<PAGE> 1
As filed with the Securities and Exchange Commission on March 20, 1998
Registration No. 33-87864
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 8
--------------------
ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
California 6311 86-0198983
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Number) organization)
1 SunAmerica Center
Los Angeles, California 90067-6022
(310) 772-6000
(Address, including zip code, and telephone number,
including area code, or registrant's
principal executive offices)
Susan L. Harris, Esquire
Anchor National Life Insurance Company
1 SunAmerica Center
Los Angeles, California 90067-6022
(310) 772-6000
(Name, address, including zip code, and telephone number, including area code
of agent for service)
----------------------
Appropriate date of commencement of proposed sale to the public:
As soon as practicable after effectiveness of the Registration Statement
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
shall determine.
<PAGE> 2
CROSS REFERENCE SHEET
ANCHOR NATIONAL LIFE INSURANCE COMPANY
Cross Reference Sheet Pursuant to
Regulation S-K, Item 501(b)
<TABLE>
<CAPTION>
Form S-1 Item Number and Caption Heading in Prospectus
- -------------------------------- ---------------------
<S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus............... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus.............. Inside Front Cover
3. Summary of Information, Risk
Factors and Ratio of Earnings
to Fixed Charges....................... Front Cover; Profile
4. Use of Proceeds........................ The Polaris Variable
Annuity; Investment Options;
Expenses; Other Information
5. Determination of Offering Price........ Not Applicable
6. Dilution............................... Not Applicable
7. Selling Security Holders............... Not Applicable
8. Plan of Distribution................... Other Information - Distribution
9. Description of Securities to be
Registered............................. The Polaris Variable
Annuity; Investment Options
10. Interests of Named Experts
and Counsel............................ Not Applicable
11. Information with Respect to
the Registrant......................... Other Information - First
SunAmerica;
Other Information -
Additional Information
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities........................ Not Applicable
</TABLE>
<PAGE> 3
[POLARIS PROFILE LOGO]
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
KNOW AND CONSIDER BEFORE PURCHASING THE POLARIS VARIABLE ANNUITY. THE SECTIONS
IN THIS PROFILE CORRESPOND TO SECTIONS IN THE ACCOMPANYING PROSPECTUS WHICH
DISCUSS THE TOPICS IN MORE DETAIL. THE ANNUITY IS MORE FULLY DESCRIBED IN THE
PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY.
April 1, 1998
================================================================
1. THE POLARIS VARIABLE ANNUITY
================================================================
The Polaris Variable Annuity is a contract between you and Anchor National Life
Insurance Company. It is designed to help you invest on a tax-deferred basis and
meet long-term financial goals, such as retirement funding. Tax deferral means
all your money, including the amount you would otherwise pay in current income
taxes, remains in your contract to generate more earnings. Your money could grow
faster than it would in a comparable taxable investment.
Polaris offers a diverse selection of money managers and investment options. You
may divide your money among any or all of our 26 variable investment portfolios
and 5 fixed investment options. Your investment is not guaranteed. The value of
your Polaris contract can fluctuate up or down, based on the performance of the
underlying investments you select, and you may experience a loss.
The variable investment portfolios offer professionally managed investment
choices with goals ranging from capital preservation to aggressive growth. Your
choices for the various investment options are found on the next page.
The contract also offers 5 fixed investment options, for different time periods
and each with a different interest rate that is guaranteed by Anchor National.
Like most annuities, the contract has an Accumulation Phase and an Income Phase.
During the Accumulation Phase, you invest money in your contract. Your earnings
are based on the investment performance of the variable investment portfolios to
which your money is allocated and/or the interest rate earned on the fixed
investment options. You may withdraw money from your contract during the
Accumulation Phase. However, as with other tax-deferred investments, you will
pay taxes on earnings and untaxed contributions when you withdraw them. An IRS
tax penalty may apply if you make withdrawals before age 59 1/2. During the
Income Phase, you will receive payments from your annuity. Your payments may be
fixed in dollar amount, vary with investment performance or a combination of
both, depending on where your money is allocated. Among other factors, the
amount of money you are able to accumulate in your contract during the
Accumulation Phase will determine the amount of your payments during the Income
Phase.
================================================================
2. ANNUITY INCOME OPTIONS
================================================================
You can select from one of five annuity income options:
(1) payments for your lifetime;
(2) payments for your lifetime and your survivor's lifetime;
(3) payments for your lifetime and your survivor's lifetime, but for not less
than 10 years;
(4) payments for your lifetime, but for not less than 10 or 20 years; and
(5) payments for a specified period of 5 to 30 years.
You will also need to decide if you want your payments to fluctuate with
investment performance or remain constant, and the date on which your payments
will begin. Once you begin receiving payments, you cannot change your annuity
option. If your contract is part of a non-qualified retirement plan (one that is
established with after tax dollars), payments during the Income Phase are
considered partly a return of your original investment. The "original
investment" part of each payment is not taxable as income. For contracts which
are part of a qualified retirement plan using before tax dollars, the entire
payment is taxable as income.
================================================================
3. PURCHASING A POLARIS VARIABLE
ANNUITY CONTRACT
================================================================
You can buy a contract through your financial representative, who can also help
you complete the proper forms. For Non-qualified contracts, the minimum initial
investment is $5,000 and subsequent amounts of $500 or more may be added to your
contract at any time during the Accumulation Phase. For Qualified contracts, the
minimum initial investment is $2,000 and subsequent amounts of $250 or more may
be added to your contract at any time during the Accumulation Phase.
<PAGE> 4
================================================================
4. INVESTMENT OPTIONS
================================================================
You may allocate money to the following variable investment portfolios of the
Anchor Series Trust and/or the SunAmerica Series Trust:
ANCHOR SERIES TRUST
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Natural Resources Portfolio
- Government and Quality Bond Portfolio
SUNAMERICA SERIES TRUST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
- Real Estate Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
- Growth/Phoenix Investment Counsel Portfolio
- Balanced/Phoenix Investment Counsel Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
You may also allocate money to the 1, 3, 5, 7 and 10 year fixed investment
options. The interest rate may differ from time to time but will never be less
than 3%. Once established, the rate will not change during the selected period.
Your contract value will be adjusted up or down for withdrawals or transfers
from the 3, 5, 7 and 10 year fixed investment options prior to the end of the
selected period.
================================================================
5. EXPENSES
================================================================
Each year, we deduct a $35 contract maintenance fee from your contract. This fee
is currently waived if the value of your contract is at least $50,000. We also
deduct insurance charges which equal 1.52% annually of the average daily value
of your contract allocated to the variable portfolios. The insurance charges
include: Mortality and Expense Risk, 1.37%, and Distribution Expense, .15%.
As with other professionally managed investments, there are also investment
charges imposed on contracts with money allocated to the variable portfolios,
which are estimated to range from .63% to 1.90%.
If you take money out in excess of the amount allowed for in your contract, you
may be assessed a withdrawal charge which is a percentage of the money you
withdraw. The percentage declines with each year the money is in the contract as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
YEAR 1 2 3 4 5 6 7 8+
- -----------------------------------------------------------------------------------------------
WITHDRAWAL
CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
- - - - - - - - - - -
- -----------------------------------------------------------------------------------------------
</TABLE>
Each year, you are allowed to make 15 transfers without charge. After your first
15 free transfers, a $25 transfer fee will apply to each subsequent transfer
($10 in Pennsylvania and Texas).
In a limited number of states, you may also be assessed a state premium tax of
up to 3.5% depending upon the state.
The following chart is designed to help you understand the charges in your
contract. The column "Total Annual Charges" shows the total of the 1.52%
insurance charges, the $35 contract maintenance fee and the investment charges
for each variable portfolio. We converted the contract maintenance fee to a
percentage using an assumed contract size of $40,000. The actual impact of this
charge on your contract may differ from this percentage.
The next two columns show two examples of the charges you would pay under the
contract. The examples assume that you invested $1,000 in a contract which earns
5% annually and that you withdraw your money: (1) at the end of year 1, and (2)
at the end of year 10.
<PAGE> 5
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL EXPENSES TOTAL EXPENSES
INSURANCE INVESTMENT TOTAL ANNUAL AT END OF AT END OF
ANCHOR SERIES TRUST PORTFOLIO CHARGES CHARGES CHARGES 1 YEAR 10 YEARS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation 1.61% .71% 2.32% $ 93 $265
Growth 1.61% .78% 2.39% $ 94 $272
Natural Resources 1.61% .89% 2.50% $ 95 $283
Government and Quality Bond 1.61% .71% 2.32% $ 93 $265
- ----------------------------------------------------------------------------------------------------------------------------
SUNAMERICA SERIES TRUST PORTFOLIO
Emerging Markets* 1.61% 1.90% 3.51% $105 $378
International Diversified Equities 1.61% 1.35% 2.96% $100 $328
Global Equities 1.61% .95% 2.56% $ 96 $289
International Growth and Income* 1.61% 1.60% 3.21% $102 $351
Aggressive Growth* 1.61% .90% 2.51% $ 95 $284
Real Estate* 1.61% 1.25% 2.86% $ 99 $318
Putnam Growth** 1.61% .91% 2.52% $ 95 $285
Growth/Phoenix 1.61% .73% 2.34% $ 94 $267
Alliance Growth 1.61% .65% 2.26% $ 93 $259
"Dogs" of Wall Street* 1.61% .75% 2.36% $ 94 $269
Venture Value 1.61% .79% 2.40% $ 94 $273
Federated Value* 1.61% 1.03% 2.64% $ 97 $297
Growth-Income 1.61% .65% 2.26% $ 93 $259
Utility* 1.61% 1.05% 2.66% $ 97 $299
Asset Allocation 1.61% .68% 2.29% $ 93 $262
Balanced/Phoenix 1.61% .82% 2.43% $ 95 $276
SunAmerica Balanced* 1.61% 1.00% 2.61% $ 96 $294
Worldwide High Income 1.61% 1.10% 2.71% $ 97 $304
High-Yield Bond 1.61% .75% 2.36% $ 94 $269
Corporate Bond 1.61% .91% 2.52% $ 95 $285
Global Bond 1.61% .90% 2.51% $ 95 $284
Cash Management 1.61% .63% 2.24% $ 93 $257
============================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For this Portfolio, the adviser, SunAmerica Asset Management Corp., has
voluntarily agreed to waive fees or reimburse expenses, if necessary, to keep
operating expenses at or below an established maximum amount. All waivers or
reimbursements may be terminated at any time. For more detailed information,
see the Fee Tables and Examples in the prospectus.
** Formerly named Provident Growth.
================================================================
6. TAXES
================================================================
Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts earned in a Non-qualified contract (one that is established
with after tax dollars) are deferred until they are withdrawn. In a Qualified
contract (one that is established with before tax dollars like an IRA), all
amounts are taxable when they are withdrawn.
When you begin taking distributions or withdrawals from your contract, earnings
are considered to be taken out first and will be taxed at your ordinary income
rate. You may be subject to a 10% IRS tax penalty for distributions or
withdrawals before age 59 1/2.
================================================================
7. ACCESS TO YOUR MONEY
================================================================
Earnings may be withdrawn at any time free of a withdrawal charge. After the
first year, the first withdrawal of the year will be free of a withdrawal charge
if it does not exceed the greater of: (1) earnings in your contract as of the
date you make the withdrawal or (2) 10% of the money you have invested for at
least one year and not yet withdrawn, less any withdrawals made during the year.
Although amounts withdrawn using the 10% provision may reduce principal for
purposes of calculating amounts available for future withdrawals of earnings,
they do not reduce the amount of money you invested for purposes of calculating
the withdrawal charge if you withdraw your entire contract value.
Withdrawals in excess of these limits will be assessed a withdrawal charge.
Withdrawals may be made from your contract in the amount of $1,000 or more. You
may request a withdrawal in writing or by establishing systematic withdrawals.
Under systematic withdrawals, the minimum withdrawal amount is $250.
If you withdraw your entire contract value, you will not receive the benefit of
any free withdrawal amount. After your money has been in the contract for seven
full years, there are no withdrawal charges on that portion of the money that
you have invested for at least seven full years. Of course, you may have to pay
income tax and a 10% IRS tax penalty may apply if you are under age 59 1/2.
Additionally, withdrawal charges are not assessed when a death benefit is paid.
================================================================
8. PERFORMANCE
================================================================
The value of your annuity will fluctuate depending upon the investment
performance of the portfolio(s) you choose.
The following chart shows total returns for each portfolio for the time periods
shown. These numbers reflect the insurance charges, the contract maintenance fee
and the investment charges. Withdrawals charges are not reflected in the chart.
Past performance is not a guarantee of future results.
<PAGE> 6
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CALENDAR YEAR
ANCHOR SERIES TRUST PORTFOLIO 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Appreciation 23.50% 23.17% 32.41% (5.60)%
Growth 28.36% 23.06% 24.30% (6.27)%
Natural Resources (10.10)% 12.20% 15.45% (5.93)%
Gov't and Quality Bond 7.82% 1.35% 17.49% (4.44)%
- ----------------------------------------------------------------------------------------------------------------------------------
SUNAMERICA SERIES TRUST PORTFOLIO
Emerging Markets** (17.37)% -- -- --
Int'l Diversified Equities 4.71% 7.59% 8.52% (3.68)%
Global Equities 13.25% 12.37% 17.33% (1.96)%
Int'l Growth and Income** 5.36% -- -- --
Aggressive Growth 10.55% 4.33% -- --
Real Estate** 17.16% -- -- --
Putnam Growth* 30.41% 18.46% 22.83% (3.25)%
Growth/Phoenix 21.28% 14.12% 30.12% (9.52)%
Alliance Growth 29.41% 27.10% 41.58% (3.76)%
"Dogs" of Wall Street -- -- -- --
Venture Value 32.21% 22.86% 35.36% (1.23)%
Federated Value 29.37% 7.32% -- --
Growth-Income 31.85% 22.11% 31.95% (4.20)%
Utility 23.78% 8.26% -- --
Asset Allocation 19.93% 17.05% 24.33% (1.80)%
Balanced/Phoenix 15.09% 8.18% 25.51% (0.58)%
SunAmerica Balanced 22.52% 9.39% -- --
Worldwide High Income 13.72% 23.38% 19.04% (2.39)%
High-Yield Bond 12.66% 12.71% 12.44% (6.98)%
Corporate Bond 9.14% 2.86% 15.82% (4.73)%
Global Bond 8.31% 7.58% 15.83% (6.27)%
Cash Management 3.50% 3.31% 3.85% 2.12%
- ----------------------------------------------------------------------------------------------------------------------------------
* Formerly named Provident Growth.
** Inception to 11/30/97.
Inception date for each portfolio
varies.
<CAPTION>
- --------------------------------------- --------------------
CALENDAR YEAR
ANCHOR SERIES TRUST PORTFOLIO 1993
- --------------------------------------- --------------------
<S> <C>
Capital Appreciation 13.72%
Growth 11.22%
Natural Resources --
Gov't and Quality Bond 3.68%
- -------------------------------------------------------------
SUNAMERICA SERIES TRUST PORTFOLIO
Emerging Markets** --
Int'l Diversified Equities --
Global Equities 15.93%
Int'l Growth and Income** --
Aggressive Growth --
Real Estate** --
Putnam Growth* --
Growth/Phoenix 8.91%
Alliance Growth 9.93%
"Dogs" of Wall Street --
Venture Value --
Federated Value --
Growth-Income 6. 65%
Utility --
Asset Allocation 5.11%
Balanced/Phoenix --
SunAmerica Balanced --
Worldwide High Income --
High-Yield Bond 11.35%
Corporate Bond 1.64%
Global Bond 4.22%
Cash Management 0.83%
=============================================================
* Formerly named Provident Growth.
** Inception to 11/30/97.
Inception date for each portfolio
varies.
</TABLE>
================================================================
9. DEATH BENEFIT
================================================================
If you should die during the Accumulation Phase, your beneficiary will receive a
death benefit. The death benefit is the greater of:
(1) the value of your contract, or
(2) the money you put in less any withdrawals, all compounded at 4% annually
(3% if age 70 or older at time of issue), or
(3) the value of your contract on the seventh contract anniversary less any
withdrawals plus any additional money you put in since the seventh
anniversary, all compounded at 4% annually (3% if age 70 or older at time
of issue).
================================================================
10. OTHER INFORMATION
================================================================
FREE LOOK: You may cancel your contract within ten days (or longer if required
by your state) by mailing it to our Annuity Service Center. Your contract will
be treated as void on the date we receive it and we will pay you an amount equal
to the value of your contract (unless otherwise required by state law). Its
value may be more or less than the money you initially invested.
ASSET ALLOCATION REBALANCING: If selected by you, this program seeks to keep
your investment in line with your goals. We will maintain your specified
allocation mix in the variable investment portfolios and the 1-year fixed
investment option by readjusting your money on a calendar quarter, semiannual or
annual basis.
SYSTEMATIC WITHDRAWAL PROGRAM: If selected by you, this program allows you to
receive either monthly, quarterly, semiannual or annual checks during the
Accumulation Phase. Systematic withdrawals may also be electronically wired to
your bank account. Of course, withdrawals may be taxable and a 10% IRS tax
penalty may apply if you are under age 59 1/2.
PRINCIPAL ADVANTAGE: If selected by you, this program allows you to obtain
growth potential without any market risk to your principal. We will guarantee
that the portion of your money allocated to the 1, 3, 5, 7 or 10 year fixed
investment option will grow to equal your principal investment when it is
allocated in accordance with the program.
DOLLAR COST AVERAGING: If selected by you, this program allows you to invest
gradually in the equity and bond portfolios from any of the variable investment
portfolios or the 1-year fixed investment option.
AUTOMATIC PAYMENT PLAN: You can add to your contract directly from your bank
account with as little as $20 per month.
CONFIRMATIONS AND QUARTERLY STATEMENTS: You will receive a confirmation of each
transaction within your contract. On a quarterly basis, you will receive a
complete statement of your transactions over the past quarter and a summary of
your account values.
================================================================
11. INQUIRIES
================================================================
If you have questions about your contract or need to make changes, call your
financial representative or contact us at:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
If money accompanies your correspondence, you should direct it to:
Anchor National Life Insurance Company
P.O. Box 100330
Pasadena, California 91189-0001
<PAGE> 7
[POLARIS LOGO]
PROSPECTUS
APRIL 1, 1998
<TABLE>
<S> <C> <C>
Please read this prospectus carefully FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
before investing and keep it for issued by
future reference. It contains ANCHOR NATIONAL LIFE INSURANCE COMPANY
important information about the in connection with
Polaris Variable Annuity. VARIABLE SEPARATE ACCOUNT
The annuity has 31 investment choices -- 5 fixed investment
To learn more about the annuity options and 26 variable investment portfolios listed below.
offered by this prospectus, you can The 5 fixed investment options include specified periods of
obtain a copy of the Statement of 1, 3, 5, 7 and 10 years. The 26 variable investment
Additional Information ("SAI") dated portfolios are part of the Anchor Series Trust or the
April 1, 1998. The SAI has been filed SunAmerica Series Trust.
with the Securities and Exchange ANCHOR SERIES TRUST:
Commission ("SEC") and is MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
incorporated by reference into this - Capital Appreciation Portfolio
prospectus. The Table of Contents of - Growth Portfolio
the SAI appears on page 30 of this - Natural Resources Portfolio
prospectus. For a free copy of the - Government and Quality Bond Portfolio
SAI, call us at (800) 445-SUN2 or SUNAMERICA SERIES TRUST:
write to us at our Annuity Service MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
Center, P.O. Box 54299, Los Angeles, - Global Equities Portfolio
California 90054-0299. - Alliance Growth Portfolio
- Growth-Income Portfolio
In addition, the SEC maintains a MANAGED BY DAVIS SELECTED ADVISERS, L.P.
website (http://www.sec.gov) that - Venture Value Portfolio
contains the SAI, materials - Real Estate Portfolio
incorporated by reference and other MANAGED BY FEDERATED INVESTORS
information filed electronically with - Federated Value Portfolio
the SEC by Anchor National. - Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
ANNUITIES INVOLVE RISKS, INCLUDING - Asset Allocation Portfolio
POSSIBLE LOSS OF PRINCIPAL, AND ARE - Global Bond Portfolio
NOT A DEPOSIT OR OBLIGATION OF, OR MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
GUARANTEED OR ENDORSED BY, ANY BANK. - International Diversified Equities Portfolio
THEY ARE NOT FEDERALLY INSURED BY THE - Worldwide High Income Portfolio
FEDERAL DEPOSIT INSURANCE MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
CORPORATION, THE FEDERAL RESERVE - Growth/Phoenix Investment Counsel Portfolio
BOARD OR ANY OTHER AGENCY. - Balanced/Phoenix Investment Counsel Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 8
=============================================================
TABLE OF CONTENTS
=============================================================
<TABLE>
<S> <C> <C>
GLOSSARY.......................................... 2
FEE TABLES........................................ 3
Owner Transaction Expenses.................. 3
Annual Separate Account Expenses............ 3
Portfolio Expenses.......................... 3
EXAMPLES.......................................... 4
1. THE POLARIS VARIABLE ANNUITY................ 6
2. ANNUITY INCOME OPTIONS...................... 6
Allocation of Annuity Payments.............. 7
Annuity Payments............................ 7
Transfers During the Income Phase........... 7
Deferment of Payments....................... 7
3. PURCHASING A POLARIS VARIABLE ANNUITY....... 7
Allocation of Purchase Payments............. 7
Accumulation Units.......................... 8
Free Look................................... 8
4. INVESTMENT OPTIONS.......................... 8
Variable Investment Options................. 8
Anchor Series Trust......................... 8
SunAmerica Series Trust..................... 8
Fixed Investment Options.................... 9
Market Value Adjustment..................... 9
Transfers During the Accumulation Phase..... 9
Dollar Cost Averaging Program............... 10
Asset Allocation Rebalancing Program........ 10
Principal Advantage Program................. 11
Voting Rights............................... 11
Substitution................................ 11
5. EXPENSES.................................... 11
Insurance Charges........................... 11
Mortality and Expense Risk Charge........... 11
Distribution Expense Charge................. 11
Withdrawal Charges.......................... 11
Investment Charges.......................... 12
Contract Maintenance Fee.................... 12
Transfer Fee................................ 12
Premium Taxes............................... 12
Income Taxes................................ 12
Reduction or Elimination of Certain Charges
and Additional Amounts Credited............. 12
6. TAXES....................................... 12
Annuity Contracts in General................ 12
Tax Treatment of Distributions--
Non-qualified Contracts..................... 13
Tax Treatment of Distributions-- Qualified
Contracts................................... 13
Diversification............................. 13
7. ACCESS TO YOUR MONEY........................ 13
Systematic Withdrawal Program............... 14
Nursing Home Waiver......................... 14
Minimum Contract Value...................... 14
8. PERFORMANCE................................. 14
9. DEATH BENEFIT............................... 15
10. OTHER INFORMATION........................... 15
Anchor National............................. 15
The Separate Account........................ 15
The General Account......................... 16
Distribution................................ 16
Administration.............................. 16
Legal Proceedings........................... 16
Custodian................................... 16
Additional Information...................... 16
Selected Consolidated Financial Data........ 17
Management Discussion and Analysis.......... 18
Properties.................................. 25
Directors and Executive Officers............ 26
Executive Compensation...................... 28
Security Ownership of Owners and
Management.................................. 28
State Regulation............................ 28
Independent Accountants..................... 29
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION....................................... 29
FINANCIAL STATEMENTS.............................. 29
APPENDIX A -- CONDENSED FINANCIAL INFORMATION.....
A-1
APPENDIX B -- MARKET VALUE ADJUSTMENT............. B-1
APPENDIX C -- PREMIUM TAXES....................... C-1
</TABLE>
=============================================================
GLOSSARY
=============================================================
We have capitalized some of the technical terms used in this prospectus. To help
you understand these terms, we have defined them in this glossary.
ACCUMULATION PHASE - The period during which you invest money in your contract.
ACCUMULATION UNITS - A measurement we use to calculate the value of the variable
portion of your contract during the Accumulation Phase.
ANNUITANT(S) - The person(s) on whose life (lives) we base annuity payments.
ANNUITY DATE - The date on which annuity payments are to begin, as selected by
you.
ANNUITY UNITS - A measurement we use to calculate the amount of annuity payments
you receive from the variable portion of your contract during the Income Phase.
BENEFICIARY (IES) - The person(s) designated to receive any benefits under the
contract if you or the Annuitant dies.
INCOME PHASE - The period during which we make annuity payments to you.
IRS - The Internal Revenue Service.
NON-QUALIFIED (CONTRACT) - A contract purchased with after-tax dollars. In
general, these contracts are not under any pension plan, specially sponsored
program or individual retirement account ("IRA").
PORTFOLIO(S) - The variable investment options available under the contract.
Each Portfolio has its own investment objective and is invested in the
underlying investments of the Anchor Series Trust or the SunAmerica Series
Trust.
PURCHASE PAYMENTS - The money you give us to buy the contract, as well as any
additional money you give us to invest in the contract after you own it.
QUALIFIED (CONTRACT) - A contract purchased with pretax dollars. These contracts
are generally purchased under a pension plan, specially sponsored program or
individual retirement account ("IRA").
TRUSTS - Refers to the Anchor Series Trust and the SunAmerica Series Trust
collectively.
2
<PAGE> 9
================================================================================
FEE TABLES
================================================================================
OWNER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
WITHDRAWAL CHARGE (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)
<S> <C> <C> <C>
Year 1........... 7% Year 5............... 3%
Year 2........... 6% Year 6............... 2%
Year 3........... 5% Year 7............... 1%
Year 4........... 4% Year 8+.............. 0%
TRANSFER FEE............ No charge for first 15 transfers
each year; thereafter, fee is $25
($10 in Pennsylvania and Texas)
per transfer
CONTRACT MAINTENANCE FEE*...... $35 ($30 in North Dakota
and Utah)
*waived if contract value is $50,000 or more
</TABLE>
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF DAILY NET ASSET VALUE)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge............... 1.37%
Distribution Expense Charge..................... 0.15%
-----
TOTAL SEPARATE ACCOUNT EXPENSES............. 1.52%
=====
</TABLE>
PORTFOLIO EXPENSES
ANCHOR SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S TWELVE-MONTH PERIOD ENDED
NOVEMBER 30, 1997)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
=================================================================================================
<S> <C> <C> <C>
Capital Appreciation .65% .06% .71%
- -------------------------------------------------------------------------------------------------
Growth .72% .06% .78%
- -------------------------------------------------------------------------------------------------
Natural Resources .75% .14% .89%
- -------------------------------------------------------------------------------------------------
Government and Quality Bond .62% .09% .71%
=================================================================================================
</TABLE>
SUNAMERICA SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER REIMBURSEMENT OR WAIVER OF EXPENSES
FOR THE TRUST'S FISCAL YEAR ENDED
NOVEMBER 30, 1997)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
=================================================================================================
<S> <C> <C> <C>
Emerging Markets 1.25% .65% 1.90%*
- -------------------------------------------------------------------------------------------------
International Diversified Equities 1.00% .35% 1.35%
- -------------------------------------------------------------------------------------------------
Global Equities .76% .19% .95%
- -------------------------------------------------------------------------------------------------
International Growth and Income 1.00% .60% 1.60%*
- -------------------------------------------------------------------------------------------------
Aggressive Growth .76% .14% .90%
- -------------------------------------------------------------------------------------------------
Real Estate .80% .45% 1.25%*
- -------------------------------------------------------------------------------------------------
Putnam Growth** .83% .08% .91%
- -------------------------------------------------------------------------------------------------
Growth/Phoenix .65% .08% .73%
- -------------------------------------------------------------------------------------------------
Alliance Growth .59% .06% .65%
- -------------------------------------------------------------------------------------------------
"Dogs" of Wall Street*** .60% .15% .75%*
- -------------------------------------------------------------------------------------------------
Venture Value .74% .05% .79%
- -------------------------------------------------------------------------------------------------
Federated Value .80% .23% 1.03%
- -------------------------------------------------------------------------------------------------
Growth-Income .60% .05% .65%
- -------------------------------------------------------------------------------------------------
Utility .75% .30% 1.05%
- -------------------------------------------------------------------------------------------------
Asset Allocation .61% .07% .68%
- -------------------------------------------------------------------------------------------------
Balanced/Phoenix .68% .14% .82%
- -------------------------------------------------------------------------------------------------
SunAmerica Balanced .74% .26% 1.00%
- -------------------------------------------------------------------------------------------------
Worldwide High Income 1.00% .10% 1.10%
- -------------------------------------------------------------------------------------------------
High-Yield Bond .66% .09% .75%
- -------------------------------------------------------------------------------------------------
Corporate Bond .70% .21% .91%
- -------------------------------------------------------------------------------------------------
Global Bond .72% .18% .90%
- -------------------------------------------------------------------------------------------------
Cash Management .54% .09% .63%
=================================================================================================
</TABLE>
* Annualized.
