<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 20, 1998
REGISTRATION NO. 333-08877
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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)
<TABLE>
<S> <C> <C>
ARIZONA 6311 86-0198983
(State or other jurisdiction Primary Standard Industrial (I.R.S. Employer
of Classification Number) Identification
incorporation or organization) No.)
</TABLE>
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.
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- --------------------------------------------------------------------------------
<PAGE>
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 NO. AND CAPTION HEADING IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <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; Investment Options
4. Use of Proceeds...................................... The Seasons Variable Annuity; Purchasing a Seasons
Variable Annuity; Investment Options; Access to Your
Money
5. Determination of Offering Price...................... Not Applicable
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Purchasing a Seasons Variable Annuity; Access to Your
Money
9. Description of Securities to be Registered........... The Seasons Variable Annuity; Annuity Income Options;
Investment Options; Expenses
10. Interests of Named Experts and Counsel............... Not Applicable
11. Information with Respect to the Registrant........... Other Information
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
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PROFILE
February 2, 1998
This Profile is a summary of some of the more important points you should know
before purchasing the Seasons Variable Annuity. The sections in this Profile
correspond to sections in the prospectus which discuss the topics in more
detail. Please read the prospectus carefully.
1. THE SEASONS VARIABLE ANNUITY
The Seasons Variable Annuity Contract is a contract between you and Anchor
National Life Insurance Company. It is designed to help you save on a
tax-deferred basis and diversify your investments among asset classes and
managers to 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.
The Seasons Variable Annuity helps you meet these goals by offering four
variable investment STRATEGIES which are managed by five different professional
investment managers. The value of any portion of your contract allocated to the
STRATEGIES will fluctuate up or down based on the performance of the STRATEGIES
you select and you may experience a loss. Five fixed investment options, each
for a different length of time and offering different interest rates that are
guaranteed by Anchor National and a one year DCA account offering a fixed
interest rate guaranteed by Anchor National are also available under the
contract.
The STRATEGIES and fixed investment options are designed to be used in concert
in order to achieve your desired investment goals. You may put money into any of
the STRATEGIES and/or fixed investment options. You may transfer between
STRATEGIES and/or the fixed investment options four times per year without
charge.
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 STRATEGY or STRATEGIES 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 be 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.
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2. ANNUITY PAYMENT 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 non-qualified, 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 qualified
contracts, the entire payment is taxable as income.
3. PURCHASING A SEASONS VARIABLE ANNUITY
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 $5000. For Qualified contracts the minimum initial investment is
$2000. You can add $500 or more to your contract at any time during the
Accumulation Phase.
4. INVESTMENT OPTIONS
You can put your money into any one or more of the four multi-manager variable
investment STRATEGIES and/or one or more of the six fixed investment options.
The fixed investment options offer fixed rates of interest for specified lengths
of time.
Each STRATEGY has a different investment objective and uses an asset allocation
investment approach, investing in a combination of underlying investment
portfolios which invest in a combination of stocks, bonds and cash in varying
degrees, to achieve its investment objective. The four investment STRATEGIES
are:
GROWTH
MODERATE GROWTH
BALANCED GROWTH
CONSERVATIVE GROWTH
Each STRATEGY invests in three underlying investment portfolios. The underlying
investment portfolios are managed by the following five investment managers:
PUTNAM INVESTMENT MANAGEMENT, INC.
T. ROWE PRICE ASSOCIATES, INC.
JANUS CAPITAL CORPORATION
SUNAMERICA ASSET MANAGEMENT CORP.
WELLINGTON MANAGEMENT COMPANY, LLP
5. EXPENSES
Each year we deduct a $35 ($30 in North Dakota) contract administration fee on
your contract anniversary. We currently waive this fee if your contract value is
at least $50,000.
We also deduct insurance charges which amount to 1.40% annually of the average
daily value of your contract allocated to the STRATEGIES. The insurance charges
include Mortality and Expense Risk, 1.25% and Distribution Expense, .15%. There
are also investment charges and other expenses if you put money into the
STRATEGIES, which may range from 1.12% to 1.25%. Investment charges may be more
or less than the percentages reflected here.
If you take your money out in excess of the "free withdrawal" amount allowed for
in your contract, you may be assessed a withdrawal charge that is a percentage
of the money you withdraw. The percentage declines with each year the money is
in the contract as follows:
<TABLE>
<S> <C> <C> <C>
Year 1......... 7% Year 5......... 4%
Year 2......... 6% Year 6......... 3%
Year 3......... 6% Year 7......... 2%
Year 4......... 5% Year 8......... 0%
</TABLE>
Additionally, if you take money out of a multi-year fixed investment option
before the end of the selected period, you may be assessed an adjustment which
could increase or decrease the value of your money.
In some states you may also be assessed a state premium tax of up to 3.5%,
depending upon the state in which you reside.
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If you transfer among the STRATEGIES and/or fixed investment options more than
four times per year, you will be charged a $25 dollar transfer fee for each
subsequent transfer ($10 in Pennsylvania and Texas).
The following chart is designed to help you understand the charges in your
contract. THE COLUMN "TOTAL ANNUAL CHARGES" SHOWS THE TOTAL OF THE $35 CONTRACT
ADMINISTRATION CHARGE, THE 1.40% INSURANCE CHARGES AND THE INVESTMENT CHARGES
FOR EACH STRATEGY. WE CONVERTED THE CONTRACT ADMINISTRATION CHARGE TO A
PERCENTAGE (.12%) USING AN ASSUMED CONTRACT SIZE OF $30,000. The actual impact
of this charge on your contract may differ from this percentage.
<TABLE>
<CAPTION>
EXAMPLES
Total Annual Total Annual Total Total
Insurance
Related
Charges Investment Expenses Expenses
Related Total at end of at end of
Charges Annual 1 YEAR 10 YEARS
STRATEGY Charges
<S> <C> <C> <C> <C> <C> <C>
Growth 1.52% (1.40% + .12%) 1.25% 2.77% $98 $309
Moderate Growth 1.52% (1.40% + .12%) 1.21% 2.73% $98 $306
Balanced Growth 1.52% (1.40% + .12%) 1.17% 2.69% $97 $301
Conservative Growth 1.52% (1.40% + .12%) 1.12% 2.64% $97 $296
</TABLE>
The examples assume that you invested $1,000 in a STRATEGY which earns 5%
annually and that you withdrew your money at the end of a 1 year period and at
the end of a 10 year period. For year 1, the total annual charges are assessed
as well as the withdrawal charge. For year 10, the example reflects the total
annual charges but there is no withdrawal charge. The annual investment-related
expenses reflect the waiver or reimbursement of expenses by the investment
adviser. No premium taxes are reflected. Please see the Fee Tables in the
prospectus for more detailed information regarding the fees and expenses
incurred under the contract.
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) 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
tax 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
Withdrawals may be made from your contract in the amount of $1,000 or more. Each
year, you can take out up to 10% of the total amount you invested without
charge. Withdrawals in excess of the 10% will be assessed a withdrawal charge as
described above. 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 withdrawn. Additionally, withdrawal charges are not assessed when a
death benefit is paid. Of course, you may also have to pay income tax and a 10%
IRS tax penalty may apply.
8. PERFORMANCE
The value of your annuity will fluctuate depending upon the investment
performance of the STRATEGY or STRATEGIES you select. From time to time we may
advertise a STRATEGY'S total return. The total return figures are based on
historical data and are not intended to indicate future performance.
The following chart shows total return for each STRATEGY since the STRATEGIES
first became available on April 15, 1997. These numbers reflect the insurance
charges, the
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contract maintenance fee and investment charges. Withdrawal charges are not
reflected in the chart. Past performance is not a guarantee of future results.
<TABLE>
<CAPTION>
<S> <C>
INCEPTION
TO
STRATEGY 12/31/97
Growth 18.77%
Moderate Growth 17.21%
Balanced Growth 15.38%
Conservative Growth 13.66%
</TABLE>
9. DEATH BENEFIT
If you, or, if there is a joint owner, the younger of the two, should die during
the Accumulation Phase, your Beneficiary will receive a death benefit.
If you die before age 75, the death benefit will be the greater of: (1) the
money you put into the contract less any withdrawals, charges and market value
adjustments, accumulated at 3%; or (2) the current value of your contract.
If you die after age 75, the death benefit will be the greater of: (1) the money
you put into the contract less any withdrawals, charges and market value
adjustments, accumulated at 3% until your 75th birthday plus any subsequent
Purchase Payments and less any withdrawals; or (2) the current value of your
contract.
10. OTHER INFORMATION
OWNERSHIP: The contract is an allocated fixed and variable group annuity
contract. A group contract is issued to a contractholder, for the benefit of the
participants in the group. You, as an owner of a Seasons Variable Annuity, 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 Profile and the prospectus, the
term contract refers to your certificate. In some states an individual fixed and
variable annuity contract may be available instead, which is identical to the
group contract described in this Profile and the prospectus except that it is
issued directly to the individual owner.
FREE LOOK: You may cancel your contract within 10 days of receiving it (or
whatever period is 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 the money in the STRATEGIES plus
any money you put into the fixed investment options (unless otherwise required
by state law). 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.
SYSTEMATIC WITHDRAWAL PROGRAM: If selected by you, this program allows you to
receive either monthly, quarterly, semi-annual or annual checks during the
Accumulation Phase. Systematic withdrawals may also be electronically wired to
your bank account. Of course, withdrawals during the Accumulation Phase may be
taxable and a 10% IRS tax penalty may apply if you are under age 59 1/2.
DOLLAR COST AVERAGING: If selected by you, this program allows you to invest
gradually into one or more of the STRATEGIES.
PRINCIPAL ADVANTAGE PROGRAM: If selected by you, this program allows you to put
money in a fixed investment option and one or more STRATEGIES and we will
guarantee that the portion allocated to the fixed investment option will grow to
equal your principal investment.
AUTOMATIC PAYMENT PLAN: You can add to your contract directly from your bank
account with as little as $50 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
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
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ALLOCATED FIXED AND VARIABLE GROUP ANNUITY
issued by
VARIABLE ANNUITY ACCOUNT FIVE
and
ANCHOR NATIONAL LIFE INSURANCE COMPANY
The annuity contract has 10 investment choices - 6 fixed investment options
which offer interest rates guaranteed by Anchor National for different periods
of time and 4 variable investment STRATEGIES:
GROWTH
MODERATE GROWTH
BALANCED GROWTH
CONSERVATIVE GROWTH
which invest in the underlying portfolios of
SEASONS SERIES TRUST
which is managed by:
PUTNAM INVESTMENT MANAGEMENT, INC.
T. ROWE PRICE ASSOCIATES, INC.
JANUS CAPITAL CORPORATION
SUNAMERICA ASSET MANAGEMENT CORP.
WELLINGTON MANAGEMENT COMPANY, LLP
You can put your money into any one or all of the STRATEGIES and/or fixed
investment options.
Please read this prospectus carefully before investing and keep it for your
future reference. It contains important information you should know about the
Seasons Variable Annuity.
To learn more about the annuity offered by this prospectus, you can obtain a
copy of the Statement of Additional Information ("SAI") dated February 2,
1998. The SAI has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference into this prospectus. The table of
contents of the SAI appears on page 20 of this prospectus. For a free copy of
the SAI, call us at 800/445-SUN2 or write us at our Annuity Service Center, P.O.
Box 54299, Los Angeles, California 90054-0299.
In addition, the SEC maintains a website (http://www.sec.gov) that contains the
SAI materials incorporated by reference and other information filed
electronically with the SEC.
ANNUITIES INVOLVE RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, AND ARE NOT A
DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
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.
