<PAGE> 1
As filed with the Securities and Exchange Commission on January 20, 1998.
Registration No. 333-18333
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 1
--------------------
ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
California 6311 86-0198983
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Number)
organization)
1 SunAmerica Center
Los Angeles, California 90067-6022
(310) 772-6000
(Address, including zip code, and telephone number,
including area code, or registrant's
principal executive offices)
Susan L. Harris, Esquire
Anchor National Life Insurance Company
1 SunAmerica Center
Los Angeles, California 90067-6022
(310) 772-6000
(Name, address, including zip code, and telephone number, including area code
of agent for service)
----------------------
Appropriate date of commencement of proposed sale to the public: As soon
as practicable after effectiveness of the Registration Statement if any of the
securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the
following box. [X]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
shall determine.
<PAGE> 2
CROSS REFERENCE SHEET
ANCHOR NATIONAL LIFE INSURANCE COMPANY
Cross Reference Sheet Pursuant to
Regulation S-K, Item 501(b)
<TABLE>
<CAPTION>
Form S-1 Item Number and Caption Heading in Prospectus
- --------------------------------------------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus............... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus.............. Inside Front Cover
3. Summary of Information, Risk
Factors and Ratio of Earnings
to Fixed Charges....................... Front Cover; Profile
4. Use of Proceeds........................ The Polaris II Variable
Annuity; Investment
Options; Expenses; Other
Information
5. Determination of Offering Price........ Not Applicable
6. Dilution............................... Not Applicable
7. Selling Security Holders............... Not Applicable
8. Plan of Distribution................... Other Information -
Distribution
9. Description of Securities to be
Registered............................. The Polaris II Variable
Annuity; Investment
Options
10. Interests of Named Experts
and Counsel............................ Not Applicable
11. Information with Respect to
the Registrant......................... Other Information -
Anchor National; Other
Information - Additional
Information
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities........................ Not Applicable
</TABLE>
<PAGE> 3
[POLARIS II PROFILE LOGO]
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
KNOW AND
CONSIDER BEFORE PURCHASING THE POLARIS(II) VARIABLE ANNUITY. THE SECTIONS IN
THIS PROFILE
CORRESPOND TO SECTIONS IN THE ACCOMPANYING PROSPECTUS WHICH DISCUSS THE TOPICS
IN MORE DETAIL.
THE ANNUITY IS MORE FULLY DESCRIBED IN THE PROSPECTUS. PLEASE READ THE
PROSPECTUS CAREFULLY.
February 2, 1998
================================================================
1. THE POLARIS(II) VARIABLE ANNUITY
================================================================
The Polaris(II) Variable Annuity is a contract between you and Anchor National
Life Insurance Company. It is designed to help you invest on a tax-deferred
basis and meet long-term financial goals, such as retirement funding. Tax
deferral means all your money, including the amount you would otherwise pay in
current income taxes, remains in your contract to generate more earnings. Your
money could grow faster than it would in a comparable taxable investment.
Polaris(II) offers a diverse selection of money managers and investment options.
You may divide your money among any or all of our 25 variable investment
portfolios and 6 fixed investment options. Your investment is not guaranteed.
The value of your Polaris(II) contract can fluctuate up or down, based on the
performance of the underlying investments you select, and you may experience a
loss.
The variable investment portfolios offer professionally managed investment
choices with goals ranging from capital preservation to aggressive growth. Your
choices for the various investment options are found on the next page.
The contract also offers 6 fixed investment options, for different time periods
and each with a different interest rate that is guaranteed by Anchor National.
Like most annuities, the contract has an Accumulation Phase and an Income Phase.
During the Accumulation Phase, you invest money in your contract. Your earnings
are based on the investment performance of the variable investment portfolios to
which your money is allocated and/or the interest rate earned on the fixed
investment options. You may withdraw money from your contract during the
Accumulation Phase. However, as with other tax-deferred investments, you will
pay taxes on earnings and untaxed contributions when you withdraw them. An IRS
tax penalty may apply if you make withdrawals before age 59 1/2. During the
Income Phase, you will receive payments from your annuity. Your payments may be
fixed in dollar amount, vary with investment performance or a combination of
both, depending on where your money is allocated. Among other factors, the
amount of money you are able to accumulate in your contract during the
Accumulation Phase will determine the amount of your payments during the Income
Phase.
================================================================
2. ANNUITY INCOME OPTIONS
================================================================
You can select from one of five annuity income options:
(1) payments for your lifetime;
(2) payments for your lifetime and your survivor's lifetime;
(3) payments for your lifetime and your survivor's lifetime, but for not less
than 10 years;
(4) payments for your lifetime, but for not less than 10 or 20 years; and
(5) payments for a specified period of 5 to 30 years.
You will also need to decide if you want your payments to fluctuate with
investment performance or remain constant, and the date on which your payments
will begin. Once you begin receiving payments, you cannot change your annuity
option. If your contract is part of a non-qualified retirement plan (one that is
established with after tax dollars), payments during the Income Phase are
considered partly a return of your original investment. The "original
investment" part of each payment is not taxable as income. For contracts which
are part of a qualified retirement plan using before tax dollars, the entire
payment is taxable as income.
================================================================
3. PURCHASING A POLARIS(II) VARIABLE
ANNUITY CONTRACT
================================================================
You can buy a contract through your financial representative, who can also help
you complete the proper forms. For Non-qualified contracts, the minimum initial
investment is $5,000 and subsequent amounts of $500 or more may be added to your
contract at any time during the Accumulation Phase. For Qualified contracts, the
minimum initial investment is $2,000 and subsequent amounts of $250 or more may
be added to your contract at any time during the Accumulation Phase.
<PAGE> 4
================================================================
4. INVESTMENT OPTIONS
================================================================
You may allocate money to the following variable investment portfolios of the
Anchor Series Trust and/or the SunAmerica Series Trust:
ANCHOR SERIES TRUST
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Natural Resources Portfolio
- Government and Quality Bond Portfolio
SUNAMERICA SERIES TRUST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
- Real Estate Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/ GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
- Growth/Phoenix Investment Counsel Portfolio
- Balanced/Phoenix Investment Counsel Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
You may also allocate money to the 1, 3, 5, 7 and 10 year fixed investment
options and the 1-year DCA account option. The interest rate may differ from
time to time but will never be less than 3%. Once established, the rate will not
change during the selected period. Your contract value will be adjusted up or
down for withdrawals or transfers from the 3, 5, 7 and 10 year fixed investment
options prior to the end of the selected period.
================================================================
5. EXPENSES
================================================================
Each year, we deduct a $35 contract maintenance fee ($30 in North Dakota) from
your contract. This fee is currently waived if the value of your contract is at
least $50,000. We also deduct insurance charges which equal 1.52% annually of
the average daily value of your contract allocated to the variable portfolios.
The insurance charges include: Mortality and Expense Risk, 1.37%, and
Distribution Expense, .15%.
As with other professionally managed investments, there are also investment
charges imposed on contracts with money allocated to the variable portfolios,
which are estimated to range from .63% to 1.90%.
If you take money out in excess of the amount allowed for in your contract, you
may be assessed a withdrawal charge which is a percentage of the money you
withdraw. The percentage declines with each year the money is in the contract as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
YEAR 1 2 3 4 5 6 7 8+
- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WITHDRAWAL
CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------
</TABLE>
Each year, you are allowed to make 15 transfers without charge. After your first
15 free transfers, a $25 transfer fee ($10 in Pennsylvania and Texas) will apply
to each subsequent transfer.
In a limited number of states, you may also be assessed a state premium tax of
up to 3.5% depending upon the state.
The following chart is designed to help you understand the charges in your
contract. The column "Total Annual Charges" shows the total of the 1.52%
insurance charges, the $35 contract maintenance fee and the investment charges
for each variable portfolio. We converted the contract maintenance fee to a
percentage using an assumed contract size of $40,000. The actual impact of this
charge on your contract may differ from this percentage.
The next two columns show two examples of the charges you would pay under the
contract. The examples assume that you invested $1,000 in a contract which earns
5% annually and that you withdraw your money: (1) at the end of year 1, and (2)
at the end of year 10. The premium tax is assumed to be 0% in both examples.
<PAGE> 5
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL EXPENSES TOTAL EXPENSES
INSURANCE INVESTMENT TOTAL ANNUAL AT END OF AT END OF
ANCHOR SERIES TRUST PORTFOLIO CHARGES CHARGES CHARGES 1 YEAR 10 YEARS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation 1.61% .71% 2.32% $ 93 $265
Growth 1.61% .78% 2.39% $ 94 $272
Natural Resources 1.61% .89% 2.50% $ 95 $283
Government and Quality Bond 1.61% .71% 2.32% $ 93 $265
- -----------------------------------------------------------------------------------------------------------------------
SUNAMERICA SERIES TRUST PORTFOLIO
Emerging Markets 1.61% 1.90% 3.51% $105 $378
International Diversified Equities 1.61% 1.35% 2.96% $100 $328
Global Equities 1.61% .95% 2.56% $ 96 $289
International Growth and Income 1.61% 1.60% 3.21% $102 $351
Aggressive Growth 1.61% .90% 2.51% $ 95 $284
Real Estate 1.61% 1.25% 2.86% $ 99 $318
Putnam Growth 1.61% .91% 2.52% $ 95 $285
Growth/Phoenix 1.61% .73% 2.34% $ 94 $267
Alliance Growth 1.61% .65% 2.26% $ 93 $259
Venture Value 1.61% .79% 2.40% $ 94 $273
Federated Value 1.61% 1.03% 2.64% $ 97 $297
Growth-Income 1.61% .65% 2.26% $ 93 $259
Utility 1.61% 1.05% 2.66% $ 97 $299
Asset Allocation 1.61% .68% 2.29% $ 93 $262
Balanced/Phoenix 1.61% .82% 2.43% $ 95 $276
SunAmerica Balanced 1.61% 1.00% 2.61% $ 96 $294
Worldwide High Income 1.61% 1.10% 2.71% $ 97 $304
High-Yield Bond 1.61% .75% 2.36% $ 94 $269
Corporate Bond 1.61% .91% 2.52% $ 95 $285
Global Bond 1.61% .90% 2.51% $ 95 $284
Cash Management 1.61% .63% 2.24% $ 93 $257
-
-
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
For more detailed information, see the Fee Tables and Examples in the
prospectus.
================================================================
6. TAXES
================================================================
Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts earned in a Non-qualified contract (one that is established
with after tax dollars) are deferred until they are withdrawn. In a Qualified
contract (one that is established with before tax dollars like an IRA), all
amounts are taxable when they are withdrawn.
When you begin taking distributions or withdrawals from your contract, earnings
are considered to be taken out first and will be taxed at your ordinary income
rate. You may be subject to a 10% IRS tax penalty for distributions or
withdrawals before age 59 1/2.
================================================================
7. ACCESS TO YOUR MONEY
================================================================
During the first year, you may withdraw free of a withdrawal charge an amount
that is equal to the penalty-free earnings in your contract as of the date you
make the withdrawal or, if you participate in the Systematic Withdrawal Program,
you may withdraw 10% of your total invested amount less any withdrawals made
during the year. The penalty-free earnings amount is calculated by taking the
value of your contract on the day you make the withdrawal and subtracting your
total invested amount. After the first year, your maximum free withdrawal amount
is the greater of: (1) the penalty-free earnings or (2) 10% of your total
invested amount that has been invested for at least one year, less any
withdrawals made during the year.
Withdrawals in excess of these limits will be assessed a withdrawal charge.
Withdrawals may be made from your contract in the amount of $1,000 or more. You
may request a withdrawal in writing or by establishing systematic withdrawals.
Under systematic withdrawals, the minimum withdrawal amount is $250.
If you withdraw your entire contract value, you will not receive the benefit of
any free withdrawal amount. After your money has been in the contract for seven
full years, there are no withdrawal charges on that portion of the money that
you have invested for at least seven full years. Of course, you may have to pay
income tax and a 10% IRS tax penalty may apply if you are under age 59 1/2.
Additionally, withdrawal charges are not assessed when a death benefit is paid.
================================================================
8. PERFORMANCE
================================================================
The value of your annuity will fluctuate depending upon the investment
performance of the portfolio(s) you choose.
The following chart shows total returns for each portfolio for the time periods
shown. These numbers reflect the insurance charges, the contract maintenance fee
and the investment charges. Withdrawal charges are not reflected in the chart.
Past performance is no guarantee of future results.
<PAGE> 6
<TABLE>
<CAPTION>
- -----------------------------------------------------
ANCHOR SERIES INCEPTION TO
TRUST PORTFOLIO 11/30/97
- -----------------------------------------------------
<S> <C>
Capital Appreciation 17.05%
Growth 14.52%
Natural Resources (11.24)%
Government and Quality Bond 6.26%
- -----------------------------------------------------
SUNAMERICA SERIES
TRUST PORTFOLIO
Emerging Markets (18.61)%
International Diversified Equities (1.94)%
Global Equities 2.90%
International Growth and Income 5.58%
Aggressive Growth 15.07%
Real Estate 17.37%
Putnam Growth* 18.18%
Growth/Phoenix 12.52%
Alliance Growth 13.28%
Venture Value 16.76%
Federated Value 14.45%
Growth-Income 15.51%
Utility 17.54%
Asset Allocation 8.79%
Balanced/Phoenix 7.93%
SunAmerica Balanced 13.20%
Worldwide High Income 5.01%
High-Yield Bond 8.74%
Corporate Bond 6.76%
Global Bond 6.56%
Cash Management 2.02%
-
- -----------------------------------------------------
</TABLE>
*Formerly named Provident Growth.
================================================================
9. DEATH BENEFIT
================================================================
If you should die during the Accumulation Phase, your beneficiary will receive a
death benefit. You must select from the two death benefit options described
below at the time you purchase your contract. Once selected, your death benefit
may not be changed. You should discuss with your financial representative the
options available to you and which option is best for you.
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION:
The death benefit is the greater of:
(1) the value of your contract,
(2) the money you put in less any withdrawals, all compounded at 4% annually (3%
if age 70 or older at time of issue), or
(3) the value of your contract on the seventh contract anniversary less any
withdrawals plus any additional money you put in since the seventh
anniversary, all compounded at 4% annually (3% if age 70 or older at time of
issue).
OPTION 2 - MAXIMUM ANNIVERSARY VALUE OPTION:
The death benefit is the greater of:
(1) the value of your contract,
(2) the money you put in less any withdrawals, or
(3) the maximum of the anniversary values up to your 81st birthday. The
anniversary value is equal to the value of your contract on the contract
anniversary less any withdrawals plus any additional money you put in since
that anniversary.
If you are age 90 or older at the time of death, the death benefit under option
2 is the value of your contract.
================================================================
10. OTHER INFORMATION
================================================================
FREE LOOK: You may cancel your contract within ten days (or longer if required
by your state) by mailing it to our Annuity Service Center. Your contract will
be treated as void on the date we receive it and we will pay you an amount equal
to the value of your contract (unless otherwise required by state law). Its
value may be more or less than the money you initially invested.
ASSET ALLOCATION REBALANCING: If selected by you, this program seeks to keep
your investment in line with your goals. We will maintain your specified
allocation mix in the variable investment portfolios and the 1-year fixed
investment option by readjusting your money on a calendar quarter, semiannual or
annual basis.
SYSTEMATIC WITHDRAWAL PROGRAM: If selected by you, this program allows you to
receive either monthly, quarterly, semiannual or annual checks during the
Accumulation Phase. Systematic withdrawals may also be electronically wired to
your bank account. Of course, withdrawals may be taxable and a 10% IRS tax
penalty may apply if you are under age 59 1/2.
PRINCIPAL ADVANTAGE PROGRAM: If selected by you, this program allows you to
obtain growth potential without any market risk to your principal. We will
guarantee that the portion of your money allocated to the 1, 3, 5, 7 or 10 year
fixed investment options will grow to equal your principal investment when it is
allocated in accordance with the program.
DOLLAR COST AVERAGING: If selected by you, this program allows you to invest
gradually in the equity and bond portfolios from any of the variable investment
portfolios, the 1-year fixed investment option or the 1-year DCA account option.
AUTOMATIC PAYMENT PLAN: You can add to your contract directly from your bank
account with as little as $20 per month.
CONFIRMATIONS AND QUARTERLY STATEMENTS: You will receive a confirmation of each
transaction within your contract. On a quarterly basis, you will receive a
complete statement of your transactions over the past quarter and a summary of
your account values.
================================================================
11. INQUIRIES
================================================================
If you have questions about your contract or need to make changes, call your
financial representative or contact us at:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
If money accompanies your correspondence, you should direct it to:
Anchor National Life Insurance Company
P.O. Box 100330
Pasadena, California 91189-0001
<PAGE> 7
[POLARIS II LOGO]
PROSPECTUS
FEBRUARY 2, 1998
<TABLE>
<S> <C> <C>
Please read this prospectus FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
carefully before investing and issued by
keep it for future reference. ANCHOR NATIONAL LIFE INSURANCE COMPANY
It contains important in connection with
information about the VARIABLE SEPARATE ACCOUNT
Polaris(II) Variable Annuity. The annuity has 31 investment choices - 6 fixed investment options and
25 variable investment portfolios listed below. The 6 fixed investment
To learn more about the annuity options include specified periods of 1, 3, 5, 7 and 10 years and the
offered by this prospectus, you 1-year DCA account. The 25 variable investment portfolios are part of
can obtain a copy of the the Anchor Series Trust or the SunAmerica Series Trust.
Statement of Additional
Information ("SAI") dated ANCHOR SERIES TRUST:
February 2, 1998. The SAI has MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
been filed with the Securities - Capital Appreciation Portfolio
and Exchange Commission ("SEC") - Growth Portfolio
and is incorporated by - Natural Resources Portfolio
reference into this prospectus. - Government and Quality Bond Portfolio
The Table of Contents of the
SAI appears on page 28 of this SUNAMERICA SERIES TRUST:
prospectus. For a free copy of MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
the SAI, call us at (800) - Global Equities Portfolio
445-SUN2 or write to us at our - Alliance Growth Portfolio
Annuity Service Center, P.O. - Growth-Income Portfolio
Box 54299, Los Angeles, MANAGED BY DAVIS SELECTED ADVISERS, L.P.
California 90054-0299. - Venture Value Portfolio
- Real Estate Portfolio
In addition, the SEC maintains MANAGED BY FEDERATED INVESTORS
a website (http://www.sec.gov) - Federated Value Portfolio
that contains the SAI, - Utility Portfolio
materials incorporated by - Corporate Bond Portfolio
reference and other information MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
filed electronically with the GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
SEC. - Asset Allocation Portfolio
- Global Bond Portfolio
ANNUITIES INVOLVE RISKS, MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
INCLUDING POSSIBLE LOSS OF - International Diversified Equities Portfolio
PRINCIPAL, AND ARE NOT A - Worldwide High Income Portfolio
DEPOSIT OR OBLIGATION OF, OR MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
GUARANTEED OR ENDORSED BY, ANY - Growth/Phoenix Investment Counsel Portfolio
BANK. THEY ARE NOT FEDERALLY - Balanced/Phoenix Investment Counsel Portfolio
INSURED BY THE FEDERAL DEPOSIT MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
INSURANCE CORPORATION, THE - Putnam Growth Portfolio
FEDERAL RESERVE BOARD OR ANY - International Growth and Income Portfolio
OTHER AGENCY. - Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 8
<TABLE>
<S> <C> <C>
==============================================================
TABLE OF CONTENTS
==============================================================
GLOSSARY.................................................... 2
FEE TABLES.................................................. 3
Owner Transaction Expenses............................ 3
Annual Separate Account Expenses...................... 3
Portfolio Expenses.................................... 3
EXAMPLES.................................................... 4
1. THE POLARIS(II) VARIABLE ANNUITY...................... 5
2. ANNUITY INCOME OPTIONS................................ 5
Allocation of Annuity Payments........................ 6
Annuity Payments...................................... 6
Transfers During the Income Phase..................... 6
Deferment of Payments................................. 6
3. PURCHASING A POLARIS(II) VARIABLE
ANNUITY CONTRACT...................................... 7
Allocation of Purchase Payments....................... 7
Accumulation Units.................................... 7
Free Look............................................. 7
4. INVESTMENT OPTIONS.................................... 7
Variable Investment Options........................... 7
Anchor Series Trust................................... 8
SunAmerica Series Trust............................... 8
Fixed Investment Options.............................. 8
Market Value Adjustment............................... 8
Transfers During the Accumulation Phase............... 9
Dollar Cost Averaging Program......................... 9
Asset Allocation Rebalancing Program.................. 10
Principal Advantage Program........................... 10
Voting Rights......................................... 10
Substitution.......................................... 10
5. EXPENSES.............................................. 10
Insurance Charges..................................... 10
Mortality and Expense Risk Charge..................... 11
Distribution Expense Charge........................... 11
Withdrawal Charges.................................... 11
Investment Charges.................................... 11
Contract Maintenance Fee.............................. 11
Transfer Fee.......................................... 11
Premium Taxes......................................... 11
Income Taxes.......................................... 11
Reduction or Elimination of Certain Charges........... 11
6. TAXES................................................. 12
Annuity Contracts in General.......................... 12
Tax Treatment of Distributions -
Non-Qualified Contracts............................... 12
Tax Treatment of Distributions -
Qualified Contracts................................... 12
Diversification....................................... 12
7. ACCESS TO YOUR MONEY.................................. 13
Systematic Withdrawal Program......................... 13
Nursing Home Waiver................................... 13
Minimum Contract Value................................ 14
8. PERFORMANCE........................................... 14
9. DEATH BENEFIT......................................... 14
10. OTHER INFORMATION..................................... 15
Anchor National....................................... 15
The Separate Account.................................. 15
The General Account................................... 15
Distribution.......................................... 15
Administration........................................ 15
Legal Proceedings..................................... 15
Ownership............................................. 15
Custodian............................................. 16
Additional Information................................ 16
Selected Consolidated Financial Data.................. 17
Management Discussion and Analysis.................... 17
Properties............................................ 25
Directors and Executive Officers...................... 26
Executive Compensation................................ 27
Security Ownership of Owners and Management........... 27
State Regulation...................................... 27
Independent Accountants............................... 28
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION....