** As of April 16, 1997, the Provident Growth Portfolio was renamed the
Putnam Growth Portfolio, managed by Putnam Investment Management, Inc.
The expenses shown here are those of the former Provident Growth
Portfolio managed by Provident Investment Counsel.
*** As of the date of this prospectus, the sale of contracts offering the
"Dogs" of Wall Street Portfolio had not begun. The percentages are based
on estimated amounts for the current fiscal year.
THE ABOVE PORTFOLIO EXPENSES WERE PROVIDED BY THE TRUSTS. WE HAVE NOT
INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
3
<PAGE> 10
================================================================================
EXAMPLES
================================================================================
You will pay the following expenses on a $1,000 investment in each Portfolio,
assuming a 5% annual return on assets and:
(a) surrender of the contract at the end of the stated time period;
(b) if the contract is not surrendered or annuitized.
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
=========================================================================================================
<S> <C> <C> <C> <C>
Capital Appreciation (a) $ 93 (a) $122 (a) $154 (a) $265
(b) $ 23 (b) $ 72 (b) $124 (b) $265
- ---------------------------------------------------------------------------------------------------------
Growth (a) $ 94 (a) $124 (a) $157 (a) $272
(b) $ 24 (b) $ 74 (b) $127 (b) $272
- ---------------------------------------------------------------------------------------------------------
Natural Resources (a) $ 95 (a) $128 (a) $163 (a) $283
(b) $ 25 (b) $ 78 (b) $133 (b) $283
- ---------------------------------------------------------------------------------------------------------
Government and Quality Bond (a) $ 93 (a) $122 (a) $154 (a) $265
(b) $ 23 (b) $ 72 (b) $124 (b) $265
- ---------------------------------------------------------------------------------------------------------
Emerging Markets (a) $105 (a) $158 (a) $212 (a) $378
(b) $ 35 (b) $108 (b) $182 (b) $378
- ---------------------------------------------------------------------------------------------------------
International Diversified Equities (a) $100 (a) $141 (a) $186 (a) $328
(b) $ 30 (b) $ 91 (b) $156 (b) $328
- ---------------------------------------------------------------------------------------------------------
Global Equities (a) $ 96 (a) $130 (a) $166 (a) $289
(b) $ 26 (b) $ 80 (b) $136 (b) $289
- ---------------------------------------------------------------------------------------------------------
International Growth and Income (a) $102 (a) $149 (a) $198 (a) $351
(b) $ 32 (b) $ 99 (b) $168 (b) $351
- ---------------------------------------------------------------------------------------------------------
Aggressive Growth (a) $ 95 (a) $128 (a) $163 (a) $284
(b) $ 25 (b) $ 78 (b) $133 (b) $284
- ---------------------------------------------------------------------------------------------------------
Real Estate (a) $ 99 (a) $139 (a) $181 (a) $318
(b) $ 29 (b) $ 89 (b) $151 (b) $318
- ---------------------------------------------------------------------------------------------------------
Putnam Growth (a) $ 95 (a) $128 (a) $164 (a) $285
(b) $ 25 (b) $ 78 (b) $134 (b) $285
- ---------------------------------------------------------------------------------------------------------
Growth/Phoenix (a) $ 94 (a) $123 (a) $155 (a) $267
(b) $ 24 (b) $ 73 (b) $125 (b) $267
- ---------------------------------------------------------------------------------------------------------
Alliance Growth (a) $ 93 (a) $121 (a) $151 (a) $259
(b) $ 23 (b) $ 71 (b) $121 (b) $259
- ---------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street (a) $ 94 (a) $124 (a) $156 (a) $269
(b) $ 24 (b) $ 74 (b) $126 (b) $269
- ---------------------------------------------------------------------------------------------------------
Venture Value (a) $ 94 (a) $125 (a) $158 (a) $273
(b) $ 24 (b) $ 75 (b) $128 (b) $273
- ---------------------------------------------------------------------------------------------------------
Federated Value (a) $ 97 (a) $132 (a) $170 (a) $297
(b) $ 27 (b) $ 82 (b) $140 (b) $297
- ---------------------------------------------------------------------------------------------------------
Growth-Income (a) $ 93 (a) $121 (a) $151 (a) $259
(b) $ 23 (b) $ 71 (b) $121 (b) $259
- ---------------------------------------------------------------------------------------------------------
Utility (a) $ 97 (a) $133 (a) $171 (a) $299
(b) $ 27 (b) $ 83 (b) $141 (b) $299
- ---------------------------------------------------------------------------------------------------------
Asset Allocation (a) $ 93 (a) $121 (a) $152 (a) $262
(b) $ 23 (b) $ 71 (b) $122 (b) $262
- ---------------------------------------------------------------------------------------------------------
Balanced/Phoenix (a) $ 95 (a) $126 (a) $159 (a) $276
(b) $ 25 (b) $ 76 (b) $129 (b) $276
- ---------------------------------------------------------------------------------------------------------
SunAmerica Balanced (a) $ 96 (a) $131 (a) $168 (a) $294
(b) $ 26 (b) $ 81 (b) $138 (b) $294
- ---------------------------------------------------------------------------------------------------------
Worldwide High Income (a) $ 97 (a) $134 (a) $173 (a) $304
(b) $ 27 (b) $ 84 (b) $143 (b) $304
- ---------------------------------------------------------------------------------------------------------
High-Yield Bond (a) $ 94 (a) $124 (a) $156 (a) $269
(b) $ 24 (b) $ 74 (b) $126 (b) $269
- ---------------------------------------------------------------------------------------------------------
Corporate Bond (a) $ 95 (a) $128 (a) $164 (a) $285
(b) $ 25 (b) $ 78 (b) $134 (b) $285
- ---------------------------------------------------------------------------------------------------------
Global Bond (a) $ 95 (a) $128 (a) $163 (a) $284
(b) $ 25 (b) $ 78 (b) $133 (b) $284
- ---------------------------------------------------------------------------------------------------------
Cash Management (a) $ 93 (a) $120 (a) $150 (a) $257
(b) $ 23 (b) $ 70 (b) $120 (b) $257
=========================================================================================================
</TABLE>
4
<PAGE> 11
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract.
2. For certain Portfolios, the adviser, SunAmerica Asset Management Corp., has
voluntarily agreed to waive fees or reimburse certain expenses, if
necessary, to keep annual operating expenses at or below the lesser of the
maximum allowed by any applicable state expense limitations or the following
percentages of each Portfolio's average net assets: SunAmerica Balanced and
"Dogs" of Wall Street (.85%); Aggressive Growth (.90%); Federated Value
(1.03%); Utility (1.05%); Emerging Markets (1.90%); International Growth and
Income (1.60%); and Real Estate (1.25%). The adviser also may voluntarily
waive or reimburse additional amounts to increase a Portfolio's investment
return. All waivers and/or reimbursements may be terminated at any time.
Furthermore, the adviser may recoup any waivers or reimbursements within two
years after such waivers or reimbursements are granted, provided that the
Portfolio is able to make such payment and remain in compliance with the
foregoing expense limitations.
3. Absent fee waivers or reimbursement of expenses by the adviser, you would
have incurred the following expenses during the last fiscal year: SunAmerica
Balanced (1.00%); Aggressive Growth (.90%); Federated Value (1.03%); Utility
(1.24%); Emerging Markets (2.60%); International Growth and Income (2.02%);
and Real Estate (1.36%).
4. The Examples assume that no transfer fees were imposed. Although premium
taxes may apply in certain states, they are not reflected.
5. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE HISTORICAL ACCUMULATION UNIT VALUES ARE CONTAINED IN
APPENDIX A -- CONDENSED FINANCIAL INFORMATION
5
<PAGE> 12
=============================================================
1. THE POLARIS VARIABLE ANNUITY
=============================================================
An annuity is a contract between you, as the owner, and an insurance company.
The contract provides tax deferral for your earnings, as well as a death benefit
and a guaranteed income in the form of annuity payments beginning on a date you
select. Until you decide to begin receiving annuity payments, your annuity is in
the Accumulation Phase. Once you begin receiving annuity payments, your contract
switches to the Income Phase. If you die during the Accumulation Phase, the
insurance company guarantees a death benefit to your Beneficiary.
The Polaris Variable Annuity Contract is issued by Anchor National Life
Insurance Company ("Anchor National"), a stock life insurance company organized
under the laws of the state of Arizona. Its principal business address is 1
SunAmerica Center, Los Angeles, California 90067-6022. Anchor National conducts
life insurance and annuity business in the District of Columbia and in all
states except New York. Anchor National is an indirect wholly owned subsidiary
of SunAmerica Inc., a Maryland corporation.
During the Accumulation Phase, the value of your annuity benefits from tax
deferral. This means your earnings accumulate on a tax-deferred basis until you
take money out of your contract. The Income Phase occurs if you decide to
receive annuity payments. You select the date on which annuity payments are to
begin.
The contract is called a variable annuity because you can choose among 26
variable investment Portfolios. Depending upon market conditions, you can make
or lose money in any of these Portfolios. If you allocate money to the
Portfolios, the amount of money you are able to accumulate in your contract
during the Accumulation Phase depends upon the investment performance of the
Portfolio(s) you select. The amount of the annuity payments you receive during
the Income Phase from the variable portion of your contract also depends upon
the investment performance of the Portfolios you select for the Income Phase.
The contract also contains 5 fixed investment options. Your money will earn
interest at the rate set by Anchor National. The interest rate is guaranteed by
Anchor National for the time you agree to leave your money in the fixed
investment option. We currently offer fixed investment options for 1, 3, 5, 7
and 10 year periods. If you allocate money to the fixed investment options, the
amount of money you are able to accumulate in your contract during the
Accumulation Phase depends upon the total interest credited to your contract. An
adjustment to your contract will apply to withdrawals or transfers from the 3,
5, 7 and 10 year fixed investment options prior to the end of the selected
period. The amount of annuity payments you receive during the Income Phase from
the fixed portion of your contract will remain level for the entire Income
Phase.
=============================================================
2. ANNUITY INCOME OPTIONS
=============================================================
When you switch to the Income Phase, you will receive regular income payments
under the contract. Annuity payments will be made on a monthly basis unless you
request in writing that payments be made on a quarterly, semiannual or annual
basis. You can choose to have your annuity payments sent to you by check or
electronically wired to your bank.
You select the date on which annuity payments are to begin, which must be the
first day of a month and must be at least two years after the date your contract
is issued. We call this the Annuity Date. You may change your Annuity Date at
least seven days prior to the date that your payments are to begin. However,
annuity payments must begin by the later of your 90th birthday or ten years
after the date your contract is issued. If no Annuity Date is selected, annuity
payments will begin on the later of your 90th birthday or ten years after the
date your contract is issued. Certain states may require you to receive annuity
payments prior to such date. If the Annuity Date is past your 85th birthday, it
is possible that the contract would not be treated as an annuity and you may
incur adverse tax consequences.
The Annuitant is the person on whose life annuity payments are based. You may
change the Annuitant at any time prior to the Annuity Date if you are an
individual designated as the owner of the contract. You may also designate a
second person on whose life annuity payments are based. If the Annuitant dies
before the Annuity Date, you must notify us and designate a new Annuitant.
If you do not choose an annuity income option, annuity payments will be made in
accordance with option 4 (below) for 10 years. If the annuity payments are for
joint lives, then we will make payments in accordance with option 3. We may pay
the annuity in one lump sum if your contract is less than $5,000, where
permitted by state law. Likewise, if your annuity payments would be less than
$50 a month, we have the right to change the frequency of your payment to be on
a quarterly, semiannual or annual basis so that your annuity payments are at
least $50. Annuity payments will be made to you unless you designate another
person to receive them. In that case, you must notify us in writing at least
thirty days before the Annuity Date. You will remain fully responsible for any
taxes related to the annuity payments.
The contract offers 5 annuity income options. Other annuity income options may
be available in the future.
OPTION 1 - LIFE INCOME
Under this option, we will make annuity payments as long as the Annuitant is
alive. Annuity payments stop when the Annuitant dies.
6
<PAGE> 13
OPTION 2 - JOINT AND SURVIVOR ANNUITY
Under this option, we will make annuity payments as long as the Annuitant and a
designated second person are alive. Upon the death of either person, we will
continue to make annuity payments so long as the survivor is alive. You choose
the amount of the annuity payments to the survivor, which can be equal to 100%,
66.66% or 50% of the full amount. Annuity payments stop upon the death of the
survivor.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10
YEARS GUARANTEED
This option is similar to option 2 above, with the additional guarantee that
payments will be made for at least 10 years. If the Annuitant and designated
second person die before all guaranteed payments have been made, the rest will
be made to the Beneficiary.
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEARS
GUARANTEED
This option is similar to option 1 above, with the additional guarantee that
payments will be made for at least 10 or 20 years, as selected by you. Under
this option, if the Annuitant dies before all guaranteed payments have been
made, the rest will be made to the Beneficiary.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
Under this option, we will make annuity payments for any period of time from 5
to 30 years, as selected by you. However, the period must be for full 12-month
periods. Under this option, if the Annuitant dies before all guaranteed payments
have been made, the rest will be made to the Beneficiary. This option does not
contain an element of mortality risk. Therefore, you will not get the benefit of
the mortality component of the mortality and expense risk charge if this option
if selected.
ALLOCATION OF ANNUITY PAYMENTS
On the Annuity Date, if your money is invested in the fixed investment options,
your annuity payments will be fixed in amount. If your money is invested in the
variable Portfolios, your annuity payments will vary depending on the investment
performance of the Portfolios. If you have money in the fixed and variable
investment options, your annuity payments will be based on the investment
allocations. You may not convert between fixed and variable payments once
annuity payments begin.
ANNUITY PAYMENTS
If you choose to have any portion of your annuity payments come from the
variable Portfolios, the dollar amount of your payment will depend upon three
things: (1) the value of your contract in the Portfolios on the Annuity Date,
(2) the 3.5% assumed investment rate used in the annuity table for the contract
and (3) the performance of the Portfolios you selected. If the actual
performance exceeds the 3.5% assumed rate, your annuity payments will increase.
Similarly, if the actual rate is less than 3.5%, your annuity payments will
decrease. The SAI contains detailed information and sample calculations.
TRANSFERS DURING THE INCOME PHASE
Transfers are subject to the same limitations as transfers during the
Accumulation Phase. (See "Investment Options- Transfers During the Accumulation
Phase"). However, you can only make one transfer each month. You may not
transfer money from the fixed investment options to the variable Portfolios
during the Income Phase. You may transfer money among the variable Portfolios or
among the fixed investment options.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
state law. Interest will be credited to you during the deferral period.
=============================================================
3. PURCHASING A POLARIS
VARIABLE ANNUITY
=============================================================
A Purchase Payment is the money you give us to buy the contract, as well as any
additional money you give us to invest in the contract after you own it. You can
purchase a Non-qualified contract with a minimum initial investment of $5,000
and a Qualified contract with a minimum initial investment of $2,000. The
maximum we accept is $1,000,000 without prior approval. Payments in amounts of
$500 or more may be added to your Non-qualified contract ($250 or more for
Qualified contracts) at any time during the Accumulation Phase. You can make
scheduled subsequent Purchase Payments of $20 or more per month by enrolling in
the Automatic Payment Plan.
We may refuse any Purchase Payment. In general, we will not issue a
Non-qualified contract to anyone who is over age 80 or a Qualified contract to
anyone who is age 70 1/2 or older unless you can show that the minimum
distributions required by the IRS are being made.
ALLOCATION OF PURCHASE PAYMENTS
When you purchase a contract, you will allocate your Purchase Payment to the
variable investment Portfolios and/or the fixed investment options. If you make
additional Purchase Payments, we will allocate them in the same way unless you
tell us otherwise.
Once we receive your Purchase Payment and a complete application at our
principal place of business, we will issue
7
<PAGE> 14
your contract and allocate your first Purchase Payment within two business days.
If you do not give us all the necessary information, we will contact you to
obtain it. If we are unable to complete this process within five business days,
we will either send back your money or get your permission to keep it until we
get all the necessary information.
ACCUMULATION UNITS
The value of the variable portion of your contract will go up or down depending
upon the investment performance of the Portfolio(s) you choose. In order to keep
track of the value of your contract, we use a unit of measure called an
Accumulation Unit, which works like a share of a mutual fund. During the Income
Phase, we call them Annuity Units.
The value of an Accumulation Unit is determined each day that the New York Stock
Exchange ("NYSE") is open. We calculate an Accumulation Unit value for each
Portfolio after the NYSE closes each day. We do this by:
(1) determining the total value of money invested in the particular
Portfolio;
(2) subtracting from that amount any insurance charges and any other
charges such as taxes; and
(3) dividing this amount by the number of outstanding Accumulation Units.
The value of an Accumulation Unit may go up or down from day to day. When you
make a Purchase Payment, we credit your contract with Accumulation Units. The
number of Accumulation Units credited is determined by dividing the amount of
the Purchase Payment allocated to a Portfolio by the value of the Accumulation
Unit for that Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You want the
money to go to the Global Bond Portfolio. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,000 by $11.10 and credit your
contract on Wednesday night with 2252.252 Accumulation Units for the Global
Bond Portfolio.
FREE LOOK
If you change your mind about owning this contract, you can cancel it within ten
days after receiving it (or longer if required by your state) by mailing it back
to our Annuity Service Center at P.O. Box 54299, Los Angeles, California
90054-0299. You will receive back whatever your contract is worth on the day we
receive your request (unless otherwise required by your state). Its value may be
more or less than the money you initially invested. Thus, the investment risk is
borne by you during the free look period.
=============================================================
4. INVESTMENT OPTIONS
=============================================================
VARIABLE INVESTMENT OPTIONS
The contract offers 26 variable investment Portfolios which invest in shares of
the Anchor Series Trust or the SunAmerica Series Trust. These Portfolios are
listed below. Additional Portfolios may be available in the future. SunAmerica
Asset Management Corp., an indirect wholly owned subsidiary of SunAmerica Inc.,
is the investment adviser for both Trusts. The Trusts serve as underlying
investments for other variable contracts sold by Anchor National, its affiliate,
First SunAmerica Life Insurance Company, and other unaffiliated insurance
companies. Neither Anchor National nor the Trusts believes offering shares of
the Trusts in this manner will be disadvantageous to you. We will monitor the
Trusts for any conflicts that may arise between contract owners. Additional
information is contained in the prospectuses for the Trusts.
ANCHOR SERIES TRUST
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust Portfolios. Anchor Series Trust has Portfolios in addition to those listed
below which are not available for investment under the contract. The 4 available
Portfolios are:
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Natural Resources Portfolio
- Government and Quality Bond Portfolio
SUNAMERICA SERIES TRUST
Various subadvisers provide investment advice for the SunAmerica Series Trust
Portfolios. The 22 Portfolios and the subadvisers are:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
- Real Estate Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
8
<PAGE> 15
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/ GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT INC.
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
- Growth/Phoenix Investment Counsel Portfolio
- Balanced/Phoenix Investment Counsel Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
YOU SHOULD READ THE PROSPECTUSES FOR THE ANCHOR SERIES TRUST AND THE SUNAMERICA
SERIES TRUST CAREFULLY BEFORE INVESTING. THESE PROSPECTUSES CONTAIN DETAILED
INFORMATION ABOUT THE PORTFOLIOS AND ARE ATTACHED TO THIS PROSPECTUS.
FIXED INVESTMENT OPTIONS
The contract also offers 5 fixed investment options. We currently offer fixed
investment options for 1, 3, 5, 7 and 10 year periods. The fixed investment
options offer interest rates that are guaranteed by Anchor National. Interest
rates may differ from time to time due to changes in market conditions but will
not be less than 3%. The interest rates offered for a specified period for new
Purchase Payments may differ from the interest rates offered for money already
in the fixed investment option. Once an interest rate is established, it will
not change during the specified period. The interest rates are set at Anchor
National's sole discretion.
If you have money allocated to the 1, 3, 5, 7 or 10 year fixed investment
options, you can renew for another 1, 3, 5, 7 or 10 year period or put your
money into one or more of the variable Portfolios after the end of the specified
period. Unless you specify otherwise before the end of the period, we will keep
your money in the fixed investment option for the same period you previously
selected. You will receive the interest rate then in effect.
The 1-year fixed investment option is not registered under the Securities Act of
1933 and is not subject to other provisions of the Investment Company Act of
1940.
MARKET VALUE ADJUSTMENT
NOTE: THE FOLLOWING DISCUSSION APPLIES TO THE 3, 5, 7 AND 10 YEAR FIXED
INVESTMENT OPTIONS ONLY.
If you take your money out of the 3, 5, 7 or 10 year fixed investment option
(whether by withdrawal, transfer or annuitization) before the end of the
specified period, we will make an adjustment to the value of your contract. This
adjustment, called a "market value adjustment," can increase or decrease the
value of your contract. The market value adjustment reflects the differing
interest rate environments between the time you put your money into the fixed
investment option and the time you take your money out of the fixed investment
option.
We calculate the market value adjustment by comparing the interest rate you
received on the money you put into the fixed investment option against the
interest rate we are currently offering to contract owners for the period of
time remaining in the specified period. If we do not offer an interest rate for
that period, the interest rate will be determined by linear interpolation
between interest rates for the two nearest periods that are available.
Generally, if interest rates have dropped between the time you put your money
into the fixed investment option and the time you take it out, there will be a
positive adjustment to the value of your contract. Conversely, if interest rates
have increased between the time you put your money into the fixed investment
option and the time you take it out, there will be a negative adjustment to the
value of your contract.
If the market value adjustment is negative, it will be assessed first against
any money remaining in the fixed investment option and then against the money
you take out of the fixed investment option. If the market value adjustment is
positive, it will be added to the amount you take out of the fixed account.
Appendix B provides more information about how we calculate the market value
adjustment and gives some examples of the impact of the adjustment.
TRANSFERS DURING THE ACCUMULATION PHASE
You can transfer money among the Portfolios and the fixed investment options by
written request or by telephone. You can make 15 transfers every year without
charge. We measure a year from the anniversary of the day we issued your
contract. If you make more than 15 transfers in a year, there is a $25 transfer
fee for each transfer thereafter ($10 in Pennsylvania and Texas). Transfers
under Dollar Cost Averaging are included as part of your 15 free transfers each
year. However, transfers under
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<PAGE> 16
Asset Allocation Rebalancing are not counted against your 15 free transfers each
year.
The minimum amount you can transfer is $100. You cannot make a partial transfer
if the value of the Portfolio from which the transfer is being made would be
less than $100 after the transfer. Your request for transfer must clearly state
which investment options are involved and the amount. We will accept transfers
by telephone unless you specify otherwise on your contract application. We have
in place procedures to provide reasonable assurance that instructions given to
us by telephone are genuine. Thus, we disclaim all liability for any claim, loss
or expense from any error. If we fail to use such procedures, we may be liable
for any losses due to unauthorized or fraudulent instructions.
We reserve the right to modify, suspend or terminate the transfer provisions at
any time. We also reserve the right to waive the $100 minimum amount for Dollar
Cost Averaging and Asset Allocation Rebalancing.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program allows you to systematically transfer a set
amount or percentage from one variable Portfolio or the 1-year fixed investment
option to any other variable Portfolio(s). You can also select to transfer the
entire value in a variable Portfolio or the 1-year fixed investment option in a
stated number of transfers. Transfers may be on a monthly, quarterly, semiannual
or annual basis. You can change the amount or frequency at any time by notifying
us in writing. The minimum amount that can be transferred is $100.
By allocating amounts on a regular schedule as opposed to allocating the total
amount at one particular time, you may be less susceptible to the impact of
market fluctuations. However, there is no assurance that you will make a greater
profit. You are still subject to loss in a declining market. Dollar cost
averaging involves continuous investment in securities regardless of fluctuating
price levels. You should consider your financial ability to continue investing
through periods of fluctuating prices.
Transfers under the program are included as part of your 15 free transfers each
year. We reserve the right to modify, suspend or terminate this program at any
time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Aggressive Growth Portfolio over six quarters.
You set up dollar cost averaging and purchase Accumulation Units at the
following values:
<TABLE>
<CAPTION>
- -------------------------------------------
ACCUMULATION UNITS
QUARTER UNIT PURCHASED
- -------------------------------------------
<S> <C> <C>
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
- -------------------------------------------
</TABLE>
You paid an average price of only $6.67 per Accumulation Unit over the six
quarters, while the average market price actually was $7.08. By investing
an equal amount of money each month, you automatically buy more
Accumulation Units when the market price is low and fewer Accumulation
Units when the market price is high.
ASSET ALLOCATION REBALANCING PROGRAM
Once your money has been allocated among the investment options, the earnings
may cause the percentage invested in each investment option to differ from your
original percentage allocations. You can direct us to automatically rebalance
your contract to return to your original percentage allocations by selecting our
Asset Allocation Rebalancing Program. Rebalancing may be on a calendar quarter,
semiannual or annual basis. Rebalancing will occur on the last business day of
the month for the period you selected.
Transfers under the program are not counted against your 15 free transfers each
year. We reserve the right to modify, suspend or terminate this program at any
time.
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Portfolios. You want 50% in the Corporate Bond Portfolio and 50% in the
Growth Portfolio. Over the next calendar quarter, the bond market does very
well while the stock market performs poorly. At the end of the calendar
quarter, the Corporate Bond Portfolio now represents 60% of your holdings
because it has increased in value and the Growth Portfolio represents 40%
of your holdings. If you had chosen quarterly rebalancing, on the last day
of that quarter, we would sell some of your units in the Corporate Bond
Portfolio to bring its holdings back to 50% and use the money to buy more
units in the Growth Portfolio to increase those holdings to 50%.
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<PAGE> 17
PRINCIPAL ADVANTAGE PROGRAM
The Principal Advantage Program allows you to allocate Purchase Payments to a
fixed investment option and one or more variable Portfolios without any market
risk to your principal. You decide how much you want to invest and when you
would like a return of your principal. We will calculate how much of your
Purchase Payment needs to be allocated to the 1, 3, 5, 7 or 10 year fixed
investment options to ensure that this money will grow to equal the full amount
of your Purchase Payment by the end of the selected period. The rest of your
Purchase Payment may then be divided among the variable Portfolios where it has
the potential to achieve greater growth.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed investment option. You want the amount allocated
to the fixed investment option to grow to $100,000 in 7 years. If the
7-year fixed investment option is offering a 7% interest rate, we will
allocate $62,275 to the 7-year fixed investment option to ensure that this
amount will grow to $100,000 at the end of the 7-year period. The remaining
$37,725 may be allocated among the variable Portfolios, as determined by
you, to provide opportunity for greater growth.
VOTING RIGHTS
Anchor National is the legal owner of the Trusts' shares. However, when a
Portfolio solicits proxies in conjunction with a vote of shareholders, we are
required to obtain from you instructions as to how to vote those shares. When we
receive those instructions, we will vote all of the shares we own in proportion
to those instructions. This will also include any shares that we own on our
behalf. Should we determine that we are no longer required to comply with the
above, we will vote the shares in our own right.
SUBSTITUTION
If any of the Portfolios you selected are no longer available, we may be
required to substitute shares of another Portfolio. We will seek prior approval
of the SEC and give you notice before doing this.
=============================================================
5. EXPENSES
=============================================================
There are charges and other expenses associated with the contract that will
reduce your investment return. These charges and expenses are described below.
INSURANCE CHARGES
Each day, we make a deduction for our insurance charges. This is done as part of
our calculation of the value of the Accumulation Units during the Accumulation
Phase and the Annuity Units during the Income Phase. The insurance charges
consist of the mortality and expense risk and the distribution expense charge.
MORTALITY AND EXPENSE RISK CHARGE
This charge is equal, on an annual basis, to 1.37% of the daily value of the
contract invested in a Portfolio. This charge is for our obligation to make
annuity payments, to provide the death benefits and for assuming the risk that
the current charges will be insufficient in the future to cover the cost of
administering the contract.
If the charges under the contract are not sufficient, we will bear the loss. We
will not increase this charge. We may use any profits from this charge to pay
for the costs of distributing the contract.