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
GLOSSARY OF TERMS......................................................... 3
FEE TABLES................................................................ 4
Owner Transaction Expenses.......................................... 4
Annual Separate Account Expenses.................................... 4
Portfolio Expenses.................................................. 4
EXAMPLES.................................................................. 5
THE SEASONS VARIABLE ANNUITY.............................................. 6
ANNUITY INCOME OPTIONS.................................................... 6
Options............................................................. 7
Allocation of Annuity Payments...................................... 7
Transfers During the Income Phase................................... 7
Deferment of Payments............................................... 7
PURCHASING A SEASONS VARIABLE ANNUITY..................................... 8
Allocation of Purchase Payments..................................... 8
Accumulation Units.................................................. 8
Free Look Period.................................................... 8
INVESTMENT OPTIONS........................................................ 9
Variable Investment Options: The STRATEGIES......................... 9
Substitution........................................................ 12
Fixed Investment Options............................................ 12
Transfers During the Accumulation Phase............................. 13
EXPENSES.................................................................. 14
Insurance Charges................................................... 14
Investment Charges.................................................. 14
Contract Maintenance Charge......................................... 15
Withdrawal Charge................................................... 15
Transfer Fee........................................................ 16
Premium Taxes....................................................... 16
Income Taxes........................................................ 16
Reduction or Elimination of Certain Charges......................... 16
TAXES..................................................................... 16
Annuity Contracts in General........................................ 16
Tax Treatment of Distributions --Non-Qualified Contracts............ 17
Tax Treatment of Distributions --Qualified Contracts................ 17
Diversification..................................................... 17
ACCESS TO YOUR MONEY...................................................... 17
Suspension of Payments.............................................. 18
Minimum Contract Value.............................................. 18
PERFORMANCE............................................................... 18
DEATH BENEFIT............................................................. 19
Death of the Annuitant.............................................. 19
OTHER INFORMATION......................................................... 20
Anchor National..................................................... 20
The Separate Account................................................ 20
The General Account................................................. 20
Distribution........................................................ 21
Administration...................................................... 21
Other Information about Anchor National............................. 21
FINANCIALS................................................................ 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 26
INDEPENDENT ACCOUNTANTS................................................... 34
FINANCIAL STATEMENTS...................................................... 35
APPENDIX A................................................................ 51
APPENDIX B--PREMIUM TAXES................................................. 52
</TABLE>
2
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GLOSSARY OF TERMS
We have capitalized some of the technical terms used in this prospectus. To help
you understand these terms, we have defined them below:
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.
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.
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.
PURCHASE PAYMENTS -- The money you give us to buy a contract, as well as any
additional money you give us to invest after you own it.
QUALIFIED (CONTRACT) -- A contract purchased with pre-tax dollars. These
contracts are generally purchased under a pension plan, specially sponsored
program or individual retirement account.
STRATEGY(IES) -- A sub-account of Variable Annuity Account Five which provides
for the variable investment options available under the contract. Each STRATEGY
has its own investment objective and is invested in the underlying investment
portfolios of Seasons Series Trust.
3
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SEASONS VARIABLE ANNUITY FEE TABLES
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OWNER TRANSACTION EXPENSES
Withdrawal Charge as a percentage of Purchase Payments:
<TABLE>
<S> <C> <C> <C>
Year 1.............. 7% Year 5.............. 4%
Year 2.............. 6% Year 6.............. 3%
Year 3.............. 6% Year 7.............. 2%
Year 4.............. 5% Year 8.............. 0%
</TABLE>
<TABLE>
<S> <C>
Contract Maintenance Charge........ $35 each year ($30 in North Dakota)
Transfer Fee....................... No charge for first 4 transfers each
year; thereafter, the fee is $25 per
transfer ($10 in
Pennsylvania and Texas)
</TABLE>
ANNUAL SEPARATE ACCOUNT EXPENSES
(as a percentage of daily net asset value)
<TABLE>
<S> <C>
Mortality Risk Charge........................ 0.90%
Expense Risk Charge.......................... 0.35%
Distribution Expense Charge.................. 0.15%
---
Total Separate Account Expenses........ 1.40%
</TABLE>
INVESTMENT PORTFOLIO EXPENSES
(as a percentage of daily net asset value of each investment portfolio after
reimbursement of expenses.)*
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Stock .85% .36% 1.21%
Asset Allocation: Diversified Growth .85% .36% 1.21%
Multi-Managed Growth .89% .40% 1.29%
Multi-Managed Moderate Growth .85% .36% 1.21%
Multi-Managed Income/Equity .81% .33% 1.14%
Multi-Managed Income .77% .29% 1.06%
- ------------------------------------------------------------------------------------------------
* The percentages set forth above are based on estimated amounts for the current fiscal year.
</TABLE>
The Investment Portfolio Expenses table set forth above identifies the total
investment expenses charged by the underlying investment portfolios of Seasons
Series Trust. Each contractholder within a STRATEGY will incur a portion of
these total investment expenses in relation to the investment by such STRATEGY
in the respective portfolio. The table entitled "Investment Portfolio Expenses
by STRATEGY" which follows this table identifies the total investment portfolio
expenses by STRATEGY based upon the allocation of contract values within each
STRATEGY to the underlying investment portfolios after the quarterly rebalancing
described on page 11. However, the actual investment portfolio expenses incurred
by contractholders within a STRATEGY will vary depending upon the daily net
asset value of each investment portfolio in which such STRATEGY is invested.
THE ABOVE INVESTMENT PORTFOLIO EXPENSES WERE PROVIDED BY SEASONS SERIES TRUST.
WE HAVE NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
4
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INVESTMENT PORTFOLIO EXPENSES BY STRATEGY
(based on the total annual expenses of the underlying investment portfolios
reflected above, after reimbursement of expenses)**
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
STRATEGY
Growth .87% .38% 1.25%
Moderate Growth .85% .36% 1.21%
Balanced Growth .83% .34% 1.17%
Conservative Growth .80% .32% 1.12%
- ----------------------------------------------------------------------------------------------
** The percentages set forth above are based on estimates for the current fiscal year.
</TABLE>
EXAMPLES
You will pay the following expenses on a $1,000 investment in each STRATEGY,
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 annuitized or not surrendered.
<TABLE>
<CAPTION>
TIME PERIODS
STRATEGY 1 YEAR 3 YEARS
<S> <C> <C>
Growth (a) $98 (a) $146
(b) $28 (b) $ 86
Moderate Growth (a) $98 (a) $145
(b) $28 (b) $ 85
Balanced Growth (a) $97 (a) $143
(b) $27 (b) $ 83
Conservative Growth (a) $97 (a) $142
(b) $27 (b) $ 82
</TABLE>
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you
will incur directly and indirectly by investing in the contract. The
example reflects owner transaction expenses, separate account expenses
and investment portfolio expenses by STRATEGY.
2. For certain investment portfolios in which the STRATEGIES invest, 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 following percentages of each
investment portfolio's average net assets: Stock and Asset Allocation:
Diversified Growth Portfolios: 1.21%; Multi-Managed Growth: 1.29%;
Multi-Managed Moderate Growth: 1.21%; Multi-Managed Income/Equity: 1.14%,
Multi-Managed Income: 1.06%. The adviser also may voluntarily waive or
reimburse additional amounts to increase an investment portfolios'
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 investment portfolio is able to make such
payment and remain in compliance with the foregoing expense limitations.
3. The Examples assume that no transfer fees were imposed. Premium taxes are
not reflected but may be applicable.
4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
AS OF THE DATE OF THIS PROSPECTUS, THE SALE OF SEASONS HAD NOT BEGUN AND THE
STRATEGIES DID NOT HAVE ANY ASSETS. THEREFORE, NO CONDENSED FINANCIAL
INFORMATION IS PRESENTED HERE.
5
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THE SEASONS VARIABLE ANNUITY
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An annuity is a contract between you (the owner) and an insurance company. The
contract provides tax deferral for your earnings, as well as a death benefit and
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 Seasons
Variable Annuity is issued by Anchor National Life Insurance Company.
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 when you begin 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 four
variable investment STRATEGIES, which invest in underlying investment portfolios
managed by five investment managers. Depending upon market conditions, you can
make or lose money in any of these STRATEGIES. If you allocate money to the
STRATEGIES, the amount of money you are able to accumulate in your contract
during the Accumulation Phase depends upon the investment performance of the
STRATEGIES 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 STRATEGIES you select for the Income Phase.
The contract also offers six fixed investment options. Your money will earn
interest at the rate guaranteed by us for the period of time you agree to leave
your money in the fixed investment option. We currently offer fixed investment
options for periods of one, three, five, seven and ten years and a special one
year DCA fixed account specifically for the Dollar Cost Averaging Program. The
multi-year fixed investment options are not available in Maryland or Washington.
If you allocate money to a fixed investment option, 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 multi-year fixed investment
options prior to the end of the selected guarantee 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.
ANNUITY INCOME OPTIONS
- --------------------------------------------------------------------------------
When you switch to the Income Phase, you will receive regular income payments
under the contract. You can choose to have your annuity payments sent to you by
check or electronically wired to your bank. The contract offers 5 annuity
options. Other annuity options may be available in the future.
You select the date on which annuity payments are to begin, which must be the
first day of a month at least two years after the date of your contract. 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. We call this the Latest Annuity Date. If no Annuity Date is
selected we will begin payments based on the Latest Annuity Date. Certain states
may require that you begin receiving annuity payments prior to this date. If the
Annuity Date is past your 85th birthday, it is possible that the contract would
not be treated as an annuity and you may incur adverse tax consequences.
Unless you are a non-natural owner, you may change the Annuitant at any time
prior to the Annuity Date. 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 option, annuity payments will be made in
accordance with option 4 (below) for 120 months. If the annuity payments are for
joint lives, then we will make payments in accordance with option 3. If
permitted by state law, we may pay the annuity in one lump sum if your contract
is less than $5,000. Likewise, if your annuity payments would be less than $50 a
month, we have the right to change the
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frequency of your payment to be quarterly, semi-annual or annual 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 30 days before the Annuity Date. You will remain fully
responsible for any taxes related to annuity payments.
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 - 120 MONTHLY PAYMENTS GUARANTEED
This option is similar to option 2 above, with the additional guarantee that
payments will be made for at least 120 months. If the Annuitant and survivor die
before all guaranteed payments have been made, the rest will be made to the
Beneficiary.
OPTION 4 - LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED
This option is similar to option 1 above, with the additional guarantee that
payments will be made for at least 120 or 240 months, 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
increments. 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 a fixed investment option(s),
your annuity payments will be fixed in amount. If your money is invested in a
STRATEGY(IES), your annuity payments will vary depending on the investment
performance of the STRATEGY(IES) you select. If you have money in the fixed and
variable investment options, your annuity payments will be based on the
respective allocations. You may not convert between fixed and variable payments
once annuity payments begin.
VARIABLE ANNUITY PAYMENTS
If you choose to have any portion of your annuity payments come from the
STRATEGIES, the dollar amount of your payment will depend upon three things: (1)
the value of your contract in the STRATEGIES 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 STRATEGIES 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
Statement of Additional Information contains detailed information and sample
calculations.
TRANSFERS DURING THE INCOME PHASE
You may transfer money among the STRATEGIES during the Income Phase. Transfers
are subject to the same limitations as transfers during the Accumulation Phase.
However, you may not transfer money from the fixed account into the STRATEGIES
or from the STRATEGIES into the fixed accounts during the Income Phase.
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.
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PURCHASING A SEASONS 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 our prior approval. Payments in amounts
of $500 or more may be added to your contract at any time during the
Accumulation Phase. You can make scheduled subsequent Purchase Payments of $50
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 age 90 or older or a Qualified contract
to anyone who is age 70 1/2 or older.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, you will allocate your Purchase Payment to one or
more of the STRATEGIES and/or the fixed investment options. You should specify
your investment allocations on the contract application. If you make additional
Purchase Payments, we will allocate them the same way as your first Purchase
Payment 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 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 STRATEGY(IES) you select. 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.
An Accumulation Unit value is determined each day that the New York Stock
Exchange ("NYSE") is open. We calculate an Accumulation Unit for each STRATEGY
after the NYSE closes each day. We do this by:
(1) determining the total value of money invested in the particular
STRATEGY;
(2) subtracting from that amount any asset-based charges and any other
charges such as taxes we have deducted; 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 STRATEGY by the value of the Accumulation
Unit for that STRATEGY.
Example:
We receive a $25,000 Purchase Payment from you on Wednesday. You want your
money to be invested in the Moderate Growth STRATEGY. We determine that the
value of an Accumulation Unit for the Moderate Growth STRATEGY 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 Moderate Growth STRATEGY.
FREE LOOK PERIOD
If you change your mind about owning the contract, you can cancel it within 10
days after receiving it (or longer if required by state law) by mailing it back
to our Annuity Service Center. Unless otherwise required by state law, you will
receive back the value of the money allocated to the STRATEGIES on the day we
receive your request plus any Purchase Payment in the fixed investment options.
This 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.
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INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
The contract offers variable investment options which we call STRATEGIES and
fixed investment options. The contract was designed to meet your varying
investment needs over time, which can be achieved by using the STRATEGIES alone
or in concert with the fixed investment options in order to lower the risk
associated with investing only in a variable investment option.
