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As filed with the Securities and Exchange Commission on January 17, 1997
Registration No. 33-87864
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 5
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ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
California 6311 86-0198983
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Number)
organization)
1 SunAmerica Center
Los Angeles, California 90067-6022
(310) 772-6000
(Address, including zip code, and telephone number,
including area code, or registrant's
principal executive offices)
Susan L. Harris, Esquire
Anchor National Life Insurance Company
1 SunAmerica Center
Los Angeles, California 90067-6022
(310) 772-6000
(Name, address, including zip code, and telephone number,
including area code of agent for service)
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Appropriate date of commencement of proposed sale to the public:
As soon as practicable after effectiveness of the Registration Statement
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. /X/
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
shall determine.
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CROSS REFERENCE SHEET
ANCHOR NATIONAL LIFE INSURANCE COMPANY
Cross Reference Sheet Pursuant to
Regulation S-K, Item 501(b)
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Form S-1 Item Number and Caption Heading in Prospectus
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1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus............... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus.............. Inside Front Cover
3. Summary of Information, Risk
Factors and Ratio of Earnings
to Fixed Charges....................... Front Cover; Summary; Fixed
Account Options
4. Use of Proceeds........................ Description of the
Company, the Separate
Account and the General
Account; Fixed Account
Options; Purchases,
Withdrawals and Contract
Value
5. Determination of Offering Price........ Not Applicable
6. Dilution............................... Not Applicable
7. Selling Security Holders............... Not Applicable
8. Plan of Distribution................... Purchases, Withdrawals
and Contract Value
9. Description of Securities to be
Registered............................. Description of the
Contracts; Fixed
Account Options;
Contract Charges;
Annuity Period
10. Interests of Named Experts
and Counsel............................ Not Applicable
11. Information with Respect to
the Registrant......................... Description of the
Company, the Separate
Account and the General
Account; Additional
Information about the
Company; Financial
Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities........................ Not Applicable
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FLEXIBLE PAYMENT GROUP DEFERRED
ANNUITY CONTRACTS
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ISSUED BY
ANCHOR NATIONAL LIFE INSURANCE COMPANY
IN CONNECTION WITH
VARIABLE SEPARATE ACCOUNT
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CORRESPONDENCE ACCOMPANIED ALL OTHER CORRESPONDENCE,
BY PAYMENTS ANNUITY SERVICE CENTER:
P.O. BOX 100330 P.O. BOX 54299
PASADENA, CALIFORNIA 91189-0001 LOS ANGELES, CALIFORNIA 90054-0299
TELEPHONE NUMBER: (800) 445-SUN2
</TABLE>
The Contracts offered by this prospectus provide for accumulation of
Contract Values and payment of annuity benefits on a fixed and/or variable
basis. The Contracts are available for Qualified Plans and Nonqualified Plans
(See "Taxes").
Purchase Payments under the Contracts may be allocated among the Portfolios
of the Separate Account, and/or to one or more of the Fixed Account options
funded through the Company's General Account. Each of the 22 Portfolios of the
Separate Account is invested solely in shares of the Underlying Funds of Anchor
Series Trust or SunAmerica Series Trust:
ANCHOR SERIES TRUST
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* CAPITAL APPRECIATION PORTFOLIO * NATURAL RESOURCES PORTFOLIO
* GROWTH PORTFOLIO * GOVERNMENT AND QUALITY BOND PORTFOLIO
</TABLE>
SUNAMERICA SERIES TRUST
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* AGGRESSIVE GROWTH PORTFOLIO * ASSET ALLOCATION PORTFOLIO
* INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO * BALANCED/PHOENIX INVESTMENT COUNSEL PORTFOLIO
* GLOBAL EQUITIES PORTFOLIO * SUNAMERICA BALANCED PORTFOLIO
* PROVIDENT GROWTH PORTFOLIO * WORLDWIDE HIGH INCOME PORTFOLIO
* GROWTH/PHOENIX INVESTMENT COUNSEL PORTFOLIO * HIGH-YIELD BOND PORTFOLIO
* ALLIANCE GROWTH PORTFOLIO * CORPORATE BOND PORTFOLIO
* VENTURE VALUE PORTFOLIO (FORMERLY THE FIXED INCOME PORTFOLIO)
* FEDERATED VALUE PORTFOLIO * GLOBAL BOND PORTFOLIO
* GROWTH-INCOME PORTFOLIO * CASH MANAGEMENT PORTFOLIO
* UTILITY PORTFOLIO
</TABLE>
The Fixed Account options pay fixed rates of interest declared by the
Company for specified Guarantee Periods from the date amounts are allocated to
the Fixed Account. As of the date of this prospectus, one, three, five, seven
and ten year options were available in most states. Please contact the Company
or the financial representative from whom this prospectus was obtained for
information as to currently available guarantee options. Declared interest rates
will vary from time to time but will not be less than 3% per annum, and, once
established for a particular allocation, will not change during the course of
the Guarantee Period. However, withdrawals, transfers or annuitizations from the
three, five, seven and ten year Fixed Account options prior to the end of the
applicable Guarantee Period(s) will generally result in the imposition of a
Market Value Adjustment. (See "Fixed Account Options -- Market Value
Adjustment").
This prospectus concisely sets forth the information a prospective investor
ought to know before investing. PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN
IT FOR YOUR FUTURE REFERENCE. Participants bear the complete investment risk for
all Purchase Payments allocated to the Separate Account. With respect to
allocations to the Fixed Account, Participants also bear the risk that amounts
prematurely withdrawn, transferred or annuitized from, the General Account prior
to the end of their respective Guarantee Periods could result in the Participant
receiving less than Purchase Payments so allocated.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE CONTRACTS OFFERED BY THIS PROSPECTUS INVOLVE RISK, INCLUDING LOSS OF
PRINCIPAL, AND ARE NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES.
This Prospectus is dated January 28, 1997.
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ADDITIONAL INFORMATION:
The Company has filed registration statements (the "Registration
Statements") with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended, relating to the Contracts offered
by this prospectus. This prospectus has been filed as a part of the Registration
Statements and does not contain all of the information set forth in the
Registration Statements and exhibits thereto, and reference is hereby made to
such Registration Statements and exhibits for further information relating to
the Company, the Separate Account, and the Contracts. The Company is subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended, and in accordance therewith files reports and other information with
the Commission. Such reports and other information filed by the Company can be
inspected and copied; and copies can be obtained at the public reference
facilities of the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at the regional offices in Chicago and New York. The addresses of
these regional offices are as follows: 500 West Madison Street, Chicago,
Illinois 60661, and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material also can be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington D.C. 20549, upon
payment of the fees prescribed by the rules and regulations of the Commission at
prescribed rates.
A Statement of Additional Information about the variable portion of the
Contracts has been filed with the Commission, as part of the Registration
Statements, and is incorporated herein by reference. The Statement of Additional
Information is available without charge upon written or oral request to the
Company at its Annuity Service Center at the address and telephone number given
on the prior page. The Table of Contents of the Statement of Additional
Information dated January 28, 1997, appears on page 46 of this prospectus.
2
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TABLE OF CONTENTS
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ITEM PAGE
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DEFINITIONS........................................................................................ 5
SUMMARY............................................................................................ 7
FEE TABLES......................................................................................... 10
UNDERLYING FUND EXPENSES........................................................................... 11
EXAMPLES........................................................................................... 12
EXPLANATION OF FEE TABLES AND EXAMPLES............................................................. 12
PERFORMANCE DATA................................................................................... 13
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT AND THE GENERAL ACCOUNT........................... 13
Company....................................................................................... 13
Separate Account.............................................................................. 14
General Account............................................................................... 14
SEPARATE ACCOUNT INVESTMENTS....................................................................... 14
Underlying Funds.............................................................................. 14
Anchor Trust................................................................................ 15
SunAmerica Trust............................................................................ 15
Voting Rights................................................................................. 17
Substitution of Securities.................................................................... 17
FIXED ACCOUNT OPTIONS.............................................................................. 17
Allocations................................................................................... 17
Renewals...................................................................................... 18
Market Value Adjustment....................................................................... 18
CONTRACT CHARGES................................................................................... 19
Mortality and Expense Risk Charge............................................................. 19
Administrative Charges........................................................................ 20
Contract Administration Charge.............................................................. 20
Transfer Fee................................................................................ 20
Sales Charges................................................................................. 20
Withdrawal Charge........................................................................... 20
Free Withdrawals......................................................................... 21
Nursing Home Waiver...................................................................... 21
Distribution Expense Charge................................................................. 21
Premium Taxes................................................................................. 22
Deduction for Separate Account Income Taxes................................................... 22
Other Expenses................................................................................ 22
Reduction of Charges for Sales to Certain Groups.............................................. 22
DESCRIPTION OF THE CONTRACTS....................................................................... 22
Summary....................................................................................... 22
Participant................................................................................... 22
Annuitant..................................................................................... 22
Modification of the Contract.................................................................. 23
Assignment.................................................................................... 23
Death Benefit................................................................................. 23
Beneficiary................................................................................... 24
PURCHASES, WITHDRAWALS AND CONTRACT VALUE.......................................................... 24
Minimum Purchase Payment...................................................................... 24
Automatic Payment Plan........................................................................ 24
Automatic Dollar Cost Averaging Program....................................................... 24
Asset Allocation Rebalancing Program.......................................................... 25
Principal Advantage Program................................................................... 25
</TABLE>
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<TABLE>
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ITEM PAGE
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Allocation of Purchase Payments............................................................... 25
Transfer During Accumulation Period........................................................... 26
Separate Account Accumulation Unit Value...................................................... 26
Fixed Account Accumulation Value.............................................................. 27
Distribution of Contracts..................................................................... 27
Withdrawals (Redemptions)..................................................................... 27
Systematic Withdrawal Program............................................................... 28
ERISA Plans................................................................................. 28
Deferment of Fixed Account Withdrawal Payments.............................................. 28
Minimum Contract Value........................................................................ 28
ANNUITY PERIOD..................................................................................... 29
Annuity Date.................................................................................. 29
Deferment of Payments....................................................................... 29
Payments to Participant..................................................................... 29
Allocation of Annuity Payments................................................................ 29
Annuity Options............................................................................... 29
Other Options................................................................................. 30
Transfer During Annuity Period................................................................ 30
Death Benefit During Annuity Period........................................................... 31
Annuity Payments.............................................................................. 31
Initial Monthly Annuity Payment............................................................. 31
Subsequent Monthly Payments................................................................. 31
ADMINISTRATION..................................................................................... 31
TAXES.............................................................................................. 32
General....................................................................................... 32
Withholding Tax on Distributions.............................................................. 32
Diversification -- Separate Account Investments............................................... 33
Ownership Treatment........................................................................... 33
Multiple Contracts............................................................................ 33
Tax Treatment of Assignments.................................................................. 33
Qualified Plans............................................................................... 33
Tax Treatment of Withdrawals.................................................................. 34
Qualified Plans............................................................................. 34
Nonqualified Plans.......................................................................... 34
ADDITIONAL INFORMATION ABOUT THE COMPANY........................................................... 35
Selected Consolidated Financial Data.......................................................... 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 36
PROPERTIES......................................................................................... 43
DIRECTORS AND EXECUTIVE OFFICERS................................................................... 43
EXECUTIVE COMPENSATION............................................................................. 44
Security Ownership of Certain Beneficial Owners and Management................................ 45
STATE REGULATION................................................................................... 45
CUSTODIAN.......................................................................................... 45
LEGAL PROCEEDINGS.................................................................................. 46
REGISTRATION STATEMENTS............................................................................ 46
INDEPENDENT ACCOUNTANTS............................................................................ 46
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT.................................................. 46
FINANCIAL STATEMENTS............................................................................... 47
APPENDIX A -- CONDENSED FINANCIAL INFORMATION -- ACCUMULATION UNIT VALUES.......................... A-1
APPENDIX B -- WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT...................... B-1
APPENDIX C -- SAMPLE DEATH BENEFIT COMPUTATIONS.................................................... C-1
</TABLE>
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DEFINITIONS
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The following terms, as used in this prospectus, have the indicated
meanings:
ACCUMULATION PERIOD -- The period between the Certificate Date and the Annuity
Date; the build-up phase under the Contract.
ACCUMULATION UNIT -- A unit of measurement which the Company uses to calculate
Contract Value under the variable portion of the Contracts during the
Accumulation Period.
ANNUITANT -- The natural person on whose life the annuity benefits under a
Certificate are based.
ANNUITIZATION -- The process by which a Participant converts from the
Accumulation Period to the Annuity Period. Upon Annuitization, the Certificate
is converted from the build-up phase to the phase during which the Participant
or other payee(s) receive periodic annuity payments.
ANNUITY DATE -- The date on which annuity payments are to begin.
ANNUITY PERIOD -- The period starting on the Annuity Date.
ANNUITY UNIT -- A unit of measurement which the Company uses to calculate the
amount of Variable Annuity payments during the Annuity Period.
BENEFICIARY(IES) -- The person(s) designated to receive any benefits under a
Certificate upon the death of the Annuitant or the Participant.
CERTIFICATE -- A document that describes and evidences a Participant's rights
under a group Contract.
CERTIFICATE DATE -- The date a Certificate is issued.
COMPANY -- Anchor National Life Insurance Company, an Arizona corporation.
CONTRACT(S) -- The Flexible Payment Group Deferred Annuity Contracts offered by
this prospectus.
CONTRACT VALUE -- The value under a Contract of a Participant's account, equal
to the sum of the values of the Participant's interest in the Fixed Account and
the Separate Account.
CONTRACT YEAR -- A year starting from the Certificate Date in one calendar year
and ending on the Certificate Date in the succeeding calendar year.
CONTRIBUTION YEAR -- With respect to a given Purchase Payment, a year starting
from the date of the Purchase Payment in one calendar year and ending on the day
before the anniversary of such date in the succeeding calendar years. The
Contribution Year in which a Purchase Payment is made is "Contribution Year 0,"
subsequent Contribution Years are successively numbered beginning with
Contribution Year 1.
CURRENT INTEREST RATE -- The interest rate as declared from time to time by the
Company to be in effect for allocations to the Fixed Account for a specified
Guarantee Period. It is equal to the sum of the subsequent Guarantee Rate and
the excess interest rate, if any, declared by the Company for such allocation.
The subsequent guarantee rate will not be less than 3% per annum.
DUE PROOF OF DEATH -- (1) A certified copy of a death certificate; or (2) a
certified copy of a decree of a court of competent jurisdiction as to the
finding of death; or (3) a written statement by a medical doctor who attended
the deceased at the time of death; or (4) any other proof satisfactory to the
Company.
FIXED ACCOUNT -- Contract Values allocated to the Company's General Account
under one or more of the Fixed Account options under the Contract.
FIXED ANNUITY -- A series of payments that are fixed in amount and made during
the Annuity Period to a payee under a Certificate.
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GENERAL ACCOUNT -- The Company's general investment account which contains all
the assets of the Company, with the exception of the Separate Account and other
segregated asset accounts.
GUARANTEE PERIOD -- A period during which an allocation to the Fixed Account
will earn interest at the Current Interest Rate that was in effect for that
period when the allocation was made.
GUARANTEE RATE -- The interest rate in effect for a particular allocation to the
Fixed Account for a specified Guarantee Period.
LATEST ANNUITY DATE -- The first day of the month following the 85th birthday of
the Annuitant. In the case of Contracts issued in connection with Qualified
Plans, the Code generally requires that a minimum distribution be taken by April
1 of the calendar year following the calendar year in which the Participant
attains age 70 1/2. Accordingly, the Company may require a Participant in a
Qualified Plan to annuitize prior to such date unless the Participant
demonstrates the minimum distribution is otherwise being made.
MARKET VALUE ADJUSTMENT -- An adjustment applied to amounts withdrawn,
transferred or annuitized from the three, five, seven and ten year Fixed Account
options prior to the end of the applicable Guarantee Period(s).
NONQUALIFIED PLAN -- A retirement plan which does not receive favorable tax
treatment under Sections 401, 403(b), 408 or 457 of the Internal Revenue Code.
OWNER -- The person(s) having the privileges of ownership defined in the
Contracts. Except to the extent restricted by the retirement plan pursuant to
which the Contract is issued, the Participant will be the Owner of the
Certificate.
PARTICIPANT -- The person entitled to benefits under a Contract as evidenced by
a Certificate issued to the Participant.
PORTFOLIO -- A subdivision of the Separate Account invested wholly in shares of
one of the investment series of Anchor Series Trust or SunAmerica Series Trust
(the "Anchor Trust" or "SunAmerica Trust").
PURCHASE PAYMENTS -- Amounts paid to the Company for the Contract by or on
behalf of a Participant.
QUALIFIED PLAN -- A retirement plan which receives favorable tax treatment under
Sections 401, 403(b), 408 or 457 of the Internal Revenue Code.
SEPARATE ACCOUNT -- A segregated investment account of the Company entitled
"Variable Separate Account."
UNDERLYING FUND(S) -- The underlying series of Anchor Trust or SunAmerica Trust
in which the Portfolios invest.
VALUATION DATE -- Each day the New York Stock Exchange is open for business.
VALUATION PERIOD -- The period commencing at the close of normal trading on the
New York Stock Exchange ("NYSE") (currently 4:00 p.m. Eastern time) on each
Valuation Date and ending at the close of normal trading on the NYSE on the next
succeeding Valuation Date.
VARIABLE ANNUITY -- A series of payments made during the Annuity Period to a
payee under a Certificate which vary in amount in accordance with the investment
experience of the Portfolios to which Contract Values have been allocated.
WITHDRAWAL CHARGE -- The contingent deferred sales charge assessed against
certain withdrawals.
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SUMMARY
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This summary highlights some of the more important points that you should
know and consider before purchasing the Polaris Variable Annuity. The annuity is
more fully described elsewhere 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 save on a tax-deferred basis
and meet long-term financial goals, such as retirement. 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 22 variable and 5
fixed investment options. The variable investment options offer professionally
managed investment choices with goals ranging from capital preservation to
aggressive growth. The fixed investment options offer interest rates for
specified periods that are guaranteed by Anchor National. More detailed
information on the various investment options is described below.
Like all annuities, the Contract has an Accumulation Period, and if you
choose to annuitize, an Annuity Period. During the Accumulation Period, you
invest money in your Contract. Your earnings are based on the investment
performance of the variable investment options and/or the interest rate earned
on the fixed investment options to which your money is allocated. You may
withdraw money from your Contract during the Accumulation Period. Amounts
withdrawn may be subject to a withdrawal charge depending on the dollar amount
and how long the money has been in your Contract. However, as with other
tax-deferred investments, you will pay taxes on earnings when you withdraw them.
A federal tax penalty may apply if you make withdrawals before age 59 1/2.
During the Annuity Period, you will receive monthly payments from your annuity.
Your monthly payments may be fixed in dollar amount, vary with investment
performance or a combination of both, depending on the annuity option you
select. Among other factors, the amount of money you are able to accumulate in
your Contract during the Accumulation Period will determine the amount of your
payments during the Annuity Period.
2. ANNUITY OPTIONS
You can select from one of five annuity options: (1) monthly payments for
your lifetime; (2) monthly payments for your lifetime and your survivor's
lifetime; (3) monthly payments for your lifetime and your survivor's lifetime,
but for not less than 120 months; (4) monthly payments for your lifetime, but
for not less than 120 or 240 months; and (5) monthly payments for a specified
period of 3 to 30 years.
You will also need to decide if you want your monthly 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 Nonqualified, payments during the Annuity
Period are considered partly a return of your original investment. The "original
investment" part of each payment is not taxable as income. For Qualified Plans,
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 Nonqualified Plans, 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 Period. For Qualified Plans, 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 Period.
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4. INVESTMENT OPTIONS
You may allocate money to the following variable investment options of the
Anchor Series Trust and SunAmerica Series Trust:
ANCHOR SERIES TRUST
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
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- CAPITAL APPRECIATION PORTFOLIO - GROWTH PORTFOLIO
- NATURAL RESOURCES PORTFOLIO - GOVERNMENT AND QUALITY BOND PORTFOLIO
</TABLE>
SUNAMERICA SERIES TRUST
<TABLE>
<S> <C>
MANAGED BY ALLIANCE CAPITAL MANAGEMENT, L.P. MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
- GLOBAL EQUITIES PORTFOLIO - INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO
- ALLIANCE GROWTH PORTFOLIO - WORLDWIDE HIGH INCOME PORTFOLIO
- GROWTH-INCOME PORTFOLIO MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
MANAGED BY DAVIS SELECTED ADVISERS, L.P. - GROWTH/PHOENIX INVESTMENT COUNSEL PORTFOLIO
- VENTURE VALUE PORTFOLIO - BALANCED/PHOENIX INVESTMENT COUNSEL PORTFOLIO
MANAGED BY FEDERATED INVESTORS MANAGED BY PROVIDENT INVESTMENT COUNSEL
- FEDERATED VALUE PORTFOLIO - PROVIDENT GROWTH PORTFOLIO
- UTILITY PORTFOLIO MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- CORPORATE BOND PORTFOLIO - AGGRESSIVE GROWTH PORTFOLIO
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT - SUNAMERICA BALANCED PORTFOLIO
- ASSET ALLOCATION PORTFOLIO - HIGH-YIELD BOND PORTFOLIO
- GLOBAL BOND PORTFOLIO - CASH MANAGEMENT PORTFOLIO
</TABLE>
You may also allocate money to the following fixed investment options: one
year, three years, five years, seven years and ten years. The rates for each
specified period differ and may vary from time to time but will not be less than
3%. Once established, the rates will not change during the specified period. An
adjustment to your Contract (called a "market value adjustment"), which may be
negative or positive depending on changes in interest rates, will apply to
withdrawals, transfers or annuitizations from the three, five, seven and ten
year fixed investment options prior to the end of the selected period.