DISTRIBUTION EXPENSE CHARGE
This charge is equal, on an annual basis, to .15% of the daily value of the
contract invested in a Portfolio. This charge is for all expenses associated
with the distribution of the contract. These expenses include preparing the
contract, confirmations and statements, providing sales support, and maintaining
contract records. If this charge is not enough to cover the costs of
distributing the contract, we will bear the loss.
WITHDRAWAL CHARGES
Withdrawals in excess of your free withdrawal amount, as described in more
detail under "Access To Your Money," will be assessed a withdrawal charge. You
will not receive the benefit of any free withdrawal amount if you withdraw your
entire contract value.
We keep track of each Purchase Payment and assess a charge based on the length
of time a Purchase Payment is in your contract before it is withdrawn. After a
Purchase Payment has been in your contract for seven years, no withdrawal
charges are assessed on withdrawals of that Purchase Payment.
The withdrawal charge is assessed as a percentage of the Purchase Payment you
withdraw, which declines each year the Purchase Payment is in the contract as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR 1 2 3 4 5 6 7 8+
- ---------------------------------------------------------------------------------------------
WITHDRAWAL 7% 6% 5% 4% 3% 2% 1% 0%
CHARGE
- ---------------------------------------------------------------------------------------------
</TABLE>
If the withdrawal is for only part of the contract, we will deduct the
withdrawal charge from the remaining value in your contract. For purposes of
calculating the withdrawal charge, we treat withdrawals as coming from the
oldest
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<PAGE> 18
Purchase Payment first. However, for tax purposes, earnings are considered
withdrawn first.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit or for annuity payments during the Income Phase.
INVESTMENT CHARGES
If you have money allocated to the variable Portfolios, there are deductions
from and expenses paid out of the assets of the various Portfolios. These
investment charges are summarized in the Fee Tables. For more detailed
information, you should refer to the prospectuses for the Anchor Series Trust
and the SunAmerica Series Trust.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we will deduct a $35 contract maintenance fee
($30 in North Dakota and Utah) from your contract on each contract anniversary.
This fee is for expenses incurred to establish and maintain your contract. This
fee cannot be increased. If you make a complete withdrawal from your contract,
the entire contract maintenance fee will be deducted prior to the withdrawal.
We will not deduct the contract maintenance fee if the value of your contract is
$50,000 or more when the deduction is to be made. We may discontinue this
practice at any time.
TRANSFER FEE
You can make 15 free transfers every year. We measure a year from the day we
issue your contract. If you make more than 15 transfers a year, we will deduct a
$25 transfer fee on each subsequent transfer ($10 in Pennsylvania and Texas).
PREMIUM TAXES
We are responsible for the payment of premium taxes, if any, charged by some
states and will make a deduction from your contract for them. These taxes are
due either when the contract is issued or when annuity payments begin. It is our
current practice not to charge you for these taxes until annuity payments begin
or a full surrender is made. In the future, we may discontinue this practice and
assess the tax when it is due or upon the payment of the death benefit.
Appendix C provides more information about the premium taxes assessed in each
state.
INCOME TAXES
Although we do not currently deduct any income taxes borne under your contract,
we reserve the right to do so in the future.
REDUCTION OR ELIMINATION OF CERTAIN CHARGES AND ADDITIONAL AMOUNTS CREDITED
We may reduce or eliminate the amount of certain insurance charges, credit
additional amounts or grant bonus guaranteed interest rates when the contract is
sold to groups of individuals under circumstances which reduce its sales
expenses. We will determine the eligibility of such groups by considering the
following factors: (1) the size of the group; (2) the total amount of Purchase
Payments we expect to receive from the group; (3) the nature of the purchase and
the persistency we expect in that group; (4) the purpose of the purchase and
whether that purpose makes it likely that expenses will be reduced; and (5) any
other circumstances which we believe to be relevant in determining whether
reduced sales expenses may be expected.
In addition, we may waive or reduce the contract maintenance fee, credit
additional amounts or grant bonus guaranteed interest rates in connection with
contracts sold to employees, employees of affiliates, registered
representatives, employees of broker-dealers which have a current selling
agreement with us ("Eligible Individuals") and immediate family members of all
Eligible Individuals when purchased directly through SunAmerica Capital
Services, Inc. Such reductions or waivers may be withdrawn or modified by us.
Commissions may be waived or reduced with respect to contracts established for
the personal accounts of Eligible Individuals.
=============================================================
6. TAXES
=============================================================
NOTE: WE HAVE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL
DISCUSSION OF THE SUBJECT. IT IS NOT INTENDED AS TAX ADVICE. YOU ARE CAUTIONED
TO SEEK COMPETENT TAX ADVICE ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE
THE TAX STATUS OF THE ANNUITY.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. From time to time, Federal initiatives are
proposed that could affect the tax treatment of insurance products. Recent
administration budget proposals include the proposed taxation of exchanges
involving variable annuity contracts, reallocations within variable annuity
contracts and certain other proposals relating to annuities. Please consult your
tax advisor for further information.
Generally, you will not be taxed on the earnings in your annuity contract until
you take the money out. Different rules apply depending on how you take the
money out and whether your contract is Qualified or Non-qualified.
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<PAGE> 19
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 ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as 403(b)
contracts), H.R. 10 Plans (referred to as Keogh Plans) and pension and profit
sharing plans, including 401(k) plans. Typically you have not paid any tax on
the Purchase Payments used to buy your contract and therefore, you have no cost
basis in your contract.
TAX TREATMENT OF DISTRIBUTIONS --
NON-QUALIFIED CONTRACTS
If you make a withdrawal from a Non-qualified contract, the IRC treats such a
withdrawal as first coming from the earnings and then as coming from your
Purchase Payments. For annuity payments, any portion of each payment that is
considered a return of your Purchase Payment will not be taxed. Withdrawn
earnings are treated as income to you and are taxable. The IRC further provides
for a 10% tax penalty on any earnings that are withdrawn other than in
conjunction with the following circumstances: (1) after reaching age 59 1/2; (2)
by your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) in a series of substantially equal installments made for your life
or for the joint lives of you and your Beneficiary; (5) under an immediate
annuity; or (6) which come from Purchase Payments made prior to August 14, 1982.
TAX TREATMENT OF DISTRIBUTIONS --
QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract or on any earnings and therefore, any amount you take out as
a withdrawal or as annuity payments will be taxable income. The IRC further
provides for a 10% tax penalty on any withdrawal or annuitization paid to you
other than in conjunction with the following circumstances: (1) after reaching
age 59 1/2; (2) by your Beneficiary after you die; (3) after you become disabled
(as defined in the IRC); (4) in a series of substantially equal installments
made for your life or for the joint lives of you and your Beneficiary; (5) to
the extent such withdrawals do not exceed limitations set by the IRC for amounts
paid during the taxable year for medical care; (6) to fund higher education
expenses (as defined in the IRC); (7) to fund certain first-time home purchase
expenses; and, except in the case of an IRA: (8) when you separate from service
after attaining age 55; and (9) to an alternate payee pursuant to a qualified
domestic relations order.
The IRC limits the withdrawal of Purchase Payments from certain Tax-Sheltered
Annuities. Withdrawals can only be made when an owner: (1) reaches age 59 1/2;
(2) leaves his or her job; (3) dies; (4) becomes disabled (as defined in the
IRC); or (5) in the case of hardship. In the case of hardship, the owner can
only withdraw an amount equal to Purchase Payments and not any earnings.
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity in order to be treated as a variable annuity
for tax purposes. We believe that the variable Portfolios are being managed so
as to comply with these requirements.
The diversification regulations do not provide guidance as to the circumstances
under which you, because of the degree of control you exercise over the
underlying investments, and not Anchor National, would be considered the owner
of the shares of the Portfolios. It is unknown to what extent owners are
permitted to select investments, to make transfers among portfolios or the
number and type of portfolios owners may select from. If any guidance is
provided which is considered a new position, then the guidance would generally
be applied prospectively. However, if such guidance is considered not to be a
new position, it may be applied retroactively. This would mean you, as the owner
of the contract, could be treated as the owner of the variable investment
Portfolios.
Due to the uncertainty in this area, we reserve the right to modify the contract
in an attempt to maintain favorable tax treatment.
=============================================================
7. ACCESS TO YOUR MONEY
=============================================================
Under your contract, money can be accessed in the following ways: (1) by making
a withdrawal, either for a part of the value of your contract or for the entire
value of your contract during the Accumulation Phase; (2) by receiving annuity
payments during the Income Phase; and (3) when a death benefit is paid to your
Beneficiary.
Generally, withdrawals are subject to a withdrawal charge, a market value
adjustment if the money is withdrawn from the 3, 5, 7 or 10 year fixed
investment options and, if you withdraw your entire contract value, a contract
maintenance fee. (See "Expenses" for more complete information).
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<PAGE> 20
Your contract provides for a free withdrawal amount. Purchase Payments that are
no longer subject to a withdrawal charge and not previously withdrawn, plus
earnings, may be withdrawn free of a withdrawal charge at any time.
After the first year, the first withdrawal of the year will be free of a
withdrawal charge if it does not exceed the greater of: (1) earnings in your
contract as of the date you make the withdrawal or (2) 10% of the Purchase
Payments you invested for at least one year and not yet withdrawn, less any
withdrawals made during the year.
The portion of a free withdrawal which exceeds the sum of: (1) earnings in the
contract and (2) Purchase Payments which were both no longer subject to the
withdrawal charge schedule and not yet withdrawn is assumed to be a withdrawal
against future earnings. Although amounts withdrawn free of a withdrawal charge
under the 10% provision may reduce principal for purposes of calculating amounts
available for future withdrawals of earnings, they do not reduce the amount you
invested for purposes of calculating the withdrawal charge if you withdraw your
entire contract value. As a result, you will not receive the benefit of any free
withdrawal amounts if you make a complete withdrawal of your contract.
If you make a complete withdrawal, you will receive the value of your contract,
less any applicable fees and charges, as calculated on the day following receipt
by us at our principal place of business of a complete withdrawal request. Your
contract must be submitted as well.
Under most circumstances, partial withdrawals must be for a minimum of $1,000.
We require that the value left in any Portfolio or the fixed investment option
be at least $100 after the withdrawal. Unless you provide us with different
instructions, partial withdrawals will be made pro rata from each Portfolio and
the fixed investment option in which your contract is invested. You must send a
written withdrawal request to us prior to any withdrawal being made.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading on the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
portfolios is not reasonably practicable; (4) the SEC, by order, so permits for
the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from the
fixed investment option for the period permitted by law but not for more than
six months.
SYSTEMATIC WITHDRAWAL PROGRAM
This program allows you to receive either monthly, quarterly, semiannual or
annual checks during the Accumulation Phase. You can also choose to have
systematic withdrawals electronically wired to your bank account. The minimum
amount of each withdrawal is $250. Withdrawals may be taxable and a 10% IRS tax
penalty may apply if you are under age 59 1/2. There is no charge for
participating in this program.
This program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
WITHDRAWAL CHARGES, MARKET VALUE ADJUSTMENTS, INCOME TAXES, TAX PENALTIES AND
CERTAIN RESTRICTIONS MAY APPLY TO ANY WITHDRAWAL YOU MAKE.
NURSING HOME WAIVER
If you are confined to a nursing home for 60 days or longer, we may waive the
withdrawal charge and/or market value adjustment on certain withdrawals prior to
the Annuity Date (not available in Texas). The waiver applies only to
withdrawals made while you are in a nursing home or within 90 days after you
leave the nursing home.
This waiver may not be used during the first 90 days after you purchase your
contract. In addition, the confinement period for which you seek the waiver must
begin after you purchase your contract.
In order to use this waiver, you must submit with your withdrawal request the
following documents: (1) a doctor's note recommending admittance to a nursing
home; (2) an admittance form which shows the type of facility you entered into;
and (3) a bill from the nursing home which shows that the 60 day confinement
requirement has been met.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals
and (2) no Purchase Payments have been made during the past three years. We will
provide you with sixty days written notice and distribute the contract's
remaining value to you.
=============================================================
8. PERFORMANCE
=============================================================
From time to time we may advertise the Cash Management Portfolio's yield and
effective yield. In addition, the other variable investment Portfolios may also
advertise total return, gross yield and yield to maturity information. These
figures are based on historical data and are not intended to indicate future
performance.
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<PAGE> 21
More detailed information on the method used to calculate performance for the
Portfolios is contained in the SAI.
The performance of each Portfolio may also be measured against unmanaged market
indices, including but not limited to the Dow Jones Industrial Average, the
Standard & Poor's 500, the Russell 1000 Growth Index, the Morgan Stanley Capital
International Europe, Australia, and Far East Index (EAFE) and the Morgan
Stanley Capital International World Index, and may be compared to that of other
variable annuities with similar objectives and policies as reported by
independent ranking agencies such as Morningstar, Inc., Lipper Analytical
Services, Inc. or Variable Annuity Research & Data Service ("VARDS").
At times Anchor National may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P"), and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of our financial strength and performance
in comparison to others in the life/health insurance industry. S&P's and Duff &
Phelps' ratings measure the ability of an insurance company to meet its
obligations under insurance policies it issues and do not measure the ability of
such companies to meet other non-policy obligations. The ratings do not relate
to the performance of the Portfolios.
=============================================================
9. DEATH BENEFIT
=============================================================
If you should die during the Accumulation Phase of your contract, we will pay a
death benefit to your Beneficiary.
The death benefit is the greater of:
(1) The value of your contract at the time we receive adequate proof of
death,
(2) total Purchase Payments less any withdrawals, all compounded at 4%
annually until the date of death (3% if age 70 or older at time of
issue), or
(3) the value of your contract on the seventh contract anniversary less any
withdrawals plus any additional Purchase Payments since the seventh
anniversary, all compounded at 4% annually until the date of death (3%
if age 70 or older at time of issue).
The death benefit is not paid after you switch to the Income Phase. During the
Income Phase, your Beneficiary(ies) will receive any remaining guaranteed
annuity payments in accordance with the annuity option you choose.
You may select the Beneficiary(ies) to receive any amounts payable on death. You
may change the Beneficiary at any time, unless you previously made an
irrevocable Beneficiary designation. A new Beneficiary designation is not
effective until we record the change.
The death benefit is immediately payable under the contract. If the Beneficiary
elects an annuity option, it must be paid over the Beneficiary's lifetime or for
a period not extending beyond the Beneficiary's life expectancy. If the
Beneficiary is the spouse of the owner, he or she can elect to continue the
contract at the then current value, in which case he or she will not receive the
death benefit.
The death benefit will be paid out when we receive adequate proof of death: (1)
a certified copy of a death certificate; (2) a certified copy of a decree of
court of competent jurisdiction as to the finding of death; (3) a written
statement by a medical doctor who attended the deceased at the time of death; or
(4) any other proof satisfactory to us. We may also require additional
documentation or proof in order for the death benefit to be paid. If the
Beneficiary does not make a specific election within sixty days of our receipt
of such proof of death, the death benefit will be paid in a lump sum.
=============================================================
10. OTHER INFORMATION
=============================================================
ANCHOR NATIONAL
Anchor National is a stock life insurance company originally organized under the
laws of the state of California in April 1965. On January 1, 1996, Anchor
National redomesticated under the laws of the State of Arizona. Anchor National
is an indirect wholly owned subsidiary of SunAmerica, Inc., a Maryland
corporation. Anchor National is licensed to do business in the District of
Columbia and in all states except New York.
Anchor National and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, CalAmerica Life Insurance Company, SunAmerica
National Life Insurance Company, SunAmerica Asset Management Corp., Imperial
Premium Finance, Inc., Resources Trust Company and four broker-dealers,
specialize in retirement savings and investment products and services, including
fixed and variable annuities, mutual funds, premium finance, broker-dealer and
trust administration services.
THE SEPARATE ACCOUNT
Anchor National originally established a separate account, Variable Separate
Account, under California law on June 25, 1981. We redomesticated under Arizona
law on January 1, 1996 and the separate account was assumed by Anchor National.
The separate account is registered with the SEC as a unit investment trust under
the Investment Company Act of 1940.
Anchor National owns the assets in the separate account. However, the assets in
the separate account are not chargeable with liabilities arising out of any
other business
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<PAGE> 22
Anchor National may conduct. Income, gains and losses (realized and unrealized)
resulting from the assets in the separate account are credited to or charged
against the separate account without regard to other income, gains or losses of
Anchor National.
THE GENERAL ACCOUNT
If you put your money into the fixed investment options, it goes into Anchor
National's general account. The general account is made up of all of Anchor
National's assets other than assets attributable to a separate account. All of
the assets in the general account are chargeable with the claims of any Anchor
National contract owners as well as all creditors. The general account is
invested in assets permitted by state insurance law.
DISTRIBUTION
The contract is sold through registered representatives of broker-dealers.
Commissions are paid to registered representatives for the sale of contracts.
Commissions are not expected to exceed 7% of your Purchase Payment. Under some
circumstances, we may pay a persistency bonus in addition to standard
commissions. Usually the standard commission is lower when we pay a persistency
bonus, which is not anticipated to exceed 1.5% annually. Commissions paid to
registered representatives are not directly deducted from your Purchase Payment.
Furthermore, we may, from time to time, pay or allow additional promotional
incentives, in the form of cash or other compensation. In some instances, these
additional incentives may be offered only to certain broker-dealers that sell or
are expected to sell, during specified time periods, certain minimum amounts of
the contract, or other contracts offered by us.
SunAmerica Capital Services, Inc., 733 Third Avenue, 4th Floor, New York, New
York 10017 acts as the distributor of the contracts. SunAmerica Capital
Services, Inc., an affiliate of Anchor National, is registered as a brokerdealer
under the Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc.
ADMINISTRATION
We are responsible for all the administrative servicing of your contract. Please
contact Anchor National's Annuity Service Center at the telephone number and
address provided in the profile section of this prospectus if you have any
comment, question or service request.
We will send out transaction confirmations and quarterly statements. Please
review these documents carefully and notify us of any inaccuracies immediately.
We will investigate all questions and, to the extent we have made an error, we
will retroactively adjust your contract provided you have notified us within
thirty days of receiving the transaction confirmation or quarterly statement, as
applicable. All other adjustments will be made as of the time we receive notice
of the error.
Anchor National relies significantly on computer systems and applications in its
daily operations. Many of these systems and applications are not presently year
2000 compliant. Anchor National's business, financial condition and results of
operations could be materially and adversely affected by the failure of Anchor
National's systems and applications (and those operated by third parties
interfacing with Anchor National's systems and applications) to properly operate
or manage dates beyond the year 1999. Anchor National has a coordinated plan to
repair or replace these noncompliant systems and to obtain similar assurances
from third parties interfacing with Anchor National's systems and applications
and expects to significantly complete its plan by the end of calendar year 1998,
leaving 1999 for testing.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the separate account. Anchor
National and its subsidiaries are engaged in various kinds of routine litigation
which, in management's judgment, are not of material importance to their
respective total assets or material with respect to the separate account.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the separate account. Anchor
National pays State Street Bank for services based on a schedule of fees.
ADDITIONAL INFORMATION
Anchor National is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with such requirements, we file
reports and other information with the SEC. Such reports and other information
we file can be inspected and copied. Copies can be obtained at the public
reference facilities of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or at the regional offices in Chicago and New York. The
addresses of these regional offices are as follows: 500 West Madison Street,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material also can be obtained by mail from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of the fees prescribed by the rules and regulations of the SEC at
prescribed rates.
16
<PAGE> 23
Registration statements have been filed with the SEC, Washington, D.C., under
the Securities Act of 1933 as amended, relating to the contracts offered by this
prospectus. This prospectus does not contain all the information set forth in
the registration statements and the exhibits filed as part of the registration
statements Reference should be made to such registration statements and exhibits
for further information concerning the separate account, Anchor National and its
general account, the Portfolios and the contract.
The SEC also maintains a website (http://www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by Anchor National.
17
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information for Anchor National
Life Insurance Company, insofar as it relates to each of the years 1993-1997,
has been derived from audited annual financial statements, including the
consolidated balance sheets at September 30, 1996 and 1997 and the related
consolidated statements of income and of cash flows for each of the three years
in the period ended September 30, 1997 and the notes thereto appearing elsewhere
herein. The information for the three months ended December 31, 1996 and 1997
has been derived from unaudited financial information also appearing herein and
which, in the opinion of management, includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair statement of the results
for the unaudited interim periods.
This information should be read in conjunction with the Management's Discussion
and Analysis of Financial Condition and Results of Operations beginning on page
19 and the consolidated financial statements and notes thereto, included in this
prospectus beginning on page 34.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net investment
income.............. $ 48,912 $ 58,996 $ 50,083 $ 56,843 $ 73,201 $ 14,544 $ 26,482
Net realized
investment gains
(losses)............ (22,247) (33,713) (4,363) (13,355) (17,394) (19,116) 20,935
Fee income............ 123,567 141,753 145,105 169,505 213,146 47,163 63,984
General and
administrative
expenses............ (50,783) (54,363) (64,457) (81,552) (98,802) (22,395) (23,019)
Provision for future
guaranty fund
assessments......... (4,800) -- -- -- -- -- --
Amortization of
deferred acquisition
costs............... (30,825) (44,195) (58,713) (57,520) (66,879) (13,817) (17,202)
Annual commissions.... (312) (1,158) (2,658) (4,613) (8,977) (1,433) (3,526)
---------- ---------- ---------- ---------- ----------- ----------- -----------
Pretax income......... 63,512 67,320 64,997 69,308 94,295 4,946 67,654
Income tax expense.... (21,794) (22,705) (25,739) (24,252) (31,169) (1,600) (23,306)
---------- ---------- ---------- ---------- ----------- ----------- -----------
Income before
cumulative effect of
change in accounting
for income taxes.... 41,718 44,615 39,258 45,056 63,126 3,346 44,348
Cumulative effect of
change in accounting
for income taxes.... -- (20,463) -- -- -- -- --
Net income............ $ 41,718 $ 24,152 $ 39,258 $ 45,056 $ 63,126 $ 3,346 $ 44,348
========== ========== ========== ========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Investments........... $2,093,100 $1,632,072 $2,114,908 $2,329,232 $ 2,608,301 $ 2,703,683 $ 2,620,072
Variable annuity
assets.............. 4,170,275 4,486,703 5,230,246 6,311,557 9,343,200 6,784,374 9,602,687
Deferred acquisition
costs............... 336,677 416,289 383,069 443,610 536,155 461,637 564,931
Other assets.......... 71,337 67,062 55,474 120,136 83,283 76,014 94,879
---------- ---------- ---------- ---------- ----------- ----------- -----------
Total assets.......... $6,671,389 $6,602,126 $7,783,697 $9,204,535 $12,570,939 $10,025,708 $12,882,569
========== ========== ========== ========== =========== =========== ===========
Reserves for fixed
annuity contracts... $1,562,136 $1,437,488 $1,497,052 $1,789,962 $ 2,098,803 $ 2,024,873 $ 2,087,965
Reserves for
guaranteed
investment
contracts........... -- -- 277,095 415,544 295,175 420,871 301,212
Variable annuity
liabilities......... 4,170,275 4,486,703 5,230,246 6,311,557 9,343,200 6,784,374 9,602,687
Other payables and
accrued
liabilities......... 495,308 195,134 227,953 96,196 155,256 157,622 167,250
Subordinated notes
payable to Parent... 34,432 34,712 35,832 35,832 36,240 35,903 36,311
Deferred income
taxes............... 38,145 64,567 73,459 70,189 67,047 71,943 68,328
Shareholder's
equity.............. 371,093 383,522 442,060 485,255 575,218 530,122 618,816
---------- ---------- ---------- ---------- ----------- ----------- -----------
Total liabilities and
shareholder's
equity.............. $6,671,389 $6,602,126 $7,783,697 $9,204,535 $12,570,939 $10,025,708 $12,882,569
========== ========== ========== ========== =========== =========== ===========
</TABLE>
18
<PAGE> 25
MANAGEMENT DISCUSSION AND ANALYSIS
Management's discussion and analysis of financial condition and results of
operations of Anchor National for the three years in the period ended September
30, 1997 follows. In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, Anchor National cautions readers
regarding certain forward-looking statements contained in this report and in any
other statements made by, or on behalf of, Anchor National, whether or not in
future filings with the Securities and Exchange Commission (the "SEC").
Forward-looking statements are statements not based on historical information
and which relate to future operations, strategies, financial results, or other
developments. Statements using verbs such as "expect," "anticipate," "believe"
or words of similar import generally involve forward-looking statements. Without
limiting the foregoing, forward-looking statements include statements which
represent Anchor National's beliefs concerning future levels of sales and
redemptions of Anchor National's products, investment spreads and yields, or the
earnings and profitability of Anchor National's activities.
Forward-looking statements are necessarily based on estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond Anchor National's
control and many of which are subject to change. These uncertainties and
contingencies could cause actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, Anchor
National. Whether or not actual results differ materially from forward-looking
statements may depend on numerous foreseeable and unforeseeable developments.
Some may be national in scope, such as general economic conditions, changes in
tax law and changes in interest rates. Some may be related to the insurance
industry generally, such as pricing competition, regulatory developments and
industry consolidation. Others may relate to Anchor National specifically, such
as credit, volatility and other risks associated with Anchor National's
investment portfolio. Investors are also directed to consider other risks and
uncertainties discussed in documents filed by Anchor National with the SEC.
Anchor National disclaims any obligation to update forward-looking information.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS 1995, 1996 AND 1997
NET INCOME totaled $63.1 million in 1997, compared with $45.1 million in 1996
and $39.3 million in 1995.
PRETAX INCOME totaled $94.3 million in 1997, $69.3 million in 1996 and $65.0
million in 1995. The 36.1% improvement in 1997 over 1996 primarily resulted from
increased fee income and net investment income, partially offset by higher
general and administrative expenses and increased amortization of deferred
acquisition costs. The 6.6% improvement in 1996 over 1995 primarily resulted
from increased net investment income and significantly increased fee income,
partially offset by increased net realized investment losses and additional
general and administrative expenses.
NET INVESTMENT INCOME, which is the spread between the income earned on invested
assets and the interest paid on fixed annuities and other interest-bearing
liabilities, increased to $73.2 million in 1997 from $56.8 million in 1996 and
$50.1 million in 1995. These amounts equal 2.77% on average invested assets
(computed on a daily basis) of $2.65 billion in 1997, 2.59% on average invested
assets of $2.19 billion in 1996 and 2.95% on average invested assets of $1.70
billion in 1995.
Net investment spreads include the effect of income earned on the excess of
average invested assets over average interest-bearing liabilities. This excess
amounted to $126.5 million in 1997, $142.9 million in 1996 and $108.4 million in
1995. The difference between Anchor National's yield on average invested assets
and the rate paid on average interest-bearing liabilities (the "Spread
Difference") was 2.51% in 1997, 2.25% in 1996 and 2.63% in 1995.
Investment income (and the related yields on average invested assets) totaled
$210.8 million (7.97%) in 1997, compared with $164.6 million (7.50%) in 1996 and
$129.5 million (7.62%) in 1995. These increased yields in 1997 include the
effects of a greater proportion of mortgage loans in Anchor National's
portfolio. On average, mortgage loans have higher yields than that of Anchor
National's overall portfolio. In addition, Anchor National experienced higher
returns on its investments in partnerships. The increases in investment income
in 1997 and 1996 also reflect increases in average invested assets.
Partnership income increased to $6.7 million (a yield of 15.28% on related
average assets of $44.0 million) in 1997, compared with $4.1 million (a yield of
10.12% on related average assets of $40.2 million) in 1996 and $5.1 million (a
yield of 10.60% on related average assets of $48.4 million) in 1995. Partnership
income is based upon cash distributions received from limited partnerships, the
operations of which Anchor National does not influence. Consequently, such
income is not predictable and there can be no assurance that Anchor National
will realize comparable levels of such income in the future.
Total interest expense equalled $137.6 million in 1997, $107.8 million in 1996
and $79.4 million in 1995. The average rate paid on all interest-bearing
liabilities was 5.46% in 1997, compared with 5.25% in 1996 and 4.99% in 1995.
Interest-bearing liabilities averaged $2.52 billion during 1997, compared with
$2.05 billion during 1996 and $1.59 billion during 1995.
The increases in the overall rates paid on interest-bearing liabilities during
1997 and 1996 primarily resulted from the impact of certain promotional one-year
interest rates offered
19
<PAGE> 26
on the fixed account portion of Anchor National's Polaris variable annuity
product. The increase in the overall rates paid on all interest-bearing
liabilities during 1996 was also impacted by the growth in average reserves for
GICs, which generally bear higher rates of interest than fixed annuity
contracts. Average GIC reserves were $340.5 million in 1996 and $60.8 million in
1995. Most of Anchor National's GICs are variable rate and are repriced
quarterly at the then-current interest rates.