VARIABLE INVESTMENT OPTIONS:
THE STRATEGIES
The contract offers four multi-manager variable investment STRATEGIES, each with
a different investment objective. The STRATEGIES are designed to meet your
investment needs over time and considering factors such as your age, goals and
risk tolerance. However, each STRATEGY is designed to achieve different levels
of growth over time.
Each STRATEGY invests in three of the six underlying investment portfolios of
the Seasons Series Trust. The allocation of money among these investment
portfolios will vary depending on the objective of the STRATEGY.
Seasons Series Trust is managed by SunAmerica Asset Management Corp.
("SAAMCo."), which is affiliated with Anchor National. SAAMCo. has engaged
sub-advisers to provide investment advice for certain investment portfolios.
The underlying investment portfolios of Seasons Series Trust include the Asset
Allocation: Diversified Growth Portfolio, the Stock Portfolio and the
Multi-Managed Growth, Multi-Managed Moderate Growth, Multi-Managed Income/Equity
and Multi-Managed Income Portfolios (the "Multi-Managed Portfolios").
The Asset Allocation: Diversified Growth Portfolio is managed by Putnam
Investment Management, Inc. The Stock Portfolio is managed by T. Rowe Price
Associates, Inc. All of the Multi-Managed Portfolios include the same three
basic investment components: a growth component managed by Janus Capital
Corporation, a balanced component managed by SAAMCo. and a fixed income
component managed by Wellington Management Company, LLP. The Growth STRATEGY and
the Moderate Growth STRATEGY also have an aggressive growth component which is
managed by SAAMCo. The percentage that any one of these components represents in
the Multi-Managed Portfolios varies in accordance with each STRATEGY's
objective.
YOU SHOULD READ THE PROSPECTUS FOR SEASONS SERIES TRUST CAREFULLY BEFORE
INVESTING. THE PROSPECTUS CONTAINS DETAILED INFORMATION ABOUT THE INVESTMENT
PORTFOLIOS AND IS ATTACHED TO THIS PROSPECTUS.
Each STRATEGY uses an asset allocation investment approach to achieve its
objective and allocates your money into underlying investment portfolios which
invest in a combination of stocks, both domestic and international, bonds and
cash. Although the asset mix within each STRATEGY will vary over time, each
STRATEGY has a neutral asset allocation mix, including a cash component in order
to reflect the anticipated cash holdings required to rebalance each STRATEGY
quarterly, as reflected on the following pages. Additionally, after the
quarterly rebalancing described on page 10, the contract value within each
STRATEGY will be allocated to the various underlying investment portfolios in
the percentages identified on the following pages.
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GROWTH
GOAL: Long-term growth of capital, allocating its assets primarily to stocks.
This STRATEGY may be best suited for those with longer periods to invest.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Stocks 80%
Bonds 15%
Cash 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
ASSET ALLOCATION: DIVERSIFIED
GROWTH PORTFOLIO 25%
Managed by Putnam Investment
Management, Inc.
STOCK PORTFOLIO 25%
Managed by T. Rowe Price
Associates, Inc.
MULTI-MANAGED GROWTH PORTFOLIO 50%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
MODERATE GROWTH
GOAL: Growth of capital through investments in equities, with a secondary
objective of conservation of principal by allocating more of its assets to bonds
than the Growth STRATEGY. This STRATEGY may be best suited for those nearing
retirement years but still earning income.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Stocks 70%
Bonds 25%
Cash 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
ASSET ALLOCATION: DIVERSIFIED
GROWTH PORTFOLIO 25%
Managed by Putnam Investment
Management, Inc.
STOCK PORTFOLIO 20%
Managed by T. Rowe Price
Associates, Inc.
MULTI-MANAGED MODERATE GROWTH
PORTFOLIO 55%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
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BALANCED GROWTH
Goal: Focuses on conservation of principal by investing in a more balanced
weighting of stocks and bonds, with a secondary objective of seeking a high
total return. This STRATEGY may be best suited for those approaching retirement
and with less tolerance for investment risk.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Stocks 55%
Bonds 40%
Cash 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
ASSET ALLOCATION: DIVERSIFIED
GROWTH PORTFOLIO 25%
Managed by Putnam Investment
Management, Inc.
STOCK PORTFOLIO 20%
Managed by T. Rowe Price
Associates, Inc.
MULTI-MANAGED INCOME/EQUITY
PORTFOLIO 55%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
CONSERVATIVE GROWTH
Goal: Capital preservation while maintaining some potential for growth over the
long term. This STRATEGY may be best suited for those with lower investment risk
tolerance.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Stocks 42%
Bonds 53%
Cash 5%
</TABLE>
UNDERLYING INVESTMENT
PORTFOLIOS & MANAGERS
ASSET ALLOCATION: DIVERSIFIED
GROWTH PORTFOLIO 25%
Managed by Putnam Investment
Management, Inc.
STOCK PORTFOLIO 15%
Managed by T. Rowe Price
Associates, Inc.
MULTI-MANAGED INCOME PORTFOLIO 60%
Managed by:
Janus Capital Corporation
SunAmerica Asset Management Corp.
Wellington Management Company, LLP
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STRATEGY REBALANCING
Each STRATEGY is designed to meet its investment objective by allocating a
portion of your money to three different investment portfolios. In order to
maintain the mix of investment portfolios consistent with each STRATEGY's
objective, each STRATEGY within your contract will be rebalanced such that on
the first business day of each quarter (or as close to such date as is
administratively practicable) it will be allocated among the various investment
portfolios according to the percentages set forth on the prior pages.
Additionally, within each Multi-Managed Portfolio, your money will be rebalanced
among the various components. We also reserve the right to rebalance any
STRATEGY more frequently if deemed necessary and in no event adverse to the
interests of contract owners invested in such STRATEGY. Rebalancing a STRATEGY
may involve shifting a portion of assets out of portfolios with higher returns
into portfolios with relatively lower returns. Transfers made as a result of
rebalancing a STRATEGY are not counted against your 4 free transfers per year.
SUBSTITUTION
If any of the underlying investment portfolios is no longer available, we may be
required to substitute shares of another investment portfolio. We will seek any
required prior approval of the SEC and give you notice before doing this.
FIXED INVESTMENT OPTIONS
The contract also offers six fixed investment options. Anchor National will
guarantee the interest rate earned on money you allocate to any of these fixed
investment options. We currently offer fixed investment options for periods of
one, three, five, seven and ten years, which we call Guarantee Periods. The
multi-year fixed investment options are not available in Maryland or Washington.
Additionally, we guarantee the interest rate for money allocated to the one year
DCA fixed account (the "DCA Account") which is available only in conjunction
with the Dollar Cost Averaging Program. Please see the section on the Dollar
Cost Averaging Program on the next page for additional information about,
including limitations on, the availability of the DCA Account.
Interest rates offered for the different Guarantee Periods and the DCA Account
will differ from time to time due to changes in market conditions but will not
be less than 3%. The interest rate offered for a particular Guarantee Period for
new Purchase Payments may differ from the interest rate offered for money
already invested in such account. An interest rate established for a Guarantee
Period or the DCA Account will not change during the term of that period.
You may reallocate money to a fixed investment option (other than the DCA
account) or to any of the STRATEGIES after the end of the Guarantee Period.
However, if you do not give us different instructions within 30 days after the
end of your Guarantee Period, we will keep your money in the fixed account for
the same Guarantee Period you previously selected. You will receive the interest
rate then in effect for that Guarantee Period.
MARKET VALUE ADJUSTMENT
THE FOLLOWING DISCUSSION APPLIES TO MONIES YOU PUT INTO THE THREE, FIVE, SEVEN
AND TEN YEAR FIXED INVESTMENT OPTIONS ONLY AND DOES NOT APPLY TO WITHDRAWALS TO
PAY A DEATH BENEFIT OR CONTRACT FEES AND CHARGES.
If you take your money out of a multi-year fixed investment option (whether by
withdrawal, transfer or annuitization) before the end of the Guarantee Period,
we will make an adjustment to the value of your contract. We call this a Market
Value Adjustment. The Market Value Adjustment reflects the differing interest
rate environments between the time you put your money into the fixed account and
the time you take your money out of the fixed account. The adjustment can
increase or decrease the value of your contract. You may withdraw your money
within 30 days followng the end of a Guarantee Period without incurring a Market
Value Adjustment.
We calculate the Market Value Adjustment by comparing the interest rate you
received on the money you put into the fixed account against the interest rate
we are currently offering to contract owners for the period of time remaining in
the Guarantee Period. If the amount of time remaining is not equal to an
available guarantee period for which we offer a fixed interest rate, the
interest rate will be determined by linear interpolation between interest rates
for the two nearest periods that are available.
Generally, if interest rates have dropped between the time you put your money
into the fixed account 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 account and the
time you take it out, there will be a negative adjustment to the value of your
contract.
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If the Market Value Adjustment is negative, it will be assessed first against
any remaining money allocated to the fixed account out of which you took your
money and then against the amount of money you take out of the fixed account. If
the Market Value Adjustment is positive, it will be added to the amount you take
out of the fixed account.
Appendix A provides more information about how we calculate the Market Value
Adjustment and gives some examples of the impact of the adjustment.
The one year fixed investment option and DCA Account do not impose a market
value adjustment and are not registered under the Securities Act of 1933 and are
not subject to the provisions of the Investment Company Act of 1940.
TRANSFERS DURING THE ACCUMULATION PHASE
Except as provided in the next sentence with respect to the DCA Account, you can
transfer money among the STRATEGIES and the fixed investment options by written
request or by telephone. Although you may transfer money out of the DCA Account,
you may not transfer money into the DCA Account from any STRATEGY or any fixed
investment option. You can make four transfers every year without incurring a
transfer charge. We measure a year from the anniversary of the day we issued
your contract. If you make more than four transfers in a year, there is a $25
transfer fee per transfer ($10 in Pennsylvania and Texas). Additionally,
transfers out of a multi-year fixed investment option may be subject to a market
value adjustment.
The minimum amount you can transfer is $500 or a lesser amount if you transfer
the entire balance from a STRATEGY or a fixed investment option. If any money
will remain in a STRATEGY or fixed investment option after making a transfer, it
must be at least $500. Your request for transfer must clearly state which
STRATEGY(IES) and/or fixed investment option(s) are involved and the amount you
want to transfer. Please see the section below on Dollar Cost Averaging for
specific rules regarding the DCA Account.
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 privileges at
any time.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
percentage or amount from any STRATEGY or the one year fixed investment option
(we call these source accounts) to another STRATEGY. You can also select to
transfer the entire value in a STRATEGY or the one year fixed investment option
in a stated number of transfers. Transfers may be monthly or quarterly. You can
change the amount or frequency at any time by notifying us in writing.
When you make either your initial Purchase Payment or a subsequent Purchase
Payment and want to participate in the Dollar Cost Averaging Program with that
money, you may also use the DCA Account as a source account. You cannot transfer
money from a STRATEGY or other fixed investment option into the DCA Account.
When the DCA Account is used, all of your money in the account will be
transferred to the STRATEGY(IES) you select in either monthly or quarterly
transfers (as selected by you) by the end of the one year period for which the
interest rate is guaranteed. Once selected, you can not change the frequency of
transfers under the program. The minimum amount that can be transferred from the
DCA Source Account is $100. The number of transfers from the DCA Source Account
will be determined based on the amount or frequency of transfers selected and
the amount allocated to the DCA Source Account. For example, if the DCA Source
Account holds $1,000 and you select monthly transfers, your money will be
transferred over 10 months.
If you want to stop participation in the Dollar Cost Averaging Program and you
are using the DCA Account as your source account, we will either transfer your
money to the STRATEGY(IES) or fixed investment option(s) you select, or, in the
absence of express instructions, we will transfer your money to the one year
fixed investment option which will earn interest at the rate then being offered
for a period of one year.
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 earn a greater
profit. You are still subject to loss in a declining market. Dollar cost
averaging involves continuous investment in securities
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regardless of fluctuating price levels. You should consider your financial
ability to continue to invest through periods of low prices.
Transfers under this program are not counted against your four free transfers
per year. In addition, any transfer to the 1-year fixed investment option upon
termination of this program will not be counted against your four 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
Conservative Growth STRATEGY to the Growth STRATEGY over six quarters. You
set up dollar cost averaging and purchase Accumulation Units at the
following values:
<TABLE>
<CAPTION>
QUARTER ACCUMULATION UNIT UNITS 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.