5. WITHDRAWALS
Earnings may be withdrawn at any time free of a withdrawal charge. After
the first Contract Year, the first withdrawal of a Contract Year will be free of
a withdrawal charge if it does not exceed the greater of either: (1) earnings or
(2) 10% of the money on deposit for at least one year and not yet withdrawn.
After the first withdrawal of the Contract Year, free withdrawals are limited to
earnings in the Contract. Of course, at any time you may withdraw money that is
no longer subject to a withdrawal charge.
Although amounts withdrawn using the 10% provision may reduce principal for
the purpose of calculating amounts available for future withdrawals of earnings,
they do not reduce the amount of money you contributed for purposes of
calculating the withdrawal charge on a full surrender. The minimum withdrawal
amount is $1,000.
6. EXPENSES
Each Contract anniversary, we deduct a $35 contract administration charge
from your Contract. This charge is waived if your Contract is at least $50,000
on its anniversary date.
We also deduct insurance charges annually which total 1.52% of the average
daily value of your Contract allocated to the variable Portfolios. The insurance
charges include: Mortality and Expense Risk 1.25%; Enhanced Death Benefit .12%;
and Distribution Expense .15%. There are also investment charges imposed on
Contracts with money allocated to the variable Portfolios which are estimated to
range from .62% to 1.70%. If applicable, you may be assessed a state premium tax
which ranges from 0% to 3.5% depending upon the state.
If you withdraw money in excess of the free withdrawal amount described
above, a percentage of the amount you withdraw may be assessed a descending
withdrawal charge during the first seven Contribution Years (7% - 6% - 5% - 4% -
3% - 2% - 1% - 0%). This charge will be waived for payment of the death benefit
and under the provisions of the nursing home waiver, if applicable.
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7. TAXES
Earnings in your Contract are not taxed until you take them out. If money
is taken out before age 59 1/2, there may be a 10% tax penalty assessed on the
amount that is deemed to be income. In general, if you take money out, earnings
are deemed to be taken out first and are taxed as income.
8. DEATH BENEFIT
In the event you die during the Accumulation Period, your Beneficiary will
receive a death benefit. The standard death benefit is the greater of: (1) the
value of your Contract or (2) the money you have put in less any withdrawals.
In addition, where permitted by state law, we will provide an enhanced
death benefit. The enhanced death benefit is the greater of: (1) the value of
your Contract; (2) the money you have put in less any withdrawals, all
compounded at 4% annually (3% if age 70 or older); or (3) the value of your
Contract on the seventh Contract anniversary less any withdrawals since the
seventh anniversary, all compounded at 4% annually (3% if age 70 or older).
9. OTHER INFORMATION
Free Look: You may cancel your Contract within 10 days (or longer if
required by state law) 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. 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.
Principal Advantage Program: This program allows you to obtain growth
potential without risking 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 initial investment needs to be allocated to the fixed investment option
to ensure that this money will grow to the amount of your original investment by
the end of the selected period. The rest of your money may then be divided among
the variable investment options, offering opportunity for additional growth.
Asset Allocation Rebalancing: This program will help keep your investment
in line with your goals. We will maintain your allocation mix in the variable
investment options and the one year fixed investment option by readjusting your
money on a quarterly, semiannual or annual basis.
Systematic Withdrawal Program: You can request to receive either monthly,
quarterly, semiannual or annual checks during the Accumulation Phase. Of course,
withdrawals are taxable and a 10% federal tax penalty may apply if you are under
age 59 1/2. Total withdrawals not subject to a withdrawal charge, including
systematic withdrawals, cannot exceed the free withdrawal amount described
above.
Dollar Cost Averaging: This program allows you to invest gradually in the
equity and bond portfolios from any of the variable investment options and the
one 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 under this plan.
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.
Nursing Home Waiver: Under certain circumstances and if permitted by state
law, we will waive withdrawal charges if you need to access your money while
confined to a nursing home.
10. 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
9
<PAGE> 12
------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE (AS A PERCENTAGE OF PURCHASE PAYMENTS):
<TABLE>
<CAPTION>
CONTRIBUTION YEAR
<S> <C>
Zero............................................................................................................ 7%
One............................................................................................................. 6%
Two............................................................................................................. 5%
Three........................................................................................................... 4%
Four............................................................................................................ 3%
Five............................................................................................................ 2%
Six............................................................................................................. 1%
Seven and later................................................................................................. 0%
ANNUAL CONTRACT ADMINISTRATION CHARGE................................................................................. $35
TRANSFER FEE.......................................................................................................... $25*
(applies solely to transfers in excess of fifteen in a Contract Year)
</TABLE>
- ---------------
* $10 in Pennsylvania and Texas
The Owner Transaction Expenses apply to the Contract Value allocated to the
Fixed Account, as well as the Separate Account.
- --------------------------------------------------------------------------------
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF DAILY NET ASSET VALUE)
<TABLE>
<S> <C>
MORTALITY RISK CHARGE
Standard.......................................................................................................... 0.90%
Enhanced.......................................................................................................... 0.12%
------
Total......................................................................................................... 1.02%
EXPENSE RISK CHARGE................................................................................................... 0.35%
DISTRIBUTION EXPENSE CHARGE........................................................................................... 0.15%
------
TOTAL EXPENSE CHARGE.......................................................................................... 1.52%
=====
</TABLE>
10
<PAGE> 13
- --------------------------------------------------------------------------------
UNDERLYING FUND EXPENSES
- --------------------------------------------------------------------------------
ANCHOR SERIES TRUST
(FUND EXPENSES, AS A PERCENTAGE OF AVERAGE NET ASSETS
FOR THE TRUST'S TWELVE-MONTH PERIOD ENDED NOVEMBER 30, 1996.)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER ANNUAL
FEE EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITAL APPRECIATION................................................................ .67% .08% .75%*
- ---------------------------------------------------------------------------------------------------------------------------
GROWTH.............................................................................. .73% .08% .81%*
- ---------------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES................................................................... .75% .19% .94%*
- ---------------------------------------------------------------------------------------------------------------------------
GOVERNMENT & QUALITY BOND........................................................... .62% .09% .71%*
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
SUNAMERICA SERIES TRUST
(FUND EXPENSES, AS A PERCENTAGE OF AVERAGE NET ASSETS
FOR THE TRUST'S FISCAL YEAR ENDED NOVEMBER 30, 1996.)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER ANNUAL
FEE EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AGGRESSIVE GROWTH................................................................... .75% .30% 1.05%*
- ---------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL DIVERSIFIED EQUITIES.................................................. 1.00% .59% 1.59%
- ---------------------------------------------------------------------------------------------------------------------------
GLOBAL EQUITIES..................................................................... .80% .23% 1.03%
- ---------------------------------------------------------------------------------------------------------------------------
PROVIDENT GROWTH.................................................................... .82% .08% .90%
- ---------------------------------------------------------------------------------------------------------------------------
GROWTH/PHOENIX INVESTMENT COUNSEL................................................... .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 INVESTMENT COUNSEL................................................. .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>
For certain Portfolios, the Adviser has voluntarily agreed to waive fees or
reimburse expenses, if necessary, to keep annual operating expenses at or below
the lesser of the maximum allowable by any applicable state expense limitations
or the following percentages of each Portfolio's average net assets: Aggressive
Growth (1.05%); Federated Value (1.05%); Utility (1.05%); and SunAmerica
Balanced (1.00%). The Adviser also may voluntarily waive or reimburse additional
amounts to increase the investment return to a Portfolio's investors. The
Adviser may terminate all such waivers and/or reimbursement at any time.
Further, effective June 3, 1996, any waivers or reimbursements made by the
Adviser with respect to a Portfolio are subject to recoupment from that
Portfolio within the following two years, provided that the Portfolio is able to
effect such payment to the Adviser and remain in compliance with the foregoing
expense limitations.
* Annualized
THE ABOVE EXPENSES FOR THE UNDERLYING FUNDS WERE PROVIDED BY THE TRUSTS. NEITHER
THE COMPANY NOR THE SEPARATE ACCOUNT HAVE INDEPENDENTLY VERIFIED THE ACCURACY OF
SUCH INFORMATION.
11
<PAGE> 14
- --------------------------------------------------------------------------------
EXAMPLES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONDITIONS
An Owner would pay the following expenses on a $1,000
investment in each indicated Portfolio assuming 5% annual TIME PERIODS
PORTFOLIO return on assets: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL (a) upon surrender at the end of the stated time period. (a) $ 94 $ 123 $ 155 $267
APPRECIATION (b) if the Contract WAS NOT surrendered (b) $ 24 $ 73 $ 125 $267
- ---------------------------------------------------------------------------------------------------------------------------------
GROWTH SAME (a) $ 94 $ 125 $ 158 $273
(b) $ 24 $ 75 $ 128 $273
- ---------------------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCES SAME (a) $ 95 $ 128 $ 164 $285
(b) $ 25 $ 78 $ 134 $285
- ---------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT & SAME (a) $ 93 $ 120 $ 151 $259
QUALITY BOND (b) $ 23 $ 70 $ 121 $259
- ---------------------------------------------------------------------------------------------------------------------------------
AGGRESSIVE SAME (a) $ 97 $ 132 $ 170 $297
GROWTH (b) $ 27 $ 82 $ 140 $297
- ---------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL SAME (a) $102 $ 148 $ 196 $348
DIVERSIFIED (b) $ 32 $ 98 $ 166 $348
EQUITIES
- ---------------------------------------------------------------------------------------------------------------------------------
GLOBAL SAME (a) $ 96 $ 131 $ 169 $295
EQUITIES (b) $ 26 $ 81 $ 139 $295
- ---------------------------------------------------------------------------------------------------------------------------------
PROVIDENT SAME (a) $ 95 $ 127 $ 162 $282
GROWTH (b) $ 25 $ 77 $ 132 $282
- ---------------------------------------------------------------------------------------------------------------------------------
GROWTH/PHOENIX SAME (a) $ 94 $ 123 $ 154 $266
INVESTMENT COUNSEL (b) $ 24 $ 73 $ 124 $266
- ---------------------------------------------------------------------------------------------------------------------------------
ALLIANCE SAME (a) $ 93 $ 122 $ 153 $263
GROWTH (b) $ 23 $ 72 $ 123 $263
- ---------------------------------------------------------------------------------------------------------------------------------
VENTURE VALUE SAME (a) $ 95 $ 126 $ 160 $277
(b) $ 25 $ 76 $ 130 $277
- ---------------------------------------------------------------------------------------------------------------------------------
FEDERATED SAME (a) $ 97 $ 132 $ 170 $297
VALUE (b) $ 27 $ 82 $ 140 $297
- ---------------------------------------------------------------------------------------------------------------------------------
GROWTH- SAME (a) $ 93 $ 122 $ 153 $264
INCOME (b) $ 23 $ 72 $ 123 $264
- ---------------------------------------------------------------------------------------------------------------------------------
UTILITY SAME (a) $ 97 $ 132 $ 170 $297
(b) $ 27 $ 82 $ 140 $297
- ---------------------------------------------------------------------------------------------------------------------------------
ASSET SAME (a) $ 94 $ 123 $ 154 $266
ALLOCATION (b) $ 24 $ 73 $ 124 $266
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCED/PHOENIX SAME (a) $ 95 $ 126 $ 159 $276
INVESTMENT COUNSEL (b) $ 25 $ 76 $ 129 $276
- ---------------------------------------------------------------------------------------------------------------------------------
SUNAMERICA SAME (a) $ 96 $ 130 $ 167 $292
BALANCED (b) $ 26 $ 80 $ 137 $292
- ---------------------------------------------------------------------------------------------------------------------------------
WORLDWIDE HIGH SAME (a) $ 98 $ 135 $ 175 $307
INCOME (b) $ 28 $ 85 $ 145 $307
- ---------------------------------------------------------------------------------------------------------------------------------
HIGH-YIELD SAME (a) $ 94 $ 123 $ 156 $269
BOND (b) $ 24 $ 73 $ 126 $269
- ---------------------------------------------------------------------------------------------------------------------------------
CORPORATE SAME (a) $ 96 $ 129 $ 166 $289
BOND (b) $ 26 $ 79 $ 136 $289
- ---------------------------------------------------------------------------------------------------------------------------------
GLOBAL SAME (a) $ 95 $ 127 $ 162 $282
BOND (b) $ 25 $ 77 $ 132 $282
- ---------------------------------------------------------------------------------------------------------------------------------
CASH SAME (a) $ 92 $ 119 $ 148 $254
MANAGEMENT (b) $ 22 $ 69 $ 118 $254
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
EXPLANATION OF FEE TABLES AND EXAMPLES
- --------------------------------------------------------------------------------
1. The purpose of the foregoing table and examples is to assist an investor in
understanding the various costs and expenses that he or she will bear
directly or indirectly by investing in the Separate Account. The Owner
Transaction Expenses shown under "Fee Tables" are applicable to Contract
Value allocated to the Fixed Account as well as to the Separate Account.
However, the balance of the Fee Tables apply only to investments in the
Separate Account. The Examples reflect expenses of the Separate Account as
well as the Underlying Funds. For additional information see "Contract
Charges"; see also the sections relating to management of the Underlying
Funds in their respective prospectuses. The Examples do not illustrate the
tax consequences of surrendering a Contract.
2. The Examples assume that there were no transactions which would result in
the imposition of the transfer fee. The amount of the transfer fee is $25
($10 in Pennsylvania and Texas), except that the first 15 transfers per
Contract Year are not subject to a fee. (See "Administrative
Charges -- Transfer Fee".) Premium taxes are not reflected. (See "Sales
Charges -- Premium Taxes"). Transfers from the Fixed Account may be subject
to a Market Value Adjustment even if they are not subject to a transfer fee.
3. For purposes of the amounts reported in the Examples, the Contract
Administration Charge is reflected by applying a percentage equivalent
charge, obtained by dividing the total amount of such charges anticipated to
be collected during the year by the total estimated average net assets of
the Portfolios and the Fixed Account attributable to the Contracts.
4. NEITHER THE FEE TABLES NOR THE EXAMPLES ARE REPRESENTATIONS OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
12
<PAGE> 15
- --------------------------------------------------------------------------------
PERFORMANCE DATA
- --------------------------------------------------------------------------------
From time to time the Separate Account may advertise the Cash Management
Portfolio's "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance.
In addition, the Separate Account may advertise "total return" data for its
other Portfolios. Like the yield figures described above, total return figures
are based on historical data and are not intended to indicate future
performance.
For periods starting prior to the date the Contracts were first offered to
the public, the total return data for the Capital Appreciation, Growth, Natural
Resources and the Government and Quality Bond Portfolios of the Separate Account
will be derived from the performance of the corresponding Portfolios of Anchor
Trust, modified to reflect the charges and expenses as if the Separate Account
Portfolio had been in existence since the inception date of each respective
Anchor Trust Portfolio. Thus, such performance figures should not be construed
to be actual historic performance of the relevant Separate Account Portfolio.
Rather, they are intended to indicate the historic performance of the four
corresponding Portfolios of Anchor Trust, adjusted to provide direct
comparability to the performance of the Portfolios after the date the Contracts
were first offered to the public (which will reflect the effect of fees and
charges imposed under the Contracts). The Capital Appreciation, Growth, Natural
Resources and Government and Quality Bond Portfolios of Anchor Trust have served
since their inception as underlying investment media for separate accounts of
other insurance companies in connection with variable contracts not having the
same fee and charge schedules as those imposed under the Contracts.
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, Austrialia, 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 reporting services such as Morningstar, Inc., Lipper Analytical
Services, Inc. or Variable Annuity Reporting Data Service. Such performance may
not include the effect of any Withdrawal Charges.
More detailed information on the method used to calculate performance data
for the Separate Account is contained in the Statement of Additional
Information.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT
AND THE GENERAL ACCOUNT
- --------------------------------------------------------------------------------
COMPANY
The Company is a stock life insurance company originally organized under
the laws of the state of California in April 1965. On January 1, 1996, the
Company redomesticated under the laws of the state of Arizona. Its legal
domicile is Arizona and its principal business address is 1 SunAmerica Center,
Los Angeles, California 90067-6022. The Company is an indirect wholly owned
subsidiary of SunAmerica Inc., a Maryland corporation.
The Company and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, CalFarm Life Insurance Company, SunAmerica
Asset Management Corp., Imperial Premium Finance, Inc., Resources Trust Company
and three broker-dealers, offer a full line of financial services, including
fixed and variable annuities, mutual funds, premium finance, broker-dealer and
trust administration services. The Company is admitted to conduct life insurance
and annuity business in the District of Columbia and in all states except New
York. It intends to market the Contract in most of the jurisdictions in which it
is admitted to conduct annuity business. The Contracts offered by this
prospectus are issued by the Company and will be funded in the Separate Account
as well as the Company's General Account.
The Company may from time to time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by one or more independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P"), and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion on the relative financial strength and
operating performance of an insurance company in comparison to the norms of the
life/health insurance industry. S&P and Duff & Phelps provide ratings which
measure the claims-paying ability of insurance companies. These ratings are
opinions of an operating insurance
13
<PAGE> 16
company's financial capacity to meet the obligations of its insurance policies
in accordance with their terms. Claims-paying ability ratings do not refer to an
insurer's ability to meet non-policy obligations (i.e., debt/commercial paper).
These ratings do not apply to the Separate Account. However, the contractual
obligations under the Contracts are the general corporate obligations of the
Company.
For more detailed information about the Company, see "Additional
Information About the Company".
SEPARATE ACCOUNT
Variable Separate Account was originally established by the Company on June
25, 1981, pursuant to the provisions of California law, as a segregated asset
account of the Company. In connection with the redomestication of the Company to
Arizona, the Separate Account was assumed intact by the Company. The Separate
Account meets the definition of a "separate account" under the federal
securities laws and is registered with the Commission as a unit investment trust
under the Investment Company Act of 1940. This registration does not involve
supervision of the management of the Separate Account or the Company by the
Commission.
The assets of the Separate Account are the property of the Company.
However, the assets of the Separate Account, equal to its reserves and other
contract liabilities, are not chargeable with liabilities arising out of any
other business the Company may conduct. Income, gains and losses, whether or not
realized, from assets allocated to the Separate Account are credited to or
charged against the Separate Account without regard to other income, gains or
losses of the Company.
The Separate Account is divided into Portfolios, with the assets of each
Portfolio invested in the shares of one of the Underlying Funds. The Company
does not guarantee the investment performance of the Separate Account, its
Portfolios or the Underlying Funds. Values allocated to the Separate Account and
the amount of Variable Annuity payments will vary with the values of shares of
the Underlying Funds, and are also reduced by Contract charges. The Separate
Account also funds other contracts issued by the Company, which are accounted
for separately from the Contracts.
GENERAL ACCOUNT
The General Account is made up of all of the general assets of the Company
other than those allocated to the Separate Account or any other segregated asset
account of the Company. Guarantee Periods of one, three, five, seven and ten
years are available through the General Account. A Purchase Payment may be
allocated to one or more Guarantee Periods, as elected by the Participant at the
time of the establishment of a Participant's account. In addition, all or part
of the Participant's Contract Value may be transferred to Guarantee Periods
available under the Contract as described under "Purchases, Withdrawals and
Contract Value -- Transfer During Accumulation Period" and "Annuity
Period -- Transfer During Annuity Period". Assets supporting amounts allocated
to Guarantee Periods become part of the Company's General Account assets and are
available to fund the claims of all classes of customers of the Company, as well
as of its creditors. Accordingly, all of the Company's assets held in the
General Account will be available to fund the Company's obligations under the
Contracts as well as such other claims.
The Company will invest the assets of the General Account in the manner
chosen by the Company and allowed by applicable state laws regarding the nature
and quality of investments that may be made by life insurance companies and the
percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit investments, within specified limits
and subject to certain qualifications, in federal, state and municipal
obligations, corporate bonds, preferred and common stocks, real estate
mortgages, real estate and certain other investments.
