================
</TABLE>
* Annualized
** As of the date of this prospectus, the sale of contracts offering the
Emerging Markets, Real Estate and International Growth and Income
Portfolios had not begun. The percentages are based on estimated amounts
for the current fiscal year.
*** As of April 16, 1997, the Provident Growth Portfolio was renamed the
Putnam Growth Portfolio, managed by Putnam Investment Management, Inc.
The expenses shown here are those of the former Provident Growth
Portfolio managed by Provident Investment Counsel.
THE ABOVE PORTFOLIO EXPENSES WERE PROVIDED BY THE TRUSTS. WE HAVE NOT
INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
3
<PAGE> 10
================================================================================
EXAMPLES
================================================================================
You will pay the following expenses on a $1,000 investment in each Portfolio,
assuming a 5% annual return on assets and:
(a) surrender of the contract at the end of the stated time period;
(b) if the contract is not surrendered or annuitized.
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
========================================================================================================
Capital Appreciation (a) $ 94 (a) $123 (a) $155 (a) $267
(b) $ 24 (b) $ 73 (b) $125 (b) $267
--------------------------------------------------------------------------------------------------------
Growth (a) $ 94 (a) $125 (a) $158 (a) $273
(b) $ 24 (b) $ 75 (b) $128 (b) $273
--------------------------------------------------------------------------------------------------------
Natural Resources (a) $ 96 (a) $129 (a) $164 (a) $286
(b) $ 26 (b) $ 79 (b) $134 (b) $286
--------------------------------------------------------------------------------------------------------
Government and Quality Bond (a) $ 93 (a) $122 (a) $153 (a) $263
(b) $ 23 (b) $ 72 (b) $123 (b) $263
--------------------------------------------------------------------------------------------------------
Emerging Markets (a) $106 (a) $160 (a) $216 (a) $385
(b) $ 36 (b) $110 (b) $186 (b) $385
--------------------------------------------------------------------------------------------------------
International Diversified Equities (a) $102 (a) $148 (a) $196 (a) $348
(b) $ 32 (b) $ 98 (b) $166 (b) $348
--------------------------------------------------------------------------------------------------------
Global Equities (a) $ 96 (a) $131 (a) $169 (a) $295
(b) $ 26 (b) $ 81 (b) $139 (b) $295
--------------------------------------------------------------------------------------------------------
International Growth and Income (a) $103 (a) $151 (a) $201 (a) $358
(b) $ 33 (b) $101 (b) $171 (b) $358
--------------------------------------------------------------------------------------------------------
Aggressive Growth (a) $ 97 (a) $132 (a) $170 (a) $297
(b) $ 27 (b) $ 82 (b) $140 (b) $297
--------------------------------------------------------------------------------------------------------
Real Estate (a) $ 98 (a) $135 (a) $175 (a) $306
(b) $ 28 (b) $ 85 (b) $145 (b) $306
--------------------------------------------------------------------------------------------------------
Putnam Growth (a) $ 95 (a) $127 (a) $162 (a) $282
(b) $ 25 (b) $ 77 (b) $133 (b) $282
--------------------------------------------------------------------------------------------------------
Growth/Phoenix (a) $ 94 (a) $123 (a) $154 (a) $266
(b) $ 24 (b) $ 73 (b) $124 (b) $266
--------------------------------------------------------------------------------------------------------
Alliance Growth (a) $ 93 (a) $122 (a) $153 (a) $263
(b) $ 23 (b) $ 72 (b) $123 (b) $263
--------------------------------------------------------------------------------------------------------
Venture Value (a) $ 95 (a) $126 (a) $160 (a) $277
(b) $ 25 (b) $ 76 (b) $130 (b) $277
--------------------------------------------------------------------------------------------------------
Federated Value (a) $ 97 (a) $132 (a) $170 (a) $297
(b) $ 27 (b) $ 82 (b) $140 (b) $297
--------------------------------------------------------------------------------------------------------
Growth-Income (a) $ 93 (a) $122 (a) $153 (a) $264
(b) $ 23 (b) $ 72 (b) $123 (b) $264
--------------------------------------------------------------------------------------------------------
Utility (a) $ 97 (a) $132 (a) $170 (a) $297
(b) $ 27 (b) $ 82 (b) $140 (b) $297
--------------------------------------------------------------------------------------------------------
Asset Allocation (a) $ 94 (a) $123 (a) $154 (a) $266
(b) $ 24 (b) $ 73 (b) $124 (b) $266
--------------------------------------------------------------------------------------------------------
Balanced/Phoenix (a) $ 95 (a) $126 (a) $159 (a) $276
(b) $ 25 (b) $ 76 (b) $129 (b) $276
--------------------------------------------------------------------------------------------------------
SunAmerica Balanced (a) $ 96 (a) $130 (a) $167 (a) $292
(b) $ 26 (b) $ 80 (b) $137 (b) $292
--------------------------------------------------------------------------------------------------------
Worldwide High Income (a) $ 98 (a) $136 (a) $176 (a) $309
(b) $ 28 (b) $ 86 (b) $146 (b) $309
--------------------------------------------------------------------------------------------------------
High-Yield Bond (a) $ 94 (a) $123 (a) $156 (a) $269
(b) $ 24 (b) $ 73 (b) $126 (b) $269
--------------------------------------------------------------------------------------------------------
Corporate Bond (a) $ 96 (a) $129 (a) $166 (a) $289
(b) $ 26 (b) $ 79 (b) $136 (b) $289
--------------------------------------------------------------------------------------------------------
Global Bond (a) $ 95 (a) $127 (a) $162 (a) $282
(b) $ 25 (b) $ 77 (b) $132 (b) $282
--------------------------------------------------------------------------------------------------------
Cash Management (a) $ 92 (a) $119 (a) $148 (a) $254
(b) $ 22 (b) $ 69 (b) $118 (b) $254
========================================================================================================
</TABLE>
4
<PAGE> 11
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract.
2. For certain Portfolios, the adviser, SunAmerica Asset Management Corp., has
voluntarily agreed to waive fees or reimburse certain expenses, if
necessary, to keep annual operating expenses at or below the lesser of the
maximum allowed by any applicable state expense limitations or the following
percentages of each Portfolio's average net assets: Aggressive Growth
(1.05%); Federated Value (1.05%); SunAmerica Balanced (1.00%); and Utility
(1.05%). The adviser also may voluntarily waive or reimburse additional
amounts to increase a Portfolio's investment return. All waivers and/or
reimbursements may be terminated at any time. Furthermore, the adviser may
recoup any waivers or reimbursements within the following two years,
provided that the Portfolio is able to make such payment and remain in
compliance with the foregoing expense limitations.
3. The Examples assume that no transfer fees were imposed. Premium taxes are
not reflected.
4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE HISTORICAL ACCUMULATION UNIT VALUES ARE CONTAINED IN
APPENDIX A -- CONDENSED FINANCIAL INFORMATION
5
<PAGE> 12
================================================================================
1. THE POLARIS VARIABLE ANNUITY
================================================================================
An annuity is a contract between you, as the owner, and an insurance company.
The contract provides tax deferral for your earnings, as well as a death benefit
and a guaranteed income in the form of annuity payments beginning on a date you
select. Until you decide to begin receiving annuity payments, your annuity is in
the Accumulation Phase. Once you begin receiving annuity payments, your contract
switches to the Income Phase. If you die during the Accumulation Phase, the
insurance company guarantees a death benefit to your Beneficiary.
The Polaris Variable Annuity Contract is issued by Anchor National Life
Insurance Company ("Anchor National"), a stock life insurance company organized
under the laws of the state of Arizona. Its principal business address is 1
SunAmerica Center, Los Angeles, California 90067-6022. Anchor National conducts
life insurance and annuity business in the District of Columbia and in all
states except New York. Anchor National is an indirect wholly owned subsidiary
of SunAmerica Inc., a Maryland corporation.
During the Accumulation Phase, the value of your annuity benefits from tax
deferral. This means your earnings accumulate on a tax-deferred basis until you
take money out of your contract. The Income Phase occurs if you decide to
receive annuity payments. You select the date on which annuity payments are to
begin.
The contract is called a variable annuity because you can choose among 25
variable investment Portfolios. Depending upon market conditions, you can make
or lose money in any of these Portfolios. If you allocate money to the
Portfolios, the amount of money you are able to accumulate in your contract
during the Accumulation Phase depends upon the investment performance of the
Portfolio(s) you select. The amount of the annuity payments you receive during
the Income Phase from the variable portion of your contract also depends upon
the investment performance of the Portfolios you select for the Income Phase.
The contract also contains 5 fixed investment options. Your money will earn
interest at the rate set by Anchor National. The interest rate is guaranteed by
Anchor National for the time you agree to leave your money in the fixed
investment option. We currently offer fixed investment options for 1, 3, 5, 7
and 10 year periods. If you allocate money to the fixed investment options, the
amount of money you are able to accumulate in your contract during the
Accumulation Phase depends upon the total interest credited to your contract. An
adjustment to your contract will apply to withdrawals or transfers from the 3,
5, 7 and 10 year fixed investment options prior to the end of the selected
period. The amount of annuity payments you receive during the Income Phase from
the fixed portion of your contract will remain level for the entire Income
Phase.
================================================================================
2. ANNUITY INCOME OPTIONS
================================================================================
When you switch to the Income Phase, you will receive regular income payments
under the contract. Annuity payments will be made on a monthly basis unless you
request in writing that payments be made on a quarterly, semiannual or annual
basis. You can choose to have your annuity payments sent to you by check or
electronically wired to your bank.
You select the date on which annuity payments are to begin, which must be the
first day of a month and must be at least two years after the date your contract
is issued. We call this the Annuity Date. You may change your Annuity Date at
least seven days prior to the date that your payments are to begin. However,
annuity payments must begin by your 90th birthday. If no Annuity Date is
selected, annuity payments will begin on your 90th birthday. If the Annuity Date
is past your 85th birthday, it is possible that the contract would not be
treated as an annuity and you may incur adverse tax consequences.
The Annuitant is the person on whose life annuity payments are based. You may
change the Annuitant at any time prior to the Annuity Date if you are an
individual designated as the owner of the contract. You may also designate a
second person on whose life annuity payments are based. If the Annuitant dies
before the Annuity Date, you must notify us and designate a new Annuitant.
If you do not choose an annuity income option, annuity payments will be made in
accordance with option 4 (below) for 10 years. If the annuity payments are for
joint lives, then we will make payments in accordance with option 3. We may pay
the annuity in one lump sum if your contract is less than $5,000, where
permitted by state law. Likewise, if your annuity payments would be less than
$50 monthly, we have the right to change the frequency of your payment to be on
a quarterly, semiannual or annual basis so that your annuity payments are at
least $50. Annuity payments will be made to you unless you designate another
person to receive them. In that case, you must notify us in writing at least
thirty days before the Annuity Date. You will remain fully responsible for any
taxes related to the annuity payments.
The contract offers 5 annuity income options. Other annuity income options may
be available in the future.
OPTION 1 - LIFE INCOME
Under this option, we will make annuity payments as long as the Annuitant is
alive. Annuity payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR ANNUITY
Under this option, we will make annuity payments as long as the Annuitant and a
designated second person are alive.
6
<PAGE> 13
Upon the death of either person, we will continue to make payments so long as
the survivor is alive. You choose the amount of the annuity payments to the
survivor, which can be equal to 100%, 66.66% or 50% of the full amount. Annuity
payments stop upon the death of the survivor.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10
YEARS GUARANTEED
This option is similar to option 2 above, with the additional guarantee that
payments will be made for at least 10 years. If the Annuitant and designated
second person die before all guaranteed payments have been made, the rest will
be made to the Beneficiary.
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEARS
GUARANTEED
This option is similar to option 1 above, with the additional guarantee that
payments will be made for at least 10 or 20 years, as selected by you. Under
this option, if the Annuitant dies before all guaranteed payments have been
made, the rest will be made to the Beneficiary.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
Under this option, we will make annuity payments for any period of time from 5
to 30 years, as selected by you. However, the period must be for full 12-month
periods. Under this option, if the Annuitant dies before all guaranteed payments
have been made, the rest will be made to the Beneficiary. This option does not
contain an element of mortality risk. Therefore, you will not get the benefit of
the mortality component of the mortality and expense risk charge if this option
if selected.
ALLOCATION OF ANNUITY PAYMENTS
On the Annuity Date, if your money is invested in the fixed investment options,
your annuity payments will be fixed in amount. If your money is invested in the
variable Portfolios, your annuity payments will vary depending on the investment
performance of the Portfolios. If you have money in the fixed and variable
investment options, your annuity payments will be based on the investment
allocations. You may not convert between fixed and variable payments once
annuity payments begin.
ANNUITY PAYMENTS
If you choose to have any portion of your annuity payments come from the
variable Portfolios, the dollar amount of your payment will depend upon three
things: (1) the value of your contract in the Portfolios on the Annuity Date,
(2) the 3.5% assumed investment rate used in the annuity table for the contract
and (3) the performance of the Portfolios you selected. If the actual
performance exceeds the 3.5% assumed rate, your annuity payments will increase.
Similarly, if the actual rate is less than 3.5%, your annuity payments will
decrease. The SAI contains detailed information and sample calculations.
TRANSFERS DURING THE INCOME PHASE
Transfers are subject to the same limitations as transfers during the
Accumulation Phase. (See "Investment Options- Transfers During the Accumulation
Phase"). However, you can only make one transfer each month. You may not
transfer money from the fixed investment options to the variable Portfolios or
from the variable Portfolios to the fixed investment options during the Income
Phase. You may transfer money among the variable Portfolios.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
state law. Interest will be credited to you during the deferral period.
================================================================================
3. PURCHASING A POLARIS
VARIABLE ANNUITY
================================================================================
A Purchase Payment is the money you give us to buy the contract, as well as any
additional money you give us to invest in the contract after you own it. You can
purchase a Non-qualified contract with a minimum initial investment of $5,000
and a Qualified contract with a minimum initial investment of $2,000. The
maximum we accept is $1,000,000 without prior approval. Payments in amounts of
$500 or more may be added to your Non-qualified contract ($250 or more for
Qualified contracts) at any time during the Accumulation Phase. You can make
scheduled subsequent Purchase Payments of $20 or more per month by enrolling in
the Automatic Payment Plan.
We may refuse any Purchase Payment. In general, we will not issue a
Non-qualified contract to anyone who is older than age 80 or a Qualified
contract to anyone who is age 70 1/2 or older unless you can show that the
minimum distributions required by the IRS are being made.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, you will allocate your Purchase Payment to the
variable investment Portfolios and/or the fixed investment options. If you make
additional Purchase Payments, we will allocate them in the same way unless you
tell us otherwise.
Once we receive your Purchase Payment and a complete application at our
principal place of business, we will issue your contract and allocate your first
Purchase Payment within two business days. If you do not give us all the
necessary information, we will contact you to obtain it. If we are unable to
complete this process within five business days, we will either send back your
money or get your
7
<PAGE> 14
permission to keep it until we get all the necessary information.
ACCUMULATION UNITS
The value of the variable portion of your contract will go up or down depending
upon the investment performance of the Portfolio(s) you choose. In order to keep
track of the value of your contract, we use a unit of measure called an
Accumulation Unit, which works like a share of a mutual fund. During the Income
Phase, we call them Annuity Units.
The value of an Accumulation Unit is determined each day that the New York Stock
Exchange ("NYSE") is open. We calculate an Accumulation Unit value for each
Portfolio after the NYSE closes each day. We do this by:
(1) determining the total value of money invested in the particular
Portfolio;
(2) subtracting from that amount any insurance charges and any other
charges such as taxes; and
(3) dividing this amount by the number of outstanding Accumulation Units.
The value of an Accumulation Unit may go up or down from day to day. When you
make a Purchase Payment, we credit your contract with Accumulation Units. The
number of Accumulation Units credited is determined by dividing the amount of
the Purchase Payment allocated to a Portfolio by the value of the Accumulation
Unit for that Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You want the
money to go to the Global Bond Portfolio. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,000 by $11.10 and credit your
contract on Wednesday night with 2252.252 Accumulation Units for the Global
Bond Portfolio.
FREE LOOK
If you change your mind about owning this contract, you can cancel it within ten
days after receiving it (or longer if required by your state) by mailing it back
to our Annuity Service Center at P.O. Box 54299, Los Angeles, California
90054-0299. You will receive back whatever your contract is worth on the day we
receive your request (unless otherwise required by your state). Its value may be
more or less than the money you initially invested. Thus, the investment risk is
borne by you during the free look period.
================================================================================
4. INVESTMENT OPTIONS
================================================================================
VARIABLE INVESTMENT OPTIONS
The contract offers 25 variable investment Portfolios which invest in shares of
the Anchor Series Trust or the SunAmerica Series Trust. These Portfolios are
listed below. Additional Portfolios may be available in the future. SunAmerica
Asset Management Corp., an indirect wholly owned subsidiary of SunAmerica Inc.,
is the investment adviser for both Trusts. The Trusts serve as underlying
investments for other variable contracts sold by Anchor National, its affiliate,
First SunAmerica Life Insurance Company, and other unaffiliated insurance
companies. Neither Anchor National nor the Trusts believes offering shares of
the Trusts in this manner will be disadvantageous to you. We will monitor the
Trusts for any conflicts that may arise between contract owners. Additional
information is contained in the prospectuses for the Trusts.
ANCHOR SERIES TRUST
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust Portfolios. Anchor Series Trust has Portfolios in addition to those listed
below which are not available for investment under the contract. The 4 available
Portfolios are:
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Natural Resources Portfolio
- Government and Quality Bond Portfolio
SUNAMERICA SERIES TRUST
Various subadvisers provide investment advice for the SunAmerica Series Trust
Portfolios. The 21 Portfolios and the subadvisers are:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
- Real Estate Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/ GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
8
<PAGE> 15
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
- Growth/Phoenix Investment Counsel Portfolio
- Balanced/Phoenix Investment Counsel Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
YOU SHOULD READ THE PROSPECTUSES FOR THE ANCHOR SERIES TRUST AND THE SUNAMERICA
SERIES TRUST CAREFULLY BEFORE INVESTING. THESE PROSPECTUSES CONTAIN DETAILED
INFORMATION ABOUT THE PORTFOLIOS AND ARE ATTACHED TO THIS PROSPECTUS.
FIXED INVESTMENT OPTIONS
The contract also offers 5 fixed investment options. We currently offer fixed
investment options for 1, 3, 5, 7 and 10 year periods. The fixed investment
options offer interest rates that are guaranteed by Anchor National. Interest
rates may differ from time to time due to changes in market conditions but will
not be less than 3%. The interest rates offered for a specified period for new
Purchase Payments may differ from the interest rates offered for money already
in the fixed investment option. Once an interest rate is established, it will
not change during the specified period. The interest rates are set at Anchor
National's sole discretion.