PRINCIPAL ADVANTAGE PROGRAM
The Principal Advantage Program allows you to allocate Purchase Payments to a
fixed investment option and one or more STRATEGIES 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 invested in the STRATEGY(IES), 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 to the STRATEGIES, as determined by you, to provide
opportunity for greater growth.
VOTING RIGHTS
Anchor National is the legal owner of the shares of the Seasons Series Trust.
However, when the underlying investment portfolios of the Seasons Series Trust
solicit 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 STRATEGIES you selected are no longer available, we may be
required to substitute shares of another STRATEGY. We will seek any required
prior approval of the SEC and give you notice before doing this.
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EXPENSES
- --------------------------------------------------------------------------------
There are charges and other expenses associated with the contract that will
reduce your investment return. These charges and deductions are described below.
INSURANCE CHARGES
Each day, we make a deduction for our insurance charges from amounts allocated
to the STRATEGIES. This is done as part of our calculation of the values of the
Accumulation Units during the Accumulation Phase and the Annuity Units during
the Income Phase. The insurance charges consist of the mortality and expense
risk charge and the distribution expense charge.
MORTALITY AND EXPENSE RISK CHARGE
This charge is equal, on an annual basis, to 1.25% of the daily value of the
contract invested in a STRATEGY. This charge is for our obligation to make
annuity payments, to provide a death benefit and for assuming the risk that the
current charges will be insufficient in the future to cover the cost of
administering the contract. Approximately .90% is for mortality risks and .35%
is for expense risks. 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 STRATEGY. 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.
INVESTMENT CHARGES
If you have money allocated to the STRATEGIES, there are deductions from and
expenses paid out of the assets of the various underlying investment portfolios.
These investment charges are summarized in the Fee Tables on pages 3 and 4. For
more detailed information, you should refer to the prospectuses for the Seasons
Series Trust.
CONTRACT MAINTENANCE CHARGE
During the Accumulation Phase, every year on the anniversary of the date when
your contract was issued, we deduct $35 ($30 in North Dakota) from the value of
your contract as a contract maintenance charge. This charge is for expenses
incurred to establish and maintain your contract. This charge cannot be
increased. If you make a complete withdrawal from your contract, the contract
maintenance charge will be deducted prior to the withdrawal. We will not deduct
the contract maintenance charge if, when the deduction is to be made, the value
of your contract is $50,000 or more. We may discontinue this practice at some
point in the future.
WITHDRAWAL CHARGE
During the Accumulation Phase you may make withdrawals from your contract.
However, a withdrawal charge may apply. For purposes of calculating any
applicable withdrawal charge, amounts withdrawn from your contract will come
first from the Free Withdrawal Amount (as described below), then from Purchase
Payments no longer subject to a withdrawal charge which have not previously been
withdrawn, then from Purchase Payments subject to a withdrawal charge which have
not previously been withdrawn and last from earnings. However, for tax purposes,
earnings are considered withdrawn first. You will not receive the benefit of the
Free Withdrawal Amount if you make a complete surrender of your contract.
Each contract year you may withdraw up to 10% of your total Purchase Payments
which are subject to a withdrawal charge free of any withdrawal charge (the
"Free Withdrawal Amount"). Any portion of a withdrawal in excess of the Free
Withdrawal Amount which is still subject to a withdrawal charge will be assessed
one as described below.
In order to determine the applicable withdrawal charge, 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 being withdrawn. After a Purchase Payment has
been in your contract for seven years, no withdrawal charge is assessed against
withdrawals of the Purchase Payment.
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The withdrawal charge is assessed as a percentage of the Purchase Payment you
are withdrawing as follows:
<TABLE>
<S> <C> <C> <C>
Year 1......... 7% Year 5......... 4%
Year 2......... 6% Year 6......... 3%
Year 3......... 6% Year 7......... 2%
Year 4......... 5% Year 8......... 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.
We will not assess any withdrawal charges for withdrawals to pay contract
charges, a death benefit or for annuity payments during the Income Phase.
The withdrawal charge is intended to cover the actual costs of distribution.
However, to the extent that such charge is insufficient, the Company may use any
of its corporate assets to make up any difference.
TRANSFER FEE
You can make four free transfers every year. We measure a year from the day we
issued your contract. If you make more than four transfers a year, we will
deduct a $25 transfer fee per transfer ($10 in Pennsylvania and Texas). The
transfer fee will be deducted from the STRATEGY or fixed investment option from
which the transfer is requested. If the transfer is part of the Dollar Cost
Averaging Program, it will not count against your four free transfers per year.
PREMIUM TAXES
We are responsible for the payment of premium taxes charged by a limited number
of states and will make a deduction from your contract for them. Premium taxes
range from .00075% to 3.5%. These taxes are due either when the contract is
issued or when annuity payments begin or when you make a full surrender of the
contract. It is our current practice not to charge you for these taxes until
annuity payments begin or when 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 and administrations expenses. We will determine the eligibility of such
groups by considering the following factors: (1) the size of the group; (2) the
total amount of Purchase Payments we expect to receive from the group; (3) the
nature of the purchase and the persistency we expect in that group; (4) the
purpose of the purchase and whether that purpose makes it likely that expenses
will be reduced; and (5) any other circumstances which we believe to be relevant
in determining whether reduced sales expenses may be expected.
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
on the money held 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.
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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 your contract, the IRC treats such a withdrawal as
first coming from the earnings and then as coming from your Purchase Payments.
For annuity payments, a portion of each payment is considered a return of your
Purchase Payment and 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 you reach age 59 1/2; (2) after you die; (3) after you
become disabled (as described in the IRC); (4) in a series of substantially
equal installments made for the life of the taxpayer or for the joint lives of
the taxpayer and his or her Beneficiary; (5) under an immediate annuity; or (6)
which 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 other than in
conjunction with the following circumstances: (1) after reaching age 59 1/2; (2)
after you die; (3) after you become disabled (as defined in the IRC); (4) in a
series of substantially equal installments made for the life of the taxpayer or
for the joint lives of the taxpayer and his or her 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) paid to an alternate payee pursuant to a qualified domestic relations order.
The IRC limits the withdrawal of Purchase Payments made by owners 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 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 underlying investment portfolios are being
managed so as to comply with these requirements.
Neither the IRC nor any guidelines issued in conjunction with the IRC provide
guidance regarding when you, because of the degree of control you exercise over
the way your money is invested, and not Anchor National, would be considered the
owner of the shares of the underlying investment portfolios. It is unknown to
what extent the ability to select investments, make transfers among STRATEGIES
or choose from a wide selection of investment options will ultimately impact
this issue. If guidance is provided, generally it would be applied
prospectively. However, if such guidance is not considered a new position, it
may be applied retroactively. Due to the uncertainty is this area, we reserve
the right to modify the contract in an attempt to maintain favorable tax
treatment.
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
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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 withdrawn comes from a multi-year fixed investment
option and, if you withdraw your full contract value, a contract maintenance
charge. (See Section 5 - Expenses for more complete information.)
If you make a complete withdrawal you will receive the value of your contract,
less any applicable fees, charges and market value adjustments, at the price
calculated following receipt of a complete request to make such a withdrawal at
our Annuity Service Center. 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 STRATEGY or fixed investment option be at
least $500 after a withdrawal. Unless you provide us with different
instructions, partial withdrawals will be made pro rata from each STRATEGY and
fixed investment option in which your contract is invested. You must send a
written withdrawal request to us prior to any withdrawal being made.
SYSTEMATIC WITHDRAWAL PROGRAM
This program allows you to receive either monthly, quarterly, semi-annual or
annual checks during the Accumulation Phase. You can also choose to have
systematic withdrawals electronically wired to your bank account. Any
withdrawals you make using this program count against your Free Withdrawal
Amount as described in Section 5 - Expenses. Withdrawals in excess of the Free
Withdrawal Amount may be subject to a withdrawal charge. 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, so 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.
SUSPENSION OF PAYMENTS
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the New York Stock Exchange is closed (other than a
customary weekend and holiday closings); (2) trading on the New York Stock
Exchange is restricted; (3) an emergency exists such that disposal of or
determination of the value of shares of the investment portfolios is not
reasonably practicable; (4) the Securities and Exchange Commission, by order, so
permits for the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from the
fixed account for the period permitted by law but not for more than six months.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if it is less than
$500 as a result of withdrawals and 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.
WITHDRAWAL CHARGES, MARKET VALUE ADJUSTMENTS, INCOME TAXES, TAX PENALTIES AND
CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL YOU MAKE.
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time we will advertise the performance of the STRATEGIES. Any such
performance results are based on historical earnings and are not intended to
indicate future performance.
For each STRATEGY we will show performance against a comparison index which is
made up of the S&P 500 Index, the Lehman Brothers Corporate/Government Index and
the Lipper Money Market Index. The comparison index will blend the referenced
indices in proportion to the neutral allocation of stocks, bonds and cash within
each STRATEGY as indicated on pages 9 and 10 of this prospectus.
Additionally, we may show performance of each STRATEGY in comparison to various
appropriate indexes and the performance of other similar variable annuity
products with
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similar objectives as reported by such independent reporting services as
Morningstar, Inc., Lipper Analytical Services, Inc. and the Variable Annuity
Research Data Service ("VARDS").
Please see the Statement of Additional Information for additional information
regarding the methods used to calculate performance data.
DEATH BENEFIT
- --------------------------------------------------------------------------------
If you should die before beginning the Income Phase of your contract, we will
pay a death benefit to your Beneficiary.
If you should die prior to reaching age 75 or, if there are joint owners, if an
owner should die prior to the youngest owner reaching age 75, the death benefit
will be equal to the greater of:
1. The value of your contract at the time we receive adequate proof of death
and the Beneficiary's election as to how the benefit should be paid; or
2. Total Purchase Payments less any withdrawals, applicable charges, market
value adjustments and taxes, accumulated at 3% from the date your contract
was issued until the date of death, plus any Purchase Payments received,
less any withdrawals, applicable charges, market value adjustments and taxes
made or charged, after the date of death.
If the contract was issued after your 75th birthday or if you should die after
you reach age 75, or, if there are joint owners, if the contract was issued
after both owners' 75th birthday or if an owner dies after the youngest owner
reaches age 75, the death benefit will be the greater of:
1. The value of your contract at the time we receive adequate proof of death
and the Beneficiary's election as to how the death benefit will be paid; or
2. Total Purchase Payments received by us before age 75 (in the case of joint
owners, before the younger owner reaches age 75) less any withdrawals,
applicable charges, market value adjustments and taxes, accumulated at 3%
from the date your contract was issued until your 75th birthday (or, if
there is a joint owner, the 75th birthday of the youngest owner), plus any
subsequent Purchase Payments received, less any withdrawals, applicable
charges, market value adjustments and taxes made or charged, after your 75th
birthday.
The death benefit is not paid after you switch to the Income Phase. During the
Income Phase, your Beneficiary(ies) will receive any remaining guaranteed
annuity payments in accordance with the annuity option you choose.
You select the Beneficiary(ies) to receive any amounts payable on death. You may
change the Beneficiary at any time, unless you previously made an irrevocable
Beneficiary designation. A new Beneficiary designation is not effective until we
record the change.
The death benefit must begin payment immediately upon receipt of all necessary
documents and, in any event, must be paid within 5 years of the date of death
unless the Beneficiary elects to have it payable in the form of an annuity. If
the Beneficiary elects an annuity option, it must be paid over the Beneficiary's
lifetime or for a period not extending beyond the Beneficiary's life expectancy
and payments must begin within one year of your death. If the Beneficiary is the
spouse of the owner, he or she can elect to continue the contract at the then
current value.
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 adequate proof of death, the death benefit will be paid in a lump sum.
DEATH OF THE ANNUITANT
If the Annuitant dies before annuity payments begin, you can name a new
Annuitant. If no Annuitant is named within 30 days, you will become the
Annuitant. However, if the owner is a non-natural person (for example, a
corporation), then the death of the Annuitant will be treated as the death of
the owner, no new Annuitant may be named and the death benefit will be paid.
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OTHER INFORMATION
- --------------------------------------------------------------------------------
ANCHOR NATIONAL
Anchor National is a stock life insurance company domiciled under the laws of
the state of California on April 12, 1965 and redomiciled under the laws of the
state of Arizona on January 1, 1996. Its principal business address is 1
SunAmerica Center, Los Angeles, California 90067-6022. Anchor National conducts
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.
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 and trust
administration services.
THE SEPARATE ACCOUNT
Anchor National established a separate account, Variable Annuity Account Five
("Separate Account"), under Arizona law on July 3, 1996. The Separate Account is
registered with the Securities and Exchange Commission as a unit investment
trust under the Investment Company Act of 1940.