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT INVESTMENTS
- --------------------------------------------------------------------------------
UNDERLYING FUNDS
Each of the Portfolios of the Separate Account invests in the shares of one
of the following Underlying Funds of Anchor Trust or SunAmerica Trust, which are
investment series of open-end management investment companies registered under
the Investment Company Act of 1940:
ANCHOR TRUST
<TABLE>
<S> <C>
* CAPITAL APPRECIATION PORTFOLIO * NATURAL RESOURCES PORTFOLIO
* GROWTH PORTFOLIO * GOVERNMENT AND QUALITY BOND PORTFOLIO
</TABLE>
14
<PAGE> 17
SUNAMERICA TRUST
<TABLE>
<S> <C>
* AGGRESSIVE GROWTH PORTFOLIO * UTILITY PORTFOLIO
* INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO * ASSET ALLOCATION PORTFOLIO
* GLOBAL EQUITIES PORTFOLIO * BALANCED/PHOENIX INVESTMENT
* PROVIDENT GROWTH PORTFOLIO COUNSEL PORTFOLIO
* GROWTH/PHOENIX INVESTMENT * SUNAMERICA BALANCED PORTFOLIO
COUNSEL PORTFOLIO * WORLDWIDE HIGH INCOME PORTFOLIO
* ALLIANCE GROWTH PORTFOLIO * HIGH-YIELD BOND PORTFOLIO
* VENTURE VALUE PORTFOLIO * CORPORATE BOND PORTFOLIO
* FEDERATED VALUE PORTFOLIO * GLOBAL BOND PORTFOLIO
* GROWTH-INCOME PORTFOLIO * CASH MANAGEMENT PORTFOLIO
</TABLE>
ANCHOR TRUST
Four Portfolios of the Separate Account invest solely in the shares of one
of the four currently available Underlying Funds of Anchor Trust. SunAmerica
Asset Management Corp. ("SAAMCo") is the investment adviser for Anchor Trust.
SAAMCo is an indirect wholly owned subsidiary of SunAmerica Inc. Wellington
Management Company, LLP ("Wellington") of Boston, Massachusetts, a professional
investment counseling firm, serves as Subadviser to SAAMCo. Wellington is not
affiliated with the Company.
Shares of Anchor Trust are and will be issued and redeemed only in
connection with investments in and payments under variable contracts sold by the
Company and its affiliate, First SunAmerica Life Insurance Company, as well as
two unaffiliated companies, Presidential Life Insurance Company and Phoenix
Mutual Life Insurance Company. No disadvantage to Owners is seen to arise from
the fact that Anchor Trust offers its shares in this fashion.
Anchor Trust has Underlying Funds in addition to those identified below.
However, none of such other Underlying Funds is available for investment under
the Contracts described in this prospectus. The four available Underlying Funds
and their investment objectives are:
CAPITAL APPRECIATION PORTFOLIO seeks long-term capital appreciation. This
Underlying Fund invests in growth equity securities which are widely diversified
by industry and company and may engage in transactions involving stock index
futures and options thereon as a hedge against changes in market conditions.
GROWTH PORTFOLIO seeks long-term capital appreciation through investment in
growth equity securities. This Underlying Fund may engage in transactions
involving stock index futures and options thereon as a hedge against changes in
market conditions.
NATURAL RESOURCES PORTFOLIO seeks a total return in excess of the U.S. rate
of inflation as represented by the Consumer Price Index. This Underlying Fund
invests primarily in equity securities of U.S. or foreign companies which are
expected to provide favorable returns in periods of rising inflation.
GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current income,
liquidity and security of principal. This Underlying Fund invests in obligations
issued, guaranteed or insured by the U.S. Government, its agencies or
instrumentalities and in corporate debt securities rated Aa or better by Moody's
or AA or better by S&P.
SUNAMERICA TRUST
Eighteen Portfolios of the Separate Account invest solely in the shares of
one of the eighteen currently available Underlying Funds of SunAmerica Trust.
SAAMCo serves as investment adviser for all the Underlying Funds of SunAmerica
Trust. Alliance Capital Management L.P. serves as Subadviser for the Global
Equities, Alliance Growth and Growth-Income Portfolios; Phoenix Investment
Counsel, Inc. serves as Subadviser for the Growth/Phoenix Investment Counsel and
Balanced/Phoenix Investment Counsel Portfolios; Provident Investment Counsel (an
autonomous wholly owned subsidiary of United Asset Management Corporation, a
financial services holding company) serves as Subadviser for the Provident
Growth Portfolio; Davis Selected Advisers, L.P., serves as Subadviser for the
Venture Value Portfolio; Federated Investment Counseling serves as Subadviser
for the Corporate Bond, Federated Value and Utility Portfolios; Goldman Sachs
Asset Management, a separate division of Goldman, Sachs & Co., serves as
Subadviser for the Asset Allocation Portfolio; Goldman Sachs Asset Management
International, an affiliate of Goldman, Sachs & Co., serves as Subadviser for
the Global Bond Portfolio; and Morgan Stanley Asset Management Inc. serves as
Subadviser for the International Diversified Equities and
15
<PAGE> 18
Worldwide High Income Portfolios. There is no Subadviser for the High-Yield
Bond, Aggressive Growth, SunAmerica Balanced and Cash Management Portfolios and
SAAMCo therefore performs all investment advisory services for these Portfolios.
Shares of SunAmerica Trust are and will be issued and redeemed only in
connection with investments in and payments under variable contracts sold by the
Company and its affiliate, First SunAmerica Life Insurance Company. In the
future, however, SunAmerica Trust shares may be used as the underlying
investment medium for other variable annuity contracts and for variable life
contracts offered by the Company. Neither the Company nor SunAmerica Trust
currently foresees any disadvantages to either variable annuity or variable life
contract owners arising from such usage.
The eighteen available Underlying Funds and their investment objectives
are:
AGGRESSIVE GROWTH PORTFOLIO seeks capital appreciation by investing
primarily in equity securities of small capitalization growth companies.
INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO seeks long-term capital
appreciation by investing in common stocks of foreign issuers in accordance with
country weightings as determined by the Subadviser which, in the aggregate,
replicate broad country indices.
GLOBAL EQUITIES PORTFOLIO seeks long-term growth of capital through
investment primarily in common stocks or securities of U.S. and foreign issuers
with common stock characteristics which demonstrate the potential for
appreciation and through transactions in foreign currencies.
PROVIDENT GROWTH PORTFOLIO
GROWTH/PHOENIX INVESTMENT COUNSEL PORTFOLIO
ALLIANCE GROWTH PORTFOLIO
These three Underlying Funds have the same investment objectives, policies
and restrictions and differ only as to subadvisers. The investment objective of
each Underlying Fund is to provide long-term growth of capital by investing
primarily in common stocks or securities with common stock characteristics which
demonstrate the potential for appreciation.
VENTURE VALUE PORTFOLIO seeks to achieve growth of capital by investing
primarily in common stocks.
FEDERATED VALUE PORTFOLIO seeks growth of capital and income by investing
primarily in the securities of high quality companies.
GROWTH-INCOME PORTFOLIO seeks growth of capital and income by investing
primarily in common stocks or securities which demonstrate the potential for
appreciation and/or dividends.
UTILITY PORTFOLIO seeks high current income and moderate capital
appreciation by investing primarily in the equity and debt securities of utility
companies.
ASSET ALLOCATION PORTFOLIO seeks high total return (including income and
capital gains) consistent with preservation of capital over the long-term
through a diversified portfolio that can include common stocks and other
securities having common stock characteristics, bonds and other intermediate and
long-term fixed-income securities and money market instruments (debt securities
maturing in one year or less) in any combination.
BALANCED/PHOENIX INVESTMENT COUNSEL PORTFOLIO seeks reasonable income,
long-term capital growth and conservation of capital by investing primarily in
common stocks and fixed income securities, with an emphasis on income-producing
securities which appear to have some potential for capital enhancement.
SUNAMERICA BALANCED PORTFOLIO seeks to conserve principal by maintaining at
all times a balanced portfolio of stocks and bonds.
WORLDWIDE HIGH INCOME PORTFOLIO seeks high current income and, secondarily,
capital appreciation, by investing primarily in a portfolio of high-yielding
fixed-income securities of issuers located throughout the world.
HIGH-YIELD BOND PORTFOLIO seeks a high level of current income and
secondarily seeks capital appreciation by investing primarily in intermediate
and long-term corporate obligations, with emphasis on higher-yielding,
higher-risk, lower-rated or unrated securities.
16
<PAGE> 19
THE WORLDWIDE HIGH INCOME AND HIGH-YIELD BOND PORTFOLIOS INVEST
PREDOMINANTLY IN, AND THE BALANCED/PHOENIX INVESTMENT COUNSEL PORTFOLIO MAY
INVEST IN, LOWER-RATED AND UNRATED BONDS. BONDS OF THIS TYPE ARE TYPICALLY
SUBJECT TO GREATER MARKET FLUCTUATIONS AND RISK OF LOSS OR INCOME AND PRINCIPAL
DUE TO DEFAULT BY THE ISSUER THAN ARE INVESTMENTS IN LOWER-YIELDING,
HIGHER-RATED BONDS. SEE THE SUNAMERICA TRUST PROSPECTUS FOR MORE INFORMATION.
CORPORATE BOND PORTFOLIO seeks a high total return with only moderate price
risk by investing primarily in investment grade, fixed-income securities.
GLOBAL BOND PORTFOLIO seeks a high total return, emphasizing current income
and, to a lesser extent, providing opportunities for capital appreciation,
through investment in high-quality fixed-income securities of U.S. and foreign
issuers and through transactions in foreign currencies.
CASH MANAGEMENT PORTFOLIO seeks high current yield while preserving capital
by investing in a diversified selection of money market instruments.
There is no assurance that the investment objective of any of the
Underlying Funds will be met. Participants bear the complete investment risk for
Purchase Payments allocated to a Portfolio. Contract Values will fluctuate in
accordance with the investment performance of the Portfolio(s) to which Purchase
Payments are allocated, and in accordance with the imposition of the fees and
charges assessed under the Contracts.
DETAILED INFORMATION ABOUT THE UNDERLYING FUNDS IS CONTAINED IN THE
ACCOMPANYING CURRENT PROSPECTUSES OF THE ANCHOR TRUST AND THE SUNAMERICA TRUST.
AN INVESTOR SHOULD CAREFULLY REVIEW THOSE PROSPECTUSES BEFORE ALLOCATING AMOUNTS
TO BE INVESTED IN THE PORTFOLIOS OF THE SEPARATE ACCOUNT.
VOTING RIGHTS
To the extent required by applicable law, the Company will vote the shares
of the Underlying Funds held in the Separate Account at meetings of the
shareholders of the Anchor Trust or SunAmerica Trust in accordance with
instructions received from persons having the voting interest in the
corresponding Portfolios. The Company will vote shares for which it has not
received instructions in the same proportion as it votes shares for which it has
received instructions. Neither Anchor Trust nor SunAmerica Trust hold regular
meetings of shareholders.
The number of shares which a person has a right to vote will be determined
as of a date to be chosen by the Anchor Trust or the SunAmerica Trust not more
than 60 days prior to the meeting of the respective Underlying Fund's
shareholders. Voting instructions will be solicited by written communication in
advance of such meeting. Except as may be limited by the terms of the retirement
plan pursuant to which the Contract was issued, the person having such voting
rights will be the Participant before the Annuity Date; thereafter the payee
entitled to receive payments under the Certificate.
SUBSTITUTION OF SECURITIES
If the shares of any of the Underlying Funds should no longer be available
for investment by the Separate Account or if, in the judgment of the Company's
Board of Directors, further investment in the shares of an Underlying Fund is no
longer appropriate in view of the purposes of the Contract, the Company may
substitute shares of another mutual fund (or series thereof) for Underlying Fund
shares already purchased and/or to be purchased in the future by Purchase
Payments under the Contract. No such substitution of securities may take place
without prior approval of the Commission and under such requirements as the
Commission may impose.
- --------------------------------------------------------------------------------
FIXED ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
ALLOCATIONS
Purchase Payments may also be allocated, and Contract Values in the
Separate Account transferred, to one or more of the fixed options available
through the Company's General Account. Amounts thus applied will earn interest
for one or more of the available Guarantee Periods selected by the Owner, at
Guarantee Rates based on the Current Interest Rates set by the
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<PAGE> 20
Company for such Guarantee Periods. Current Interest Rates may change from time
to time due to changes in market conditions or other factors. However, the
Guarantee Rate in effect at the time one of these options is selected will not
change for the remainder of the Guarantee Period. THE COMPANY'S OBLIGATION TO
PAY INTEREST AT THE GUARANTEE RATE IS NOT AFFECTED BY THE PERFORMANCE OF THE
COMPANY'S GENERAL ACCOUNT INVESTMENTS.
Guarantee Periods are currently available for periods of one, three, five,
seven and ten years; not all options are available in all states. An Owner may
elect to allocate Purchase Payments to one or more of those Guarantee Periods.
Each such allocation (to the extent not withdrawn, transferred or annuitized
prior to the end of the Guarantee Period), will earn interest, credited daily,
at the annual effective Guarantee Rate established for the Guarantee Period at
the time the allocation is made. The Guarantee Rate is based on the Current
Interest Rate in effect at the time the allocation is made. The Current Interest
Rate applicable to renewals for new Guarantee Periods of amounts already
allocated to the Fixed Account, or to transfers from the Separate Account to the
Fixed Account, may differ from the Current Interest Rates applicable to Purchase
Payments. The Current Interest Rates are set at the sole discretion of the
Company. OWNERS BEAR THE RISK THAT CURRENT INTEREST RATES AVAILABLE AT FUTURE
TIMES MAY BE MORE OR LESS THAN THOSE CURRENTLY OR INITIALLY AVAILABLE. THEY ALSO
BEAR THE RISK THAT SUCH RATES MAY NOT EXCEED THE GUARANTEED MINIMUM RATE OF 3%.
RENEWALS
Within 30 days after the end of a Guarantee Period, amounts accumulated
during that Guarantee Period may be reallocated to the Fixed Account for a new
Guarantee Period of the same or of a different duration. If the new Guarantee
Period is of the same duration, the amounts will receive the Current Interest
Rate in effect for that duration as of the last day of the previous Guarantee
Period and the new Guarantee Period will begin the following business day. If
the new Guarantee Period is of a different duration and the election is received
after the expiration of the Guarantee Period, the amounts will receive the
Current Interest Rate described in the previous sentence until such time as the
election is received (at which time interest will be credited at the Current
Interest Rate then in effect for the new selected Guarantee Period). In that
case, the new Guarantee Period will begin on the day that the reallocation is
made. Also, during such 30-day period, those amounts may be withdrawn,
transferred or annuitized without application of the Market Value Adjustment
(See below). However, any such amounts withdrawn may nevertheless be subject to
the Withdrawal Charge.
At the end of a Guarantee Period, the Company will, unless the Participant
has elected otherwise, assume reallocation for the same period, unless the new
period would expire after the Annuity Date (or, if none has been selected, the
Latest Annuity Date). In the latter case, the Company will choose the longest
available Guarantee Period that will not extend beyond such date. If the renewal
occurs within one year prior to that date, interest will be credited to such
Annuity Date at the then Current Interest Rate for a one-year Guarantee Period.
MARKET VALUE ADJUSTMENT
Contract Value withdrawn, transferred or, prior to the Annuity Date,
annuitized from the Fixed Account under the three, five, seven and ten year
Fixed Account options described above prior to the expiration of the Guarantee
Period (other than withdrawals for the purpose of paying the death benefit upon
the death of the Participant, withdrawals from the one year Fixed Account option
under the Automatic Dollar Cost Averaging Program or Asset Allocation
Rebalancing Program or withdrawals made to pay Contract fees or charges), may be
subject to a Market Value Adjustment ("MVA"). The MVA reflects the impact that
changing interest rates have on the value of money invested at a fixed interest
rate, such as a Guarantee Rate. The MVA may be either positive or negative, and
is computed by multiplying the amount withdrawn, transferred or annuitized by
the following factor:
N/12
[(1 + I)/(1 + J + 0.005)] -1
where
I is the Guarantee Rate in effect;
J is the Current Interest Rate available for a period equal to the number
of years remaining in the Guarantee Period at the time of withdrawal,
transfer or annuitization (fractional years are rounded up to the next
full year); and
N is the number of full months remaining in the Guarantee Period at the
time the withdrawal, transfer or annuitization request is processed.
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<PAGE> 21
In general, whether the MVA will operate to increase or decrease the
Contract Value upon withdrawal, transfer or annuitization is determined by
comparing the Guarantee Rate in effect for that allocation to the Current
Interest Rate (as of the date of the transaction) that would apply for a
Guarantee Period equal to the number of full or fractional years remaining in
the Guarantee Period as of that date. (For purposes of determining the MVA, if
the Company does not offer a Guarantee Period of that duration, the applicable
Current Interest Rate will be determined by linear interpolation between Current
Interest Rates for the nearest two Guarantee Periods that are available). If the
Current Interest Rate thus determined plus one-half of one percent is greater
than the Guarantee Rate, the MVA will be negative and Contract Value will be
decreased. Similarly, if the Current Interest Rate plus one-half of one percent
is less than the Guarantee Rate, Contract Value will be increased. If the
Current Interest Rate is exactly one-half of one percent less than the Guarantee
Rate, the MVA will be zero and Contract Value will not be affected by the MVA.
The impact of the MVA is more significant the greater is the time remaining
in the Guarantee Period at the time of withdrawal, transfer or annuitization. If
the MVA is negative, it will be assessed first against any remaining value
allocated to the Fixed Account under the affected option; any remaining
unsatisfied MVA charge will be applied against the proceeds of the withdrawal,
transfer or annuitization. If the MVA is positive, it will be credited to the
amount withdrawn, transferred or annuitized. Some examples of how the MVA is
computed and its impact on Contract Value appear in Appendix B.
The Company will not assess a negative MVA for amounts allocated to the one
year Fixed Account option. That portion of the Contracts relating to allocations
to the one year Fixed Account option is not registered under the Securities Act
of 1933 (the "Act") and is therefore not subject to the restriction of the Act.
The Fixed Account options, including the one year Fixed Account, are not subject
to the provisions of the Investment Company Act of 1940.
- --------------------------------------------------------------------------------
CONTRACT CHARGES
- --------------------------------------------------------------------------------
As is more fully described below, charges under the Contract offered by
this prospectus are assessed in three ways: (1) as deductions for administrative
expenses and, if applicable, for premium taxes; (2) as charges against the
assets of the Separate Account for the assumption of mortality and expense risks
and distribution expense charges; and (3) as Withdrawal Charges (contingent
deferred sales charges). In addition, certain deductions are made from the
assets of the Underlying Funds for investment management fees and expenses;
those fees and expenses are described in the prospectuses for the Anchor Trust
and the SunAmerica Trust.
MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a Mortality and Expense Risk Charge from each Portfolio
during each Valuation Period. The aggregate Mortality and Expense Risk Charge is
equal, on an annual basis, to 1.37% of the net asset value of each Portfolio
(approximately 1.02% is for mortality risks and approximately 0.35% is for
expense risks). The Mortality and Expense Risk Charge is assessed during both
the Accumulation Period and the Annuity Period; however, it is not applied to
Contract Values allocated to the Fixed Account.
The mortality risks assumed by the Company arise from its contractual
obligations: (1) to make annuity payments after the Annuity Date for the life of
the Annuitant(s); (2) to waive the Withdrawal Charge in the event of the death
of the Participant; and (3) to provide both a standard and an enhanced death
benefit prior to the Annuity Date. The portion of the total Mortality and
Expense Risk Charge attributable to the Company's providing the first two of
those three benefits and providing a standard death benefit is 0.90% annually of
net assets; the balance of 0.12% is assessed for providing an enhanced death
benefit. A detailed explanation of the standard and enhanced death benefits may
be found under "Description of the Contracts -- Death Benefit".
The expense risk assumed by the Company is that the costs of administering
the Contracts and the Separate Account will exceed the amount received from the
Contract Administration Charge. (See "Administrative Charges" below). The
mortality and expense risk charges are guaranteed by the Company and cannot be
increased.
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ADMINISTRATIVE CHARGES
CONTRACT ADMINISTRATION CHARGE
An annual Contract Administration Charge of $35 is charged against each
Certificate. The amount of this charge is guaranteed and cannot be increased by
the Company. This charge reimburses the Company for expenses incurred in
establishing and maintaining records relating to a Contract. The Contract
Administration Charge will be assessed on each anniversary of the Certificate
Date that occurs on or prior to the Annuity Date. In the event that a total
surrender of Contract Value is made, the Charge will be assessed as of the date
of surrender without proration. This Charge is not assessed during the Annuity
Period.