If you have money allocated to the 1, 3, 5, 7 or 10 year fixed investment
options, you can renew for another 1, 3, 5, 7 or 10 year period or put your
money into one or more of the variable Portfolios after the end of the specified
period. Unless you specify otherwise before the end of the period, we will keep
your money in the fixed investment option for the same period you previously
selected. You will receive the interest rate then in effect.
MARKET VALUE ADJUSTMENT
NOTE: THE FOLLOWING DISCUSSION APPLIES TO THE 3, 5, 7 AND 10 YEAR FIXED
INVESTMENT OPTIONS ONLY.
If you take your money out of the fixed investment options (whether by
withdrawal, transfer or annuitization) before the end of the specified period,
we will make an adjustment to the value of your contract. This adjustment,
called a "market value adjustment," can increase or decrease the value of your
contract. The market value adjustment reflects the differing interest rate
environments between the time you put your money into the fixed investment
option and the time you take your money out of the fixed investment option.
We calculate the market value adjustment by comparing the interest rate you
received on the money you put into the fixed investment option against the
interest rate we are currently offering to contract owners for the period of
time remaining in the specified period. If we do not offer an interest rate for
that period, the interest rate will be determined by linear interpolation
between interest rates for the two nearest periods that are available.
Generally, if interest rates have dropped between the time you put your money
into the fixed investment option and the time you take it out, there will be a
positive adjustment to the value of your contract. Conversely, if interest rates
have increased between the time you put your money into the fixed investment
option and the time you take it out, there will be a negative adjustment to the
value of your contract.
If the market value adjustment is negative, it will be assessed first against
any money remaining in the fixed investment option and then against the money
you take out of the fixed investment option. If the market value adjustment is
positive, it will be added to the amount you take out of the fixed account.
We will not assess a negative market value adjustment to the value of your
contract for money in the 1-year fixed investment option. The 1-year fixed
investment option is not registered under the Securities Act of 1933 and is not
subject to other provisions of the Investment Company Act of 1940.
Appendix B provides more information about how we calculate the market value
adjustment and gives some examples of the impact of the adjustment.
TRANSFERS DURING THE ACCUMULATION PHASE
You can transfer money among the Portfolios and the fixed investment options by
written request or by telephone. You can make fifteen transfers every year
without charge. We measure a year from the anniversary of the day we issued your
contract. If you make more than 15 transfers in a year, there is a $25 transfer
fee for each transfer thereafter ($10 in Pennsylvania and Texas).
The minimum amount you can transfer is $100. You cannot make a partial transfer
if the value of the Portfolio from which the transfer is being made would be
less than $100 after the transfer. Your request for transfer must clearly state
which investment options are involved and the amount. We will accept transfers
by telephone unless you specify otherwise on your contract application. We have
in
9
<PAGE> 16
place procedures to provide reasonable assurance that instructions given to us
by telephone are genuine. Thus, we disclaim all liability for any claim, loss or
expense from any error. If we fail to use such procedures, we may be liable for
any losses due to unauthorized or fraudulent instructions.
We reserve the right to modify, suspend or terminate the transfer provisions at
any time. We also reserve the right to waive the $100 minimum amount for Dollar
Cost Averaging and Asset Allocation Rebalancing.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount or percentage from one variable Portfolio or the 1-year fixed investment
option to any other variable Portfolio(s). You can also select to transfer the
entire value in a variable Portfolio or the 1-year fixed investment option in a
stated number of transfers. Transfers may be on a monthly, quarterly, semiannual
or annual basis. You can change the amount or frequency at any time by notifying
us in writing. The minimum amount that can be transferred is $100.
By allocating amounts on a regular schedule as opposed to allocating the total
amount at one particular time, you may be less susceptible to the impact of
market fluctuations. However, there is no assurance that you will make a greater
profit. You are still subject to loss in a declining market. Dollar cost
averaging involves continuous investment in securities regardless of fluctuating
price levels. You should consider your financial ability to continue to invest
through periods of fluctuating prices.
Transfers under the program are included as part of your 15 free transfers each
year. We reserve the right to modify, suspend or terminate this program at any
time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Aggressive Growth Portfolio over six quarters.
You set up dollar cost averaging and purchase Accumulation Units at the
following values:
<TABLE>
<S> <C> <C>
- -----------------------------------------
ACCUMULATION UNITS
QUARTER UNIT PURCHASED
- -----------------------------------------
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
- -----------------------------------------
</TABLE>
You paid an average price of only $6.67 per Accumulation Unit over the six
quarters, while the average market price actually was $7.08. By investing
an equal amount of money each month, you automatically buy more
Accumulation Units when the market price is low and fewer Accumulation
Units when the market price is high.
ASSET ALLOCATION REBALANCING PROGRAM
Once your money has been allocated among the investment options, the earnings
may cause the percentage invested in each investment option to differ from your
original allocations. You can direct us to automatically rebalance your contract
to return to your original percentage allocations by selecting our Asset
Allocation Rebalancing Program. Rebalancing may be on a calendar quarter,
semiannual or annual basis. Rebalancing will occur on the last business day of
the month for the period you selected.
Transfers under the program are not counted against your 15 free transfers each
year. We reserve the right to modify, suspend or terminate this program at any
time.
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Portfolios. You want 50% in the Corporate Bond Portfolio and 50% in the
Growth Portfolio. Over the next calendar quarter, the bond market does very
well while the stock market performs poorly. At the end of the calendar
quarter, the Corporate Bond Portfolio now represents 60% of your holdings
because it has increased in value and the Growth Portfolio represents 40%
of your holdings. If you had chosen quarterly rebalancing, on the last day
of that quarter, we would sell some of your units in the Corporate Bond
Portfolio to bring its holdings back to 50% and use the money to buy more
units in the Growth Portfolio to increase those holdings to 50%.
PRINCIPAL ADVANTAGE PROGRAM
The Principal Advantage Program allows you to allocate Purchase Payments to a
fixed investment option and one or more variable Portfolios without any market
risk to your principal. You decide how much you want to invest and when you
would like a return of your principal. We will calculate how much of your
Purchase Payment needs to be allocated to the 1, 3, 5, 7 or 10 year fixed
investment options to ensure that this money will grow to equal the full amount
of your Purchase Payment by the end of the selected period. The rest of your
Purchase Payment may then be divided among the variable Portfolios where it has
the potential to achieve greater growth.
We reserve the right to modify, suspend or terminate this program at any time.
10
<PAGE> 17
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed investment option. You want the amount allocated
to the fixed investment option to grow to $100,000 in 7 years. If the
7-year fixed investment option is offering a 7% interest rate, we will
allocate $62,275 to the 7-year fixed investment option to ensure that this
amount will grow to $100,000 at the end of the 7-year period. The remaining
$37,725 may be allocated among the variable Portfolios, as determined by
you, to provide opportunity for greater growth.
VOTING RIGHTS
Anchor National is the legal owner of the Trusts' shares. However, when a
Portfolio solicits proxies in conjunction with a vote of shareholders, we are
required to obtain from you instructions as to how to vote those shares. When we
receive those instructions, we will vote all of the shares we own in proportion
to those instructions. This will also include any shares that we own on our
behalf. Should we determine that we are no longer required to comply with the
above, we will vote the shares in our own right.
SUBSTITUTION
If any of the Portfolios you selected are no longer available, we may be
required to substitute shares of another Portfolio. We will seek prior approval
of the SEC and give you notice before doing this.
================================================================================
5. EXPENSES
================================================================================
There are charges and other expenses associated with the contract that will
reduce your investment return. These charges and expenses are described below.
INSURANCE CHARGES
Each day, we make a deduction for our insurance charges. This is done as part of
our calculation of the value of the Accumulation Units during the Accumulation
Phase and the Annuity Units during the Income Phase. The insurance charges
consist of the mortality and expense risk and the distribution expense charge.
MORTALITY AND EXPENSE RISK CHARGE
This charge is equal, on an annual basis, to 1.37% of the daily value of the
contract invested in a Portfolio. This charge is for our obligation to make
annuity payments, to provide the death benefits and for assuming the risk that
the current charges will be insufficient in the future to cover the cost of
administering the contract.
If the charges under the contract are not sufficient, we will bear the loss. We
will not increase this charge. We may use any profits from this charge to pay
for the costs of distributing the contract.
DISTRIBUTION EXPENSE CHARGE
This charge is equal, on an annual basis, to .15% of the daily value of the
contract invested in a Portfolio. This charge is for all expenses associated
with the distribution of the contract. These expenses include preparing the
contract, confirmations and statements, providing sales support, and maintaining
contract records. If this charge is not enough to cover the costs of
distributing the contract, we will bear the loss.
WITHDRAWAL CHARGES
Withdrawals in excess of your free withdrawal amount, as described in more
detail under "Access To Your Money," will be assessed a withdrawal charge. You
will not receive the benefit of any free withdrawal amount if you withdraw your
entire contract value.
We keep track of each Purchase Payment and assess a charge based on the length
of time a Purchase Payment is in your contract before it is withdrawn. After a
Purchase Payment has been in your contract for seven years, no withdrawal
charges are assessed on withdrawals of that Purchase Payment.
The withdrawal charge is assessed as a percentage of the Purchase Payment you
withdraw, which declines each year the Purchase Payment is in the contract as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------
YEAR 1 2 3 4 5 6 7 8+
- ---------------------------------------------------------------------
WITHDRAWAL 7% 6% 5% 4% 3% 2% 1% 0%
CHARGE
- ---------------------------------------------------------------------
</TABLE>
If the withdrawal is for only part of the contract, we will deduct the
withdrawal charge from the remaining value in your contract. For purposes of
calculating the withdrawal charge, we treat withdrawals as coming from the
oldest Purchase Payment first. However, for tax purposes, earnings are
considered withdrawn first.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit or for annuity payments during the Income Phase.
INVESTMENT CHARGES
If you have money allocated to the variable Portfolios, there are deductions
from and expenses paid out of the assets of the various Portfolios. These
investment charges are summarized in the Fee Tables. For more detailed
information, you should refer to the prospectuses for the Anchor Series Trust
and the SunAmerica Series Trust.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we will deduct a $35 contract maintenance fee
($30 in North Dakota and Utah)
11
<PAGE> 18
from your contract on each contract anniversary. This fee is for expenses
incurred to establish and maintain your contract. This fee cannot be increased.
If you make a complete withdrawal from your contract, the entire contract
maintenance fee will be deducted prior to the withdrawal.
We will not deduct the contract maintenance fee if the value of your contract is
$50,000 or more when the deduction is to be made. We may discontinue this
practice at any time.
TRANSFER FEE
You can make 15 free transfers every year. We measure a year from the day we
issue your contract. If you make more than 15 transfers a year, we will deduct a
$25 transfer fee on each subsequent transfer ($10 in Pennsylvania and Texas).
PREMIUM TAXES
We are responsible for the payment of premium taxes, if any, charged by some
states and will make a deduction from your contract for them. These taxes are
due either when the contract is issued or when annuity payments begin. It is our
current practice not to charge you for these taxes until annuity payments begin
or a full surrender is made. In the future, we may discontinue this practice and
assess the tax when it is due or upon the payment of the death benefit.
Appendix C provides more information about the premium taxes assessed in each
state.
INCOME TAXES
Although we do not currently deduct any income taxes borne under your contract,
we reserve the right to do so in the future.
REDUCTION OR ELIMINATION OF CERTAIN CHARGES
We will reduce or eliminate the amount of certain insurance charges when the
contract is sold to groups of individuals under circumstances which reduce its
sales expenses. We will determine the eligibility of such groups by considering
the following factors: (1) the size of the group; (2) the total amount of
Purchase Payments we expect to receive from the group; (3) the nature of the
purchase and the persistency we expect in that group; (4) the purpose of the
purchase and whether that purpose makes it likely that expenses will be reduced;
and (5) any other circumstances which we believe to be relevant in determining
whether reduced sales expenses may be expected.
================================================================================
6. TAXES
================================================================================
NOTE: WE HAVE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL
DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE. YOU ARE CAUTIONED
TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE
THE TAX STATUS OF THE ANNUITY.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, you will not be taxed on the earnings
in your annuity contract until you take the money out. Different rules apply
depending on how you take the money out and whether your contract is Qualified
or Non-qualified.
If you do not purchase your contract under a pension plan, specially sponsored
program or an individual retirement account, your contract is referred to as a
Non-qualified contract and receives different tax treatment than a Qualified
contract. In general, your cost basis in a Non-qualified contract is equal to
the Purchase Payments you put into the contract. You have already been taxed on
the cost basis in your contract.
If you purchase your contract under a pension plan, specially sponsored program
or as an individual retirement account, your contract is referred to as a
Qualified contract. Examples of qualified plans are: Individual Retirement
Annuities, Tax-Sheltered Annuities (referred to as 403(b) contracts), H.R. 10
Plans (referred to as Keogh Plans) and pension and profit sharing plans,
including 401(k) plans. Typically you have not paid any tax on the Purchase
Payments used to buy your contract and therefore, you have no cost basis in your
contract.
TAX TREATMENT OF DISTRIBUTIONS --
NON-QUALIFIED CONTRACTS
If you make a withdrawal from a Non-qualified contract, the IRC treats such a
withdrawal as first coming from the earnings and then as coming from your
Purchase Payments. For annuity payments, any portion of each payment that is
considered a return of your Purchase Payment will not be taxed. Withdrawn
earnings are treated as income to you and are taxable. The IRC further provides
for a 10% tax penalty on any earnings that are withdrawn other than in
conjunction with the following circumstances: (1) after reaching age 59 1/2; (2)
by your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) in a series of substantially equal installments made for your life
or for the joint lives of you and your Beneficiary; (5) under an immediate
12
<PAGE> 19
annuity; or (6) which come from Purchase Payments made prior to August 14, 1982.
TAX TREATMENT OF DISTRIBUTIONS --
QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract or on any earnings and therefore, any amount you take out as
a withdrawal or as annuity payments will be taxable income. The IRC further
provides for a 10% tax penalty on any withdrawal or annuitization paid to you
other than in conjunction with the following circumstances: (1) after reaching
age 59 1/2; (2) by your Beneficiary after you die; (3) after you become disabled
(as defined in the IRC); (4) in a series of substantially equal installments
made for your life or for the joint lives of you and your Beneficiary; and,
except in the case of an IRA as to the following (5) after you separate from
service after attaining age 55; (6) to the extent such withdrawals do not exceed
limitations set by the IRC for amounts paid during the taxable year for medical
care; and (7) to an alternate payee pursuant to a qualified domestic relations
order.
The IRC limits the withdrawal of Purchase Payments from certain Tax-Sheltered
Annuities. Withdrawals can only be made when an owner: (1) reaches age 59 1/2;
(2) leaves his or her job; (3) dies; (4) becomes disabled (as defined in the
IRC); or (5) in the case of hardship. In the case of hardship, the owner can
only withdraw an amount equal to Purchase Payments and not any earnings.
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity in order to be treated as a variable annuity
for tax purposes. We believe that the variable Portfolios are being managed so
as to comply with these requirements.
The diversification regulations do not provide guidance as to the circumstances
under which you, because of the degree of control you exercise over the
underlying investments, and not Anchor National, would be considered the owner
of the shares of the Portfolios. It is unknown to what extent owners are
permitted to select investments, to make transfers among portfolios or the
number and type of portfolios owners may select from. If any guidance is
provided which is considered a new position, then the guidance would generally
be applied prospectively. However, if such guidance is considered not to be a
new position, it may be applied retroactively. This would mean you, as the owner
of the contract, could be treated as the owner of the variable investment
Portfolios. Due to the uncertainty in this area, we reserve the right to modify
the contract in an attempt to maintain favorable tax treatment.
================================================================================
7. ACCESS TO YOUR MONEY
================================================================================
Under your contract, money can be accessed in the following ways: (1) by making
a withdrawal, either for a part of the value of your contract or for the entire
value of your contract during the Accumulation Phase; (2) by receiving annuity
payments during the Income Phase; and (3) when a death benefit is paid to your
Beneficiary.
Generally, withdrawals are subject to a withdrawal charge, a market value
adjustment if the money is withdrawn from the 3, 5, 7 or 10 year fixed
investment options and, if you withdraw your entire contract value, a contract
maintenance fee. (See "Expenses" for more complete information).
Your contract provides for a free withdrawal amount. Purchase Payments that are
no longer subject to a withdrawal charge and not previously withdrawn, plus
earnings, may be withdrawn free of a withdrawal charge at any time.
After the first year, the first withdrawal of the year will be free of a
withdrawal charge if it does not exceed the greater of: (1) earnings in your
contract as of the date you make the withdrawal or (2) 10% of the Purchase
Payments you invested for at least one year and not yet withdrawn, less any
withdrawals made during the year.
The portion of a free withdrawal which exceeds the sum of: (1) earnings in the
contract and (2) Purchase Payments 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 under
the 10% provision may reduce principal for purposes of calculating amounts
available for future withdrawals of earnings, they do not reduce the amount you
invested for purposes of calculating the withdrawal charge if you withdraw your
entire contract value. As a result, you will not receive the benefit of any free
withdrawal amounts if you make a complete withdrawal of your contract.
If you make a complete withdrawal, you will receive the value of your contract,
less any applicable fees and charges, as calculated on the day following receipt
by us at our principal place of business of a complete withdrawal request. Your
contract must be submitted as well.
Under most circumstances, partial withdrawals must be for a minimum of $1,000.
We require that the value left in any Portfolio or the fixed investment option
be at least $100 after the withdrawal. Unless you provide us with different
instructions, partial withdrawals will be made pro rata from each Portfolio and
the fixed investment option in which your contract is invested. You must send a
written withdrawal request to us prior to any withdrawal being made.
13
<PAGE> 20
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading on the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
portfolios is not reasonably practicable; (4) the SEC, by order, so permits for
the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from the
fixed investment option for the period permitted by law but not for more than
six months.
SYSTEMATIC WITHDRAWAL PROGRAM
This program allows you to receive either monthly, quarterly, semiannual or
annual checks during the Accumulation Phase. You can also choose to have
systematic withdrawals electronically wired to your bank account. The minimum
amount of each withdrawal is $250. Withdrawals may be taxable and a 10% IRS tax
penalty may apply if you are under age 59 1/2. There is no charge for
participating in this program.
This program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
WITHDRAWAL CHARGES, MARKET VALUE ADJUSTMENTS, INCOME TAXES, TAX PENALTIES AND
CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL YOU MAKE.
NURSING HOME WAIVER
If you are confined to a nursing home for 60 days or longer, we may waive the
withdrawal charge and/or market value adjustment on certain withdrawals prior to
the Annuity Date (not available in Texas). The waiver applies only to
withdrawals made while you are in a nursing home or within 90 days after you
leave the nursing home.