28
FINANCIAL STATEMENTS........................................ 28
APPENDIX A -- CONDENSED FINANCIAL INFORMATION............... A-1
APPENDIX B -- MARKET VALUE ADJUSTMENT....................... B-1
APPENDIX C -- PREMIUM TAXES................................. C-1
==============================================================
GLOSSARY
==============================================================
We have capitalized some of the technical terms used in this
prospectus. To help you understand these terms, we have defined
them in this glossary.
ACCUMULATION PHASE - The period during which you invest money in
your contract.
ACCUMULATION UNITS - A measurement we use to calculate the value
of the variable portion of your contract during the Accumulation
Phase.
ANNUITANT(S) - The person(s) on whose life (lives) we base annuity
payments.
ANNUITY DATE - The date on which annuity payments are to begin, as
selected by you.
ANNUITY UNITS - A measurement we use to calculate the mount of
annuity payments you receive from the variable portion of your
contract during the Income Phase.
BENEFICIARY (IES) - The person(s) designated to receive any
benefits under the contract if you or the Annuitant dies.
INCOME PHASE - The period during which we make annuity payments to
you.
IRS - The Internal Revenue Service.
NON-QUALIFIED (CONTRACT) - A contract purchased with after-tax
dollars. In general, these contracts are not under any pension
plan, specially sponsored program or individual retirement account
("IRA").
PORTFOLIO(S) - The variable investment options available under the
contract. Each Portfolio has its own investment objective and is
invested in the underlying investments of the Anchor Series Trust
or the SunAmerica Series Trust.
PURCHASE PAYMENTS - The money you give us to buy the contract, as
well as any additional money you give us to invest in the contract
after you own it.
QUALIFIED (CONTRACT) - A contract purchased with pretax dollars.
These contracts are generally purchased under a pension plan,
specially sponsored program or individual retirement account
("IRA").
TRUSTS - Refers to the Anchor Series Trust and the SunAmerica
Series Trust collectively.
</TABLE>
2
<PAGE> 9
================================================================================
FEE TABLES
================================================================================
OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)
<TABLE>
<S> <C> <C> <C>
Year 1...................... 7% Year 5...................... 3%
Year 2...................... 6% Year 6...................... 2%
Year 3...................... 5% Year 7...................... 1%
Year 4...................... 4% Year 8+..................... 0%
TRANSFER FEE................... No charge for first 15 transfers
each year; thereafter, fee is
$25 ($10 in Pennsylvania and
Texas)
CONTRACT MAINTENANCE FEE*...... $35 ($30 in North Dakota)
*waived if contract value is $50,000 or more
</TABLE>
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge................ 1.37%
Distribution Expense Charge...................... 0.15%
-----
TOTAL SEPARATE ACCOUNT EXPENSES 1.52%
======
</TABLE>
PORTFOLIO EXPENSES
ANCHOR SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S TWELVE-MONTH PERIOD ENDED
NOVEMBER 30, 1997)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
============================================================================================================
Capital Appreciation .65% .06% .71%
------------------------------------------------------------------------------------------------------------
Growth .72% .06% .78%
------------------------------------------------------------------------------------------------------------
Natural Resources .75% .14% .89%
------------------------------------------------------------------------------------------------------------
Government and Quality Bond .62% .09% .71%
============================================================================================================
</TABLE>
SUNAMERICA SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S FISCAL YEAR ENDED
NOVEMBER 30, 1997)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
============================================================================================================
Emerging Markets* 1.25% .65% 1.90%
------------------------------------------------------------------------------------------------------------
International Diversified Equities 1.00% .35% 1.35%
------------------------------------------------------------------------------------------------------------
Global Equities .76% .19% .95%
------------------------------------------------------------------------------------------------------------
International Growth and Income* 1.00% .60% 1.60%
------------------------------------------------------------------------------------------------------------
Aggressive Growth .76% .14% .90%
------------------------------------------------------------------------------------------------------------
Real Estate* .80% .45% 1.25%
------------------------------------------------------------------------------------------------------------
Putnam Growth** .83% .08% .91%
------------------------------------------------------------------------------------------------------------
Growth/Phoenix .65% .08% .73%
------------------------------------------------------------------------------------------------------------
Alliance Growth .59% .06% .65%
------------------------------------------------------------------------------------------------------------
Venture Value .74% .05% .79%
------------------------------------------------------------------------------------------------------------
Federated Value .80% .23% 1.03%
------------------------------------------------------------------------------------------------------------
Growth-Income .60% .05% .65%
------------------------------------------------------------------------------------------------------------
Utility .75% .30% 1.05%
------------------------------------------------------------------------------------------------------------
Asset Allocation .61% .07% .68%
------------------------------------------------------------------------------------------------------------
Balanced/Phoenix .68% .14% .82%
------------------------------------------------------------------------------------------------------------
SunAmerica Balanced .74% .26% 1.00%
------------------------------------------------------------------------------------------------------------
Worldwide High Income 1.00% .10% 1.10%
------------------------------------------------------------------------------------------------------------
High-Yield Bond .66% .09% .75%
------------------------------------------------------------------------------------------------------------
Corporate Bond .70% .21% .91%
------------------------------------------------------------------------------------------------------------
Global Bond .72% .18% .90%
------------------------------------------------------------------------------------------------------------
Cash Management .54% .09% .63%
============================================================================================================
</TABLE>
* As of the date of this prospectus, the sale of contracts offering the
Emerging Markets, Real Estate and International Growth and Income Portfolios
had not begun. The percentages are based on estimated amounts for the current
fiscal year.
** As of April 16, 1997, the Provident Growth Portfolio was renamed the Putnam
Growth Portfolio, managed by Putnam Investment Management, Inc. The expenses
shown here are those of the former Provident Growth Portfolio managed by
Provident Investment Counsel.
THE ABOVE PORTFOLIO EXPENSES WERE PROVIDED BY THE TRUSTS. WE HAVE NOT
INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
3
<PAGE> 10
================================================================================
EXAMPLES
================================================================================
You will pay the following expenses on a $1,000 investment in each Portfolio,
assuming a 5% annual return on assets and:
(a) surrender of the contract at the end of the stated time period;
(b) if the contract is not surrendered or annuitized.
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
========================================================================================================
(a)
Capital Appreciation (a) $ 93 (a) $122 (a) $154 $265
(b)
(b) $ 23 (b) $ 72 (b) $124 $265
--------------------------------------------------------------------------------------------------------
(a)
Growth (a) $ 94 (a) $124 (a) $157 $272
(b)
(b) $ 24 (b) $ 74 (b) $127 $272
--------------------------------------------------------------------------------------------------------
(a)
Natural Resources (a) $ 95 (a) $128 (a) $163 $283
(b)
(b) $ 25 (b) $ 78 (b) $133 $283
--------------------------------------------------------------------------------------------------------
(a)
Government and Quality Bond (a) $ 93 (a) $122 (a) $154 $265
(b)
(b) $ 23 (b) $ 72 (b) $124 $265
--------------------------------------------------------------------------------------------------------
(a)
Emerging Markets (a) $105 (a) $158 (a) $212 $378
(b)
(b) $ 35 (b) $108 (b) $182 $378
--------------------------------------------------------------------------------------------------------
(a)
International Diversified Equities (a) $100 (a) $141 (a) $186 $328
(b)
(b) $ 30 (b) $ 91 (b) $156 $328
--------------------------------------------------------------------------------------------------------
(a)
Global Equities (a) $ 96 (a) $130 (a) $166 $289
(b)
(b) $ 26 (b) $ 80 (b) $136 $289
--------------------------------------------------------------------------------------------------------
(a)
International Growth and Income (a) $102 (a) $149 (a) $198 $351
(b)
(b) $ 32 (b) $ 99 (b) $168 $351
--------------------------------------------------------------------------------------------------------
(a)
Aggressive Growth (a) $ 95 (a) $128 (a) $163 $284
(b)
(b) $ 25 (b) $ 78 (b) $133 $284
--------------------------------------------------------------------------------------------------------
(a)
Real Estate (a) $ 99 (a) $139 (a) $181 $318
(b)
(b) $ 29 (b) $ 89 (b) $151 $318
--------------------------------------------------------------------------------------------------------
(a)
Putnam Growth (a) $ 95 (a) $128 (a) $164 $285
(b)
(b) $ 25 (b) $ 78 (b) $134 $285
--------------------------------------------------------------------------------------------------------
(a)
Growth/Phoenix (a) $ 94 (a) $123 (a) $155 $267
(b)
(b) $ 24 (b) $ 73 (b) $125 $267
--------------------------------------------------------------------------------------------------------
(a)
Alliance Growth (a) $ 93 (a) $121 (a) $151 $259
(b)
(b) $ 23 (b) $ 71 (b) $121 $259
--------------------------------------------------------------------------------------------------------
(a)
Venture Value (a) $ 94 (a) $125 (a) $158 $273
(b)
(b) $ 24 (b) $ 75 (b) $128 $273
--------------------------------------------------------------------------------------------------------
(a)
Federated Value (a) $ 97 (a) $132 (a) $170 $297
(b)
(b) $ 27 (b) $ 82 (b) $140 $297
--------------------------------------------------------------------------------------------------------
(a)
Growth-Income (a) $ 93 (a) $121 (a) $151 $259
(b)
(b) $ 23 (b) $ 71 (b) $121 $259
--------------------------------------------------------------------------------------------------------
(a)
Utility (a) $ 97 (a) $133 (a) $171 $299
(b)
(b) $ 27 (b) $ 83 (b) $141 $299
--------------------------------------------------------------------------------------------------------
(a)
Asset Allocation (a) $ 93 (a) $121 (a) $152 $262
(b)
(b) $ 23 (b) $ 71 (b) $122 $262
--------------------------------------------------------------------------------------------------------
(a)
Balanced/Phoenix (a) $ 95 (a) $126 (a) $159 $276
(b)
(b) $ 25 (b) $ 76 (b) $129 $276
--------------------------------------------------------------------------------------------------------
(a)
SunAmerica Balanced (a) $ 96 (a) $131 (a) $168 $294
(b)
(b) $ 26 (b) $ 81 (b) $138 $294
--------------------------------------------------------------------------------------------------------
(a)
Worldwide High Income (a) $ 97 (a) $134 (a) $173 $304
(b)
(b) $ 27 (b) $ 84 (b) $143 $304
--------------------------------------------------------------------------------------------------------
(a)
High-Yield Bond (a) $ 94 (a) $124 (a) $156 $269
(b)
(b) $ 24 (b) $ 74 (b) $126 $269
--------------------------------------------------------------------------------------------------------
(a)
Corporate Bond (a) $ 95 (a) $128 (a) $164 $285
(b)
(b) $ 25 (b) $ 78 (b) $134 $285
--------------------------------------------------------------------------------------------------------
(a)
Global Bond (a) $ 95 (a) $128 (a) $163 $284
(b)
(b) $ 25 (b) $ 78 (b) $133 $284
--------------------------------------------------------------------------------------------------------
(a)
Cash Management (a) $ 93 (a) $120 (a) $150 $257
(b)
(b) $ 23 (b) $ 70 (b) $120 $257
========================================================================================================
</TABLE>
4
<PAGE> 11
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract.
2. For certain Portfolios, the adviser, SunAmerica Asset Management Corp., has
voluntarily agreed to waive fees or reimburse certain expenses, if
necessary, to keep annual operating expenses at or below the lesser of the
maximum allowed by any applicable state expense limitations or the following
percentages of each Portfolio's average net assets: Aggressive Growth
(.90%); Federated Value (1.03%); SunAmerica Balanced (1.00%); Utility
(1.05%); Emerging Markets (1.90%); International Growth and Income (1.60%);
and Real Estate (1.25%). The adviser also may voluntarily waive or reimburse
additional amounts to increase a Portfolio's investment return. All waivers
and/or reimbursements may be terminated at any time. Furthermore, the
adviser may recoup any waivers or reimbursements within two years after such
waivers or reimbursements are granted, provided that the Portfolio is able
to make such payment and remain in compliance with the foregoing expense
limitations.
3. The Examples assume that no transfer fees were imposed. Although premium
taxes may apply in certain states, they are not reflected in the Examples.
4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE HISTORICAL ACCUMULATION UNIT VALUES ARE CONTAINED IN
APPENDIX A -- CONDENSED FINANCIAL INFORMATION.
================================================================
1. THE POLARIS(II) VARIABLE ANNUITY
================================================================
An annuity is a contract between you, as the owner, and an insurance company.
The contract provides tax deferral for your earnings, as well as a death benefit
and a guaranteed income in the form of annuity payments beginning on a date you
select. Until you decide to begin receiving annuity payments, your annuity is in
the Accumulation Phase. Once you begin receiving annuity payments, your contract
switches to the Income Phase. If you die during the Accumulation Phase, the
insurance company guarantees a death benefit to your Beneficiary.
The Polaris(II) Variable Annuity Contract is issued by Anchor National Life
Insurance Company ("Anchor National"), a stock life insurance company organized
under the laws of the state of Arizona. Its principal business address is 1
SunAmerica Center, Los Angeles, California 90067-6022. Anchor National conducts
life insurance and annuity business in the District of Columbia and in all
states except New York. Anchor National is an indirect wholly owned subsidiary
of SunAmerica Inc., a Maryland corporation.
During the Accumulation Phase, the value of your annuity benefits from tax
deferral. This means your earnings accumulate on a tax-deferred basis until you
take money out of your contract. The Income Phase occurs if you decide to
receive annuity payments. You select the date on which annuity payments are to
begin.
The contract is called a variable annuity because you can choose among 25
variable investment Portfolios. Depending upon market conditions, you can make
or lose money in any of these Portfolios. If you allocate money to the
Portfolios, the amount of money you are able to accumulate in your contract
during the Accumulation Phase depends upon the investment performance of the
Portfolio(s) you select. The amount of the annuity payments you receive during
the Income Phase from the variable portion of your contract also depends upon
the investment performance of the Portfolios you select for the Income Phase.
The contract also contains 6 fixed investment options. Your money will earn
interest at the rate set by Anchor National. The interest rate is guaranteed by
Anchor National for the time you agree to leave your money in the fixed
investment option. We currently offer fixed investment options for 1, 3, 5, 7
and 10 year periods and a 1-year DCA account option. If you allocate money to
the fixed investment options, the amount of money you are able to accumulate in
your contract during the Accumulation Phase depends upon the total interest
credited to your contract. An adjustment to your contract will apply to
withdrawals or transfers from the 3, 5, 7 and 10 year fixed investment options
prior to the end of the selected period. The amount of annuity payments you
receive during the Income Phase from the fixed portion of your contract will
remain level for the entire Income Phase.
================================================================
2. ANNUITY INCOME OPTIONS
================================================================
When you switch to the Income Phase, you will receive regular income payments
under the contract. Annuity payments will be made on a monthly, quarterly,
semiannual or annual basis. You can choose to have your annuity payments sent to
you by check or electronically wired to your bank.
You select the date on which annuity payments are to begin, which must be the
first day of a month and must be at least two years after the date your contract
is issued. We call this the Annuity Date. You may change your Annuity Date at
least seven days prior to the date that your payments are to begin. However,
annuity payments must begin by the later of your 90th birthday or ten years
after the date your contract is issued. If no Annuity Date is selected, annuity
payments will begin on the later of your 90th birthday or ten years after the
date your contract is issued. Certain states may require you to receive annuity
payments prior to such date. If the Annuity
5
<PAGE> 12
Date is past your 85th birthday, it is possible that the contract would not be
treated as an annuity and you may incur adverse tax consequences.
The Annuitant is the person on whose life annuity payments are based. You may
change the Annuitant at any time prior to the Annuity Date if you are an
individual designated as the owner of the contract. You may also designate a
second person on whose life annuity payments are based. If the Annuitant dies
before the Annuity Date, you must notify us and designate a new Annuitant.
If you do not choose an annuity income option, annuity payments will be made in
accordance with option 4 (below) for 10 years. If the annuity payments are for
joint lives, then we will make payments in accordance with option 3. We may pay
the annuity in one lump sum if your contract is less than $5,000, where
permitted by state law. Likewise, if your annuity payments would be less than
$50 a month, we have the right to change the frequency of your payment to be on
a quarterly, semiannual or annual basis so that your annuity payments are at
least $50. Annuity payments will be made to you unless you designate another
person to receive them. In that case, you must notify us in writing at least
thirty days before the Annuity Date. You will remain fully responsible for any
taxes related to the annuity payments.
The contract offers 5 annuity income options. Other annuity income options may
be available in the future.
OPTION 1 - LIFE INCOME
Under this option, we will make annuity payments as long as the Annuitant is
alive. Annuity payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR ANNUITY
Under this option, we will make annuity payments as long as the Annuitant and a
designated second person are alive. Upon the death of either person, we will
continue to make annuity payments so long as the survivor is alive. You choose
the amount of the annuity payments to the survivor, which can be equal to 100%,
66.66% or 50% of the full amount. Annuity payments stop upon the death of the
survivor.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10 YEARS GUARANTEED
This option is similar to option 2 above, with the additional guarantee that
payments will be made for at least 10 years. If the Annuitant and designated
second person die before all guaranteed payments have been made, the rest will
be made to the Beneficiary.
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to option 1 above, with the additional guarantee that
payments will be made for at least 10 or 20 years, as selected by you. Under
this option, if the Annuitant dies before all guaranteed payments have been
made, the rest will be made to the Beneficiary.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
Under this option, we will make annuity payments for any period of time from 5
to 30 years, as selected by you. However, the period must be for full 12-month
periods. Under this option, if the Annuitant dies before all guaranteed payments
have been made, the rest will be made to the Beneficiary. This option does not
contain an element of mortality risk. Therefore, you will not get the benefit of
the mortality component of the mortality and expense risk charge if this option
is selected.
ALLOCATION OF ANNUITY PAYMENTS
On the Annuity Date, if your money is invested in the fixed investment options,
your annuity payments will be fixed in amount. If your money is invested in the
variable Portfolios, your annuity payments will vary depending on the investment
performance of the Portfolios. If you have money in the fixed and variable
investment options, your annuity payments will be based on the investment
allocations. You may not convert between fixed and variable payments once
annuity payments begin.
ANNUITY PAYMENTS
If you choose to have any portion of your annuity payments come from the
variable Portfolios, the dollar amount of your payment will depend upon three
things: (1) the value of your contract in the Portfolios on the Annuity Date,
(2) the 3.5% assumed investment rate used in the annuity table for the contract
and (3) the performance of the Portfolios you selected. If the actual
performance exceeds the 3.5% assumed rate, your annuity payments will increase.
Similarly, if the actual rate is less than 3.5%, your annuity payments will
decrease. The SAI contains detailed information and sample calculations.
TRANSFERS DURING THE INCOME PHASE
Transfers are subject to the same limitations as transfers during the
Accumulation Phase. (See "Investment Options - Transfers During the Accumulation
Phase"). However, you can only make one transfer each month. You may not
transfer money from the fixed investment options to the variable Portfolios,
from the variable Portfolios to the fixed investment options or among the fixed
investment options during the Income Phase. You may transfer money among the
variable Portfolios.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
state law. Interest will be credited to you during the deferral period.
6
<PAGE> 13
================================================================
3. PURCHASING A POLARIS(II)
VARIABLE ANNUITY
================================================================
A Purchase Payment is the money you give us to buy the contract, as well as any
additional money you give us to invest in the contract after you own it. You can
purchase a Non-qualified contract with a minimum initial investment of $5,000
and a Qualified contract with a minimum initial investment of $2,000. The
maximum we accept is $1,000,000 without prior approval. Payments in amounts of
$500 or more may be added to your Non-qualified contract ($250 or more for
Qualified contracts) at any time during the Accumulation Phase. You can make
scheduled subsequent Purchase Payments of $20 or more per month by enrolling in
the Automatic Payment Plan.
We may refuse any Purchase Payment. In general, we will not issue a
Non-qualified contract to anyone who is over age 90 or a Qualified contract to
anyone who is age 70 1/2 or older unless you can show that the minimum
distributions required by the IRS are being made.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, you will allocate your Purchase Payment to the
variable investment Portfolios and/or the fixed investment options. If you make
additional Purchase Payments, we will allocate them in the same way unless you
tell us otherwise.