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.
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. The obligations of the Separate
Account under the contracts are not the obligations of Anchor National.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the Separate Account. We pay
State Street Bank for services based on a schedule of fees.
STATEMENT OF ADDITIONAL INFORMATION
Additional information concerning the operations of the Separate Account is
contained in a Statement of Additional Information, which is available without
charge upon written request to us at our Annuity Service Center at the address
provided in the Profile preceding this prospectus. The Separate Account has not
yet begun operations and, therefore, no financial statements are available.
TABLE OF CONTENTS FOR THE
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Separate Account........................ 3
General Account......................... 3
Performance Date........................ 4
Annuity Payments........................ 4
Annuity Unit Values..................... 5
Taxes................................... 6
Distribution of Contracts............... 9
Financial Statements.................... 10
</TABLE>
THE GENERAL ACCOUNT
If you put your money into a fixed investment option it goes into Anchor
National's general account ("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 holder, as well as all creditors. The General
Account is invested in assets permitted by state insurance law.
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DISTRIBUTION
The contract is sold through registered representatives of broker-dealers. We
pay commissions to registered representatives for the sale of contracts.
Commissions are not expected to exceed 7.25% of your Purchase Payment. Under
some circumstances we 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 1.00% 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. is an affiliate of Anchor National.
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 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 questions 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 30 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.
OTHER INFORMATION ABOUT ANCHOR NATIONAL
Anchor National is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports and
other information with the Securities and Exchange Commission ("SEC"). Such
reports and other information filed by the Company can be inspected and copied;
and copies can be obtained at the public reference facilities of the 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, with respect to the contracts offered by
this prospectus. This prospectus does not contain all the information set forth
in the registration statements and the exhibits filed as part of the
registration statements, to all of which reference is hereby made for further
information concerning the Separate Account, Anchor National and its general
account, the investment portfolios and the contract. Statements found in this
prospectus as to the terms of the contracts and other legal instruments are
summaries, and reference is made to such instruments as filed.
PROPERTIES
Anchor National's executive offices and principal office are in leased premises
at 1 SunAmerica Center, Los Angeles, California. Anchor National, through
affiliates, also leases office space in Torrance and Woodland Hills, California.
Anchor National believes that such properties, including the equipment located
therein are suitable and adequate to meet the requirements of its businesses.
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
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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 we are 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
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.
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DIRECTORS AND EXECUTIVE OFFICERS
Anchor National's directors and executive officers as of January 1, 1998 are
listed below:
<TABLE>
<CAPTION>
YEAR ASSUMED
PRESENT OTHER POSITIONS AND OTHER BUSINESS
NAME AGE PRESENT POSITION POSITION EXPERIENCE WITHIN LAST FIVE YEARS** FROM-TO
- --------------------- --- -------------------------------------- ------------ ------------------------------------- ---------
<C> <C> <S> <C> <C> <C>
Eli Broad* 64 Chairman, CEO and President of Anchor 1994 Cofounded SunAmerica Inc. ("SAI") in
National; 1957
Chairman, CEO and President of SAI 1986
Jay S. Wintrob* 40 EVP of Anchor National; 1991 SVP 1989-1991
Vice Chairman of SAI 1995 (Joined SAI in 1987)
Victor E. Akin 33 SVP of Anchor National 1996 VP, SunAmerica Life Companies 1995-1996
Director, SunAmerica Life Companies 1994-1995
Manager, SunAmerica Life Companies 1993-1994
Actuary, Milliman & Robertson 1992-1993
Consultant, Chalke Inc. 1991-1992
James R. Belardi* 40 SVP of Anchor National; 1992 VP and Treasurer 1989-1992
EVP of SAI 1995 (Joined SAI in 1986)
Lorin M. Fife* 44 SVP, General Counsel and Asst. 1994 VP and General Counsel-Regulatory 1994-1995
Secretary of Anchor National; Affairs;
SVP, General Counsel-Regulatory 1995 VP and Associate General Counsel 1989-1994
Affairs of SAI (Joined SAI in 1989)
N. Scott Gillis 44 SVP and Controller of Anchor National 1994 VP and Controller, SunAmerica Life 1989-1994
VP of SAI Companies
1997 (Joined SAI in 1985)
Jana Waring Greer* 46 SVP of Anchor National and SAI; 1991 VP 1981-1991
President of SunAmerica Marketing 1995 (Joined SAI in 1974)
Susan L. Harris* 40 SVP and Secretary of Anchor National; 1994 VP, General Counsel-Corporate Affairs 1994-1995
SVP, General Counsel-Corporate Affairs and Secretary;
and Secretary of SAI 1995 VP, Associate General Counsel and 1989-1994
Secretary
(Joined SAI in 1985)
Peter McMillan, III* 40 EVP and Chief Investment Officer of 1994 SVP of SunAmerica Investments, Inc. 1989-1994
SunAmerica Investments, Inc.
Edwin R. Reoliquio 40 SVP and Chief Actuary of Anchor 1995 VP and Actuary, SunAmerica Life 1989-1994
National Companies
Scott H. Richland 35 VP and Treasurer of Anchor National 1994 VP and Treasuer 1995-1997
SVP and Treasurer of SAI VP and Asst. Treasurer 1994-1995
1997 Asst. Treasurer 1993-1994
Director, SunAmerica 1990-1993
Investments, Inc.
(Joined SAI in 1990)
Scott L. Robinson* 51 SVP of Anchor National; 1991 VP and Controller 1986-1991
SVP and Controller of SAI
James W. Rowan* 34 SVP of Anchor National and SAI 1996 VP; 1993-1995
Asst. to the Chairman; 1992
SVP, Security Pacific Corp. 1990-1992
</TABLE>
* Also serves as a director CEO = Chief Executive Officer
** Unless otherwise noted, positions EVP = Executive Vice President
with SunAmerica Inc. SVP = Senior Vice President
VP = Vice President
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EXECUTIVE COMPENSATION
All of Anchor National's executive officers are also employees of
SunAmerica Inc. or its affiliates and do not receive direct compensation from
Anchor National. Allocations have been made as to each individual's time devoted
to his or her duties as an executive officer of Anchor National during fiscal
year 1997.
The following table shows the cash compensation paid or earned, based on these
allocations, to the chief executive officer and top four executive officers of
the Company whose allocated compensation exceeds $100,000 for services rendered
in all capacities to the Company during 1997:
<TABLE>
<CAPTION>
Allocated Cash
Name of Individual Capacities in Which 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
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL 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.
24
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FINANCIALS
- --------------------------------------------------------------------------------
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
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<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>
25
<PAGE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
Management's discussion and analysis of financial condition and results of
operations of Anchor National Life Insurance Company (the "Company") for the
three years in the period ended September 30, 1997 follows. In connection with
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, the Company cautions readers regarding certain forward-looking statements
contained in this report and in any other statements made by, or on behalf of,
the Company, whether or not in future filings with the Securities and Exchange
Commission (the "SEC"). Forward-looking statements are statements not based on
historical information and which relate to future operations, strategies,
financial results, or other developments. Statements using verbs such as
"expect," "anticipate," "believe" or words of similar import generally involve
forward-looking statements. Without limiting the foregoing, forward-looking
statements include statements which represent the Company's beliefs concerning
future levels of sales and redemptions of the Company's products, investment
spreads and yields, or the earnings and profitability of the Company's
activities.
Forward-looking statements are necessarily based on estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company's control
and many of which are subject to change. These uncertainties and contingencies
could cause actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. Whether or not
actual results differ materially from forward-looking statements may depend on
numerous foreseeable and unforeseeable developments. Some may be national in
scope, such as general economic conditions, changes in tax law and changes in
interest rates. Some may be related to the insurance industry generally, such as
pricing competition, regulatory developments and industry consolidation. Others
may relate to the Company specifically, such as credit, volatility and other
risks associated with the Company's investment portfolio. Investors are also
directed to consider other risks and uncertainties discussed in documents filed
by the Company with the SEC. The Company disclaims any obligation to update
forward-looking information.
RESULTS OF OPERATIONS
NET INCOME totaled $63.1 million in 1997, compared with $45.1 million in 1996
and $39.3 million in 1995.
PRETAX INCOME totaled $94.3 million in 1997, $69.3 million in 1996 and $65.0
million in 1995. The 36.1% improvement in 1997 over 1996 primarily resulted from
increased fee income and net investment income, partially offset by higher
general and administrative expenses and increased amortization of deferred
acquisition costs. The 6.6% improvement in 1996 over 1995 primarily resulted
from increased net investment income and significantly increased fee income,
partially offset by increased net realized investment losses and additional
general and administrative expenses.
NET INVESTMENT INCOME, which is the spread between the income earned on invested
assets and the interest paid on fixed annuities and other interest-bearing
liabilities, increased to $73.2 million in 1997 from $56.8 million in 1996 and
$50.1 million in 1995. These amounts equal 2.77% on average invested assets
(computed on a daily basis) of $2.65 billion in 1997, 2.59% on average invested
assets of $2.19 billion in 1996 and 2.95% on average invested assets of $1.70
billion in 1995.
Net investment spreads include the effect of income earned on the excess of
average invested assets over average interest-bearing liabilities. This excess
amounted to $126.5 million in 1997, $142.9 million in 1996 and $108.4 million in
1995. The difference between the Company's yield on average invested assets and
the rate paid on average interest-bearing liabilities (the "Spread Difference")
was 2.51% in 1997, 2.25% in 1996 and 2.63% in 1995.
Investment income (and the related yields on average invested assets) totaled
$210.8 million (7.97%) in 1997, compared with $164.6 million (7.50%) in 1996 and
$129.5 million (7.62%) in 1995. These increased yields in 1997 include the
effects of a greater proportion of mortgage loans in the Company's portfolio. On
average, mortgage loans have higher yields than that of the Company's overall
portfolio. In addition, the
26
<PAGE>
[LOGO]
Company experienced higher returns on its investments in partnerships. The
increases in investment income in 1997 and 1996 also reflect increases in
average invested assets.
Partnership income increased to $6.7 million (a yield of 15.28% on related
average assets of $44.0 million) in 1997, compared with $4.1 million (a yield of
10.12% on related average assets of $40.2 million) in 1996 and $5.1 million (a
yield of 10.60% on related average assets of $48.4 million) in 1995. Partnership
income is based upon cash distributions received from limited partnerships, the
operations of which the Company does not influence. Consequently, such income is
not predictable and there can be no assurance that the Company will realize
comparable levels of such income in the future.
Total interest expense equalled $137.6 million in 1997, $107.8 million in 1996
and $79.4 million in 1995. The average rate paid on all interest-bearing
liabilities was 5.46% in 1997, compared with 5.25% in 1996 and 4.99% in 1995.
Interest-bearing liabilities averaged $2.52 billion during 1997, compared with
$2.05 billion during 1996 and $1.59 billion during 1995.
The increases in the overall rates paid on interest-bearing liabilities during
1997 and 1996 primarily resulted from the impact of certain promotional one-year
interest rates offered on the fixed account portion of the Company's Polaris
variable annuity product. The increase in the overall rates paid on all
interest-bearing liabilities during 1996 was also impacted by the growth in
average reserves for GICs, which generally bear higher rates of interest than
fixed annuity contracts. Average GIC reserves were $340.5 million in 1996 and
$60.8 million in 1995. Most of the Company's GICs are variable rate and are
repriced quarterly at the then-current interest rates.
GROWTH IN AVERAGE INVESTED ASSETS since 1995 primarily reflects the sales of the
Company's fixed-rate products, consisting of both fixed annuity premiums
(including those for the fixed accounts of variable annuity products) and GIC
premiums. Fixed annuity premiums totaled $1.10 billion in 1997, compared with
$741.8 million in 1996 and $284.4 million in 1995. The premiums for the fixed
accounts of variable annuities have increased primarily because of increased
sales of the Company's Polaris product and greater inflows into the one-year
fixed account of that product. The Company has observed that many purchasers of
its variable annuity contracts allocate new premiums to the one-year fixed
account and concurrently elect the option to dollar cost average into one or
more variable funds. Accordingly, the Company anticipates that it will see a
large portion of these premiums transferred into the variable funds.