This waiver may not be used during the first 90 days after you purchase your
contract. In addition, the confinement period for which you seek the waiver must
begin after you purchase your contract.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals
and (2) no Purchase Payments have been made during the past three years. We will
provide you with sixty days written notice and distribute the contract's
remaining value to you.
===============================================================================
8. PERFORMANCE
===============================================================================
From time to time we may advertise the Cash Management Portfolio's yield and
effective yield. In addition, the other variable investment Portfolios may also
advertise total return, gross yield and yield to maturity information. These
figures are based on historical data and are not intended to indicate future
performance.
We will calculate total return by determining the percentage change in value of
an Accumulation Unit by dividing the increase (decrease) for that unit by the
value of the Accumulation Unit at the beginning of the period. This performance
number reflects the deduction of any applicable withdrawal charges, insurance
charges, investment charges and the contract maintenance fee. We may also
include in advertisements total return figures which do not reflect the
deduction of the contract maintenance fee and/or the withdrawal charges.
At times Anchor National may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P"), and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of our financial strength and performance
in comparison to others in the life/health insurance industry. S&P's and Duff &
Phelps' ratings measure the ability of an insurance company to meet its
obligations under insurance policies it issues and do not measure the ability of
such companies to meet other non-policy obligations.
The performance of each Portfolio may also be measured against unmanaged market
indices, including but not limited to the Dow Jones Industrial Average, the
Standard & Poor's 500, the Russell 1000 Growth Index, the Morgan Stanley Capital
International Europe, Australia, and Far East Index (EAFE) and the Morgan
Stanley Capital International World Index, and may be compared to that of other
variable annuities with similar objectives and policies as reported by
independent rating services such as Morningstar, Inc., Lipper Analytical
Services, Inc. or Variable Annuity Reporting Data Service.
More detailed information on the method used to calculate performance for the
Portfolios is contained in the SAI.
================================================================================
9. DEATH BENEFIT
================================================================================
If you should die during the Accumulation Phase of your contract, we will pay a
death benefit to your Beneficiary.
14
<PAGE> 21
The death benefit is the greater of:
(1) The value of your contract at the time we receive adequate proof of
death,
(2) total Purchase Payments less any withdrawals, all compounded at 4%
annually until the date of death (3% if age 70 or older at time of
issue), or
(3) the value of your contract on the seventh contract anniversary less any
withdrawals plus any additional Purchase Payments since the seventh
anniversary, all compounded at 4% annually until the date of death (3%
if age 70 or older at time of issue).
The death benefit is not paid after you switch to the Income Phase. During the
Income Phase, your Beneficiary(ies) will receive any remaining guaranteed
annuity payments in accordance with the annuity option you choose.
You may select the Beneficiary(ies) to receive any amounts payable on death. You
may change the Beneficiary at any time, unless you previously made an
irrevocable Beneficiary designation. A new Beneficiary designation is not
effective until we record the change.
The death benefit is immediately payable under the contract. However, in any
event, the entire death benefit must be paid within five years of the date of
death unless the Beneficiary elects to have it payable in the form of an
annuity. If the Beneficiary elects an annuity option, it must be paid over the
Beneficiary's lifetime or for a period not extending beyond the Beneficiary's
life expectancy. If the Beneficiary is the spouse of the owner, he or she can
elect to continue the contract at the then current value, in which case he or
she will not receive the death benefit.
The death benefit will be paid out when we receive adequate proof of death: (1)
a certified copy of a death certificate; (2) a certified copy of a decree of
court of competent jurisdiction as to the finding of death; (3) a written
statement by a medical doctor who attended the deceased at the time of death; or
(4) any other proof satisfactory to us. We may also require additional
documentation or proof in order for the death benefit to be paid. If the
Beneficiary does not make a specific election within sixty days of our receipt
of such proof of death, the death benefit will be paid in a lump sum.
================================================================================
10. OTHER INFORMATION
================================================================================
ANCHOR NATIONAL
Anchor National and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, CalFarm Life Insurance Company, SunAmerica
Asset Management Corp., Imperial Premium Finance, Inc., Resources Trust Company
and three broker-dealers, offer a full line of financial services, including
fixed and variable annuities, mutual funds, premium finance, broker-dealer and
trust administration services. Anchor National is an indirect wholly owned
subsidiary of SunAmerica Inc. Anchor National is licensed to do business in the
District of Columbia and in all states except New York.
THE SEPARATE ACCOUNT
Anchor National originally established a separate account, Variable Separate
Account, under California law on June 25, 1981. We redomesticated under Arizona
law on January 1, 1996 and the separate account was assumed by Anchor National.
The separate account is registered with the SEC as a unit investment trust under
the Investment Company Act of 1940.
Anchor National owns the assets in the separate account. However, the assets in
the separate account are not chargeable with liabilities arising out of any
other business Anchor National may conduct. Income, gains and losses (realized
and unrealized) resulting from the assets in the separate account are credited
to or charged against the separate account without regard to other income, gains
or losses of Anchor National.
THE GENERAL ACCOUNT
If you put your money into the fixed investment options, it goes into Anchor
National's general account. The general account is made up of all of Anchor
National's assets other than assets attributable to a separate account. All of
the assets in the general account are chargeable with the claims of any Anchor
National contract owners as well as all creditors. The general account is
invested in assets permitted by state insurance law.
DISTRIBUTION
The contract is sold through registered representatives of broker-dealers.
Commissions are paid to registered representatives for the sale of contracts.
Commissions are not expected to exceed 7% of your Purchase Payment. Under some
circumstances, we may pay a persistency bonus in addition to standard
commissions. Usually the standard commission is lower when we pay a persistency
bonus, which is not anticipated to exceed 1.5% annually. Commissions paid to
registered representatives are not directly deducted from your Purchase Payment.
SunAmerica Capital Services, Inc., 733 Third Avenue, 4th Floor, New York, New
York 10017 acts as the distributor of the contracts. SunAmerica Capital
Services, Inc., an affiliate of Anchor National, is registered as a brokerdealer
under the Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc.
15
<PAGE> 22
ADMINISTRATION
We are responsible for all the administrative servicing of your contract. Please
contact Anchor National's Annuity Service Center at the telephone number and
address provided in the profile section of this prospectus if you have any
comment, question or service request.
We will send out transaction confirmations and quarterly statements. Please
review these documents carefully and notify us of any inaccuracies immediately.
We will investigate all questions and, to the extent we have made an error, we
will retroactively adjust your contract provided you have notified us within
thirty days of receiving the transaction confirmation or quarterly statement, as
applicable. All other adjustments will be made as of the time we receive notice
of the error.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the separate account. Anchor
National and its subsidiaries are engaged in various kinds of routine litigation
which, in management's judgment, are not of material importance to their
respective total assets or material with respect to the separate account.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the separate account. Anchor
National pays State Street Bank for services based on a schedule of fees.
ADDITIONAL INFORMATION
Anchor National is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with such requirements, we file
reports and other information with the SEC. Such reports and other information
we file can be inspected and copied. Copies can be obtained at the public
reference facilities of the SEC 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 SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of the fees prescribed by the rules and regulations of the SEC at
prescribed rates.
Registration statements have been filed with the SEC, Washington, D.C., under
the Securities Act of 1933 as amended, relating 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 Reference should be made to such registration statements and exhibits
for further information concerning the separate account, Anchor National and its
general account, the Portfolios and the contract.
16
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information of Anchor National
insofar as it relates to each of the years 1992-1996, has been derived from
audited financial statements, including the consolidated balance sheets at
September 30, 1995 and 1996 and the related consolidated statements of income
and cash flow for each of the three years in the period ended September 30, 1996
and the notes thereto appearing elsewhere herein. The information for the three
months ended December 31, 1995 and 1996 has been derived from unaudited
financial information also appearing herein and which, in the opinion of
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the unaudited
interim periods.
This information 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 follow this
selected information.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net investment income............... $ 36,499 $ 48,912 $ 58,996 $ 50,083 $ 56,843 $ 14,617 $ 14,544
Net realized investment losses...... (22,749) (22,247) (33,713) (4,363) (13,355) (12,800) (19,116)
Fee income.......................... 97,220 118,247 131,225 135,214 160,931 37,284 44,820
General and administrative
expenses.......................... (55,615) (55,142) (52,636) (61,629) (80,048) (16,997) (22,322)
Provision for future guaranty fund
assessments....................... -- (4,800) -- -- -- -- --
Amortization of deferred acquisition
costs............................. (18,224) (30,825) (44,195) (58,713) (57,520) (13,658) (13,817)
Annual commissions.................. (215) (312) (1,158) (2,658) (4,613) (939) (1,433)
Other income and expenses........... 9,218 9,679 8,801 7,063 7,070 1,768 2,270
---------- ---------- ---------- ---------- ---------- ---------- -----------
PRETAX INCOME....................... 46,134 63,512 67,320 64,997 69,308 9,275 4,946
Income tax expense.................. (15,361) (21,794) (22,705) (25,739) (24,252) (3,449) (1,600)
---------- ---------- ---------- ---------- ---------- ---------- -----------
Income from continuing operations... 30,773 41,718 44,615 39,258 45,056 5,826 3,346
Net income of subsidiaries sold to
affiliates........................ 1,312 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING FOR INCOME
TAXES............................. 32,085 41,718 44,615 39,258 45,056 5,826 3,346
Cumulative effect of change in
accounting for income taxes....... -- -- (20,463) -- -- -- --
NET INCOME.......................... $ 32,085 $ 41,718 $ 24,152 $ 39,258 $ 45,056 $ 5,826 $ 3,346
========== ========== ========== ========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
-------------------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Investments......................... $2,126,899 $2,093,100 $1,632,072 $2,114,908 $2,329,232 $1,964,418 $ 2,703,683
Variable annuity assets............. 3,284,507 4,170,275 4,486,703 5,230,246 6,311,557 5,418,534 6,784,374
Deferred acquisition costs.......... 288,264 336,677 416,289 383,069 443,610 379,922 461,637
Other assets........................ 91,588 71,337 67,062 55,474 120,136 81,466 76,014
---------- ---------- ---------- ---------- ---------- ---------- -----------
TOTAL ASSETS........................ $5,791,258 $6,671,389 $6,602,126 $7,783,697 $9,204,535 $7,844,340 $10,025,708
========== ========== ========== ========== ========== ========== ===========
Reserves for fixed annuity
contracts......................... $1,735,565 $1,562,136 $1,437,488 $1,497,052 $1,789,962 $1,473,964 $ 2,024,873
Reserves for guaranteed investment
contracts......................... -- -- -- 277,095 415,544 277,167 420,871
Variable annuity liabilities........ 3,284,507 4,170,275 4,486,703 5,230,246 6,311,557 5,418,534 6,784,374
Other reserves, payables and accrued
liabilities....................... 398,045 495,308 195,134 227,953 96,196 79,466 157,622
Subordinated notes payable to
Parent............................ 15,500 34,432 34,712 35,832 35,832 35,832 35,903
Deferred income taxes............... 35,163 38,145 64,567 73,459 70,189 72,934 71,943
Shareholder's equity................ 322,478 371,093 383,522 442,060 485,255 486,443 530,122
---------- ---------- ---------- ---------- ---------- ---------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY............................ $5,791,258 $6,671,389 $6,602,126 $7,783,697 $9,204,535 $7,844,340 $10,025,708
========== ========== ========== ========== ========== ========== ===========
</TABLE>
17
<PAGE> 24
MANAGEMENT DISCUSSION AND ANALYSIS
Management's discussion and analysis of financial condition and results of
operations of Anchor National for the three years in the period ended September
30, 1996 follows. In connection with, and because it desires to take advantage
of, the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995, Anchor National cautions readers regarding certain forward-looking
statements contained in the following discussion and in any other statements
made by, or on behalf of, Anchor National, 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. In particular,
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 which represent Anchor National's
beliefs concerning future or projected levels of sales of Anchor National's
products, investment spreads or yields, or the earnings or profitability of
Anchor National's activities.
Forward-looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond Anchor National's
control and many of which, with respect to future business decisions, are
subject to change. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any forward-looking statements made by, or on behalf of, Anchor National.
Whether or not actual results differ materially from the forward-looking
statements may depend on numerous foreseeable and unforeseeable events or
developments, some of which may be national in scope, such as general economic
conditions and changes in interest rates, some of which may be related to the
insurance industry generally, such as pricing competition, regulatory
developments and industry consolidation, and others of which may relate to
Anchor National specifically, such as credit, volatility, and other risks
associated with Anchor National's investment portfolio, and other factors.
Investors are also directed to consider other risks and uncertainties discussed
in documents filed by Anchor National with the SEC. Anchor National disclaims
any obligation to update forward-looking information.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS 1994, 1995 AND 1996
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES totaled
$45.1 million in 1996, compared with $39.3 million in 1995 and $44.6 million in
1994. The cumulative effect of the change in accounting for income taxes
resulting from the 1994 implementation of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," amounted to a nonrecurring
non-cash charge of $20.5 million. Accordingly, net income amounted to $24.1
million in 1994.
PRETAX INCOME totaled $69.3 million in 1996, $65.0 million in 1995, and $67.3
million in 1994. The $4.3 million 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. The $2.3 million decline in 1995
over 1994 primarily resulted from additional amortization of deferred
acquisition costs, increased general and administrative expenses and decreased
net investment income, partially offset by decreased net realized investment
losses.
NET INVESTMENT INCOME, which is the spread between the income earned on invested
assets and the interest paid on fixed annuities and other interest-bearing
liabilities, totaled $56.8 million in 1996, $50.1 million in 1995 and $59.0
million in 1994. These amounts represent 2.59% on average invested assets
(computed on a daily basis) of $2.19 billion in 1996, 2.95% on average invested
assets of $1.70 billion in 1995 and 3.78% on average invested assets of $1.56
billion in 1994.
Net investment income also includes the effect of income earned on the excess of
average invested assets over average interest-bearing liabilities. This excess
amounted to $142.9 million in 1996, $108.4 million in 1995 and $49.5 million in
1994. The difference between Anchor National's yield on average invested assets
and the rate paid on average interest-bearing liabilities was 2.25% in 1996,
2.63% in 1995 and 3.64% in 1994.
Investment income and the related yields on average invested assets totaled
$164.6 million or 7.50% in 1996, compared with $129.5 million or 7.62% in 1995
and $127.8 million or 8.20% in 1994.
Investment income rose during 1996 as a result of higher levels of average
invested assets, partially offset by reduced investment yields. Investment
yields were lower in 1996 because of a generally declining interest rate
environment since early 1995 and lower contributions from Anchor National's
investments in partnerships. Partnership income totaled $4.1 million in 1996,
$5.1 million in 1995 and $9.5 million in 1994. This income represents a yield of
10.12% on average investments in partnerships of $40.2 million in 1996, compared
with 10.60% on average investments in partnerships of $48.4 million in 1995 and
23.78% on average investments in partnerships of $39.9 million in 1994.
Partnership income is based upon cash distributions received from limited
partnerships, the operations of which Anchor National does not significantly
influence. Consequently, such income is not predictable and there can be no
assurance that Anchor National will realize comparable levels of such income in
the future.
18
<PAGE> 25
The decline in investment yield in 1995 compared with 1994 is primarily due to
lower contributions from Anchor National's investments in partnerships and a
significant decline from the $3.7 million of yield enhancement recorded in 1994
through Anchor National's use of dollar roll transactions ("Dollar Rolls").
Although Anchor National continues to use Dollar Rolls, their use did not have a
significant impact on investment income in 1995 or 1996.
Total interest expense aggregated $107.8 million in 1996, $79.4 million in 1995
and $68.8 million in 1994. The average rate paid on all interest-bearing
liabilities increased to 5.25% (5.11% on fixed annuity contracts and 5.87% on
guaranteed investment contracts ("GICs")) in 1996, compared with 4.99% (4.90% on
fixed annuity contracts and 6.14% on GICs) in 1995 and 4.56% (4.50% on fixed
annuity contracts) in 1994. Interest-bearing liabilities averaged $2.05 billion
during 1996, compared with $1.59 billion during 1995 and $1.51 billion during
1994.
The increase in the average rates paid on all interest-bearing liabilities
during 1996 primarily resulted from the growth in average reserves for GICs,
which credit at higher rates of interest than fixed annuity contracts. Average
GIC reserves were $340.5 million in 1996 and $60.8 million in 1995. The increase
in average crediting rates in 1995 resulted from higher crediting rates on fixed
annuity contracts as interest rates rose from the low levels experienced in
1994.
The growth in average invested assets since 1994 primarily reflects sales of
Anchor National's fixed-rate products, consisting of both fixed accounts of
variable annuity products and GICs. Fixed annuity premiums totaled $741.8
million in 1996, compared with $284.4 million in 1995 and $140.7 million in
1994. These increased premiums resulted from greater inflows into the one-year
fixed account of Anchor National's Polaris variable annuity product.
GIC premiums totaled $135.0 million in 1996 and $275.0 million in 1995. In 1995,
Anchor National began to issue GICs, which guarantee the payment of principal
and interest at fixed or variable rates for a term of one year. Anchor
National's GICs that are purchased by asset management firms either prohibit
withdrawals or permit withdrawals with notice ranging from 90 to 270 days.
Contracts that are purchased by banks or state and local governmental
authorities either prohibit withdrawals or permit scheduled book value
withdrawals subject to terms of the underlying indenture or agreement. In
pricing GICs, Anchor National analyzes cash flow information and prices
accordingly so that it is compensated for possible withdrawals prior to
maturity.
NET REALIZED INVESTMENT LOSSES totaled $13.4 million in 1996, $4.4 million in
1995 and $33.7 million in 1994. Net realized investment losses include
impairment writedowns of $16.0 million in 1996, $4.8 million in 1995 and $14.2
million in 1994. Therefore, net gains from sales of investments totaled $2.6
million in 1996 and $0.4 million in 1995. In 1994, Anchor National incurred
$19.5 million of net losses from sales of investments.
Net gains from sales of investments in 1996 include $4.1 million of net gains
realized on $1.27 billion of sales of bonds and $288.6 million of redemptions of
bonds. Net gains from sales of investments in 1995 include a $4.4 million gain
on sales of real estate, common stock and other invested assets offset by $4.0
million of net losses realized on $1.11 billion of sales of bonds. Net losses
from sales of investments in 1994 include $17.3 million of net losses realized
on $673.6 million of sales of bonds. These bond sales include approximately
$289.3 million of sales of MBSs made primarily to acquire other MBSs that were
then used in Dollar Rolls. Sales of investments are generally made to maximize
total return.