The total Contract Administration Charge is allocated between the
Portfolios and the Fixed Account in proportion to the respective Contract Values
similarly allocated. The Contract Administration Charge is at cost with no
margin included for profit.
The Company will waive the Contract Administration Charge for any
Certificate which has a Contract Value of $50,000 or greater on the anniversary
of the Certificate Date. The Company reserves the right to suspend waiver of the
Contract Administration Charge at any time and without notice.
TRANSFER FEE
In general, a transfer fee of $25 ($10 in Pennsylvania and Texas) is
assessed on each transaction effecting transfer(s) from Portfolio(s) to other
Portfolio(s), from Portfolio(s) to the Fixed Account, from the Fixed Account to
Portfolio(s), and from one Guarantee Period to another within the Fixed Account
prior to the end of a Guarantee Period. However, the first fifteen such
transactions effecting transfer(s) in any Contract Year are permitted without
the imposition of the transfer fee, which will be assessed on the sixteenth and
each subsequent transaction within the Contract Year.
This fee will be deducted from Contract Values which remain in the
Portfolio(s) (or, where applicable, the Fixed Account) from which the transfer
was made. If such remaining Contract Value is insufficient to pay the transfer
fee, then the fee will be deducted from transferred Contract Values. The
transfer fee is at cost with no margin included for profit.
SALES CHARGES
WITHDRAWAL CHARGE
Federal tax law places a number of constraints on withdrawals from annuity
contracts. Subject to those limitations, the Contract Value may be withdrawn at
any time during the Accumulation Period. Owners should consult their own tax
counsel or other tax advisers regarding any withdrawals. (See "Taxes -- Tax
Treatment of Withdrawals".)
A contingent deferred sales charge, which is referred to as the Withdrawal
Charge, may be imposed upon certain withdrawals. Withdrawal Charges will vary in
amount depending upon the Contribution Year of the Purchase Payment at the time
of withdrawal in accordance with the Withdrawal Charge table shown below.
WITHDRAWAL CHARGE TABLE
<TABLE>
<CAPTION>
APPLICABLE WITHDRAWAL
CONTRIBUTION YEAR CHARGE PERCENTAGE
---------------------------------------------------------------------- ---------------------
<S> <C>
Zero.................................................................. 7%
First................................................................. 6%
Second................................................................ 5%
Third................................................................. 4%
Fourth................................................................ 3%
Fifth................................................................. 2%
Sixth................................................................. 1%
Seventh and later..................................................... 0%
</TABLE>
The Withdrawal Charge is deducted from remaining Contract Value so that the
actual reduction in Contract Value as a result of the withdrawal will be greater
than the withdrawal amount requested and paid. For purposes of determining the
Withdrawal Charge, withdrawals will be allocated first to investment income, if
any (which may generally be withdrawn free
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<PAGE> 23
of Withdrawal Charge), and then to Purchase Payments on a first-in, first-out
basis so that all withdrawals are allocated to Purchase Payments to which the
lowest (if any) Withdrawal Charge applies.
If the withdrawal request does not specify from which Portfolio(s) or
Guarantee Amount(s) the withdrawal is to be made, the request will be processed
by reducing the Contract Values in each category in proportion to their
allocations. Therefore, FAILURE TO SPECIFY AN ALLOCATION MAY RESULT IN THE
IMPOSITION OF A MARKET VALUE ADJUSTMENT IN CASES WHERE AMOUNTS ARE ALLOCATED TO
THE FIXED ACCOUNT.
For examples of how the Withdrawal Charge is applied, see Appendix B.
The amounts obtained from the Withdrawal Charge will be used to pay sales
commissions and other promotional or distribution expenses associated with the
marketing of the Contracts. To the extent that the Withdrawal Charge is
insufficient to cover all sales commissions and other promotional or
distribution expenses, the Company may use any of its corporate assets,
including potential profit which may arise from the Mortality and Expense Risk
Charge and the Distribution Expense Charge, to make up any difference.
FREE WITHDRAWALS
Purchase Payments that are no longer subject to the Withdrawal Charge (and
not previously withdrawn), plus earnings in the Participant's account, may be
withdrawn free of Withdrawal Charges at any time.
In addition, for the first withdrawal during a Contract Year after the
first Contract Year, no Withdrawal Charge is applied to that part of the
withdrawal which does not exceed the greater of (a) earnings in the Contract or
(b) 10% of Purchase Payments made more than one year prior to the date of
withdrawal that remain subject to the Withdrawal Charge and that have not
previously been withdrawn. Participants may take their 10% free withdrawal of
Purchase Payments (or an amount up to 10%) pursuant to the Systematic Withdrawal
Program. (See "Purchases, Withdrawals and Contract Value -- Withdrawals
(Redemptions) -- Systematic Withdrawal Program".) The portion of a free
withdrawal which exceeds the sum of earnings in a Participant's account and
premiums which are both no longer subject to a Withdrawal Charge and not yet
withdrawn, is assumed to be a withdrawal against future earnings. Although
amounts withdrawn free of a Withdrawal Charge reduce principal in a Contract for
the purpose of calculating amounts available for future withdrawal of earnings,
they do not reduce Purchase Payments for purposes of calculating the Withdrawal
Charge. As a result, a Participant will not receive the benefit of a free
withdrawal in a full surrender.
The Company will waive the Withdrawal Charge on any withdrawal necessary to
satisfy the minimum distribution requirements of the Code or upon payment of a
death benefit. Where legally permitted, the Withdrawal Charge may be eliminated
when a Certificate is issued to an officer, director or employee of the Company
or its affiliates or to a trustee of one of the Underlying Funds.
NURSING HOME WAIVER
For Certificates issued with an appropriate endorsement, if the Owner is
confined to a nursing care facility (as defined in the endorsement) for sixty
(60) consecutive days or longer, the Company will waive the Withdrawal Charge
and/or Market Value Adjustment on certain withdrawals prior to the Annuity Date.
Such confinement must begin after the Certificate Date and the Company must
receive satisfactory written evidence of such confinement. The Company will
waive the Withdrawal Charge and/or Market Value Adjustment under the endorsement
only for withdrawals made during such confinement or within ninety (90) days
after the confinement ends. The endorsement will not be available in all states.
Participants should contact the Company or the financial representative from
which this prospectus was obtained as to the availability of this endorsement.
DISTRIBUTION EXPENSE CHARGE
The Company deducts a Distribution Expense Charge from each Portfolio
during each Valuation Period which is equal, on an annual basis, to 0.15% of the
net asset value of the Portfolio. This charge is designed to compensate the
Company for assuming the risk that the cost of distributing the Contracts will
exceed the revenues from the Withdrawal Charge. The Commission considers the
Distribution Expense Charge to constitute a sales charge for purposes of the
Investment Company Act of 1940. In no event will this charge be increased.
Moreover, the sum of all Withdrawal Charges described above and the Distribution
Expense Charges assessed will at no time exceed 9% of all Purchase Payments
previously made. The Distribution
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<PAGE> 24
Expense Charge is assessed during both the Accumulation Period and the Annuity
Period; however, it is not applied to Contract Values allocated to the Fixed
Account.
PREMIUM TAXES
Premium taxes or other taxes payable to a state or other governmental
entity will be charged against the Contract Values. Some states assess premium
taxes at the time Purchase Payments are made; others assess premium taxes at the
time of surrender or when annuity payments begin. The Company currently intends
to deduct premium taxes at the time of surrender, upon death of the Participant
or upon annuitization; however, it reserves the right to deduct any premium
taxes when incurred. Premium taxes generally range from 0% to 3.5%.
DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES
While the Company is not currently maintaining a provision for taxes, the
Company has reserved the right to establish such a provision for taxes in the
future if it determines, in its sole discretion, that it will incur a tax as a
result of the operation of the Separate Account. The Company will deduct for any
taxes incurred by it as a result of the operation of the Separate Account
whether or not there was a provision for taxes and whether or not it was
sufficient. (See "Taxes".)
OTHER EXPENSES
The charges and expenses applicable to the various Underlying Funds are
borne indirectly by Participants having Contract Values allocated to the
Portfolios that invest in the respective Underlying Funds. For a summary of
current estimates of those charges and expenses, see "Underlying Fund Expenses".
For more detailed information about those charges and expenses, please refer to
the prospectus for either Anchor Trust or SunAmerica Trust, as appropriate.
REDUCTION OF CHARGES FOR SALES TO CERTAIN GROUPS
The Company may reduce the sales and administrative charges on Contracts
sold to certain groups of individuals, or to a trustee, employer or other entity
representing a group, where it is expected that such sales will result in
savings of sales or administrative expenses. The Company determines the
eligibility of groups for such reduced charges, and the amount of such
reductions for particular groups, by considering the following factors: (1) the
size of the group; (2) the total amount of Purchase Payments expected to be
received from the group; (3) the nature of the group for which the Contracts are
purchased, and the persistency expected in that group; (4) the purpose for which
the Contracts are purchased and whether that purpose makes it likely that
expenses will be reduced; and (5) any other circumstances which the Company
believes to be relevant to determining whether reduced sales or administrative
expenses may be expected. None of the reductions in charges for group sales is
contractually guaranteed. Such reductions may be withdrawn or modified by the
Company on a uniform basis. The Company's reductions in charges for group sales
will not be unfairly discriminatory to the interests of any Owners.
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DESCRIPTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
SUMMARY
The Contracts provide for the accumulation of Contract Values during the
Accumulation Period. (See "Purchases, Withdrawals and Contract Value"). Upon
Annuitization, benefits are payable under the Contracts in the form of an
annuity, either for the life of the Annuitant or for a fixed number of years.
(See "Annuity Period -- Annuity Options".)
PARTICIPANT
The Participant is the person normally entitled to exercise all rights of
ownership under the Contracts. The Participant is also the person entitled to
receive benefits under the Contract, although the Participant may, subject to
limitations in the case of Qualified Plans, designate an alternative payee.
ANNUITANT
The Annuitant is the person on whose life annuity payments under a
Certificate depend. The Participant may change the designated Annuitant at any
time prior to the Annuity Date. In the case of a Certificate issued in
connection with a plan
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<PAGE> 25
qualified under Section 403(b) or 408 of the Code, the Participant is the
Annuitant. The Participant may also designate a second person on whose life,
together with that of the Annuitant, annuity payments depend. In the case of
Qualified Plans, the designated second person is generally required to be the
Participant's spouse if the Participant is married. In the event an Annuitant
dies prior to the Annuity Date, the Participant must notify the Company and
designate a new Annuitant. The Participant must attest to the Annuitant being
alive before the Company will annuitize a Contract.
MODIFICATION OF THE CONTRACT
Only the Company's President, a Vice President or Secretary may approve a
change or waive any provisions of the Contract. Any change or waiver must be in
writing. No agent has the authority to change or waive the provisions of the
Contract.
The Company reserves the right to change the terms of the Contract as may
be necessary to comply with changes in applicable law.
ASSIGNMENT
Contracts issued pursuant to Nonqualified Plans that are not subject to
Title 1 of the Employee Retirement Income Security Act of 1974 ("ERISA") may be
assigned by the Owner at any time during the lifetime of the Annuitant prior to
the Annuity Date. The Company will not be bound by any assignment until written
notice is received by the Company at its Annuity Service Center. The Company is
not responsible for the validity, or tax or other legal consequences of any
assignment. An assignment will not affect any payments the Company may make or
actions it may take before it receives notice of the assignment.
If the Contract is issued pursuant to a Qualified Plan (or a Nonqualified
Plan that is subject to Title 1 of ERISA), it may not be assigned, pledged or
otherwise transferred except under such conditions as may be allowed under
applicable law.
BECAUSE AN ASSIGNMENT MAY BE A TAXABLE EVENT, CONTRACT OWNERS SHOULD
CONSULT COMPETENT TAX ADVISERS SHOULD THEY WISH TO ASSIGN THEIR CONTRACTS.
DEATH BENEFIT
If the Participant dies during the Accumulation Period, a Death Benefit
will be payable to the Beneficiary upon receipt by the Company of Due Proof of
Death of the Participant. Provided the Beneficiary provides a written election
to the Company within 60 days of the Company's receipt of Due Proof of Death of
the Participant, the Beneficiary may alternatively elect to (i) receive the
Death Benefit in a lump sum payment, (ii) receive the Death Benefit in the form
of one of the annuity options (over the life of the Beneficiary or over a period
not extending beyond the life expectancy of the Beneficiary), with payments
commencing within one year of the Participant's death, (iii) elect to continue
the Contract and receive the entire Contract Value (adjusted for any applicable
Withdrawal Charge and Market Value Adjustment) within 5 years after the
Participant's death, or (iv) if the Participant was the Beneficiary's spouse,
elect to continue the Contract in force. If no option is selected within 60 days
of the Company's receipt of Due Proof of Death of the Participant, the Company
will pay the Death Benefit in a single lump sum to the Beneficiary.
The standard Death Benefit is equal to the greater of:
(1) the Contract Value at the end of the Valuation Period during which
Due Proof of Death and an election of the type of payment to the
Beneficiary is received by the Company, at its Annuity Service Center; or
(2) the total dollar amount of Purchase Payments made prior to the
death of the Participant, minus the sum of:
(a) the total amount of any partial withdrawals and/or partial
annuitizations; and
(b) premium taxes incurred.
In addition, where permitted under state law, the Company will provide an
enhanced Death Benefit. The enhanced Death Benefit, which is currently available
in all states, is determined by (A) recomputing the standard Death Benefit by
accumulating all amounts under (2) above annually at 4% (3% if the Participant
was age 70 or older on the Certificate Date)
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<PAGE> 26
to the date of death, and (B) paying the greater of the amount so determined and
the following amount, which is deemed to be $0 if the Participant dies prior to
the seventh Contract Anniversary:
The Contract Value at the seventh Certificate anniversary, plus any
Purchase Payments made since that anniversary and before the death of the
Participant, minus the sum of:
(a) the total amount of partial withdrawals and/or partial
annuitizations since such seventh anniversary; and
(b) premium taxes incurred since the seventh anniversary,
all accumulated annually at 4% (3% if the Participant was age 70 or older
on the Certificate Date) to the date of death.
NOTE: The portion of the Mortality and Expense Risk Charge attributable to the
enhanced Death Benefit (0.12%) will be assessed against Separate Account
allocations pursuant to all Contracts issued, whether or not applicable state
law permits the Contract to offer the enhanced Death Benefit. Therefore,
purchasers of Contracts in states where the enhanced Death Benefit is not
permitted (currently none) and who allocate Contract Value to the Separate
Account will be paying for a benefit they will not receive. The standard Death
Benefit is available in all states.
For an example of how the enhanced Death Benefit is computed, see Appendix
C.
BENEFICIARY
The Participant may designate the Beneficiary(ies) to receive any amount
payable on death. The original Beneficiary(ies) will be named in the
application. Unless an irrevocable Beneficiary(ies) designation was previously
filed, the Participant may change the Beneficiary(ies) by written request
delivered to the Company at its Annuity Service Center or by completing a Change
of Beneficiary Form provided by the Company. Any change will take effect when
recorded by the Company. The Company is not liable for any payment made or
action taken before it records the change.
- --------------------------------------------------------------------------------
PURCHASES, WITHDRAWALS AND CONTRACT VALUE
- --------------------------------------------------------------------------------
MINIMUM PURCHASE PAYMENT
The minimum initial Purchase Payment for Contracts issued pursuant to a
Nonqualified Plan is $5,000 and the maximum is $1,000,000. Subsequent Purchase
Payments may be made in amounts of $500 or more ($20 or more if made in
connection with an Automatic Payment Plan, described below). The minimum initial
Purchase Payment for a Contract issued pursuant to a Qualified Plan is $2,000
and the maximum is $1,000,000. Subsequent Purchase Payments may be made in
amounts of $250 or more ($20 or more if made in connection with an Automatic
Payment Plan, described below). The Company reserves the right to refuse any
Purchase Payment at any time. Generally, the Company will not issue a
Certificate under a Nonqualified Plan to a Participant who is age 80 or older or
under a Qualified Plan to a Participant who is age 70 1/2 or older.
AUTOMATIC PAYMENT PLAN
Participants utilizing automatic bank drafts through the Company's
Automatic Payment Plan may make scheduled subsequent Purchase Payments of $20 or
more per month. An enrollment form for this program is available through the
Company's Annuity Service Center.
AUTOMATIC DOLLAR COST AVERAGING PROGRAM
Owners who wish to purchase units of the Portfolios over a period of time
may be able to do so through the Automatic Dollar Cost Averaging ("DCA")
Program. Under the DCA Program, the Owner may authorize the automatic transfer
of a fixed dollar amount ($100 minimum) of his or her choice at monthly,
quarterly, semi-annual or annual intervals from a source account to one or more
of the Portfolios (other than the source account) at the unit values determined
on the dates of the transfers. Currently, all Portfolios and the one year Fixed
Account option are available as source accounts; however, the Owner must elect
to have the transfers made exclusively from one source account. The theory of
dollar cost averaging is that, if purchases are made at fluctuating prices, this
will have the effect of reducing the aggregate average cost per unit to less
than the average of the unit prices on the same purchase dates. However,
participation in the DCA Program does not assure the Owner of a greater profit
from his or her purchases; nor will it prevent or necessarily alleviate losses
in a declining market.
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Another option under the DCA Program is the periodic transfer of a selected
percentage of the value of the source account to one of the Portfolios (other
than the source account). A third option is to transfer the entire Contract
Value in the source account in a stated number of transfers as selected by the
Participant.
An Owner may elect to increase, decrease or change the frequency or amount
of Purchase Payments under the DCA Program. The application and any Purchase
Payments should be sent to the Company at its Annuity Service Center. The
Company reserves the right to modify, suspend or terminate the DCA Program at
any time.
ASSET ALLOCATION REBALANCING PROGRAM
Owners may participate in the Asset Allocation Rebalancing ("AAR") Program
pursuant to which Owners authorize the Company to automatically transfer their
Contract Value on a periodic basis to maintain a particular percentage
allocation among the Portfolios or the one year Fixed Account option as selected
by the Owner. Since the Contract Value allocated to each Portfolio will grow or
decline at different rates depending on the investment experience of the
Portfolio, AAR automatically reallocates the Contract Value in the Portfolios
and the one year Fixed Account option to the allocation selected by the Owner.
One theory behind this type of reallocation is that it may help an Owner
purchase Accumulation Units low and sell Accumulation Units high. However,
participation in AAR does not assure the Owner of a greater profit from his or
her purchases nor will it prevent or necessarily alleviate losses in a declining
market.
An Owner may select that rebalancing occur on a quarterly, semiannual or
annual basis. Contract Value reallocation will occur on the last business day
before the selected period ends. If an Owner elects to participate in AAR, the
entire Contract Value must be included in the program, except for allocations to
the three, five, seven and ten year Fixed Account options. Amounts transferred
under AAR are not counted against the 15 free transfers per Contract Year or
subject to any transfer charge or Market Value Adjustment. Owners may
participate in AAR by completing an Asset Allocation Rebalancing Authorization
Form or by calling the Company at its Annuity Service Center. On the application
or form, as appropriate, the Owner must select the Portfolios or one year Fixed
Account option, the percentage of Contract Value to be allocated to each under
the program and the frequency of rebalancing. Owners may modify their
allocations or terminate participation in the program by completing an Asset
Allocation Rebalancing Authorization Form and indicating the appropriate
instructions. The Company reserves the right to modify, suspend or terminate AAR
at any time.
PRINCIPAL ADVANTAGE PROGRAM
Owners may participate in the Principal Advantage Program pursuant to which
the Owner's Purchase Payment is divided between one or more of the Fixed Account
options and one or more of the Portfolios. While the Owner selects the Fixed
Account options and the Portfolio(s), the Principal Advantage Program determines
the portion of Purchase Payments allocated to each. When determined in
accordance with the Principal Advantage Program, the portion allocated to the
Fixed Account option(s) will be guaranteed by the Company to grow to equal the
full amount of the Purchase Payment over an established period of time. The
remaining portion of Purchase Payment is then invested in the Portfolios, where
it has the potential to achieve greater growth.
An Owner may elect to participate in the Principal Advantage Program (1) at
the time of initial purchase, by completing the instructions on the Contract
application and requesting it in the "Special Instructions" section of the
application or (2) at the time of a subsequent purchase or by reallocation of
the existing Contract Value, by contacting the Company or the financial
representative from whom this prospectus was obtained. The Company reserves the
right to modify, suspend or terminate the Principal Advantage Program at any
time.
ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments are allocated to the Fixed Account and/or the
Portfolio(s) selected by the Owner. Owners making initial Purchase Payments
should specify their allocations on the application for a Contract. If the
application is in good order, the Company will apply the initial Purchase
Payment to the Fixed Account and/or the Portfolio(s), as selected, and credit
the Contract with Accumulation Units within two business days of receipt at the
Company's address for correspondence accompanied by payments. The number of
Accumulation Units in a Portfolio attributable to a Purchase Payment is
determined by dividing that portion of the Purchase Payment which is allocated
to the Portfolio by that Portfolio's Accumulation Unit value as of the end of
the Valuation Period when the allocation occurs.
IF THE APPLICATION DOES NOT SPECIFY AN ALLOCATION, THE APPLICATION IS NOT
IN GOOD ORDER. If the application for a Contract or Certificate is not in good
order for this or any other reason, the Company will attempt to
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rectify it within five business days of its receipt at the Company's address for
correspondence accompanied by payments. The Company will credit the initial
Purchase Payment within two business days after the application has been
rectified. Unless the prospective Owner consents otherwise, the application and
the initial Purchase Payment will be returned if the application cannot be put
in good order within five business days of such receipt.
Just like Owners making initial Purchase Payments, Owners making subsequent
Purchase Payments should specify how they want their payments allocated.
OTHERWISE, THE COMPANY WILL AUTOMATICALLY PROCESS THE PURCHASE PAYMENT BASED ON
THE PREVIOUS ALLOCATION.
TRANSFER DURING ACCUMULATION PERIOD
During the Accumulation Period, the Owner, or his or her agent, may
transfer Contract Values among Portfolios and/or the Fixed Account. Owners may
authorize telephone transfers by written request delivered to the Company at its
Annuity Service Center, if applicable law permits. The Company has in place
procedures which are designed to provide reasonable assurance that telephone
authorizations are genuine, including tape recording of telephone communications
and requesting identifying information. Accordingly, the Company and its
affiliates disclaim all liability for any claim, loss or expense resulting from
any alleged error or mistake in connection with a telephone transfer which was
not properly authorized by the Owner. However, if the Company fails to employ
reasonable procedures to ensure that all telephone transfers are properly
authorized, the Company may be held liable for such losses. Telephone calls
authorizing transfers must be completed by 4:00 p.m. Eastern time on a Valuation
Date in order to be effected at the price determined on such date. Transfer
authorizations which are received after 4:00 p.m. Eastern time will be processed
as of the next Valuation Date. The Company reserves the right to modify or
discontinue at any time and without notice the use of telephone transfers and
acceptance of transfer instructions from someone other than the Owner. This
transfer privilege may be suspended, modified or terminated at any time without
notice.
The minimum partial transfer amount is $100. Also, no partial transfer may
be made if the value of the Participant's interest in the Portfolio from which a
transfer is being made (or the remaining Guarantee Amount, where applicable)
would be less than $100 after the transfer. These dollar amounts are subject to
change at the Company's option. The Company may waive the minimum partial
transfer amount in connection with preauthorized automatic transfer programs.
Both prior to and after the Annuity Date, Contract Values may be
transferred from the Separate Account to the Fixed Account. Any amounts
allocated or transferred to the Fixed Account may, however, be transferred from
the Fixed Account to the Separate Account only prior to the Annuity Date.
Transfers may be made within the Fixed Account prior to the expiration date
of one or more Guarantee Periods, by electing to have the respective Guarantee
Amount(s) applied to newly established Guarantee Periods. Such transfers are
counted against the 15 transfer allowance on free transfers. In addition, such
transfers are generally subject to a Market Value Adjustment.
SEPARATE ACCOUNT ACCUMULATION UNIT VALUE
On each day that the New York Stock Exchange is open for business, a
separate Accumulation Unit value is determined for each Portfolio. If the
Company elects or is required to assess a charge for taxes, a separate
Accumulation Unit value may be calculated for Contracts issued in connection
with Nonqualified and Qualified Plans, respectively, within each account.
The Accumulation Unit value for each Portfolio will vary with the price of
a share in the Underlying Fund and in accordance with the Mortality and Expense
Risk Charge, Distribution Expense Charge, and any provision for taxes.
Assessments of Withdrawal Charges, transfer fees and Contract Administration
Charges are made separately for each Certificate. They are effected by
redemption of Accumulation Units and do not affect Accumulation Unit value.
The Accumulation Unit value of a Portfolio for any Valuation Period is
calculated by subtracting (2) from (1) and dividing the result by (3) where:
(1) is the total value at the end of the Valuation Period of the
assets attributable to the Accumulation Units of the Portfolio minus
liabilities;
(2) is the cumulative unpaid charge for the assumption of mortality
and expense risks and for the distribution expense; and
(3) is the number of Accumulation Units outstanding at the end of the
Valuation Period.
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FIXED ACCOUNT ACCUMULATION VALUE
The accumulation value of the fixed portion of a Participant's account at
any Valuation Date is equal to the sum of the values of all amounts allocated to
the Fixed Account that have been credited to the Participant's account up to and
including that date. The amount reflects interest accumulated to the Valuation
Date at the applicable Guarantee Rate, compounded annually, less withdrawals.
DISTRIBUTION OF CONTRACTS
Contracts are sold by registered representatives of broker-dealers who are
licensed insurance agents of the Company, either individually or through an
incorporated insurance agency. Commissions on initial Purchase Payments paid to
registered representatives may vary, but are not anticipated to exceed 7.25% of
any Purchase Payment (including any promotional sales incentives). In addition,
under certain circumstances and in exchange for lower initial commission,
certain sellers of the Contracts may be paid persistency bonuses which will take
into account, among other things, the length of time Purchase Payments have been
held under a Contract, and Contract Values. A persistency bonus is not
anticipated to exceed 1.00%, on an annual basis, of the Contract Values
considered in connection with the bonus. All such commissions, incentives and
bonuses are paid by the Company.
SunAmerica Capital Services, Inc., located at 733 Third Avenue, 4th Floor,
New York, New York, 10017, serves as distributor of the Contracts. SunAmerica
Capital Services, Inc., an indirect wholly owned subsidiary of the Company, is
registered as a broker-dealer under the Securities Exchange Act of 1934, as
amended, and is a member of the National Association of Securities Dealers, Inc.
WITHDRAWALS (REDEMPTIONS)
Except as explained below, a Participant may redeem a Certificate for all
or a portion of its Contract Value during the Accumulation Period. Withdrawal
Charges may be applicable, however, which would reduce the Contract Value upon
redemption. A Market Value Adjustment may also be applied, in the case of
redemptions from the Fixed Account, which would also affect Contract Value. (See
"Contract Charges -- Sales Charges -- Withdrawal Charge" and "Fixed Account
Options -- Market Value Adjustment".)
Withdrawals and distributions from Contracts issued in connection with
certain Qualified Plans may be subject to a mandatory 20% withholding
requirement. (See "Taxes -- Withholding Tax on Distributions".)
Withdrawals of amounts attributable to contributions made pursuant to a
salary reduction agreement (in accordance with Section 403(b)(11) of the Code)
are limited to circumstances only: when the Participant attains age 59 1/2,
separates from service, dies, becomes disabled (within the meaning of Section
72(m)(7) of the Code), or in the case of hardship. Withdrawals for hardship are
restricted to the portion of the Contract Value which represents contributions
made by the Participant and does not include any investment results. These
limitations on withdrawals apply to: (1) salary reduction contributions made
after December 31, 1988; (2) income attributable to such contributions; and (3)
income attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers or exchanges between certain Qualified
Plans. Tax penalties may also apply. While the foregoing limitations only apply
to certain Contracts issued in connection with Section 403(b) Qualified Plans,
all Owners should seek competent tax advice regarding any withdrawals or
distributions. (See "Taxes".)
Except in connection with a Systematic Withdrawal Program, described below,
the minimum partial withdrawal amount is $1,000, or, if less, the Participant's
entire interest in the Portfolio or Fixed Account option from which a withdrawal
is requested. The Participant's interest in the Portfolio or Fixed Account
option from which the withdrawal is requested must be at least $100 after the
withdrawal is completed if anything is left in that Portfolio or Fixed Account
allocation.
A written withdrawal request or Systematic Withdrawal Program enrollment
form, as the case may be, must be sent to the Company at its Annuity Service
Center. The required program form will not be in good order unless it includes
the Participant's Tax I.D. Number (e.g., Social Security Number) and provides
instructions regarding withholding of income taxes. The Company provides the
required forms.
If the request is for total withdrawal, the Certificate, or a Lost
Certificate Affidavit (which may be obtained by calling the Company at its
Annuity Service Center), must be submitted as well. The withdrawal value is
determined on the basis of the Contract Values next computed following receipt
of a request in proper order. The withdrawal value will normally be paid within
seven days after the day a proper request is received by the Company. However,
the Company may suspend the right of withdrawal from the Separate Account or
delay payment for such withdrawal more than seven days: (1) during any period
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when the New York Stock Exchange ("NYSE") is closed (other than customary
weekend and holiday closings); (2) when trading on the NYSE is restricted or an
emergency exists as determined by the Commission so that disposal of the
Separate Account's investments or determination of Accumulation Unit value is
not reasonably practicable; or (3) for such other periods as the Commission, by
order, may permit for protection of Owners.
SYSTEMATIC WITHDRAWAL PROGRAM
Certain Participants of Nonqualified Plan Contracts and Contracts issued in
connection with IRAs may choose to withdraw amounts which in the aggregate add
up to a maximum of 10% of their Purchase Payments annually without charge
pursuant to a Systematic Withdrawal Program. Systematic withdrawals will not be
limited to 10% of Purchase Payments once the Withdrawal Charge is no longer
applicable. Total withdrawals not subject to a Withdrawal Charge, including
systematic withdrawals, cannot exceed the free withdrawal amount described under
"Contract Charges -- Sales Charges -- Free Withdrawals." Withdrawals are taxable
and a 10% federal tax penalty may apply to withdrawals before age 59 1/2. In
addition, withdrawals from the Fixed Account prior to the end of their
respective Guarantee Periods are generally subject to a Market Value Adjustment.
(See "Fixed Account Options -- Market Value Adjustment".)
Participation in the Systematic Withdrawal Program may be elected at the
time the Certificate is issued or on any date prior to the Annuity Date. Amounts
withdrawn under to the Systematic Withdrawal Program may be electronically wired
to the Participant's financial institution by completing the instructions on the
Electronic Fund Transfer Form or by written request delivered to the Company at
its Annuity Service Center. A voided check (for checking accounts), the account
number and bank ABA number must accompany all requests. Electronic transfers may
also be requested on the Systematic Withdrawal Request Form. Depending on
fluctuations in the net asset value of the Portfolios, systematic withdrawals
may reduce or even exhaust Contract Value. The minimum systematic withdrawal
amount is $250 per withdrawal. Participants must complete an enrollment form and
send it to the Company at its Annuity Service Center. The Company reserves the
right to modify, suspend or terminate the Systematic Withdrawal Program and the
availability of electronic fund transfers at any time.
ERISA PLANS
Spousal consent may be required when a married Participant seeks a
distribution from a Contract that has been issued in connection with a Qualified
Plan (or a Nonqualified Plan that is subject to Title 1 of ERISA). Participants
should obtain competent advice.
DEFERMENT OF FIXED ACCOUNT WITHDRAWAL PAYMENTS
In the case of withdrawals or annuity payments from the Fixed Account, the
Company may defer making payment for a period of up to six months (or the period
permitted by applicable state insurance law, if less) from the date the Company
receives notice of such withdrawal request. Only under highly unusual
circumstances will the Company defer a withdrawal payment from the Fixed Account
for more than 7 days, and if the Company defers payment for more than 7 days, it
will pay interest of at least 3% per annum on the amount deferred. While all the
circumstances under which the Company could defer payment upon withdrawal may
not be foreseeable at this time, such circumstances could include, for example,
a time of unusually high surrender rate among Participants, accompanied by a
radical shift in interest rates. If the Company intends to withhold payment for
more than 7 days, it will notify affected Participants in writing.
MINIMUM CONTRACT VALUE
If the Contract Value is less than $500 and no Purchase Payments have been
made during the previous three full calendar years, the Company reserves the
right, after 60 days written notice to the Participant, to terminate the
Certificate and distribute its Withdrawal Value to the Participant. This
privilege will be exercised only if the Contract Value has been reduced to less
than $500 as a result of withdrawals, and state law permits. In no instance
shall such termination occur if the value has fallen below $500 due to either
decline in Accumulation Unit value or the imposition of fees and charges.
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ANNUITY PERIOD
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ANNUITY DATE
The Participant selects an Annuity Date at the time of application. The
Annuity Date must always be the first day of a calendar month and must be at
least two years after the Certificate Date, but in any event will be no later
than the Latest Annuity Date. Annuity payments will begin no later than the
Latest Annuity Date. If no Annuity Date is selected, the Annuity Date will be
the Latest Annuity Date. The Participant may change the Annuity Date at any time
at least seven days prior to the Annuity Date then indicated on the Company's
records by written notice to the Company at its Annuity Service Center.
DEFERMENT OF PAYMENTS
The Company may defer making Fixed Annuity payments for a period of up to
six months (or the period permitted by applicable state insurance law, if less).
Interest, subject to state law requirements, will be credited during the
deferral period. For a discussion of the circumstances under which the Company
could defer these payments, please refer to "Purchases, Withdrawals and Contract
Value -- Deferment of Fixed Account Withdrawal Payments".
PAYMENTS TO PARTICIPANT
The Company will make annuity payments to the Participant, unless the
Participant designates an alternate payee. Such designation must be made in
writing to the Company's Annuity Service Center and must be received more than
30 days before the Annuity Date.
ALLOCATION OF ANNUITY PAYMENTS
If all of the Contract Value on the Annuity Date is allocated to the Fixed
Account, the Annuity will be paid as a Fixed Annuity. If all of the Contract
Value on that date is allocated to the Separate Account, the Annuity will be
paid as a Variable Annuity. If the Contract Value on that date is allocated to
both the Fixed Account and the Separate Account, the Annuity will be paid as a
combination of a Fixed Annuity and a Variable Annuity to reflect the allocation
between the Portfolios and the Fixed Account. Variable Annuity payments will
reflect the investment performance of the Portfolios. The Owner(s) may, by
written notice to the Company, convert Variable Annuity payments to Fixed
Annuity payments. However, Fixed Annuity payments may not be converted to
Variable Annuity payments.
ANNUITY OPTIONS
The Participant, or any Beneficiary who is so entitled, may elect to
receive a lump sum at the end of the Accumulation Period. However, a lump sum
distribution may be deemed to be a withdrawal, and at least a portion of it may
be subject to federal income tax. (See "Taxes -- Tax Treatment of Withdrawals".)
Alternatively, any of the annuity options listed below may be elected. The
Participant may elect an annuity option or change an annuity option at any time
prior to the Annuity Date.
Annuity payments will be made monthly. If no other annuity option is
elected, monthly annuity payments will be made in accordance with annuity option
4 below, a life annuity with a 120-month period certain (annuity option 3 in the
case where payments are to be made for the joint lives of the Annuitant and a
designated second person and for the life of the survivor). If the amount
available to apply under an annuity option is less than $5,000, and state law
permits, the Company has the right to pay the annuity in one lump sum. In
addition, if the first payment provided would be less than $50, and state law
permits, the Company shall have the right to require the frequency of payments
be at quarterly, semiannual or annual intervals so as to result in an initial
payment of at least $50.
Participants may elect to have annuity payments electronically wired to his
or her financial institution by completing the instructions on the Electronic
Fund Transfer Form or by written request delivered to the Company at its Annuity
Service Center. A voided check (for checking accounts), the account number and
bank ABA number must accompany all requests. Electronic transfers may also be
requested on the Annuity Option Selection Form. The Company reserves the right
to modify, suspend or terminate the availability of electronic fund transfers at
any time.
NO WITHDRAWALS OF CONTRACT VALUE ARE PERMITTED DURING THE ANNUITY PERIOD
FOR ANY ANNUITY OPTION IN WHICH PAYMENTS ARE BASED ON A PERSON'S LIFE.
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The following annuity options are generally available under the Contract.
Each is available in the form of either a Fixed Annuity or a Variable Annuity
(or a combination of both Fixed and Variable Annuity). However, there may be
restrictions in the retirement plan pursuant to which a Contract has been
purchased.
OPTION 1 -- LIFE INCOME
An annuity payable monthly during the lifetime of the Annuitant. Under this
option, no further payments are payable after the death of the Annuitant and
there is no provision for a death benefit payable to the Beneficiary. Therefore,
it is possible under option 1 for the payee to receive only one monthly annuity
payment under the Contract.
OPTION 2 -- JOINT AND SURVIVOR ANNUITY
An annuity payable monthly while both the Annuitant and a designated second
person are living. Upon the death of either person, the monthly income payable
will continue during the lifetime of the survivor at either the full amount
previously payable or as a percentage (either one-half or two-thirds) of the
full amount, as chosen by the Participant at the time of election of this
option.
Annuity payments terminate automatically and immediately upon the death of
the surviving person without regard to the number or total amount of payments
received. There is no minimum number of guaranteed payments and it is possible
to have only one annuity payment if both the Annuitant and the designated second
person die before the due date of the second payment.
OPTION 3 -- JOINT AND SURVIVOR LIFE ANNUITY -- 120 MONTHLY PAYMENTS GUARANTEED
This option is similar to option 2, above, but with the additional
guarantee that payments will be made for not fewer than 120 monthly periods. If
the surviving Annuitant dies before all such payments have been made, the
balance of the guaranteed number of payments will be made to the Beneficiary.
OPTION 4 -- LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED
An annuity payable monthly during the lifetime of the Annuitant, with the
guarantee that if, at the death of the Annuitant, payments have been made for
fewer than the guaranteed 120 or 240 monthly periods, as elected by the Owner,
the balance of the guaranteed number of payments will be made to the
Beneficiary.
OPTION 5 -- INCOME FOR A SPECIFIED PERIOD
Under this option, a payee can elect an annuity payable monthly for any
period of years from 3 to 30. This election must be made for full 12 month
periods. In the event the payee dies before the specified number of payments has
been made, the Beneficiary may elect to continue receiving the scheduled
payments or may alternatively elect to receive the discounted present value of
any remaining guaranteed payments as a lump sum.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. (See "Contract
Charges -- Mortality and Expense Risk Charge".) Since option 5 does not contain
an element of mortality risk, the payee is not getting the benefit of the
mortality component of the Mortality and Expense Risk Charge if option 5 is
selected on a variable basis.
OTHER OPTIONS
At the sole discretion of the Company, other annuity options may be made
available. However, to the extent that Withdrawal Charges would otherwise apply
to a withdrawal or termination, the identical Withdrawal Charge may apply with
respect to any additional options.
With respect to Contracts issued under Sections 401, 403(b) or 408 of the
Internal Revenue Code, any payments will be made only to the Participant and/or
the Participant's spouse.
TRANSFER DURING ANNUITY PERIOD
During the Annuity Period, the Owner may transfer the Contract Value to the
Fixed Account and/or among Portfolios. Such transfers are subject to the same
limitations and conditions as are prescribed for transfers during the
Accumulation Period except that, in addition, no transfers may be made from the
Fixed Account to the Separate Account during the Annuity Period.
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DEATH BENEFIT DURING ANNUITY PERIOD
If the Annuitant dies after the Annuity Date while the Contract is in
force, the death proceeds, if any, will depend upon the annuity option in effect
at the time of the Annuitant's death. If the Annuitant dies after the Annuity
Date and before the entire interest in the Contract has been distributed, the
remaining interest, if any, as provided for in the option elected, will be
distributed at least as rapidly as under the method of distribution in effect at
the Annuitant's death.
ANNUITY PAYMENTS
INITIAL MONTHLY ANNUITY PAYMENT
The initial annuity payment is determined by taking the Contract Value,
less any premium tax and Market Value Adjustment that may apply in the case of a
premature annuitization, and then applying it to the annuity table specified in
the Contract (or, if more favorable to the payee, the annuity tables in effect
as of the Annuity Date for similar immediate annuity contracts issued by the
Company). Those tables are based on a set amount per $1,000 of proceeds applied.
The appropriate rate must be determined by the sex (except where, as in the case
of certain Qualified Plans and other employer-sponsored retirement plans, such
classification is not permitted) and age of the Annuitant and designated second
person, if any.
The dollars applied are then divided by 1,000 and the result multiplied by
the appropriate annuity factor appearing in the table to compute the amount of
the first monthly annuity payment. In the case of a Variable Annuity, that
amount is divided by the value of an Annuity Unit as of the Annuity Date to
establish the number of Annuity Units representing each Variable Annuity
payment. The number of Annuity Units determined for the first Variable Annuity
payment remains constant for the second and subsequent monthly Variable Annuity
payments, assuming that no reallocation of Contract Values is made.