GIC premiums totaled $55.0 million in 1997, $135.0 million in 1996 and $275.0
million in 1995. GIC surrenders and maturities totaled $198.1 million in 1997,
$16.5 million in 1996 and $1.6 million in 1995. The Company does not actively
market GICs, so premiums may vary substantially from period to period. The large
increase in surrenders and maturities in 1997 was primarily due to contracts
maturing in 1997. The GICs issued by the Company generally guarantee the payment
of principal and interest at fixed or variable rates for a term of three to five
years. Contracts that are purchased by banks for their long-term portfolios, or
state and local governmental entities either prohibit withdrawals or permit
scheduled book value withdrawals subject to terms of the underlying indenture or
agreement. GICs purchased by asset management firms for their short term
portfolios either prohibit withdrawals or permit withdrawals with notice ranging
from 90 to 270 days. In pricing GICs, the Company analyzes cash flow information
and prices accordingly so that it is compensated for possible withdrawals prior
to maturity.
NET REALIZED INVESTMENT LOSSES totaled $17.4 million in 1997, $13.4 million in
1996 and $4.4 million in 1995. Net realized investment losses include impairment
writedowns of $20.4 million in 1997, $16.0 million in 1996 and $4.8 million in
1995. Therefore, net gains from sales of investments totaled $3.0 million in
1997, $2.6 million in 1996 and $0.4 million in 1995.
The Company sold invested assets, principally bonds and notes, aggregating $2.19
billion, $1.28 billion and $1.15 billion in 1997, 1996 and 1995, respectively.
Sales of investments result from the active management of the Company's
investment portfolio. Because sales of investments are made in both rising and
falling interest rate environments, net gains from sales of investments
fluctuate from period to period, and represent 0.11%, 0.12% and 0.02% of average
invested assets for 1997, 1996 and 1995, respectively. Active portfolio
management involves the ongoing evaluation of asset sectors, individual
securities within the investment portfolio and the reallocation of investments
from sectors that are perceived to be relatively overvalued to sectors that are
perceived to be relatively undervalued. The intent of the Company's active
portfolio management is to maximize total returns on the investment portfolio,
taking into account credit interest-rate risk.
27
<PAGE>
[LOGO]
Impairment writedowns reflect $15.7 million and $15.2 million of provisions
applied to non-income producing land owned in Arizona in 1997 and 1996,
respectively. The statutory carrying value of this land had been guaranteed by
the Company's ultimate Parent, SunAmerica Inc. ("SunAmerica"). SunAmerica made
capital contributions of $28.4 million and $27.4 million on December 31, 1996
and 1995, respectively, to the Company through the Company's direct parent in
exchange for the termination of its guaranty with respect to this land.
Accordingly, the Company reduced the carrying value of this land to estimated
fair value to reflect the full termination of the guaranty. Impairment
writedowns in 1995 include $3.8 million of additional provisions applied to
defaulted bonds. Impairment writedowns represent 0.77%, 0.73% and 0.28% of
average invested assets for 1997, 1996 and 1995, respectively. For the five
years ended September 30, 1997, impairment writedowns as a percentage of average
invested assets have ranged from 0.28% to 2.20% and have averaged 1.16%. Such
writedowns are based upon estimates of the net realizable value of the
applicable assets. Actual realization will be dependent upon future events.
VARIABLE ANNUITY FEES are based on the market value of assets in separate
accounts supporting variable annuity contracts. Such fees totaled $139.5 million
in 1997, $104.0 million in 1996 and $84.2 million in 1995. These increased fees
reflect growth in average variable annuity assets, principally due to the
receipt of variable annuity premiums, increased market values and net exchanges
into the separate accounts from the fixed accounts of variable annuity
contracts, partially offset by surrenders. Variable annuity assets averaged
$7.55 billion during 1997, $5.70 billion during 1996 and $4.65 billion during
1995. Variable annuity premiums, which exclude premiums allocated to the fixed
accounts of variable annuity products, totaled $1.27 billion in 1997, $919.8
million in 1996 and $577.2 million in 1995. Sales of variable annuity products
(which include premiums allocated to the fixed accounts) ("Variable Annuity
Product Sales") amounted to $2.37 billion, $1.66 billion and $861.0 million in
1997, 1996 and 1995, respectively. Increases in Variable Annuity Product Sales
are due, in part, to market share gains through enhanced distribution efforts
and growing consumer demand for flexible retirement savings products that offer
a variety of equity, fixed income and guaranteed fixed account investment
choices. The Company has encountered increased competition in the variable
annuity marketplace during recent years and anticipates that the market will
remain highly competitive for the foreseeable future.
NET RETAINED COMMISSIONS are primarily derived from commissions on the sales of
nonproprietary investment products by the Company's broker-dealer subsidiary,
after deducting the substantial portion of such commissions that is passed on to
registered representatives. Net retained commissions totaled $39.1 million in
1997, $31.5 million in 1996 and $24.1 million in 1995. Broker-dealer sales
(mainly sales of general securities, mutual funds and annuities) totaled $11.56
billion in 1997, $8.75 billion in 1996 and $5.67 billion in 1995. The increases
in sales and net retained commissions reflect a greater number of registered
representatives, due to the Company's ongoing recruitment of representatives and
to the transfer of representatives from an affiliated broker-dealer, higher
average production per representative and generally favorable market conditions.
Increases in net retained commissions may not be proportionate to increases in
sales primarily due to differences in sales mix.
SURRENDER CHARGES on fixed and variable annuities totaled $5.5 million in 1997,
compared with $5.2 million in 1996 and $5.9 million in 1995. Surrender charges
generally are assessed on annuity withdrawals at declining rates during the
first seven years of an annuity contract. Withdrawal 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
28
<PAGE>
[LOGO]
from the introduction in November 1996 of the Company's "Style Select Series"
product. Higher mutual fund sales and lower redemptions in 1996 both reflect
enhanced marketing efforts and the favorable performance records of certain of
the Company's mutual funds, and heightened consumer demand for equity
investments generally.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $98.8 million in 1997, compared with
$81.6 million in 1996 and $65.3 million in 1995. General and administrative
expenses in 1997 include a $5.0 million provision for estimated programming
costs associated with the year 2000. Management believes that this provision is
adequate and does not anticipate any material future expenses associated with
this project. General and administrative expenses remain closely controlled
through a company-wide cost containment program and continue to represent less
than 1% of average total assets.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $66.9 million in 1997,
compared with $57.5 million in 1996 and $58.7 million in 1995. The increase in
amortization during 1997 was primarily due to additional fixed and variable
annuity sales and the subsequent amortization of related deferred commissions
and other direct selling costs. The decline in amortization for 1996 is due to
lower redemptions of mutual funds from the rate experienced in 1995, partially
offset by additional fixed and variable annuity and mutual fund sales in recent
years and the subsequent amortization of related deferred commissions and other
acquisition costs.
ANNUAL COMMISSIONS represent renewal commissions paid quarterly in arrears to
maintain the persistency of certain of the Company's variable annuity contracts.
Substantially all of the Company's currently available variable annuity products
allow for an annual commission payment option in return for a lower immediate
commission. Annual commissions totaled $9.0 million in 1997, $4.6 million in
1996 and $2.7 million in 1995. The increase in annual commissions since 1995
reflects increased sales of annuities that offer this commission option. The
Company estimates that approximately 45% of the average balances of its variable
annuity products is currently subject to such annual commissions. Based on
current sales, this percentage is expected to increase in future periods.
INCOME TAX EXPENSE totaled $31.2 million in 1997, compared with $24.3 million in
1996 and $25.7 million in 1995, representing effective tax rates of 33% in 1997,
35% in 1996 and 40% in 1995. The higher effective tax rate in 1995 was due to a
prior year tax settlement. Without such payment, the effective tax rate would
have been 33%.
FINANCIAL CONDITION AND LIQUIDITY
SHAREHOLDER'S EQUITY increased 18.5% to $575.2 million at September 30, 1997
from $485.3 million at September 30, 1996, primarily due to $63.1 million of net
income recorded in 1997 and $18.4 million of net unrealized gains on debt and
equity securities available for sale (credited directly to shareholder's
equity), versus $5.5 million of net unrealized losses on such securities
recorded at September 30, 1996. In addition, the Company received a contribution
of capital of $28.4 million in December 1996 and paid a dividend of $25.5
million in April 1997.
INVESTED ASSETS at year end totaled $2.61 billion in 1997, compared with $2.33
billion at year-end 1996. This 12.0% increase primarily resulted from sales of
fixed annuities and the $44.7 million net unrealized gain recorded on debt and
equity securities available for sale at September 30, 1997, versus the $12.7
million net unrealized loss recorded on such securities at September 30, 1996.
The Company manages most of its invested assets internally. The Company's
general investment philosophy is to hold fixed-rate assets for long-term
investment. Thus, it does not have a trading portfolio. However, the Company has
determined that all of its portfolio of bonds, notes and redeemable preferred
stocks (the "Bond Portfolio") is available to be sold in response to changes in
market interest rates, changes in relative value of asset sectors and individual
securities, changes in prepayment risk, changes in the credit quality outlook
for certain securities, the Company's need for liquidity and other similar
factors.
THE BOND PORTFOLIO, which comprises 76% of the Company's total investment
portfolio (at amortized cost), had an aggregate fair value that exceeded its
amortized cost by $43.7 million at September 30, 1997. At September 30, 1996,
the amortized cost exceeded the fair value of the Bond Portfolio by $13.8
million. The net unrealized gains on the Bond Portfolio since September 30, 1996
principally reflect the lower prevailing interest rates at September 30, 1997
and the corresponding effect on the fair value of the Bond Portfolio.
At September 30, 1997, the Bond Portfolio (at amortized cost, excluding $6.1
million of redeemable preferred stocks) included $1.82 billion of bonds rated by
Standard & Poor's
29
<PAGE>
[LOGO]
Corporation ("S&P"), Moody's Investors Service ("Moody's"), Duff & Phelps Credit
Rating Co. ("DCR"), Fitch Investors Service, L.P. ("Fitch") or the National
Association of Insurance Commissioners ("NAIC"), and $124.4 million of bonds
rated by the Company pursuant to statutory ratings guidelines established by the
NAIC. At September 30, 1997, approximately $1.72 billion of the Bond Portfolio
was investment grade, including $650.3 million of U.S. government/agency
securities and mortgage-backed securities ("MBSs").
At September 30, 1997, the Bond Portfolio included $216.9 million (at amortized
cost with a fair value of $227.2 million) of bonds that were not investment
grade. Based on their September 30, 1997 amortized cost, these non-
investment-grade bonds accounted for 1.7% of the Company's total assets and 8.5%
of its invested assets.
Non-investment-grade securities generally provide higher yields and involve
greater risks than investment-grade securities because their issuers typically
are more highly leveraged and more vulnerable to adverse economic conditions
than investment-grade issuers. In addition, the trading market for these
securities is usually more limited than for investment-grade securities. The
Company had no material concentrations of non-investment-grade securities at
September 30, 1997. The following table summarizes the Company's rated bonds by
rating classification as of September 30, 1997.
30
<PAGE>
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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)/ NAIC PERCENT OF
[DCR]/{FITCH} AMORTIZED ESTIMATED CATEGORY AMORTIZED ESTIMATED AMORTIZED INVESTED ESTIMATED
CATEGORY (1) COST FAIR VALUE (2) COST FAIR VALUE COST ASSETS (3) FAIR 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 the Company pursuant to applicable NAIC rating
guidelines.
(3) At amortized cost.
31
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SENIOR SECURED LOANS ("Secured Loans") are included in the Bond Portfolio and
their amortized cost aggregated $329.3 million at September 30, 1997. Secured
Loans are senior to subordinated debt and equity, and are secured by assets of
the issuer. At September 30, 1997, Secured Loans consisted of loans to 80
borrowers spanning 28 industries, with 17% of these assets (at amortized cost)
concentrated in financial institutions. No other industry concentration
constituted more than 10% of these assets.
While the trading market for Secured Loans is more limited than for publicly
traded corporate debt issues, management believes that participation in these
transactions has enabled the Company to improve its investment yield. As a
result of restrictive financial covenants, Secured Loans involve greater risk of
technical default than do publicly traded investment-grade securities. However,
management believes that the risk of loss upon default for its Secured Loans is
mitigated by such financial covenants and the collateral values underlying the
Secured Loans. The Company's Secured Loans are rated by S&P, Moody's, DCR,
Fitch, the NAIC or by the Company, pursuant to comparable statutory ratings
guidelines established by the NAIC.