Once we receive your Purchase Payment and a complete application at our
principal place of business, we will issue your contract and allocate your first
Purchase Payment within two business days. If you do not give us all the
necessary information, we will contact you to obtain it. If we are unable to
complete this process within five business days, we will either send back your
money or get your permission to keep it until we get all the necessary
information.
ACCUMULATION UNITS
The value of the variable portion of your contract will go up or down depending
upon the investment performance of the Portfolio(s) you choose. In order to keep
track of the value of your contract, we use a unit of measure called an
Accumulation Unit, which works like a share of a mutual fund. During the Income
Phase, we call them Annuity Units.
The value of an Accumulation Unit is determined each day that the New York Stock
Exchange ("NYSE") is open. We calculate an Accumulation Unit value for each
Portfolio after the NYSE closes each day. We do this by:
(1) determining the total value of money invested in the particular
Portfolio;
(2) subtracting from that amount any insurance charges and any other
charges such as taxes; and
(3) dividing this amount by the number of outstanding Accumulation Units.
The value of an Accumulation Unit may go up or down from day to day. When you
make a Purchase Payment, we credit your contract with Accumulation Units. The
number of Accumulation Units credited is determined by dividing the amount of
the Purchase Payment allocated to a Portfolio by the value of the Accumulation
Unit for that Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You want the
money to go to the Global Bond Portfolio. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,000 by $11.10 and credit your
contract on Wednesday night with 2252.252 Accumulation Units for the Global
Bond Portfolio.
FREE LOOK
If you change your mind about owning this contract, you can cancel it within ten
days after receiving it (or longer if required by state law) by mailing it back
to our Annuity Service Center at P.O. Box 54299, Los Angeles, California
90054-0299. You will receive back whatever your contract is worth on the day we
receive your request. 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.
In certain states or if you purchase your contract as
an IRA, we may be required to return your Purchase Payment. If that is the case,
we reserve the right to put your money in the Cash Management Portfolio during
the free look period. At the end of the period, we will reallocate your money as
you selected. If you cancel your contract during the free look period, we will
return to you the greater of your Purchase Payments or the value of your
contract.
================================================================
4. INVESTMENT OPTIONS
================================================================
VARIABLE INVESTMENT OPTIONS
The contract offers 25 variable investment Portfolios which invest in shares of
the Anchor Series Trust or the SunAmerica Series Trust. These Portfolios are
listed below. Additional Portfolios may be available in the future. SunAmerica
Asset Management Corp., an indirect wholly owned subsidiary of SunAmerica Inc.,
is the investment adviser for both Trusts. The Trusts serve as underlying
investments for other variable contracts sold by Anchor National, its affiliate,
First SunAmerica Life Insurance Company, and other unaffiliated insurance
companies. Neither Anchor National nor the Trusts believes offering shares of
the Trusts in this manner will be disadvantageous to you. We will monitor the
Trusts for any conflicts that may arise between contract owners. Additional
information is contained in the prospectuses for the Trusts.
7
<PAGE> 14
ANCHOR SERIES TRUST
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust Portfolios. Anchor Series Trust has Portfolios in addition to those listed
below which are not available for investment under the contract. The 4 available
Portfolios are:
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Natural Resources Portfolio
- Government and Quality Bond Portfolio
SUNAMERICA SERIES TRUST
Various subadvisers provide investment advice for the SunAmerica Series Trust
Portfolios. The 21 Portfolios and the subadvisers are:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
- Real Estate Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
- Growth/Phoenix Investment Counsel Portfolio
- Balanced/Phoenix Investment Counsel Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
YOU SHOULD READ THE PROSPECTUSES FOR THE ANCHOR SERIES TRUST AND THE SUNAMERICA
SERIES TRUST CAREFULLY BEFORE INVESTING. THESE PROSPECTUSES CONTAIN DETAILED
INFORMATION ABOUT THE PORTFOLIOS AND ARE ATTACHED TO THIS PROSPECTUS.
FIXED INVESTMENT OPTIONS
The contract also offers 6 fixed investment options. We currently offer fixed
investment options for 1, 3, 5, 7, and 10 year periods and a 1-year DCA account
option for contract owners participating in the Dollar Cost Averaging Program.
The fixed investment options offer interest rates that are guaranteed by Anchor
National. Interest rates may differ from time to time due to changes in market
conditions but will not be less than 3%. The interest rates offered for a
specified period for new Purchase Payments may differ from the interest rates
offered for money already in the fixed investment option. Once an interest rate
is established, it will not change during the specified period. The interest
rates are set at Anchor National's sole discretion.
If you have money allocated to the 1, 3, 5, 7 or 10 year fixed investment
options, you can renew for another 1, 3, 5, 7 or 10 year period or put your
money into one or more of the variable Portfolios after the end of the specified
period. Unless you specify otherwise before the end of the period, we will keep
your money in the fixed investment option for the same period you previously
selected. You will receive the interest rate then in effect.
The 1-year fixed investment option and the 1-year DCA account are not registered
under the Securities Act of 1933 and are not subject to other provisions of the
Investment Company Act of 1940.
MARKET VALUE ADJUSTMENT
NOTE: THE FOLLOWING DISCUSSION APPLIES TO THE 3, 5, 7 AND 10 YEAR FIXED
INVESTMENT OPTIONS ONLY.
If you take your money out of the fixed investment options (whether by
withdrawal, transfer or annuitization) before the end of the specified period,
we will make an adjustment to the value of your contract. This adjustment,
called a "market value adjustment," can increase or decrease the value of your
contract. The market value adjustment reflects the differing interest rate
environments between the time you put your money into the fixed investment
option and the time you take your money out of the fixed investment option.
We calculate the market value adjustment by comparing the interest rate you
received on the money you put into the fixed investment option against the
interest rate we are currently offering to contract owners for the period of
time remaining in the specified period. If we do not offer an interest rate for
that period, the interest rate will be determined by linear interpolation
between interest rates for the two nearest periods that are available.
8
<PAGE> 15
Generally, if interest rates have dropped between the time you put your money
into the fixed investment option and the time you take it out, there will be a
positive adjustment to the value of your contract. Conversely, if interest rates
have increased between the time you put your money into the fixed investment
option and the time you take it out, there will be a negative adjustment to the
value of your contract.
If the market value adjustment is negative, it will be assessed first against
any money remaining in the fixed investment option and then against the money
you take out of the fixed investment option. If the market value adjustment is
positive, it will be added to the amount you take out of the fixed account.
Appendix B provides more information about how we calculate the market value
adjustment and gives some examples of the impact of the adjustment.
TRANSFERS DURING THE ACCUMULATION PHASE
You can transfer money among the Portfolios and the fixed investment options by
written request or by telephone. You can make 15 transfers every year without
charge. We measure a year from the anniversary of the day we issued your
contract. If you make more than 15 transfers in a year, there is a $25 transfer
fee for each transfer thereafter ($10 in Pennsylvania and Texas). Transfers
under Dollar Cost Averaging are included as part of your 15 free transfers each
year. However, transfers under Asset Allocation Rebalancing are not counted
against your 15 free transfers each year.
The minimum amount you can transfer is $100. You cannot make a partial transfer
if the value of the Portfolio from which the transfer is being made would be
less than $100 after the transfer. Your request for transfer must clearly state
which investment options are involved and the amount. We will accept transfers
by telephone unless you specify otherwise on your contract application. We have
in place procedures to provide reasonable assurance that instructions given to
us by telephone are genuine. Thus, we disclaim all liability for any claim, loss
or expense from any error. If we fail to use such procedures, we may be liable
for any losses due to unauthorized or fraudulent instructions.
We reserve the right to modify, suspend or terminate the transfer provisions at
any time. We also reserve the right to waive the $100 minimum amount for Dollar
Cost Averaging and Asset Allocation Rebalancing.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount or percentage from one variable Portfolio or the 1-year fixed investment
option to any other variable Portfolio(s). You can also select to transfer the
entire value in a variable Portfolio or the 1-year fixed investment option in a
stated number of transfers. Transfers may be on a monthly or quarterly basis.
You can change the amount or frequency at any time by notifying us in writing.
The minimum amount that can be transferred is $100.
You may also set up dollar cost averaging using the 1-year DCA account when you
make either your initial Purchase Payment or a subsequent Purchase Payment. In
that case, all your money in that account will be transferred to the variable
Portfolio(s) in either 12 or 4 transfers by the end of the 1-year period,
depending on the option and frequency you selected. Once selected, you cannot
change the option or frequency. The minimum amount that can be transferred from
the 1-year DCA account is also $100. We reserve the right to adjust the number
of transfers in order to meet the minimum transfer amount. You cannot transfer
money from the variable portfolio(s) or fixed investment options into the 1-year
DCA account.
The interest rate offered for the 1-year DCA account may be different from the
interest rate offered to contract owners using the 1-year fixed investment
option for this program. If you terminate this program and are dollar cost
averaging from the 1-year DCA account, any money remaining in the 1-year DCA
account will be automatically transferred to the 1-year fixed investment option
and earn the interest rate then in effect for that investment option unless you
specify another fixed or variable investment option.
By allocating amounts on a regular schedule as opposed to allocating the total
amount at one particular time, you may be less susceptible to the impact of
market fluctuations. However, there is no assurance that you will make a greater
profit. You are still subject to loss in a declining market. Dollar cost
averaging involves continuous investment in securities regardless of fluctuating
price levels. You should consider your financial ability to continue to invest
through periods of fluctuating prices.
Transfers under the program are included as part of your 15 free transfers each
year. However, any transfer from the 1-year DCA account upon termination of this
program will not be counted against your 15 free transfers. We reserve the right
to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Aggressive Growth Portfolio over six quarters.
You set
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<PAGE> 16
up dollar cost averaging and purchase Accumulation
Units at the following values:
<TABLE>
<CAPTION>
- -----------------------------------------
ACCUMULATION UNITS
QUARTER UNIT PURCHASED
- -----------------------------------------
<S> <C> <C>
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
- -----------------------------------------
</TABLE>
You paid an average price of only $6.67 per Accumulation Unit over the six
quarters, while the average market price actually was $7.08. By investing
an equal amount of money each month, you automatically buy more
Accumulation Units when the market price is low and fewer Accumulation
Units when the market price is high.
ASSET ALLOCATION REBALANCING PROGRAM
Once your money has been allocated among the investment options, the earnings
may cause the percentage invested in each investment option to differ from your
original percentage allocations. You can direct us to automatically rebalance
your contract to return to your original percentage allocations by selecting our
Asset Allocation Rebalancing Program. Rebalancing may be on a calendar quarter,
semiannual or annual basis. Rebalancing will occur on the last business day of
the month for the period you selected.
Transfers under the program are not counted against your 15 free transfers each
year. We reserve the right to modify, suspend or terminate this program at any
time.
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Portfolios. You want 50% in the Corporate Bond Portfolio and 50% in the
Growth Portfolio. Over the next calendar quarter, the bond market does very
well while the stock market performs poorly. At the end of the calendar
quarter, the Corporate Bond Portfolio now represents 60% of your holdings
because it has increased in value and the Growth Portfolio represents 40%
of your holdings. If you had chosen quarterly rebalancing, on the last day
of that quarter, we would sell some of your units in the Corporate Bond
Portfolio to bring its holdings back to 50% and use the money to buy more
units in the Growth Portfolio to increase those holdings to 50%.
PRINCIPAL ADVANTAGE PROGRAM
The Principal Advantage Program allows you to allocate Purchase Payments to a
fixed investment option and one or more variable Portfolios without any market
risk to your principal. You decide how much you want to invest and when you
would like a return of your principal. We will calculate how much of your
Purchase Payment needs to be allocated to the 1, 3, 5, 7 or 10 year fixed
investment options to ensure that this money will grow to equal the full amount
of your Purchase Payment by the end of the selected period. The rest of your
Purchase Payment may then be divided among the variable Portfolios where it has
the potential to achieve greater growth.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed investment option. You want the amount allocated
to the fixed investment option to grow to $100,000 in 7 years. If the
7-year fixed investment option is offering a 7% interest rate, we will
allocate $62,275 to the 7-year fixed investment option to ensure that this
amount will grow to $100,000 at the end of the 7-year period. The remaining
$37,725 may be allocated among the variable Portfolios, as determined by
you, to provide opportunity for greater growth.
VOTING RIGHTS
Anchor National is the legal owner of the Trusts' shares. However, when a
Portfolio solicits proxies in conjunction with a vote of shareholders, we are
required to obtain from you instructions as to how to vote those shares. When we
receive those instructions, we will vote all of the shares we own in proportion
to those instructions. This will also include any shares that we own on our
behalf. Should we determine that we are no longer required to comply with the
above, we will vote the shares in our own right.
SUBSTITUTION
If any of the Portfolios you selected are no longer available, we may be
required to substitute shares of another Portfolio. We will seek prior approval
of the SEC and give you notice before doing this.
================================================================
5. EXPENSES
================================================================
There are charges and other expenses associated with the contract that will
reduce your investment return. These charges and expenses are described below.
INSURANCE CHARGES
Each day, we make a deduction for our insurance charges. This is done as part of
our calculation of the value of the Accumulation Units during the Accumulation
Phase and the
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<PAGE> 17
Annuity Units during the Income Phase. The insurance charges consist of the
mortality and expense risk and the distribution expense charge.
MORTALITY AND EXPENSE RISK CHARGE
This charge is equal, on an annual basis, to 1.37% of the daily value of the
contract invested in a Portfolio. This charge is for our obligation to make
annuity payments, to provide the death benefits and for assuming the risk that
the current charges will be insufficient in the future to cover the cost of
administering the contract.
If the charges under the contract are not sufficient, we will bear the loss. We
will not increase this charge. We may use any profits from this charge to pay
for the costs of distributing the contract.
DISTRIBUTION EXPENSE CHARGE
This charge is equal, on an annual basis, to .15% of the daily value of the
contract invested in a Portfolio. This charge is for all expenses associated
with the distribution of the contract. These expenses include preparing the
contract, confirmations and statements, providing sales support, and maintaining
contract records. If this charge is not enough to cover the costs of
distributing the contract, we will bear the loss.
WITHDRAWAL CHARGES
Withdrawals in excess of your free withdrawal amount, as described in more
detail under "Access To Your Money," will be assessed a withdrawal charge. You
will not receive the benefit of any free withdrawal amount if you withdraw your
entire contract value.
We keep track of each Purchase Payment and assess a charge based on the length
of time a Purchase Payment is in your contract before it is withdrawn. After a
Purchase Payment has been in your contract for seven years, no withdrawal
charges are assessed on withdrawals of that Purchase Payment.
The withdrawal charge is assessed as a percentage of the Purchase Payment you
withdraw, which declines each year the Purchase Payment is in the contract as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
YEAR 1 2 3 4 5 6 7 8+
- -----------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C>
WITHDRAWAL CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
- ----------------------------------------------------------------
</TABLE>
If the withdrawal is for only part of the contract, we will deduct the
withdrawal charge from the remaining value in your contract. For purposes of
calculating the withdrawal charge, we treat withdrawals as coming from the
oldest Purchase Payment first. However, for tax purposes, earnings are
considered withdrawn first.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit or for annuity payments during the Income Phase.
INVESTMENT CHARGES
If you have money allocated to the variable Portfolios, there are deductions
from and expenses paid out of the assets of the various Portfolios. These
investment charges are summarized in the Fee Tables. For more detailed
information, you should refer to the prospectuses for the Anchor Series Trust
and the SunAmerica Series Trust.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we will deduct a $35 contract maintenance fee
($30 in North Dakota) from your contract on each contract anniversary. This fee
is for expenses incurred to establish and maintain your contract. This fee
cannot be increased. If you make a complete withdrawal from your contract, the
entire contract maintenance fee will be deducted prior to the withdrawal.
We will not deduct the contract maintenance fee if the value of your contract is
$50,000 or more when the deduction is to be made. We may discontinue this
practice at any time.
TRANSFER FEE
You can make 15 free transfers every year. We measure a year from the day we
issue your contract. If you make more than 15 transfers a year, we will deduct a
$25 transfer fee on each subsequent transfer ($10 in Pennsylvania and Texas).
PREMIUM TAXES
We are responsible for the payment of premium taxes, if any, charged by some
states and will make a deduction from your contract for them. These taxes are
due either when the contract is issued or when annuity payments begin. It is our
current practice not to charge you for these taxes until annuity payments begin
or a full surrender is made. In the future, we may discontinue this practice and
assess the tax when it is due or upon the payment of the death benefit.
Appendix B provides more information about the premium taxes assessed in each
state.
INCOME TAXES
Although we do not currently deduct any income taxes borne under your contract,
we reserve the right to do so in the future.
REDUCTION OR ELIMINATION OF CERTAIN CHARGES
We will reduce or eliminate the amount of certain insurance charges when the
contract is sold to groups of individuals under circumstances which reduce its
sales expenses. We will
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<PAGE> 18
determine the eligibility of such groups by considering the following factors:
(1) the size of the group; (2) the total amount of Purchase Payments we expect
to receive from the group; (3) the nature of the purchase and the persistency we
expect in that group; (4) the purpose of the purchase and whether that purpose
makes it likely that expenses will be reduced; and (5) any other circumstances
which we believe to be relevant in determining whether reduced sales expenses
may be expected.
================================================================
6. TAXES
================================================================
NOTE: WE HAVE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL
DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE. YOU ARE CAUTIONED
TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE
THE TAX STATUS OF THE ANNUITY.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, you will not be taxed on the earnings
in your annuity contract until you take the money out. Different rules apply
depending on how you take the money out and whether your contract is Qualified
or Non-qualified.
If you do not purchase your contract under a pension plan, specially sponsored
program or an individual retirement account, your contract is referred to as a
Non-qualified contract and receives different tax treatment than a Qualified
contract. In general, your cost basis in a Non-qualified contract is equal to
the Purchase Payments you put into the contract. You have already been taxed on
the cost basis in your contract.
If you purchase your contract under a pension plan, specially sponsored program
or as an individual retirement account, your contract is referred to as a
Qualified contract. Examples of qualified plans are: Individual Retirement
Annuities, Tax-Sheltered Annuities (referred to as 403(b) contracts), H.R. 10
Plans (referred to as Keogh Plans) and pension and profit sharing plans,
including 401(k) plans. Typically you have not paid any tax on the Purchase
Payments used to buy your contract and therefore, you have no cost basis in your
contract.
TAX TREATMENT OF DISTRIBUTIONS-
NON-QUALIFIED CONTRACTS
If you make a withdrawal from a Non-qualified contract, the IRC treats such a
withdrawal as first coming from the earnings and then as coming from your
Purchase Payments. For annuity payments, any portion of each payment that is
considered a return of your Purchase Payment will not be taxed. Withdrawn
earnings are treated as income to you and are taxable. The IRC further provides
for a 10% tax penalty on any earnings that are withdrawn other than in
conjunction with the following circumstances: (1) after reaching age 59 1/2; (2)
by your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) in a series of substantially equal installments made for your life
or for the joint lives of you and your Beneficiary; (5) under an immediate
annuity; or (6) which come from Purchase Payments made prior to August 14, 1982.
TAX TREATMENT OF DISTRIBUTIONS-
QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract or on any earnings and therefore, any amount you take out as
a withdrawal or as annuity payments will be taxable income. The IRC further
provides for a 10% tax penalty on any withdrawal or annuitization paid to you
other than in conjunction with the following circumstances: (1) after reaching
age 59 1/2; (2) by your Beneficiary after you die; (3) after you become disabled
(as defined in the IRC); (4) in a series of substantially equal installments
made for your life or for the joint lives of you and your Beneficiary; and,
except in the case of an IRA as to the following (5) after you separate from
service after attaining age 55; (6) to the extent such withdrawals do not exceed
limitations set by the IRC for amounts paid during the taxable year for medical
care; and (7) to an alternate payee pursuant to a qualified domestic relations
order.
The IRC limits the withdrawal of Purchase Payments from certain Tax-Sheltered
Annuities. Withdrawals can only be made when an owner: (1) reaches age 59 1/2;
(2) leaves his or her job; (3) dies; (4) becomes disabled (as defined in the
IRC); or (5) in the case of hardship. In the case of hardship, the owner can
only withdraw an amount equal to Purchase Payments and not any earnings.
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity in order to be treated as a variable annuity
for tax purposes. We believe that the variable Portfolios are being managed so
as to comply with these requirements.
The diversification regulations do not provide guidance as to the circumstances
under which you, because of the degree of control you exercise over the
underlying investments, and not Anchor National, would be considered the owner
of the shares of the Portfolios. It is unknown to what extent owners are
permitted to select investments, to make transfers among portfolios or the
number and type of portfolios owners may select from. If any guidance is
provided which is considered a new position, then the guidance would generally
be applied prospectively. However, if such guidance is considered not to
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<PAGE> 19
be a new position, it may be applied retroactively. This would mean you, as the
owner of the contract, could be treated as the owner of the variable investment
Portfolios.