GROWTH IN AVERAGE INVESTED ASSETS since 1995 primarily reflects the sales of
Anchor National's fixed-rate products, consisting of both fixed annuity premiums
(including those for the fixed accounts of variable annuity products) and GIC
premiums. Fixed annuity premiums totaled $1.10 billion in 1997, compared with
$741.8 million in 1996 and $284.4 million in 1995. The premiums for the fixed
accounts of variable annuities have increased primarily because of increased
sales of Anchor National's Polaris product and greater inflows into the one-year
fixed account of that product. Anchor National has observed that many purchasers
of its variable annuity contracts allocate new premiums to the one-year fixed
account and concurrently elect the option to dollar cost average into one or
more variable funds. Accordingly, Anchor National anticipates that it will see a
large portion of these premiums transferred into the variable funds.
GIC premiums totaled $55.0 million in 1997, $135.0 million in 1996 and $275.0
million in 1995. GIC surrenders and maturities totaled $198.1 million in 1997,
$16.5 million in 1996 and $1.6 million in 1995. Anchor National does not
actively market GICs, so premiums may vary substantially from period to period.
The large increase in surrenders and maturities in 1997 was primarily due to
contracts maturing in 1997. The GICs issued by Anchor National generally
guarantee the payment of principal and interest at fixed or variable rates for a
term of three to five years. Contracts that are purchased by banks for their
long-term portfolios, or state and local governmental entities either prohibit
withdrawals or permit scheduled book value withdrawals subject to terms of the
underlying indenture or agreement. GICs purchased by asset management firms for
their short term portfolios either prohibit withdrawals or permit withdrawals
with notice ranging from 90 to 270 days. In pricing GICs, Anchor National
analyzes cash flow information and prices accordingly so that it is compensated
for possible withdrawals prior to maturity.
NET REALIZED INVESTMENT LOSSES totaled $17.4 million in 1997, $13.4 million in
1996 and $4.4 million in 1995. Net realized investment losses include impairment
writedowns of $20.4 million in 1997, $16.0 million in 1996 and $4.8 million in
1995. Therefore, net gains from sales of investments totaled $3.0 million in
1997, $2.6 million in 1996 and $0.4 million in 1995.
Anchor National sold invested assets, principally bonds and notes, aggregating
$2.19 billion, $1.28 billion and $1.15 billion in 1997, 1996 and 1995,
respectively. Sales of investments result from the active management of Anchor
National's investment portfolio. Because sales of investments are made in both
rising and falling interest rate environments, net gains from sales of
investments fluctuate from period to period, and represent 0.11%, 0.12% and
0.02% of average invested assets for 1997, 1996 and 1995, respectively. Active
portfolio management involves the ongoing evaluation of asset sectors,
individual securities within the investment portfolio and the reallocation of
investments from sectors that are perceived to be relatively overvalued to
sectors that are perceived to be relatively undervalued. The intent of Anchor
National's active portfolio management is to maximize total returns on the
investment portfolio, taking into account credit interest-rate risk.
Impairment writedowns reflect $15.7 million and $15.2 million of provisions
applied to non-income producing land owned in Arizona in 1997 and 1996,
respectively. The statutory carrying value of this land had been guaranteed by
Anchor National's ultimate Parent, SunAmerica Inc. ("SunAmerica"). SunAmerica
made capital contributions of $28.4 million and $27.4 million on December 31,
1996 and 1995, respectively, to Anchor National through Anchor National's direct
parent in exchange for the termination of its guaranty with respect to this
land. Accordingly, Anchor National reduced the carrying value of this land to
estimated fair value to reflect the full termination of the guaranty. Impairment
writedowns in 1995 include $3.8 million of additional provisions applied to
defaulted bonds. Impairment writedowns represent 0.77%, 0.73% and 0.28% of
average invested assets for 1997, 1996 and 1995, respectively. For the five
years ended September 30, 1997, impairment writedowns as a percentage of average
invested assets have ranged from 0.28% to 2.20% and have averaged 1.16%. Such
writedowns are based upon estimates of the net realizable value of the
applicable assets. Actual realization will be dependent upon future events.
VARIABLE ANNUITY FEES are based on the market value of assets in separate
accounts supporting variable annuity contracts. Such fees totaled $139.5 million
in 1997, $104.0 million in 1996 and $84.2 million in 1995. These increased fees
reflect growth in average variable annuity assets, principally due to the
receipt of variable annuity premiums, increased market values and net exchanges
into the separate accounts from the fixed accounts of variable annuity
contracts, partially offset by surrenders. Variable annuity assets averaged
$7.55 billion during 1997, $5.70 billion during 1996 and $4.65 billion during
1995. Variable annuity premiums, which exclude premiums allocated to the fixed
accounts of variable annuity products, totaled $1.27 billion in 1997, $919.8
million in 1996 and $577.2 million in 1995. Sales of variable annuity products
(which include premiums allocated to the fixed accounts)
20
<PAGE> 27
("Variable Annuity Product Sales") amounted to $2.37 billion, $1.66 billion and
$861.0 million in 1997, 1996 and 1995, respectively. Increases in Variable
Annuity Product Sales are due, in part, to market share gains through enhanced
distribution efforts and growing consumer demand for flexible retirement savings
products that offer a variety of equity, fixed income and guaranteed fixed
account investment choices. Anchor National has encountered increased
competition in the variable annuity marketplace during recent years and
anticipates that the market will remain highly competitive for the foreseeable
future.
NET RETAINED COMMISSIONS are primarily derived from commissions on the sales of
nonproprietary investment products by Anchor National's broker-dealer
subsidiary, after deducting the substantial portion of such commissions that is
passed on to registered representatives. Net retained commissions totaled $39.1
million in 1997, $31.5 million in 1996 and $24.1 million in 1995. Broker-dealer
sales (mainly sales of general securities, mutual funds and annuities) totaled
$11.56 billion in 1997, $8.75 billion in 1996 and $5.67 billion in 1995. The
increases in sales and net retained commissions reflect a greater number of
registered representatives, due to Anchor National's ongoing recruitment of
representatives and to the transfer of representatives from an affiliated
broker-dealer, higher average production per representative and generally
favorable market conditions. Increases in net retained commissions may not be
proportionate to increases in sales primarily due to differences in sales mix.
SURRENDER CHARGES on fixed and variable annuities totaled $5.5 million in 1997,
compared with $5.2 million in 1996 and $5.9 million in 1995. Surrender charges
generally are assessed on annuity withdrawals at declining rates during the
first seven years of an annuity contract. Withdrawal payments, which include
surrenders and lump-sum annuity benefits, totaled $1.06 billion in 1997,
compared with $898.0 million in 1996 and $908.9 million in 1995. These payments
represent 11.22%, 12.44% and 15.06%, respectively, of average fixed and variable
annuity reserves. Withdrawals include variable annuity withdrawals from the
separate accounts totaling $822.0 million in 1997, $634.1 million in 1996 and
$632.1 million in 1995. Management anticipates that withdrawal rates will remain
relatively stable for the foreseeable future.
ASSET MANAGEMENT FEES, which include investment advisory fees and 12b-1
distribution fees, are based on the market value of assets managed in mutual
funds by SunAmerica Asset Management Corp. Such fees totaled $25.8 million on
average assets managed of $2.34 billion in 1997, $25.4 million on average assets
managed of $2.14 billion in 1996 and $26.9 million on average assets managed of
$2.07 billion in 1995. Asset management fees are not proportionate to average
assets managed, principally due to changes in product mix. Sales of mutual
funds, excluding sales of money market accounts, amounted to $454.8 million in
1997, compared with $223.4 million in 1996 and $140.2 million in 1995.
Redemptions of mutual funds, excluding redemptions of money market accounts,
amounted to $412.8 million in 1997, $379.9 million in 1996 and $426.5 million in
1995. The significant increases in sales during 1997 principally resulted from
the introduction in November 1996 of Anchor National's "Style Select Series"
product. Higher mutual fund sales and lower redemptions in 1996 both reflect
enhanced marketing efforts and the favorable performance records of certain of
Anchor National's mutual funds, and heightened consumer demand for equity
investments generally.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $98.8 million in 1997, compared with
$81.6 million in 1996 and $65.3 million in 1995. General and administrative
expenses in 1997 include a $5.0 million provision for estimated programming
costs associated with the year 2000. Management believes that this provision is
adequate and does not anticipate any material future expenses associated with
this project. General and administrative expenses remain closely controlled
through a company-wide cost containment program and continue to represent less
than 1% of average total assets.
AMORTIZATION OF DEFERRED ACQUISITION COSTS totaled $66.9 million in 1997,
compared with $57.5 million in 1996 and $58.7 million in 1995. The increase in
amortization during 1997 was primarily due to additional fixed and variable
annuity sales and the subsequent amortization of related deferred commissions
and other direct selling costs. The decline in amortization for 1996 is due to
lower redemptions of mutual funds from the rate experienced in 1995, partially
offset by additional fixed and variable annuity and mutual fund sales in recent
years and the subsequent amortization of related deferred commissions and other
acquisition costs.
ANNUAL COMMISSIONS represent renewal commissions paid quarterly in arrears to
maintain the persistency of certain of Anchor National's variable annuity
contracts. Substantially all of Anchor National's currently available variable
annuity products allow for an annual commission payment option in return for a
lower immediate commission. Annual commissions totaled $9.0 million in 1997,
$4.6 million in 1996 and $2.7 million in 1995. The increase in annual
commissions since 1995 reflects increased sales of annuities that offer this
commission option. Anchor National estimates that approximately 45% of the
average balances of its variable annuity products is currently subject to such
annual commissions. Based on current sales, this percentage is expected to
increase in future periods.
INCOME TAX EXPENSE totaled $31.2 million in 1997, compared with $24.3 million in
1996 and $25.7 million in 1995, representing effective tax rates of 33% in 1997,
35% in 1996 and 40% in 1995. The higher effective tax rate in 1995
21
<PAGE> 28
was due to a prior year tax settlement. Without such payment, the effective tax
rate would have been 33%.
FINANCIAL CONDITION AND LIQUIDITY
SHAREHOLDER'S EQUITY increased 18.5% to $575.2 million at September 30, 1997
from $485.3 million at September 30, 1996, primarily due to $63.1 million of net
income recorded in 1997 and $18.4 million of net unrealized gains on debt and
equity securities available for sale (credited directly to shareholder's
equity), versus $5.5 million of net unrealized losses on such securities
recorded at September 30, 1996. In addition, Anchor National received a
contribution of capital of $28.4 million in December 1996 and paid a dividend of
$25.5 million in April 1997.
INVESTED ASSETS at year end totaled $2.61 billion in 1997, compared with $2.33
billion at year-end 1996. This 12.0% increase primarily resulted from sales of
fixed annuities and the $44.7 million net unrealized gain recorded on debt and
equity securities available for sale at September 30, 1997, versus the $12.7
million net unrealized loss recorded on such securities at September 30, 1996.
Anchor National manages most of its invested assets internally. Anchor
National's general investment philosophy is to hold fixed-rate assets for
long-term investment. Thus, it does not have a trading portfolio. However,
Anchor National has determined that all of its portfolio of bonds, notes and
redeemable preferred stocks (the "Bond Portfolio") is available to be sold in
response to changes in market interest rates, changes in relative value of asset
sectors and individual securities, changes in prepayment risk, changes in the
credit quality outlook for certain securities, Anchor National's need for
liquidity and other similar factors.
THE BOND PORTFOLIO, which comprises 76% of Anchor National's total investment
portfolio (at amortized cost), had an aggregate fair value that exceeded its
amortized cost by $43.7 million at September 30, 1997. At September 30, 1996,
the amortized cost exceeded the fair value of the Bond Portfolio by $13.8
million. The net unrealized gains on the Bond Portfolio since September 30, 1996
principally reflect the lower prevailing interest rates at September 30, 1997
and the corresponding effect on the fair value of the Bond Portfolio.
At September 30, 1997, the Bond Portfolio (at amortized cost, excluding $6.1
million of redeemable preferred stocks) included $1.82 billion of bonds rated by
Standard & Poor's Corporation ("S&P"), Moody's Investors Service ("Moody's"),
Duff & Phelps Credit Rating Co. ("DCR"), Fitch Investors Service, L.P. ("Fitch")
or the National Association of Insurance Commissioners ("NAIC"), and $124.4
million of bonds rated by Anchor National pursuant to statutory ratings
guidelines established by the NAIC. At September 30, 1997, approximately $1.72
billion of the Bond Portfolio was investment grade, including $650.3 million of
U.S. government/agency securities and mortgage-backed securities ("MBSs").
At September 30, 1997, the Bond Portfolio included $216.9 million (at amortized
cost with a fair value of $227.2 million) of bonds that were not investment
grade. Based on their September 30, 1997 amortized cost, these non-
investment-grade bonds accounted for 1.7% of Anchor National's total assets and
8.5% of its invested assets.
Non-investment-grade securities generally provide higher yields and involve
greater risks than investment-grade securities because their issuers typically
are more highly leveraged and more vulnerable to adverse economic conditions
than investment-grade issuers. In addition, the trading market for these
securities is usually more limited than for investment-grade securities. Anchor
National had no material concentrations of non-investment-grade securities at
September 30, 1997. The following table summarizes Anchor National's rated bonds
by rating classification as of September 30, 1997.
22
<PAGE> 29
RATED BONDS BY RATING CLASSIFICATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ISSUES NOT RATED BY S&P/MOODY'S/
ISSUES RATED BY S&P/MOODY'S/DCR/FITCH DCR/FITCH, BY NAIC CATEGORY TOTAL
- ---------------------------------------------------- ----------------------------------- ------------------------------------
S&P/(MOODY'S)/ ESTIMATED NAIC ESTIMATED PERCENT OF ESTIMATED
[DCR]/[FITCH] AMORTIZED FAIR CATEGORY AMORTIZED FAIR AMORTIZED INVESTED FAIR
CATEGORY(1) COST VALUE (2) COST VALUE COST ASSETS(3) VALUE
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA+ to A-
(Aaa to A3)
[AAA to A-]
[AAA to A-].............. $ 935,866 $ 953,440 1 $142,548 $143,940 $1,078,414 42.07% $1,097,380
BBB+ to BBB-
(Baal to Baa3)
[BBB+ to BBB-]
[BBB+ to BBB-]........... 494,521 504,442 2 146,548 150,521 641,069 25.01 654,963
BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
[BB+ to BB-]............. 13,080 14,597 3 13,811 13,917 26,891 1.05 28,514
B+ to B-
(B1 to B3)
[B+ to B-]
[B+ to B-]............... 163,603 170,960 4 25,777 27,089 189,380 7.39 198,049
CCC+ to C
(Caa to C)
[CCC]
[CCC+ to C-]............. 0 0 5 0 0 0 0.00 0
C1 to D
[DD]
[D]...................... 0 0 6 606 606 606 0.02 606
--------- --------- -------- -------- ---------- ---------
Total rated issues......... $1,607,070 $1,643,439 $329,290 $336,073 $1,936,360 $1,979,512
========== ========== ======== ======== ========== ==========
</TABLE>
(1) S&P and Fitch rate debt securities in rating categories ranging from AAA
(the highest) to D (in payment default). A plus (+) or minus (-) indicates
the debt's relative standing within the rating category. A security rated
BBB- or higher is considered investment grade. Moody's rates debt securities
in rating categories ranging from Aaa (the highest) to C (extremely poor
prospects of ever attaining any real investment standing). The number 1, 2
or 3 (with 1 the highest and 3 the lowest) indicates the debt's relative
standing within the rating category. A security rated Baa3 or higher is
considered investment grade. DCR rates debt securities in rating categories
ranging from AAA (the highest) to DD (in payment default). A plus (+) or
minus (-) indicates the debt's relative standing within the rating category.
A security rated BBB- or higher is considered investment grade. Issues are
categorized based on the highest of the S&P, Moody's, D&P and Fitch ratings
if rated by multiple agencies.
(2) Bonds and short-term promissory instruments are divided into six quality
categories for NAIC rating purposes, ranging from 1 (highest) to 5 (lowest)
for nondefaulted bonds plus one category, 6, for bonds in or near default.
These six categories correspond with the S&P/Moody's/DCR/Fitch rating groups
listed above, with categories 1 and 2 considered investment grade. The NAIC
categories include $124.4 million (at amortized cost) of assets that were
rated by Anchor National pursuant to applicable NAIC rating guidelines.
(3) At amortized cost.
SENIOR SECURED LOANS ("Secured Loans") are included in the Bond Portfolio and
their amortized cost aggregated $329.3 million at September 30, 1997. Secured
Loans are senior to subordinated debt and equity, and are secured by assets of
the issuer. At September 30, 1997, Secured Loans consisted of loans to 80
borrowers spanning 28 industries, with 17% of these assets (at amortized cost)
concentrated in financial institutions. No other industry concentration
constituted more than 10% of these assets.
While the trading market for Secured Loans is more limited than for publicly
traded corporate debt issues, management believes that participation in these
transactions has enabled Anchor National to improve its investment yield. As a
result of restrictive financial covenants, Secured Loans involve greater risk of
technical default than do publicly traded investment-grade securities. However,
management believes that the risk of loss upon default for its Secured Loans is
mitigated by such financial covenants and the collateral values underlying the
Secured Loans. Anchor National's Secured Loans are rated by S&P, Moody's, DCR,
Fitch, the NAIC or by Anchor National, pursuant to comparable statutory ratings
guidelines established by the NAIC.
MORTGAGE LOANS aggregated $339.5 million at September 30, 1997 and consisted of
73 commercial first mortgage loans with an average loan balance of approximately
$4.7 million, collateralized by properties located in 21 states. Approximately
23% of this portfolio was multifamily residential, 18% was office, 14% was
23
<PAGE> 30
manufactured housing, 13% was hotels, 11% was retail, 11% was industrial and 10%
was other types. At September 30, 1997, approximately 13% and 12% of this
portfolio was secured by properties located in New York and California,
respectively, and no more than 10% of this portfolio was secured by properties
located in any other single state. At September 30, 1997, there were four
mortgage loans with outstanding balances of $10 million or more, which loans
collectively aggregated approximately 17% of this portfolio. At the time of
their origination or purchase by Anchor National, virtually all mortgage loans
had loan-to-value ratios of 75% or less. At September 30, 1997, approximately
23% of the mortgage loan portfolio consisted of loans with balloon payments due
before October 1, 2000. During 1997, 1996 and 1995, loans delinquent by more
than 90 days, foreclosed loans and restructured loans have not been significant
in relation to the total mortgage loan portfolio.
At September 30, 1997, approximately 18% of the mortgage loans were seasoned
loans underwritten to Anchor National's standards and purchased at or near par
from other financial institutions. Such loans generally have higher average
interest rates than loans that could be originated today. The balance of the
mortgage loan portfolio has been originated by Anchor National under strict
underwriting standards. Commercial mortgage loans on properties such as offices,
hotels and shopping centers generally represent a higher level of risk than do
mortgage loans secured by multifamily residences. This greater risk is due to
several factors, including the larger size of such loans and the more immediate
effects of general economic conditions on these commercial property types.
However, due to the seasoned nature of Anchor National's mortgage loan
portfolio, its emphasis on multifamily loans and its strict underwriting
standards, Anchor National believes that it has prudently managed the risk
attributable to its mortgage loan portfolio while maintaining attractive yields.
OTHER INVESTED ASSETS aggregated $143.7 million at September 30, 1997, including
$46.9 million of investments in limited partnerships, $70.9 million of separate
account investments and an aggregate of $25.9 million of miscellaneous
investments, including policy loans, residuals and leveraged leases. Anchor
National's limited partnership interests, accounted for by using the cost method
of accounting, are invested primarily in a combination of debt and equity
securities.
ASSET-LIABILITY MATCHING is utilized by Anchor National to minimize the risks of
interest rate fluctuations and disintermediation. Anchor National believes that
its fixed-rate liabilities should be backed by a portfolio principally composed
of fixed-rate investments that generate predictable rates of return. Anchor
National does not have a specific target rate of return. Instead, its rates of
return vary over time depending on the current interest rate environment, the
slope of the yield curve, the spread at which fixed-rate investments are priced
over the yield curve, and general economic conditions. Its portfolio strategy is
constructed with a view to achieve adequate risk-adjusted returns consistent
with its investment objectives of effective asset-liability matching, liquidity
and safety. Anchor National's fixed-rate products incorporate surrender charges
or other restrictions in order to encourage persistency. Approximately 77% of
Anchor National's fixed annuity and GIC reserves had surrender penalties or
other restrictions at September 30, 1997.
As part of its asset-liability matching discipline, Anchor National conducts
detailed computer simulations that model its fixed-rate assets and liabilities
under commonly used stress-test interest rate scenarios. With the results of
these computer simulations, Anchor National can measure the potential gain or
loss in fair value of its interest-rate sensitive instruments and seek to
protect its economic value and achieve a predictable spread between what it
earns on its invested assets and what it pays on its liabilities by designing
its fixed-rate products and conducting its investment operations to closely
match the duration of the fixed-rate assets to that of its fixed-rate
liabilities. Anchor National's fixed-rate assets include: cash and short-term
investments; bonds, notes and redeemable preferred stocks; mortgage loans; and
investments in limited partnerships that invest primarily in fixed-rate
securities and are accounted for by using the cost method. At September 30,
1997, these assets had an aggregate fair value of $2.48 billion with a duration
of 3.4. Anchor National's fixed-rate liabilities include fixed annuities and
GICs. At September 30, 1997, these liabilities had an aggregate fair value
(determined by discounting future contractual cash flows by related market rates
of interest) of $2.32 billion with a duration of 1.3. Anchor National's
potential exposure due to a relative 10% increase in interest rates prevalent at
September 30, 1997 is a loss of approximately $31.2 million in fair value of its
fixed-rate assets that is not offset by an increase in the fair value of its
fixed-rate liabilities. Because Anchor National actively manages its assets and
liabilities and has strategies in place to minimize its exposure to loss as
interest rate changes occur, it expects that actual losses would be less than
the estimated potential loss.
Duration is a common option-adjusted measure for the price sensitivity of a
fixed-maturity portfolio to changes in interest rates. It measures the
approximate percentage change in the market value of a portfolio if interest
rates change by 100 basis points, recognizing the changes in cash flows
resulting from embedded options such as policy surrenders, investment
prepayments and bond calls. It also incorporates the assumption that Anchor
National will continue to utilize its existing strategies of pricing its fixed
annuity and GIC products, allocating its available cash flow amongst its various
investment portfolio sectors and maintaining sufficient levels of liquidity.
Because the calculation of duration involves estimation and incorporates
assumptions, potential changes in portfolio value indicated by the portfolio's
duration will likely
24
<PAGE> 31
be different from the actual changes experienced under given interest rate
scenarios, and the differences may be material.
As a component of its asset and liability management strategy, Anchor National
utilizes interest rate swap agreements ("Swap Agreements") to match assets and
liabilities more closely. Swap Agreements are agreements to exchange with a
counterparty interest rate payments of differing character (for example,
variable-rate payments exchanged for fixed-rate payments) based on an underlying
principal balance (notional principal) to hedge against interest rate changes.
Anchor National currently utilizes Swap Agreements to create a hedge that
effectively converts fixed-rate liabilities into floating-rate instruments. At
September 30, 1997, Anchor National had one outstanding Swap Agreement with a
notional principal amount of $15.9 million. This agreement matures in December
2024.
Anchor National also seeks to provide liquidity from time to time by using
reverse repurchase agreements ("Reverse Repos") and by investing in MBSs. It
also seeks to enhance its spread income by using Reverse Repos. Reverse Repos
involve a sale of securities and an agreement to repurchase the same securities
at a later date at an agreed upon price and are generally over-collateralized.
MBSs are generally investment-grade securities collateralized by large pools of
mortgage loans. MBSs generally pay principal and interest monthly. The amount of
principal and interest payments may fluctuate as a result of prepayments of the
underlying mortgage loans.
There are risks associated with some of the techniques Anchor National uses to
provide liquidity, enhance its spread income and match its assets and
liabilities. The primary risk associated with Anchor National's Reverse Repos
and Swap Agreements is counterparty risk. Anchor National believes, however,
that the counterparties to its Reverse Repos and Swap Agreements are financially
responsible and that the counterparty risk associated with those transactions is
minimal. In addition to counterparty risk, Swap Agreements also have interest
rate risk. However, Anchor National's Swap Agreements typically hedge
variable-rate assets or liabilities, and interest rate fluctuations that
adversely affect the net cash received or paid under the terms of a Swap
Agreement would be offset by increased interest income earned on the
variable-rate assets or reduced interest expense paid on the variable-rate
liabilities. The primary risk associated with MBSs is that a changing interest
rate environment might cause prepayment of the underlying obligations at speeds
slower or faster than anticipated at the time of their purchase. As part of its
decision to purchase an MBS, Anchor National assesses the risk of prepayment by
analyzing the security's projected performance over an array of interest-rate
scenarios. Once an MBS is purchased, Anchor National monitors its actual
prepayment experience monthly to reassess the relative attractiveness of the
security with the intent to maximize total return.
INVESTED ASSETS EVALUATION routinely includes a review by Anchor National of its
portfolio of debt securities. Management identifies monthly those investments
that require additional monitoring and carefully reviews the carrying values of
such investments at least quarterly to determine whether specific investments
should be placed on a nonaccrual basis and to determine declines in value that
may be other than temporary. In making these reviews for bonds, management
principally considers the adequacy of any collateral, compliance with
contractual covenants, the borrower's recent financial performance, news reports
and other externally generated information concerning the creditor's affairs. In
the case of publicly traded bonds, management also considers market value
quotations, if available. For mortgage loans, management generally considers
information concerning the mortgaged property and, among other things, factors
impacting the current and expected payment status of the loan and, if available,
the current fair value of the underlying collateral.
The carrying values of bonds that are determined to have declines in value that
are other than temporary are reduced to net realizable value and no further
accruals of interest are made. The valuation allowances on mortgage loans are
based on losses expected by management to be realized on transfers of mortgage
loans to real estate, on the disposition and settlement of mortgage loans and on
mortgage loans that management believes may not be collectible in full. Accrual
of interest is suspended when principal and interest payments on mortgage loans
are past due more than 90 days.
DEFAULTED INVESTMENTS, comprising all investments that are in default as to the
payment of principal or interest, totaled $1.4 million at September 30, 1997 (at
amortized cost after impairment writedowns, with a fair value of $1.4 million),
including $0.5 million of bonds and notes and $0.9 million of mortgage loans. At
September 30, 1997, defaulted investments constituted 0.1% of total invested
assets. At September 30, 1996, defaulted investments totaled $3.1 million,
including $1.6 million of bonds and notes and $1.5 million of mortgage loans,
and constituted 0.1% of total invested assets.
SOURCES OF LIQUIDITY are readily available to Anchor National in the form of
Anchor National's existing portfolio of cash and short-term investments, Reverse
Repo capacity on invested assets and, if required, proceeds from invested asset
sales. At September 30, 1997, approximately $1.80 billion of Anchor National's
Bond Portfolio had an aggregate unrealized gain of $46.5 million, while
approximately $139.8 million of the Bond Portfolio had an aggregate unrealized
loss of $2.7 million. In addition, Anchor National's investment portfolio
currently provides approximately $22.5 million of monthly cash flow from
scheduled principal and interest payments. Historically, cash flows from
operations and from the sale of Anchor National's annuity and GIC products have
been more than sufficient in amount to satisfy Anchor National's liquidity
needs.
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<PAGE> 32
Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, Anchor
National's average cost of funds would increase over time as it prices its new
and renewing annuities and GICs to maintain a generally competitive market rate.
Management would seek to place new funds in investments that were matched in
duration to, and higher yielding than, the liabilities assumed. Anchor National
believes that liquidity to fund withdrawals would be available through incoming
cash flow, the sale of short-term or floating-rate instruments or Reverse Repos
on Anchor National's substantial MBS segment of the Bond Portfolio, thereby
avoiding the sale of fixed-rate assets in an unfavorable bond market.
In a declining rate environment, Anchor National's cost of funds would decrease
over time, reflecting lower interest crediting rates on its fixed annuities and
GICs. Should increased liquidity be required for withdrawals, Anchor National
believes that a significant portion of its investments could be sold without
adverse consequences in light of the general strengthening that would be
expected in the bond market.