MORTGAGE LOANS aggregated $339.5 million at September 30, 1997 and consisted of
73 commercial first mortgage loans with an average loan balance of approximately
$4.7 million, collateralized by properties located in 21 states. Approximately
23% of this portfolio was multifamily residential, 18% was office, 14% was
manufactured housing, 13% was hotels, 11% was retail, 11% was industrial and 10%
was other types. At September 30, 1997, approximately 13% and 12% of this
portfolio was secured by properties located in New York and California,
respectively, and no more than 10% of this portfolio was secured by properties
located in any other single state. At September 30, 1997, there were four
mortgage loans with outstanding balances of $10 million or more, which loans
collectively aggregated approximately 17% of this portfolio. At the time of
their origination or purchase by the Company, virtually all mortgage loans had
loan-to-value ratios of 75% or less. At September 30, 1997, approximately 23% of
the mortgage loan portfolio consisted of loans with balloon payments due before
October 1, 2000. During 1997, 1996 and 1995, loans delinquent by more than 90
days, foreclosed loans and restructured loans have not been significant in
relation to the total mortgage loan portfolio.
At September 30, 1997, approximately 18% of the mortgage loans were seasoned
loans underwritten to the Company's standards and purchased at or near par from
other financial institutions. Such loans generally have higher average interest
rates than loans that could be originated today. The balance of the mortgage
loan portfolio has been originated by the Company under strict underwriting
standards. Commercial mortgage loans on properties such as offices, hotels and
shopping centers generally represent a higher level of risk than do mortgage
loans secured by multifamily residences. This greater risk is due to several
factors, including the larger size of such loans and the more immediate effects
of general economic conditions on these commercial property types. However, due
to the seasoned nature of the Company's mortgage loan portfolio, its emphasis on
multifamily loans and its strict underwriting standards, the Company believes
that it has prudently managed the risk attributable to its mortgage loan
portfolio while maintaining attractive yields.
OTHER INVESTED ASSETS aggregated $143.7 million at September 30, 1997, including
$46.9 million of investments in limited partnerships, $70.9 million of separate
account investments and an aggregate of $25.9 million of miscellaneous
investments, including policy loans, residuals and leveraged leases. The
Company's limited partnership interests, accounted for by using the cost method
of accounting, are invested primarily in a combination of debt and equity
securities.
ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks of
interest rate fluctuations and disintermediation. The Company believes that its
fixed-rate liabilities should be backed by a portfolio principally composed of
fixed-rate investments that generate predictable rates of return. The Company
does not have a specific target rate of return. Instead, its rates of return
vary over time depending on the current interest rate environment, the slope of
the yield curve, the spread at which fixed-rate investments are priced over the
yield curve, and general economic conditions. Its portfolio strategy is
constructed with a view to achieve adequate risk-adjusted returns consistent
with its investment objectives of effective asset-liability matching, liquidity
and safety. The Company's fixed-rate products incorporate surrender charges or
other restrictions in order to encourage persistency. Approximately 77% of the
Company's fixed annuity and GIC reserves had surrender penalties or other
restrictions at September 30, 1997.
As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-rate assets and liabilities
under commonly used stress-test interest rate scenarios. With the results of
these computer simulations, the Company can measure the potential gain or
32
<PAGE>
[LOGO]
loss in fair value of its interest-rate sensitive instruments and seek to
protect its economic value and achieve a predictable spread between what it
earns on its invested assets and what it pays on its liabilities by designing
its fixed-rate products and conducting its investment operations to closely
match the duration of the fixed-rate assets to that of its fixed-rate
liabilities. The Company's fixed-rate assets include: cash and short-term
investments; bonds, notes and redeemable preferred 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. The Company's fixed-rate liabilities include fixed annuities and GICs.
At September 30, 1997, these liabilities had an aggregate fair value (determined
by discounting future contractual cash flows by related market rates of
interest) of $2.32 billion with a duration of 1.3. The Company's potential
exposure due to a relative 10% increase in interest rates prevalent at September
30, 1997 is a loss of approximately $31.2 million in fair value of its
fixed-rate assets that is not offset by an increase in the fair value of its
fixed-rate liabilities. Because the Company actively manages its assets and
liabilities and has strategies in place to minimize its exposure to loss as
interest rate changes occur, it expects that actual losses would be less than
the estimated potential loss.
Duration is a common option-adjusted measure for the price sensitivity of a
fixed-maturity portfolio to changes in interest rates. It measures the
approximate percentage change in the market value of a portfolio if interest
rates change by 100 basis points, recognizing the changes in cash flows
resulting from embedded options such as policy surrenders, investment
prepayments and bond calls. It also incorporates the assumption that the Company
will continue to utilize its existing strategies of pricing its fixed annuity
and GIC products, allocating its available cash flow amongst its various
investment portfolio sectors and maintaining sufficient levels of liquidity.
Because the calculation of duration involves estimation and incorporates
assumptions, potential changes in portfolio value indicated by the portfolio's
duration will likely be different from the actual changes experienced under
given interest rate scenarios, and the differences may be material.
As a component of its asset and liability management strategy, the Company
utilizes interest rate swap agreements ("Swap Agreements") to match assets and
liabilities more closely. Swap Agreements are agreements to exchange with a
counterparty interest rate payments of differing character (for example,
variable-rate payments exchanged for fixed-rate payments) based on an underlying
principal balance (notional principal) to hedge against interest rate changes.
The Company currently utilizes Swap Agreements to create a hedge that
effectively converts fixed-rate liabilities into floating-rate instruments. At
September 30, 1997, the Company had one outstanding Swap Agreement with a
notional principal amount of $15.9 million. This agreement matures in December
2024.
The Company also seeks to provide liquidity from time to time by using reverse
repurchase agreements ("Reverse Repos") and by investing in MBSs. It also seeks
to enhance its spread income by using Reverse Repos. Reverse Repos involve a
sale of securities and an agreement to repurchase the same securities at a later
date at an agreed upon price and are generally over-collateralized. MBSs are
generally investment-grade securities collateralized by large pools of mortgage
loans. MBSs generally pay principal and interest monthly. The amount of
principal and interest payments may fluctuate as a result of prepayments of the
underlying mortgage loans.
There are risks associated with some of the techniques the Company uses to
provide liquidity, enhance its spread income and match its assets and
liabilities. The primary risk associated with the Company's Reverse Repos and
Swap Agreements is counterparty risk. The Company believes, however, that the
counterparties to its Reverse Repos and Swap Agreements are financially
responsible and that the counterparty risk associated with those transactions is
minimal. In addition to counterparty risk, Swap Agreements also have interest
rate risk. However, the Company's Swap Agreements typically hedge variable-rate
assets or liabilities, and interest rate fluctuations that adversely affect the
net cash received or paid under the terms of a Swap Agreement would be offset by
increased interest income earned on the variable-rate assets or reduced interest
expense paid on the variable-rate liabilities. The primary risk associated with
MBSs is that a changing interest rate environment might cause prepayment of the
underlying obligations at speeds slower or faster than anticipated at the time
of their purchase. As part of its decision to purchase an MBS, the Company
assesses the risk of prepayment by analyzing the security's projected
performance over an array of interest-rate scenarios. Once an MBS is purchased,
the Company monitors its actual prepayment experience monthly to reassess the
relative attractiveness of the security with the intent to maximize total
return.
INVESTED ASSETS EVALUATION routinely includes a review by the Company of its
portfolio of debt securities. Management identifies monthly those investments
that require additional monitoring and carefully reviews the
33
<PAGE>
[LOGO]
carrying values of such investments at least quarterly to
determine whether specific investments should be placed on a nonaccrual basis
and to determine declines in value that may be other than temporary. In making
these reviews for bonds, management principally considers the adequacy of any
collateral, compliance with contractual covenants, the borrower's recent
financial performance, news reports and other externally generated information
concerning the creditor's affairs. In the case of publicly traded bonds,
management also considers market value quotations, if available. For mortgage
loans, management generally considers information concerning the mortgaged
property and, among other things, factors impacting the current and expected
payment status of the loan and, if available, the current fair value of the
underlying collateral.
The carrying values of bonds that are determined to have declines in value that
are other than temporary are reduced to net realizable value and no further
accruals of interest are made. The valuation allowances on mortgage loans are
based on losses expected by management to be realized on transfers of mortgage
loans to real estate, on the disposition and settlement of mortgage loans and on
mortgage loans that management believes may not be collectible in full. Accrual
of interest is suspended when principal and interest payments on mortgage loans
are past due more than 90 days.
DEFAULTED INVESTMENTS, comprising all investments that are in default as to the
payment of principal or interest, totaled $1.4 million at September 30, 1997 (at
amortized cost after impairment writedowns, with a fair value of $1.4 million),
including $0.5 million of bonds and notes and $0.9 million of mortgage loans. At
September 30, 1997, defaulted investments constituted 0.1% of total invested
assets. At September 30, 1996, defaulted investments totaled $3.1 million,
including $1.6 million of bonds and notes and $1.5 million of mortgage loans,
and constituted 0.1% of total invested assets.
SOURCES OF LIQUIDITY are readily available to the Company in the form of the
Company's existing portfolio of cash and short-term investments, Reverse Repo
capacity on invested assets and, if required, proceeds from invested asset
sales. At September 30, 1997, approximately $1.80 billion of the Company's Bond
Portfolio had an aggregate unrealized gain of $46.5 million, while approximately
$139.8 million of the Bond Portfolio had an aggregate unrealized loss of $2.7
million. In addition, the Company's investment portfolio currently provides
approximately $22.5 million of monthly cash flow from scheduled principal and
interest payments. Historically, cash flows from operations and from the sale of
the Company's annuity and GIC products have been more than sufficient in amount
to satisfy the Company's liquidity needs.
Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, the
Company's average cost of funds would increase over time as it prices its new
and renewing annuities and GICs to maintain a generally competitive market rate.
Management would seek to place new funds in investments that were matched in
duration to, and higher yielding than, the liabilities assumed. The Company
believes that liquidity to fund withdrawals would be available through incoming
cash flow, the sale of short-term or floating-rate instruments or Reverse Repos
on the Company's substantial MBS segment of the Bond Portfolio, thereby avoiding
the sale of fixed-rate assets in an unfavorable bond market.
In a declining rate environment, the Company's cost of funds would decrease over
time, reflecting lower interest crediting rates on its fixed annuities and GICs.
Should increased liquidity be required for withdrawals, the Company believes
that a significant portion of its investments could be sold without adverse
consequences in light of the general strengthening that would be expected in the
bond market.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The consolidated financial statements of Anchor National Life Insurance Company
as of September 30, 1997 and 1996 and for each of the three years in the period
ended September 30, 1997 included in this prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
34
<PAGE>
[LOGO]
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The consolidated financial statements of Anchor National have been included in
this prospectus. You should consider these financial statements only with
respect to Anchor National's ability to meet its obligations under the fixed
investment options to pay death benefits under the contracts, to assume the
mortality and expense risks under the Contract and any risk resulting from the
withdrawal charge not being adequate to cover the costs of distributing the
contracts. These financial statements provide no information as it relates to
Seasons Series Trust, its investment portfolios or the value of any money
allocated to the STRATEGIES.
35
<PAGE>
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
36
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
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
37
<PAGE>
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
38
<PAGE>
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
39
<PAGE>
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 Agreement would be marked to market and
the resulting
40
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
41
<PAGE>
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>
ESTIMATED FAIR
AMORTIZED COST VALUE
--------------- ---------------
<S> <C> <C>
AT SEPTEMBER 30, 1997:
Securities of the United States Government.................................... $ 18,496,000 $ 18,962,000
Mortgage-backed securities.................................................... 636,018,000 649,196,000
Securities of public utilities................................................ 22,792,000 22,893,000
Corporate bonds and notes..................................................... 984,573,000 1,012,559,000
Redeemable preferred stocks................................................... 6,125,000 6,681,000
Other debt securities......................................................... 274,481,000 275,903,000
--------------- ---------------
Total available for sale...................................................... $ 1,942,485,000 $ 1,986,194,000
--------------- ---------------
--------------- ---------------
AT SEPTEMBER 30, 1996:
Securities of the United States Government.................................... $ 311,458,000 $ 304,538,000
Mortgage-backed securities.................................................... 747,653,000 741,876,000
Securities of public utilities................................................ 3,684,000 3,672,000
Corporate bonds and notes..................................................... 590,071,000 591,148,000
Redeemable preferred stocks................................................... 9,064,000 8,664,000
Other debt securities......................................................... 339,094,000 337,373,000
--------------- ---------------
Total available for sale...................................................... $ 2,001,024,000 $ 1,987,271,000
--------------- ---------------
--------------- ---------------
</TABLE>
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by contractual maturity, as of September 30,
1997, follow:
<TABLE>
<CAPTION>
ESTIMATED FAIR
AMORTIZED COST VALUE
--------------- ---------------
<S> <C> <C>
Due in one year or less....................................................... $ 19,067,000 $ 20,575,000
Due after one year through five years......................................... 277,350,000 281,296,000
Due after five years through ten years........................................ 631,083,000 650,242,000
Due after ten years........................................................... 378,967,000 384,885,000
Mortgage-backed securities.................................................... 636,018,000 649,196,000
--------------- ---------------
Total available for sale...................................................... $ 1,942,485,000 $ 1,986,194,000
--------------- ---------------
--------------- ---------------
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will differ
from those shown above due to prepayments and redemptions.