Due to the uncertainty in this area, we reserve the right to modify the contract
in an attempt to maintain favorable tax treatment.
================================================================
7. ACCESS TO YOUR MONEY
================================================================
Under your contract, money can be accessed in the following ways: (1) by making
a withdrawal, either for a part of the value of your contract or for the entire
value of your contract during the Accumulation Phase; (2) by receiving annuity
payments during the Income Phase; and (3) when a death benefit is paid to your
Beneficiary.
Generally, withdrawals are subject to a withdrawal charge, a market value
adjustment if the money is withdrawn from the 3, 5, 7 or 10 year fixed
investment options and, if you withdraw your entire contract value, premium
taxes and a contract maintenance fee. (See "Expenses" for more complete
information).
Your contract provides for a free withdrawal amount. For purposes of calculating
your free withdrawal amount, there are some special terms you should know and
understand how we define and calculate them.
Your "total invested amount" is equal to the sum of all your Purchase Payments
less any amounts previously withdrawn that incurred a withdrawal charge, and
less any Purchase Payments withdrawn that were no longer subject to the
withdrawal charge schedule. A "penalty-free earnings" amount is also calculated
by taking the value of your contract on the day you make the withdrawal and
subtracting your total invested amount. Any free withdrawals made in excess of
your penalty-free earnings will be considered a withdrawal of future
penalty-free earnings and therefore not a withdrawal of your total invested
amount.
During the first year, your free withdrawal amount is equal to the penalty-free
earnings in your contract as of the date you make the withdrawal or, if you
participate in the Systematic Withdrawal Program, you may withdraw 10% of your
total invested amount less any withdrawals made during the year. After the first
year, your maximum free withdrawal amount is the greater of: (1) the
penalty-free earnings or (2) 10% of your total invested amount that has been
invested for at least one year, less any withdrawals made during the year.
Although amounts withdrawn free of a withdrawal charge may reduce your
principal, they do not reduce your "total invested amount" for purposes of
calculating the withdrawal charge, the penalty-free earnings in your contract or
the free withdrawal amount under the Systematic Withdrawal Program. As a result,
you will not receive the benefit of any free withdrawal amounts if you make a
complete withdrawal of your contract.
If you make a complete withdrawal, you will receive the value of your contract,
less any applicable fees and charges, as calculated on the day following receipt
by us at our principal place of business of a complete withdrawal request. Your
contract must be submitted as well.
Under most circumstances, partial withdrawals must be for a minimum of $1,000.
We require that the value left in any Portfolio or the fixed investment option
be at least $100 after the withdrawal. Unless you provide us with different
instructions, partial withdrawals will be made pro rata from each Portfolio and
the fixed investment option in which your contract is invested. You must send a
written withdrawal request to us prior to any withdrawal being made.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading on the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
portfolios is not reasonably practicable; (4) the SEC, by order, so permits for
the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from the
fixed investment option for the period permitted by law but not for more than
six months.
SYSTEMATIC WITHDRAWAL PROGRAM
This program allows you to receive either monthly, quarterly, semiannual or
annual checks during the Accumulation Phase. You can also choose to have
systematic withdrawals electronically wired to your bank account. The minimum
amount of each withdrawal is $250. Withdrawals may be taxable and a 10% IRS tax
penalty may apply if you are under age 59 1/2. There is no charge for
participating in this program.
This program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
WITHDRAWAL CHARGES, MARKET VALUE ADJUSTMENTS, INCOME TAXES, TAX PENALTIES AND
CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL YOU MAKE.
NURSING HOME WAIVER
If you are confined to a nursing home for 60 days or longer, we may waive the
withdrawal charge and/or market value adjustment on certain withdrawals prior to
the Annuity Date (not available in Texas). The waiver applies only to
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<PAGE> 20
withdrawals made while you are in a nursing home or within 90 days after you
leave the nursing home.
This waiver may not be used during the first 90 days after you purchase your
contract. In addition, the confinement period for which you seek the waiver must
begin after you purchase your contract.
In order to use this waiver, you must submit with your withdrawal request the
following documents: (1) a doctor's note recommending admittance to a nursing
home; (2) an admittance form which shows the type of facility you entered into
and (3) a bill from the nursing home which shows that the 60 day confinement
requirement has been met.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals
and (2) no Purchase Payments have been made during the past three years. We will
provide you with sixty days written notice and distribute the contract's
remaining value to you.
================================================================
8. PERFORMANCE
================================================================
From time to time we may advertise the Cash Management Portfolio's yield and
effective yield. In addition, the other variable investment Portfolios may also
advertise total return, gross yield and yield to maturity information. These
figures are based on historical data and are not intended to indicate future
performance.
For periods starting prior to the date the contracts were first offered, the
performance will be derived from the performance of the corresponding portfolios
of the Trusts, modified to reflect Polaris(II) charges and expenses as if the
contracts had been in existence during the period stated in the advertisement.
Thus, these figures should not be construed to reflect actual historic
performance.
More detailed information on the method used to calculate performance for the
Portfolios is contained in the SAI.
The performance of each Portfolio may also be measured against unmanaged market
indices, including but not limited to the Dow Jones Industrial Average, the
Standard & Poor's 500, the Russell 1000 Growth Index, the Morgan Stanley Capital
International Europe, Australia, and Far East Index (EAFE) and the Morgan
Stanley Capital International World Index, and may be compared to that of other
variable annuities with similar objectives and policies as reported by
independent ranking agencies such as Morningstar, Inc., Lipper Analytical
Services, Inc. or Variable Annuity Research & Data Service ("VARDS").
At times Anchor National may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P"), and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of our financial strength and performance
in comparison to others in the life/health insurance industry. S&P's and Duff &
Phelps' ratings measure the ability of an insurance company to meet its
obligations under insurance policies it issues and do not measure the ability of
such companies to meet other non-policy obligations. The ratings also do not
relate to the performance of the Portfolios.
================================================================
9. DEATH BENEFIT
================================================================
If you should die during the Accumulation Phase of your contract, we will pay a
death benefit to your Beneficiary. You must select from the two death benefit
options described below at the time you purchase your contract. Once selected,
the death benefit option may not be changed. You should discuss with your
financial representative the options available to you and which option is best
for you.
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION
The death benefit is the greater of:
(1) the value of your contract at the time we receive adequate proof of death,
(2) total Purchase Payments less any withdrawals, all compounded at 4% annually
until the date of death (3% if age 70 or older at time of issue), or
(3) the value of your contract on the seventh contract anniversary less any
withdrawals plus any additional Purchase Payments since the seventh
anniversary, all compounded at 4% annually until the date of death (3% if
age 70 or older at time of issue).
OPTION 2 - MAXIMUM ANNIVERSARY VALUE OPTION
The death benefit is the greater of:
(1) the value of your contract at the time we receive adequate proof of death,
(2) total Purchase Payments less any withdrawals, or
(3) the maximum of the anniversary values up to your 81st birthday. The
anniversary value is equal to the value of your contract on the contract
anniversary less any withdrawals plus any additional Purchase Payments since
that anniversary.
If you are age 90 or older at the time of death, the death benefit under option
2 is the value of your contract at the time we receive adequate proof of death.
In general, you would not get the advantage of the second option if you are over
age 80 at the time your contract is issued or age 90 or older at the time of
death.
The death benefit is not paid after you switch to the Income Phase. During the
Income Phase, your Beneficiary(ies) will receive any remaining guaranteed
annuity payments in accordance with the annuity option you choose.
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<PAGE> 21
You may select the Beneficiary(ies) to receive any amounts payable on death. You
may change the Beneficiary at any time, unless you previously made an
irrevocable Beneficiary designation. A new Beneficiary designation in not
effective until we record the change.
The death benefit is immediately payable under the contract. If the Beneficiary
elects an annuity option, it must be paid over the Beneficiary's lifetime or for
a period not extending beyond the Beneficiary's life expectancy. If the
Beneficiary is the spouse of the owner, he or she can elect to continue the
contract at the then current value, in which case he or she will not receive the
death benefit.
The death benefit will be paid out when we receive adequate proof of death: (1)
a certified copy of a death certificate; (2) a certified copy of a decree of
court of competent jurisdiction as to the finding of death; (3) a written
statement by a medical doctor who attended the deceased at the time of death; or
(4) any other proof satisfactory to us. We may also require additional
documentation or proof in order for the death benefit to be paid. If the
Beneficiary does not make a specific election within sixty days of our receipt
of such proof of death, the death benefit will be paid in a lump sum.
================================================================
10. OTHER INFORMATION
================================================================
ANCHOR NATIONAL
Anchor National and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, CalAmerica Life Insurance Company, SunAmerica
National Life Insurance Company, SunAmerica Asset Management Corp., Imperial
Premium Finance, Inc., Resources Trust Company and four broker-dealers,
specialize in retirement savings and investment products and services, including
fixed and variable annuities, mutual funds, premium finance, broker-dealer and
trust administration services. Anchor National is an indirect wholly owned
subsidiary of SunAmerica Inc. Anchor National is licensed to do business in the
District of Columbia and all states except New York.
THE SEPARATE ACCOUNT
Anchor National originally established a separate account, Variable Separate
Account, under California law on June 25, 1981. We redomesticated under Arizona
law on January 1, 1996 and the separate account was assumed by Anchor National.
The separate account is registered with the SEC as a unit investment trust under
the Investment Company Act of 1940.
Anchor National owns the assets in the separate account. However, the assets in
the separate account are not chargeable with liabilities arising out of any
other business Anchor National may conduct. Income, gains and losses (realized
and unrealized) resulting from the assets in the separate account are credited
to or charged against the separate account without regard to other income, gains
or losses of Anchor National.
THE GENERAL ACCOUNT
If you put your money into the fixed investment options, it goes into Anchor
National's general account. The general account is made up of all of Anchor
National's assets other than assets attributable to a separate account. All of
the assets in the general account are chargeable with the claims of any Anchor
National contract owners as well as all creditors. The general account is
invested in assets permitted by state insurance law.
DISTRIBUTION
The contract is sold through registered representatives of broker-dealers.
Commissions are paid to registered representatives for the sale of contracts.
Commissions are not expected to exceed 7% of your Purchase Payment. Under some
circumstances, we may pay a persistency bonus in addition to standard
commissions. Usually the standard commission is lower when we pay a persistency
bonus, which is not anticipated to exceed 1.5% annually. Commissions paid to
registered representatives are not directly deducted from your Purchase Payment.
SunAmerica Capital Services, Inc., 733 Third Avenue, 4th Floor, New York, New
York 10017 acts as the distributor of the contracts. SunAmerica Capital
Services, Inc., an affiliate of Anchor National, is registered as a
broker-dealer under the Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc.
ADMINISTRATION
We are responsible for all the administrative servicing of your contract. Please
contact Anchor National's Annuity Service Center at the telephone number and
address provided in the profile section of this prospectus if you have any
comment, question or service request.
We will send out transaction confirmations and quarterly statements. Please
review these documents carefully and notify us of any inaccuracies immediately.
We will investigate all questions and, to the extent we have made an error, we
will retroactively adjust your contract provided you have notified us within
thirty days of receiving the transaction confirmation or quarterly statement, as
applicable. All other adjustments will be made as of the time we receive notice
of the error.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the separate account. Anchor
National and its subsidiaries are engaged in various kinds of routine litigation
which, in management's judgment, are not of material importance to their
respective total assets or material with respect to the separate account.
OWNERSHIP
The Polaris(II) Variable Annuity is a Flexible Payment Group Deferred Annuity
Contract. A group contract is issued to a contractholder, for the benefit of the
participants in the group.
15
<PAGE> 22
You are a participant in the group and will receive a certificate evidencing
your ownership. You, as the owner of a certificate, are entitled to all the
rights and privileges of ownership. As used in this prospectus, the term
contract refers to your certificate. In some states a Flexible Payment
Individual Modified Guaranteed and Variable Deferred Annuity Contract may be
available instead, which is identical to the group contract described in this
prospectus except that it is issued directly to the owner.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the separate account. Anchor
National pays State Street Bank for services based on a schedule of fees.
ADDITIONAL INFORMATION
Anchor National is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with such requirements, we file
reports and other information with the SEC. Such reports and other information
we file can be inspected and copied. Copies can be obtained at the public
reference facilities of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or at the regional offices in Chicago and New York. The
addresses of these regional offices are as follows: 500 West Madison Street,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material also can be obtained by mail from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of the fees prescribed by the rules and regulations of the SEC at
prescribed rates.
Registration statements have been filed with the SEC, Washington, D.C., under
the Securities Act of 1933 as amended, relating to the contracts offered by this
prospectus. This prospectus does not contain all the information set forth in
the registration statements and the exhibits filed as part of the registration
statements. Reference should be made to such registration statements and
exhibits for further information concerning the separate account, Anchor
National and its general account, the Portfolios and the contract.
16
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of Anchor National 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 follow this
selected information. Certain items have been reclassified to conform to the
current year's presentation.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net investment income................................... $ 73,201 $ 56,843 $ 50,083 $ 58,996 $ 48,912
Net realized investment losses.......................... (17,394) (13,355) (4,363) (33,713) (22,247)
Fee income.............................................. 213,146 169,505 145,105 141,753 123,567
General and administrative expenses..................... (98,802) (81,552) (64,457) (54,363) (50,783)
Provision for future guaranty fund assessments.......... -- -- -- -- (4,800)
Amortization of deferred acquisition costs.............. (66,879) (57,520) (58,713) (44,195) (30,825)
Annual commissions...................................... (8,977) (4,613) (2,658) (1,158) (312)
-------- -------- -------- -------- --------
PRETAX INCOME........................................... 94,295 69,308 64,997 67,320 63,512
Income tax expense...................................... (31,169) (24,252) (25,739) (22,705) (21,794)
-------- -------- -------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR INCOME TAXES...................................... 63,126 45,056 39,258 44,615 41,718
Cumulative effect of change in accounting for income
taxes................................................. -- -- -- (20,463) --
-------- -------- -------- -------- --------
NET INCOME.............................................. $ 63,126 $ 45,056 $ 39,258 $ 24,152 $ 41,718
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Investments............................................. $ 2,608,301 $2,329,232 $2,114,908 $1,632,072 $2,093,100
Variable annuity assets................................. 9,343,200 6,311,557 5,230,246 4,486,703 4,170,275
Deferred acquisition costs.............................. 536,155 443,610 383,069 416,289 336,677
Other assets............................................ 83,283 120,136 55,474 67,062 71,337
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS............................................ $12,570,939 $9,204,535 $7,783,697 $6,602,126 $6,671,389
========== ========== ========== ========== ==========
Reserves for fixed annuity contracts.................... $ 2,098,803 $1,789,962 $1,497,052 $1,437,488 $1,562,136
Reserves for guaranteed investment contracts............ 295,175 415,544 277,095 -- --
Variable annuity liabilities............................ 9,343,200 6,311,557 5,230,246 4,486,703 4,170,275
Other payables and accrued liabilities.................. 155,256 96,196 227,953 195,134 495,308
Subordinated notes payable to Parent.................... 36,240 35,832 35,832 34,712 34,432
Deferred income taxes................................... 67,047 70,189 73,459 64,567 38,145
Shareholder's equity.................................... 575,218 485,255 442,060 383,522 371,093
---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.............. $12,570,939 $9,204,535 $7,783,697 $6,602,126 $6,671,389
========== ========== ========== ========== ==========
</TABLE>
MANAGEMENT DISCUSSION AND ANALYSIS
Management's discussion and analysis of financial condition and results of
operations of Anchor National for the three years in the period ended September
30, 1997 follows. In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, Anchor National cautions readers
regarding certain forward-looking statements contained in this report and in any
other statements made by, or on behalf of, Anchor National, whether or not in
future filings with the Securities and Exchange Commission (the "SEC").
Forward-looking statements are statements not based on historical information
and which relate to future operations, strategies, financial results, or other
developments. Statements using verbs such as "expect," "anticipate," "believe"
or words of similar import generally involve forward-looking statements. Without
limiting the foregoing, forward-looking statements include statements which
represent Anchor National's beliefs concerning future levels of sales and
redemptions of Anchor National's products, investment spreads and yields, or the
earnings and profitability of Anchor National's activities.
Forward-looking statements are necessarily based on estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond Anchor National's
control and many of which are subject to change. These uncertainties and
contingencies could cause actual results to differ materially from those
expressed in any
17
<PAGE> 24
forward-looking statements made by, or on behalf of, Anchor National. Whether or
not actual results differ materially from forward-looking statements may depend
on numerous foreseeable and unforeseeable developments. Some may be national in
scope, such as general economic conditions, changes in tax law and changes in
interest rates. Some may be related to the insurance industry generally, such as
pricing competition, regulatory developments and industry consolidation. Others
may relate to Anchor National specifically, such as credit, volatility and other
risks associated with Anchor National's investment portfolio. Investors are also
directed to consider other risks and uncertainties discussed in documents filed
by Anchor National with the SEC. Anchor National disclaims any obligation to
update forward-looking information.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS 1995, 1996 AND 1997
NET INCOME totaled $63.1 million in 1997, compared with $45.1 million in 1996
and $39.3 million in 1995.
PRETAX INCOME totaled $94.3 million in 1997, $69.3 million in 1996 and $65.0
million in 1995. The 36.1% improvement in 1997 over 1996 primarily resulted from
increased fee income and net investment income, partially offset by higher
general and administrative expenses and increased amortization of deferred
acquisition costs. The 6.6% improvement in 1996 over 1995 primarily resulted
from increased net investment income and significantly increased fee income,
partially offset by increased net realized investment losses and additional
general and administrative expenses.
NET INVESTMENT INCOME, which is the spread between the income earned on invested
assets and the interest paid on fixed annuities and other interest-bearing
liabilities, increased to $73.2 million in 1997 from $56.8 million in 1996 and
$50.1 million in 1995. These amounts equal 2.77% on average invested assets
(computed on a daily basis) of $2.65 billion in 1997, 2.59% on average invested
assets of $2.19 billion in 1996 and 2.95% on average invested assets of $1.70
billion in 1995.
Net investment spreads include the effect of income earned on the excess of
average invested assets over average interest-bearing liabilities. This excess
amounted to $126.5 million in 1997, $142.9 million in 1996 and $108.4 million in
1995. The difference between Anchor National's yield on average invested assets
and the rate paid on average interest-bearing liabilities (the "Spread
Difference") was 2.51% in 1997, 2.25% in 1996 and 2.63% in 1995.
Investment income (and the related yields on average invested assets) totaled
$210.8 million (7.97%) in 1997, compared with $164.6 million (7.50%) in 1996 and
$129.5 million (7.62%) in 1995. These increased yields in 1997 include the
effects of a greater proportion of mortgage loans in Anchor National's
portfolio. On average, mortgage loans have higher yields than that of Anchor
National's overall portfolio. In addition, Anchor National experienced higher
returns on its investments in partnerships. The increases in investment income
in 1997 and 1996 also reflect increases in average invested assets.
Partnership income increased to $6.7 million (a yield of 15.28% on related
average assets of $44.0 million) in 1997, compared with $4.1 million (a yield of
10.12% on related average assets of $40.2 million) in 1996 and $5.1 million (a
yield of 10.60% on related average assets of $48.4 million) in 1995. Partnership
income is based upon cash distributions received from limited partnerships, the
operations of which Anchor National does not influence. Consequently, such
income is not predictable and there can be no assurance that Anchor National
will realize comparable levels of such income in the future.
Total interest expense equalled $137.6 million in 1997, $107.8 million in 1996
and $79.4 million in 1995. The average rate paid on all interest-bearing
liabilities was 5.46% in 1997, compared with 5.25% in 1996 and 4.99% in 1995.
Interest-bearing liabilities averaged $2.52 billion during 1997, compared with
$2.05 billion during 1996 and $1.59 billion during 1995.
The increases in the overall rates paid on interest-bearing liabilities during
1997 and 1996 primarily resulted from the impact of certain promotional one-year
interest rates offered on the fixed account portion of Anchor National's Polaris
variable annuity product. The increase in the overall rates paid on all
interest-bearing liabilities during 1996 was also impacted by the growth in
average reserves for GICs, which generally bear higher rates of interest than
fixed annuity contracts. Average GIC reserves were $340.5 million in 1996 and
$60.8 million in 1995. Most of Anchor National's GICs are variable rate and are
repriced quarterly at the then-current interest rates.
GROWTH IN AVERAGE INVESTED ASSETS since 1995 primarily reflects the sales of
Anchor National's fixed-rate products, consisting of both fixed annuity premiums
(including those for the fixed accounts of variable annuity products) and GIC
premiums. Fixed annuity premiums totaled $1.10 billion in 1997, compared with
$741.8 million in 1996 and $284.4 million in 1995. The premiums for the fixed
accounts of variable annuities have increased primarily because of increased
sales of Anchor National's Polaris product and greater inflows into the one-year
fixed account of that product. Anchor National has observed that many purchasers
of its variable annuity contracts allocate new premiums to the one-year fixed
account and concurrently elect the option to dollar cost average into one or
more variable funds. Accordingly, Anchor National anticipates that it will see a
large portion of these premiums transferred into the variable funds.