Anchor National relies significantly on computer systems and applications in its
daily operations. Many of these systems and applications are not presently year
2000 compliant. Anchor National's business, financial condition and results of
operations could be materially and adversely affected by the failure of Anchor
National's systems and applications (and those operated by third parties
interfacing with Anchor National's systems and applications) to properly operate
or manage dates beyond the year 1999. Anchor National has a coordinated plan to
repair or replace these noncompliant systems and to obtain similar assurances
from third parties interfacing with Anchor National's systems and applications
and expects to significantly complete its plan by the end of calendar year 1998.
In fiscal year 1997, Anchor National recorded a $5.0 million provision for
estimated programming costs to make necessary repairs of certain specific
noncompliant systems. Management believes that this provision is adequate and
does not anticipate any material future expenses associated with the repair
phase of this project. Management also expects to make an additional $6.2
million expenditure to replace certain other specific noncompliant systems,
which expenditure will be capitalized as software costs and amortized over
future periods.
RESULTS OF OPERATIONS FOR THE FIRST THREE MONTHS OF FISCAL 1998
NET INCOME totaled $44.3 million for the three months ended December 31, 1997
(the "First Quarter 1998"), compared with $3.3 million for the three months
ended December 31, 1996 (the "First Quarter 1997").
PRETAX INCOME totaled $67.7 million in the First Quarter 1998 and $4.9 million
in the First Quarter 1997. This significant increase in pretax income primarily
resulted from increased net realized investment gains, net investment income and
fee income.
NET INVESTMENT INCOME increased to $26.5 million in the First Quarter 1998 from
$14.5 million in the First Quarter 1997. These amounts equal 4.22% on average
invested assets (computed on a daily basis) of $2.51 billion in the First
Quarter 1998 and 2.32% on average invested assets of $2.50 billion in the First
Quarter 1997.
The excess of average invested assets over average interest-bearing liabilities
amounted to $72.6 million in the First Quarter 1998 and $150.5 million in the
First Quarter 1997. The Spread Difference was 4.06% in the First Quarter 1998
and 1.99% in the First Quarter 1997.
Investment income (and the related yields on average invested assets) totaled
$59.9 million (9.54%) in the First Quarter 1998, compared with $46.7 million
(7.46%) in the First Quarter 1997. Investment income and the related yields in
the First Quarter 1998 primarily reflect the higher returns realized on Anchor
National's investments in limited partnerships.
Partnership income increased to $15.2 million (for a yield of 400.95% on related
average assets of $15.1 million) in the First Quarter 1998, compared with $0.7
million (for a yield of 6.71% on related average assets of $44.6 million) in the
First Quarter 1997. Partnership income is based upon cash distributions received
from limited partnerships, the operations of which Anchor National does not
influence. Consequently, such income is not predictable and there can be no
assurance that Anchor National will realize comparable levels of such income in
the future.
Total interest expense equalled $33.4 million in the First Quarter 1998 and
$32.2 million in the First Quarter 1997. The average rate paid on all
interest-bearing liabilities was 5.48% in the First Quarter 1998, compared with
5.47% in the First Quarter 1997. Interest-bearing liabilities averaged $2.44
billion during the First Quarter 1998, compared with $2.35 billion during the
First Quarter 1997.
GIC premiums totaled $5.6 million in the First Quarter 1998 and $5.0 million in
the First Quarter 1997.
NET REALIZED INVESTMENT GAINS totaled $20.9 million in the First Quarter 1998,
compared with net realized investment losses of $19.1 million in the First
Quarter 1997. There were no impairment writedowns in the First Quarter 1998. Net
realized investment losses in the First Quarter 1997 include impairment
writedowns of $16.1 million. Therefore, Anchor National realized $3.0 million of
net losses from sales of investments in the First Quarter 1997.
Anchor National sold invested assets, principally bonds and notes, aggregating
$310.3 million and $741.6 million in the
26
<PAGE> 33
First Quarter 1998 and the First Quarter 1997, respectively. Sales of
investments result from the active management of Anchor National's investment
portfolio. Because sales of investments are made in both rising and falling
interest rate environments, net gains and losses from sales of investments
fluctuate from period to period, and represent 1.70% and 0.48% of average
invested assets for the First Quarter 1998 and the First Quarter 1997,
respectively.
Impairment writedowns in the First Quarter 1997 reflect $15.7 million of
provisions applied to non-income producing land in Arizona. Impairment
writedowns, on an annualized basis, represent 2.58% of average invested assets
for the First Quarter 1997. For the seventeen fiscal quarters beginning October
1, 1993, impairment writedowns as a percentage of average invested assets have
ranged up to 3.64% and have averaged 0.45%.
VARIABLE ANNUITY FEES totaled $44.4 million in the First Quarter 1998 and $30.6
million in the First Quarter 1997. 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 $9.40 billion during the First
Quarter 1998 and $6.60 billion during the First Quarter 1997. Variable annuity
premiums, which exclude premiums allocated to the fixed accounts of variable
annuity products, have aggregated $1.46 billion since December 31, 1996.
Variable annuity premiums increased to $422.1 million in the First Quarter 1998
from $226.8 million in the First Quarter 1997. Variable Annuity Product Sales
amounted to $684.0 million and $589.5 million in the First Quarter 1998 and the
First Quarter 1997, 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.
NET RETAINED COMMISSIONS totaled $10.5 million in the First Quarter 1998 and
$7.8 million in the First Quarter 1997. Broker-dealer sales totaled $3.83
billion in the First Quarter 1998 and $2.03 billion in the First Quarter 1997.
The increases in sales and net retained commissions reflect a greater number of
registered representatives, higher average production per representative and
generally favorable market conditions.
SURRENDER CHARGES on fixed and variable annuities totaled $1.3 million in the
First Quarter 1998, compared with $1.4 million in the First Quarter 1997.
Withdrawal payments totaled $268.5 million in the First Quarter 1998, compared
with $238.1 million in the First Quarter 1997. These payments represent, 9.4%
and 11.4%, respectively, of average fixed and variable annuity reserves.
Withdrawals include variable annuity withdrawals from the separate accounts
totaling $219.1 million in the First Quarter 1998 (9.4% of average variable
annuity reserves) and $176.0 million (10.7% of average variable annuity
reserves) in the First Quarter 1997. Approximately 77% of Anchor National's
fixed annuity and GIC reserves had surrender penalties or other restrictions at
December 31, 1997. Surrender charges have decreased in the First Quarter 1998,
while withdrawal payments have increased, due to policies coming off surrender
charge restrictions. Management anticipates that withdrawal rates will remain
relatively stable for the foreseeable future.
ASSET MANAGEMENT FEES totaled $6.9 million on average assets managed of $2.69
billion in the First Quarter 1998 and $6.4 million on average assets managed of
$2.21 billion in the First Quarter 1997. Sales of mutual funds, excluding sales
of money market accounts, have aggregated $558.3 million since December 31,
1996. Mutual fund sales totaled $165.8 million in the First Quarter 1998, up
166% from the $62.3 million in the First Quarter 1997. Redemptions of mutual
funds, excluding redemptions of money market accounts, amounted to $92.0 million
in the First Quarter 1998 and $103.7 million in the First Quarter 1997. The
significant increase in sales during the First Quarter 1998 over those in the
First Quarter 1997 principally resulted from the introduction in November 1996
of Anchor National's "Style Select Series" product.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $23.0 million in the First Quarter
1998 and $22.4 million in the First Quarter 1997. 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 $17.2 million in the First
Quarter 1998, compared with $13.8 million in the First Quarter 1997. The
increase in amortization during the First Quarter 1998 was primarily due to
additional fixed and variable annuity and mutual fund sales and the subsequent
amortization of related deferred commissions and other direct selling costs.
ANNUAL COMMISSIONS totaled $3.5 million in the First Quarter 1998 and $1.4
million in the First Quarter 1997. The increase in annual commissions reflects
increased sales of annuities that offer this commission option. Anchor National
estimates that approximately 50% 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 $23.3 million in the First Quarter 1998, compared
with $1.6 million in the First Quarter 1997, representing effective annualized
tax rates of 34% and 32%, respectively.
27
<PAGE> 34
FINANCIAL CONDITION AND LIQUIDITY AT DECEMBER 31, 1997
SHAREHOLDER'S EQUITY increased 7.6% to $618.8 million at December 31, 1997 from
$575.2 million at September 30, 1997, primarily due to $44.3 million of net
income recorded in the First Quarter 1998.
INVESTED ASSETS at December 31, 1997 totaled $2.62 billion, compared with $2.61
billion at September 30, 1997.
THE BOND PORTFOLIO, which constitutes 74% of Anchor National's total investment
portfolio (at amortized cost), had an aggregate fair value that exceeded its
amortized cost by $43.0 million at December 31, 1997, compared with an excess of
$43.7 million at September 30, 1997.
At December 31, 1997, the Bond Portfolio (at amortized cost, excluding $6.1
million of redeemable preferred stocks) included $1.86 billion of bonds rated by
S&P, Moody's, DCR, Fitch or the NAIC and $51.2 million of bonds rated by Anchor
National pursuant to statutory ratings guidelines established by the NAIC. At
December 31, 1997, approximately $1.75 billion of the Bond Portfolio was
investment grade, including $614.7 million of U.S. government/agency securities
and MBSs.
At December 31, 1997, the Bond Portfolio included $162.0 million (at amortized
cost with a fair value of $170.4 million) of bonds that were not investment
grade. Based on their December 31, 1997 amortized cost, these non-
investment-grade bonds accounted for 1.3% of Anchor National's total assets and
6.3% of its invested assets. Anchor National had no material concentrations of
non-investment-grade securities at December 31, 1997.
SECURED LOANS are included in the Bond Portfolio and their amortized cost
aggregated $296.5 million at December 31, 1997. At December 31, 1997, Secured
Loans consisted of $168.2 million of publicly traded securities and $128.3
million of privately traded securities. These Secured Loans are composed of
loans to 80 borrowers spanning 25 industries, with 22% of these assets (at
amortized cost) concentrated in financial institutions. No other industry
concentration constituted more than 11% of these assets.
MORTGAGE LOANS aggregated $334.2 million at December 31, 1997 and consisted of
69 commercial first mortgage loans with an average loan balance of approximately
$4.8 million, collateralized by properties located in 20 states. Approximately
23% of this portfolio was multifamily residential, 17% was office, 15% was
manufactured housing, 13% was hotels, 11% was industrial, 11% was retail, and
10% was other types. At December 31, 1997, approximately 13% and 12% of this
portfolio was secured by properties located in New York and California,
respectively, and no more than 9% of this portfolio was secured by properties
located in any other single state. At December 31, 1997, there were four
mortgage loans with outstanding balances of $10 million or more, which loans
collectively aggregated approximately 17% of this portfolio. At December 31,
1997, approximately 22% of the mortgage loan portfolio consisted of loans with
balloon payments due before January 1, 2001. During the First Quarter 1998 and
the First Quarter 1997, 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 December 31, 1997, approximately 17% of the mortgage loans were seasoned
loans underwritten to Anchor National's standards and purchased at or near par
from other financial institutions.
OTHER INVESTED ASSETS aggregated $40.2 million at December 31, 1997, including
$14.3 million of investments in limited partnerships and an aggregate of $25.9
million of miscellaneous investments, including policy loans,residuals and
leveraged leases. Anchor National's limited partnership interests, accounted for
by using the cost method of accounting, are invested primarily in a combination
of debt and equity securities.
At December 31, 1997, Anchor National's fixed-rate assets had an aggregate fair
value of $2.51 billion with a duration of 3.8. Anchor National's fixed-rate
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 1.4. Anchor National's potential exposure due to a relative
10% increase in interest rates prevalent at December 31, 1997 is a loss of
approximately $35.9 million in fair value of its fixed-rate assets that is not
offset by an increase in the fair value of its fixed-rate liabilities. Because
Anchor National actively manages its assets and liabilities and has strategies
in place to minimize its exposure to loss as interest rate changes occur, it
expects that actual losses would be less than the estimated potential loss.
At December 31, 1997, Anchor National had one outstanding Swap Agreement with a
notional principal amount of $15.9 million. This agreement matures in December
2024.
DEFAULTED INVESTMENTS, comprising all investments that are in default as to the
payment of principal or interest, totaled $0.8 million of mortgage loans at
December 31, 1997 (at amortized cost, with a fair value of $0.8 million). At
December 31, 1997 defaulted investments constituted less than 0.1% of total
invested assets. At September 30, 1997, defaulted investments totaled $1.4
million, including $0.5 million of bonds and notes and $0.9 million of mortgage
loans, and constituted 0.1% of total invested assets.
SOURCES OF LIQUIDITY are readily available to Anchor National in the form of
Anchor National's existing portfolio of cash and short-term investments, Reverse
Repo capacity on invested assets and, if required, proceeds from invested asset
sales. At December 31, 1997, approximately $1.77 billion of Anchor National's
Bond Portfolio had an aggregate unrealized gain of $48.8 million, while
approximately $145.3 million of the Bond Portfolio had an aggregate unrealized
loss of $5.8 million. In addition, Anchor National's investment portfolio
currently provides approximately $22.5 million of monthly cash flow from
scheduled principal and interest payments.
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<PAGE> 35
PROPERTIES
Anchor National's executive offices and its principal office are in leased
premises at 1 SunAmerica Center, Los Angeles, California. Anchor National,
through an affiliate, also leases office space in Torrance and Woodland Hills,
California. Anchor National's broker-dealer and asset management subsidiaries
lease offices in New York, New York.
Anchor National believes that such properties, including the equipment located
therein, are suitable and adequate to meet the requirements of its businesses.
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<PAGE> 36
DIRECTORS AND EXECUTIVE OFFICERS
Anchor National's directors and officers as of February 28, 1998 are listed
below:
<TABLE>
<CAPTION>
OTHER POSITIONS AND
YEAR OTHER BUSINESS
PRESENT ASSUMED EXPERIENCE WITHIN
NAME AGE POSITION(S) POSITION(S) LAST FIVE YEARS** FROM-TO
==============================================================================================================================
<S> <C> <C> <C> <C> <C>
Eli Broad* 64 Chairman, Chief Executive 1994 Co-founded SunAmerica Inc.
Officer and President of (SAI) in 1957
Anchor National
Chairman, Chief Executive 1986
Officer and President of SAI
- ------------------------------------------------------------------------------------------------------------------------------
Jay S. Wintrob* 40 Executive Vice President of 1991 Senior Vice President 1989-1991
Anchor National (Joined SAI in 1987)
Vice Chairman of SAI 1995
- ------------------------------------------------------------------------------------------------------------------------------
Victor E. Akin 33 Senior Vice President of 1996 Vice President, SunAmerica Life 1995-1996
Anchor National Companies
Director, SunAmerica Life 1994-1995
Companies
Manager, SunAmerica Life 1993-1994
Companies
Actuary, Milliman & Robertson 1992-1993
Consultant, Chalke Inc. 1991-1992
- ------------------------------------------------------------------------------------------------------------------------------
James R. Belardi* 40 Senior Vice President of 1992 Vice President and Treasurer 1989-1992
Anchor National (Joined SAI in 1986)
Executive Vice President of 1995
SAI
- ------------------------------------------------------------------------------------------------------------------------------
Lorin M. Fife* 44 Senior Vice President, General 1994 Vice President and General 1994-1995
Counsel and Assistant Counsel -- Regulatory Affairs
Secretary of Anchor National of SAI
Senior Vice President and 1995 Vice President and Associate 1989-1994
General Counsel -- Regulatory General Counsel of SAI
Affairs of SAI (Joined SAI in 1989)
- ------------------------------------------------------------------------------------------------------------------------------
N. Scott Gillis 44 Senior Vice President and 1994 Vice President and Controller, 1989-1994
Controller of Anchor National SunAmerica Life Companies
Vice President of SAI 1997 (Joined SAI in 1985)
- ------------------------------------------------------------------------------------------------------------------------------
Jana W. Greer* 45 Senior Vice President of 1991 Vice President 1981-1991
Anchor National and SAI (Joined SAI in 1974)
President of SunAmerica 1995
Marketing, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Susan L. Harris* 41 Senior Vice President and 1994 Vice President, General 1994-1995
Secretary of Anchor National Counsel -- Corporate Affairs
and Secretary of SAI
Senior Vice President, General 1995 Vice President, Associate 1989-1994
Counsel -- Corporate Affairs General Counsel and Secretary
and Secretary of SAI of SAI
(Joined SAI in 1985)
- ------------------------------------------------------------------------------------------------------------------------------
Peter McMillan, III* 40 Executive Vice President and 1994 Senior Vice President, 1989-1994
Chief Investment Officer of SunAmerica Investments, Inc.
SunAmerica Investments, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Edwin R. Reoliquio 40 Senior Vice President and 1995 Vice President and Actuary, 1990-1995
Chief Actuary of Anchor SunAmerica Life Companies
National
==============================================================================================================================
* Also serves as a director.
** Unless otherwise noted, officers and positions are with SunAmerica Inc.
</TABLE>
30
<PAGE> 37
<TABLE>
<CAPTION>
OTHER POSITIONS AND
YEAR OTHER BUSINESS
PRESENT ASSUMED EXPERIENCE WITHIN
NAME AGE POSITION(S) POSITION(S) LAST FIVE YEARS** FROM-TO
==============================================================================================================================
<S> <C> <C> <C> <C> <C>
Scott H. Richland 35 Vice President and Treasurer 1994 Vice President and Asst. 1994-1995
of Anchor National Treasurer
Senior Vice President of SAI 1997 Vice President and Treasurer of 1995-1997
SAI
Vice President and Asst. 1994-1995
Treasurer of SAI
Asst. Treasurer of SAI 1993-1994
Director, SunAmerica 1990-1993
Investments, Inc.
(Joined SAI in 1990)
- ------------------------------------------------------------------------------------------------------------------------------
Scott L. Robinson* 51 Senior Vice President of 1991 Vice President and Controller 1986-1991
Anchor National Senior Vice (Joined SAI in 1978)
President and Controller of
SAI
- ------------------------------------------------------------------------------------------------------------------------------
James W. Rowan* 35 Senior Vice President of 1996 Vice President 1993-1995
Anchor National and SAI Assistant to the Chairman 1992
Senior Vice President, Security 1986-1992
Pacific Corp.
==============================================================================================================================
</TABLE>
* Also serves as a director.
** Unless otherwise noted, officers and positions are with SunAmerica Inc.
31
<PAGE> 38
EXECUTIVE COMPENSATION
All of the executive officers of Anchor National also serve as employees of
SunAmerica Inc. or its affiliates and receive no compensation directly from
Anchor National. Some of the officers also serve as officers of other companies
affiliated with Anchor National. Allocations have been made as to each
individual's time devoted to his or her duties as an executive officer of Anchor
National.
The following table shows the cash compensation paid or earned, based on these
allocations, to the chief executive officer and top four executive officers of
Anchor National whose allocated compensation exceeds $100,000 and to all
executive officers of Anchor National as a group for services rendered in all
capacities to Anchor National during 1997:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
CAPACITIES ALLOCATED
NAME OF INDIVIDUAL OR IN WHICH CASH
NUMBER IN GROUP SERVED COMPENSATION
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Eli Broad Chairman, Chief Executive
Officer and President $1,438,587
Joseph M. Tumbler Executive Vice President 835,680
Jay S. Wintrob Executive Vice President 837,376
James R. Belardi Senior Vice President 357,144
Jana Waring Greer Senior Vice President 630,854
All Executive Officers
as a Group (14) $5,769,122
- --------------------------------------------------------------------------
</TABLE>
Directors of Anchor National who are also employees of SunAmerica Inc. or its
affiliates receive no compensation in addition to their compensation as
employees of SunAmerica Inc. or its affiliates.
SECURITY OWNERSHIP OF OWNERS AND MANAGEMENT
No shares of Anchor National are owned by any executive officer or director.
Anchor National is an indirect wholly-owned subsidiary of SunAmerica Inc. Except
for Mr. Eli Broad, Chairman and Chief Executive Officer of SunAmerica Inc., the
percentage of shares of SunAmerica Inc. beneficially owned by any director does
not exceed one percent of the class outstanding. At February 28, 1998, Mr. Broad
was the beneficial owner of 10,705,879 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; 113,769 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 May 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 February 28, 1998, all
directors and officers as a group beneficially owned 14,108,892 shares of Common
Stock (7.5% of the class outstanding) and 13,740,441 shares of Class B Common
Stock (84.4% of the class outstanding).
STATE REGULATION
Anchor National is subject to regulation and supervision by the insurance
regulatory agencies of the states in which it is authorized to transact
business. State insurance laws establish supervisory agencies with broad
administrative and supervisory powers. Principal among these powers are granting
and revoking licenses to transact business, regulating marketing and other trade
practices, operating guaranty associations, licensing agents, approving policy
forms, regulating certain premium rates, regulating insurance holding company
systems, establishing reserve requirements, prescribing the form and content of
required financial statements and reports, performing financial, market conduct
and other examinations, determining the reasonableness and adequacy of statutory
capital and surplus, defining acceptable accounting principles, regulating the
type, valuation and amount of investments permitted, and limiting the amount of
dividends that can be paid and the size of transactions that can be consummated
without first obtaining regulatory approval.
During the last decade, the insurance regulatory framework has been placed under
increased scrutiny by various states, the federal government and the NAIC.
Various states have considered or enacted legislation that changes, and in many
cases increases, the states' authority to regulate insurance companies.
Legislation has been introduced from time to time in Congress that could result
in the federal government assuming some role in the regulation of insurance
companies or allowing combinations between insurance companies, banks and other
entities. In recent years, the NAIC has approved and recommended to the states
for adoption and implementation several regulatory initiatives designed to
reduce the risk of insurance company insolvencies and market conduct violations.
These initiatives include investment reserve requirements, risk-based capital
standards, codification of insurance accounting principles, new investment
standards and restrictions on an insurance company's ability to pay dividends to
its stockholders. The NAIC is also currently developing model laws relating to
product design and illustrations for annuity products. Current proposals are
still being debated and Anchor National is monitoring developments in this area
and the effects any changes would have on Anchor National
SunAmerica Asset Management is registered with the SEC as a registered
investment advisor under the Investment Advisors Act of 1940. The mutual funds
that it markets are subject to regulation under the Investment Company Act of
32
<PAGE> 39
1940. SunAmerica Asset Management and the mutual funds are subject to regulation
and examination by the SEC. In addition, variable annuities and the related
separate accounts of Anchor National are subject to regulation by the Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933 and the
Investment Company Act of 1940.
Anchor National's broker-dealer subsidiary is subject to regulation and
supervision by the states in which it transacts business, as well as by the SEC
and the National Association of Securities Dealers ("NASD"). The NASD has broad
administrative and supervisory powers relative to all aspects of business and
may examine the subsidiary's business and accounts at any time.
From time to time, Federal initiatives are proposed that could affect Anchor
National's businesses. Such initiatives include employee benefit plan
regulations and tax law changes affecting the taxation of insurance companies
and the tax treatment of insurance products. Recent administration budget
proposals include the proposed taxation of exchanges involving variable annuity
contracts and reallocations within variable annuity contracts and certain other
proposals relating to annuities. Anchor National believes these proposals have a
small likelihood of being enacted, because they would discourage retirement
savings and there is strong popular and industry opposition to them. Other
proposals made in recent years to limit the tax deferral of annuities have not
been enacted. Anchor National believes that certain of the proposals, if
implemented, would have an adverse effect on Anchor National's ability to sell
variable annuities, and, consequently, on its results of operations. However,
Anchor National would not expect this to materially impact earnings in the near
term because Anchor National believes that adoption of the administration
proposals, however unlikely, would reduce annuity surrenders on the existing
block of variable annuity contracts and the ongoing earnings potential arising
from that block would offset the near-term economic impact of the potential
decrease in sales.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Anchor National as of September 30,
1997 and 1996 and for each of the three years in the period ended September 30,
1997 included in this prospectus have been included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
================================================================
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
================================================================
<TABLE>
<S> <C>
Separate Account................................. 3
General Account.................................. 4
Performance Data................................. 4
Annuity Payments................................. 8
Annuity Unit Values.............................. 9
Taxes............................................ 12
Distribution of Contracts........................ 16
Financial Statements............................. 16
</TABLE>
================================================================
FINANCIAL STATEMENTS
================================================================
The consolidated financial statements of Anchor National which are included in
this prospectus should be considered only as bearing on the ability Anchor
National to meet its obligations with respect to amounts allocated to the fixed
investment options and with respect to the death benefit and our assumption of
the mortality and expense risks and the risks that the withdrawal charge will
not be sufficient to cover the cost of distributing the contracts. They should
not be considered as bearing on the investment performance of the variable
Portfolios. The value of the variable Portfolios is affected primarily by the
performance of the underlying investments.