42
<PAGE>
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>
43
<PAGE>
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 estimated fair
44
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on the
quoted market prices for similar issues.
45
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments at September
30, 1997 and 1996, compared with their respective carrying values, are as
follows:
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
--------------- ---------------
<S> <C> <C>
1997:
ASSETS:
Cash and short-term investments...................................... $ 113,580,000 $ 113,580,000
Bonds, notes and redeemable preferred stocks......................... 1,986,194,000 1,986,194,000
Mortgage loans....................................................... 339,530,000 354,495,000
Common stocks........................................................ 1,275,000 1,275,000
Cost-method partnerships............................................. 46,880,000 84,186,000
Variable annuity assets.............................................. 9,343,200,000 9,343,200,000
LIABILITIES:
Reserves for fixed annuity contracts................................. 2,098,803,000 2,026,258,000
Reserves for guaranteed investment contracts......................... 295,175,000 295,175,000
Payable to brokers for purchases of securities....................... 263,000 263,000
Variable annuity liabilities......................................... 9,343,200,000 9,077,200,000
Subordinated notes payable to Parent................................. 36,240,000 37,393,000
--------------- ---------------
--------------- ---------------
1996:
ASSETS:
Cash and short-term investments...................................... $ 122,058,000 $ 122,058,000
Bonds, notes and redeemable preferred stocks......................... 1,987,271,000 1,987,271,000
Mortgage loans....................................................... 98,284,000 102,112,000
Common stocks........................................................ 3,970,000 3,970,000
Cost-method partnerships............................................. 45,070,000 70,553,000
Receivable from brokers for sales of securities...................... 52,348,000 52,348,000
Variable annuity assets.............................................. 6,311,557,000 6,311,557,000
LIABILITIES:
Reserves for fixed annuity contracts................................. 1,789,962,000 1,738,784,000
Reserves for guaranteed investment contracts......................... 415,544,000 416,695,000
Variable annuity liabilities......................................... 6,311,557,000 6,117,508,000
Subordinated notes payable to Parent................................. 35,832,000 37,339,000
--------------- ---------------
--------------- ---------------
</TABLE>
5. SUBORDINATED NOTES PAYABLE TO PARENT
Subordinated notes payable to Parent equalled $36,240,000 at an interest rate of
9% at September 30, 1997 and require principal payments of $7,500,000 in 1998,
$23,060,000 in 1999 and $5,400,000 in 2000.
6. CONTINGENT LIABILITIES
The Company has entered into three agreements in which it has provided liquidity
support for certain short-term securities of three municipalities by agreeing to
purchase such securities in the event there is no other buyer in the short-term
marketplace. In return the Company receives a fee. The maximum liability under
these guarantees is $242,600,000. Management does not anticipate any material
future losses with respect to these liquidity support facilities.
The Company is involved in various kinds of litigation common to its businesses.
These cases are in various stages of development and, based on reports of
counsel, management believes that provisions made for potential losses relating
to such litigation are adequate and any further liabilities and costs will not
have a material adverse impact upon the Company's financial position or results
of operations.
46
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value Common
Stock. At September 30, 1997 and 1996, 3,511 shares were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balance........................................ $ 280,263,000 $ 252,876,000 $ 252,876,000
Capital contributions received........................... 28,411,000 27,387,000 --
------------- ------------- -------------
Ending balance........................................... $ 308,674,000 $ 280,263,000 $ 252,876,000
------------- ------------- -------------
------------- ------------- -------------
RETAINED EARNINGS:
Beginning balance........................................ 207,002,000 191,346,000 152,088,000
Net income............................................... 63,126,000 45,056,000 39,258,000
Dividend paid............................................ (25,500,000) (29,400,000) --
------------- ------------- -------------
Ending balance........................................... $ 244,628,000 $ 207,002,000 $ 191,346,000
------------- ------------- -------------
------------- ------------- -------------
NET UNREALIZED GAINS/LOSSES ON DEBT AND EQUITY SECURITIES
AVAILABLE FOR SALE:
Beginning balance........................................ $ (5,521,000) $ (5,673,000) $ (24,953,000)
Change in net unrealized gains/losses on debt securities
available for sale...................................... 57,463,000 (2,904,000) 71,302,000
Change in net unrealized gains/losses on equity
securities available for sale........................... (55,000) 3,538,000 (1,240,000)
Change in adjustment to deferred acquisition costs....... (20,600,000) (400,000) (40,400,000)
Tax effects of net changes............................... (12,882,000) (82,000) (10,382,000)
------------- ------------- -------------
Ending balance........................................... $ 18,405,000 $ (5,521,000) $ (5,673,000)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Dividends that the Company may pay to its shareholder in any year without prior
approval of the Arizona Department of Insurance are limited by statute. The
maximum amount of dividends which 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.
47
<PAGE>
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.
48
<PAGE>
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.
49
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY MATTERS (CONTINUED)
During the year ended September 30, 1997, the Company also purchased certain
invested assets from SunAmerica Life Insurance Company and from CalAmerica Life
Insurance Company for cash equal to their current market values of $8,717,000
and $284,000, respectively.
During the year ended September 30, 1996, the Company sold various invested
assets to the Parent and to SunAmerica Life Insurance Company for cash equal to
their current market values of $274,000 and $47,321,000, respectively. The
Company recorded net losses aggregating $3,000 on such transactions.
During the year ended September 30, 1996, the Company also purchased certain
invested assets from SunAmerica Life Insurance Company for cash equal to their
current market values, which aggregated $28,379,000.
10. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
TOTAL
DEPRECIATION
AND
TOTAL AMORTIZATION PRETAX
REVENUES EXPENSE 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>
50
<PAGE>
APPENDIX A - 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 the Market Value
Adjustment. 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
where:
I is the Guarantee Rate you are earning on the money invested in
the fixed investment option;
J is the Guarantee 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.
* if the issue state is Pennsylvania, this number will be zero.
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
ten year fixed investment option at a Guarantee Rate of 7%;
(2) You make a partial withdrawal of $4,000 when 2 1/2 years (30 months)
remain in the ten year term you initially agreed to leave your money in the
fixed investment option (N=30);
(3) you have not made any other transfers, additional Purchase Payments, or
withdrawals.
No withdrawal charges are reflected in the examples because your Purchase
Payment has been in the contract for more than 7 full years.
NEGATIVE ADJUSTMENT:
Assume that on the date of withdrawal, the Guarantee Rate in effect for a new
investment in the three year (rounded up to the next full year) fixed investment
option is 8%:
The Market Value Adjustment factor is equal to:
N/12
[(1+I)/(1+J+.005)] -1
30/12
[(1.07)/(1.08+.005)] -1
2.5
(0.986175) -1
0.965795-1
- -0.034205
The requested withdrawal amount is multiplied by the Market Value Adjustment
factor to determine the Market Value Adjustment:
$4,000 X (-0.034205)= -$136.82
$136.82 represents the Market Value Adjustment that will be deducted from the
remaining money in the ten year fixed investment option.
POSITIVE ADJUSTMENT:
Assume that on the date of withdrawal, the Guarantee Rate in effect for a new
investment in the three year (rounded up to the next full year) fixed investment
option is 6%:
The Market Value Adjustment factor is equal to:
N/12
[(1+I)/(1+J+.005)] -1
30/12
[(1.07)/(1.06+.005)] -1
2.5
(1.004695) -1
1.011778-1
+0.011778
The requested withdrawal amount is multiplied by the Market Value Adjustment
factor to determine the Market Value Adjustment:
$4,000 X .011778= +47.11
$47.11 represents the Market Value Adjustment that would be added to your
withdrawal.
51
<PAGE>
APPENDIX B - 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 tax rates
payable on premiums in effect in those states that assess a premium tax, as of
the date of this prospectus. For current information you should consult your tax
advisor. Additionally, please see Section 5 "Expenses" for additional
information on Premium Taxes.
<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%
Michigan....................................................................... .00075% .00075%
Nevada......................................................................... 0% 3.5%
South Dakota................................................................... 0% 1.25%
West Virginia.................................................................. 1% 1%
Wyoming........................................................................ 0% 1%
</TABLE>
52
<PAGE>
Please forward a copy (without charge) of the Statement of Additional
Information concerning SEASONS Variable Annuity Contracts to:
(Please print or type and fill in all information.)
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City/State/Zip
- --------------------------------------------------------------------------------
Date: ________________________________ Signed: ________________________________
Return to: Anchor National Life Insurance Company, Annuity Service Center, P.O.
Box 54299, Los Angeles, California 90054-0299.
<PAGE>
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
- ----------- --------------------------------------------------------------------------------------
<C> <S>
(1) Form of Underwriting Agreement*
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession**
(3) (a) Articles of Incorporation*
(b) By-Laws*
(4) (a) Allocated Fixed and Variable Group Annuity Certificate*
(b) Individual Fixed and Variable Annuity Contract*
(c) Participant Enrollment Form*
(d) Deferred Annuity Application*
(5) Opinion of Counsel re: Legality*
(6) Opinion re Discount on Capital Shares**
(7) Opinion re Liquidation Preference**
(8) Opinion re Tax Matters**
(9) Voting Trust Agreement**
(10) Material Contracts**
(11) Statement re Computation of Per Share Earnings**
(12) Statement re Computation of Ratios**
(14) Material Foreign Patents**
(15) Letter re Unaudited Financial Information**
(16) Letter re Change in Certifying Accountant**
(21) Subsidiaries of Registrant**
(23) (a) Consent of Independent Accountants***
(b) Consent of Attorney*
(24) Powers of Attorney (included on signature page)*
(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>
FINANCIAL STATEMENTS***
* Previously filed
** Not Applicable
*** Herewith
II-1
<PAGE>
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.
II-2
<PAGE>
SIGNATURES
Pursuant to 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.
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 Board (Principal Executive
Eli Broad 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)
LORIN M. FIFE*
-------------------------------------- Director
Lorin M. Fife
JAMES R. BELARDI*
-------------------------------------- Director
James R. Belardi
JANA W. GREER*
-------------------------------------- Director
Jana W. Greer
/s/ SUSAN L. HARRIS
-------------------------------------- Director January 19, 1998
Susan L. Harris
PETER MCMILLAN*
-------------------------------------- Director
Peter McMillan
JAMES W. ROWAN*
-------------------------------------- Director
James W. Rowan
JAY S. WINTROB*
-------------------------------------- Director
Jay S. Wintrob
*By: /s/ SUSAN L. HARRIS
---------------------------------- Attorney-in-Fact
Susan L. Harris
</TABLE>
January 19, 1998
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------
<C> <S>
(23) (a) Consent of Independent Accountants
(27) Financial Data Schedule
</TABLE>
<PAGE>
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>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND INCOME STATEMENT OF ANCHOR NATIONAL LIFE INSURANCE
COMPANY'S FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 1,986,194,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,275,000
<MORTGAGE> 339,530,000
<REAL-ESTATE> 24,000,000
<TOTAL-INVEST> 2,608,301,000
<CASH> 113,580,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 536,155,000
<TOTAL-ASSETS> 12,570,939,000
<POLICY-LOSSES> 2,393,978,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 36,240,000
3,511,000
0
<COMMON> 0
<OTHER-SE> 571,707,000
<TOTAL-LIABILITY-AND-EQUITY> 12,570,939,000
0
<INVESTMENT-INCOME> 205,068,000
<INVESTMENT-GAINS> (17,394,000)
<OTHER-INCOME> 213,146,000
<BENEFITS> 131,867,000
<UNDERWRITING-AMORTIZATION> 66,879,000
<UNDERWRITING-OTHER> 8,977,000
<INCOME-PRETAX> 94,295,000
<INCOME-TAX> 31,169,000
<INCOME-CONTINUING> 63,126,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,126,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