SUBSEQUENT MONTHLY PAYMENTS
For a Fixed Annuity, the amount of the second and each subsequent monthly
annuity payment is the same as that determined above for the first monthly
payment.
The amount of the second and each subsequent monthly Variable Annuity
payment is determined by multiplying the number of Annuity Units, as determined
in connection with the determination of the initial monthly payment, above, by
the value of an Annuity Unit as of the Valuation Period next preceding the date
on which each annuity payment is due.
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ADMINISTRATION
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The Company has primary responsibility for all administration of the
Contracts and the Separate Account. The mailing address of the Company's Annuity
Service Center is P.O. Box 54299, Los Angeles, California 90054-0299, and its
telephone number is (800) 445-SUN2. The administrative services provided
include, but are not limited to: issuance of the Contracts; maintenance of
Participant records; Participant services; calculation of unit values; and
preparation of Participant reports.
Contract statements and transaction confirmations are mailed to
Participants at least quarterly. Participants should read their statements and
confirmations carefully and verify their accuracy. Questions about periodic
statements should be communicated to the Company promptly. The Company will
investigate all complaints and make any necessary adjustments retroactively,
provided that it has received notice of a potential error within 30 days after
the date of the questioned statement. If the Company has not received notice of
a potential error within this time, any adjustment shall be made as of the date
that the Annuity Service Center receives notice of the potential error.
The Company will also provide Participants with such additional periodic
and other reports, information and prospectuses as may be required by federal
securities laws.
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TAXES
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NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING
OF CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE
COMPANY CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE
MADE. PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE
POSSIBILITY OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF
THE CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE
TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code")
governs taxation of annuities in general. A Participant is not taxed on
increases in the value of a Contract until distribution occurs, either in the
form of a non-annuity distribution or as annuity payments under the annuity
option elected. For a lump sum payment received as a total surrender (total
redemption), the recipient is taxed on the portion of the payment that exceeds
the cost basis of the Contract. For a payment received as a withdrawal (partial
redemption), federal tax liability is determined on a last-in, first-out basis,
meaning taxable income is withdrawn before the cost basis of the Contract is
withdrawn. For Contracts issued in connection with Nonqualified Plans, the cost
basis is generally the Purchase Payments, while for Contracts issued in
connection with Qualified Plans there may be no cost basis. The taxable portion
of the lump sum payment is taxed at ordinary income tax rates. Tax penalties may
also apply.
For annuity payments, the taxable portion is determined by a formula which
establishes the ratio that the cost basis of the Contract bears to the total
value of annuity payments for the term of the annuity Contract. The taxable
portion is taxed at ordinary income tax rates. Participants, Annuitants and
Beneficiaries under the Contracts should seek competent financial advice about
the tax consequences of distributions under the retirement plan under which the
Contracts are purchased.
The Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Separate Account is not a separate entity from
the Company and its operations form a part of the Company.
WITHHOLDING TAX ON DISTRIBUTIONS
The Code generally requires the Company (or, in some cases, a plan
administrator) to withhold tax on the taxable portion of any distribution or
withdrawal from a Contract. For "eligible rollover distributions" from Contracts
issued under certain types of Qualified Plans, 20% of the distribution must be
withheld, unless the payee elects to have the distribution "rolled over" to
another eligible plan in a direct "trustee to trustee" transfer. This
requirement is mandatory and cannot be waived by the Owner. Withholding on other
types of distributions can be waived.
An "eligible rollover distribution" is the estimated taxable portion of any
amount received by a covered employee from a plan qualified under Section 401(a)
or 403(a) of the Code, or from a tax-sheltered annuity qualified under Section
403(b) of the Code (other than (1) annuity payments for the life (or life
expectancy) of the employee, or joint lives (or joint life expectancies) of the
employee and his or her designated Beneficiary, or for a specified period of ten
years or more; and (2) distributions required to be made under the Code).
Failure to "roll over" the entire amount of an eligible rollover distribution
(including an amount equal to the 20% portion of the distribution that was
withheld) could have adverse tax consequences, including the imposition of a
penalty tax on premature withdrawals, described later in this section.
Withdrawals or distributions from a Contract other than eligible rollover
distributions are also subject to withholding on the estimated taxable portion
of the distribution, but the Owner may elect in such cases to waive the
withholding requirement. If not waived, withholding is imposed (1) for periodic
payments, at the rate that would be imposed if the payments were wages, or (2)
for other distributions, at the rate of 10%. If no withholding exemption
certificate is in effect for the payee, the rate under (1) above is computed by
treating the payee as a married individual claiming 3 withholding exemptions.
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DIVERSIFICATION -- SEPARATE ACCOUNT INVESTMENTS
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified, in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Owner with respect to earnings allocable to the Contract prior to the receipt of
payments under the Contract.
The Company expects that each of the Underlying Funds will be managed by
its respective investment adviser in such a manner as to comply with these
diversification requirements.
OWNERSHIP TREATMENT
The Treasury Department has indicated that the diversification regulations
do not provide guidance regarding the circumstances in which Owner control of
the investments of the Separate Account will cause the Owner to be treated as
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Contract. As of the date of this prospectus, no
guidance has been issued.
The amount of control which an Owner may exercise under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service which determined that contract owners
were not owners of the assets of the separate account. It is unknown whether
these differences, such as the Owner's ability to transfer among investment
choices or the number and type of investment choices available, would cause the
Owner to be considered owner of the assets of the Separate Account. These
differences could result in the Owner being treated as the owner of the assets
of the Separate Account and the imposition of federal income tax to the Owner.
The Company does not know what standards will be set forth in the
regulations or ruling which the Treasury Department has stated it expects to
issue. Therefore, the Company reserves the right to modify the Contract as
necessary to attempt to prevent the Owner from being considered the owner of the
assets of the Separate Account.
MULTIPLE CONTRACTS
Multiple annuity contracts which are issued within a calendar year to the
same contract owner by one company or its affiliates are treated as one annuity
contract for purposes of determining the tax consequences of any distribution.
Such treatment may result in adverse tax consequences including more rapid
taxation of the distributed amounts from such multiple contracts. The Company
believes that Congress intended to affect the purchase of multiple deferred
annuity contracts which may have been purchased to avoid withdrawal income tax
treatment. Owners should consult a tax adviser prior to purchasing more than one
annuity contract in any calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment of a Contract may have tax consequences, and may also be
prohibited by ERISA in some circumstances. Owners should therefore consult
competent legal advisers should they wish to assign their Contracts.
QUALIFIED PLANS
The Contracts offered by this prospectus are designed to be suitable for
use under various types of Qualified Plans. Taxation of Owners in each Qualified
Plan varies with the type of plan and terms and the conditions of each specific
plan. Owners, Annuitants and Beneficiaries are cautioned that benefits under a
Qualified Plan may be subject to the terms and conditions of the plan,
regardless of the terms and conditions of the contracts issued pursuant to the
plan.
General descriptions of the types of Qualified Plans with which the
Contracts may be used are contained in the Statement of Additional Information.
Such descriptions are not exhaustive and are for general information purposes
only. The tax rules regarding Qualified Plans are very complex and will have
differing applications depending on individual facts and circumstances. Each
purchaser should obtain competent tax advice prior to purchasing a Contract or
Certificate issued under a Qualified Plan.
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<PAGE> 36
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this prospectus. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals -- Qualified Plans".)
TAX TREATMENT OF WITHDRAWALS
QUALIFIED PLANS
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion
of any early distribution from qualified retirement plans, including contracts
issued and qualified under Code Sections 401 (Corporate and Self-Employed
Pension and Profit Sharing Plans), 403(b) (Tax-Sheltered Annuities) and 408(b)
(IRAs).
The tax penalty will not apply to the following distributions: (1) if
distribution is made on or after the date on which the Owner or Annuitant (as
applicable) reaches age 59 1/2; (2) distributions following the death or
disability of the Owner or Annuitant (as applicable) (for this purpose
"disability" is defined in Section 72(m)(7) of the Code); (3) distributions that
are part of substantially equal periodic payments made not less frequently than
annually for the life (or life expectancy) of the Owner or Annuitant (as
applicable) or the joint lives (or joint life expectancies) of such Owner or
Annuitant (as applicable) and his or her designated Beneficiary; (4)
distributions to an Owner or Annuitant (as applicable) who has separated from
service after he or she has attained age 55; (5) distributions made to the Owner
or Annuitant (as applicable) to the extent such distributions do not exceed the
amount allowable as a deduction under Code Section 213 to the Owner or Annuitant
(as applicable) for amounts paid during the taxable year for medical care; and
(6) distributions made to an alternate payee pursuant to a qualified domestic
relations order.
The exceptions stated in items (4), (5) and (6) above do not apply in the
case of an IRA.
Limitations imposed by the Code on withdrawals from tax-sheltered annuities
are described above under "Purchases, Withdrawals and Contract
Value -- Withdrawals (Redemptions)".
The taxable portion of a withdrawal or distribution from Contracts issued
under certain types of plans may, under some circumstances, be "rolled over"
into another eligible plan so as to continue to defer income tax on the taxable
portion. Effective January 1, 1993, such treatment is available for any
"eligible rollover distribution" made by certain types of plans (as described
above under "Taxes -- Withholding Tax on Distributions") that is transferred
within 60 days of receipt into a plan qualified under section 401(a) or 403(a)
of the Code, a tax-sheltered annuity, an IRA, or an individual retirement
account described in section 408(a) of the Code. Plans making such eligible
rollover distributions are also required, with some exceptions specified in the
Code, to provide for a direct "trustee to trustee" transfer of the distribution
to the transferee plan designated by the recipient.
Amounts received from IRAs may also be rolled over into other IRAs,
individual retirement accounts or certain other plans, subject to limitations
set forth in the Code.
NONQUALIFIED PLANS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate Purchase
Payments made, any amount withdrawn not in form of an annuity payment will be
treated as coming first from the earnings and then, only after the income
portion is exhausted, as coming from the principal. Withdrawn earnings are
includible in a taxpayer's gross income. Section 72 further provides that a 10%
penalty will apply to the income portion of any premature distribution. The
penalty is not imposed on amounts received: (1) after the taxpayer reaches
59 1/2; (2) upon the death of the Owner or Annuitant (as applicable); (3) if the
taxpayer is totally disabled; (4) in a series of substantially equal periodic
payments made for the life of the taxpayer or for the joint lives of the
taxpayer and his or her Beneficiary; (5) under an immediate annuity; or (6)
which are allocable to purchase payments made prior to August 14, 1982.
The above information applies to Contracts issued pursuant to Section 457
of the Code, but does not apply to other Qualified Plan Contracts. Separate tax
withdrawal penalties and restrictions apply to Qualified Plan Contracts.
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- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE COMPANY
- --------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company and its
subsidiaries should be read in conjunction with the consolidated financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations, both of which are included in
this prospectus.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net investment income........................... $ 56,843 $ 50,083 $ 58,996 $ 48,912 $ 36,499
Net realized investment losses.................. (13,355) (4,363) (33,713) (22,247) (22,749)
Fee income...................................... 160,931 135,214 131,225 118,247 97,220
General and administrative expenses............. (80,048) (61,629) (52,636) (55,142) (55,615)
Provision for future guaranty fund
assessments................................... -- -- -- (4,800) --
Amortization of deferred acquisition costs...... (57,520) (58,713) (44,195) (30,825) (18,224)
Annual commissions.............................. (4,613) (2,658) (1,158) (312) (215)
Other income and expenses, net.................. 7,070 7,063 8,801 9,679 9,218
-------- -------- -------- -------- --------
Pretax income................................... 69,308 64,997 67,320 63,512 46,134
Income tax expense.............................. (24,252) (25,739) (22,705) (21,794) (15,361)
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS............... 45,056 39,258 44,615 41,718 30,773
Net income of subsidiaries sold to affiliates... -- -- -- -- 1,312
-------- -------- -------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES................... 45,056 39,258 44,615 41,718 32,085
Cumulative effect of change in accounting for
income taxes.................................. -- -- (20,463) -- --
-------- -------- -------- -------- --------
NET INCOME...................................... $ 45,056 $ 39,258 $ 24,152 $ 41,718 $ 32,085
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Investments..................................... $2,329,232 $2,114,908 $1,632,072 $2,093,100 $2,126,899
Variable annuity assets......................... 6,311,557 5,230,246 4,486,703 4,170,275 3,284,507
Deferred acquisition costs...................... 443,610 383,069 416,289 336,677 288,264
Other assets.................................... 120,136 55,474 67,062 71,337 91,588
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS.................................... $9,204,535 $7,783,697 $6,602,126 $6,671,389 $5,791,258
========== ========== ========== ========== ==========
Reserves for fixed annuity contracts............ $1,789,962 $1,497,052 $1,437,488 $1,562,136 $1,735,565
Reserves for guaranteed investment contracts.... 415,544 277,095 -- -- --
Variable annuity liabilities.................... 6,311,557 5,230,246 4,486,703 4,170,275 3,284,507
Other payables and accrued liabilities.......... 96,196 227,953 195,134 495,308 398,045
Subordinated notes payable to Parent............ 35,832 35,832 34,712 34,432 15,500
Deferred income taxes........................... 70,189 73,459 64,567 38,145 35,163
Shareholder's equity............................ 485,255 442,060 383,522 371,093 322,478
---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...... $9,204,535 $7,783,697 $6,602,126 $6,671,389 $5,791,258
========== ========== ========== ========== ==========
</TABLE>
35
<PAGE> 38
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Management's discussion and analysis of financial condition and results of
operations of Anchor National Life Insurance Company (the "Company") for the
three years in the period ended September 30, 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, the Company cautions readers
regarding certain forward-looking statements contained in the following
discussion and elsewhere in this report and in any other statements made by or
on behalf of the Company, whether or not in future filings with the Securities
and Exchange Commission ("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 include statements contained in this report which
represent the Company's beliefs concerning future or projected levels of sales
of the Company's products, investment spreads or yields, or the earnings or
profitability of the Company'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 the
Company'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, the Company. 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 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 the Company specifically, such as credit,
volatility, and other risks associated with the Company's investment portfolio,
and other factors. Investors are also directed to consider other risks and
uncertainties discussed in documents filed by the Company with the SEC. The
Company disclaims any obligation to update forward-looking information.
RESULTS OF OPERATIONS
INCOME BEFORE CUMULATIVE EFFECTIVE 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 the Company'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.
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<PAGE> 39
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 the Company'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 the Company does not significantly
influence. Consequently, such income is not predictable and there can be no
assurance that the Company will realize comparable levels of such income in the
future.
The decline in investment yield in 1995 compared with 1994 is primarily due
to lower contributions from the Company's investments in partnerships and a
significant decline from the $3.7 million of yield enhancement recorded in 1994
through the Company's use of dollar roll transactions ("Dollar Rolls"). Although
the Company continues to use Dollar Rolls, their use did not have a significant
impact on investment income in 1995 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 the Company'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 the Company's Polaris variable annuity product.
GIC premiums totaled $135.0 million in 1996 and $275.0 million in 1995. In
1995, the Company began to issue GICs, which guarantee the payment of principal
and interest at fixed or variable rates for a term of one year. The Company's
GICs that are purchased by asset management firms permit withdrawals with notice
of 90 days. Contracts that are purchased by banks or state and local
governmental authorities may permit scheduled book value withdrawals subject to
terms of the underlying indenture or agreement. In pricing GICs, the Company
analyzes cash flow information and prices accordingly so that it is compensated
for possible withdrawals prior to maturity (see "Financial Condition and
Liquidity").
NET REALIZED INVESTMENT LOSSES totaled $13.4 million in 1996, $4.4 million
in 1995 and $33.7 million in 1994 and represent 0.61%, 0.26% and 2.16%,
respectively, of average invested assets. 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, the Company 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. Bond sales include
approximately $289.3 million of sales of mortgage-backed securities ("MBSs")
made primarily to acquire other MBSs that were then used in dollar roll
transactions ("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
the Company's ultimate parent, SunAmerica Inc. On December 31, 1995, the Parent
made a $27.4 million capital contribution to the company through the company's
direct parent in exchange for the termination of its guaranty with respect to
this real estate. Accordingly, the Company reduced the carrying value of this
real estate to estimated fair value to reflect the termination of the
37
<PAGE> 40
guaranty. The Parent continues to guarantee the statutory carrying value of the
Company's other real estate owned in Arizona.
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 the Company 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.
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 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. The Company has encountered increased competition in the
variable annuity marketplace during recent years and anticipates that the market
will remain highly competitive for the foreseeable future.
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 the Company's
mutual funds and heightened demand for equity investments, principally as a
result of improved market performance.
NET RETAINED COMMISSIONS are primarily derived from commissions on the
sales of nonproprietary investment products by the Company's broker-dealer
subsidiary, after deducting the substantial portion of such commissions that is
passed on to registered representatives. Net retained commissions totaled $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 are not proportionate to increases in sales primarily due to
differences in sales mix.
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 block
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.
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<PAGE> 41
GENERAL AND ADMINISTRATIVE EXPENSES totaled $80.0 million in 1996, compared
with $61.6 million in 1995 and $52.6 million in 1994. General and administrative
expenses in 1996 include expenses related to a national advertising campaign, as
well as additional administrative expenses related to a growing block of
business. General and administrative expenses remain closely controlled through
a company-wide cost containment program and represent approximately 1% of
average total assets.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $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 the Company's variable annuity
contracts. Substantially all of the Company's currently available variable
annuity products allow for an annual commission payment option in return for a
lower immediate commission. Annual commissions totaled $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. The company estimates that 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
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, the Company 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.
The Company manages most of its invested assets internally. The Company's
general investment philosophy is to hold fixed maturity assets for long-term
investment. Thus, it does not have a trading portfolio. Effective December 1,
1995, pursuant to guidelines issued by the Financial Accounting Standards Board,
the Company 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, the Company's need
for liquidity and other similar factors. Accordingly, the Company 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 at 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 Phelps Credit Rating Co. ("D&P"), Fitch Investor Service, Inc.
("Fitch") or under comparable statutory rating guidelines established by the
National Association of Insurance Commissioners ("NAIC") and implemented by
either the NAIC or the Company. At September 30, 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 the Company or the NAIC, pursuant to
applicable NAIC guidelines, including $1.05 billion of U.S. government/agency
securities and MBSs.
39
<PAGE> 42
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, D&P,
Fitch or the NAIC. Based on their September 30, 1996 amortized cost, these non-
investment-grade bonds accounted for 1.8% of the Company'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. The
Company 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. The Company had no material
concentrations of non-investment-grade securities at September 30, 1996.
The following table summarizes the Company's rated bonds by rating
classification as of September 30, 1996 (dollars in thousands):
<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]/GFITCHH AMORTIZED FAIR CATEGORY AMORTIZED FAIR AMORTIZED INVESTED FAIR
CATEGORY(1) COST VALUE (2) COST VALUE COST ASSETS(3) VALUE
- ---------------------- ---------- ---------- -------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA+ to A-
(Aaa to A3)
[AAA to A-]
GAAA to A-H......... $1,345,960 $1,333,515 1 $125,115 $125,046 $1,471,075 62.81% $1,458,561
BBB+ to BBB-
(Baal to Baa3)
[BBB+ to BBB-]
GBBB+ to BBB-H 226,312 226,191 2 133,773 133,698 360,085 15.38 359,889
BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
GBB+ to BB-H........ 30,023 30,368 3 5,597 5,597 35,620 1.52 35,965
B+ to B-
(B1 to B3)
[B+ to B-]
GB+ to B-H.......... 87,580 90,468 4 17,136 18,089 104,716 4.47 108,557
CCC+ to C
(Caa to C)
[CCC]
GCCC+ to C-H........ 19,847 15,018 5 -- -- 19,847 0.85 15,018
C1 to D
[DD]
GDH................. -- -- 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 the
Company pursuant to applicable of 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.
40
<PAGE> 43
While the trading market for Secured Loans is more limited than for
publicly traded corporate debt issues, management believes that participation in
these transactions has enabled the Company to improve its investment yield.
Although, as a result of restrictive financial covenants, Secured Loans involve
greater risk of technical default than do publicly traded investment-grade
securities, management believes that the risk of loss upon default for its
Secured Loans is mitigated by their financial covenants and senior secured
positions. The Company's Secured Loans are rated by S&P, Moody's, D&P, 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 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 the Company's standards and purchased
at or near par from another financial institution which was downsizing its
portfolio. Such loans generally have higher average interest rates than loans
that could be originated today. The balance of the mortgage loan portfolio has
been originated by the Company under strict underwriting standards. Commercial
mortgage loans on properties such as offices, hotels and shopping centers
generally represent a higher level of risk than do mortgage loans secured by
multifamily residences. This greater risk is due to several factors, including
the larger size of such loans and the effects of general economic conditions on
these commercial properties. However, due to the seasoned nature of the
Company's mortgage loans and its strict underwriting standards, the Company
believes that it has reduced the risk attributable to its mortgage loan
portfolio while maintaining attractive yields.