33
<PAGE> 40
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
34
<PAGE> 41
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
-------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Investments:
Cash and short-term investments......................... $ 122,058,000 $ 113,580,000 $ 264,176,000
Bonds, notes and redeemable preferred stocks available
for sale, at fair value (amortized cost: September
1996, $2,001,024,000; September 1997, $1,942,485,000;
December 1997, $1,914,265,000)....................... 1,987,271,000 1,986,194,000 1,957,256,000
Mortgage loans.......................................... 98,284,000 339,530,000 334,156,000
Common stocks, at fair value
(Cost: September 1996, $2,911,000;
September 1997, $271,000;
December 1997, $115,000)............................. 3,970,000 1,275,000 288,000
Real estate............................................. 39,724,000 24,000,000 24,000,000
Other invested assets................................... 77,925,000 143,722,000 40,196,000
-------------- --------------- ---------------
Total investments............................... 2,329,232,000 2,608,301,000 2,620,072,000
Variable annuity assets................................... 6,311,557,000 9,343,200,000 9,602,687,000
Receivable from brokers for sales of securities........... 52,348,000 -- --
Accrued investment income................................. 19,675,000 21,759,000 23,328,000
Deferred acquisition costs................................ 443,610,000 536,155,000 564,931,000
Other assets.............................................. 48,113,000 61,524,000 71,551,000
-------------- --------------- ---------------
TOTAL ASSETS.................................... $9,204,535,000 $12,570,939,000 $12,882,569,000
============== =============== ===============
</TABLE>
<TABLE>
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts.................... $1,789,962,000 $ 2,098,803,000 $ 2,087,965,000
Reserves for guaranteed investment contracts............ 415,544,000 295,175,000 301,212,000
Payable to brokers for purchases of securities.......... -- 263,000 6,959,000
Income taxes currently payable.......................... 21,486,000 32,265,000 53,218,000
Other liabilities....................................... 74,710,000 122,728,000 107,073,000
-------------- --------------- ---------------
Total reserves, payables and accrued
liabilities................................... 2,301,702,000 2,549,234,000 2,556,427,000
-------------- --------------- ---------------
Variable annuity liabilities.............................. 6,311,557,000 9,343,200,000 9,602,687,000
-------------- --------------- ---------------
Subordinated notes payable to Parent...................... 35,832,000 36,240,000 36,311,000
-------------- --------------- ---------------
Deferred income taxes..................................... 70,189,000 67,047,000 68,328,000
-------------- --------------- ---------------
Shareholder's equity:
Common Stock............................................ 3,511,000 3,511,000 3,511,000
Additional paid-in capital.............................. 280,263,000 308,674,000 308,674,000
Retained earnings....................................... 207,002,000 244,628,000 288,976,000
Net unrealized gains (losses) on debt and equity
securities available for sale........................ (5,521,000) 18,405,000 17,655,000
-------------- --------------- ---------------
Total shareholder's equity...................... 485,255,000 575,218,000 618,816,000
-------------- --------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...... $9,204,535,000 $12,570,939,000 $12,882,569,000
============== =============== ===============
</TABLE>
See accompanying notes
35
<PAGE> 42
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------------ -------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Investment income....................... $129,466,000 $164,631,000 $210,759,000 $46,712,000 $59,855,000
------------ ------------ ------------ ----------- -----------
Interest expense on:
Fixed annuity contracts............... (72,975,000) (82,690,000) (109,217,000) (25,191,000) (27,821,000)
Guaranteed investment contracts....... (3,733,000) (19,974,000) (22,650,000) (6,038,000) (4,550,000)
Senior indebtedness................... (227,000) (2,568,000) (2,549,000) (181,000) (193,000)
Subordinated notes payable to
Parent............................. (2,448,000) (2,556,000) (3,142,000) (758,000) (809,000)
------------ ------------ ------------ ----------- -----------
Total interest expense........ (79,383,000) (107,788,000) (137,558,000) (32,168,000) (33,373,000)
------------ ------------ ------------ ----------- -----------
NET INVESTMENT INCOME................... 50,083,000 56,843,000 73,201,000 14,544,000 26,482,000
------------ ------------ ------------ ----------- -----------
NET REALIZED INVESTMENT GAINS
(LOSSES).............................. (4,363,000) (13,355,000) (17,394,000) (19,116,000) 20,935,000
------------ ------------ ------------ ----------- -----------
Fee income:
Variable annuity fees................. 84,171,000 103,970,000 139,492,000 30,606,000 44,364,000
Net retained commissions.............. 24,108,000 31,548,000 39,143,000 7,796,000 10,461,000
Surrender charges..................... 5,889,000 5,184,000 5,529,000 1,350,000 1,289,000
Asset management fees................. 26,935,000 25,413,000 25,764,000 6,418,000 6,903,000
Other Fees............................ 4,002,000 3,390,000 3,218,000 993,000 967,000
------------ ------------ ------------ ----------- -----------
TOTAL FEE INCOME.............. 145,105,000 169,505,000 213,146,000 47,163,000 63,984,000
------------ ------------ ------------ ----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES..... (64,457,000) (81,552,000) (98,802,000) (22,395,000) (23,019,000)
AMORTIZATION OF DEFERRED ACQUISITION
COSTS................................. (58,713,000) (57,520,000) (66,879,000) (13,817,000) (17,202,000)
ANNUAL COMMISSIONS...................... (2,658,000) (4,613,000) (8,977,000) (1,433,000) (3,526,000)
------------ ------------ ------------ ----------- -----------
PRETAX INCOME........................... 64,997,000 69,308,000 94,295,000 4,946,000 67,654,000
Income tax expense...................... (25,739,000) (24,252,000) (31,169,000) (1,600,000) (23,306,000)
------------ ------------ ------------ ----------- -----------
NET INCOME.............................. $ 39,258,000 $ 45,056,000 $ 63,126,000 $ 3,346,000 $44,348,000
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes
36
<PAGE> 43
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------------------------- -------------------------------
1995 1996 1997 1996 1997
--------------- --------------- --------------- --------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 39,258,000 $ 45,056,000 $ 63,126,000 $ 3,346,000 $ 44,348,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Interest credited to:
Fixed annuity contracts............. 72,975,000 82,690,000 109,217,000 25,191,000 27,821,000
Guaranteed investment contracts..... 3,733,000 19,974,000 22,650,000 6,038,000 4,550,000
Net realized investment losses
(gains)........................... 4,363,000 13,355,000 17,394,000 19,116,000 (20,935,000)
Amortization (accretion) of net
premiums (discounts) on
investments....................... (6,865,000) (8,976,000) (18,576,000) (2,615,000) 1,966,000
Amortization of goodwill............ 1,168,000 1,169,000 1,187,000 291,000 293,000
Provision for deferred income
taxes............................. (1,489,000) (3,351,000) (16,024,000) (5,305,000) 1,682,000
Change in:
Accrued investment income........... 3,373,000 (5,483,000) (2,084,000) (729,000) (1,569,000)
Deferred acquisition costs.......... (7,180,000) (60,941,000) (113,145,000) (28,927,000) (28,376,000)
Other assets........................ 7,047,000 (8,000,000) (14,598,000) (7,788,000) (10,320,000)
Income taxes currently payable...... 3,389,000 5,766,000 10,779,000 2,321,000 20,953,000
Other liabilities................... 4,063,000 5,474,000 14,187,000 3,924,000 (4,036,000)
Other, net............................ 7,000 (129,000) 418,000 (6,000) 126,000
--------------- --------------- --------------- --------------- -------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES:......................... 123,842,000 86,604,000 74,531,000 14,857,000 36,503,000
--------------- --------------- --------------- --------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable
preferred stocks................ (1,556,586,000) (1,937,890,000) (2,566,211,000) (1,068,608,000) (456,172,000)
Mortgage loans.................... -- (15,000,000) (266,771,000) (25,124,000) --
Other investments, excluding
short-term investments.......... (13,028,000) (36,770,000) (75,556,000) (3,108,000) --
Sales of:
Bonds, notes and redeemable
preferred stocks................ 1,026,078,000 1,241,928,000 2,299,063,000 833,249,000 288,402,000
Real estate....................... 36,813,000 900,000 -- -- --
Other investments, excluding
short-term investments.......... 5,130,000 4,937,000 6,421,000 856,000 43,135,000
Redemptions and maturities of:
Bonds, notes and redeemable
preferred stocks................ 178,688,000 288,969,000 376,847,000 67,201,000 214,105,000
Mortgage loans.................... 14,403,000 11,324,000 25,920,000 -- 5,996,000
Other investments, excluding
short-term investments.......... 13,286,000 20,749,000 23,940,000 7,027,000 67,475,000
--------------- --------------- --------------- --------------- -------------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES.......................... (295,216,000) (420,853,000) (176,347,000) (188,507,000) 162,941,000
=============== =============== =============== =============== =============
</TABLE>
See accompanying notes
37
<PAGE> 44
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------------- ----------------------------
1995 1996 1997 1996 1997
------------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Premium receipts on:
Fixed annuity contracts... 245,320,000 651,649,000 1,097,937,000 325,993,000 261,968,000
Guaranteed investment
contracts.............. 275,000,000 134,967,000 55,000,000 5,000,000 5,619,000
Net exchanges to (from) the
fixed accounts of variable
annuity contracts........... 10,475,000 (236,705,000) (620,367,000) (82,234,000) (242,466,000)
Withdrawal payments on:
Fixed annuity contracts... (237,977,000) (173,489,000) (242,589,000) (25,292,000) (49,414,000)
Guaranteed investment
contracts.............. (1,638,000) (16,492,000) (198,062,000) (5,711,000) (4,131,000)
Claims and annuity payments on
fixed annuity contracts..... (31,237,000) (31,107,000) (35,731,000) (8,741,000) (8,876,000)
Net receipts from (repayment
of) other short-term
financings.................. 3,202,000 (119,712,000) 34,239,000 10,308,000 (11,548,000)
Capital contributions
received.................... -- 27,387,000 28,411,000 28,411,000 --
Dividends paid................. -- (29,400,000) (25,500,000) -- --
------------- ------------- -------------- ------------ -------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES........... 263,145,000 207,098,000 93,338,000 247,734,000 (48,848,000)
------------- ------------- -------------- ------------ -------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS..... 91,771,000 (127,151,000) (8,478,000) 74,084,000 150,596,000
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD......... 157,438,000 249,209,000 122,058,000 122,058,000 113,580,000
------------- ------------- -------------- ------------ -------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD............... $ 249,209,000 $ 122,058,000 $ 113,580,000 $196,142,000 $ 264,176,000
============= ============= ============== ============ =============
Supplemental cash flow
information:
Interest paid on
indebtedness................ $ 3,235,000 $ 5,982,000 $ 7,032,000 $ 288,000 $ 318,000
============= ============= ============== ============ =============
Net income taxes paid.......... $ 23,656,000 $ 22,031,000 $ 36,420,000 $ 4,584,000 $ 794,000
============= ============= ============== ============ =============
</TABLE>
See accompanying notes
38
<PAGE> 45
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
39
<PAGE> 46
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Agreement would be marked to market and the resulting change in fair value would
be included in Investment Income in the income statement. In the event that a
Swap Agreement that is designated as a hedge were to be terminated before its
contractual maturity, any resulting gain/loss would be credited/charged to the
carrying value of the asset/liability that it hedged.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, in relation to the incidence of estimated gross
profits to be realized over the estimated lives of the annuity contracts.
Estimated gross profits are composed of net interest income, net realized
investment gains and losses, variable annuity fees, surrender charges and direct
administrative expenses. Costs incurred to sell mutual funds are also deferred
and amortized over the estimated lives of the funds obtained. Deferred
acquisition costs consist of commissions and other costs that vary with, and are
primarily related to, the production or acquisition of new business.
As debt and equity securities available for sale are carried at aggregate fair
value, an adjustment is made to deferred acquisition costs equal to the change
in amortization that would have been recorded if such securities had been sold
at their stated aggregate fair value and the proceeds reinvested at current
yields. The change in this adjustment, net of tax, is included with the change
in net unrealized gains or losses on debt and equity securities available for
sale that is credited or charged directly to shareholder's equity. Deferred
Acquisition Costs have been decreased by $16,400,000 at September 30, 1997 and
increased by $4,200,000 at September 30, 1996 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities resulting
from the receipt of variable annuity premiums are segregated in separate
accounts. The Company receives administrative fees for managing the funds and
other fees for assuming mortality and certain expense risks. Such fees are
included in Variable Annuity Fees in the income statement.
GOODWILL: Goodwill, amounting to $18,311,000 at September 30, 1997, is
amortized by using the straight-line method over periods averaging 25 years and
is included in Other Assets in the balance sheet. Goodwill is evaluated for
impairment when events or changes in economic conditions indicate that the
carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity contracts
and guaranteed investment contracts are accounted for as investment-type
contracts in accordance with Statement of Financial Accounting Standards No. 97,
"Accounting and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of Investments," and
are recorded at accumulated value (premiums received, plus accrued interest,
less withdrawals and assessed fees).
FEE INCOME: Variable annuity fees, asset management fees and surrender charges
are recorded in income as earned. Net retained commissions are recognized as
income on a trade-date basis.
INCOME TAXES: The Company is included in the consolidated federal income tax
return of the Parent and files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Income taxes have been
calculated as if the Company filed a separate return. Deferred income tax assets
and liabilities are recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and liabilities using
enacted income tax rates and laws.
40
<PAGE> 47
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by major category follow:
<TABLE>
<CAPTION>
AMORTIZED COST ESTIMATED FAIR VALUE
-------------- --------------------
<S> <C> <C>
AT SEPTEMBER 30, 1997:
Securities of the United States Government................ $ 18,496,000 $ 18,962,000
Mortgage-backed securities................................ 636,018,000 649,196,000
Securities of public utilities............................ 22,792,000 22,893,000
Corporate bonds and notes................................. 984,573,000 1,012,559,000
Redeemable preferred stocks............................... 6,125,000 6,681,000
Other debt securities..................................... 274,481,000 275,903,000
-------------- --------------
Total available for sale.................................. $1,942,485,000 $1,986,194,000
============== ==============
AT SEPTEMBER 30, 1996:
Securities of the United States Government................ $ 311,458,000 $ 304,538,000
Mortgage-backed securities................................ 747,653,000 741,876,000
Securities of public utilities............................ 3,684,000 3,672,000
Corporate bonds and notes................................. 590,071,000 591,148,000
Redeemable preferred stocks............................... 9,064,000 8,664,000
Other debt securities..................................... 339,094,000 337,373,000
-------------- --------------
Total available for sale.................................. $2,001,024,000 $1,987,271,000
============== ==============
</TABLE>
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by contractual maturity, as of September 30,
1997, follow:
<TABLE>
<CAPTION>
AMORTIZED COST ESTIMATED FAIR VALUE
-------------- --------------------
<S> <C> <C>
Due in one year or less..................................... $ 19,067,000 $ 20,575,000
Due after one year through five years....................... 277,350,000 281,296,000
Due after five years through ten years...................... 631,083,000 650,242,000
Due after ten years......................................... 378,967,000 384,885,000
Mortgage-backed securities.................................. 636,018,000 649,196,000
-------------- --------------
Total available for sale.................................... $1,942,485,000 $1,986,194,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will differ
from those shown above due to prepayments and redemptions.
41
<PAGE> 48
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>
42
<PAGE> 49
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
43
<PAGE> 50
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
estimated fair value amounts were determined using available market information,
current pricing information and various valuation methodologies. If quoted
market prices were not readily available for a financial instrument, management
determined an estimated fair value. Accordingly, the estimates may not be
indicative of the amounts the financial instruments could be exchanged for in a
current or future market transaction.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND SHORT TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based principally
on independent pricing services, broker quotes and other independent
information.
MORTGAGE LOANS: Fair values are primarily determined by discounting future cash
flows to the present at current market rates, using expected prepayment rates.
COMMON STOCKS: Fair value is based principally on independent pricing services,
broker quotes and other independent information.
COST-METHOD PARTNERSHIPS: Fair value of limited partnerships accounted for by
using the cost method is based upon the fair value of the net assets of the
partnerships as determined by the general partners.
VARIABLE ANNUITY ASSETS: Variable annuity assets are carried at the market
value of the underlying securities.
RECEIVABLE FROM (PAYABLE TO) BROKERS FOR SALES (PURCHASES) OF SECURITIES: Such
obligations represent net transactions of a short-term nature for which the
carrying value is considered a reasonable estimate of fair value.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts and single
premium life contracts are assigned a fair value equal to current net surrender
value. Annuitized contracts are valued based on the present value of future cash
flows at current pricing rates.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the
present value of future cash flows at current pricing rates and is net of the
estimated fair value of hedging Swap Agreements, determined from independent
broker quotes.
VARIABLE ANNUITY LIABILITIES: Fair values of contracts in the accumulation
phase are based on net surrender values. Fair values of contracts in the payout
phase are based on the present value of future cash flows at assumed investment
rates.
44
<PAGE> 51
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on the
quoted market prices for similar issues.
The estimated fair values of the Company's financial instruments at September
30, 1997 and 1996, compared with their respective carrying values, are as
follows:
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
-------------- --------------
<S> <C> <C>
1997:
ASSETS:
Cash and short-term investments........................ $ 113,580,000 $ 113,580,000
Bonds, notes and redeemable preferred stocks........... 1,986,194,000 1,986,194,000
Mortgage loans......................................... 339,530,000 354,495,000
Common stocks.......................................... 1,275,000 1,275,000
Cost-method partnerships............................... 46,880,000 84,186,000
Variable annuity assets................................ 9,343,200,000 9,343,200,000
LIABILITIES:
Reserves for fixed annuity contracts................... 2,098,803,000 2,026,258,000
Reserves for guaranteed investment contracts........... 295,175,000 295,175,000
Payable to brokers for purchases of securities......... 263,000 263,000
Variable annuity liabilities........................... 9,343,200,000 9,077,200,000
Subordinated notes payable to Parent................... 36,240,000 37,393,000
============== ==============
1996:
ASSETS:
Cash and short-term investments........................ $ 122,058,000 $ 122,058,000
Bonds, notes and redeemable preferred stocks........... 1,987,271,000 1,987,271,000
Mortgage loans......................................... 98,284,000 102,112,000
Common stocks.......................................... 3,970,000 3,970,000
Cost-method partnerships............................... 45,070,000 70,553,000
Receivable from brokers for sales of securities........ 52,348,000 52,348,000
Variable annuity assets................................ 6,311,557,000 6,311,557,000
LIABILITIES:
Reserves for fixed annuity contracts................... 1,789,962,000 1,738,784,000
Reserves for guaranteed investment contracts........... 415,544,000 416,695,000
Variable annuity liabilities........................... 6,311,557,000 6,117,508,000
Subordinated notes payable to Parent................... 35,832,000 37,339,000
============== ==============
</TABLE>
5. SUBORDINATED NOTES PAYABLE TO PARENT
Subordinated notes payable to Parent equalled $36,240,000 at an interest rate of
9% at September 30, 1997 and require principal payments of $7,500,000 in 1998,
$23,060,000 in 1999 and $5,400,000 in 2000.
6. CONTINGENT LIABILITIES
The Company has entered into three agreements in which it has provided liquidity
support for certain short-term securities of three municipalities by agreeing to
purchase such securities in the event there is no other buyer in the short-term
marketplace. In return the Company receives a fee. The maximum liability under
these guarantees is $242,600,000. Management does not anticipate any material
future losses with respect to these liquidity support facilities.
The Company is involved in various kinds of litigation common to its businesses.
These cases are in various stages of development and, based on reports of
counsel, management believes that provisions made for potential losses relating
to such 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.
45
<PAGE> 52
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
============ ============ ============
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
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.
46
<PAGE> 53
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.
47
<PAGE> 54
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. The significant
components of the liability for Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1997 1996
------------- ------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Investments................................................ $ 13,160,000 $ 15,036,000
Deferred acquisition costs................................. 154,949,000 136,747,000
State income taxes......................................... 1,777,000 1,466,000
Net unrealized gains on debt and equity securities
available for sale....................................... 9,910,000 --
------------- ------------
Total deferred tax liabilities............................. 179,796,000 153,249,000
------------- ------------
DEFERRED TAX ASSETS:
Contractholder reserves.................................... (108,090,000) (77,522,000)
Guaranty fund assessments.................................. (2,707,000) (1,031,000)
Other assets............................................... (1,952,000) (1,534,000)
Net unrealized losses on debt and equity securities
available for sale....................................... -- (2,973,000)
------------- ------------
Total deferred tax assets.................................. (112,749,000) (83,060,000)
------------- ------------
Deferred income taxes...................................... $ 67,047,000 $ 70,189,000
============= ============
</TABLE>
9. RELATED PARTY MATTERS
The Company pays commissions to two affiliated companies, SunAmerica Securities,
Inc. and Advantage Capital Corp. Commissions paid to these broker-dealers
totaled $25,492,000 in 1997, $16,906,000 in 1996, and $9,435,000 in 1995. These
broker-dealers, when combined with the Company's wholly owned broker-dealer,
represent a significant portion of the Company's business, amounting to
approximately 36.1%, 38.3%, and 40.6% of premiums in 1997, 1996, and 1995,
respectively. The Company also sells its products through unaffiliated
broker-dealers, the largest two of which represented approximately 19.2% and
10.1% of premiums in 1997, 19.7% and 10.2% in 1996, and 18.8% and 4.3% in 1995,
respectively.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from SunAmerica Financial, Inc., whose
purpose is to provide services to the SunAmerica companies. Amounts paid for
such services totaled $86,116,000 for the year ended September 30, 1997,
$65,351,000 for the year ended September 30, 1996 and $42,083,000 for the year
ended September 30, 1995. Such amounts are included in General and
Administrative Expenses in the income statement.
The Parent made capital contributions of $28,411,000 in December 1996 and
$27,387,000 in December 1995 to the Company, through the Company's direct
parent, in exchange for the termination of its guaranty with respect to certain
real estate owned in Arizona. Accordingly, the Company reduced the carrying
value of this real estate to estimated fair value to reflect the termination of
the guaranty.
During the year ended September 30, 1995, the Company sold to the Parent real
estate for cash equal to its carrying value of $29,761,000.
During the year ended September 30, 1997, the Company sold various invested
assets to SunAmerica Life Insurance Company and to CalAmerica Life Insurance
Company for cash equal to their current market values of $15,776,000 and
$15,000, respectively. The Company recorded net gains aggregating $276,000 on
such transactions.
During the year ended September 30, 1997, the Company also purchased certain
invested assets from SunAmerica Life Insurance Company and from CalAmerica Life
Insurance Company for cash equal to their current market values of $8,717,000
and $284,000, respectively.
48
<PAGE> 55
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED PARTY MATTERS -- (CONTINUED)
During the year ended September 30, 1996, the Company sold various invested
assets to the Parent and to SunAmerica Life Insurance Company for cash equal to
their current market values of $274,000 and $47,321,000, respectively. The
Company recorded net losses aggregating $3,000 on such transactions.
During the year ended September 30, 1996, the Company also purchased certain
invested assets from SunAmerica Life Insurance Company for cash equal to their
current market values, which aggregated $28,379,000.
10. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
TOTAL
DEPRECIATION AND
TOTAL REVENUES AMORTIZATION EXPENSE PRETAX INCOME TOTAL ASSETS
-------------- -------------------- ------------- ---------------
<S> <C> <C> <C> <C>
1997:
Annuity operations.............. $332,845,000 $55,675,000 $74,792,000 $12,438,021,000
Broker-dealer operations........ 38,005,000 689,000 16,705,000 51,400,000
Asset management................ 35,661,000 16,357,000 2,798,000 81,518,000
------------ ----------- ----------- ---------------
Total...................... $406,511,000 $72,721,000 $94,295,000 $12,570,939,000
============ =========== =========== ===============
1996:
Annuity operations.............. $256,681,000 $43,974,000 $53,827,000 $ 9,092,770,000
Broker-dealer operations........ 31,053,000 449,000 13,033,000 37,355,000
Asset management................ 33,047,000 18,295,000 2,448,000 74,410,000
------------ ----------- ----------- ---------------
Total...................... $320,781,000 $62,718,000 $69,308,000 $ 9,204,535,000
============ =========== =========== ===============
1995:
Annuity operations.............. $211,587,000 $38,350,000 $55,462,000 $ 7,667,946,000
Broker-dealer operations........ 24,194,000 411,000 9,025,000 29,241,000
Asset management................ 34,427,000 24,069,000 510,000 86,510,000
------------ ----------- ----------- ---------------
Total...................... $270,208,000 $62,830,000 $64,997,000 $ 7,783,697,000
============ =========== =========== ===============
</TABLE>
49
<PAGE> 56
================================================================================
APPENDIX A -- CONDENSED FINANCIAL INFORMATION
================================================================================
<TABLE>
<CAPTION>
INCEPTION TO FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
PORTFOLIOS 11/30/93 11/30/94 11/30/95 11/30/96 11/30/97
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
Capital Appreciation (Inception Date -- 2/9/93)
Beginning AUV................................ $ 10.00 $ 11.14 $ 10.64 $ 14.19 $ 17.63
End AUV...................................... $ 11.14 $ 10.64 $ 14.19 $ 17.63 $ 21.26
End #AUs..................................... 3,606,855 8,462,152 13,247,155 20,470,395 24,889,133
- ---------------------------------------------------------------------------------------------------------------------
Growth (Inception Date -- 2/9/93)
Beginning AUV................................ $ 10.00 $ 10.78 $ 10.41 $ 12.95 $ 16.32
End AUV...................................... $ 10.78 $ 10.41 $ 12.95 $ 16.32 $ 20.31
End #AUs..................................... 1,719,857 3,950,678 5,968,263 7,557,844 9,747,428
- ---------------------------------------------------------------------------------------------------------------------
Natural Resources (Inception Date -- 10/31/94)
Beginning AUV................................ -- $ 10.00 $ 9.27 $ 10.78 $ 12.13
End AUV...................................... -- $ 9.27 $ 10.78 $ 12.13 $ 11.14
End #AUs..................................... -- 51,412 848,159 2,171,050 2,937,198
- ---------------------------------------------------------------------------------------------------------------------
Government and Quality Bond (Inception Date -- 2/9/93)
Beginning AUV................................ $ 10.00 $ 10.32 $ 9.81 $ 11.51 $ 11.94
End AUV...................................... $ 10.32 $ 9.81 $ 11.51 $ 11.94 $ 12.65
End #AUs..................................... 6,479,985 7,008,717 8,504,677 9,176,239 10,047,042
- ---------------------------------------------------------------------------------------------------------------------
Emerging Markets (Inception Date -- 6/2/97)
Beginning AUV................................ -- -- -- -- $ 10.00
End AUV...................................... -- -- -- -- $ 7.97
End #AUs..................................... -- -- -- -- 1,751,922
- ---------------------------------------------------------------------------------------------------------------------
Aggressive Growth (Inception Date -- 6/3/96)
Beginning AUV................................ -- -- -- $ 10.00 $ 10.29
End AUV...................................... -- -- -- $ 10.29 $ 11.51
End #AUs..................................... -- -- -- 3,165,900 7,215,024
- ---------------------------------------------------------------------------------------------------------------------
International Growth and Income (Inception Date -- 6/2/97)
Beginning AUV................................ -- -- -- -- $ 10.00
End AUV...................................... -- -- -- -- $ 10.33
End #AUs..................................... -- -- -- -- 2,721,228
- ---------------------------------------------------------------------------------------------------------------------
International Diversified Equities (Inception
Date -- 10/31/94)
Beginning AUV................................ -- $ 10.00 $ 9.77 $ 10.07 $ 11.39
End AUV...................................... -- $ 9.77 $ 10.07 $ 11.39 $ 11.62
End #AUs..................................... -- 271,316 4,659,066 12,762,343 18,010,557
- ---------------------------------------------------------------------------------------------------------------------
Global Equities (Inception Date -- 2/9/93)
Beginning AUV................................ $ 10.00 $ 10.86 $ 11.43 $ 13.01 $ 15.15
End AUV...................................... $ 10.86 $ 11.43 $ 13.01 $ 15.15 $ 16.90
End #AUs..................................... 3,964,021 11,705,418 12,350,883 15,583,207 18,376,185
- ---------------------------------------------------------------------------------------------------------------------
Real Estate (Inception Date -- 6/2/97)
Beginning AUV................................ -- -- -- -- $ 10.00
End AUV...................................... -- -- -- -- $ 11.44
End #AUs..................................... -- -- -- -- 1,632,804
- ---------------------------------------------------------------------------------------------------------------------
Putnam Growth* (Inception Date -- 2/9/93)
Beginning AUV................................ $ 10.00 $ 9.92 $ 9.79 $ 12.60 $ 14.88
End AUV...................................... $ 9.92 $ 9.79 $ 12.60 $ 14.88 $ 18.47
End #AUs..................................... 4,322,769 7,610,104 8,932,998 10,354,025 11,336,732
- ---------------------------------------------------------------------------------------------------------------------
Growth/Phoenix Investment Counsel (Inception Date -- 2/9/93)
Beginning AUV................................ $ 10.00 $ 10.65 $ 9.79 $ 12.81 $ 14.94
End AUV...................................... $ 10.65 $ 9.79 $ 12.81 $ 14.94 $ 17.63
End #AUs..................................... 6,078,952 10,477,818 11,457,899 12,077,737 11,714,450
- ---------------------------------------------------------------------------------------------------------------------
* Formerly named Provident Growth.