Impairment writedowns in 1996 include $13.4 million of provisions applied to
certain real estate owned in Arizona on December 31, 1995. Prior to that date,
the statutory carrying value of this real estate had been guaranteed by Anchor
National's ultimate parent, SunAmerica Inc. ("SunAmerica"). On December 31,
1995, SunAmerica made a $27.4 million capital contribution to Anchor National
through Anchor National's direct parent in exchange for the termination of its
guaranty with respect to this real estate. Accordingly, Anchor National reduced
the carrying value of this real estate to estimated fair value to reflect the
termination of the guaranty. (SunAmerica's guaranty of the statutory carrying
value of Anchor National's other real estate owned in Arizona was fully
terminated on December 31, 1996).
Impairment writedowns in 1995 include $2.0 million of additional provisions
applied to defaulted bonds and $1.8 million of additional provisions applied to
certain interest-only strips ("IOs"). IOs, a type of MBS used as an
asset-liability matching tool to hedge against rising interest rates, are
investment grade securities that give the holder the right to receive only the
interest payments on a pool of underlying mortgage loans. At September 30, 1996,
the amortized cost of the IOs held by Anchor National was $2.6 million and their
fair value was $3.7 million. Impairment writedowns in 1994 of $14.2 million
reflect additional provisions applied to bonds, primarily made in response to
the adverse impact of declining interest rates on certain MBSs.
Impairment writedowns represent 0.73%, 0.28% and 0.91% of average invested
assets in 1996, 1995 and 1994, respectively. 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 supporting
variable annuity contracts in separate accounts. Such fees totaled $104.0
million in 1996, $84.2 million in 1995 and $79.1 million in 1994. Increases in
variable annuity fees in 1996 and 1995 reflect growth in
19
<PAGE> 26
average variable annuity assets, principally due to increased market values and
the receipt of variable annuity premiums, partially offset by surrenders.
Variable annuity assets averaged $5.70 billion during 1996, $4.65 billion during
1995 and $4.40 billion during 1994. Variable annuity premiums, which exclude
premiums allocated to the fixed accounts of variable annuity products, totaled
$919.8 million in 1996, $577.2 million in 1995 and $769.6 million in 1994. The
increase in premiums in 1996 may be attributed, in part, to a heightened demand
for equity investments, principally as a result of generally improved market
performance. The decline in premiums in 1995 may be attributed, in part, to a
heightened demand for fixed-rate investment options, including the fixed
accounts of variable annuities. Anchor National 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 Anchor National's broker-dealer
subsidiary, after deducting the substantial portion of such commissions that is
passed on to registered representatives. Net retained commissions totaled $31.5
million in 1996, $24.1 million in 1995 and $20.8 million in 1994. Broker-dealer
sales (mainly sales of general securities, mutual funds, and annuities) totaled
$8.75 billion in 1996, $5.67 billion in 1995 and $5.21 billion in 1994. The
significant increases in sales and net retained commissions during 1996 reflect
a greater number of registered representatives and higher average production,
combined with generally favorable market conditions. Increases in net retained
commissions may not be proportionate to increases in sales primarily due to
differences in sales mix.
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 $25.4 million on
average assets managed of $2.14 billion in 1996, $26.9 million on average assets
managed of $2.07 billion in 1995 and $31.3 million on average assets managed of
$2.39 billion in 1994. Asset management fees decreased slightly in 1996, despite
a modest increase in average assets managed, principally due to changes in
product mix. The decrease in asset management fees during 1995 principally
resulted from the decline in average assets managed, primarily due to an excess
of redemptions over sales. Redemptions of mutual funds, excluding redemptions of
money market accounts, amounted to $379.9 million in 1996, compared with $426.5
million in 1995 and $561.0 million in 1994. Sales of mutual funds, excluding
sales of money market accounts, amounted to $223.4 million in 1996, compared
with $140.2 million in 1995 and $342.6 million in 1994. Higher mutual fund sales
and lower redemptions in 1996 both reflect the combined effects of additional
advertising, the favorable performance records of certain of Anchor National's
mutual funds and heightened demand for equity investments, principally as a
result of improved market performance.
SURRENDER CHARGES on fixed and variable annuities totaled $5.2 million in 1996,
$5.9 million in 1995 and $5.0 million in 1994. Surrender charges generally are
assessed on annuity withdrawals at declining rates during the first five to
seven years of the contract. Withdrawal payments, which include surrenders and
lump-sum annuity benefits, totaled $898.0 million in 1996, $908.9 million in
1995 and $723.9 million in 1994. These payments represent 12.4%, 15.1% and
12.5%, respectively, of average fixed and variable annuity reserves. Withdrawals
include variable annuity payments from the separate accounts totaling $634.1
million in 1996, $646.4 million in 1995 and $459.1 million in 1994. Such
variable annuity surrenders represent 11.2%, 14.0% and 10.5%, respectively, of
average variable annuity liabilities in 1996, 1995 and 1994. Variable annuity
surrender rates increased in 1995 primarily due to surrenders on a closed lock
of business, policies coming off surrender charge restrictions and increased
competition in the marketplace. Fixed annuity surrenders have remained
relatively constant, totaling $263.8 million in 1996, $262.4 million in 1995 and
$264.8 million in 1994. Management anticipates that withdrawal rates will remain
relatively stable for the foreseeable future
GENERAL AND ADMINISTRATIVE EXPENSES totaled $80.0 million in 1996, compared with
$61.6 million in 1995 and $52.6 million in 1994. Expenses in 1996 include
expenses related to a national advertising campaign, as well as additional
administrative expenses related to a growing block of business. Expenses remain
closely controlled through a company-wide cost containment program and represent
approximately 1% of average total assets.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $57.5 million in 1996, $58.7
million in 1995 and $44.2 million in 1994. 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. The increase in amortization in 1995 was primarily
caused by the substantial reduction in net realized capital losses from the
level experienced in 1994.
ANNUAL COMMISSIONS represent renewal commissions paid quarterly in arrears to
maintain the persistency of certain of Anchor National's variable annuity
contracts. Substantially all of Anchor National's currently available variable
annuity products allow for an annual commission payment option in return for a
lower immediate commission. Annual commissions totaled $4.6 million in 1996,
$2.7 million in 1995 and $1.2 million in 1994. The increase in annual
commissions since 1994 reflects increased sales of annuities that offer this
commission option. Anchor National estimates that during
20
<PAGE> 27
1996 approximately 35% of the average balances of its variable annuity products
are currently subject to such annual commissions. Based on current sales, this
percentage is expected to increase in future periods.
INCOME TAX EXPENSE totaled $24.3 million in 1996, $25.7 million in 1995 and
$22.7 million in 1994, representing effective tax rates of 35% in 1996, 40% in
1995 and 34% in 1994. The increase in the 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 AT SEPTEMBER 30, 1996
SHAREHOLDER'S EQUITY increased by $43.2 million to $485.3 million at September
30, 1996 from $442.1 million at September 30, 1995, primarily as a result of the
$45.1 million of net income recorded in 1996 and a $0.2 million reduction of net
unrealized losses on debt and equity securities available for sale charged
directly to shareholder's equity. In addition, Anchor National received a
contribution of capital of $27.4 million in December 1995 and paid a dividend of
$29.4 million in March 1996.
TOTAL ASSETS increased by $1.42 billion to $9.20 billion at September 30, 1996
from $7.78 billion at September 30, 1995, principally due to a $1.08 billion
increase in the separate accounts for variable annuities and a $214.3 million
increase in invested assets.
INVESTED ASSETS at year end totaled $2.33 billion in 1996, compared with $2.11
billion in 1995. This $214.3 million increase primarily resulted from a $208.2
million increase in amounts receivable from brokers for sales of securities.
Anchor National manages most of its invested assets internally. Anchor
National's general investment philosophy is to hold fixed maturity assets for
long-term investment. Thus, it does not have a trading portfolio. Effective
December 1, 1995, pursuant to guidelines issued by the Financial Accounting
Standards Board, Anchor National 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 prepayment
risk, Anchor National's need for liquidity and other similar factors.
Accordingly, Anchor National no longer classifies a portion of its Bond
Portfolio as held for investment.
THE BOND PORTFOLIO had an aggregate amortized cost that exceeded its fair value
by $13.8 million at September 30, 1996, compared with $3.7 million at September
30, 1995 (including net unrealized losses of $10.8 million on the portion of the
portfolio that was designated as available for sale September 30, 1995). The
increase in net unrealized losses on the Bond Portfolio since September 30,
1995, principally reflects the higher prevailing interest rates at September 30,
1996 and their corresponding effect on the fair value of the Bond Portfolio.
All of the Bond Portfolio ($1.99 billion at amortized cost, excluding $9.1
million of redeemable preferred stocks) at September 30, 1996 was rated by
Standard & Poor's Corporation ("S&P"), Moody's Investors Service ("Moody's"),
Duff and helps Credit Rating Co. ("DCR"), Fitch Investors Service, L.P.
("Fitch") or under comparable statutory rating guidelines established by the
National Association of Insurance Commissioners ("NAIC") and implemented by
either the NAIC or Anchor National. At September 30, 1996, approximately $1.83
billion of the Bond Portfolio (at amortized cost) was rated investment grade by
one or more of these agencies or by Anchor National or the NAIC, pursuant to
applicable NAIC guidelines, including $1.05 billion of U.S. government/agency
securities and MBSs.
At September 30, 1996, the Bond Portfolio included $160.8 million (fair value,
$160.2 million) of bonds not rated investment grade by S&P, Moody's, DCR, Fitch
or the NAIC. Based on their September 30, 1996 amortized cost, these non-
investment-grade bonds accounted for 1.8% of Anchor National's total assets and
6.9% 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. Anchor
National intends that the proportion of its portfolio in such securities not
exceed current levels, but its policies may change from time to time, including
in connection with any possible acquisition. Anchor National had no material
concentrations of non-investment-grade securities at September 30, 1996.
The table on the next page summarizes Anchor National's rated bonds by rating
classification as of September 30, 1996.
21
<PAGE> 28
<TABLE>
<CAPTION>
ISSUES NOT RATED BY S&P/MOODY'S/
ISSUES RATED BY S&P/MOODY'S/D&P/FITCH D&P/FITCH, BY NAIC CATEGORY TOTAL
-------------------------------------------- ----------------------------------- ---------------------------------
S&P/(MOODY'S)/ ESTIMATED NAIC ESTIMATED PERCENT OF ESTIMATED
[D&P]/FITCH AMORTIZED FAIR CATEGORY AMORTIZED FAIR AMORTIZED INVESTED FAIR
CATEGORY(1) COST VALUE (2) COST VALUE COST ASSETS VALUE
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA to A-
(Aaa to A3)
[AAA to A-]
[AAA to A-]..... $1,345,960 $1,333,515 1 $125,115 $125,046 $1,471,075 62.81% $1,458,561
BBB+ to BBB-
(Baa1 to Baa3)
[BBB+ to BBB-]
[BBB+ to BBB-].. 226,312 226,191 2 133,773 133,698 360,085 15.38 359,889
BB+ to BB-
(Ba1 to Baa3)
[BB+ to BB-]
[BB+ to BB-].... 30,023 30,368 3 5,597 5,597 35,620 1.52 35,965
B+ to B-
(B1 to B3)
[B+ to B-]
[B+ to B-]...... 87,580 90,468 4 17,136 18,089 104,716 4.47 108,557
CCC+ to C
(Caa to C)
[CCC]
[CCC+ to C-].... 19,847 15,018 5 -- -- 19,847 0.85 15,018
C1 to D
[DD]
[D]............. -- -- 6 618 618 618 0.03 618
---------- ---------- -------- -------- ---------- ----------
Total rated
issues.......... $1,709,722 $1,695,560 $282,239 $283,048 $1,991,961 $1,978,608
========== ========== ======== ======== ========== ==========
</TABLE>
(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. D&P 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/D&P/Fitch rating groups
listed above, with categories 1 and 2 considered investment grade. A
substantial portion of the assets in the NAIC categories were rated by First
SunAmerica 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 $200.8 million at September 30, 1996. Secured
Loans are senior to subordinated debt and equity, and are secured by assets of
the issuer. At September 30, 1996, Secured Loans consisted of loans to 52
borrowers spanning 20 industries, with 22% of these assets (at amortized cost)
concentrated in the leisure industry. No other industry concentration
constituted more than 9% 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 Anchor National to improve its investment yield.
Although, as a result of restrictive financial covenants, Secured Loans involve
greater risk of technical default than do publicly traded investment-grade
securities, management believes that the risk of loss upon default for its
Secured Loans is mitigated by their financial covenants and senior secured
positions. Anchor National's Secured Loans are rated by S&P, Moody's, DCR, Fitch
or by the Company or the NAIC, pursuant to comparable statutory rating
guidelines established by the NAIC.
MORTGAGE LOANS aggregated $98.3 million at September 30, 1996 and consisted of
17 first mortgage loans with an average loan balance of approximately $5.8
million, collateralized by properties located in 11 states. At September 30,
1996, the Company had no concentrations in any single state or in any single
type of property that amounted to more than 23% of the mortgage loan portfolio.
At September 30, 1996, there were four loans with outstanding balances of $10
million or more, the largest of which had a balance of approximately $21
million, which collectively aggregated
22
<PAGE> 29
approximately 61% of the portfolio. At September 30, 1996, approximately 33% of
the mortgage loan portfolio consisted of loans with balloon payments due before
October 1, 1999. At September 30, 1996, loans delinquent by more than 90 days
totaled $1.5 million (1.6% of total mortgages). There were no loans foreclosed
upon and transferred to real estate in the balance sheet during 1996. At
September 30, 1996, mortgage loans having an aggregate carrying value of $21.3
million had been previously restructured. Of this amount, $16.5 million was
restructured during 1995 and $4.8 million was restructured during 1992. No
mortgage loans were restructured during 1996.
Approximately 62% of the mortgage loans in the portfolio at September 30, 1996
were seasoned loans underwritten to Anchor National's standards and purchased at
or near par from another financial institution which was downsizing its
portfolio. Such loans generally have higher average interest rates than loans
that could be originated today. The balance of the mortgage loan portfolio has
been originated by Anchor National 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 effects of general economic
conditions on these commercial properties. However, due to the seasoned nature
of Anchor National's mortgage loans and its strict underwriting standards,
Anchor National believes that it has reduced the risk attributable to its
mortgage loan portfolio while maintaining attractive yields.
REAL ESTATE aggregated $39.7 million at September 30, 1996 and consisted of
non-income producing land in the Phoenix, Arizona metropolitan area. Of this
amount, Anchor National has undertaken to dispose of $28.4 million during the
next year, either to affiliated or nonaffiliated parties, and SunAmerica Inc.,
the ultimate parent, has guaranteed that Anchor National will receive its
statutory carrying value of these assets. (This guaranty was terminated on
December 31, 1996-See "Results of Operations for the First Three Months of
Fiscal 1997").
OTHER INVESTED ASSETS aggregated $77.9 million at September 30, 1996, including
$45.1 million of investments in limited partnerships and an aggregate of $32.8
million of miscellaneous investments, including policy loans, residuals,
separate account investments, and leveraged leases. Anchor National's limited
partnership interests, accounted for by using the cost method of accounting,
invest mainly in equity securities.
ASSET-LIABILITY MATCHING is utilized by Anchor National to minimize the risks of
interest rate fluctuations and disintermediation. Anchor National believes that
its fixed-rate liabilities should be backed by a portfolio principally composed
of fixed maturities that generate predictable rates of return. Anchor National
does not have a specific target rate of return. Instead, its rates of return
vary over time depending on the current interest rate environment, the slope of
the yield curve, the spread at which fixed maturities are priced over the yield
curve and general competitive conditions within the industry. Its portfolio
strategy is designed to achieve adequate risk-adjusted returns consistent with
its investment objectives of effective asset-liability matching, liquidity and
safety.
Anchor National designs its fixed-rate products and conducts its investment
operations in order to closely match the duration of the assets in its
investment portfolio to its annuity and GIC obligations. Anchor National seeks
to achieve a predictable spread between what it earns on its assets and what it
pays on its liabilities by investing principally in fixed-rate securities.
Anchor National's fixed-rate products incorporate surrender charges or other
limitations on when contracts can be surrendered for cash to encourage
persistency. Approximately 63% of Anchor National's fixed annuity and GIC
reserves had surrender penalties or other restrictions at September 30, 1996.
As part of its asset-liability matching discipline, Anchor National conducts
detailed computer simulations that model its fixed-maturity assets and
liabilities under commonly used stress-test interest rate scenarios. Based on
the results of these computer simulations, the investment portfolio has been
constructed with a view to maintaining a desired investment spread between the
yield on portfolio assets and the rate paid on its reserves under a variety of
possible future interest rate scenarios. At September 30, 1996 the weighted
average life of Anchor National's investments was approximately five years and
the duration was approximately three. Weighted average life is the average time
to receipt of all principal, incorporating the effects of scheduled amortization
and expected prepayments, weighted by book value. Duration is a common
option-adjusted measure for the price sensitivity of a fixed-income portfolio to
changes in interest rates. It measures the approximate percentage change in
market value of a portfolio if interest rates change by 100 basis points,
recognizing the changes in portfolio cashflows resulting from embedded options
such as prepayments and bond calls.
As a component of its investment strategy, Anchor National utilizes interest
rate swap agreements ("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. Anchor
National typically utilizes Swap Agreements to create a hedge that effectively
converts floating-rate assets and liabilities into fixed-rate instruments.
Anchor National also seeks to provide liquidity from time to time by using
reverse repurchase agreements ("Reverse Repos"), Dollar Rolls and by investing
in MBSs. It also seeks to enhance its spread income by using Reverse Repos and
23
<PAGE> 30
Dollar Rolls. Reverse Repos involve a sale of securities and an agreement to
repurchase the same securities at a later date at an agreed upon price and are
generally over-collateralized. Dollar Rolls are similar to Reverse Repos except
that the repurchase involves securities that are only substantially the same as
the securities sold and the arrangement is not collateralized, nor is it
governed by a repurchase agreement. MBSs are generally investment-grade
securities collateralized by large pools of mortgage loans. MBSs generally pay
principal and interest monthly. The amount of principal and interest payments
may fluctuate as a result of prepayments of the underlying mortgage loans.
There are risks associated with some of the techniques Anchor National uses to
provide liquidity, enhance its spread income and match its assets and
liabilities. The primary risk associated with Anchor National's Dollar Rolls,
Reverse Repos and Swap Agreements is counterparty risk. Anchor National
believes, however, that the counterparties to its Dollar Rolls, Reverse Repos
and Swap Agreements are financially responsible and that the counterparty risk
associated with those transactions is minimal. Counterparty risk associated with
Dollar Rolls is further mitigated by Anchor National's participation in an MBS
trading clearinghouse. The sell and buy transactions that are submitted to this
clearinghouse are marked to market on a daily basis and each participant is
required to over-collateralize its net loss position by 30% with either cash,
letters of credit or government securities. In addition to counterparty risk,
Swap Agreements also have interest rate risk. However, Anchor National'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.