18
<PAGE> 25
GIC premiums totaled $55.0 million in 1997, $135.0 million in 1996 and $275.0
million in 1995. GIC surrenders and maturities totaled $198.1 million in 1997,
$16.5 million in 1996 and $1.6 million in 1995. Anchor National does not
actively market GICs, so premiums may vary substantially from period to period.
The large increase in surrenders and maturities in 1997 was primarily due to
contracts maturing in 1997. The GICs issued by Anchor National generally
guarantee the payment of principal and interest at fixed or variable rates for a
term of three to five years. Contracts that are purchased by banks for their
long-term portfolios, or state and local governmental entities either prohibit
withdrawals or permit scheduled book value withdrawals subject to terms of the
underlying indenture or agreement. GICs purchased by asset management firms for
their short term portfolios either prohibit withdrawals or permit withdrawals
with notice ranging from 90 to 270 days. In pricing GICs, Anchor National
analyzes cash flow information and prices accordingly so that it is compensated
for possible withdrawals prior to maturity.
NET REALIZED INVESTMENT LOSSES totaled $17.4 million in 1997, $13.4 million in
1996 and $4.4 million in 1995. Net realized investment losses include impairment
writedowns of $20.4 million in 1997, $16.0 million in 1996 and $4.8 million in
1995. Therefore, net gains from sales of investments totaled $3.0 million in
1997, $2.6 million in 1996 and $0.4 million in 1995.
Anchor National sold invested assets, principally bonds and notes, aggregating
$2.19 billion, $1.28 billion and $1.15 billion in 1997, 1996 and 1995,
respectively. Sales of investments result from the active management of Anchor
National's investment portfolio. Because sales of investments are made in both
rising and falling interest rate environments, net gains from sales of
investments fluctuate from period to period, and represent 0.11%, 0.12% and
0.02% of average invested assets for 1997, 1996 and 1995, respectively. Active
portfolio management involves the ongoing evaluation of asset sectors,
individual securities within the investment portfolio and the reallocation of
investments from sectors that are perceived to be relatively overvalued to
sectors that are perceived to be relatively undervalued. The intent of Anchor
National's active portfolio management is to maximize total returns on the
investment portfolio, taking into account credit interest-rate risk.
Impairment writedowns reflect $15.7 million and $15.2 million of provisions
applied to non-income producing land owned in Arizona in 1997 and 1996,
respectively. The statutory carrying value of this land had been guaranteed by
Anchor National's ultimate Parent, SunAmerica Inc. ("SunAmerica"). SunAmerica
made capital contributions of $28.4 million and $27.4 million on December 31,
1996 and 1995, respectively, to Anchor National through Anchor National's direct
parent in exchange for the termination of its guaranty with respect to this
land. Accordingly, Anchor National reduced the carrying value of this land to
estimated fair value to reflect the full termination of the guaranty. Impairment
writedowns in 1995 include $3.8 million of additional provisions applied to
defaulted bonds. Impairment writedowns represent 0.77%, 0.73% and 0.28% of
average invested assets for 1997, 1996 and 1995, respectively. For the five
years ended September 30, 1997, impairment writedowns as a percentage of average
invested assets have ranged from 0.28% to 2.20% and have averaged 1.16%. Such
writedowns are based upon estimates of the net realizable value of the
applicable assets. Actual realization will be dependent upon future events.
VARIABLE ANNUITY FEES are based on the market value of assets in separate
accounts supporting variable annuity contracts. Such fees totaled $139.5 million
in 1997, $104.0 million in 1996 and $84.2 million in 1995. These increased fees
reflect growth in average variable annuity assets, principally due to the
receipt of variable annuity premiums, increased market values and net exchanges
into the separate accounts from the fixed accounts of variable annuity
contracts, partially offset by surrenders. Variable annuity assets averaged
$7.55 billion during 1997, $5.70 billion during 1996 and $4.65 billion during
1995. Variable annuity premiums, which exclude premiums allocated to the fixed
accounts of variable annuity products, totaled $1.27 billion in 1997, $919.8
million in 1996 and $577.2 million in 1995. Sales of variable annuity products
(which include premiums allocated to the fixed accounts) ("Variable Annuity
Product Sales") amounted to $2.37 billion, $1.66 billion and $861.0 million in
1997, 1996 and 1995, respectively. Increases in Variable Annuity Product Sales
are due, in part, to market share gains through enhanced distribution efforts
and growing consumer demand for flexible retirement savings products that offer
a variety of equity, fixed income and guaranteed fixed account investment
choices. Anchor National has encountered increased competition in the variable
annuity marketplace during recent years and anticipates that the market will
remain highly competitive for the foreseeable future.
NET RETAINED COMMISSIONS are primarily derived from commissions on the sales of
nonproprietary investment products by Anchor National's broker-dealer
subsidiary, after deducting the substantial portion of such commissions that is
passed on to registered representatives. Net retained commissions totaled $39.1
million in 1997, $31.5 million in 1996 and $24.1 million in 1995. Broker-dealer
sales (mainly sales of general securities, mutual funds and annuities) totaled
$11.56 billion in 1997, $8.75 billion in 1996 and $5.67 billion in 1995. The
increases in sales and net retained commissions reflect a greater number of
registered representatives, due to Anchor National's ongoing recruitment of
representatives and to the transfer of representatives from an affiliated
broker-dealer, higher average production per representative and generally
favorable market conditions. Increases in net retained commissions may
19
<PAGE> 26
not be proportionate to increases in sales primarily due to differences in sales
mix.
SURRENDER CHARGES on fixed and variable annuities totaled $5.5 million in 1997,
compared with $5.2 million in 1996 and $5.9 million in 1995. Surrender charges
generally are assessed on annuity withdrawals at declining rates during the
first seven years of an annuity contract. Withdrawal payments, which include
surrenders and lump-sum annuity benefits, totaled $1.06 billion in 1997,
compared with $898.0 million in 1996 and $908.9 million in 1995. These payments
represent 11.22%, 12.44% and 15.06%, respectively, of average fixed and variable
annuity reserves. Withdrawals include variable annuity withdrawals from the
separate accounts totaling $822.0 million in 1997, $634.1 million in 1996 and
$632.1 million in 1995. Management anticipates that withdrawal rates will remain
relatively stable for the foreseeable future.
ASSET MANAGEMENT FEES, which include investment advisory fees and 12b-1
distribution fees, are based on the market value of assets managed in mutual
funds by SunAmerica Asset Management Corp. Such fees totaled $25.8 million on
average assets managed of $2.34 billion in 1997, $25.4 million on average assets
managed of $2.14 billion in 1996 and $26.9 million on average assets managed of
$2.07 billion in 1995. Asset management fees are not proportionate to average
assets managed, principally due to changes in product mix. Sales of mutual
funds, excluding sales of money market accounts, amounted to $454.8 million in
1997, compared with $223.4 million in 1996 and $140.2 million in 1995.
Redemptions of mutual funds, excluding redemptions of money market accounts,
amounted to $412.8 million in 1997, $379.9 million in 1996 and $426.5 million in
1995. The significant increases in sales during 1997 principally resulted from
the introduction in November 1996 of Anchor National's "Style Select Series"
product. Higher mutual fund sales and lower redemptions in 1996 both reflect
enhanced marketing efforts and the favorable performance records of certain of
Anchor National's mutual funds, and heightened consumer demand for equity
investments generally.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $98.8 million in 1997, compared with
$81.6 million in 1996 and $65.3 million in 1995. General and administrative
expenses in 1997 include a $5.0 million provision for estimated programming
costs associated with the year 2000. Management believes that this provision is
adequate and does not anticipate any material future expenses associated with
this project. General and administrative expenses remain closely controlled
through a company-wide cost containment program and continue to represent less
than 1% of average total assets.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $66.9 million in 1997,
compared with $57.5 million in 1996 and $58.7 million in 1995. The increase in
amortization during 1997 was primarily due to additional fixed and variable
annuity sales and the subsequent amortization of related deferred commissions
and other direct selling costs. The decline in amortization for 1996 is due to
lower redemptions of mutual funds from the rate experienced in 1995, partially
offset by additional fixed and variable annuity and mutual fund sales in recent
years and the subsequent amortization of related deferred commissions and other
acquisition costs.
ANNUAL COMMISSIONS represent renewal commissions paid quarterly in arrears to
maintain the persistency of certain of Anchor National's variable annuity
contracts. Substantially all of Anchor National's currently available variable
annuity products allow for an annual commission payment option in return for a
lower immediate commission. Annual commissions totaled $9.0 million in 1997,
$4.6 million in 1996 and $2.7 million in 1995. The increase in annual
commissions since 1995 reflects increased sales of annuities that offer this
commission option. Anchor National estimates that approximately 45% of the
average balances of its variable annuity products is currently subject to such
annual commissions. Based on current sales, this percentage is expected to
increase in future periods.
INCOME TAX EXPENSE totaled $31.2 million in 1997, compared with $24.3 million in
1996 and $25.7 million in 1995, representing effective tax rates of 33% in 1997,
35% in 1996 and 40% in 1995. The higher effective tax rate in 1995 was due to a
prior year tax settlement. Without such payment, the effective tax rate would
have been 33%.
FINANCIAL CONDITION AND LIQUIDITY
SHAREHOLDER'S EQUITY increased 18.5% to $575.2 million at September 30, 1997
from $485.3 million at September 30, 1996, primarily due to $63.1 million of net
income recorded in 1997 and $18.4 million of net unrealized gains on debt and
equity securities available for sale (credited directly to shareholder's
equity), versus $5.5 million of net unrealized losses on such securities
recorded at September 30, 1996. In addition, Anchor National received a
contribution of capital of $28.4 million in December 1996 and paid a dividend of
$25.5 million in April 1997.
INVESTED ASSETS at year end totaled $2.61 billion in 1997, compared with $2.33
billion at year-end 1996. This 12.0% increase primarily resulted from sales of
fixed annuities and the $44.7 million net unrealized gain recorded on debt and
equity securities available for sale at September 30, 1997, versus the $12.7
million net unrealized loss recorded on such securities at September 30, 1996.
Anchor National manages most of its invested assets internally. The Company's
general investment philosophy is to hold fixed-rate assets for long-term
investment. Thus, it does not have a trading portfolio. However, Anchor National
has determined that all of its portfolio of bonds, notes and redeemable
preferred stocks (the "Bond Portfolio") is available to be sold in response to
changes in market interest rates, changes in relative value of asset sectors and
individual
20
<PAGE> 27
securities, changes in prepayment risk, changes in the credit quality outlook
for certain securities, Anchor National's need for liquidity and other similar
factors.
THE BOND PORTFOLIO, which comprises 76% of Anchor National's total investment
portfolio (at amortized cost), had an aggregate fair value that exceeded its
amortized cost by $43.7 million at September 30, 1997. At September 30, 1996,
the amortized cost exceeded the fair value of the Bond Portfolio by $13.8
million. The net unrealized gains on the Bond Portfolio since September 30, 1996
principally reflect the lower prevailing interest rates at September 30, 1997
and the corresponding effect on the fair value of the Bond Portfolio.
At September 30, 1997, the Bond Portfolio (at amortized cost, excluding $6.1
million of redeemable preferred stocks) included $1.82 billion of bonds rated by
Standard & Poor's Corporation ("S&P"), Moody's Investors Service ("Moody's"),
Duff & Phelps Credit Rating Co. ("DCR"), Fitch Investors Service, L.P. ("Fitch")
or the National Association of Insurance Commissioners ("NAIC"), and $124.4
million of bonds rated by Anchor National pursuant to statutory ratings
guidelines established by the NAIC. At September 30, 1997, approximately $1.72
billion of the Bond Portfolio was investment grade, including $650.3 million of
U.S. government/agency securities and mortgage-backed securities ("MBSs").
At September 30, 1997, the Bond Portfolio included $216.9 million (at amortized
cost with a fair value of $227.2 million) of bonds that were not investment
grade. Based on their September 30, 1997 amortized cost, these non-investment-
grade bonds accounted for 1.7% of Anchor National's total assets and 8.5% of its
invested assets.
Non-investment-grade securities generally provide higher yields and involve
greater risks than investment-grade securities because their issuers typically
are more highly leveraged and more vulnerable to adverse economic conditions
than investment-grade issuers. In addition, the trading market for these
securities is usually more limited than for investment-grade securities. Anchor
National had no material concentrations of non-investment-grade securities at
September 30, 1997. The following table summarizes Anchor National's rated bonds
by rating classification as of September 30, 1997.
21
<PAGE> 28
RATED BONDS BY RATING CLASSIFICATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ISSUES NOT RATED BY S&P/MOODY'S/
ISSUES RATED BY S&P/MOODY'S/DCR/FITCH DCR/FITCH, BY NAIC CATEGORY TOTAL
-------------------------------------------- ----------------------------------- ---------------------------------
S&P/(MOODY'S)/ ESTIMATED NAIC ESTIMATED PERCENT OF ESTIMATED
[DCR]/HFITCHJ 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-]
(AAA to A-)..... $ 935,866 $ 953,440 1 $142,548 $143,940 $1,078,414 42.07% $1,097,380
BBB+ to BBB-
(Baal to Baa3)
[BBB+ to BBB-]
(BBB+ to
BBB-)......... 494,521 504,442 2 146,548 150,521 641,069 25.01 654,963
BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
(BB+ to BB-).... 13,080 14,597 3 13,811 13,917 26,891 1.05 28,514
B+ to B-
(B1 to B3)
[B+ to B-]
(B+ to B-)...... 163,603 170,960 4 25,777 27,089 189,380 7.39 198,049
CCC+ to C
(Caa to C)
[CCC]
(CCC+ to C-).... 0 0 5 0 0 0 0.00 0
C1 to D
[DD]
(D)............. 0 0 6 606 606 606 0.02 606
---------- ---------- -------- -------- ---------- ----------
Total rated
issues.......... $1,607,070 $1,643,439 $329,290 $336,073 $1,936,360 $1,979,512
========== ========== ======== ======== ========== ==========
</TABLE>
(1) S&P and Fitch rate debt securities in rating categories ranging from AAA
(the highest) to D (in payment default). A plus (+) or minus (-) indicates
the debt's relative standing within the rating category. A security rated
BBB- or higher is considered investment grade. Moody's rates debt securities
in rating categories ranging from Aaa (the highest) to C (extremely poor
prospects of ever attaining any real investment standing). The number 1, 2
or 3 (with 1 the highest and 3 the lowest) indicates the debt's relative
standing within the rating category. A security rated Baa3 or higher is
considered investment grade. DCR rates debt securities in rating categories
ranging from AAA (the highest) to DD (in payment default). A plus (+) or
minus (-) indicates the debt's relative standing within the rating category.
A security rated BBB- or higher is considered investment grade. Issues are
categorized based on the highest of the S&P, Moody's, D&P and Fitch ratings
if rated by multiple agencies.
(2) Bonds and short-term promissory instruments are divided into six quality
categories for NAIC rating purposes, ranging from 1 (highest) to 5 (lowest)
for nondefaulted bonds plus one category, 6, for bonds in or near default.
These six categories correspond with the S&P/Moody's/DCR/Fitch rating groups
listed above, with categories 1 and 2 considered investment grade. The NAIC
categories include $124.4 million (at amortized cost) of assets that were
rated by Anchor National pursuant to applicable NAIC rating guidelines.
(3) At amortized cost.
SENIOR SECURED LOANS ("Secured Loans") are included in the Bond Portfolio and
their amortized cost aggregated $329.3 million at September 30, 1997. Secured
Loans are senior to subordinated debt and equity, and are secured by assets of
the issuer. At September 30, 1997, Secured Loans consisted of loans to 80
borrowers spanning 28 industries, with 17% of these assets (at amortized cost)
concentrated in financial institutions. No other industry concentration
constituted more than 10% of these assets.
While the trading market for Secured Loans is more limited than for publicly
traded corporate debt issues, management believes that participation in these
transactions has enabled Anchor National to improve its investment yield. As a
result of restrictive financial covenants, Secured Loans involve greater risk of
technical default than do publicly traded investment-grade securities. However,
management believes that the risk of loss upon default for its Secured Loans is
mitigated by such financial covenants and the collateral values underlying the
Secured Loans. Anchor National's Secured Loans are rated by S&P, Moody's, DCR,
Fitch, the NAIC or by Anchor National, pursuant to comparable statutory ratings
guidelines established by the NAIC.
MORTGAGE LOANS aggregated $339.5 million at September 30, 1997 and consisted of
73 commercial first mortgage loans with an average loan balance of approximately
$4.7 million, collateralized by properties located in 21 states. Approximately
23% of this portfolio was multifamily residential, 18% was office, 14% was
22
<PAGE> 29
manufactured housing, 13% was hotels, 11% was retail, 11% was industrial and 10%
was other types. At September 30, 1997, approximately 13% and 12% of this
portfolio was secured by properties located in New York and California,
respectively, and no more than 10% of this portfolio was secured by properties
located in any other single state. At September 30, 1997, there were four
mortgage loans with outstanding balances of $10 million or more, which loans
collectively aggregated approximately 17% of this portfolio. At the time of
their origination or purchase by Anchor National, virtually all mortgage loans
had loan-to-value ratios of 75% or less. At September 30, 1997, approximately
23% of the mortgage loan portfolio consisted of loans with balloon payments due
before October 1, 2000. During 1997, 1996 and 1995, loans delinquent by more
than 90 days, foreclosed loans and restructured loans have not been significant
in relation to the total mortgage loan portfolio.
At September 30, 1997, approximately 18% of the mortgage loans were seasoned
loans underwritten to Anchor National's standards and purchased at or near par
from other financial institutions. Such loans generally have higher average
interest rates than loans that could be originated today. The balance of the
mortgage loan portfolio has been originated by Anchor National under strict
underwriting standards. Commercial mortgage loans on properties such as offices,
hotels and shopping centers generally represent a higher level of risk than do
mortgage loans secured by multifamily residences. This greater risk is due to
several factors, including the larger size of such loans and the more immediate
effects of general economic conditions on these commercial property types.
However, due to the seasoned nature of Anchor National's mortgage loan
portfolio, its emphasis on multifamily loans and its strict underwriting
standards, Anchor National believes that it has prudently managed the risk
attributable to its mortgage loan portfolio while maintaining attractive yields.
OTHER INVESTED ASSETS aggregated $143.7 million at September 30, 1997, including
$46.9 million of investments in limited partnerships, $70.9 million of separate
account investments and an aggregate of $25.9 million of miscellaneous
investments, including policy loans, residuals and leveraged leases. Anchor
National's limited partnership interests, accounted for by using the cost method
of accounting, are invested primarily in a combination of debt and equity
securities.
ASSET-LIABILITY MATCHING is utilized by Anchor National to minimize the risks of
interest rate fluctuations and disintermediation. Anchor National believes that
its fixed-rate liabilities should be backed by a portfolio principally composed
of fixed-rate investments that generate predictable rates of return. Anchor
National does not have a specific target rate of return. Instead, its rates of
return vary over time depending on the current interest rate environment, the
slope of the yield curve, the spread at which fixed-rate investments are priced
over the yield curve, and general economic conditions. Its portfolio strategy is
constructed with a view to achieve adequate risk-adjusted returns consistent
with its investment objectives of effective asset-liability matching, liquidity
and safety. Anchor National's fixed-rate products incorporate surrender charges
or other restrictions in order to encourage persistency. Approximately 77% of
Anchor National's fixed annuity and GIC reserves had surrender penalties or
other restrictions at September 30, 1997.
As part of its asset-liability matching discipline, Anchor National conducts
detailed computer simulations that model its fixed-rate assets and liabilities
under commonly used stress-test interest rate scenarios. With the results of
these computer simulations, Anchor National can measure the potential gain or
loss in fair value of its interest-rate sensitive instruments and seek to
protect its economic value and achieve a predictable spread between what it
earns on its invested assets and what it pays on its liabilities by designing
its fixed-rate products and conducting its investment operations to closely
match the duration of the fixed-rate assets to that of its fixed-rate
liabilities. Anchor National's fixed-rate assets include: cash and short-term
investments; bonds, notes and redeemable preferred stocks; mortgage loans; and
investments in limited partnerships that invest primarily in fixed-rate
securities and are accounted for by using the cost method. At September 30,
1997, these assets had an aggregate fair value of $2.48 billion with a duration
of 3.4. Anchor National's fixed-rate liabilities include fixed annuities and
GICs. At September 30, 1997, these liabilities had an aggregate fair value
(determined by discounting future contractual cash flows by related market rates
of interest) of $2.32 billion with a duration of 1.3. Anchor National's
potential exposure due to a relative 10% increase in interest rates prevalent at
September 30, 1997 is a loss of approximately $31.2 million in fair value of its
fixed-rate assets that is not offset by an increase in the fair value of its
fixed-rate liabilities. Because Anchor National actively manages its assets and
liabilities and has strategies in place to minimize its exposure to loss as
interest rate changes occur, it expects that actual losses would be less than
the estimated potential loss.
Duration is a common option-adjusted measure for the price sensitivity of a
fixed-maturity portfolio to changes in interest rates. It measures the
approximate percentage change in the market value of a portfolio if interest
rates change by 100 basis points, recognizing the changes in cash flows
resulting from embedded options such as policy surrenders, investment
prepayments and bond calls. It also incorporates the assumption that Anchor
National will continue to utilize its existing strategies of pricing its fixed
annuity and GIC products, allocating its available cash flow amongst its various
investment portfolio sectors and maintaining sufficient levels of liquidity.