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, the Company 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 the Company will receive its statutory
carrying value of these assets.
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 collateralized bond
obligations, CMO residuals, policy loans, separate account investments, and
leveraged leases. The Company's limited partnership interests, accounted for by
using the cost method of accounting, invest mainly in equity securities.
ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks
of interest rate fluctuations and disintermediation. The Company believes that
its fixed-rate liabilities should be backed by a portfolio principally composed
of fixed maturities that generate predictable rates of return. The Company does
not have a specific target rate of return. Instead, its rates of return vary
over time depending on the current interest rate environment, the slope of the
yield curve, the spread at which fixed maturities are priced over the yield
curve and general competitive conditions within the industry. Its portfolio
strategy is designed to achieve adequate risk-adjusted returns consistent with
its investment objectives of effective asset-liability matching, liquidity and
safety.
The Company designs its fixed-rate products and conducts its investment
operations in order to closely match the duration of the assets in its
investment portfolio to its annuity and GIC obligations. The Company seeks to
achieve a predictable spread between what it earns on its assets and what it
pays on its liabilities by investing principally in fixed-rate securities. The
Company's fixed-rate products incorporate surrender charges or other limitations
on when contracts can be surrendered for cash to encourage persistency.
Approximately 63% of the Company's fixed annuity and GIC reserves had surrender
penalties or other restrictions at September 30, 1996.
As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-maturity assets and
liabilities under commonly used stress-test interest rate scenarios. Based on
the results of these computer
41
<PAGE> 44
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 the Company's
investments was approximately 5 years and the duration was approximately 3.
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
is the calculation of the relative percentage change in market value resulting
from shifts in interest rates, and recognizes the changes in portfolio cashflows
resulting from embedded options such as prepayments and bond calls.
The Company 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
Dollar Rolls. Reverse Repos involve a sale of securities and an agreement to
repurchase the same securities at a later date at an agreed upon price and are
generally over-collateralized. Dollar Rolls are similar to Reverse Repos except
that the repurchase involves securities that are only substantially the same as
the securities sold and the arrangement is not collateralized, nor is it
governed by a repurchase agreement. MBSs are generally investment-grade
securities collateralized by large pools of mortgage loans. MBSs generally pay
principal and interest monthly. The amount of principal and interest payments
may fluctuate as a result of prepayments of the underlying mortgage loans.
There are risks associated with some of the techniques the Company uses to
provide liquidity, enhance its spread income and match its assets and
liabilities. The primary risk associated with the Company's Dollar Rolls and
Reverse Repos is counterparty risk. The Company believes, however, that the
counterparties to its Dollar Rolls and Reverse Repos are financially responsible
and that the counterparty risk associated with those transactions is minimal.
Counterparty risk associated with Dollar Rolls is further mitigated by the
Company's participation in an MBS trading clearinghouse. The sell and buy
transactions that are submitted to this clearinghouse are marked to market on a
daily basis and each participant is required to over-collateralize its net loss
position by 30% with either cash, letters of credit or government securities.
The primary risk associated with MBSs is that a changing interest rate
environment might cause prepayment of the underlying obligations at speeds
slower or faster than anticipated at the time of their purchase.
INVESTED ASSETS EVALUATION routinely includes a review by the Company of
its portfolio of debt securities. Management identifies monthly those
investments that require additional monitoring and carefully reviews the
carrying value of such investments at least quarterly to determine whether
specific investments should be placed on a nonaccrual basis and to determine
declines in value that may be other than temporary. In making these reviews for
bonds, management principally considers the adequacy of collateral (if any),
compliance with contractual covenants, the borrower's recent financial
performance, news reports and other externally generated information concerning
the creditor's affairs. In the case of publicly traded bonds, management also
considers market value quotations, if available. For mortgage loans, management
generally considers information concerning the mortgaged property and, among
other things, factors impacting the current and expected payment status of the
loan and, if available, the current fair value of the underlying collateral.
The carrying values of bonds that are determined to have declines in value
that are other than temporary are reduced to net realizable value and no further
accruals of interest are made. The valuation allowances on mortgage loans are
based on losses expected by management to be realized on transfers of mortgage
loans to real estate, on the disposition and settlement of mortgage loans and on
mortgage loans that management believes may not be collectible in full. Accrual
of interest is suspended when principal and interest payments on mortgage loans
are past due more than 90 days.
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 the Company in the form of
the Company's existing portfolio of cash and short-term investments, Reverse
Repo capacity on invested assets and, if required, proceeds from invested asset
sales. At September 30, 1996, approximately $936.8 million of the Company'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, the Company's investment portfolio currently provides
approximately $21.6 million of monthly cash flow from scheduled principal and
interest payments.
42
<PAGE> 45
Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, the
Company's average cost of funds would increase over time as it prices its new
and renewing annuities and GICs to maintain a generally competitive market rate.
Management would seek to place new funds in investments that were matched in
duration to, and higher yielding than, the liabilities assumed. The Company
believes that liquidity to fund withdrawals would be available through incoming
cash flow, the sale of short-term or floating-rate instruments or Reverse Repos
on the Company's substantial MBS segment of the Bond Portfolio, thereby avoiding
the sale of fixed-rate assets in an unfavorable bond market.
In a declining rate environment, the Company's cost of funds would decrease
over time, reflecting lower interest crediting rates on its fixed annuities and
GICs. Should increased liquidity be required for withdrawals, the Company
believes that a significant portion of its investments could be sold without
adverse consequences in light of the general strengthening that would be
expected in the bond market.
- --------------------------------------------------------------------------------
PROPERTIES
- --------------------------------------------------------------------------------
The Company's principal office is in leased premises at 1 SunAmerica
Center, Los Angeles, California. The Company, through an affiliate, also leases
office space in Torrance, California which is utilized for certain recordkeeping
and data processing functions. The Company's broker-dealer and asset management
subsidiaries lease offices in New York, New York.
The Company believes that such properties, including the equipment located
therein, are suitable and adequate to meet the requirements of its businesses.
- --------------------------------------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
The directors and principal officers of Anchor National Life Insurance
Company (the "Company") as of December 19, 1996 are listed below, together with
information as to their ages, dates of election and principal business
occupation during the last five years (if other than their present business
occupation).
<TABLE>
<CAPTION>
OTHER POSITIONS AND
YEAR OTHER BUSINESS
PRESENT ASSUMED EXPERIENCE WITHIN
NAME AGE POSITION(S) POSITION(S) LAST FIVE YEARS** FROM-TO
- -------------------- --- ---------------------------------- ---------- ---------------------------------- ----------
<S> <C> <C> <C> <C> <C>
Eli Broad* 63 Chairman, Chief Executive Officer 1994 Cofounded SunAmerica Inc. ("SAI")
and President of the Company in 1957
Chairman, Chief Executive Officer 1986
and President of SAI
Joseph M. Tumbler* 48 Executive Vice President of the 1996 President and Chief Executive 1989-1995
Company Officer,
Vice Chairman of SAI 1995 Providian Capital Management
Jay S. Wintrob* 39 Executive Vice President of the 1991 Senior Vice President 1989-1991
Company (Joined SAI in 1987)
Vice Chairman of SAI 1995
James R. Belardi* 39 Senior Vice President of the 1992 Vice President and Treasurer 1989-1992
Company
Executive Vice President of SAI 1995 (Joined SAI in 1986)
Jana Waring Greer* 44 Senior Vice President of the 1991 (Joined SAI in 1974)
Company and SAI
Peter McMillan, III* 39 Executive Vice President and Chief 1994 Senior Vice President, SunAmerica 1989-1994
Investment Officer of SunAmerica Investments, Inc.
Investments, Inc.
Scott L. Robinson* 50 Senior Vice President of the 1991 (Joined SAI in 1978)
Company
Senior Vice President and
Controller of SAI
</TABLE>
43
<PAGE> 46
<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>
Lorin M. Fife* 43 Senior Vice President, General 1994 Vice President and General 1994-1995
Counsel and Assistant Secretary of Counsel- Regulatory Affairs of SAI
the Company Vice President and Associate
Senior Vice President and General 1995 General Counsel of SAI 1989-1994
Counsel-Regulatory Affairs of SAI (Joined SAI in 1989)
Susan L. Harris* 39 Senior Vice President and 1994 Vice President, General Counsel- 1994-1995
Secretary of the Company Corporate Affairs and Secretary of
Senior Vice President, General 1995 SAI
Counsel-Corporate Affairs and Vice President, Associate General 1989-1994
Secretary of SAI Counsel and Secretary of SAI
(Joined SAI in 1985)
James Rowan* 34 Senior Vice President of the 1996 Vice President 1993-1995
Company and SAI Assistant to the Chairman 1992
Senior Vice President, Security
Pacific Corp. 1990-1992
N. Scott Gillis 43 Senior Vice President and 1994 Vice President and Controller, 1989-1994
Controller of the Company SunAmerica Life Companies (Joined
SAI in 1985)
Edwin R. Reoliquio 39 Senior Vice President and Chief 1995 Vice President and Actuary, 1990-1995
Actuary of the Company SunAmerica Life Companies
Victor E. Akin 32 Senior Vice President of the 1996 Vice President, SunAmerica Life 1995-1996
Company Companies
Director, SunAmerica Life 1994-1995
Companies
Manager, SunAmerica Life Companies 1993-1994
Actuary, Milliman & Robertson 1992-1993
Consultant, Chalke Inc. 1991-1992
</TABLE>
- ---------------
* Also serves as a director
** Unless otherwise indicated, officers and positions are with SunAmerica Inc.
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
All of the executive officers of the Company also serve as employees of
SunAmerica Inc. or its affiliates and receive no compensation directly from the
Company. Some of the officers also serve as officers of other companies
affiliated with the Company. Allocations have been made as to each individual's
time devoted to his or her duties as an executive officer of the Company.
The following table shows the cash compensation paid or earned, based on
these allocations, to the chief executive officer and top four executive
officers of the Company whose allocated compensation exceeds $100,000 and to all
executive officers of the Company as a group for services rendered in all
capacities to the Company during 1996:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR CAPACITIES IN ALLOCATED CASH
NUMBER IN GROUP WHICH SERVED COMPENSATION
- ------------------------------------------- -------------------------- --------------
<S> <C> <C>
Eli Broad Chairman, Chief Executive $1,444,146
Officer and President
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>
44
<PAGE> 47
Directors of the Company who are also employees of SunAmerica Inc. or its
affiliates receive no compensation in addition to their compensation as
employees of SunAmerica Inc. or its affiliates.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No shares of the Company are owned by any executive officer or director.
The Company is an indirect wholly owned subsidiary of SunAmerica Inc. Except for
Mr. Broad, the percentage of shares of SunAmerica Inc. beneficially owned by any
director does not exceed one percent of the class outstanding. At November 30,
1996, Mr. Broad was the beneficial owner of 5,930,156 shares of Common Stock
(approximately 5.3% 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 Company's
employee stock plans as to which Mr. Broad has no investment power; and
3,605,700 shares represent employee stock options held by Mr. Broad which are or
will become exercisable on or before February 28, 1997 and as to which he has no
voting or investment power. Of the Class B Stock, 8,456,140 shares are held
directly by Mr. Broad; and 704,154 shares are registered in the name of a
corporation as to which Mr. Broad exercises sole voting and dispositive powers.
At November 30, 1996, all directors and officers as a group beneficially owned
9,197,722 shares of Common Stock (approximately 8.1% of the class outstanding)
and 9,160,294 shares of Class B Common Stock (approximately 84.4% of the class
outstanding).
- --------------------------------------------------------------------------------
STATE REGULATION
- --------------------------------------------------------------------------------
The Company is subject to regulation and supervision by the states in which
it is authorized to transact business. State insurance laws establish
supervisory agencies with broad administrative and supervisory powers related to
granting and revoking licenses to transact business, regulating marketing and
other trade practices, operating guaranty associations, licensing agents,
approving policy forms, regulating certain premium rates, regulating insurance
holding company systems, establishing reserve requirements, prescribing the form
and content of required financial statements and reports, performing financial
and other examinations, determining the reasonableness and adequacy of statutory
capital and surplus, regulating the type, 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
National Association of Insurance Commissioners ("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 new investment reserve requirements, risk-based capital standards and
restrictions on an insurance company's ability to pay dividends to its
stockholders. The NAIC is also currently developing model laws to govern
insurance company investments and illustrations for annuity products. Current
proposals are still being debated and the Company is monitoring developments in
this area and the effects any changes would have on the Company.
- --------------------------------------------------------------------------------
CUSTODIAN
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, serves as the custodian of the assets of the Separate
Account. The custodian is remunerated by the Company based on a schedule of fees
under an agreement between the custodian and the Company.
45
<PAGE> 48
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no pending legal proceedings affecting the Separate Account. The
Company and its subsidiaries are engaged in various kinds of routine litigation
which, in management's judgment, is not of material importance to their
respective total assets or material with respect to the Separate Account.
- --------------------------------------------------------------------------------
REGISTRATION STATEMENTS
- --------------------------------------------------------------------------------
Registration statements have been filed with the Commission, Washington,
D.C., under the Securities Act of 1933 as amended, with respect to the Contracts
offered by this prospectus. This prospectus does not contain all the information
set forth in the registration statements and the exhibits filed as part of the
registration statements, to all of which reference is hereby made for further
information concerning the Separate Account, the General Account, the Company,
the Underlying Funds, the Contract and the Certificates. Statements found in
this prospectus as to the terms of the Contracts, the Certificates and other
legal instruments are summaries, and reference is made to such instruments as
filed.
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The consolidated financial statements of Anchor National Life Insurance
Company as of September 30, 1996 and 1995 and for each of the three years in the
period ended September 30, 1996 included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
Additional information concerning the operations of the Separate Account is
contained in a Statement of Additional Information, which is available without
charge upon written request addressed to the Company at its Annuity Service
Center P.O. Box 54299, Los Angeles, California 90054-0299 or (800)445-SUN2. The
contents of the Statement of Additional Information are tabulated below.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Performance Data................................................................................... 3
Annuity Payments................................................................................... 7
Annuity Unit Values................................................................................ 8
Qualified Plans.................................................................................... 11
Distribution of Contracts.......................................................................... 12
Financial Statements............................................................................... 13
</TABLE>
46
<PAGE> 49
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The consolidated financial statements of the Company which are included in
this prospectus should be considered only as bearing on the ability of the
Company to meet its obligations with respect to amounts allocated to the General
Account and with respect to the death benefit and the Company's assumption of
the mortality and expense risks and the risk that the Withdrawal Charge will be
insufficient to cover the cost of distributing the Contracts. They should not be
considered as bearing on the investment performance of the Underlying Fund
shares held in the Portfolios of the Separate Account. The value of the
interests of Owners, Participants, Annuitants, Beneficiaries and payees under
the variable portion of the Contracts is affected primarily by the investment
results of the Underlying Funds.
47
<PAGE> 50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders 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
48
<PAGE> 51
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
ASSETS
INVESTMENTS:
Cash and short-term investments........................................ $ 122,058,000 $ 249,209,000
Bonds, notes and redeemable preferred stocks:
Available for sale, at fair value (amortized cost: 1996,
$2,001,024,000; 1995, $1,500,062,000).............................. 1,987,271,000 1,489,213,000
Held for investment, at amortized cost (fair value: 1995,
$165,004,000)...................................................... -- 157,901,000
Mortgage loans......................................................... 98,284,000 94,260,000
Common stocks, at fair value (cost: 1996, $2,911,000; 1995,
$6,576,000)......................................................... 3,970,000 4,097,000
Real estate............................................................ 39,724,000 55,798,000
Other invested assets.................................................. 77,925,000 64,430,000
-------------- --------------
Total investments...................................................... 2,329,232,000 2,114,908,000
Variable annuity assets.................................................. 6,311,557,000 5,230,246,000
Receivable from brokers for sales of securities.......................... 52,348,000 --
Accrued investment income................................................ 19,675,000 14,192,000
Deferred acquisition costs............................................... 443,610,000 383,069,000
Other assets............................................................. 48,113,000 41,282,000
-------------- --------------
Total assets............................................................. $ 9,204,535,000 $ 7,783,697,000
============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts................................... $ 1,789,962,000 $ 1,497,052,000
Reserves for guaranteed investment contracts........................... 415,544,000 277,095,000
Payable to brokers for purchases of securities......................... -- 155,861,000
Income taxes currently payable......................................... 21,486,000 15,720,000
Other liabilities...................................................... 74,710,000 56,372,000
-------------- --------------
Total reserves, payables and accrued liabilities....................... 2,301,702,000 2,002,100,000
-------------- --------------
Variable annuity liabilities............................................. 6,311,557,000 5,230,246,000
-------------- --------------
Subordinated notes payable to Parent..................................... 35,832,000 35,832,000
-------------- --------------
Deferred income taxes.................................................... 70,189,000 73,459,000
-------------- --------------
Shareholder's equity:
Common Stock........................................................... 3,511,000 3,511,000
Additional paid-in capital............................................. 280,263,000 252,876,000
Retained earnings...................................................... 207,002,000 191,346,000
Net unrealized losses on debt and equity securities available for
sale................................................................ (5,521,000) (5,673,000)
-------------- --------------
Total shareholder's equity............................................. 485,255,000 442,060,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............................... $ 9,204,535,000 $ 7,783,697,000
============== ==============
</TABLE>
See accompanying notes.
49
<PAGE> 52
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Investment income............................................ $ 164,631,000 $ 129,466,000 $ 127,758,000
------------- ------------- -------------
Interest expense on:
Fixed annuity contracts.................................... (82,690,000) (72,975,000) (66,311,000)
Guaranteed investment contracts............................ (19,974,000) (3,733,000) --
Senior indebtedness........................................ (2,568,000) (227,000) (71,000)
Subordinated notes payable to Parent....................... (2,556,000) (2,448,000) (2,380,000)
------------- ------------- -------------
Total interest expense..................................... (107,788,000) (79,383,000) (68,762,000)
------------- ------------- -------------
NET INVESTMENT INCOME........................................ 56,843,000 50,083,000 58,996,000
------------- ------------- -------------
NET REALIZED INVESTMENT LOSSES............................... (13,355,000) (4,363,000) (33,713,000)
------------- ------------- -------------
Fee income:
Variable annuity fees...................................... 103,970,000 84,171,000 79,101,000
Asset management fees...................................... 25,413,000 26,935,000 31,302,000
Net retained commissions................................... 31,548,000 24,108,000 20,822,000
------------- ------------- -------------
TOTAL FEE INCOME............................................. 160,931,000 135,214,000 131,225,000
------------- ------------- -------------
Other income and expenses:
Surrender charges.......................................... 5,184,000 5,889,000 5,034,000
General and administrative expenses........................ (80,048,000) (61,629,000) (52,636,000)
Amortization of deferred acquisition costs................. (57,520,000) (58,713,000) (44,195,000)
Annual commissions......................................... (4,613,000) (2,658,000) (1,158,000)
Other, net................................................. 1,886,000 1,174,000 3,767,000
------------- ------------- -------------
TOTAL OTHER INCOME AND EXPENSES.............................. (135,111,000) (115,937,000) (89,188,000)
------------- ------------- -------------
PRETAX INCOME................................................ 69,308,000 64,997,000 67,320,000
Income tax expense........................................... (24,252,000) (25,739,000) (22,705,000)
------------- ------------- -------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
INCOME TAXES............................................... 45,056,000 39,258,000 44,615,000
Cumulative effect of change in accounting for income taxes... -- -- (20,463,000)
------------- ------------- -------------
NET INCOME................................................... $ 45,056,000 $ 39,258,000 $ 24,152,000
============= ============= =============
</TABLE>
See accompanying notes.