INVESTED ASSETS EVALUATION routinely includes a review by Anchor National of its
portfolio of debt securities. Management identifies monthly those investments
that require additional monitoring and carefully reviews the carrying value of
such investments at least quarterly to determine whether specific investments
should be placed on a nonaccrual basis and to determine declines in value that
may be other than temporary. In making these reviews for bonds, management
principally considers the adequacy of collateral (if any), compliance with
contractual covenants, the borrower's recent financial performance, news reports
and other externally generated information concerning the creditor's affairs. In
the case of publicly traded bonds, management also considers market value
quotations, if available. For mortgage loans, management generally considers
information concerning the mortgaged property and, among other things, factors
impacting the current and expected payment status of the loan and, if available,
the current fair value of the underlying collateral.
The carrying values of bonds that are determined to have declines in value that
are other than temporary are reduced to net realizable value and no further
accruals of interest are made. The valuation allowances on mortgage loans are
based on losses expected by management to be realized on transfers of mortgage
loans to real estate, on the disposition and settlement of mortgage loans and on
mortgage loans that management believes may not be collectible in full. Accrual
of interest is suspended when principal and interest payments on mortgage loans
are past due more than 90 days.
DEFAULTED INVESTMENTS, comprising all investments that are in default as to the
payment of principal or interest, totaled $3.1 million at September 30, 1996 (at
amortized cost, with a fair value of $2.9 million) including $1.6 million of
bonds and notes and $1.5 million of mortgage loans. At September 30, 1996,
defaulted investments constituted 0.1% of total invested assets. At September
30, 1995, defaulted investments totaled $5.0 million which constituted 0.2% of
total invested assets.
SOURCES OF LIQUIDITY are readily available to Anchor National in the form of
Anchor National'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, 1996, approximately $936.8 million of Anchor National's
Bond Portfolio had an aggregate unrealized gain of $20.1 million, while
approximately $1.06 billion of the Bond Portfolio had an aggregate unrealized
loss of $33.9 million. In addition, Anchor National's investment portfolio
currently provides approximately $21.6 million of monthly cash flow from
scheduled principal and interest payments.
Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, Anchor
National'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. Anchor National
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 Anchor National'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, Anchor National'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, Anchor
24
<PAGE> 31
National believes that a significant portion of its investments could be sold
without adverse consequences in light of the general strengthening that would be
expected in the bond market.
RESULTS OF OPERATIONS FOR THE FIRST THREE MONTHS OF FISCAL 1997
NET INCOME totaled $3.3 million for the three months ended December 31, 1996
("Fiscal 1997"), compared with $5.8 million for the three months ended December
31, 1995 ("Fiscal 1996").
PRETAX INCOME totaled $4.9 million in Fiscal 1997 and $9.3 million in Fiscal
1996. This $4.4 million decline primarily resulted from increased net realized
investment losses and general and administrative expenses, partially offset by
an increase in fee income.
NET INVESTMENT INCOME totaled $14.5 million in Fiscal 1997 and $14.6 million in
Fiscal 1996. These amounts represent 2.32% on average invested assets (computed
on a daily basis) of $2.50 billion in Fiscal 1997 and 3.00% on average invested
assets of $1.95 billion in Fiscal 1996.
The excess of average invested assets over average interest-bearing liabilities
amounted to $150.5 million in Fiscal 1997 and $131.2 million in Fiscal 1996. The
difference between Anchor National's yield on average invested assets and the
rate paid on average interest-bearing liabilities was 1.99% in Fiscal 1997 and
2.65% in Fiscal 1996.
Investment income and the related yields on average invested assets totaled
$46.7 million or 7.46% in Fiscal 1997, compared with $38.7 million or 7.95% in
Fiscal 1996.
Investment income rose during Fiscal 1997 as a result of higher levels of
average invested assets, partially offset by reduced investment yields.
Investment yields were lower in Fiscal 1997 because of a generally declining
interest rate environment since early 1995 and lower contributions from Anchor
National's investments in partnerships. Partnership income totaled $0.7 million
in Fiscal 1997 and $1.4 million in Fiscal 1996. This income represents a yield
of 6.71% on related average assets of $44.6 million in Fiscal 1997, compared
with 11.60% on related average assets of $48.7 million in Fiscal 1996.
Partnership income is based upon cash distributions received from limited
partnerships, the operations of which Anchor National does not significantly
influence. Consequently, such income is not predictable and there can be no
assurance that Anchor National will realize comparable levels of such income in
the future.
Total interest expense aggregated $32.2 million in Fiscal 1997 and $24.0 million
in Fiscal 1996. The average rate paid on all interest-bearing liabilities was
5.47% (5.34% on fixed annuity contracts and 5.81% on GICs) in Fiscal 1997,
compared with 5.30% (5.10% on fixed annuity contracts and 6.19% on GICs) in
Fiscal 1996. Interest-bearing liabilities averaged $2.35 billion during Fiscal
1997, compared with $1.81 billion during Fiscal 1996.
The increase in the average rates paid on fixed annuity contracts during Fiscal
1997 primarily resulted from the impact of certain promotional one-year interest
rates offered on Anchor National's Polaris variable annuity product. The decline
in interest paid on GICs reflects the generally declining interest rate
environment and its effect on the variable-rate GIC portfolio.
The growth in average invested assets since 1995 primarily reflects sales of
Anchor National's fixed-rate products, consisting of both fixed accounts of
variable annuity products and GICs. Since December 31, 1995, fixed annuity
premiums have aggregated $1.04 billion and GIC premiums have totaled $140.0
million. Fixed annuity premiums totaled $362.8 million in Fiscal 1997, compared
with $62.5 million in Fiscal 1996. This increase in premiums resulted primarily
from greater inflows into the one-year fixed account of Anchor National's
Polaris variable annuity product. Anchor National has observed that many
purchasers of its variable annuity contracts allocate new premiums to the
one-year fixed account and concurrently sign up for the option to dollar costs
average into the variable fund. Accordingly, Anchor National anticipates that it
will see a large portion of these premiums transferred into the separate
accounts.
GIC premiums totaled $5.0 million in Fiscal 1997. There were no GIC premiums in
Fiscal 1996.
NET REALIZED INVESTMENT LOSSES totaled $19.1 million in Fiscal 1997 and $12.8
million in Fiscal 1996. Net realized investment losses include impairment
writedowns of $16.1 million in Fiscal 1997 and $14.9 million in Fiscal 1996.
Therefore, net losses from sales of investments totaled $3.0 million in Fiscal
1997, compared with net gains of $2.1 million in Fiscal 1996.
Impairment writedowns reflect $15.7 million and $14.9 million of provisions
applied to non-income producing land in Arizona in Fiscal 1997 and Fiscal 1996,
respectively. The statutory carrying value of this land had been guaranteed by
Anchor National's ultimate Parent, SunAmerica. SunAmerica made capital
contributions of $28.4 million and $27.4 million on December 31, 1996 and 1995,
respectively, to Anchor National through Anchor National's direct parent in
exchange for the termination of its guaranty with respect to this land.
Accordingly, Anchor National reduced the carrying value of this land to
estimated fair value to reflect the termination of the guaranty. The Parent's
guaranty has been fully terminated. Impairment writedowns, on an annualized
basis, represent 2.51% and 3.06% of average invested assets in Fiscal 1997 and
1996, respectively. Such writedowns are based upon estimates of the net
realizable value of the applicable assets. Actual realization will be dependent
upon future events.
25
<PAGE> 32
VARIABLE ANNUITY FEES increased to $30.6 million in Fiscal 1997 from $24.3
million in Fiscal 1996. The increase in variable annuity fees in Fiscal 1997
reflects growth in average variable annuity assets, principally due to increased
market values and the receipt of variable annuity premiums, partially offset by
surrenders. Variable annuity assets averaged $6.60 billion during Fiscal 1997
and $5.29 billion during Fiscal 1996. Variable annuity premiums, which exclude
premiums allocated to the fixed accounts of variable annuity products, have
aggregated $937.1 million since December 31, 1995. Variable annuity premiums
increased to $226.8 million in Fiscal 1997 from $209.5 million in Fiscal 1996.
This increase may be attributed, in part, to a heightened demand for equity
investments, principally as a result of generally improved market performance.
NET RETAINED COMMISSIONS totaled $7.8 million in Fiscal 1997 and $6.5 million in
Fiscal 1996. Broker-dealer sales (mainly sales of general securities, mutual
funds and annuities) totaled $2.03 billion in Fiscal 1997 and $1.75 billion in
Fiscal 1996. The significant increases in sales and net retained commissions
during Fiscal 1997 reflect a greater number of registered representatives and
higher average production, combined with generally favorable market conditions.
ASSET MANAGEMENT FEES totaled $6.4 million on average assets managed of $2.21
billion in Fiscal 1997 and $6.5 million on average assets managed of $2.15
billion in Fiscal 1996. Asset management fees decreased slightly in Fiscal 1997,
despite a modest increase in average assets managed, principally due to changes
in product mix. Sales of mutual funds, excluding sales of money market accounts,
have aggregated $249.5 million since December 31, 1995. Mutual fund sales
totaled $62.3 million in Fiscal 1997 and $36.3 million in Fiscal 1996. Higher
mutual funds sales in Fiscal 1997 include $14.3 million of sales from Anchor
National's "Style Select Series," a product introduced in November 1996. Sales
in Fiscal 1997 also reflect the combined effects of additional advertising,
increased distribution, the favorable performance records of certain of Anchor
National's mutual funds, and heightened demand for equity investments,
principally as a result of improved market performance. Redemptions of mutual
funds, excluding redemptions of money market accounts, amounted to $103.7
million in Fiscal 1997 and $97.6 million in Fiscal 1996.
SURRENDER CHARGES on fixed and variable annuities totaled $1.4 million in Fiscal
1997 and $1.3 million in Fiscal 1996. Withdrawal payments, which include
surrenders and lump-sum annuity benefits, totaled $238.1 million in Fiscal 1997
and $215.1 million in Fiscal 1996. These payments represent 11.4% and 12.9%,
respectively, of the aggregate of average fixed and variable annuity reserves.
Withdrawals include variable annuity payments from the separate accounts
totaling $176.0 million in Fiscal 1997 and $154.5 million in Fiscal 1996.
Approximately 67% of Anchor National's fixed annuity and GIC reserves had
surrender penalties or other restrictions at December 31, 1996. Although
variable annuity surrenders have increased, principally as a result of growth in
the variable annuity separate accounts, variable annuity withdrawal rates have
declined. Variable annuity surrenders represent 10.7% and 11.8%, respectively,
of average variable annuity liabilities in Fiscal 1997 and Fiscal 1996. Fixed
annuity surrenders have increased slightly to $62.1 million in Fiscal 1997 from
$60.6 million in Fiscal 1996 as the fixed annuity reserves have grown.
Management anticipates that withdrawal rates will remain relatively stable for
the foreseeable future.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $22.3 million in Fiscal 1997,
compared with $17.0 million in Fiscal 1996. Expenses in Fiscal 1997 increased
primarily due to a growing block of business. Expenses remain closely controlled
through a company-wide cost containment program and continue to represent
approximately 1% of average total assets on an annualized basis.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $13.8 million in Fiscal 1997
and $13.7 million in Fiscal 1996 and represent for each period, on an annualized
basis, approximately 14% of the balance of deferred acquisition costs at the
beginning of each period. The slight increase in Fiscal 1997 was primarily due
to additional fixed and variable annuity and mutual fund sales and the
subsequent amortization of related deferred commissions and other acquisition
costs.
ANNUAL COMMISSIONS totaled $1.4 million in Fiscal 1997 and $0.9 million in
Fiscal 1996. The increase in annual commissions reflects increased sales of
annuities that offer this commission option. Anchor National estimates that
approximately 43% of the average balances of its variable annuity products are
currently subject to such annual commissions. Based on current sales, this
percentage is expected to increase in future periods.
INCOME TAX EXPENSE totaled $1.6 million in Fiscal 1997 and $3.4 million in
Fiscal 1996, representing effective tax rates of 32% and 37%, respectively. The
lower rate in Fiscal 1997 is primarily due to the impact of state taxes in the
prior year.
FINANCIAL CONDITION AND LIQUIDITY AT DECEMBER 31, 1996
SHAREHOLDER'S EQUITY increased by $44.9 million to $530.1 million at December
31, 1996 from $485.3 million at September 30, 1996, primarily as a result of a
$28.4 million capital contribution and $3.3 million of net income recorded in
Fiscal 1997. Shareholder's equity at December 31, 1996 was also favorably
impacted by the recording of a $7.6 million net unrealized gain on debt and
equity securities available for sale, a $13.1 million improvement over the $5.5
million net unrealized loss recorded at September 30, 1996.
TOTAL ASSETS increased by $821.2 million to $10.03 billion at December 31, 1996
from $9.20 billion at September 30, 1996,
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<PAGE> 33
principally due to a $472.8 million increase in the separate accounts for
variable annuities and a $374.5 million increase in invested assets.
INVESTED ASSETS at December 31, 1996 totaled $2.70 billion, compared with $2.33
billion at September 30, 1996. This $374.5 million increase primarily resulted
from the sales of fixed annuities and a net increase in the amount payable to
brokers for purchases of securities.
THE BOND PORTFOLIO had an aggregate fair value that exceeded its amortized cost
by $17.0 million at December 31, 1996. At September 30, 1996, the amortized cost
of the Bond Portfolio exceeded its fair value by $13.8 million. The net
unrealized gain on the Bond Portfolio since September 30, 1996 principally
reflects the lower relative prevailing interest rates at December 31, 1996 and
their corresponding effect on the fair value of the Bond Portfolio.
All of the Bond Portfolio ($2.26 billion at amortized cost, excluding $6.5
million of redeemable preferred stocks), at December 31, 1996 was rated by S&P,
Moody's, DCR, Fitch or under comparable statutory rating guidelines established
by the NAIC and implemented by either the NAIC or Anchor National. At December
31, 1996, approximately $2.06 billion of the Bond Portfolio (at amortized cost)
was rated investment grade by one or more of these agencies or by Anchor
National or the NAIC, pursuant to applicable NAIC guidelines, including $1.13
billion of U.S. government/agency securities and MBSs.
At December 31, 1996, the Bond Portfolio included $198.9 million (fair value,
$202.8 million) of bonds not rated investment grade by S&P, Moody's, DCR, Fitch
or the NAIC. Based on their December 31, 1996 amortized cost, these
noninvestment-grade bonds accounted for 2.0% of Anchor National's total assets
and 7.4% of invested assets. Anchor National had no material concentrations of
non-investment-grade securities at December 31, 1996.
SENIOR SECURED LOANS are included in the Bond Portfolio and their amortized cost
aggregated $201.4 million at December 31, 1996. At December 31, 1996, Secured
Loans consisted of loans to 65 borrowers spanning 22 industries, with 12.7% of
these assets (at amortized cost) concentrated in the air transport industry. No
other industry concentration constituted more than 11.7% of these assets.
MORTGAGE LOANS aggregated $120.7 million at December 31, 1996 and consisted of
22 first mortgage loans with an average loan balance of approximately $5.5
million, collateralized by properties located in 13 states. At December 31,
1996, Anchor National had no concentrations in any single state or in any single
type of property that amounted to more than 24% of the mortgage loan portfolio.
At December 31, 1996, there were four loans with outstanding balances of $10
million or more, the largest of which had a balance of approximately $20.5
million, which collectively aggregated approximately 49% of the portfolio. At
December 31, 1996, approximately 26% of the mortgage loan portfolio consisted of
loans with balloon payments due before January 1, 2000. During Fiscal 1997 and
Fiscal 1996, loans delinquent by more than 90 days, foreclosed loans and
restructured loans have not been significant in relation to the portfolio.
Approximately 49% of the mortgage loans in the portfolio at December 31, 1996
were seasoned loans underwritten to Anchor National's standards and purchased at
or near par from another financial institution which was downsizing its
portfolio.
OTHER INVESTED ASSETS aggregated $77.5 million at December 31, 1996, including
$45.6 million of investments in limited partnerships and an aggregate of $31.9
million of miscellaneous investments, including policy loans, residuals,
separate account investments and leveraged leases. Anchor National's limited
partnership interests, accounted for by using the cost method of accounting,
invest mainly in equity securities.
DEFAULTED INVESTMENTS, comprising all investments that are in default as to the
payment of principal or interest, totaled $6.5 million at December 31, 1996 (at
amortized cost, with a fair value of $5.4 million) including $5.0 million of
bonds and notes and $1.5 million of mortgage loans. At December 31, 1996
defaulted investments constituted 0.2% of total invested assets. At September
30, 1996, defaulted investments totaled $3.1 million, which constituted 0.1% of
total invested assets.
SOURCES OF LIQUIDITY are readily available to Anchor National in the form of
Anchor National's existing portfolio of cash and short-term investments, Reverse
Repo capacity on invested assets and, if required, proceeds from invested asset
sales. At December 31, 1996, approximately $1.22 billion of Anchor National's
Bond Portfolio had an aggregate unrealized gain of $38.4 million, while
approximately $1.04 billion of the Bond Portfolio had an aggregate unrealized
loss of $21.4 million. In addition, Anchor National's investment portfolio
currently provides approximately $22.6 million of monthly cash flow from
scheduled principal and interest payments.
PROPERTIES
Anchor National's principal office is leased at 1 SunAmerica Center, Los
Angeles, California 90067-6022. We also lease office space in Torrance,
California for recordkeeping and data processing functions. Anchor National's
asset manager and broker-dealer subsidiaries lease office space in New York, New
York.