Because the calculation of duration involves estimation and incorporates
assumptions, potential changes in portfolio value indicated by the portfolio's
duration will likely
23
<PAGE> 30
be different from the actual changes experienced under given interest rate
scenarios, and the differences may be material.
As a component of its asset and liability management strategy, Anchor National
utilizes interest rate swap agreements ("Swap Agreements") to match assets and
liabilities more closely. Swap Agreements are agreements to exchange with a
counterparty interest rate payments of differing character (for example,
variable-rate payments exchanged for fixed-rate payments) based on an underlying
principal balance (notional principal) to hedge against interest rate changes.
Anchor National currently utilizes Swap Agreements to create a hedge that
effectively converts fixed-rate liabilities into floating-rate instruments. At
September 30, 1997, Anchor National had one outstanding Swap Agreement with a
notional principal amount of $15.9 million. This agreement matures in December
2024.
Anchor National also seeks to provide liquidity from time to time by using
reverse repurchase agreements ("Reverse Repos") and by investing in MBSs. It
also seeks to enhance its spread income by using Reverse Repos. Reverse Repos
involve a sale of securities and an agreement to repurchase the same securities
at a later date at an agreed upon price and are generally over-collateralized.
MBSs are generally investment-grade securities collateralized by large pools of
mortgage loans. MBSs generally pay principal and interest monthly. The amount of
principal and interest payments may fluctuate as a result of prepayments of the
underlying mortgage loans.
There are risks associated with some of the techniques Anchor National uses to
provide liquidity, enhance its spread income and match its assets and
liabilities. The primary risk associated with Anchor National's Reverse Repos
and Swap Agreements is counterparty risk. Anchor National believes, however,
that the counterparties to its Reverse Repos and Swap Agreements are financially
responsible and that the counterparty risk associated with those transactions is
minimal. In addition to counterparty risk, Swap Agreements also have interest
rate risk. However, Anchor National's Swap Agreements typically hedge
variable-rate assets or liabilities, and interest rate fluctuations that
adversely affect the net cash received or paid under the terms of a Swap
Agreement would be offset by increased interest income earned on the
variable-rate assets or reduced interest expense paid on the variable-rate
liabilities. The primary risk associated with MBSs is that a changing interest
rate environment might cause prepayment of the underlying obligations at speeds
slower or faster than anticipated at the time of their purchase. As part of its
decision to purchase an MBS, Anchor National assesses the risk of prepayment by
analyzing the security's projected performance over an array of interest-rate
scenarios. Once an MBS is purchased, Anchor National monitors its actual
prepayment experience monthly to reassess the relative attractiveness of the
security with the intent to maximize total return.
INVESTED ASSETS EVALUATION routinely includes a review by Anchor National of its
portfolio of debt securities. Management identifies monthly those investments
that require additional monitoring and carefully reviews the carrying values of
such investments at least quarterly to determine whether specific investments
should be placed on a nonaccrual basis and to determine declines in value that
may be other than temporary. In making these reviews for bonds, management
principally considers the adequacy of any collateral, compliance with
contractual covenants, the borrower's recent financial performance, news reports
and other externally generated information concerning the creditor's affairs. In
the case of publicly traded bonds, management also considers market value
quotations, if available. For mortgage loans, management generally considers
information concerning the mortgaged property and, among other things, factors
impacting the current and expected payment status of the loan and, if available,
the current fair value of the underlying collateral.
The carrying values of bonds that are determined to have declines in value that
are other than temporary are reduced to net realizable value and no further
accruals of interest are made. The valuation allowances on mortgage loans are
based on losses expected by management to be realized on transfers of mortgage
loans to real estate, on the disposition and settlement of mortgage loans and on
mortgage loans that management believes may not be collectible in full. Accrual
of interest is suspended when principal and interest payments on mortgage loans
are past due more than 90 days.
DEFAULTED INVESTMENTS, comprising all investments that are in default as to the
payment of principal or interest, totaled $1.4 million at September 30, 1997 (at
amortized cost after impairment writedowns, with a fair value of $1.4 million),
including $0.5 million of bonds and notes and $0.9 million of mortgage loans. At
September 30, 1997, defaulted investments constituted 0.1% of total invested
assets. At September 30, 1996, defaulted investments totaled $3.1 million,
including $1.6 million of bonds and notes and $1.5 million of mortgage loans,
and constituted 0.1% of total invested assets.
SOURCES OF LIQUIDITY are readily available to Anchor National in the form of
Anchor National's existing portfolio of cash and short-term investments, Reverse
Repo capacity on invested assets and, if required, proceeds from invested asset
sales. At September 30, 1997, approximately $1.80 billion of Anchor National's
Bond Portfolio had an aggregate unrealized gain of $46.5 million, while
approximately $139.8 million of the Bond Portfolio had an aggregate unrealized
loss of $2.7 million. In addition, Anchor National's investment portfolio
currently provides approximately $22.5 million of monthly cash flow from
scheduled principal and interest payments. Historically, cash flows from
operations and from the sale of Anchor National's annuity and GIC products have
24
<PAGE> 31
been more than sufficient in amount to satisfy Anchor National's liquidity
needs.
Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, Anchor
National's average cost of funds would increase over time as it prices its new
and renewing annuities and GICs to maintain a generally competitive market rate.
Management would seek to place new funds in investments that were matched in
duration to, and higher yielding than, the liabilities assumed. Anchor National
believes that liquidity to fund withdrawals would be available through incoming
cash flow, the sale of short-term or floating-rate instruments or Reverse Repos
on Anchor National's substantial MBS segment of the Bond Portfolio, thereby
avoiding the sale of fixed-rate assets in an unfavorable bond market.
In a declining rate environment, Anchor National's cost of funds would decrease
over time, reflecting lower interest crediting rates on its fixed annuities and
GICs. Should increased liquidity be required for withdrawals, Anchor National
believes that a significant portion of its investments could be sold without
adverse consequences in light of the general strengthening that would be
expected in the bond market.
PROPERTIES
Anchor National's executive offices and its principal office are in leased
premises at 1 SunAmerica Center, Los Angeles, California. Anchor National,
through an affiliate, also leases office space in Torrance and Woodland Hills,
California. Anchor National's broker-dealer and asset management subsidiaries
lease offices in New York, New York.
Anchor National believes that such properties, including the equipment located
therein, are suitable and adequate to meet the requirements of its businesses.
25
<PAGE> 32
DIRECTORS AND EXECUTIVE OFFICERS
Anchor National's directors and officers as of January 1, 1998 are listed below:
<TABLE>
<CAPTION>
OTHER POSITIONS AND
YEAR OTHER BUSINESS
PRESENT ASSUMED EXPERIENCE WITHIN
NAME AGE POSITION(S) POSITION(S) LAST FIVE YEARS** FROM-TO
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Eli Broad* 64 Chairman, Chief Executive 1994 Co-founded SunAmerica Inc. (SAI)
Officer and President of Anchor in 1957
National
Chairman, Chief Executive 1986
Officer and President of SAI
- ----------------------------------------------------------------------------------------------------------------------------------
Jay S. Wintrob* 40 Executive Vice President of 1991 Senior Vice President 1989-1991
Anchor National (Joined SAI in 1987)
Vice Chairman of SAI 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Victor E. Akin 33 Senior Vice President of Anchor 1996 Vice President, SunAmerica Life 1995-1996
National Companies
Director, SunAmerica Life 1994-1995
Companies
Manager, SunAmerica Life 1993-1994
Companies
Actuary, Milliman & Robertson 1992-1993
Consultant, Chalke Inc. 1991-1992
- ----------------------------------------------------------------------------------------------------------------------------------
James R. Belardi* 40 Senior Vice President of Anchor 1992 Vice President and Treasurer 1989-1992
National (Joined SAI in 1986)
Executive Vice President of SAI 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Lorin M. Fife* 44 Senior Vice President, General 1994 Vice President and General 1994-1995
Counsel and Assistant Secretary Counsel -- Regulatory Affairs of
of Anchor National SAI
Senior Vice President and 1995 Vice President and Associate 1989-1994
General Counsel -- Regulatory General Counsel of SAI
Affairs of SAI (Joined SAI in 1989)
- ----------------------------------------------------------------------------------------------------------------------------------
N. Scott Gillis 44 Senior Vice President and 1994 Vice President and Controller, 1989-1994
Controller of Anchor National SunAmerica Life Companies
Vice President of SAI 1997 (Joined SAI in 1985)
- ----------------------------------------------------------------------------------------------------------------------------------
Jana W. Greer* 45 Senior Vice President of Anchor 1991 Vice President 1981-1991
National and SAI (Joined SAI in 1974)
President of SunAmerica 1995
Marketing, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Susan L. Harris* 40 Senior Vice President and 1994 Vice President, General 1994-1995
Secretary of Anchor National Counsel -- Corporate Affairs and
Secretary of SAI
Senior Vice President, General 1995 Vice President, Associate 1989-1994
Counsel -- Corporate Affairs General Counsel and Secretary of
and Secretary of SAI SAI (Joined SAI in 1985)
- ----------------------------------------------------------------------------------------------------------------------------------
Peter McMillan, III* 40 Executive Vice President and 1994 Senior Vice President, 1989-1994
Chief Investment Officer of SunAmerica Investments, Inc.
SunAmerica Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Edwin R. Reoliquio 40 Senior Vice President and Chief 1995 Vice President and Actuary, 1989-1994
Actuary of Anchor National SunAmerica Life Companies
- ----------------------------------------------------------------------------------------------------------------------------------
Scott H. Richland 35 Vice President and Treasurer of 1994 Vice President and Assistant 1994-1995
Anchor National Treasurer
Senior Vice President and 1997 Vice President and Treasurer of 1995-1997
Treasurer of SAI SAI
Vice President and Assistant 1994-1995
Treasurer of SAI
Assistant Treasurer of SAI 1993-1994
Director, SunAmerica 1990-1993
Investments, Inc.
(Joined SAI in 1990)
- ----------------------------------------------------------------------------------------------------------------------------------
Scott L. Robinson* 51 Senior Vice President of Anchor 1991 Vice President and Controller 1986-1991
National (Joined SAI in 1978)
Senior Vice President and
Controller of SAI
- ----------------------------------------------------------------------------------------------------------------------------------
James W. Rowan* 35 Senior Vice President of Anchor 1996 Vice President 1993-1995
National and SAI Assistant to the Chairman 1992
Senior Vice President, Security 1986-1992
Pacific Corp.
====================================================================================================================================
</TABLE>
* Also serves as a director.
** Unless otherwise noted, officers and positions are with SunAmerica Inc.
26
<PAGE> 33
EXECUTIVE COMPENSATION
All of the executive officers of Anchor National also serve as employees of
SunAmerica Inc. or its affiliates and receive no compensation directly from
Anchor National. Some of the officers also serve as officers of other companies
affiliated with Anchor National. Allocations have been made as to each
individual's time devoted to his or her duties as an executive officer of Anchor
National.
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
Anchor National whose allocated compensation exceeds $100,000 and to all
executive officers of Anchor National as a group for services rendered in all
capacities to the Anchor National during 1997:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
CAPACITIES ALLOCATED
NAME OF INDIVIDUAL OR IN WHICH CASH
NUMBER IN GROUP SERVED COMPENSATION
-------------------------------------------------------------------
<S> <C> <C>
Eli Broad Chairman, Chief Executive
Officer and President $1,438,587
Joseph M. Tumbler Executive Vice President 835,680
Jay S. Wintrob Executive Vice President 837,376
James R. Belardi Senior Vice President 357,144
Jana Waring Greer Senior Vice President 630,854
All Executive Officers
as a Group (14) $5,769,122
-------------------------------------------------------------------
</TABLE>
Directors of Anchor National 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 OWNERS AND MANAGEMENT
No shares of Anchor National are owned by any executive officer or director.
Anchor National is an indirect wholly-owned subsidiary of SunAmerica Inc. Except
for Mr. Eli Broad, Chairman and Chief Executive Officer of SunAmerica Inc., the
percentage of shares of SunAmerica Inc. beneficially owned by any director does
not exceed one percent of the class outstanding. At December 15, 1997, Mr. Broad
was the beneficial owner of 10,705,829 shares of Common Stock (5.7% of the class
outstanding) and 13,740,441 shares of Class B Common Stock (84.4% of the class
outstanding). Of the Common Stock, 1,063,773 shares represent restricted shares
granted under SunAmerica Inc.'s employee stock plans as to which Mr. Broad has
no investment power; 1,063,773 shares are registered in the name of a
corporation of which Mr. Broad is a director and has sole voting and dispositive
powers, 97,704 shares are held by a foundation of which Mr. Broad is a director
and shares voting and dispositive powers; and 6,949,512 shares represent
employee stock options held by Mr. Broad which are or will become exercisable on
or before February 15, 1998 and as to which he has no voting or investment
power. Of the Class B Stock, 12,684,210 shares are held directly by Mr. Broad;
and 1,056,231 shares are registered in the name of a corporation as to which Mr.
Broad exercises sole voting and dispositive powers. At December 15, 1997, all
directors and officers as a group beneficially owned 14,338,041 shares of Common
Stock (7.64% of the class outstanding) and 13,740,441 shares of Class B Common
Stock (84.40% of the class outstanding). All share numbers reflect a 3-for-2
stock split paid in the form of a stock dividend on August 29, 1997 to holders
of record on August 20, 1997.
STATE REGULATION
Anchor National is subject to regulation and supervision by the insurance
regulatory agencies of the states in which it is authorized to transact
business. State insurance laws establish supervisory agencies with broad
administrative and supervisory powers. Principal among these powers are granting
and revoking licenses to transact business, regulating marketing and other trade
practices, operating guaranty associations, licensing agents, approving policy
forms, regulating certain premium rates, regulating insurance holding company
systems, establishing reserve requirements, prescribing the form and content of
required financial statements and reports, performing financial, market conduct
and other examinations, determining the reasonableness and adequacy of statutory
capital and surplus, defining acceptable accounting principles, regulating the
type, valuation and amount of investments permitted, and limiting the amount of
dividends that can be paid and the size of transactions that can be consummated
without first obtaining regulatory approval.
During the last decade, the insurance regulatory framework has been placed under
increased scrutiny by various states, the federal government and the NAIC.
Various states have considered or enacted legislation that changes, and in many
cases increases, the states' authority to regulate insurance companies.
Legislation has been introduced from time to time in Congress that could result
in the federal government assuming some role in the regulation of insurance
companies or allowing combinations between insurance companies, banks and other
entities. In recent years, the NAIC has approved and recommended to the states
for adoption and implementation several regulatory initiatives designed to
reduce the risk of insurance company insolvencies and market conduct violations.
These initiatives include investment reserve requirements, risk-based capital
standards, codification of insurance accounting principles, new investment
standards and restrictions on an insurance company's ability to pay dividends to
its stockholders. The NAIC is also currently developing model laws relating to
product design and illustrations for annuity products. Current proposals are
still being debated and Anchor National is
27
<PAGE> 34
monitoring developments in this area and the effects any changes would have on
Anchor National.
SunAmerica Asset Management Co. is registered with the SEC as a registered
investment advisor under the Investment Advisors Act of 1940. The mutual funds
that it markets are subject to regulation under the Investment Company Act of
1940. SunAmerica Asset Management Co. and the mutual funds are subject to
regulation and examination by the SEC. In addition, variable annuities and the
related separate accounts of Anchor National are subject to regulation by the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933
and the Investment Company Act of 1940.
Anchor National's broker-dealer subsidiary is subject to regulation and
supervision by the states in which it transacts business, as well as by the SEC
and the National Association of Securities Dealers ("NASD"). The NASD has broad
administrative and supervisory powers relative to all aspects of business and
may examine the subsidiary's business and accounts at any time.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Anchor National as of September 30,
1997 and 1996 and for each of the three years in the period ended September 30,
1997 included in this prospectus have been included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
================================================================
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
================================================================
<TABLE>
<S> <C>
Separate Account.............................. 3
General Account............................... 3
Performance Data.............................. 4
Annuity Payments.............................. 8
Annuity Unit Values........................... 8
Taxes......................................... 11
Distribution of Contracts..................... 14
Financial Statements.......................... 14
</TABLE>
================================================================
FINANCIAL STATEMENTS
================================================================
The consolidated financial statements of Anchor National which are included in
this prospectus should be considered only as bearing on the ability Anchor
National to meet its obligations with respect to amounts allocated to the fixed
investment options and with respect to the death benefit and our assumption of
the mortality and expense risks and the risks that the withdrawal charge will
not be sufficient to cover the cost of distributing the contracts. They should
not be considered as bearing on the investment performance of the variable
Portfolios. The value of the variable Portfolios is affected primarily by the
performance of the underlying investments.
28
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Anchor National Life Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated income statement and statement of cash flows present fairly, in all
material respects, the financial position of Anchor National Life Insurance
Company and its subsidiaries at September 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Los Angeles, California
November 7, 1997
29
<PAGE> 36
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
ASSETS
Investments:
Cash and short-term investments......................................... $ 113,580,000 $ 122,058,000
Bonds, notes and redeemable preferred stocks:
Available for sale, at fair value (amortized cost: 1997,
$1,942,485,000; 1996, $2,001,024,000)............................... 1,986,194,000 1,987,271,000
Mortgage loans.......................................................... 339,530,000 98,284,000
Common stocks, at fair value (cost: 1997, $271,000; 1996, $2,911,000)... 1,275,000 3,970,000
Real estate............................................................. 24,000,000 39,724,000
Other invested assets................................................... 143,722,000 77,925,000
--------------- --------------
Total investments............................................... 2,608,301,000 2,329,232,000
Variable annuity assets................................................... 9,343,200,000 6,311,557,000
Receivable from brokers for sales of securities........................... -- 52,348,000
Accrued investment income................................................. 21,759,000 19,675,000
Deferred acquisition costs................................................ 536,155,000 443,610,000
Other assets.............................................................. 61,524,000 48,113,000
--------------- --------------
TOTAL ASSETS.................................................... $12,570,939,000 $9,204,535,000
=============== ==============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts.................................... $ 2,098,803,000 $1,789,962,000
Reserves for guaranteed investment contracts............................ 295,175,000 415,544,000
Payable to brokers for purchases of securities.......................... 263,000 --
Income taxes currently payable.......................................... 32,265,000 21,486,000
Other liabilities....................................................... 122,728,000 74,710,000
--------------- --------------
Total reserves, payables and accrued liabilities................ 2,549,234,000 2,301,702,000
--------------- --------------
Variable annuity liabilities.............................................. 9,343,200,000 6,311,557,000
--------------- --------------
Subordinated notes payable to Parent...................................... 36,240,000 35,832,000
--------------- --------------
Deferred income taxes..................................................... 67,047,000 70,189,000
--------------- --------------
Shareholder's equity:
Common Stock............................................................ 3,511,000 3,511,000
Additional paid-in capital.............................................. 308,674,000 280,263,000
Retained earnings....................................................... 244,628,000 207,002,000
Net unrealized gains (losses) on debt and equity securities available
for sale............................................................. 18,405,000 (5,521,000)
--------------- --------------
Total shareholder's equity...................................... 575,218,000 485,255,000
--------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $12,570,939,000 $9,204,535,000
=============== ==============
</TABLE>
See accompanying notes
30
<PAGE> 37
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
Investment income......................................... $ 210,759,000 $ 164,631,000 $129,466,000
------------- ------------- ------------
Interest expense on:
Fixed annuity contracts................................. (109,217,000) (82,690,000) (72,975,000)
Guaranteed investment contracts......................... (22,650,000) (19,974,000) (3,733,000)
Senior indebtedness..................................... (2,549,000) (2,568,000) (227,000)
Subordinated notes payable to Parent.................... (3,142,000) (2,556,000) (2,448,000)
------------- ------------- ------------
Total interest expense.................................. (137,558,000) (107,788,000) (79,383,000)
------------- ------------- ------------
NET INVESTMENT INCOME..................................... 73,201,000 56,843,000 50,083,000
------------- ------------- ------------
NET REALIZED INVESTMENT LOSSES............................ (17,394,000) (13,355,000) (4,363,000)
------------- ------------- ------------
Fee income:
Variable annuity fees................................... 139,492,000 103,970,000 84,171,000
Net retained commissions................................ 39,143,000 31,548,000 24,108,000
Surrender charges....................................... 5,529,000 5,184,000 5,889,000
Asset management fees................................... 25,764,000 25,413,000 26,935,000
Other fees.............................................. 3,218,000 3,390,000 4,002,000
------------- ------------- ------------
TOTAL FEE INCOME.......................................... 213,146,000 169,505,000 145,105,000
------------- ------------- ------------
GENERAL AND ADMINISTRATIVE EXPENSES....................... (98,802,000) (81,552,000) (64,457,000)
------------- ------------- ------------
AMORTIZATION OF DEFERRED ACQUISITION COSTS................ (66,879,000) (57,520,000) (58,713,000)
------------- ------------- ------------
ANNUAL COMMISSIONS........................................ (8,977,000) (4,613,000) (2,658,000)
------------- ------------- ------------
PRETAX INCOME............................................. 94,295,000 69,308,000 64,997,000
Income tax expense........................................ (31,169,000) (24,252,000) (25,739,000)
------------- ------------- ------------
NET INCOME................................................ $ 63,126,000 $ 45,056,000 $ 39,258,000
============= ============= ============
</TABLE>
See accompanying notes
31
<PAGE> 38
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................. $ 63,126,000 $ 45,056,000 $ 39,258,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to:
Fixed annuity contracts............................................. 109,217,000 82,690,000 72,975,000
Guaranteed investment contracts..................................... 22,650,000 19,974,000 3,733,000
Net realized investment losses...................................... 17,394,000 13,355,000 4,363,000
Accretion of net discounts on investments........................... (18,576,000) (8,976,000) (6,865,000)
Amortization of goodwill............................................ 1,187,000 1,169,000 1,168,000
Provision for deferred income taxes................................. (16,024,000) (3,351,000) (1,489,000)
Change in:
Accrued investment income............................................. (2,084,000) (5,483,000) 3,373,000
Deferred acquisition costs............................................ (113,145,000) (60,941,000) (7,180,000)
Other assets.......................................................... (14,598,000) (8,000,000) 7,047,000
Income taxes currently payable........................................ 10,779,000 5,766,000 3,389,000
Other liabilities..................................................... 14,187,000 5,474,000 4,063,000
Other, net.............................................................. 418,000 (129,000) 7,000
-------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................... 74,531,000 86,604,000 123,842,000
-------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts............................................. 1,097,937,000 651,649,000 245,320,000
Guaranteed investment contracts..................................... 55,000,000 134,967,000 275,000,000
Net exchanges to (from) the fixed accounts of variable annuity
contracts........................................................... (620,367,000) (236,705,000) 10,475,000
Withdrawal payments on:
Fixed annuity contracts............................................. (242,589,000) (173,489,000) (237,977,000)
Guaranteed investment contracts..................................... (198,062,000) (16,492,000) (1,638,000)
Claims and annuity payments on fixed annuity contracts................ (35,731,000) (31,107,000) (31,237,000)
Net receipts from (repayments of) other short-term financings......... 34,239,000 (119,712,000) 3,202,000
Capital contribution received......................................... 28,411,000 27,387,000 --
Dividends paid........................................................ (25,500,000) (29,400,000) --
-------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............................... 93,338,000 207,098,000 263,145,000
-------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred stocks........................ $(2,566,211,000) $(1,937,890,000) $(1,556,586,000)
Mortgage loans...................................................... (266,771,000) (15,000,000) --
Other investments, excluding short-term investments................. (75,556,000) (36,770,000) (13,028,000)
Sales of:
Bonds, notes and redeemable preferred stocks........................ 2,299,063,000 1,241,928,000 1,026,078,000
Real estate......................................................... -- 900,000 36,813,000
Other investments, excluding short-term investments................. 6,421,000 4,937,000 5,130,000
Redemptions and maturities of:
Bonds, notes and redeemable preferred stocks........................ 376,847,000 288,969,000 178,688,000
Mortgage loans...................................................... 25,920,000 11,324,000 14,403,000
Other investments, excluding short-term investments................. 23,940,000 20,749,000 13,286,000
-------------- ------------- -------------
NET CASH USED BY INVESTING ACTIVITIES................................... (176,347,000) (420,853,000) (295,216,000)
-------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS.............. (8,478,000) (127,151,000) 91,771,000
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD.................. 122,058,000 249,209,000 157,438,000
-------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD........................ $ 113,580,000 $ 122,058,000 $ 249,209,000
============== ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness......................................... $ 7,032,000 $ 5,982,000 $ 3,235,000
============== ============= =============
Net income taxes paid................................................. $ 36,420,000 $ 22,031,000 $ 23,656,000
============== ============= =============
</TABLE>
See accompanying notes
32
<PAGE> 39
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company (the "Company") is a wholly owned
indirect subsidiary of SunAmerica, Inc. (the "Parent"). The Company is an
Arizona-domiciled life insurance company and conducts its business through three
segments: annuity operations, asset management and broker-dealer operations.