50
<PAGE> 53
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 45,056,000 $ 39,258,000 $ 24,152,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Interest credited to:
Fixed annuity contracts................................ 82,690,000 72,975,000 66,311,000
Guaranteed investment contracts........................ 19,974,000 3,733,000 --
Net realized investment losses............................ 13,355,000 4,363,000 33,713,000
Accretion of net discounts on investments................. (8,976,000) (6,865,000) (2,050,000)
Amortization of goodwill.................................. 1,169,000 1,168,000 1,169,000
Provision for deferred income taxes....................... (3,351,000) (1,489,000) 19,395,000
Cumulative effect of change in accounting for income
taxes.................................................. -- -- 20,463,000
Change in:
Accrued investment income................................... (5,483,000) 3,373,000 (1,310,000)
Deferred acquisition costs.................................. (60,941,000) (7,180,000) (34,612,000)
Other assets................................................ (8,000,000) 7,047,000 5,133,000
Income taxes currently payable.............................. 5,766,000 3,389,000 6,559,000
Other liabilities........................................... 5,474,000 4,063,000 46,000
Other, net.................................................... (129,000) 7,000 360,000
--------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES....................... 86,604,000 123,842,000 139,329,000
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts..................................... 651,649,000 245,320,000 138,526,000
Guaranteed investment contracts............................. 134,967,000 275,000,000 --
Net exchanges to (from) the fixed accounts of variable annuity
contracts................................................... (236,705,000) 10,475,000 (29,286,000)
Withdrawal payments on:
Fixed annuity contracts..................................... (173,489,000) (237,977,000) (269,412,000)
Guaranteed investment contracts............................. (16,492,000) (1,638,000) --
Claims and annuity payments on fixed annuity contracts........ (31,107,000) (31,237,000) (31,146,000)
Net receipts from (repayments of) other short-term
financings.................................................. (119,712,000) 3,202,000 (166,685,000)
Capital contribution received................................. 27,387,000 -- --
Dividend paid................................................. (29,400,000) -- --
--------------- --------------- ---------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES................ 207,098,000 263,145,000 (358,003,000)
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred stocks................ (1,937,890,000) (1,556,586,000) (1,197,743,000)
Mortgage loans.............................................. (15,000,000) -- (10,666,000)
Other investments, excluding short-term investments......... (36,770,000) (13,028,000) (26,317,000)
Sales of:
Bonds, notes and redeemable preferred stocks................ 1,241,928,000 1,026,078,000 877,068,000
Real estate................................................. 900,000 36,813,000 33,443,000
Other investments, excluding short-term investments......... 4,937,000 5,130,000 2,353,000
Redemptions and maturities of:
Bonds, notes and redeemable preferred stocks................ 288,969,000 178,688,000 173,763,000
Mortgage loans.............................................. 11,324,000 14,403,000 10,087,000
Other investments, excluding short-term investments 20,749,000 13,286,000 13,500,000
--------------- --------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES........................... (420,853,000) (295,216,000) (124,512,000)
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS...... (127,151,000) 91,771,000 (343,186,000)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD.......... 249,209,000 157,438,000 500,624,000
--------------- --------------- ---------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD................ $ 122,058,000 $ 249,209,000 $ 157,438,000
=============== =============== ===============
Supplemental cash flow information:
Interest paid on indebtedness................................. $ 5,982,000 $ 3,235,000 $ 1,175,000
=============== =============== ===============
Net income taxes paid (recovered)............................. $ 22,031,000 $ 23,656,000 $ (3,328,000)
=============== =============== ===============
</TABLE>
See accompanying notes.
51
<PAGE> 54
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.
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
52
<PAGE> 55
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
53
<PAGE> 56
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
ESTIMATED
AMORTIZED FAIR
COST 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 ESTIMATED
COST 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.
54
<PAGE> 57
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
Gross unrealized gains and losses on bonds, notes and redeemable preferred
stocks available for sale 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>
55
<PAGE> 58
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
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.
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.
56
<PAGE> 59
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
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.
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.
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.
57
<PAGE> 60
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
VARIABLE ANNUITY LIABILITIES: Fair values of contracts in the accumulation
phase are based on net surrender values. Fair values of contracts in the payout
phase are based on the present value of future cash flows at assumed investment
rates.
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on the
quoted market prices for similar issues.
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.
58
<PAGE> 61
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
$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.
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
============ ============ ============
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
59
<PAGE> 62
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. SHAREHOLDER'S EQUITY (CONTINUED)
surplus was $282,275,000 at September 30, 1996, $294,767,000 at December 31,
1995 and $219,577,000 at December 31, 1994.
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.
60
<PAGE> 63
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
61
<PAGE> 64
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
TOTAL
DEPRECIATION
AND
TOTAL AMORTIZATION PRETAX TOTAL
REVENUES EXPENSE INCOME ASSETS
------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
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>
62
<PAGE> 65
APPENDIX A
CONDENSED FINANCIAL INFORMATION -- ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
INCEPTION FISCAL FISCAL FISCAL
TO YEAR YEAR YEAR
PORTFOLIOS OF THE SEPARATE ACCOUNT 11/30/93 11/30/94 11/30/95 11/30/96
----------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ANCHOR TRUST
Capital Appreciation*
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*
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***
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*
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
SUNAMERICA TRUST
Aggressive Growth****
Beginning AUV................................ -- -- -- $10.00
End AUV...................................... -- -- -- $10.29
End # AUs.................................... -- -- -- 3,165,900
International Diversified Equities***
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*
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
Provident Growth*
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
</TABLE>
A-1
<PAGE> 66
<TABLE>
<CAPTION>
INCEPTION FISCAL FISCAL FISCAL
TO YEAR YEAR YEAR
PORTFOLIOS OF THE SEPARATE ACCOUNT 11/30/93 11/30/94 11/30/95 11/30/96
----------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Growth/Phoenix Investment Counsel*
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*
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***
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****
Beginning AUV................................ -- -- -- $10.00
End AUV...................................... -- -- -- $11.00
End # AUs.................................... -- -- -- 1,021,137
Growth-Income*
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****
Beginning AUV................................ -- -- -- $10.00
End AUV...................................... -- -- -- $10.67
End # AUs.................................... -- -- -- 543,461
Asset Allocation**
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***
Beginning AUV................................ -- $10.01 $ 9.95 $12.33
End AUV...................................... -- $ 9.95 $12.33 $13.82
End # AUs.................................... -- 51,759 2,441,901 4,583,234
SunAmerica Balanced****
Beginning AUV................................ -- -- -- $10.00
End AUV...................................... -- -- -- $11.04
End # AUs.................................... -- -- -- 817,039
</TABLE>
A-2
<PAGE> 67
<TABLE>
<CAPTION>
INCEPTION FISCAL FISCAL FISCAL
TO YEAR YEAR YEAR
PORTFOLIOS OF THE SEPARATE ACCOUNT 11/30/93 11/30/94 11/30/95 11/30/96
----------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Worldwide High Income***
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*
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
(formerly, Fixed Income)**
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**
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*
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
* "Inception Date" is February 9, 1993.
** "Inception Date" is July 1, 1993.
*** "Inception Date" is October 31, 1994.
**** "Inception Date" is June 3, 1996.
A-3
<PAGE> 68
APPENDIX B
WITHDRAWALS, WITHDRAWAL CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1 -- SEPARATE ACCOUNT (THE MARKET VALUE ADJUSTMENT DOES NOT APPLY TO THE
SEPARATE ACCOUNT)
These examples assume the following:
(1) The Initial Purchase Payment was $10,000, allocated solely to one
Portfolio;
(2) The date of full surrender or partial withdrawal occurs during the
3rd Contribution Year;
(3) The Owner's Contract Value at the time of surrender or withdrawal
is $12,000; and
(4) No other Purchase Payments or previous partial withdrawals have
been made.
EXAMPLE A -- FULL SURRENDER:
(1) Earnings in the Portfolio ($12,000 - $10,000 = $2,000) are not
subject to the Withdrawal Charge.
(2) The balance of the full surrender ($12,000 - $2,000 = $10,000) is
subject to the Withdrawal Charge applicable during the 3rd Contribution
Year (4%, from the Withdrawal Charge Table).
(3) The amount of the Withdrawal Charge is .04 X $10,000 = $400.
(4) The amount of the full surrender is $12,000 - $400 = $11,600.
EXAMPLE B -- PARTIAL WITHDRAWAL (IN THE AMOUNT OF $3,000):
(1) For the same reason as given in Step 1 of Example A, above, $2,000
can be withdrawn free of the Withdrawal Charge.
(2) Although 10% of the Purchase Payment is available without
imposition of a Withdrawal Charge (.10 X $10,000 = $1,000), this free
withdrawal amount is, like the Withdrawal Charge, applied first to
earnings. Since the earnings exceed the free withdrawal amount, only the
earnings can be withdrawn free of the scheduled Withdrawal Charge.
(3) The balance of the requested partial withdrawal
($3,000 - $2,000 = $1,000) is subject to the Withdrawal Charge applicable
during the 3rd Contribution Year (4%).
(4) The amount of the Withdrawal Charge is equal to the amount
required to complete the partial withdrawal ($3,000 - $2,000 = $1,000)
divided by (1 - .04) = 0.96, less the amount required to complete the
partial withdrawal.
Withdrawal Charge = ($1,000/0.96) - $1,000
= $41.67
In this example, in order for the Owner to receive the amount requested
($3,000), a gross withdrawal of $3,041.67 must be processed with $41.67
representing the Withdrawal Charge calculated above.
Examples C and D assume the following:
(1) The Initial Purchase Payment was $20,000, allocated solely to one
Portfolio;
(2) The full surrender or partial withdrawal occurs during the 2nd
Contribution Year;
(3) The Owner's Contract Value at the time of surrender or withdrawal
is $21,500; and
(4) No other Purchase Payments or partial withdrawals have been made.
EXAMPLE C -- PARTIAL WITHDRAWAL (IN THE MAXIMUM AMOUNT AVAILABLE WITHOUT
WITHDRAWAL CHARGE):
(1) Earnings in the Portfolio ($21,500 - $20,000 = $1,500) are not
subject to the Withdrawal Charge.
(2) An Additional Free Withdrawal of 10% of the Purchase Payments less
earnings (.10 X $20,000 - $1,500 = $500) is also available free of the
Withdrawal Charge, so that
(3) The maximum partial withdrawal without Withdrawal Charge is the
sum of the Earnings and the Additional Free Withdrawal
($1,500 + $500 = $2,000).
EXAMPLE D -- FULL SURRENDER IMMEDIATELY FOLLOWING THE PARTIAL WITHDRAWAL IN
EXAMPLE C:
(1) The Owner's Contract Value after the partial withdrawal in Example
C is $21,500 - $2,000 = $19,500.
(2) The Purchase Payment amount for calculating the Withdrawal Charge
is the original $20,000 (Additional Free Withdrawal amounts do not reduce
the Purchase Payment amount for purposes of calculating the Withdrawal
Charge).
(3) The amount of the Withdrawal Charge is .05 X $20,000 = $1,000.
(4) The amount of the full surrender is $19,500 - $1,000 = $18,500.
B-1
<PAGE> 69
PART 2 -- GENERAL ACCOUNT -- EXAMPLES OF THE MARKET VALUE ADJUSTMENT (MVA)
The Market Value Adjustment Factor is reproduced here for convenience:
N/12
[(1 + I)/(1 + J + 0.005)] -1
where
I is the Guarantee Rate in effect;
J is the Current Interest Rate available for a period equal to the
number of years remaining in the Guarantee Period at the time of
withdrawal, transfer or annuitization (fractional years are rounded up
to the next full year); and
N is the number of full months remaining in the Guarantee Period at the
time the withdrawal, transfer or annuitization request is processed.
These examples assume the following:
(1) An initial Purchase Payment of $10,000 was made and allocated to a
ten year Guarantee Period with a Guarantee Rate of 7% (.07);
(2) a partial withdrawal of $4,000 is requested 2 1/2 years (30
months) from the expiration date (i.e., N = 30);
(3) the accumulated value attributable to the Purchase Payment (i.e.,
the Guarantee Amount) on the date of withdrawal is $16,297.02; and
(4) no transfers, additional Purchase Payments, or other withdrawals
have been made.
The Guarantee Amount of $16,297.02 reflects deductions for Contract
Administration Charges at each anniversary. Since the withdrawal is effected in
the Purchase Payment's 7th contribution year, no Withdrawal Charge is
applicable.
EXAMPLE OF A NEGATIVE MVA:
Assume that on the date of withdrawal, the Current Interest Rate for a
new Guarantee Period of 3 years (2 1/2 years rounded up to the next full
year) is 8%:
N/12
The MVA factor = [(1 + I)/(1 + J + .005)] -1
(30/12)
= [(1.07)/(1.08 + .005)] -1
2.5
= (0.986175) -1
= 0.965795 -1
= -0.034205
The requested withdrawal amount is multiplied by the MVA factor to
determine the MVA:
MVA = $4,000 X (-0.034205) = -$136.82
$136.82 represents the MVA that will be deducted from the remaining
accumulated value.
EXAMPLE OF A POSITIVE MVA:
Assume that on the date of withdrawal, the Current Interest Rate for a
new Guarantee Period of 3 years is 6%:
N/12
The MVA factor = [(1 + I)/(1 + J + .005)] -1
(30/12)
= [(1.07)/(1.06 +.005)] -1
2.5
= (1.004695) -1
= 1.011778 -1
= +0.011778
The requested withdrawal amount is multiplied by the MVA factor to
determine the MVA:
$4,000 X 0.011778 = +$47.11
$47.11 represents the MVA that would be added to the amount withdrawn.
PART 3 -- GENERAL ACCOUNT -- EXAMPLE OF FULL WITHDRAWAL WITH MVA AND WITHDRAWAL
CHARGE
Assume the same facts as in Part 2, above, except that under assumption (2)
a complete withdrawal is requested with 4 1/2 years (54 months) remaining in the
Guarantee Period (i.e., N = 54). The Guarantee Amount on the date of withdrawal
is $14,299.91. As was the case with the Examples in Part 1, above, the earnings
may be withdrawn free of Withdrawal Charge, leaving the initial Purchase Payment
of $10,000 subject to the Charge. The applicable Withdrawal Charge, from the
table on page 22 of the prospectus, is 2% or $200.
B-2
<PAGE> 70
EXAMPLE OF A NEGATIVE MVA:
Assume that on the date of withdrawal the Current Interest Rate for a
new Guarantee Period of 5 years is 8%:
N/12
The MVA factor = [(1 + I)/(1 + J + .005)] -1
(54/12)
= [(1.07)/(1.08 + .005)] -1
4.5
= (0.986175) -1
= 0.939276 -1
= -0.060724
The Withdrawal Charge of $200 is applied first; the MVA factor is
applied against the remaining Guarantee Amount:
MVA = ($14,299.91 - $200) X (-0.060724) = -$856.20
The net amount available upon withdrawal is the Guarantee Amount
reduced by the Withdrawal Charge, the MVA, and the Contract Administration
Charge:
$14,299.91 - $200 - $856.20 - $35 = $13,208.71.
EXAMPLE OF A POSITIVE MVA:
Assume that on the date of withdrawal the Current Interest Rate for a
new Guarantee Period of 5 years is 6%:
N/12
The MVA factor = [(1 + I)/(1 + J + .005)] -1
(54/12)
= [(1.07)/(1.06 + .005)] -1
4.5
= (1.004695) -1
= 1.021301 -1
= +0.021301
The MVA is:
($14,299.91 - $200) X (0.021301) = $300.34
And the net amount available upon withdrawal is the Guarantee Amount
reduced by the Withdrawal Charge and Contract Administration Charge and
increased by the MVA:
$14,299.91 - $200 + $300.34 - $35 = $14,365.25
B-3
<PAGE> 71
APPENDIX C
SAMPLE DEATH BENEFIT COMPUTATIONS
Assume that P, at age 55, purchases a Certificate on September 1, 1992,
with an initial Purchase Payment of $10,000. P makes no additional Purchase
Payments and effects no withdrawals or annuitizations; ten years later, P dies.
If P's Contract Value had experienced a positive net investment experience
over the ten-year period, the standard Death Benefit would be P's Account Value
at his death. However, if the overall investment experience had been negative,
so that P's Contract Value at his death was less than his $10,000 Purchase
Payment, the standard Death Benefit would be the amount of the Purchase Payment
($10,000).
Under the terms of the enhanced Death Benefit provisions, which are
currently applicable in all states, the minimum guaranteed benefit at P's death
(regardless of the investment experience of his Contract Value in the
intervening years) would be his $10,000 Purchase Payment accumulated at 4%
annually over the ten-year period until his death, computed as follows:
10
$10,000 X (1.04)
= $10,000 X 1.480244
= $14,802.44 (A)
Of course, if P's Contract Value had experienced an overall return over the
ten-year period greater than the equivalent of 4% compounded annually, P's
Contract Value at his death would have been greater than the $14,802.44 as
computed above; the enhanced Death Benefit under those circumstances would be at
least such greater amount. For example, if P's Contract Value had increased each
year by 5% of its value at the beginning of the year, the Contract Value at his
death would have been:
10
$10,000 X (1.05)
= $10,000 X 1.628895
= $16,288.95 (B)
In addition, the enhanced Death Benefit contains a provision alternatively
setting the minimum benefit at P's Contract Value on the seventh Certificate
anniversary (September 1, 1999), accumulated thereafter at 4% per annum. In the
example given immediately above, P's Contract Value at September 1, 1999 would
have been:
7
$10,000 X (1.05)
= $10,000 X 1.40710
= $14,071.00
That amount, accumulated at 4% per annum for the next 3 years until P's
death, is:
3
$14,071.00 X (1.04)
= $14,071.00 X 1.124864
= $15,827.96 (C)
The greatest of (A), (B) or (C) computed above is (B) (P's Contract Value
at his death), i.e., $16,288.95. Accordingly, P's enhanced Death Benefit would
be that amount.
In the example above, the provision relating to Contract Value at the
seventh Contract Anniversary did not affect the amount of the enhanced Death
Benefit. However, if P's Contract Value had declined in value (or increased at a
rate less than 4% per annum) since the seventh Certificate anniversary, instead
of continuing to appreciate at the rate of 5% per annum as was assumed, the
Contract Value at his death would have been less than the Contract Value at the
seventh Contract Anniversary as accumulated to P's death. In this last
circumstance, the enhanced Death Benefit would have been set at $15,827.96, as
computed in (C) above.
C-1
<PAGE> 72
Please forward a copy (without charge) of the Statement of Additional
Information concerning POLARIS Variable Annuity Contracts to:
(Please print or type and fill in all information.)
- ------------------------------------------------------------------------------
Name
- ------------------------------------------------------------------------------
Address
- ------------------------------------------------------------------------------
City/State/Zip
- ------------------------------------------------------------------------------
Date: ________________________ Signed:
Return to: Anchor National Life Insurance Company, Annuity Service Center, P.O.
Box 54299, Los Angeles, California 90054-0299.
<PAGE> 73
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**
Financial Statements*
* Herewith
** Not Applicable
*** Previously Filed
<PAGE> 74
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> 75
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 16th
day of January, 1997.
By: ANCHOR NATIONAL LIFE INSURANCE COMPANY
By: /s/ JAY S. WINTROB
-----------------------------------------
Jay S. Wintrob
Executive Vice President
As required by the Securities Act of 1933, this Post-Effective Amendment
to the Registration Statement has been signed by the following persons in the
capacity and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
ELI BROAD* President, Chief Executive
- ---------------- Officer, & Chairman of
Eli Broad Board
(Principal Executive Officer)
SCOTT L. ROBINSON* Senior Vice President &
- ---------------- Director
Scott L. Robinson (Principal Financial Officer)
N. SCOTT GILLIS* Senior Vice President &
- ---------------- Controller
N. Scott Gillis (Principal Accounting Officer)
JAMES R. BELARDI* Director
- ----------------
James R. Belardi
LORIN M. FIFE* Director
- ----------------
Lorin M. Fife
JANA W. GREER* Director
- ----------------
Jana W. Greer
JAY S. WINTROB* Director
- ----------------
Jay S. Wintrob
/s/ SUSAN L. HARRIS Director January 16, 1997
- -------------------
Susan L. Harris
PETER McMILLAN* Director
- ----------------
Peter McMillan
JAMES W. ROWAN* Director
- -----------------
James W. Rowan
JOSEPH M. TUMBLER* Director
- -----------------
Joseph M. Tumbler
</TABLE>
*By: /s/ SUSAN L. HARRIS Attorney-in-Fact
-----------------------
Susan L. Harris
Date: January 16, 1997
<PAGE> 76
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
(23)(a) Consent of Independent Accountants
(27) Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit (23)(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 for Variable Separate Account (Portion
Relating to the POLARIS Variable Annuity) of Anchor National Life Insurance
Company, of our report dated November 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
January 15, 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-K
FOR THE YEAR ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 1,987,271,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 3,970,000
<MORTGAGE> 98,284,000
<REAL-ESTATE> 39,724,000
<TOTAL-INVEST> 2,329,232,000
<CASH> 122,058,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 443,610,000
<TOTAL-ASSETS> 9,204,535,000
<POLICY-LOSSES> 2,205,506,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 35,832,000
0
0
<COMMON> 481,744,000
<OTHER-SE> 481,744,000
<TOTAL-LIABILITY-AND-EQUITY> 9,204,535,000
0
<INVESTMENT-INCOME> 159,507,000
<INVESTMENT-GAINS> (13,355,000)
<OTHER-INCOME> 160,931,000
<BENEFITS> 102,664,000
<UNDERWRITING-AMORTIZATION> 57,520,000
<UNDERWRITING-OTHER> (2,457,000)
<INCOME-PRETAX> 69,308,000
<INCOME-TAX> 24,252,000
<INCOME-CONTINUING> 45,056,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,056,000
<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>