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<PAGE> 34
DIRECTORS AND EXECUTIVE OFFICERS
Anchor National's directors and officers as of February 28, 1997 are listed
below:
<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* 63 Chairman, Chief Executive 1994 Co-founded SunAmerica Inc. (SAI)
Officer and President of Anchor in 1957
National
Chairman, Chief Executive 1986
Officer and President of SAI
- ----------------------------------------------------------------------------------------------------------------------------------
Joseph M. Tumbler* 48 Executive Vice President of 1996 President and Chief Executive 1989-1995
Anchor National Officer, Providian Capital
Vice Chairman of SAI 1995 Management
- ----------------------------------------------------------------------------------------------------------------------------------
Jay S. Wintrob* 39 Executive Vice President of 1991 Senior Vice President 1989-1991
Anchor National
Vice Chairman of SAI 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Victor E. Akin 32 Senior Vice President of Anchor 1996 Vice President, SunAmerica Life 1995-1996
National Companies
Director, SunAmerica Life 1994-1995
Companies
Manager, SunAmerica Life 1993-1994
Companies
Actuary, Milliman & Robertson 1992-1993
Consultant, Chalke Inc. 1991-1992
- ----------------------------------------------------------------------------------------------------------------------------------
James R. Belardi* 39 Senior Vice President of Anchor 1992 Vice President and Treasurer 1989-1992
National
Executive Vice President of SAI 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Lorin M. Fife* 43 Senior Vice President, General 1994 Vice President and General 1994-1995
Counsel and Assistant Secretary Counsel -- Regulatory Affairs of
of Anchor National SAI
Senior Vice President and 1995 Vice President and Associate 1989-1994
General Counsel -- Regulatory General Counsel of SAI
Affairs of SAI
- ----------------------------------------------------------------------------------------------------------------------------------
N. Scott Gillis 43 Senior Vice President and 1994 Vice President and Controller, 1989-1994
Controller of Anchor National SunAmerica Life Companies
- ----------------------------------------------------------------------------------------------------------------------------------
Jana W. Greer* 45 Senior Vice President of Anchor 1991 Vice President 1981-1991
National and SAI
President of SunAmerica 1995
Marketing, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Susan L. Harris* 40 Senior Vice President and 1994 Vice President, General 1994-1995
Secretary of Anchor National Counsel -- Corporate Affairs and
Secretary of SAI
Senior Vice President, General 1995 Vice President, Associate 1989-1994
Counsel -- Corporate Affairs General Counsel and Secretary of
and Secretary of SAI SAI
- ----------------------------------------------------------------------------------------------------------------------------------
Peter McMillan, III* 39 Executive Vice President and 1994 Senior Vice President, 1989-1994
Chief Investment Officer of SunAmerica Investments, Inc.
SunAmerica Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Edwin R. Reoliquio 39 Senior Vice President and Chief 1995 Vice President and Actuary, 1989-1994
Actuary of Anchor National SunAmerica Life Companies
- ----------------------------------------------------------------------------------------------------------------------------------
Scott L. Robinson* 50 Senior Vice President and 1991 Vice President and Controller 1986-1991
Treasurer of Anchor National
Senior Vice President and
Controller of SAI
- ----------------------------------------------------------------------------------------------------------------------------------
James W. Rowan* 34 Senior Vice President of Anchor 1996 Vice President 1993-1995
National and SAI Assistant to the Chairman 1992
Senior Vice President, Security 1986-1992
Pacific Corp.
===================================================================================================================================
</TABLE>
* Also serves as a director.
** Unless otherwise noted, positions with SunAmerica Inc.
28
<PAGE> 35
EXECUTIVE COMPENSATION
All of Anchor National's executive officers are also employees of SunAmerica
Inc. or its affiliates and do not receive direct compensation from Anchor
National. Some of the executive officers also serve as officers of other
companies affiliated with Anchor National. We allocated the time each executive
officer spent devoted to his or her duties as an executive officer of Anchor
National to determine the executive compensation set forth below for the Chief
Executive Officer and the other four highest compensated executive officers, as
well as the executive officers as a group, for services rendered during 1996.
<TABLE>
<CAPTION>
----------------------------------------------------------------
NAME OF INDIVIDUAL CAPACITIES ALLOCATED
OR NUMBER IN WHICH CASH
IN GROUP SERVED COMPENSATION
----------------------------------------------------------------
<S> <C> <C>
Eli Broad Chairman, Chief Executive
Officer and President $1,444,146
Joseph M. Tumbler Executive Vice President 834,708
Jay S. Wintrob Executive Vice President 836,327
James R. Belardi Senior Vice President 341,329
Jana W. Greer Senior Vice President 420,171
All Executive Officers
as a Group(12) $5,056,560
- -------------------------------------------------------------------
</TABLE>
SECURITY OWNERSHIP OF OWNERS AND MANAGEMENT
No shares of Anchor National are owned by any executive officer or director.
Anchor National is an indirect wholly-owned subsidiary of SunAmerica Inc. The
only officer or director that owned more than 1% of the shares of SunAmerica
Inc. is Mr. Eli Broad. At February 28, 1997, Mr. Broad beneficially owned
6,655,176 shares of Common Stock (approximately 5.8% of the class outstanding)
and 9,160,294 shares of Class B Common Stock (approximately 84.4% of the class
outstanding). Of the Common Stock, 715,872 shares represent restricted shares
granted under the Anchor National's employee stock plans as to which Mr. Broad
has no investment power; 75,846 shares are registered in the name of a
corporation to which Mr. Broad is a director and has sole voting and investment
power; 4,150,932 shares represent employee stock options which are or will
become within the next 60 days and as to which he has no voting or investment
power. At February 28, 1997, all directors and officers as a group beneficially
owned 10,344,440 shares of Common Stock (approximately 9% of the class
outstanding) and 9,160,294 shares of Class B Common Stock (approximately 84.4%
of the class outstanding).
STATE REGULATION
Anchor National is subject to regulation and supervision by the states in which
it is authorized to transact business. State insurance laws establish
supervisory agencies with broad administrative and supervisory powers related to
granting and revoking licenses to transact business, regulating marketing and
other trade practices, operating guaranty associations, licensing agents,
approving policy forms, regulating certain premium rates, regulating insurance
holding company systems, establishing reserve requirements, prescribing the form
and content of required financial statements and reports, performing financial
and other examinations, determining the reasonableness and adequacy of statutory
capital and surplus, regulating the type, valuation and amount of investments
permitted, limiting the amount of dividends that can be paid and the size of
transactions that can be consummated without first obtaining regulatory approval
and other related matters.
During the last decade, the insurance regulatory framework has been placed under
increased scrutiny by various states, the federal government and the NAIC.
Various states have considered or enacted legislation that changes, and in many
cases increases, the states' authority to regulate insurance companies.
Legislation has been introduced from time to time in Congress that could result
in the federal government assuming some role in the regulation of insurance
companies. In recent years, the NAIC has approved and recommended to the states
for adoption and implementation several regulatory initiatives designed to
reduce the risk of insurance company insolvencies and market conduct violations.
These initiatives include investment reserve requirements, risk-based capital
standards, 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 Anchor National is
monitoring developments in this area and the effects any changes would have on
Anchor National.
SunAmerica Asset Management Corp. is registered with the SEC as a registered
investment adviser under the Investment Advisers Act of 1940. The mutual funds
that it markets are subject to regulation under the Investment Company Act of
1940. SunAmerica Asset Management Corp. and the mutual funds are subject to
regulation and examination by the SEC. In addition, variable annuities and the
related separate accounts of Anchor National are subject to regulation by the
SEC under the Securities Act of 1933 and the Investment Company Act of 1940.
29
<PAGE> 36
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Anchor National as of September 30,
1996 and 1995 and for each of the three years in the period ended September 30,
1996 included in this prospectus have been 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.
================================================================================
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
================================================================================
<TABLE>
<S> <C>
Separate Account.......................................................... 3
General Account........................................................... 4
Performance Data.......................................................... 4
Annuity Payments.......................................................... 8
Annuity Unit Values....................................................... 9
Taxes..................................................................... 12
Distribution of Contracts................................................. 16
Financial Statements...................................................... 16
</TABLE>
================================================================================
FINANCIAL STATEMENTS
================================================================================
The consolidated financial statements of Anchor National which are included in
this prospectus should be considered only as bearing on the ability Anchor
National to meet its obligations with respect to amounts allocated to the fixed
investment options and with respect to the death benefit and our assumption of
the mortality and expense risks and the risks that the withdrawal charge will
not be sufficient to cover the cost of distributing the contracts. They should
not be considered as bearing on the investment performance of the variable
Portfolios. The value of the variable Portfolios is affected primarily by the
performance of the underlying investments.
30
<PAGE> 37
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, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," in fiscal 1994.
Price Waterhouse LLP
Los Angeles, California
November 8, 1996
31
<PAGE> 38
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1995 1996 1996
-------------- -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Investments:
Cash and short-term investments.......................... $ 249,209,000 $ 122,058,000 $ 196,142,000
Bonds, notes and redeemable preferred stocks:
Available for sale, at fair value (amortized cost:
September 1995, $1,500,062,000; September 1996,
$2,001,024,000; December 1996, $2,264,485,000)...... 1,489,213,000 1,987,271,000 2,281,527,000
Held for investment, at amortized cost (fair value:
September 1995, $165,004,000)......................... 157,901,000 -- --
Mortgage loans........................................... 94,260,000 98,284,000 120,680,000
Common stocks, at fair value (cost: September 1995,
$6,576,000; September 1996, $2,911,000; December 1996,
$2,510,000)........................................... 4,097,000 3,970,000 3,842,000
Real estate.............................................. 55,798,000 39,724,000 24,000,000
Other invested assets.................................... 64,430,000 77,925,000 77,492,000
-------------- -------------- ---------------
Total investments................................ 2,114,908,000 2,329,232,000 2,703,683,000
Variable annuity assets.................................... 5,230,246,000 6,311,557,000 6,784,374,000
Receivable from brokers for sales of securities............ -- 52,348,000 --
Accrued investment income.................................. 14,192,000 19,675,000 20,404,000
Deferred acquisition costs................................. 383,069,000 443,610,000 461,637,000
Other assets............................................... 41,282,000 48,113,000 55,610,000
-------------- -------------- ---------------
TOTAL ASSETS..................................... $7,783,697,000 $9,204,535,000 $10,025,708,000
-------------- -------------- ---------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts..................... $1,497,052,000 $1,789,962,000 $ 2,024,873,000
Reserves for guaranteed investment contracts............. 277,095,000 415,544,000 420,871,000
Payable to brokers for purchases of securities........... 155,861,000 -- 49,991,000
Income taxes currently payable........................... 15,720,000 21,486,000 23,807,000
Other liabilities........................................ 56,372,000 74,710,000 83,824,000
-------------- -------------- ---------------
Total reserves, payables and accrued
liabilities.................................... 2,002,100,000 2,301,702,000 2,603,366,000
-------------- -------------- ---------------
Variable annuity liabilities............................... 5,230,246,000 6,311,557,000 6,784,374,000
-------------- -------------- ---------------
Subordinated notes payable to Parent....................... 35,832,000 35,832,000 35,903,000
-------------- -------------- ---------------
Deferred income taxes...................................... 73,459,000 70,189,000 71,943,000
-------------- -------------- ---------------
Shareholder's equity:
Common Stock............................................. 3,511,000 3,511,000 3,511,000
Additional paid-in capital............................... 252,876,000 280,263,000 308,674,000
Retained earnings........................................ 191,346,000 207,002,000 210,348,000
Net unrealized gains (losses) on debt and equity
securities available for sale......................... (5,673,000) (5,521,000) 7,589,000
-------------- -------------- ---------------
Total shareholder's equity....................... 442,060,000 485,255,000 530,122,000
-------------- -------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY....... $7,783,697,000 $9,204,535,000 $10,025,708,000
-------------- -------------- ---------------
</TABLE>
See accompanying notes
32
<PAGE> 39
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------------- ----------------------------
1994 1995 1996 1995 1996
------------ ------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Investment income.................. $127,758,000 $ 129,466,000 $ 164,631,000 $ 38,653,000 $ 46,712,000
------------ ------------- ------------- ------------ ------------
Interest expense on:
Fixed annuity contracts.......... (66,311,000) (72,975,000) (82,690,000) (18,936,000) (25,191,000)
Guaranteed investment
contracts..................... -- (3,733,000) (19,974,000) (4,272,000) (6,038,000)
Senior indebtedness.............. (71,000) (227,000) (2,568,000) (195,000) (181,000)
Subordinated notes payable to
Parent........................ (2,380,000) (2,448,000) (2,556,000) (633,000) (758,000)
------------ ------------- ------------- ------------ ------------
Total interest expense........... (68,762,000) (79,383,000) (107,788,000) (24,036,000) (32,168,000)
------------ ------------- ------------- ------------ ------------
NET INVESTMENT INCOME.............. 58,996,000 50,083,000 56,843,000 14,617,000 14,544,000
------------ ------------- ------------- ------------ ------------
NET REALIZED INVESTMENT LOSSES..... (33,713,000) (4,363,000) (13,355,000) (12,800,000) (19,116,000)
------------ ------------- ------------- ------------ ------------
Fee income:
Variable annuity fees............ 79,101,000 84,171,000 103,970,000 24,290,000 30,606,000
Net retained commissions......... 20,822,000 24,108,000 31,548,000 6,491,000 7,796,000
Asset management fees............ 31,302,000 26,935,000 25,413,000 6,503,000 6,418,000
------------ ------------- ------------- ------------ ------------
TOTAL FEE INCOME................... 131,225,000 135,214,000 160,931,000 37,284,000 44,820,000
------------ ------------- ------------- ------------ ------------
Other income and expenses:
Surrender charges................ 5,034,000 5,889,000 5,184,000 1,261,000 1,350,000
General and administrative
expenses...................... (52,636,000) (61,629,000) (80,048,000) (16,997,000) (22,322,000)
Amortization of deferred
acquisition costs............. (44,195,000) (58,713,000) (57,520,000) (13,658,000) (13,817,000)
Annual commissions............... (1,158,000) (2,658,000) (4,613,000) (939,000) (1,433,000)
Other, net....................... 3,767,000 1,174,000 1,886,000 507,000 920,000
------------ ------------- ------------- ------------ ------------
TOTAL OTHER INCOME AND EXPENSES.... (89,188,000) (115,937,000) (135,111,000) (29,826,000) (35,302,000)
------------ ------------- ------------- ------------ ------------
PRETAX INCOME...................... 67,320,000 64,997,000 69,308,000 9,275,000 4,946,000
Income tax expense................. (22,705,000) (25,739,000) (24,252,000) (3,449,000) (1,600,000)
------------ ------------- ------------- ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING FOR INCOME
TAXES............................ 44,615,000 39,258,000 45,056,000 5,826,000 3,346,000
Cumulative effect of change in
accounting for income taxes...... (20,463,000) -- -- -- --
------------ ------------- ------------- ------------ ------------
NET INCOME......................... $ 24,152,000 $ 39,258,000 $ 45,056,000 $ 5,826,000 $ 3,346,000
------------ ------------- ------------- ------------ ------------
</TABLE>
See accompanying notes
33
<PAGE> 40
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------------------------- -------------------------------
1994 1995 1996 1995 1996
--------------- --------------- --------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 24,152,000 $ 39,258,000 $ 45,056,000 $ 5,826,000 $ 3,346,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Interest credited to:
Fixed annuity contracts............... 66,311,000 72,975,000 82,690,000 18,936,000 25,191,000
Guaranteed investment contracts....... -- 3,733,000 19,974,000 4,272,000 6,038,000
Net realized investment losses........ 33,713,000 4,363,000 13,355,000 12,800,000 19,116,000
Accretion of net discounts on
investments......................... (2,050,000) (6,865,000) (8,976,000) (1,669,000) (2,615,000)
Amortization of goodwill.............. 1,169,000 1,168,000 1,169,000 293,000 291,000
Provision for deferred income taxes... 19,395,000 (1,489,000) (3,351,000) (6,541,000) (5,305,000)
Cumulative effect of change in
accounting for income taxes......... 20,463,000 -- -- -- --
Change in:
Accrued investment income............... (1,310,000) 3,373,000 (5,483,000) (3,683,000) (729,000)
Deferred acquisition costs.............. (34,612,000) (7,180,000) (60,941,000) (5,853,000) (28,927,000)
Other assets............................ 5,133,000 7,047,000 (8,000,000) (6,902,000) (7,788,000)
Income taxes currently payable.......... 6,559,000 3,389,000 5,766,000 5,749,000 2,321,000
Other liabilities....................... 46,000 4,063,000 5,474,000 428,000 3,924,000
Other, net................................ 360,000 7,000 (129,000) 85,000 (6,000)
--------------- --------------- --------------- ------------- ---------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES:............................. 139,329,000 123,842,000 86,604,000 23,741,000 14,857,000
--------------- --------------- --------------- ------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts............... 138,526,000 245,320,000 651,649,000 62,536,000 325,993,000
Guaranteed investment contracts....... -- 275,000,000 134,967,000 -- 5,000,000
Net exchanges to (from) the fixed
accounts of variable annuity
contracts............................. (29,286,000) 10,475,000 (236,705,000) (36,865,000) (82,234,000)
Withdrawal payments on:
Fixed annuity contracts............... (269,412,000) (237,977,000) (173,489,000) (60,577,000) (25,292,000)
Guaranteed investment contracts....... -- (1,638,000) (16,492,000) (4,200,000) (5,711,000)
Claims and annuity payments on fixed
annuity contracts..................... (31,146,000) (31,237,000) (31,107,000) (7,202,000) (8,741,000)
Net receipts from (repayments of) other
short-term financings................. (166,685,000) 3,202,000 (119,712,000) (131,379,000) 10,308,000
Capital contributions received.......... -- -- 27,387,000 27,387,000 28,411,000
Dividend paid........................... -- -- (29,400,000) -- --
--------------- --------------- --------------- ------------- ---------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES.............................. (358,003,000) 263,145,000 207,098,000 (150,300,000) 247,734,000
--------------- --------------- --------------- ------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred
stocks.............................. (1,197,743,000) (1,556,586,000) (1,937,890,000) (230,071,000) (1,068,608,000)
Mortgage loans........................ (10,666,000) -- (15,000,000) -- (25,124,000)
Other investments, excluding
short-term investments.............. (26,317,000) (13,028,000) (36,770,000) (2,698,000) (3,108,000)
Sales of:
Bonds, notes and redeemable preferred
stocks.............................. 877,068,000 1,026,078,000 1,241,928,000 186,979,000 833,249,000
Real estate........................... 33,443,000 36,813,000 900,000 -- --
Other investments, excluding
short-term investments.............. 2,353,000 5,130,000 4,937,000 1,397,000 856,000
Redemptions and maturities of:
Bonds, notes and redeemable preferred
stocks.............................. 173,763,000 178,688,000 288,969,000 44,943,000 67,201,000
Mortgage loans........................ 10,087,000 14,403,000 11,324,000 1,428,000 2,806,000
Other investments, excluding
short-term investments.............. 13,500,000 13,286,000 20,749,000 2,658,000 4,221,000
--------------- --------------- --------------- ------------- ---------------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES.............................. (124,512,000) (295,216,000) (420,853,000) 4,636,000 (188,507,000)
--------------- --------------- --------------- ------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS.................. (343,186,000) 91,771,000 (127,151,000) (121,923,000) 74,084,000
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD..................... 500,624,000 157,438,000 249,209,000 249,209,000 122,058,000
--------------- --------------- --------------- ------------- ---------------
CASH AND SHORT-TERM INVESTMENTS AT END OF
PERIOD.................................. $ 157,438,000 $ 249,209,000 $ 122,058,000 $ 127,286,000 $ 196,142,000
--------------- --------------- --------------- ------------- ---------------
Supplemental cash flow information:
Interest paid on indebtedness........... $ 1,175,000 $ 3,235,000 $ 5,982,000 $ 661,000 $ 288,000
--------------- --------------- --------------- ------------- ---------------
Net income taxes paid (recovered)....... $ (3,328,000) $ 23,656,000 $ 22,031,000 $ 4,247,000 $ 4,584,000
--------------- --------------- --------------- ------------- ---------------
</TABLE>
See accompanying notes
34
<PAGE> 41
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, on a consolidated basis, conducts
its business through three segments: annuity operations, asset management
operations and broker-dealer operations. Annuity operations include the sale and
administration of fixed and variable annuities and guaranteed investment
contracts. Asset management operations, which include the sale and management of
mutual funds, is conducted by SunAmerica Asset Management Corp. Broker-dealer
operations include the sale of securities and financial services products, and
is 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 risks. 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 1995 and 1994 amounts have been reclassified to conform
with the 1996 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.