Annuity operations include the sale and administration of fixed and variable
annuities and guaranteed investment contracts. Asset management, which includes
the sale and management of mutual funds, is conducted by SunAmerica Asset
Management Corp. Broker-dealer operations include the sale of securities and
financial services products, and are conducted by Royal Alliance Associates,
Inc.
The operations of the Company are influenced by many factors, including general
economic conditions, monetary and fiscal policies of the federal government, and
policies of state and other regulatory authorities. The level of sales of the
Company's financial products is influenced by many factors, including general
market rates of interest; strength, weakness and volatility of equity markets;
and terms and conditions of competing financial products. The Company is exposed
to the typical risks normally associated with a portfolio of fixed-income
securities, namely interest rate, option, liquidity and credit risk. The Company
controls its exposure to these risks by, among other things, closely monitoring
and matching the duration of its assets and liabilities, monitoring and limiting
prepayment and extension risk in its portfolio, maintaining a large percentage
of its portfolio in highly liquid securities, and engaging in a disciplined
process of underwriting, reviewing and monitoring credit risk. The Company also
is exposed to market risk, as market volatility may result in reduced fee income
in the case of assets managed in mutual funds and held in separate accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
include the accounts of the Company and all of its wholly owned subsidiaries.
All significant intercompany accounts and transactions are eliminated in
consolidation. Certain prior period amounts have been reclassified to conform
with the 1997 presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the amounts reported in the financial statements and the accompanying notes.
Actual results could differ from those estimates.
INVESTMENTS: Cash and short-term investments primarily include cash, commercial
paper, money market investments, repurchase agreements and short-term bank
participations. All such investments are carried at cost plus accrued interest,
which approximates fair value, have maturities of three months or less and are
considered cash equivalents for purposes of reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and common
stocks are carried at aggregate fair value and changes in unrealized gains or
losses, net of tax, are credited or charged directly to shareholder's equity.
Bonds, notes and redeemable preferred stocks are reduced to estimated net
realizable value when necessary for declines in value considered to be other
than temporary. Estimates of net realizable value are subjective and actual
realization will be dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of provisions for
estimated losses. Real estate is carried at the lower of cost or fair value.
Other invested assets include investments in limited partnerships, which are
accounted for by using the cost method of accounting; separate account
investments; leveraged leases; policy loans, which are carried at unpaid
balances; and collateralized mortgage obligation residuals.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined using the specific cost
identification method. Premiums and discounts on investments are amortized to
investment income using the interest method over the contractual lives of the
investments.
INTEREST RATE SWAP AGREEMENTS: The net differential to be paid or received on
interest rate swap agreements ("Swap Agreements") entered into to reduce the
impact of changes in interest rates is recognized over the lives of the
agreements, and such differential is classified as Interest Expense in the
income statement. All outstanding Swap Agreements are designated as hedges and,
therefore, are not marked to market. However, in the event that a hedged
asset/liability were to be sold or repaid before the related Swap Agreement
matures, the Swap Agreement would be marked to market and any gain/loss
classified with any gain/loss realized on the disposition of the hedged
asset/liability. Subsequently, the Swap
33
<PAGE> 40
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Agreement would be marked to market and the resulting change in fair value would
be included in Investment Income in the income statement. In the event that a
Swap Agreement that is designated as a hedge were to be terminated before its
contractual maturity, any resulting gain/loss would be credited/charged to the
carrying value of the asset/liability that it hedged.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, in relation to the incidence of estimated gross
profits to be realized over the estimated lives of the annuity contracts.
Estimated gross profits are composed of net interest income, net realized
investment gains and losses, variable annuity fees, surrender charges and direct
administrative expenses. Costs incurred to sell mutual funds are also deferred
and amortized over the estimated lives of the funds obtained. Deferred
acquisition costs consist of commissions and other costs that vary with, and are
primarily related to, the production or acquisition of new business.
As debt and equity securities available for sale are carried at aggregate fair
value, an adjustment is made to deferred acquisition costs equal to the change
in amortization that would have been recorded if such securities had been sold
at their stated aggregate fair value and the proceeds reinvested at current
yields. The change in this adjustment, net of tax, is included with the change
in net unrealized gains or losses on debt and equity securities available for
sale that is credited or charged directly to shareholder's equity. Deferred
Acquisition Costs have been decreased by $16,400,000 at September 30, 1997 and
increased by $4,200,000 at September 30, 1996 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities resulting
from the receipt of variable annuity premiums are segregated in separate
accounts. The Company receives administrative fees for managing the funds and
other fees for assuming mortality and certain expense risks. Such fees are
included in Variable Annuity Fees in the income statement.
GOODWILL: Goodwill, amounting to $18,311,000 at September 30, 1997, is
amortized by using the straight-line method over periods averaging 25 years and
is included in Other Assets in the balance sheet. Goodwill is evaluated for
impairment when events or changes in economic conditions indicate that the
carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity contracts
and guaranteed investment contracts are accounted for as investment-type
contracts in accordance with Statement of Financial Accounting Standards No. 97,
"Accounting and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of Investments," and
are recorded at accumulated value (premiums received, plus accrued interest,
less withdrawals and assessed fees).
FEE INCOME: Variable annuity fees, asset management fees and surrender charges
are recorded in income as earned. Net retained commissions are recognized as
income on a trade-date basis.
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.
34
<PAGE> 41
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by major category follow:
<TABLE>
<CAPTION>
AMORTIZED COST ESTIMATED FAIR VALUE
-------------- --------------------
<S> <C> <C>
AT SEPTEMBER 30, 1997:
Securities of the United States Government.................. $ 18,496,000 $ 18,962,000
Mortgage-backed securities.................................. 636,018,000 649,196,000
Securities of public utilities.............................. 22,792,000 22,893,000
Corporate bonds and notes................................... 984,573,000 1,012,559,000
Redeemable preferred stocks................................. 6,125,000 6,681,000
Other debt securities....................................... 274,481,000 275,903,000
-------------- --------------
Total available for sale.................................... $1,942,485,000 $1,986,194,000
============== ==============
AT SEPTEMBER 30, 1996:
Securities of the United States Government.................. $ 311,458,000 $ 304,538,000
Mortgage-backed securities.................................. 747,653,000 741,876,000
Securities of public utilities.............................. 3,684,000 3,672,000
Corporate bonds and notes................................... 590,071,000 591,148,000
Redeemable preferred stocks................................. 9,064,000 8,664,000
Other debt securities....................................... 339,094,000 337,373,000
-------------- --------------
Total available for sale.................................... $2,001,024,000 $1,987,271,000
============== ==============
</TABLE>
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by contractual maturity, as of September 30,
1997, follow:
<TABLE>
<CAPTION>
AMORTIZED COST ESTIMATED FAIR VALUE
-------------- --------------------
<S> <C> <C>
Due in one year or less....................................... $ 19,067,000 $ 20,575,000
Due after one year through five years......................... 277,350,000 281,296,000
Due after five years through ten years........................ 631,083,000 650,242,000
Due after ten years........................................... 378,967,000 384,885,000
Mortgage-backed securities.................................... 636,018,000 649,196,000
-------------- --------------
Total available for sale...................................... $1,942,485,000 $1,986,194,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will differ
from those shown above due to prepayments and redemptions.
35
<PAGE> 42
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS -- (CONTINUED)
Gross unrealized gains and losses on bonds, notes and redeemable preferred
stocks available for sale by major category follow:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
GAINS LOSSES
---------------- ----------------
<S> <C> <C>
AT SEPTEMBER 30, 1997:
Securities of the United States Government....................... $ 498,000 $ (32,000)
Mortgage-backed securities....................................... 14,998,000 (1,820,000)
Securities of public utilities................................... 141,000 (40,000)
Corporate bonds and notes........................................ 28,691,000 (705,000)
Redeemable preferred stocks...................................... 556,000 --
Other debt securities............................................ 1,569,000 (147,000)
------------ ------------
Total available for sale......................................... $ 46,453,000 $ (2,744,000)
============ ============
AT SEPTEMBER 30, 1996:
Securities of the United States Government....................... $ 284,000 $ (7,204,000)
Mortgage-backed securities....................................... 7,734,000 (13,511,000)
Securities of public utilities................................... 1,000 (13,000)
Corporate bonds and notes........................................ 11,709,000 (10,632,000)
Redeemable preferred stocks...................................... 16,000 (416,000)
Other debt securities............................................ 431,000 (2,152,000)
------------ ------------
Total available for sale......................................... $ 20,175,000 $(33,928,000)
============ ============
</TABLE>
At September 30, 1997, gross unrealized gains on equity securities available for
sale aggregated $1,004,000 and there were no unrealized losses. At September 30,
1996, gross unrealized gains on equity securities available for sale aggregated
$1,368,000 and gross unrealized losses aggregated $309,000.
Gross realized investment gains and losses on sales of investments are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS:
Available for sale:
Realized gains.................................. $ 22,179,000 $ 14,532,000 $ 15,983,000
Realized losses................................. (25,310,000) (10,432,000) (21,842,000)
Held for investment:
Realized gains.................................. -- -- 2,413,000
Realized losses................................. -- -- (586,000)
COMMON STOCKS:
Realized gains..................................... 4,002,000 511,000 994,000
Realized losses.................................... (312,000) (3,151,000) (114,000)
OTHER INVESTMENTS:
Realized gains..................................... 2,450,000 1,135,000 3,561,000
Realized losses.................................... -- -- (12,000)
IMPAIRMENT WRITEDOWNS................................ (20,403,000) (15,950,000) (4,760,000)
------------ ------------ ------------
Total net realized investment losses................. $(17,394,000) $(13,355,000) $ (4,363,000)
============ ============ ============
</TABLE>
36
<PAGE> 43
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS -- (CONTINUED)
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Short-term investments............................... $ 11,780,000 $ 10,647,000 $ 8,308,000
Bonds, notes and redeemable preferred stocks......... 163,038,000 140,387,000 107,643,000
Mortgage loans....................................... 17,632,000 8,701,000 7,419,000
Common stocks........................................ 16,000 8,000 3,000
Real estate.......................................... (296,000) (196,000) (51,000)
Limited partnerships................................. 6,725,000 4,073,000 5,128,000
Other invested assets................................ 11,864,000 1,011,000 1,016,000
------------ ------------ ------------
Total investment income.................... $210,759,000 $164,631,000 $129,466,000
============ ============ ============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to $2,050,000 for
the year ended September 30, 1997, $1,737,000 for the year ended September 30,
1996, and $1,983,000 for the year ended September 30, 1995 and are included in
General and Administrative Expenses in the income statement.
At September 30, 1997, no investment exceeded 10% of the Company's consolidated
shareholder's equity.
At September 30, 1997, mortgage loans were collateralized by properties located
in 21 states, with loans totaling approximately 13% of the aggregate carrying
value of the portfolio secured by properties located in New York and
approximately 12% by properties located in California. No more than 10% of the
portfolio was secured by properties in any other single state.
At September 30, 1997, bonds, notes and redeemable preferred stocks included
$216,877,000 (fair value of $227,169,000) of bonds and notes not rated
investment grade. The Company had no material concentrations of
non-investment-grade assets at September 30, 1997.
At September 30, 1997, the amortized cost of investments in default as to the
payment of principal or interest was $1,378,000, consisting of $500,000 of
non-investment-grade bonds and $878,000 of mortgage loans. Such nonperforming
investments had an estimated fair value of $1,378,000.
As a component of its asset and liability management strategy, the Company
utilizes Swap Agreements to match assets more closely to liabilities. Swap
Agreements are agreements to exchange with a counterparty interest rate payments
of differing character (for example, variable-rate payments exchanged for
fixed-rate payments) based on an underlying principal balance (notional
principal) to hedge against interest rate changes. The Company typically
utilizes Swap Agreements to create a hedge that effectively converts
floating-rate assets and liabilities to fixed-rate instruments. At September 30,
1997, the Company had one outstanding Swap Agreement with a notional principal
amount of $15.9 million, which matures in December, 2024. The net interest paid
amounted to $0.1 million for the year ended September 30, 1997, and is included
in Interest Expense on Guaranteed Investment Contracts in the income statement.
At September 30, 1997, $5,276,000 of bonds, at amortized cost, were on deposit
with regulatory authorities in accordance with statutory requirements.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to reasonable
estimates of the fair value of only the Company's financial instruments. The
disclosures do not address the value of the Company's recognized and
unrecognized nonfinancial assets (including its real estate investments and
other invested assets except for cost-method partnerships) and liabilities or
the value of anticipated future business. The Company does not plan to sell most
of its assets or settle most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Selling expenses and potential taxes are not
included. The
37
<PAGE> 44
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
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.
COMMON STOCKS: Fair value is based principally on independent pricing services,
broker quotes and other independent information.
COST-METHOD PARTNERSHIPS: Fair value of limited partnerships accounted for by
using the cost method is based upon the fair value of the net assets of the
partnerships as determined by the general partners.
VARIABLE ANNUITY ASSETS: Variable annuity assets are carried at the market
value of the underlying securities.
RECEIVABLE FROM (PAYABLE TO) BROKERS FOR SALES (PURCHASES) OF SECURITIES: Such
obligations represent net transactions of a short-term nature for which the
carrying value is considered a reasonable estimate of fair value.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts and single
premium life contracts are assigned a fair value equal to current net surrender
value. Annuitized contracts are valued based on the present value of future cash
flows at current pricing rates.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the
present value of future cash flows at current pricing rates and is net of the
estimated fair value of hedging Swap Agreements, determined from independent
broker quotes.
VARIABLE ANNUITY LIABILITIES: Fair values of contracts in the accumulation
phase are based on net surrender values. Fair values of contracts in the payout
phase are based on the present value of future cash flows at assumed investment
rates.
38
<PAGE> 45
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on the
quoted market prices for similar issues.
The estimated fair values of the Company's financial instruments at September
30, 1997 and 1996, compared with their respective carrying values, are as
follows:
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
--------------- ---------------
<S> <C> <C>
1997:
ASSETS:
Cash and short-term investments........................ $ 113,580,000 $ 113,580,000
Bonds, notes and redeemable preferred stocks........... 1,986,194,000 1,986,194,000
Mortgage loans......................................... 339,530,000 354,495,000
Common stocks.......................................... 1,275,000 1,275,000
Cost-method partnerships............................... 46,880,000 84,186,000
Variable annuity assets................................ 9,343,200,000 9,343,200,000
LIABILITIES:
Reserves for fixed annuity contracts................... 2,098,803,000 2,026,258,000
Reserves for guaranteed investment contracts........... 295,175,000 295,175,000
Payable to brokers for purchases of securities......... 263,000 263,000
Variable annuity liabilities........................... 9,343,200,000 9,077,200,000
Subordinated notes payable to Parent................... 36,240,000 37,393,000
============== ==============
1996:
ASSETS:
Cash and short-term investments........................ $ 122,058,000 $ 122,058,000
Bonds, notes and redeemable preferred stocks........... 1,987,271,000 1,987,271,000
Mortgage loans......................................... 98,284,000 102,112,000
Common stocks.......................................... 3,970,000 3,970,000
Cost-method partnerships............................... 45,070,000 70,553,000
Receivable from brokers for sales of securities........ 52,348,000 52,348,000
Variable annuity assets................................ 6,311,557,000 6,311,557,000
LIABILITIES:
Reserves for fixed annuity contracts................... 1,789,962,000 1,738,784,000
Reserves for guaranteed investment contracts........... 415,544,000 416,695,000
Variable annuity liabilities........................... 6,311,557,000 6,117,508,000
Subordinated notes payable to Parent................... 35,832,000 37,339,000
============== ==============
</TABLE>
5. SUBORDINATED NOTES PAYABLE TO PARENT
Subordinated notes payable to Parent equalled $36,240,000 at an interest rate of
9% at September 30, 1997 and require principal payments of $7,500,000 in 1998,
$23,060,000 in 1999 and $5,400,000 in 2000.
6. CONTINGENT LIABILITIES
The Company has entered into three agreements in which it has provided liquidity
support for certain short-term securities of three municipalities by agreeing to
purchase such securities in the event there is no other buyer in the short-term
marketplace. In return the Company receives a fee. The maximum liability under
these guarantees is $242,600,000. Management does not anticipate any material
future losses with respect to these liquidity support facilities.
The Company is involved in various kinds of litigation common to its businesses.
These cases are in various stages of development and, based on reports of
counsel, management believes that provisions made for potential losses relating
to such
39
<PAGE> 46
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CONTINGENT LIABILITIES -- (CONTINUED)
litigation are adequate and any further liabilities and costs will not have a
material adverse impact upon the Company's financial position or results of
operations.
7. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value Common
Stock. At September 30, 1997 and 1996, 3,511 shares were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balance.................................. $280,263,000 $252,876,000 $252,876,000
Capital contributions received..................... 28,411,000 27,387,000 --
------------ ------------ ------------
Ending balance..................................... $308,674,000 $280,263,000 $252,876,000
============ ============ ============
RETAINED EARNINGS:
Beginning balance.................................. 207,002,000 191,346,000 152,088,000
Net income......................................... 63,126,000 45,056,000 39,258,000
Dividend paid...................................... (25,500,000) (29,400,000) --
------------ ------------ ------------
Ending balance..................................... $244,628,000 $207,002,000 $191,346,000
============ ============ ============
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET UNREALIZED GAINS/LOSSES ON DEBT AND EQUITY
SECURITIES AVAILABLE FOR SALE:
Beginning balance.................................. $ (5,521,000) $ (5,673,000) $(24,953,000)
Change in net unrealized gains/losses on debt
securities available for sale................... 57,463,000 (2,904,000) 71,302,000
Change in net unrealized gains/losses on equity
securities available for sale................... (55,000) 3,538,000 (1,240,000)
Change in adjustment to deferred acquisition
costs........................................... (20,600,000) (400,000) (40,400,000)
Tax effects of net changes......................... (12,882,000) (82,000) (10,382,000)
------------ ------------ ------------
Ending balance..................................... $ 18,405,000 $ (5,521,000) $ (5,673,000)
============ ============ ============
</TABLE>
Dividends that the Company may pay to its shareholder in any year without prior
approval of the Arizona Department of Insurance are limited by statute. The
maximum amount of dividends which can be paid to shareholders of insurance
companies domiciled in the state of Arizona without obtaining the prior approval
of the Insurance Commissioner is limited to the lesser of either 10% of the
preceding year's statutory surplus or the preceding year's statutory net gain
from operations. Dividends in the amounts of $25,500,000 and $29,400,000 were
paid on April 1, 1997 and March 18, 1996, respectively. No dividends were paid
in fiscal year 1995.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the nine months ended
September 30, 1997 was $45,743,000. The statutory net income for the year ended
December 31, 1996 was $27,928,000 and for the year ended December 31, 1995 was
$30,673,000. The Company's statutory capital and surplus was $325,712,000 at
September 30, 1997, $311,176,000 at December 31, 1996 and $294,767,000 at
December 31, 1995.
40
<PAGE> 47
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The components of the provisions for federal income taxes on pretax income
consist of the following:
<TABLE>
<CAPTION>
NET REALIZED
INVESTMENT GAINS
(LOSSES) OPERATIONS TOTAL
---------------- ------------ ------------
<S> <C> <C> <C>
1997:
Currently payable............................... $ (3,635,000) $ 50,828,000 $ 47,193,000
Deferred........................................ (2,258,000) (13,766,000) (16,024,000)
------------ ----------- -----------
Total income tax expense................... $ (5,893,000) $ 37,062,000 $ 31,169,000
============ =========== ===========
1996:
Currently payable............................... $ 5,754,000 $ 21,849,000 $ 27,603,000
Deferred........................................ (10,347,000) 6,996,000 (3,351,000)
------------ ----------- -----------
Total income tax expense................... $ (4,593,000) $ 28,845,000 $ 24,252,000
============ =========== ===========
1995:
Currently payable............................... $ 4,248,000 $ 22,980,000 $ 27,228,000
Deferred........................................ (6,113,000) 4,624,000 (1,489,000)
------------ ----------- -----------
Total income tax expense................... $ (1,865,000) $ 27,604,000 $ 25,739,000
============ =========== ===========
</TABLE>
Income taxes computed at the United States federal income tax rate of 35% and
income taxes provided differ as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Amount computed at statutory rate................... $33,003,000 $24,258,000 $22,749,000
Increases (decreases) resulting from:
Amortization of differences between book and tax
bases of net assets acquired................... 666,000 464,000 3,049,000
State income taxes, net of federal tax benefit.... 1,950,000 2,070,000 437,000
Dividends-received deduction...................... (4,270,000) (2,357,000) --
Tax credits....................................... (318,000) (257,000) (168,000)
Other, net........................................ 138,000 74,000 (328,000)
----------- ----------- -----------
Total income tax expense....................... $31,169,000 $24,252,000 $25,739,000
=========== =========== ===========
</TABLE>
For United States federal income tax purposes, certain amounts from life
insurance operations are accumulated in a memorandum policyholders' surplus
account and are taxed only when distributed to shareholders or when such account
exceeds prescribed limits. The accumulated policyholders' surplus was
$14,300,000 at September 30, 1997. The Company does not anticipate any
transactions which would cause any part of this surplus to be taxable.
41
<PAGE> 48
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. The significant
components of the liability for Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1997 1996
------------- ------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Investments................................................ $ 13,160,000 $ 15,036,000
Deferred acquisition costs................................. 154,949,000 136,747,000
State income taxes......................................... 1,777,000 1,466,000
Net unrealized gains on debt and equity securities
available for sale....................................... 9,910,000 --
------------- ------------
Total deferred tax liabilities............................. 179,796,000 153,249,000
------------- ------------
DEFERRED TAX ASSETS:
Contractholder reserves.................................... (108,090,000) (77,522,000)
Guaranty fund assessments.................................. (2,707,000) (1,031,000)
Other assets............................................... (1,952,000) (1,534,000)
Net unrealized losses on debt and equity securities
available for sale....................................... -- (2,973,000)
------------- ------------
Total deferred tax assets.................................. (112,749,000) (83,060,000)
------------- ------------
Deferred income taxes...................................... $ 67,047,000 $ 70,189,000
============= ============
</TABLE>
9. RELATED PARTY MATTERS
The Company pays commissions to two affiliated companies, SunAmerica Securities,
Inc. and Advantage Capital Corp. Commissions paid to these broker-dealers
totaled $25,492,000 in 1997, $16,906,000 in 1996, and $9,435,000 in 1995. These
broker-dealers, when combined with the Company's wholly owned broker-dealer,
represent a significant portion of the Company's business, amounting to
approximately 36.1%, 38.3%, and 40.6% of premiums in 1997, 1996, and 1995,
respectively. The Company also sells its products through unaffiliated
broker-dealers, the largest two of which represented approximately 19.2% and
10.1% of premiums in 1997, 19.7% and 10.2% in 1996, and 18.8% and 4.3% in 1995,
respectively.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from SunAmerica Financial, Inc., whose
purpose is to provide services to the SunAmerica companies. Amounts paid for
such services totaled $86,116,000 for the year ended September 30, 1997,
$65,351,000 for the year ended September 30, 1996 and $42,083,000 for the year
ended September 30, 1995. Such amounts are included in General and
Administrative Expenses in the income statement.
The Parent made capital contributions of $28,411,000 in December 1996 and
$27,387,000 in December 1995 to the Company, through the Company's direct
parent, in exchange for the termination of its guaranty with respect to certain
real estate owned in Arizona. Accordingly, the Company reduced the carrying
value of this real estate to estimated fair value to reflect the termination of
the guaranty.
During the year ended September 30, 1995, the Company sold to the Parent real
estate for cash equal to its carrying value of $29,761,000.
During the year ended September 30, 1997, the Company sold various invested
assets to SunAmerica Life Insurance Company and to CalAmerica Life Insurance
Company for cash equal to their current market values of $15,776,000 and
$15,000, respectively. The Company recorded net gains aggregating $276,000 on
such transactions.
During the year ended September 30, 1997, the Company also purchased certain
invested assets from SunAmerica Life Insurance Company and from CalAmerica Life
Insurance Company for cash equal to their current market values of $8,717,000
and $284,000, respectively.
42
<PAGE> 49
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED PARTY MATTERS -- (CONTINUED)
During the year ended September 30, 1996, the Company sold various invested
assets to the Parent and to SunAmerica Life Insurance Company for cash equal to
their current market values of $274,000 and $47,321,000, respectively. The
Company recorded net losses aggregating $3,000 on such transactions.
During the year ended September 30, 1996, the Company also purchased certain
invested assets from SunAmerica Life Insurance Company for cash equal to their
current market values, which aggregated $28,379,000.
10. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
TOTAL
DEPRECIATION AND
TOTAL REVENUES AMORTIZATION EXPENSE PRETAX INCOME TOTAL ASSETS
-------------- -------------------- ------------- ---------------
<S> <C> <C> <C> <C>
1997:
Annuity operations.............. $ 332,845,000 $ 55,675,000 $ 74,792,000 $12,438,021,000
Broker-dealer operations........ 38,005,000 689,000 16,705,000 51,400,000
Asset management................ 35,661,000 16,357,000 2,798,000 81,518,000
------------ ----------- ----------- --------------
Total...................... $ 406,511,000 $ 72,721,000 $ 94,295,000 $12,570,939,000
============ =========== =========== ==============
1996:
Annuity operations.............. $ 256,681,000 $ 43,974,000 $ 53,827,000 $ 9,092,770,000
Broker-dealer operations........ 31,053,000 449,000 13,033,000 37,355,000
Asset management................ 33,047,000 18,295,000 2,448,000 74,410,000
------------ ----------- ----------- --------------
Total...................... $ 320,781,000 $ 62,718,000 $ 69,308,000 $ 9,204,535,000
============ =========== =========== ==============
1995:
Annuity operations.............. $ 211,587,000 $ 38,350,000 $ 55,462,000 $ 7,667,946,000
Broker-dealer operations........ 24,194,000 411,000 9,025,000 29,241,000
Asset management................ 34,427,000 24,069,000 510,000 86,510,000
------------ ----------- ----------- --------------
Total...................... $ 270,208,000 $ 62,830,000 $ 64,997,000 $ 7,783,697,000
============ =========== =========== ==============
</TABLE>
43
<PAGE> 50
================================================================================
APPENDIX A - CONDENSED FINANCIAL INFORMATION
================================================================================
<TABLE>
<CAPTION>
INCEPTION TO
PORTFOLIOS 11/30/97
==========================================================================================
<S> <C>
Capital Appreciation (Inception Date - 6/3/97)
Beginning AUV.................................................. $ 18.52
End AUV........................................................ $ 21.26
End #AUs....................................................... 1,392,262
------------------------------------------------------------------------------------------
Growth (Inception Date - 6/3/97)
Beginning AUV.................................................. $ 17.93
End AUV........................................................ $ 20.31
End #AUs....................................................... 789,274
------------------------------------------------------------------------------------------
Natural Resources (Inception Date - 6/4/97)
Beginning AUV.................................................. $ 12.39
End AUV........................................................ $ 11.14
End #AUs....................................................... 195,946
------------------------------------------------------------------------------------------
Government and Quality Bond (Inception Date - 6/11/97)
Beginning AUV.................................................. $ 11.99
End AUV........................................................ $ 12.65
End #AUs....................................................... 395,258
------------------------------------------------------------------------------------------
Emerging Markets (Inception Date - 6/5/97)
Beginning AUV.................................................. $ 10.14
End AUV........................................................ $ 7.97
End #AUs....................................................... 663,212
------------------------------------------------------------------------------------------
International Diversified Equities (Inception Date - 6/4/97)
Beginning AUV.................................................. $ 12.04
End AUV........................................................ $ 11.62
End #AUs....................................................... 1,040,812
------------------------------------------------------------------------------------------
International Growth and Income (Inception Date - 6/4/97)
Beginning AUV.................................................. $ 9.97
End AUV........................................................ $ 10.33
End #AUs....................................................... 1,310,126
------------------------------------------------------------------------------------------
Aggressive Growth (Inception Date - 6/9/97)
Beginning AUV.................................................. $ 10.03
End AUV........................................................ $ 11.51
End #AUs....................................................... 821,105
------------------------------------------------------------------------------------------
Global Equities (Inception Date - 6/3/97)
Beginning AUV.................................................. $ 16.54
End AUV........................................................ $ 16.90
End #AUs....................................................... 600,294
------------------------------------------------------------------------------------------
Real Estate (Inception Date - 6/4/97)
Beginning AUV.................................................. $ 9.98
End AUV........................................................ $ 11.44
End #AUs....................................................... 887,321
------------------------------------------------------------------------------------------
Putnam Growth (Inception Date - 6/3/97)
Beginning AUV.................................................. $ 15.80
End AUV........................................................ $ 18.47
End #AUs....................................................... 831,178
------------------------------------------------------------------------------------------
Growth/Phoenix Investment Counsel (Inception Date - 6/4/97)
Beginning AUV.................................................. $ 15.82
End AUV........................................................ $ 17.63
End #AUs....................................................... 191,101
==========================================================================================
</TABLE>
AUV - Accumulation Unit Value
AU - Accumulation Units
A-1
<PAGE> 51
<TABLE>
<CAPTION>
INCEPTION TO
PORTFOLIOS 11/30/97
==========================================================================================
<S> <C>
Alliance Growth (Inception Date - 6/2/97)
Beginning AUV.................................................. $21.81
End AUV........................................................ $24.51
End #AUs....................................................... 2,092,044
------------------------------------------------------------------------------------------
Venture Value (Inception Date - 6/2/97)
Beginning AUV.................................................. $18.63
End AUV........................................................ $21.30
End #AUs....................................................... 4,281,879
------------------------------------------------------------------------------------------
Federated Value (Inception Date - 6/4/97)
Beginning AUV.................................................. $12.14
End AUV........................................................ $13.62
End #AUs....................................................... 736,333
------------------------------------------------------------------------------------------
Growth-Income (Inception Date - 6/3/97)
Beginning AUV.................................................. $18.84
End AUV........................................................ $21.41
End #AUs....................................................... 1,949,292
------------------------------------------------------------------------------------------
Utility (Inception Date - 6/6/97)
Beginning AUV.................................................. $11.41
End AUV........................................................ $12.74
End #AUs....................................................... 177,618
------------------------------------------------------------------------------------------
Asset Allocation (Inception Date - 6/3/97)
Beginning AUV.................................................. $16.59
End AUV........................................................ $17.98
End #AUs....................................................... 1,498,681
------------------------------------------------------------------------------------------
Balanced/Phoenix Investment Counsel (Inception Date - 6/10/97)
Beginning AUV.................................................. $14.44
End AUV........................................................ $15.45
End #AUs....................................................... 218,391
------------------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date - 6/5/96)
Beginning AUV.................................................. $11.84
End AUV........................................................ $13.22
End #AUs....................................................... 363,136
------------------------------------------------------------------------------------------
Worldwide High Income (Inception Date - 6/5/97)
Beginning AUV.................................................. $15.57
End AUV........................................................ $15.98
End #AUs....................................................... 596,308
------------------------------------------------------------------------------------------
High-Yield Bond (Inception Date - 6/9/97)
Beginning AUV.................................................. $13.63
End AUV........................................................ $14.66
End #AUs....................................................... 758,856
------------------------------------------------------------------------------------------
Corporate Bond (Inception Date - 6/9/97)
Beginning AUV.................................................. $11.83
End AUV........................................................ $12.54
End #AUs....................................................... 328,300
------------------------------------------------------------------------------------------
Global Bond (Inception Date - 6/11/97)
Beginning AUV.................................................. $12.41
End AUV........................................................ $13.08
End #AUs....................................................... 183,563
------------------------------------------------------------------------------------------
Cash Management (Inception Date - 6/5/97)
Beginning AUV.................................................. $11.24
End AUV........................................................ $11.43
End #AUs....................................................... 1,514,290
==========================================================================================
</TABLE>
AUV - Accumulation Unit Value
AU - Accumulation Units
A-2
<PAGE> 52
================================================================================
APPENDIX B - MARKET VALUE ADJUSTMENT
================================================================================
The market value adjustment reflects the impact that changing interest rates
have on the value of money invested at a fixed interest rate. The longer the
period of time remaining in the term you initially agreed to leave your money in
the fixed investment option, the greater the impact of changing interest rates.
The impact of the market value adjustment can be either positive or negative,
and is computed by multiplying the amount withdrawn, transferred or annuitized
by the following factor:
N/12
[(1+I/(1+J+0.005)] - 1
The market value adjustment formula may differ in certain states
where:
I is the interest rate you are earning on the money invested in the
fixed investment option;
J is the interest rate then currently available for the period of time
equal to the number of years remaining in the term you initially agreed
to leave your money in the fixed investment option; and
N is the number of full months remaining in the term you initially
agreed to leave your money in the fixed investment option.
EXAMPLES OF THE MARKET VALUE ADJUSTMENT
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to the
10-year fixed investment option at a rate of 7%;
(2) You make a partial withdrawal of $4,000 when 1 1/2 years (18 months)
remain in the 10-year term you initially agreed to leave your money in
the fixed investment option (N=18); and
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals.
No withdrawal charges are reflected because your Purchase Payment has been in
the contract for seven full years. If a withdrawal charge applies, it is
deducted before the market value adjustment. The market value adjustment is
assessed on the amount withdrawn less any withdrawal charges.
NEGATIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year fixed investment option is 7.5% and the 3-year
fixed investment option is 8.5%. By linear interpolation, the interest rate for
the remaining 2 years (1 1/2 years rounded up to the next full year) in the
contract is calculated to be 8%.
N/12
The market value adjustment factor is = [(1+I)/(1+J+0.005)] - 1
18/12
= [(1.07)/(1.08+0.005)] - 1
1.5
= (0.986175) - 1
= 0.979335 - 1
= - 0.020665
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
$4,000 X (- 0.020665) = -$82.66
$82.66 represents the market value adjustment that will be deducted from the
money remaining in the 10-year fixed investment option.
POSITIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for a new
Purchase Payments in the 1-year fixed investment option is 5.5% and the 3-year
fixed investment option is 6.5%. By linear interpolation, the interest rate for
the remaining 2 years (1 1/2 years rounded up to the next full year) in the
contract is calculated to be 6%.
N/12
The market value adjustment factor is = [(1+I/(1+J+0.005)] - 1
18/12
= [(1.07)/(1.06+0.005)] - 1
1.5
= (1.004695) - 1
= 1.007051 - 1
= + 0.007051
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
$4,000 x (+0.007051) = +$28.20
$28.20 represents the market value adjustment that would be added to your
withdrawal.
B-1
<PAGE> 53
================================================================================
APPENDIX C - PREMIUM TAXES
================================================================================
Premium taxes vary according to the state and are subject to change without
notice. In many states, there is no tax at all. Listed below are the current
premium tax rates in those states that assess a premium tax. For current
information, you should consult your tax adviser.
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
STATE CONTRACT CONTRACT
<S> <C> <C>
=========================================================================================
California .50% 2.35%
-------------------------------------------------------------------------------------------
District of Columbia 2.25% 2.25%
-------------------------------------------------------------------------------------------
Kansas 0% 2%
-------------------------------------------------------------------------------------------
Kentucky 2% 2%
-------------------------------------------------------------------------------------------
Maine 0% 2%
-------------------------------------------------------------------------------------------
Nevada 0% 3.5%
-------------------------------------------------------------------------------------------
South Dakota 0% 1.25%
-------------------------------------------------------------------------------------------
West Virginia 1% 1%
-------------------------------------------------------------------------------------------
Wyoming 0% 1%
===========================================================================================
</TABLE>
C-1
<PAGE> 54
- --------------------------------------------------------------------------------
Please forward a copy (without charge) of the Polaris II Variable Annuity
Statement of Additional Information to:
(Please print or type and fill in all information.)
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City/State/Zip
<TABLE>
<S> <C> <C> <C>
Date: ---------------------------- Signed: ------------------------------
</TABLE>
Return to: Anchor National Life Insurance Company, Annuity Service Center,
P.O. Box 52499, Los Angeles, California 90054-0299
- --------------------------------------------------------------------------------
<PAGE> 55
PART II
-------
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
Not Applicable
Item 14. Indemnification of Directors and Officers.
Not Applicable
Item 15. Recent Sales of Unregistered Securities.
Not Applicable
Item 16. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
(1) Form of Underwriting Agreement**
(2) Plan of Acquisition, Reorganization,
Arrangement, Liquidation or Succession***
(3) (a) Articles of Incorporation**
(b) By-Laws**
(4) (a) Polaris II Group Annuity Certificate**
(b) Polaris II Individual Annuity Contract**
(c) Polaris II Participant Enrollment Form**
(d) Polaris II Annuity Application**
(5) Opinion of Counsel re: Legality**
(included on Exhibit (23)(b))
(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***
</TABLE>
* Herewith
** Previously Filed
*** Not Applicable
<PAGE> 56
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> 57
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, and the State of California, on this
19th day of January, 1998.
By: ANCHOR NATIONAL LIFE INSURANCE COMPANY
By: /s/ JAY S. WINTROB
---------------------------------------
Jay S. Wintrob
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities 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 19, 1998
- ----------------------
Susan L. Harris
</TABLE>
<PAGE> 58
<TABLE>
<S> <C> <C>
PETER MCMILLAN* Director
- ----------------------
Peter McMillan
JAMES W. ROWAN* Director
- ----------------------
James W. Rowan
* By: /s/ SUSAN L. HARRIS Attorney-in-Fact
----------------------
Susan L. Harris
</TABLE>
Date: January 19, 1998
<PAGE> 59
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 of our report dated November 7, 1997
relating to the consolidated financial statements of Anchor National Life
Insurance Company, which appears in such Prospectus. We also consent to the
reference to us under the heading "Independent Accountants" in such Prospectus.
PRICE WATERHOUSE LLP
Los Angeles, California
January 19, 1998
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT OF ANCHOR NATIONAL LIFE INSURANCE COMPANY'S FORM 10-K
FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 1,986,194,000
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