</TABLE>
A-1
<PAGE> 57
<TABLE>
<CAPTION>
INCEPTION TO FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
PORTFOLIOS 11/30/93 11/30/94 11/30/95 11/30/96 11/30/97
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
Alliance Growth (Inception Date -- 2/9/93)
Beginning AUV................................ $ 10.00 $ 10.78 $ 10.53 $ 15.44 $ 19.46
End AUV...................................... $ 10.78 $ 10.53 $ 15.44 $ 19.46 $ 24.51
End #AUs..................................... 2,153,075 4,997,778 10,560,070 18,333,555 24,050,697
- ---------------------------------------------------------------------------------------------------------------------
Venture Value (Inception Date -- 10/31/94)
Beginning AUV................................ -- $ 10.00 $ 9.77 $ 13.29 $ 16.68
End AUV...................................... -- $ 9.77 $ 13.29 $ 16.68 $ 21.30
End #AUs..................................... -- 355,083 11,270,792 29,247,554 44,892,446
- ---------------------------------------------------------------------------------------------------------------------
Federated Value (Inception Date -- 6/3/96)
Beginning AUV................................ -- -- -- $ 10.00 $ 11.00
End AUV...................................... -- -- -- $ 11.00 $ 13.62
End #AUs..................................... -- -- -- 1,021,137 3,095,513
- ---------------------------------------------------------------------------------------------------------------------
Growth-Income (Inception Date -- 2/9/93)
Beginning AUV................................ $ 10.00 $ 10.47 $ 10.09 $ 13.32 $ 16.70
End AUV...................................... $ 10.47 $ 10.09 $ 13.32 $ 16.70 $ 21.41
End #AUs..................................... 4,302,869 8,329,322 12,560,865 18,546,142 24,795,824
- ---------------------------------------------------------------------------------------------------------------------
Utility (Inception Date -- 6/3/96)
Beginning AUV................................ -- -- -- $ 10.00 $ 10.67
End AUV...................................... -- -- -- $ 10.67 $ 12.74
End #AUs..................................... -- -- -- 543,461 1,541,346
- ---------------------------------------------------------------------------------------------------------------------
Asset Allocation (Inception Date -- 7/1/93)
Beginning AUV................................ $ 10.00 $ 10.30 $ 10.17 $ 12.64 $ 14.97
End AUV...................................... $ 10.30 $ 10.17 $ 12.64 $ 14.97 $ 17.98
End #AUs..................................... 3,386,288 10,372,954 15,418,350 19,940,733 25,272,776
- ---------------------------------------------------------------------------------------------------------------------
Balanced/Phoenix Investment Counsel (Inception
Date -- 10/31/94)
Beginning AUV................................ -- $ 10.00 $ 9.95 $ 12.33 $ 13.82
End AUV...................................... -- $ 9.95 $ 12.33 $ 13.82 $ 15.45
End #AUs..................................... -- 51,759 2,441,901 4,583,234 5,415,312
- ---------------------------------------------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date -- 6/3/96)
Beginning AUV................................ -- -- -- $ 10.00 $ 11.04
End AUV...................................... -- -- -- $ 11.04 $ 13.22
End #AUs..................................... -- -- -- 817,039 2,447,948
- ---------------------------------------------------------------------------------------------------------------------
Worldwide High Income (Inception
Date -- 10/31/94)
Beginning AUV................................ -- $ 10.00 $ 9.95 $ 11.36 $ 14.20
End AUV...................................... -- $ 9.95 $ 11.36 $ 14.20 $ 15.98
End #AUs..................................... -- 53,315 1,040,828 3,196,739 6,368,247
- ---------------------------------------------------------------------------------------------------------------------
High-Yield Bond (Inception Date -- 2/9/93)
Beginning AUV................................ $ 10.00 $ 10.98 $ 10.35 $ 11.48 $ 12.99
End AUV...................................... $ 10.98 $ 10.35 $ 11.48 $ 12.99 $ 14.66
End #AUs..................................... 3,812,374 5,370,944 7,075,451 8,358,195 11,443,250
- ---------------------------------------------------------------------------------------------------------------------
Corporate Bond (Inception Date -- 7/1/93)
Beginning AUV................................ $ 10.00 $ 10.12 $ 9.63 $ 11.10 $ 11.65
End AUV...................................... $ 10.12 $ 9.63 $ 11.10 $ 11.65 $ 12.54
End #AUs..................................... 1,152,407 1,643,694 2,623,065 3,059,808 4,235,990
- ---------------------------------------------------------------------------------------------------------------------
Global Bond (Inception Date -- 7/1/93)
Beginning AUV................................ $ 10.00 $ 10.25 $ 9.78 $ 11.20 $ 12.25
End AUV...................................... $ 10.25 $ 9.78 $ 11.20 $ 12.25 $ 13.08
End #AUs..................................... 2,439,405 4,532,386 5,288,158 5,413,149 6,164,455
- ---------------------------------------------------------------------------------------------------------------------
Cash Management (Inception Date -- 2/9/93)
Beginning AUV................................ $ 10.00 $ 10.07 $ 10.27 $ 10.67 $ 11.04
End AUV...................................... $ 10.07 $ 10.27 $ 10.67 $ 11.04 $ 11.43
End #AUs..................................... 2,442,124 8,623,034 8,372,979 8,005,908 11,224,451
=====================================================================================================================
</TABLE>
AUV -- Accumulation Unit Value
AU -- Accumulation Units
AS OF THE DATE OF THIS PROSPECTUS, THE SALE OF CONTRACTS OFFERING THE "DOGS" OF
WALL STREET PORTFOLIO HAD NOT BEGUN. THEREFORE, NO CONDENSED FINANCIAL
INFORMATION FOR THIS PORTFOLIO IS PRESENTED HERE.
A-2
<PAGE> 58
================================================================================
APPENDIX B -- MARKET VALUE ADJUSTMENT
================================================================================
The market value adjustment reflects the impact that changing interest rates
have on the value of money invested at a fixed interest rate. The longer the
period of time remaining in the term you initially agreed to leave your money in
the fixed investment option, the greater the impact of changing interest rates.
The impact of the market value adjustment can be either positive or negative,
and is computed by multiplying the amount withdrawn, transferred or annuitized
by the following factor:
[(1+I/(1+J+0.005)](N/12) - 1
The market value adjustment formula may differ in certain states
where:
I is the interest rate you are earning on the money invested in the
fixed investment option;
J is the interest rate then currently available for the period of time
equal to the number of years remaining in the term you initially agreed
to leave your money in the fixed investment option; and
N is the number of full months remaining in the term you initially
agreed to leave your money in the fixed investment option.
EXAMPLES OF THE MARKET VALUE ADJUSTMENT
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to the
10-year fixed investment option at a rate of 7%;
(2) You make a partial withdrawal of $4,000 when 1 1/2 years (18 months)
remain in the 10-year term you initially agreed to leave your money in
the fixed investment option (N=18); and
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals.
No withdrawal charges are reflected because your Purchase Payment has been in
the contract for seven full years. If a withdrawal charge applies, it is
deducted before the market value adjustment. The market value adjustment is
assessed on the amount withdrawn less any withdrawal charge.
NEGATIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year fixed investment option is 7.5% and the 3-year
fixed investment option is 8.5%. By linear interpolation, the interest rate for
the remaining 2 years (1 1/2 years rounded up to the next full year) in the
contract is calculated to be 8%.
<TABLE>
<C> <C> <S>
The market value adjustment factor is = [(1+I)/(1+J+0.005)](N/12) - 1
= [(1.07)/(1.08+0.005)](18/12) - 1
= (0.986175)(1.5) - 1
= 0.979335 - 1
= - 0.020665
</TABLE>
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
$4,000 x (- 0.020665) = -$82.66
$82.66 represents the market value adjustment that will be deducted from the
money remaining in the 10-year fixed investment option.
POSITIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for a new
Purchase Payments in the 1-year fixed investment option is 5.5% and the 3-year
fixed investment option is 6.5%. By linear interpolation, the interest rate for
the remaining 2 years (1 1/2 years rounded up to the next full year) in the
contract is calculated to be 6%.
<TABLE>
<C> <C> <S>
The market value adjustment factor is = [(1+I/(1+J+0.005)](N/12) - 1
= [(1.07)/(1.06+0.005)](18/12) - 1
= (1.004695)(1.5) - 1
= 1.007051 - 1
= + 0.007051
</TABLE>
The requested withdrawal amount is multiplied by the market value adjustment
factor to determine the market value adjustment:
<TABLE>
<C> <C> <S>
$4,000 x (+0.007051) = +$28.20
</TABLE>
$28.20 represents the market value adjustment that would be added to your
withdrawal.
B-1
<PAGE> 59
================================================================================
APPENDIX C -- PREMIUM TAXES
================================================================================
Premium taxes vary according to the state and are subject to change without
notice. In many states, there is no tax at all. Listed below are the current
premium tax rates in those states that assess a premium tax. For current
information, you should consult your tax adviser.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
QUALIFIED NON-QUALIFIED
STATE CONTRACT CONTRACT
- ---------------------------------------------------------------------------
<S> <C> <C>
California .50% 2.35%
- ---------------------------------------------------------------------------
District of Columbia 2.25% 2.25%
- ---------------------------------------------------------------------------
Kentucky 2% 2%
- ---------------------------------------------------------------------------
Maine 0% 2%
- ---------------------------------------------------------------------------
Nevada 0% 3.5%
- ---------------------------------------------------------------------------
South Dakota 0% 1.25%
- ---------------------------------------------------------------------------
West Virginia 1% 1%
- ---------------------------------------------------------------------------
Wyoming 0% 1%
===========================================================================
</TABLE>
C-1
<PAGE> 60
- --------------------------------------------------------------------------------
Please forward a copy (without charge) of the Polaris Variable Annuity
Statement of Additional Information to:
(Please print or type and fill in all information.)
----------------------------------------------------------------
Name
----------------------------------------------------------------
Address
----------------------------------------------------------------
City/State/Zip
Date: Signed:
Return to: Anchor National Life Insurance Company, Annuity Service Center,
P.O. Box 54299, Los Angeles, California 90054-0299.
- --------------------------------------------------------------------------------
<PAGE> 61
PART II
-------
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
Not Applicable
Item 14. Indemnification of Directors and Officers.
Not Applicable
Item 15. Recent Sales of Unregistered Securities.
Not Applicable
Item 16. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
(1) Form of Underwriting Agreement***
(2) Plan of Acquisition, Reorganization,
Arrangement, Liquidation or Succession**
(3) (a) Articles of Incorporation***
(b) By-Laws***
(4) (a) Polaris Fixed and Variable Annuity
Contract*
(b) Polaris Participant Enrollment Form*
(5) Opinion of Counsel re: Legality***
(6) Opinion re Discount on Capital Shares**
(7) Opinion re Liquidation Preference**
(8) Opinion re Tax Matters**
(9) Voting Trust Agreement**
(10) Material Contracts**
(11) Statement re Computation of Per Share
Earnings**
(12) Statement re Computation of Ratios**
(14) Material Foreign Patents**
(15) Letter re Unaudited Financial Information**
(16) Letter re Change in Certifying Accountant**
(21) Subsidiaries of Registrant***
(23) (a) Consent of Independent Accountants*
(b) Consent of Attorney***
(24) Powers of Attorney***
(25) Statement of Eligibility of Trustee**
(26) Invitation for Competitive Bids**
(27) Financial Data Schedule*
(28) Information Reports Furnished to State
Insurance Regulatory Authority**
(29) Other Exhibits**
</TABLE>
* Herewith
** Not Applicable
*** Previously Filed
<PAGE> 62
Item 17. Undertakings.
The undersigned registrant, Anchor National Life Insurance
Company, hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment hereof)
which, individually or in the aggregate, represents a
fundamental change in the information in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
<PAGE> 63
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, and the State of California, on this
19th day of March, 1998.
By: ANCHOR NATIONAL LIFE INSURANCE COMPANY
By: /s/ JAY S. WINTROB
---------------------------------------
Jay S. Wintrob
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
ELI BROAD* President, Chief Executive
- ---------------- Officer, & Chairman of
Eli Broad Board
(Principal Executive Officer)
SCOTT L. ROBINSON* Senior Vice President &
- ---------------- Director
Scott L. Robinson (Principal Financial Officer)
N. SCOTT GILLIS* Senior Vice President &
- ---------------- Controller
N. Scott Gillis (Principal Accounting Officer)
JAMES R. BELARDI* Director
- ----------------
James R. Belardi
LORIN M. FIFE* Director
- ----------------
Lorin M. Fife
JANA W. GREER* Director
- ----------------
Jana W. Greer
JAY S. WINTROB* Director
- ----------------
Jay S. Wintrob
/s/ SUSAN L. HARRIS Director March 19, 1998
- -------------------
Susan L. Harris
PETER McMILLAN* Director
- ----------------
Peter McMillan
JAMES W. ROWAN* Director
- -----------------
James W. Rowan
*By: /s/ SUSAN L. HARRIS Attorney-in-Fact
-----------------------
Susan L. Harris
</TABLE>
Date: March 19, 1998
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
(4)(a) Polaris Fixed and Variable Annuity Contract
(4)(b) Polaris Participant Enrollment Form
(23)(a) Consent of Independent Accountants
(27) Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4A
Anchor National Life Insurance Company
A STOCK COMPANY -- LOS ANGELES, CALIFORNIA
CERTIFICATE NUMBER
PARTICIPANT
EXECUTIVE OFFICE ANNUITY SERVICE CENTER
11601 WILSHIRE BOULEVARD P.O. BOX 54299
LOS ANGELES, CA 90025 LOS ANGELES, CA 90054-0299
ANCHOR NATIONAL LIFE INSURANCE COMPANY (the "Company" or "Anchor National")
agrees to provide benefits to the Participant in the Group Contract, subject to
the provisions set forth in this Contract and in consideration of the
Participant's Enrollment Form and Purchase Payments We receive.
This Contract is evidence of coverage under the Group Contract if a Participant
Enrollment Form is attached. The coverage will begin as of the Certificate Date,
shown on the Certificate Data Page.
The value of amounts allocated to the Separate Account during the accumulation
and annuity periods is not guaranteed, and will increase or decrease based upon
the investment experience of the Fund underlying the Separate Account.
TEN DAY RIGHT TO EXAMINE CERTIFICATE - You may return this Certificate to our
Annuity Service Center within 10 days after you receive it. The Company will
refund the Contract Value for the valuation period in which the Certificate is
received. Upon such refund, the Certificate shall be void.
THIS IS A LEGAL CONTRACT. READ IT CAREFULLY.
/s/ SUSAN L. HARRIS /s/ ROBERT P. SALTZMAN
--------------------- ----------------------
Susan L. Harris Robert P. Saltzman
Secretary President
ALLOCATED FIXED AND VARIABLE
GROUP ANNUITY CERTIFICATE
Non-Participating
A-7019-CRT
<PAGE> 2
TABLE OF CONTENTS
Contract Data Page Page 3
Definitions Page 5
General Provisions Page 7
Conformity With State Laws; Changes in Law; Assignment; Misstatement
of Age or Sex; Written Notice; Proof of Age, Sex or Survival;
Non-Participating; Periodic Reports; Premium Taxes; Change of Annuitant;
Deferment of Payments; Suspension of Payments; Purchase Payments;
Substitution of Fund; Separate Account
Accumulation Provisions Page 9
Separate Account Accumulation Value; Number of Accumulation Units;
Accumulation Unit Value (AUV); Fixed Account Accumulation Value; Fixed
Account Guarantee Period Options; Market Value Adjustment
Charges and Deductions Page 11
Contract Administration Charge; Contingent Deferred Sales Charge;
Expense Risk Charge; Distribution Expense Charge; Mortality Risk Charge;
Guaranteed Death Benefit Risk Charge; Market Value Adjustment
Transfer Provision Page 12
Transfers of Accumulation Units Between Variable Accounts; Transfers
of Accumulation Units To and From the Fixed Account
Withdrawal Provision Page 13
Contingent Deferred Sales Charge
Death Benefit Provision Page 15
Proof of Death; Amount of Death Benefit; Beneficiary; Death of
Participant
Annuity Provisions Page 17
Payments to Participant; Fixed Annuity Payments; Amount of Fixed
Annuity Payments; Amount of Variable Annuity Payments
Annuity Options Page 19
<PAGE> 3
CERTIFICATE DATA PAGE
Certificate Number: Annuity Service Center
A2222222222 P.O. BOX 54299
LOS ANGELES, CA 90054-0299
Participant:
JOHN DOE
Annuitant:
JOHN DOE
Beneficiary:
JANE DOE
Annuity Date: Date of Issue:
JANUARY 01, 2012 JANUARY 01, 1997
Age at Issue: First Purchase Payment
$100,000.00
Maximum Age at Maturity:
85
Funds: Fixed Account-
SUNAMERICA SERIES TRUST Subsequent Guarantee Rate:
ANCHOR SERIES TRUST (3.0%)
Annual Contract Administration Charge:
$35.00
Separate Account:
MARKET VALUE ADJUSTMENT
All payments and values based on the Fixed Account are subject to a Market Value
Adjustment formula, the operation of which may result in upward and downward
adjustments in amounts payable. The Market Value Adjustment formula will not be
applied for:
(1) the payment of the Death Benefit,
(2) the amounts withdrawn to pay fees or charges, nor
(3) amounts withdrawn within 30 days after the end of the Guarantee Period.
<PAGE> 4
PURCHASE PAYMENT ALLOCATION
Variable Separate Account Options
Fixed Account Options
Guarantee
Period
<TABLE>
<S> <C> <C>
50.000% 1 Year Fixed 3.0
0.00% 3 Year Fixed
0.00% 5 Year Fixed
0.00% 7 Year Fixed
0.00% 10 Year Fixed
</TABLE>
Variable Account Options
------------------------
<TABLE>
<CAPTION>
SunAmerica Anchor
Series Trust Series Trust
<S> <C>
0.00% Cash Management 0.00% Government & Quality Bond
0.00% Corporate Bond 0.00% Growth
0.00% Global Bond 50.00% Natural Resource
0.00% High-Yield Bond 0.00% Capital Appreciation
0.00% Worldwide High Income
0.00% SunAmerica Balanced
0.00% Balanced/Phoenix
Investment Counsel
0.00% Asset Allocation
0.00% Utility
0.00% Growth-Income
0.00% Federated Value
0.00% Venture Value
0.00% "Dogs" of Wall Street
0.00% Alliance Growth
0.00% Growth/Phoenix
Investment Counsel
0.00% Putnam Growth
0.00% Real Estate
0.00% Aggressive Growth
0.00% International Growth
and Income
0.00% Global Equities
0.00% International Diversified
Equities
0.00% Emerging Markets
</TABLE>
<PAGE> 5
DEFINITIONS
ACCUMULATION UNIT
A unit of measurement used to compute the Contract Value in a Variable Account
prior to the Annuity Date.
ANNUITY SERVICE CENTER As specified on the Certificate Data Page.
ANNUITANT
The natural person on whose life the annuity benefit for the Certificate is
based.
ANNUITY DATE
The date on which annuity payments to a Participant are to start. The latest
possible Annuity Date will be set by Us.
ANNUITY UNIT
A unit of measurement used to compute annuity payments in a Separate Account.
CERTIFICATE
This form which described Your interest in the Group Contract.
CERTIFICATE DATE
The date Your Certificate is issued, shown on the Certificate Date Page.
CONTRACT HOLDER
The individual or entity who has applied for the Group Contract on behalf of the
Participants.
CONTRACT VALUE
The sum of Your share of the Variable Accounts' Accumulation Values and Fixed
Account Accumulation Values.
CONTRACT YEAR
A year starting from the Certificate Date in one calendar year and ending on the
Certificate Date in the succeeding calendar year.
CURRENT INTEREST RATE
The sum of the Subsequent Guarantee Rate and the Excess Interest Rate declared
by Us for any Guarantee Period.
DEFERRED ANNUITY
An annuity Contract under which the start of annuity payments is deferred to a
future date.
EXCESS INTEREST RATE
A rate of interest declared by Us in excess of the Subsequent Guarantee Rate for
any Guarantee Period.
FIXED ACCOUNT
Amounts allocated to the Fixed Account under the Certificate are allocated to
and made a part of the general account assets of the Company. Amounts allocated
to the Fixed Account for any Guaranteed Period will be credited with interest at
the Subsequent Guarantee Rate, and in addition, an Excess Interest Rate which We
may declare at Our discretion.
FIXED ANNUITY
A series of periodic payments for the benefit of a Participant of predetermined
amounts that do not vary with investment experience. Such payments are made out
of the general account of the Company.
FUND
A collective term used to represent an investment entity, which may be selected
by the Participant to be an underlying investment of the Participant's
Certificate.
GUARANTEE PERIOD
The period for which the Current Interest Rate is credited.
<PAGE> 6
IRC
The Internal Revenue Code of 1986, as amended, as the same may be amended or
superceded.
PARTICIPANT
The person named in a Certificate who is entitled to exercise all rights and
privileges of ownership under a Certificate.
PAYEE
Any person receiving payment of annuity benefits under this Certificate during
the Annuity Period.
PURCHASE PAYMENTS
Payments made by or on behalf of the Participant to the Company for the
Certificate.
SEPARATE ACCOUNT
A segregated asset account named on the Certificate Data Page, established by
the Company in accordance with California law. The Separate Account consists of
several Variable Accounts, each investing in a separate Series of the Fund. The
Prospectus should be read for complete details regarding Separate Account
contracts.
SERIES
A separate investment portfolio of a Fund which has distinct investment
objectives. Each Series serves as an underlying investment medium for Purchase
Payments and allocations made to one of the Variable Accounts of the Separate
Account.
SUBSEQUENT GUARANTEE RATE
The rate of interest established by the Company for the applicable subsequent
Guarantee Period, but in no event less than the rate specified on the
Certificate Data Page.
VALUATION PERIOD
The period beginning at the close of business of the New York Stock Exchange on
each day that the New York Stock Exchange is open for business and ending at the
close of the next succeeding business day of the New York Stock Exchange.
VARIABLE ACCOUNT
A division of the Separate Account, the assets of which consist of a specified
Series of a Fund. The available Variable Accounts are shown on the Certificate
Data Page.
VARIABLE ANNUITY
A series of periodic payments which vary in amount according to the investment
experience of a Variable Account.
WE, OUR, US, THE COMPANY
Anchor National Life Insurance Company.
YOU, YOUR
The Participant.
<PAGE> 7
GENERAL PROVISIONS
CONFORMITY WITH STATE LAWS
This Certificate will be interpreted under the law of the state in which it is
delivered. Any provision which, on the Certificate Date, is in conflict with the
law of such state is amended to conform to the minimum requirements of such law.
A detailed statement of how We calculate the values in this Certificate has been
filed with the insurance department where the Certificate was delivered. These
values are at least as great as those required by law.
CHANGES IN LAW
If laws governing this Certificate or the taxation of benefits under the Group
Contract change, We will amend the Group Contract and this Certificate to comply
with these changes.
ASSIGNMENT
The Participant may assign this Certificate before the Annuity Date, but We will
not be bound by an assignment unless it is in writing and We have received it.
Participant's rights and those of any other person referred to in this
Certificate will be subject to the assignment. We assume no responsibility for
the validity or tax consequences of any assignment.
MISSTATEMENT OF AGE OR SEX
If the age or sex of any Annuitant has been misstated, future payments will be
adjusted using the correct age and sex, according to Our rates in effect on the
date that annuity payments were determined. Any overpayment from the Fixed
Account, plus interest at the rate of 4% per year, will be deducted from the
next payment(s) due. Any underpayment from the Fixed Account, plus interest at
the rate of 4% per year, will be paid in full with the next payment due. Any
overpayment from the Variable Accounts will be deducted from the next payment(s)
due. Any underpayment from the Variable Accounts will be paid in full with the
next payment due.
WRITTEN NOTICE
Any notice We send to the Participant will be sent to Participant's address
shown in the Participant Enrollment Form unless the Participant requests
otherwise. Any written request or notice to Us must be sent to our Annuity
Service Center, as specified on the Certificate Data Page.
PROOF OF AGE, SEX OR SURVIVAL
The Company may require satisfactory proof of correct age or sex at any time. If
any payment under this Certificate depends on the Annuitant being alive, the
Company may require satisfactory proof of survival.
NON-PARTICIPATING
This Contract does not share in Our surplus.
PERIODIC REPORTS
The Company will furnish each Participant with a statement of the Variable and
Fixed Account balances periodically.
PREMIUM TAXES
The Company may deduct from the Contract Value any premium or other taxes
payable to a state or other government entity. Should We advance any amount so
due, We are not waiving any right to collect such amounts at a later date. The
Company will deduct any withholding taxes required by applicable law.
CHANGE OF ANNUITANT
Prior to the Annuity Date, the Participant may change the Annuitant. To be
effective, such a change must be received by Us in a written form acceptable to
Us.
DEFERMENT OF PAYMENTS
We may defer making payments from the Fixed Account for up to 6 months.
Interest, subject to state requirements, will be credited during the deferral
period.
<PAGE> 8
SUSPENSION OF PAYMENTS
We may suspend or postpone any payments from the Variable Accounts if any of the
following occur:
(a) The New York Stock Exchange is closed.
(b) Trading on the New York Stock Exchange is restricted.
(c) An emergency exists such that it is not reasonably practical to
dispose of securities in the Separate Account or to determine the
value of its assets, or
(d) The Securities and Exchange Commission, by order, so permits for the
protection of security holders.
Conditions in (b) and (c) will be decided by or in accordance with rules of the
Securities and Exchange Commission.
PURCHASE PAYMENTS
Purchase Payments are flexible. This means that You, subject to Company declared
minimums and maximums, may change the amounts, frequency or timing of Purchase
Payments. Purchase Payments may be allocated among one or more of the Fixed
Account Options and one or more Variable Accounts of the Separate Account in
accordance with instructions from You. We reserve the right to specify the
minimum that may be allocated to a Variable Account under the Certificate.
SUBSTITUTION OF FUND
If the shares of any of the Funds or any Series of the Fund should no longer be
available for investment by the Separate Account or if, in the judgment of the
Company's Board of Directors, further investment in the shares of a Fund is no
longer appropriate in view of the purpose of the Contract, the Company may
substitute shares of another mutual fund for Fund shares already purchased or to
be purchased in the future by Purchase Payments under the Contract. No
substitution of securities may take place without prior approval of the
Securities and Exchange Commission and under such requirements as it may impose.
SEPARATE ACCOUNT
The Separate Account is a separate investment account of the Company. It is
shown on the Contract Data Page. The assets of the Separate Account are the
property of the Company. However, they are not chargeable with the liabilities
arising out of any other business the Company may conduct. Each Variable Account
is not chargeable with liabilities arising out of any other Variable Account.
<PAGE> 9
ACCUMULATION PROVISIONS
SEPARATE ACCOUNT ACCUMULATION VALUE
The Separate Account Accumulation Value under the Certificate shall be the sum
of the values of the Accumulation Units held in the Variable Accounts for the
Participant.
NUMBER OF ACCUMULATION UNITS
For each Variable Account, the number of Accumulation Units is the sum of:
Each Purchase Payment and transfer allocated to the Variable Account, reduced by
applicable premium taxes, if any:
Divided by
The Accumulation Unit Value for that Variable Account as of the Valuation Period
in which the Purchase Payment or transfer amount is received.
The number of Accumulation Units will be adjusted for withdrawals,
annuitizations, transfers, and charges. Adjustments will be made as of the
Valuation Period in which We receive all requirements for the transaction, as
appropriate.
ACCUMULATION UNIT VALUE (AUV)
The AUV of a Variable Account for any Valuation Period is calculated by
subtracting (2) from (1) and dividing the result by (3) where:
(1) is the total value at the end of the given Valuation Period of
the assets attributable to the Accumulation Units of the
Variable Account minus the total liabilities;
(2) is the cumulative unpaid charge for assumption of mortality,
expense distribution expense and guaranteed death benefit
expense risks (See CHARGES AND DEDUCTIONS);
(3) is the number of Accumulation Units outstanding at the end of
the given Valuation Period.
FIXED ACCOUNT ACCUMULATION VALUE
The Fixed Account Accumulation Value under a Certificate shall be the sum of all
monies allocated or transferred to the Fixed Account, reduced by any applicable
premium taxes, plus all interest credited on the Fixed Account during the period
that the Certificate has been in effect. This amount shall be adjusted for
withdrawals, annuitizations, transfers, and charges.
FIXED ACCOUNT GUARANTEE PERIOD OPTIONS
For any amounts allocated to the Fixed Account, the Participant will select the
duration of the Guarantee Period(s) from those listed on the Certificate Data
Page. Such amounts will earn interest at the Current Interest Rate for the
chosen duration, compounded annually during the entire Guarantee Period. In no
event will the Current Interest Rate be less than the Subsequent Guarantee Rate
specified on the Certificate Data Page.
You may allocate Purchase Payments, or make transfers from the Variable Account
Options, to the Fixed Account at any time prior to the latest Annuity Date.
However, no Guarantee Period other than one year may be chosen which extends
beyond the latest Annuity Date. For thirty (30) days following the date of
expiration of the current Guarantee Period, You may renew for the same or any
other Guarantee Period at the then Current Interest Rate or may transfer all or
a portion of the amount to the Variable Accounts. Transfers from the Fixed
Account may take place thirty (30) days following the end of a Guarantee Period
without being subject to Market Value Adjustment (MVA). If the Participant does
not specify a Guarantee Period at the time of renewal, We will select the same
Guarantee Period as has just expired, so long as such Guarantee Period does not
extend beyond the latest Annuity Date. If such Guarantee Period does extend
beyond the latest Annuity Date, We will choose the longest period that will not
extend beyond such date. If a renewal occurs within one year of the latest
Annuity Date We will credit interest up to the latest Annuity Date at the then
Current Interest Rate for the one year Guarantee Period.
<PAGE> 10
MARKET VALUE ADJUSTMENT
Except on the latest Annuity Date of the chosen Guarantee Period, any amount
withdrawn, transferred or annuitized prior to the end of that Guarantee Period
may be subject to a MVA. The MVA will be calculated by multiplying the amount
withdrawn, transferred or annuitized by the formula described below:
{(1+I)/(1+J+0.005)} to the n/12-1 power
I= The interest rate currently in effect for that Guarantee Period.
J= The Current Interest Rate available for the Guarantee Period equal to the
number of years (rounded up to an integer) remaining in the current Guarantee
Period at the time of withdrawal, transfer or annuitization. In the
determination of J, if the Company currently does not offer the applicable
Guarantee Period, then the rate will be determined by linear interpolation of
the current rates for the nearest two Guarantee Periods that are available.
N= The number of full months remaining in the current Guarantee Period at the
time the withdrawal or annuitization request is processed.
There will be no Market Value Adjustment on withdrawals from the Fixed Account
in the following situations: (1) Death Benefit paid upon death of the
Participant; (2) amounts withdrawn to pay fees or charges; and (3) amounts
withdrawn from the Fixed Account within thirty (30) days after the end of the
Guarantee Period.