The interim financial information is unaudited; however, in the opinion of the
Company, the interim financial information includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of
financial condition, results of operations and cash flows.
RECENTLY ISSUED ACCOUNTING STANDARDS: Effective October 1, 1993, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Accordingly, the cumulative effect of this change
in accounting for income taxes was recorded on October 1, 1993 to increase the
liability for Deferred Income Taxes by $20,463,000.
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 held for investment (the "Held for
Investment Portfolio") are carried at amortized cost. On December 1, 1995, the
Company reassessed the appropriateness of classifying a portion of its portfolio
of bonds, notes and redeemable preferred stocks as held for investment. This
reassessment was made pursuant to the provisions of "Special Report: A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities," issued by the Financial Accounting Standards Board in
November 1995. As a result of its reassessment, the Company reclassified all of
its Held for Investment Portfolio as available for sale. At December 1, 1995,
the amortized cost of the Held for Investment Portfolio aggregated $157,830,000
and its fair value was $166,215,000. Upon reclassification, the resulting net
unrealized gain of $8,385,000 was credited to Net Unrealized Losses on Debt and
Equity Securities Available for Sale in the shareholder's equity section of the
balance sheet.
35
<PAGE> 42
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Bonds, notes and redeemable preferred stocks are reduced to estimated net
realizable value when necessary for declines in value considered to be other
than temporary. Estimates of net realizable value are subjective and actual
realization will be dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of provisions for
estimated losses. Real estate is carried at the lower of cost or fair value.
Other invested assets include investments in limited partnerships, which are
accounted for by using the cost method of accounting; separate account
investments; leveraged leases; policy loans, which are carried at unpaid
balances; and collateralized mortgage obligation residuals.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined using the specific cost
identification method. Premiums and discounts on investments are amortized to
investment income using the interest method over the contractual lives of the
investments.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, over the estimated lives of the contracts in relation
to the present value of estimated gross profits, which are composed of net
interest income, net realized investment gains and losses, variable annuity
fees, surrender charges and direct administrative expenses. Costs incurred to
sell mutual funds are also deferred and amortized over the estimated lives of
the funds obtained. Deferred acquisition costs consist of commissions and other
costs 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 increased by $4,200,000 at September 30, 1996, and
by $4,600,000 at September 30, 1995 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 $19,478,000 at September 30, 1996, is
amortized by using the straight-line method over periods averaging 25 years and
is included in Other Assets in the balance sheet.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity contracts
and guaranteed investment contracts are accounted for as investment-type
contracts in accordance with Statement of Financial Accounting Standards No. 97,
"Accounting and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of Investments," and
are recorded at accumulated value (premiums received, plus accrued interest,
less withdrawals and assessed fees).
FEE INCOME: Variable annuity fees and asset management fees are recorded in
income as earned. Net retained commissions are recognized as income on a
trade-date basis.
INCOME TAXES: The Company is included in the consolidated federal income tax
return of the Parent and files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Income taxes have been
calculated as if the Company filed a separate return. Deferred income tax assets
and liabilities are recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and liabilities using
enacted income tax rates and laws.
36
<PAGE> 43
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale and held for investment by major category
follow:
<TABLE>
<CAPTION>
AMORTIZED COST ESTIMATED FAIR VALUE
-------------- --------------------
<S> <C> <C>
AT SEPTEMBER 30, 1996:
AVAILABLE FOR SALE:
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
-------------- --------------
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States Government................... $ 59,756,000 $ 60,258,000
Mortgage-backed securities................................... 1,121,064,000 1,110,676,000
Securities of public utilities............................... 792,000 774,000
Corporate bonds and notes.................................... 290,924,000 288,883,000
Redeemable preferred stocks.................................. 3,945,000 4,937,000
Other debt securities........................................ 23,581,000 23,685,000
-------------- --------------
Total available for sale..................................... $1,500,062,000 $1,489,213,000
-------------- --------------
HELD FOR INVESTMENT:
Securities of the United States Government................... $ 10,379,000 $ 10,797,000
Mortgage-backed securities................................... 8,378,000 8,378,000
Corporate bonds and notes.................................... 105,980,000 112,665,000
Other debt securities........................................ 33,164,000 33,164,000
-------------- --------------
Total held for investment.................................... $ 157,901,000 $ 165,004,000
-------------- --------------
</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,
1996, follow:
<TABLE>
<CAPTION>
AMORTIZED COST ESTIMATED FAIR VALUE
-------------- --------------------
<S> <C> <C>
AVAILABLE FOR SALE:
Due in one year or less...................................... $ 18,792,000 $ 19,357,000
Due after one year through five years........................ 505,564,000 499,163,000
Due after five years through ten years....................... 378,249,000 378,250,000
Due after ten years.......................................... 350,766,000 348,625,000
Mortgage-backed securities................................... 747,653,000 741,876,000
-------------- --------------
Total available for sale..................................... $2,001,024,000 $1,987,271,000
-------------- --------------
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will differ
from those shown above due to prepayments and redemptions.
37
<PAGE> 44
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS -- (CONTINUED)
Gross unrealized gains and losses on bonds, notes and redeemable preferred
stocks available for sale and held for investment by major category follow:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
GAINS LOSSES
---------------- ----------------
<S> <C> <C>
AT SEPTEMBER 30, 1996:
AVAILABLE FOR SALE:
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)
------------ ------------
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States Government....................... $ 553,000 $ (51,000)
Mortgage-backed securities....................................... 12,013,000 (22,401,000)
Securities of public utilities................................... -- (18,000)
Corporate bonds and notes........................................ 5,344,000 (7,385,000)
Redeemable preferred stocks...................................... 992,000 --
Other debt securities............................................ 104,000 --
------------ ------------
Total available for sale......................................... $ 19,006,000 $(29,855,000)
------------ ------------
HELD FOR INVESTMENT:
Securities of the United States Government....................... $ 432,000 $ (14,000)
Corporate bonds and notes........................................ 6,685,000 --
------------ ------------
Total held for investment........................................ $ 7,117,000 $ (14,000)
------------ ------------
</TABLE>
At September 30, 1996, gross unrealized gains on equity securities aggregated
$1,368,000 and gross unrealized losses aggregated $309,000. At September 30,
1995, gross unrealized gains on equity securities aggregated $1,082,000 and
gross unrealized losses aggregated $3,561,000.
38
<PAGE> 45
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS -- (CONTINUED)
Gross realized investment gains and losses on sales of all types of investments
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS:
Available for sale:
Realized gains.................................. $ 14,532,000 $ 15,983,000 $ 12,760,000
Realized losses................................. (10,432,000) (21,842,000) (31,066,000)
Held for investment:
Realized gains.................................. -- 2,413,000 890,000
Realized losses................................. -- (586,000) (1,913,000)
EQUITIES:
Realized gains..................................... 511,000 994,000 467,000
Realized losses.................................... (3,151,000) (114,000) (303,000)
OTHER INVESTMENTS:
Realized gains..................................... 1,135,000 3,561,000 --
Realized losses.................................... (1,729,000) (12,000) (358,000)
IMPAIRMENT WRITEDOWNS................................ (14,221,000) (4,760,000) (14,190,000)
------------ ------------ ------------
Total net realized investment losses................. $(13,355,000) $ (4,363,000) $(33,713,000)
------------ ------------ ------------
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Short-term investments............................... $ 10,647,000 $ 8,308,000 $ 4,648,000
Bonds, notes and redeemable preferred stocks......... 140,387,000 107,643,000 98,935,000
Mortgage loans....................................... 8,701,000 7,419,000 12,133,000
Common stocks........................................ 8,000 3,000 1,000
Real estate.......................................... (196,000) (51,000) 1,379,000
Limited partnerships................................. 4,073,000 5,128,000 9,487,000
Other invested assets................................ 1,011,000 1,016,000 1,175,000
------------ ------------ ------------
Total investment income.................... $164,631,000 $129,466,000 $127,758,000
------------ ------------ ------------
</TABLE>
Expenses incurred to manage the investment portfolio amounted to $1,737,000 for
the year ended September 30, 1996, $1,983,000 for the year ended September 30,
1995, and $1,714,000 for the year ended September 30, 1994 and are included in
General and Administrative Expenses in the income statement.
At September 30, 1996, no investment exceeded 10% of the Company's consolidated
shareholder's equity.
At September 30, 1996, mortgage loans were collateralized by properties located
in 11 states, with loans totaling approximately 21% of the aggregate carrying
value of the portfolio secured by properties located in Colorado, approximately
17% by properties located in New Jersey and approximately 14% by properties
located in California. No more than 12% of the portfolio was secured by
properties in any other single state.
At September 30, 1996, bonds, notes and redeemable preferred stocks included
$160,801,000 (fair value, $160,158,000) of bond and notes not rated investment
grade by either Standard & Poor's Corporation, Moody's Investors Service, Duff
and Phelps Credit Rating Co., Fitch Investor Service, Inc. or under National
Association of Insurance Commissioners' guidelines. The Company had no material
concentrations of non-investment-grade assets at September 30, 1996.
39
<PAGE> 46
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS -- (CONTINUED)
At September 30, 1996, the amortized cost of investments in default as to the
payment of principal or interest was $3,115,000, consisting of $1,580,000 of
non-investment-grade bonds and $1,535,000 of mortgage loans. Such nonperforming
investments had an estimated fair value of $2,935,000.
At September 30, 1996, $6,486,000 of bonds, at amortized cost, were on deposit
with regulatory authorities in accordance with statutory requirements.
The Company has undertaken to dispose of certain real estate investments, having
an aggregate carrying value of $28,410,000, during the next year, to affiliated
or nonaffiliated parties, and the Parent has guaranteed that the Company will
receive its current carrying value for these assets. (This guaranty was
terminated on December 31, 1996. See Note 11 "Subsequent Event").
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 other invested assets, equity
investments and real estate investments) and liabilities or the value of
anticipated future business. The Company does not plan to sell most of its
assets or settle most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Selling expenses and potential taxes are not
included. The estimated fair value amounts were determined using available
market information, current pricing information and various valuation
methodologies. If quoted market prices were not readily available for a
financial instrument, management determined an estimated fair value.
Accordingly, the estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market transaction.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND SHORT TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based principally
on independent pricing services, broker quotes and other independent
information.
MORTGAGE LOANS: Fair values are primarily determined by discounting future cash
flows to the present at current market rates, using expected prepayment rates.
VARIABLE ANNUITY ASSETS: Variable annuity assets are carried at the market
value of the underlying securities.
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.
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.
40
<PAGE> 47
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on the
quoted market prices for similar issues.
The estimated fair values of the Company's financial instruments at September
30, 1996 and 1995, compared with their respective carrying values, are as
follows:
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
--------------- ---------------
<S> <C> <C>
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
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
============== ==============
1995:
ASSETS:
Cash and short-term investments........................ $ 249,209,000 $ 249,209,000
Bonds, notes and redeemable preferred stocks........... 1,647,114,000 1,654,217,000
Mortgage loans......................................... 94,260,000 95,598,000
Variable annuity assets................................ 5,230,246,000 5,230,246,000
LIABILITIES:
Reserves for fixed annuity contracts................... 1,497,052,000 1,473,757,000
Reserves for guaranteed investment contracts........... 277,095,000 277,095,000
Payable to brokers for purchases of securities......... 155,861,000 155,861,000
Variable annuity liabilities........................... 5,230,246,000 5,077,257,000
Subordinated notes payable to Parent................... 35,832,000 34,620,000
============== ==============
</TABLE>
5. SUBORDINATED NOTES PAYABLE TO PARENT
Subordinated notes payable to Parent averaged $35,832,000 at a weighted average
interest rate of 8.71% (with rates ranging from 7% to 9%) at September 30, 1996
and require principal payments of $5,272,000 in 1997, $7,500,000 in 1998 and
$23,060,000 in 1999.
6. CONTINGENT LIABILITIES
The Company has entered into two agreements in which it has guaranteed the
liquidity of certain short-term securities of two municipalities by agreeing to
purchase such securities in the event there is no other buyer in the short-term
marketplace. In return the Company receives a fee. These guarantees total up to
$182,600,000. Management does not anticipate any material future losses with
respect to these guarantees.
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.
41
<PAGE> 48
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value Common
Stock. At September 30, 1996, 1995 and 1994, 3,511 shares are outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balance.................................. $252,876,000 $252,876,000 $252,876,000
Capital contributions received..................... 27,387,000 -- --
------------ ------------ ------------
Ending balance..................................... $280,263,000 $252,876,000 $252,876,000
------------ ------------ ------------
RETAINED EARNINGS:
Beginning balance.................................. $191,346,000 $152,088,000 $127,936,000
Net income......................................... 45,056,000 39,258,000 24,152,000
Dividend paid...................................... (29,400,000) -- --
------------ ------------ ------------
Ending balance..................................... $207,002,000 $191,346,000 $152,088,000
------------ ------------ ------------
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
NET UNREALIZED LOSSES ON DEBT AND EQUITY SECURITIES
AVAILABLE FOR SALE:
Beginning balance.................................. $ (5,673,000) $(24,953,000) $(13,230,000)
Change in net unrealized gains/losses on debt
securities available for sale................... (2,904,000) 71,302,000 (69,407,000)
Change in net unrealized gains/losses on equity
securities available for sale................... 3,538,000 (1,240,000) (753,000)
Change in adjustment to deferred acquisition
costs........................................... (400,000) (40,400,000) 45,000,000
Tax effects of net changes......................... (82,000) (10,382,000) 13,437,000
------------ ------------ ------------
Ending balance..................................... $ (5,521,000) $ (5,673,000) $(24,953,000)
------------ ------------ ------------
</TABLE>
Dividends that the Company may pay to its shareholder in any year without prior
approval of the Arizona Department of Insurance are limited by statute. The
maximum amount of dividends which can be paid to shareholders of insurance
companies domiciled in the state of Arizona without obtaining the prior approval
of the Insurance Commissioner is limited to the lesser of either 10% of the
preceding year's Statutory Surplus or the preceding year's statutory net gain
from operations. A dividend in the amount of $29,400,000 was paid on March 18,
1996. No dividends were paid in fiscal years 1995 or 1994.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the nine months ended
September 30, 1996 was $21,898,000. The statutory net income for the year ended
December 31, 1995 was $30,673,000 and for the year ended December 31, 1994 was
$35,060,000. The Company's statutory capital and surplus was $282,275,000 at
September 30, 1996, $294,767,000 at December 31, 1995 and $219,577,000 at
December 31, 1994.
42
<PAGE> 49
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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
------------ ----------- -----------
1994:
Currently payable................................. $ (6,825,000) $10,135,000 $ 3,310,000
Deferred.......................................... (1,320,000) 20,715,000 19,395,000
------------ ----------- -----------
Total income tax expense..................... $ (8,145,000) $30,850,000 $22,705,000
------------ ----------- -----------
</TABLE>
Income taxes computed at the United States federal income tax rate of 35% and
income taxes provided differ as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Amount computed at statutory rate................... $24,258,000 $22,749,000 $23,562,000
Increases (decreases) resulting from:
Amortization of differences between book and tax
bases of net assets acquired................... 464,000 3,049,000 465,000
State income taxes, net of federal tax benefit.... 2,070,000 437,000 (662,000)
Dividends-received deduction...................... (2,357,000) -- --
Tax credits....................................... (257,000) (168,000) (612,000)
Other, net........................................ 74,000 (328,000) (48,000)
----------- ----------- -----------
Total income tax expense....................... $24,252,000 $25,739,000 $22,705,000
----------- ----------- -----------
</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, 1996. The Company does not anticipate any
transactions which would cause any part of this surplus to be taxable.
43
<PAGE> 50
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. The significant
components of the liability for Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Investments................................................. $ 15,036,000 $ 14,181,000
Deferred acquisition costs.................................. 136,747,000 118,544,000
State income taxes.......................................... 1,466,000 1,847,000
------------ ------------
Total deferred tax liabilities.............................. 153,249,000 134,572,000
------------ ------------
DEFERRED TAX ASSETS:
Contractholder reserves..................................... (77,522,000) (55,910,000)
Guaranty fund assessments................................... (1,031,000) (1,123,000)
Other assets................................................ (1,534,000) (1,025,000)
Net unrealized losses on certain debt and equity
securities................................................ (2,973,000) (3,055,000)
------------ ------------
Total deferred tax assets................................... (83,060,000) (61,113,000)
------------ ------------
Deferred income taxes....................................... $ 70,189,000 $ 73,459,000
------------ ------------
</TABLE>
9. RELATED PARTY MATTERS
The Company pays commissions to two affiliated companies, SunAmerica Securities,
Inc. and Advantage Capital Corp. These broker-dealers represent a significant
portion of the Company's business, amounting to approximately 15.6%, 14.1% and
14.5% of premiums in 1996, 1995 and 1994, respectively. Commissions paid to
these broker-dealers totaled $16,906,000 in 1996, $9,435,000 in 1995 and
$9,725,000 in 1994.
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 $65,351,000 for the year ended September 30, 1996,
$42,083,000 for the year ended September 30, 1995 and $36,934,000 for the year
ended September 30, 1994. Such amounts are included in General and
Administrative Expenses in the income statement.
On December 31, 1995, the Parent made a $27,387,000 capital contribution 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. On December 31, 1996, the
Parent made a similar capital contribution for $28,410,000 in exchange for the
termination of the remaining guaranty with respect to such real estate.
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, 1996, the Company sold various invested
assets to the Parent, SunAmerica Life Insurance Company and Ford Life Insurance
Company ("Ford") for cash equal to their current market values of $274,000,
$8,968,000 and $38,353,000, respectively. The Company recorded net losses of
$3,000 on such transactions.
During the year ended September 30, 1996, the Company also purchased certain
invested assets from SunAmerica Life Insurance Company and Ford for cash equal
to their current market values of $5,159,000 and $23,220,000, respectively.
44
<PAGE> 51
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
TOTAL
DEPRECIATION AND
TOTAL REVENUES AMORTIZATION EXPENSE PRETAX INCOME TOTAL ASSETS
-------------- -------------------- ------------- --------------
<S> <C> <C> <C> <C>
1996:
Annuity operations............... $ 250,645,000 $ 43,974,000 $ 53,827,000 $9,092,770,000
Asset management................. 29,711,000 18,295,000 2,448,000 74,410,000
Broker-dealer operations......... 31,851,000 449,000 13,033,000 37,355,000
------------- ------------ ------------ --------------
Total....................... $ 312,207,000 $ 62,718,000 $ 69,308,000 $9,204,535,000
------------- ------------ ------------ --------------
1995:
Annuity operations............... $ 205,698,000 $ 38,350,000 $ 55,462,000 $7,667,946,000
Asset management................. 30,253,000 24,069,000 510,000 86,510,000
Broker-dealer operations......... 24,366,000 411,000 9,025,000 29,241,000
------------- ------------ ------------ --------------
Total....................... $ 260,317,000 $ 62,830,000 $ 64,997,000 $7,783,697,000
------------- ------------ ------------ --------------
1994:
Annuity operations............... $ 171,553,000 $ 26,501,000 $ 52,284,000 $6,473,065,000
Asset management................. 32,803,000 19,330,000 7,916,000 102,192,000
Broker-dealer operations......... 20,914,000 408,000 7,120,000 26,869,000
------------- ------------ ------------ --------------
Total....................... $ 225,270,000 $ 46,239,000 $ 67,320,000 $6,602,126,000
------------- ------------ ------------ --------------
</TABLE>
11. SUBSEQUENT EVENT (UNAUDITED)
On December 31, 1996, the Parent made a capital contribution of $28,410,000 to
the Company through the Company's direct parent, in exchange for the termination
of its guaranty with respect to the remainder of the land owned in Arizona.
Accordingly, on December 31, 1996, the Company reduced the carrying value of
this land to estimated fair value to reflect the termination of the guaranty.
45
<PAGE> 52
================================================================================
APPENDIX A -- CONDENSED FINANCIAL INFORMATION
================================================================================
<TABLE>
<CAPTION>
INCEPTION TO FISCAL YEAR FISCAL YEAR FISCAL YEAR
PORTFOLIOS 11/30/93 11/30/94 11/30/95 11/30/96
=======================================================================================================================
<S> <C> <C> <C> <C>
Capital Appreciation (Inception Date -- 2/9/93)
Beginning AUV............................................ $ 10.00 $ 11.14 $ 10.64 14.19
End AUV.................................................. $ 11.14 $ 10.64 $ 14.19 17.63
End #AUs................................................. 3,606,855 8,462,152 13,247,155 20,470,395
- -----------------------------------------------------------------------------------------------------------------------
Growth (Inception Date -- 2/9/93)
Beginning AUV............................................ $ 10.00 $ 10.78 $ 10.41 $ 12.95
End AUV.................................................. $ 10.78 $ 10.41 $ 12.95 $ 16.32
End #AUs................................................. 1,719,857 3,950,678 5,968,263 7,557,844
- -----------------------------------------------------------------------------------------------------------------------
Natural Resources (Inception Date -- 10/31/94)
Beginning AUV............................................ -- $ 10.00 $ 9.27 $ 10.78
End AUV.................................................. -- $ 9.27 $ 10.78 $ 12.13
End #AUs................................................. -- 51,412 848,159 2,171,050
- -----------------------------------------------------------------------------------------------------------------------
Government and Quality Bond (Inception Date -- 2/9/93)
Beginning AUV............................................ $ 10.00 $ 10.32 $ 9.81 $ 11.51
End AUV.................................................. $ 10.32 $ 9.81 $ 11.51 $ 11.94
End #AUs................................................. 6,479,985 7,008,717 8,504,677 9,176,239
- -----------------------------------------------------------------------------------------------------------------------
Aggressive Growth (Inception Date 6/3/96)
Beginning AUV............................................ -- -- -- $ 10.00
End AUV.................................................. -- -- -- $ 10.29
End #AUs................................................. -- -- -- 3,165,900
- -----------------------------------------------------------------------------------------------------------------------
International Diversified Equities (Inception
Date -- 10/31/94)
Beginning AUV............................................ -- $ 10.00 $ 9.77 $ 10.07
End AUV.................................................. -- $ 9.77 $ 10.07 $ 11.39
End #AUs................................................. -- 271,316 4,659,066 12,762,343
- -----------------------------------------------------------------------------------------------------------------------
Global Equities (Inception Date -- 2/9/93)
Beginning AUV............................................ $ 10.00 $ 10.86 $ 11.43 $ 13.01
End AUV.................................................. $ 10.86 $ 11.43 $ 13.01 $ 15.15
End #AUs................................................. 3,964,021 11,705,418 12,350,883 15,583,207
- -----------------------------------------------------------------------------------------------------------------------
Putnam Growth* (Inception Date -- 2/9/93)
Beginning AUV............................................ $ 10.00 $ 9.92 $ 9.79 $ 12.60
End AUV.................................................. $ 9.92 $ 9.79 $ 12.60 $ 14.88
End #AUs................................................. 4,322,769 7,610,104 8,932,998 10,354,025
- -----------------------------------------------------------------------------------------------------------------------
Growth/Phoenix Investment Counsel (Inception
Date -- 2/9/93)
Beginning AUV............................................ $ 10.00 $ 10.65 $ 9.79 $ 12.81
End AUV.................................................. $ 10.65 $ 9.79 $ 12.81 $ 14.94
End #AUs................................................. 6,078,952 10,477,818 11,457,899 12,077,737
- -----------------------------------------------------------------------------------------------------------------------
Alliance Growth (Inception Date -- 2/9/93)
Beginning AUV............................................ $ 10.00 $ 10.78 $ 10.53 $ 15.44
End AUV.................................................. $ 10.78 $ 10.53 $ 15.44 $ 19.46
End #AUs................................................. 2,153,075 4,997,778 10,560,070 18,333,555
- -----------------------------------------------------------------------------------------------------------------------
Venture Value (Inception Date -- 10/31/94)
Beginning AUV............................................ -- $ 10.00 $ 9.77 $ 13.29
End AUV.................................................. -- $ 9.77 $ 13.29 $ 16.68
End #AUs................................................. -- 355,083 11,270,792 29,247,554
- -----------------------------------------------------------------------------------------------------------------------
Federated Value (Inception Date -- 6/3/96)
Beginning AUV............................................ -- -- -- $ 10.00
End AUV.................................................. -- -- -- $ 11.00
End #AUs................................................. -- -- -- 1,021,137
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Formerly named Provident Growth.
A-1
<PAGE> 53
<TABLE>
<CAPTION>
INCEPTION TO FISCAL YEAR FISCAL YEAR FISCAL YEAR
PORTFOLIOS 11/30/93 11/30/94 11/30/95 11/30/96
=======================================================================================================================
<S> <C> <C> <C> <C>
Growth-Income (Inception Date -- 2/9/93)
Beginning AUV............................................ $ 10.00 $ 10.47 $ 10.09 $ 13.32
End AUV.................................................. $ 10.47 $ 10.09 $ 13.32 $ 16.70
End #AUs................................................. 4,302,869 8,329,322 12,560,865 18,546,142
- -----------------------------------------------------------------------------------------------------------------------
Utility (Inception Date -- 6/3/96)
Beginning AUV............................................ -- -- -- $ 10.00
End AUV.................................................. -- -- -- $ 10.67
End #AUs................................................. -- -- -- 543,461
- -----------------------------------------------------------------------------------------------------------------------
Asset Allocation (Inception Date -- 7/1/93)
Beginning AUV............................................ $ 10.00 $ 10.30 $ 10.17 $ 12.64
End AUV.................................................. $ 10.30 $ 10.17 $ 12.64 $ 14.97
End #AUs................................................. 3,386,288 10,372,954 15,418,350 19,940,733
- -----------------------------------------------------------------------------------------------------------------------
Balanced/Phoenix Investment Counsel (Inception Date -- 10/31/94)
Beginning AUV............................................ -- $ 10.00 $ 9.95 $ 12.33
End AUV.................................................. -- $ 9.95 $ 12.33 $ 13.82
End #AUs................................................. -- 51,759 2,441,901 4,583,234
- -----------------------------------------------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date -- 6/3/96)
Beginning AUV............................................ -- -- -- $ 10.00
End AUV.................................................. -- -- -- $ 11.04
End #AUs................................................. -- -- -- 817,039
- -----------------------------------------------------------------------------------------------------------------------
Worldwide High Income (Inception Date -- 10/31/94)
Beginning AUV............................................ -- $ 10.00 $ 9.95 $ 11.36
End AUV.................................................. -- $ 9.95 $ 11.36 $ 14.20
End #AUs................................................. -- 53,315 1,040,828 3,196,739
- -----------------------------------------------------------------------------------------------------------------------
High-Yield Bond (Inception Date -- 2/9/93)
Beginning AUV............................................ $ 10.00 $ 10.98 $ 10.35 $ 11.48
End AUV.................................................. $ 10.98 $ 10.35 $ 11.48 $ 12.99
End #AUs................................................. 3,812,374 5,370,944 7,075,451 8,358,195
- -----------------------------------------------------------------------------------------------------------------------
Corporate Bond (Inception Date -- 7/1/93)
Beginning AUV............................................ $ 10.00 $ 10.12 $ 9.63 $ 11.10
End AUV.................................................. $ 10.12 $ 9.63 $ 11.10 $ 11.65
End #AUs................................................. 1,152,407 1,643,694 2,623,065 3,059,808
- -----------------------------------------------------------------------------------------------------------------------
Global Bond (Inception Date -- 7/1/93)
Beginning AUV............................................ $ 10.00 $ 10.25 $ 9.78 $ 11.20
End AUV.................................................. $ 10.25 $ 9.78 $ 11.20 $ 12.25
End #AUs................................................. 2,439,405 4,532,386 5,288,158 5,413,149
- -----------------------------------------------------------------------------------------------------------------------
Cash Management (Inception Date -- 2/9/93)
Beginning AUV............................................ $ 10.00 $ 10.07 $ 10.27 $ 10.67
End AUV.................................................. $ 10.07 $ 10.27 $ 10.67 $ 11.04
End #AUs................................................. 2,442,124 8,623,034 8,372,979 8,005,908
=======================================================================================================================
</TABLE>
AUV -- Accumulation Unit Value
AU -- Accumulation Units
AS OF THE DATE OF THIS PROSPECTUS, THE SALE OF CONTRACTS OFFERING THE EMERGING
MARKETS, REAL ESTATE
AND INTERNATIONAL GROWTH AND INCOME PORTFOLIOS HAD NOT BEGUN. THEREFORE, NO
CONDENSED FINANCIAL INFORMATION IS PRESENTED HERE FOR THESE PORTFOLIOS.
A-2
<PAGE> 54
================================================================================
APPENDIX B -- MARKET VALUE ADJUSTMENT
================================================================================
The market value adjustment reflects the impact that changing interest rates
have on the value of money invested at a fixed interest rate. The longer the
period of time remaining in the term you initially agreed to leave your money in
the fixed investment option, the greater the impact of changing interest rates.
The impact of the market value adjustment can be either positive or negative,
and is computed by multiplying the amount withdrawn, transferred or annuitized
by the following factor:
(N/12)
[(1+I/(1+J+0.005)] - 1
The market value adjustment formula may differ in certain states
where:
I is the interest rate you are earning on the money invested in the
fixed investment option;
J is the interest rate then currently available for the period of time
equal to the number of years remaining in the term you initially agreed
to leave your money in the fixed investment option; and
N is the number of full months remaining in the term you initially
agreed to leave your money in the fixed investment option.
EXAMPLES OF THE MARKET VALUE ADJUSTMENT
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to the
10-year fixed investment option at a rate of 7%;
(2) You make a partial withdrawal of $4,000 when 3 1/2 years (42 months)
remain in the 10-year term you initially agreed to leave your money in
the fixed investment option (N=42);
(3) The value of your contract on the date you make the withdrawal is
$16,297.02 which reflects the deduction of all applicable fees and
charges; and
(4) You have not made any other transfers, additional Purchase Payments, or
withdrawals.
No withdrawal charges are reflected because your Purchase Payment has been in
the contract for seven full years. If a withdrawal charge applies, it is
deducted before the market value adjustment.
NEGATIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 3-year fixed investment option is 7.5% and the 5-year
fixed investment option is 8.5%. By linear interpolation, the interest rate for
the remaining 4 years (3 1/2 years rounded up to the next full year) in the
contract is calculated to be 8%.
<TABLE>
<C> <C> <S>
(N/12)
The market value adjustment factor is = [(1+I)/(1+J+0.005)] - 1
(42/12)
= [(1.07)/(1.08+0.005)] - 1
(3.5)
= (0.986175) - 1
= 0.952443 - 1
= - 0.047557
</TABLE>
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
<TABLE>
<C> <C> <S>
$4,000 x (- 0.047557) = -$190.23
</TABLE>
$190.23 represents the market value adjustment that will be deducted from the
money remaining in the 10-year fixed investment option.
POSITIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for a new
Purchase Payments in the 3-year fixed investment option is 5.5% and the 5-year
fixed investment option is 6.5%. By linear interpolation, the interest rate for
the remaining 4 years (3 1/2 years rounded up to the next full year) in the
contract is calculated to be 6%.
<TABLE>
<C> <C> <S>
(N/12)
The market value adjustment factor is = [(1+I/(1+J+0.005)] - 1
(42/12)
= [(1.07)/(1.06+0.005)] - 1
(3.5)
= (1.004695) - 1
= 1.016528 - 1
= + 0.01653
</TABLE>
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
$4,000 x (+0.01653)=+$66.11
$66.11 represents the market value adjustment that would be added to your
withdrawal.
B-1
<PAGE> 55
================================================================================
APPENDIX C -- PREMIUM TAXES
================================================================================
Premium taxes vary according to the state and are subject to change without
notice. In many states, there is no tax at all. Listed below are the current
premium tax rates in those states that assess a premium tax. For current
information, you should consult your tax adviser.
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
STATE CONTRACT CONTRACT
- -----------------------------------------------------------------
- -----------------------------------------------------------------
<S> <C> <C>
California .50% 2.35%
- -----------------------------------------------------------------
District of Columbia 2.25% 2.25%
- -----------------------------------------------------------------
Kansas 0% 2%
- -----------------------------------------------------------------
Kentucky 2% 2%
- -----------------------------------------------------------------
Maine 0% 2%
- -----------------------------------------------------------------
Nevada 0% 3.5%
- -----------------------------------------------------------------
South Dakota 0% 1.25%
- -----------------------------------------------------------------
West Virginia 1% 1%
- -----------------------------------------------------------------
Wyoming 0% 1%
=================================================================
</TABLE>
C-1
<PAGE> 56
- --------------------------------------------------------------------------------
Please forward a copy (without charge) of the Polaris Variable Annuity
Statement of Additional Information to:
(Please print or type and fill in all information.)
----------------------------------------------------------------
Name
----------------------------------------------------------------
Address
----------------------------------------------------------------
City/State/Zip
Date: __________________ Signed: _____________________________
Return to: Anchor National Life Insurance Company, Annuity Service Center,
P.O. Box 54299, Los Angeles, California 90054-0299.
- --------------------------------------------------------------------------------
<PAGE> 57
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) Form of Underwriting Agreement***
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession***
(3) (a) Articles of Incorporation***
(b) By-Laws***
(4) (a) Polaris Fixed and Variable Contract***
(b) Application for Contract***
(5) Opinion of Counsel re: Legality***
(6) Opinion re Discount on Capital Shares**
(7) Opinion re Liquidation Preference**
(8) Opinion re Tax Matters**
(9) Voting Trust Agreement**
(10) Material Contracts**
(11) Statement re Computation of Per Share Earnings**
(12) Statement re Computation of Ratios**
(14) Material Foreign Patents**
(15) Letter re Unaudited Financial Information**
(16) Letter re Change in Certifying Accountant**
(21) Subsidiaries of Registrant***
(23) (a) Consent of Independent Accountants*
(b) Consent of Attorney***
(24) Powers of Attorney***
(25) Statement of Eligibility of Trustee**
(26) Invitation for Competitive Bids**
(27) Financial Data Schedule*
(28) Information Reports Furnished to State Insurance
Regulatory Authority**
(29) Other Exhibits**
* Herewith
** Not Applicable
*** Previously Filed
<PAGE> 58
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> 59
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 1st day
of May, 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.
SIGNATURE TITLE DATE
--------- ----- ----
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
JAY S. WINTROB* Director
- ----------------
Jay S. Wintrob
/s/ SUSAN L. HARRIS Director May 1, 1997
- -------------------
Susan L. Harris
PETER McMILLAN* Director
- ----------------
Peter McMillan
JAMES W. ROWAN* Director
- -----------------
James W. Rowan
JOSEPH M. TUMBLER* Director
- -----------------
Joseph M. Tumbler
*By: /s/ SUSAN L. HARRIS Attorney-in-Fact
-----------------------
Susan L. Harris
Date: May 1, 1997
<PAGE> 60
EXHIBIT INDEX
Number Description
- ------ -----------
(23)(a) Consent of Independent Accountants
(27) Financial Data Schedule
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 for Variable Separate Account (Portion
Relating to the POLARIS Variable Annuity) of Anchor National Life Insurance
Company, of our report dated November 8, 1996 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
May 1, 1997
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT OF ANCHOR NATIONAL LIFE INSURANCE COMPANY'S FORM 10-Q
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 2,281,527,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 3,842,000
<MORTGAGE> 120,680,000
<REAL-ESTATE> 24,000,000
<TOTAL-INVEST> 2,703,683,000
<CASH> 196,142,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 461,637,000
<TOTAL-ASSETS> 10,025,708,000
<POLICY-LOSSES> 2,445,744,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 35,903,000
0
0
<COMMON> 3,511,000
<OTHER-SE> 526,611,000
<TOTAL-LIABILITY-AND-EQUITY> 10,025,708,000
0
<INVESTMENT-INCOME> 45,773,000
<INVESTMENT-GAINS> (19,116,000)
<OTHER-INCOME> 44,820,000
<BENEFITS> 31,229,000
<UNDERWRITING-AMORTIZATION> 13,817,000
<UNDERWRITING-OTHER> (837,000)
<INCOME-PRETAX> 4,946,000
<INCOME-TAX> 1,600,000
<INCOME-CONTINUING> 3,346,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,346,000
<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>