<PAGE> 11
CHARGES AND DEDUCTIONS
We will deduct the following charges from the Certificate:
CONTRACT ADMINISTRATION CHARGE
The charge specified on the Certificate Data Page will be deducted on each
Certificate anniversary that occurs on or prior to the Annuity Date. It will
also be deducted when the Contract Value is withdrawn in full if withdrawal is
not on a Certificate anniversary. We reserve the right to assess a charge on a
class basis which is less than the charge specified on the Certificate Data
Page.
CONTINGENT DEFERRED SALES CHARGE
This charge may be deducted upon withdrawal of the Contract Value, in whole
or in part. See WITHDRAWAL PROVISIONS.
EXPENSE RISK CHARGE
On an annual basis this charge equals 0.35% of the average daily total net asset
value of the Variable Accounts. This charge is to compensate Us for assuming the
expense risks under the Certificate.
DISTRIBUTION EXPENSE CHARGE
On an annual basis this charge equals 0.15% of the average daily total net asset
value of the Variable Account. This charge is to compensate Us for all
distribution expenses associated with the Certificate.
MORTALITY RISK CHARGE
On an annual basis this charge equals 0.9% of the average daily total net asset
value of the Variable Account. This charge is to compensate Us for assuming the
mortality risks under the Certificate.
GUARANTEED DEATH BENEFIT RISK CHARGE
On an annual basis this charge equals 0.12% of the average daily total net asset
value of the Variable Account. This charge is to compensate Us for the risk
assumed as a result of contractual obligations to provide an enhanced minimum
guaranteed Death Benefit prior to the Annuity Date.
MARKET VALUE ADJUSTMENT
See MARKET VALUE ADJUSTMENT section.
<PAGE> 12
TRANSFER PROVISION
Prior to the Annuity Date, You may transfer all or part of Your Contract Value
to any of the Variable Accounts or the Fixed Account, subject to certain
restrictions.
We reserve the right to charge a fee for transfers if the number of transfers
exceeds the limit specified by Us.
Transfers will be effected at the end of the Valuation Period in which We
receive Your request for the transfer.
TRANSFERS OF ACCUMULATION UNITS BETWEEN VARIABLE ACCOUNTS
Both prior to and after the Annuity Date, You may transfer all or a portion of
Your investment in one Variable Account to another Variable Account. A transfer
will result in the purchase of Accumulation Units in a Variable Account and the
redemption of Accumulation Units in the other Variable Account.
The minimum amount which can be transferred between Variable Accounts and the
amount that can remain in the Variable Account is subject to Company limits.
TRANSFERS OF ACCUMULATION UNITS TO AND FROM THE FIXED ACCOUNT
Both prior to and after the Annuity Date, You may transfer all or any part of
the Contract Value from the Variable Account(s) to the Fixed Account of the
Certificate. After the Annuity Date no transfers from the Fixed Account to the
Variable Account are allowed. For transfers from the Fixed Account prior to the
Annuity Date see ACCUMULATION PROVISIONS - FIXED ACCOUNT ACCUMULATION VALUE.
The amount transferred to the Fixed Account from a Variable Account will be
equal to the annuity reserve for the Payee's interest in that Variable Account.
The annuity reserve is the product of (a) multiplied by (b) multiplied by (c),
where
(a) is the number of Annuity Units representing the
Participant's interest in the Variable Account;
(b) is the Annuity Unit Value for the Variable Account; and
(c) is the present value of $1.00 per payment period as of the
age of the Annuitant at the time of transfer for the Annuity
Option, determined using the 1983a Annuity Mortality Tables
with interest at 3.5% per year.
Amounts transferred to the Fixed Account will be applied under the Annuity
Option at the age of the Annuitant at the time of the transfer. All amounts and
Annuity Unit Values will be determined as of the end of the Valuation Period
preceding the effective date of the transfer.
<PAGE> 13
WITHDRAWAL PROVISION
Prior to the Annuity Date while the Annuitant is living, You may withdraw all or
part of the Contract Value amounts under this Certificate by informing Us at Our
Annuity Service Center. For full withdrawal, this Certificate must be returned
to Our Annuity Service Center.
Absent written notification to the contrary, withdrawals and any applicable
charge will be deducted from the Contract Value in proportion to its allocation
among the Fixed Account and the Variable Accounts. Withdrawals will be based on
values at the end of the Valuation Period in which the request for withdrawal
and the Certificate (in the case of a full withdrawal), are received at the
Annuity Service Center. Unless the SUSPENSION OF PAYMENTS or DEFERMENT OF
PAYMENTS sections are in effect, payment of withdrawals will be made within
seven days. Market Value Adjustment may be applied to withdrawals.
CONTINGENT DEFERRED SALES CHARGE
Withdrawal of all or part of the Contract Value may be subject to a Contingent
Deferred Sales Charge (CDSC). However, no CDSC is made on an amount withdrawn
which is considered to be a withdrawal of earnings.
In addition, for the first withdrawal of a Contract Year, no Contingent Deferred
Sales Charge is applied to such part of the withdrawal which does not exceed the
larger of (a) earnings in the Certificate or (b) the Free Corridor. The Free
Corridor is equal to 10% of the sum of Purchase Payments made more than one year
prior to the date of withdrawal, are still subject to CDSC, and are not yet
withdrawn. The portion of a free withdrawal, which exceeds the sum of earnings
attributable to the Participant and premiums which are both no longer subject to
CDSC and not yet withdrawn, is assumed to be a withdrawal against future
earnings. We reserve the right to allow the Free Corridor to include all
Purchase Payments still subject to CDSC which are not yet withdrawn. If this is
done, it will apply to all Participants and Participants will be notified of
such change.
For the purpose of determining the CDSC, a withdrawal will be attributed to
amounts in the following order: (1) earnings in the Certificate, (2) Purchase
Payments which are both no longer subject to CDSC and are not yet withdrawn, and
(3) Purchase Payments subject to CDSC. Purchase Payments, when withdrawn, are
assumed to be withdrawn on a first-in first-out (FIFO) basis. The charge applied
to any withdrawal subject to CDSC will depend on the age of the Purchase
Payments to which the withdrawal is attributed.
Number of Full Contract Years Elapsed Contingent
Between Contract Year of Withdrawal Deferred
and Contract Year of Purchase Payment Sales Charge
======================================== ===============
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7+ 0%
The CDSC will be assessed against the Variable Accounts and the Fixed Account in
the same proportion as the remaining Contract Value is allocated unless the
allocation is specified by the Participant. If the remaining Contract Value is
insufficient to cover the Contingent Deferred Sales Charge, any remaining
balance will be deducted from the dollar amount requested.
In addition to a CDSC, a withdrawal from the Fixed Account may also incur a
Market Value Adjustment. See ACCUMULATION PROVISIONS - MARKET VALUE ADJUSTMENT
for further details.
<PAGE> 14
DEATH BENEFIT PROVISION
We will pay a Death Benefit to the Beneficiary upon Our receiving due proof that
the Participant died prior to the Annuity Date. The Beneficiary may elect to
receive a single sum distribution or to receive annuity payments. If a single
sum payment is requested, payment will be in accordance with any applicable laws
and regulations governing payments on death. If an Annuity Option is desired, an
Option must be elected within 60 days of Our receipt of due proof of the
Participant's death at our Annuity Service Center; otherwise a single sum
payment will be made at the end of such 60 day period. Funds will remain
allocated pursuant to the last allocation and instructions in effect at the
Participant's death until Our Annuity Service Center receives new written
instructions.
PROOF OF DEATH Due Proof of Death means:
1. a copy of a certified death certificate; OR
2. a copy of a certified decree of a court of competent jurisdiction as
to the finding of death; OR
3. a written statement by a medical doctor who attended the deceased
Participant at the time of death; OR
4. any other proof satisfactory to Us.
AMOUNT OF DEATH BENEFIT
The amount of the Death Benefit is equal to the greater of:
1. the Contract Value at the end of the Valuation Period during which We
receive at Our Annuity Service Center due proof of the Participant's
death and an election of the type of payment to be made; OR
2. the total amount of Purchase Payments compounded at 4% interest, minus
the sum of (a) the total amount of partial withdrawals and partial
annuitizations compounded at 4% interest, and
(b) premium taxes incurred, compounded at 4%; OR
3. After the seventh Contract Year, the Contract Value at the seventh
Certificate Anniversary compounded at 4% interest, plus (a) any
Purchase Payments since the seventh anniversary,
compounded at 4% minus the sum of
(b) the total amount of partial withdrawals and partial
annuitizations since the seventh anniversary, compounded at
4%, and
(c) premium taxes incurred since the seventh anniversary,
compounded at 4%.
If the Participant was age 70 or older on the date of issue, both (2) and (3)
above will be compounded at 3%, rather than 4%. If the Death Benefit is paid on
the death of a Participant who was not originally named in the application and
was age 70 or older on the date of issue, both (2) and (3) above will be
compounded at 3% rather than 4%.
BENEFICIARY
The Beneficiary is as stated in the Participant Enrollment Form unless later
changed by the Participant. If two or more persons are named, those surviving
the Participant will share equally unless otherwise stated. If the Annuitant
survives the Participant, and there are no surviving Beneficiaries, the
Annuitant will be deemed the Beneficiary. If the Participant is also the
Annuitant and there are no surviving Beneficiaries at the death of the
Participant, the Death Benefit will be paid to the estate of the Participant.
While the Participant is living and before the Annuity Date, the Participant may
change the Beneficiary by written notice in a form satisfactory to Us. The
change will take effect on the date We receive the notice.
<PAGE> 15
DEATH OF PARTICIPANT
If the Participant dies before the Annuity Date, the Beneficiary will have
the following options;
1. Collect the Death Benefit in a lump sum payment; OR
2. Collect the Death Benefit in the form of one of the Annuity Options.
The payments must be over the life of the Beneficiary or over a period
not extending beyond the life expectancy of the Beneficiary. This
option must be selected and payments commence within one year after
Participant's death, OR
3. Receive the entire Contract Value adjusted for Contingent Deferred
Sales Charge and Market Value Adjustment, if applicable, within 5 years
of the date of death of the Participant, OR
4. If the Beneficiary is the Participant's spouse, the Beneficiary may
continue the Contract in force.
If there is no surviving Beneficiary, the Death Benefit will be paid in a lump
sum to the Participant's estate. If there is more than one surviving
Beneficiary, the Beneficiaries must choose to receive their respective portions
of the Death Benefit according to either (1), (2) or (3) above.
<PAGE> 16
ANNUITY PROVISIONS
PAYMENTS TO PARTICIPANT
Unless otherwise requested by the Participant, the Company will make annuity
payments to the Participant. If the Participant wants the annuity payments to be
made to some other Payee, We will make such payments subject to the following:
(a) A written request must be filed at the Annuity Service Center.
(b) Such request must be filed not later than thirty (30) days before
the due date of the first annuity payment.
Any such request is subject to the rights of any assignee. No payments available
to or being paid to the Payee while the Annuitant is alive can be transferred,
commuted, anticipated or encumbered.
FIXED ANNUITY PAYMENTS
To the extent a fixed Annuity Option has been elected, the proceeds payable
under this Certificate less any applicable premium taxes, shall be applied to
the payment of the Annuity Option elected at whichever of the following is more
favorable to the Payee: (a) the annuity rates based upon the applicable tables
in the Certificate; or (b) the then current rates provided by the Company on
Contracts of this type on the Annuity Date. In no event will the fixed annuity
payments be changed once they begin.
AMOUNT OF FIXED ANNUITY PAYMENTS
The amount of each Fixed Annuity payment will be determined by applying the
portion of the Contract Value allocated to Fixed Annuity Payments less any
applicable premium taxes, charges and the MVA to the annuity table applicable to
the Annuity Option chosen.
AMOUNT OF VARIABLE ANNUITY PAYMENTS
(a) FIRST VARIABLE PAYMENT: The dollar amount of the first monthly
annuity payment will be determined by applying the portion of the
Contract Value allocated to Variable Annuity Payments, less any
applicable Premium Taxes, to the annuity table applicable to the
Annuity Option chosen. If more than one Variable Account has been
selected, the value of the Participant's interest in each Variable
Account is applied separately to the annuity table to determine the
amount of the first annuity payment attributable to the Variable
Account.
(b) NUMBER OF VARIABLE ANNUITY UNITS: The number of Annuity Units for each
applicable Variable Account is the amount of the first annuity payment
attributable to that Variable Account divided by the value of the
applicable Annuity Unit for that Variable Account as of the Annuity
Date. The number will not change as a result of investment experience.
(c) VALUE OF EACH VARIABLE ANNUITY UNIT: The initial value of an
Annuity Unit of each Variable Account was arbitrarily set at $10
when the Variable Accounts were established. The value may increase
or decrease from one Valuation Period to the next. For any
Valuation Period, the value of an Annuity Unit of a particular
Variable Account is the value of that Annuity Unit during the last
Valuation Period, multiplied by the Net Investment Factor for that
Variable Account for the current Valuation Period.
The Net Investment Factor for any Variable Account for any Valuation Period is
determined by dividing (a) by (b) and then subtracting (c) from the result
where:
(a) is the net result of:
(1) the net asset value of a Series of the Fund share
held in the Variable Account determined as of the end
of the Valuation Period, plus
(2) the per share amount of any dividend or other
distribution declared by the Series of the Fund on
<PAGE> 17
the shares held in the Variable Account if the
"ex-dividend" date occurs during the Valuation
Period, plus or minus
(3) a per share credit or charge with respect to any
taxes paid or reserved for by the Company during the
Valuation Period which are determined by the Company
to be attributable to the operation of the Variable
Account (no federal income taxes are applicable under
present law)
(b) is the net asset value of a Series of the Fund share held in
the Variable Account determined as of the end of the preceding
Valuation Period; and
(c) is the asset charge factor determined by the Company for the
Valuation Period to reflect the Expense Risk Charge,
Distribution Expense Charge, Mortality Risk Charge, and
Guaranteed Death Benefit Risk Charge.
The result is then multiplied by a factor that neutralizes the Assumed
Investment Rate.
(d) SUBSEQUENT VARIABLE ANNUITY PAYMENTS: After the first Variable Annuity
payment, payments will vary in amount according to the investment
performance of the applicable Variable Accounts. The amount may change
from month to month. The amount of each subsequent payment is the sum
of:
The number of Annuity Units for each Variable Account as determined for the
first annuity payment
Multiplied by
The value of an Annuity Unit for that Variable Account at the end of the
Valuation Period immediately preceding in which payment is due.
The Company guarantees that the amount of each Variable Annuity payment will not
be affected by variations in expenses or mortality experience.
<PAGE> 18
ANNUITY OPTIONS
Upon written election filed with the Company at its Annuity Service Center, all
or part of the Contract Value may be applied to provide one of the following
options or any Annuity Option that is mutually agreeable. The portion of the
Contract Value which is in the Fixed Account immediately prior to the Annuity
Date, applied to an annuity may be subject to a Market Value Adjustment. See
ACCUMULATION PROVISIONS - MARKET VALUE ADJUSTMENT for further details.
OPTION 1 - LIFE ANNUITY, LIFETIME MONTHLY PAYMENTS GUARANTEED
Monthly payments payable to the Payee during the lifetime of the Annuitant. No
further payments are payable after the death of the Annuitant and there is no
provision for a Death Benefit payable to the Beneficiary.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
Monthly payments payable to the Payee during the joint lifetime of the Annuitant
and a designated second person and during the lifetime of the survivor.
If a reduced payment to the survivor is desired, Variable Annuity payments, will
be determined using either one-half or two-thirds of the number of each type of
Annuity Unit credited to the Certificate. Fixed monthly payments, will be equal
to either one-half or two-thirds of the fixed monthly payment payable during the
joint lifetime of the Annuitant and the designated second person.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY - 120 MONTHLY PAYMENTS GUARANTEED
Monthly payments payable to the Payee during the joint lifetime of the Annuitant
and designated second person and continuing during the remaining lifetime of the
survivor, with the guarantee that if, at the death of the survivor, payments
have been made for less than 120 monthly periods, any remaining guaranteed
annuity payments will be continued to the Beneficiary named on the Annuity
Option Selection Form. In the event of death of the Annuitant and the designated
second person under this option, the Certificate provides that in certain
circumstances, the discounted value of the remaining guaranteed annuity
payments, if any, will be calculated and paid in one sum.
OPTION 4 - LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED
An annuity payable monthly to the Payee during the lifetime of the Annuitant
with the guarantee that if, at the death of the Annuitant, payments have been
made for less than the 120 or 240 monthly periods, as selected, payments will be
made in the same manner as provided under OPTION 3 above. In the event of death
of the Annuitant under this option, the Certificate provides that in certain
circumstances, the discounted value of the remaining payments, if any, will be
calculated and paid in one sum.
OPTION 5 - FIXED PAYMENTS FOR A SPECIFIED PERIOD CERTAIN
Fixed monthly payments payable to the Payee for any specified period of time
(three (3) years or more, but not exceeding thirty (30) years), as elected. The
election must be made for full twelve month periods. In the event of death of
the Payee under this option, the Certificate provides that in certain
circumstances, the discounted value of the remaining payments, if any, will be
calculated and paid in one sum.
BASIS OF COMPUTATION
The actuarial basis for the Table of Guaranteed Annuity Rates is the 1983a
Annuity Mortality Table, without projection with interest at 3.5%. The Table of
Guaranteed Annuity Rates does not include any applicable premium tax.
<PAGE> 19
OPTIONS 1 & 4 - TABLE OF MONTHLY
INSTALLMENTS PER $1,000
(Monthly installments for ages not shown will be furnished upon request.)
<TABLE>
<CAPTION>
Option 1 Option 4 Option 4
Life Annuity Life Annuity
Age of (w/120 payments (w/240 payments
Payee Life Annuity guaranteed) guaranteed)
Male Female Male Female Male Female
<S> <C> <C> <C> <C> <C> <C>
55 4.99 4.54 4.91 4.51 4.66 4.38
56 5.09 4.62 5.00 4.58 4.72 4.44
57 5.20 4.71 5.10 4.66 4.78 4.51
58 5.32 4.80 5.20 4.75 4.85 4.57
59 5.44 4.90 5.31 4.84 4.91 4.64
60 5.57 5.00 5.42 4.93 4.97 4.70
61 5.71 5.11 5.54 5.03 5.04 4.77
62 5.86 5.23 5.67 5.14 5.10 4.84
63 6.02 5.36 5.80 5.25 5.16 4.91
64 6.20 5.49 5.94 5.37 5.22 4.98
65 6.38 5.64 6.08 5.50 5.28 5.05
66 6.58 5.79 6.23 5.63 5.33 5.12
67 6.79 5.95 6.38 5.77 5.38 5.19
68 7.02 6.13 6.54 5.91 5.43 5.25
69 7.26 6.32 6.71 6.07 5.48 5.32
70 7.52 6.53 6.87 6.23 5.52 5.37
71 7.80 6.75 7.04 6.40 5.55 5.43
72 8.09 6.99 7.22 6.58 5.59 5.48
73 8.41 7.26 7.39 6.76 5.62 5.52
74 8.75 7.54 7.57 6.95 5.64 5.56
75 9.12 7.85 7.75 7.14 5.66 5.60
76 9.51 8.18 7.92 7.34 5.68 5.63
77 9.92 8.54 8.09 7.54 5.70 5.66
78 10.37 8.94 8.26 7.74 5.71 5.68
79 10.85 9.36 8.42 7.94 5.72 5.70
80 11.37 9.82 8.57 8.13 5.73 5.71
81 11.92 10.32 8.71 8.32 5.74 5.72
82 12.50 10.87 8.85 8.50 5.74 5.73
83 13.12 11.46 8.97 8.67 5.75 5.74
84 13.78 12.09 9.09 8.83 5.75 5.74
85 14.47 12.78 9.20 8.97 5.75 5.75
</TABLE>
<PAGE> 20
OPTION 2 - TABLE OF MONTHLY INSTALLMENTS PER $1,000
(Monthly installments for ages not shown will be furnished upon request.)
Joint and Survivor Life Annuity
<TABLE>
<CAPTION>
Age of
Male
Payee Age of Female Payee
55 60 65 70 75 80 85
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
55 4.16 4.34 4.51 4.66 4.78 4.86 4.92
60 4.27 4.51 4.76 4.99 5.19 5.33 5.44
65 4.35 4.66 4.99 5.34 5.66 5.92 6.11
70 4.42 4.78 5.20 5.67 6.16 6.60 6.96
75 4.47 4.86 5.35 5.95 6.63 7.33 7.95
80 4.50 4.92 5.46 6.17 7.04 8.04 9.02
85 4.52 4.95 5.53 6.31 7.34 8.63 10.05
</TABLE>
OPTION 5 - TABLE OF MONTHLY INSTALLMENTS PER $1,000
Fixed Payment for Specified Period
<TABLE>
<CAPTION>
Number Mo. Number Mo. Number Mo. Number Mo.
of Yrs. Payment of Yrs. Payment of Yrs. Payment of Yrs. Payment
<S> <C> <C> <C> <C> <C> <C> <C>
3 29.19 10 9.83 17 6.47 24 5.09
4 22.27 11 9.09 18 6.20 25 4.96
5 18.12 12 8.46 19 5.97 26 4.84
6 15.35 13 7.94 20 5.75 27 4.73
7 13.38 14 7.49 21 5.56 28 4.63
8 11.90 15 7.10 22 5.39 29 4.53
9 10.75 16 6.76 23 5.24 30 4.45
</TABLE>
<PAGE> 1
[ANCHOR NATIONAL LOGO]
Anchor National Life New Business Documents New Business Documents
Insurance Company with checks: without checks:
1 Sun America Center P. O. Box 100330 P. O. Box 54299
Los Angeles, CA 90067-6022 Pasadena, CA 91189-0001 Los Angeles, CA 90054-0299
- --------------------------------------------------------------------------------
PARTICIPANT ENROLLMENT FORM R-5325NB (3/97)
DO NOT USE HIGHLIGHTER. Please Print or type.
A. PARTICIPANT [ ]Mr. [ ]Mrs. [ ]Ms. [ ]Miss. [ ]Dr. [ ]Sr. [ ]Jr.
-----------------------------------------------------------------
LAST NAME FIRST NAME MIDDLE INITIAL
-----------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP CODE
MO DAY YR. [ ]M [ ]F
----------------- ---------- ------------------------ ---------
DATE OF BIRTH SEX SOC.SEC OR TAX ID NUMBER TELEPHONE
NUMBER
MO DAY YR.
-----------------
ANNUITY DATE
JOINT PARTICIPANT
(IF ANY, MUST BE SPOUSE) ________________________________________
LAST NAME FIRST NAME MIDDLE INITIAL
-----------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP CODE
MO DAY YR. [ ]M [ ]F
----------------- ---------- ------------------------ ---------
DATE OF BIRTH SEX SOC.SEC OR TAX ID NUMBER TELEPHONE
NUMBER
B. ANNUITANT _________________________________________________________________
(Complete only LAST NAME FIRST NAME MIDDLE INITIAL
if different _________________________________________________________________
from STREET ADDRESS CITY STATE ZIP CODE
participant)
MO DAY YR. [ ]M [ ]F
----------------- ---------- ------------------------ ---------
DATE OF BIRTH SEX SOC.SEC OR TAX ID NUMBER TELEPHONE
NUMBER
C. BENEFICIARY _________________________________________________________________
LAST NAME FIRST NAME MIDDLE INITIAL RELATIONSHIP
D. TYPE OF [ ] NONQUALIFIED.
CONTRACT If nonqualified, is this a 1035 Exchange? [ ] YES [ ] NO
If yes, please complete a "Request for Transfer or 1035
Exchange" (G-2500NB).
[ ] QUALIFIED, as indicated below.
Is this a direct transfer? [ ] YES [ ] NO
If yes, please complete a "Request for Transfer or 1035
Exchange" (form G-2500NB). Please note:
An appropriate retirement plan/prototype must be established
for purposes of qualified monies.
[ ] IRA [ ] IRA rollover [ ] IRA transfer
[ ] SEP [ ] 401 retirement plan
[ ] Terminal funding [ ] 403(b) plan [ ] 457 plan
[ ] Other
E. PURCHASE [ ] INITIAL PAYMENT: $_____________________
PAYMENT(S) Minimum initial payment is [$5,000] for nonqualified
contracts; [$2,000] for qualified contracts.
Payments may be wired or mailed. Make check payable to
Anchor National Life Insurance Company.
[ ] AUTOMATIC PAYMENTS: $_____________________
To establish automatic bank drafts for future
payments, include a completed "Automatic Payment
Authorization" form (G-2233POS), and a voided check.
F. SPECIAL [ ] SYSTEMATIC WITHDRAWAL: Check the box at left and include a
FEATURES "Systematic Withdrawal Application" form (R-5550SW).
[ ] AUTOMATIC DOLLAR COST AVERAGING: Check the box at left and
include a completed "Dollar Cost Averaging Application" form
(R-5551DCA).
R-5325NB(12/97) PLEASE COMPLETE AND SIGN REVERSE SIDE. Group Allocated
<PAGE> 2
- --------------------------------------------------------------------------------
PARTICIPANT ENROLLMENT FORM R-5325NB(12/97) SIDE 2
- --------------------------------------------------------------------------------
G. TELEPHONE Do you wish to authorize telephone transfers subject to the
TRANSFERS conditions set forth below? [ ] YES [ ] NO
AUTHORIZATION (If no election is indicated the Company will default to yes
for transfers.)
If indicated above, I authorize the Company to accept telephone
instructions for transfers in any amount among subaccounts from
anyone providing proper identification subject to restrictions
and limitations contained in the contract and related
prospectus, if any. I understand that I bear the risk of loss
in the event of a telephone instruction not authorized by me.
The Company will not be responsible for any losses resulting
from unauthorized transactions if it follows reasonable
procedures designed to verify the identity of the caller and
therefore, the Company will record telephone conversations
containing transaction instructions, request personal
identification information before acting upon telephone
instructions and send written confirmation statements of
transactions to the address of record.
H. INVESTMENT __PORTFOLIO__ __MANAGER__ __PORTFOLIO__ __MANAGER__
INSTRUCTIONS __%Cash Management SunAmerica Asset Mgmt. Corp.
(Allocations __%Alliance Growth Alliance Capital Mgmt. L.P.
must be __%Government & Quality Bond Wellington Mgmt. Co., LLP
expressed in __%Growth Wellington Mgmt. Co., LLP
whole percent- __%Corporate Bond Federated Investors
ages and total __%Growth/Phoenix Inv. Counsel Phoenix Investment Counsel, Inc.
allocation __%Global Bond Goldman Sachs Asset Mgmt.
must equal __%Putnam Growth Putnam Investment Mgmt., Inc.
100%) __%High-Yield Bond SunAmerica Asset Mgmt. Corp.
__%Real Estate Davis Selected Advisers, L.P.
__%Worldwide High Income Morgan Stanley Asset Mgmt., Inc.
__%Natural Resources Wellington Mgmt. Co., LLP
__%SunAmerica Balanced SunAmerica Asset Mgmt. Corp.
__%Capital Appreciation Wellington Mgmt. Co., LLP
__%Balanced/Phoenix Inv. Counsel Phoenix Investment Counsel, Inc.
__%Aggressive Growth SunAmerica Asset Mgmt. Corp.
__%Asset Allocation Goldman Sachs Asset Mgmt.
__%Int'l. Growth and Income Putnam Investment Mgmt., Inc.
__%Utility Federated Investors
__%Global Equities Alliance Capital Mgmt. L.P.
__%Growth-Income Alliance Capital Mgmt. L.P.
__%Int'l. Diversified Equities Morgan Stanley Asset Mgmt., Inc.
__%Federated Value Federated Investors
__%Emerging Markets Putnam Investment Mgmt., Inc.
__%Venture Value Davis Selected Advisers, L.P.
__%"Dogs" of Wall Street SunAmerica Asset Mgmt. Corp.
FIXED ACCOUNT OPTION GUARANTEE PERIODS
% 1 yr. % 3 yr. % 5 yr. % 7 yr. %10 yr.
---- ----- ----- ----- ------
I. SPECIAL
INSTRUCTIONS ________________________________________________________________
J. STATEMENT OF This Certificate [ ] WILL [ ] WILL NOT replace an existing life
PARTICIPANT insurance or annuity contract.
(If this will replace an existing policy, please indicate name of
issuing company and contract number below.)
_____________________________ ___________________________
COMPANY NAME CONTRACT NUMBER
I hereby represent my answers to the above questions to be
correct and true to the best of my knowledge and belief and
agree that this Enrollment Form shall be a part of any
Certificate issued by the Company. I VERIFY MY UNDERSTANDING
THAT ALL PAYMENTS AND VALUES PROVIDED BY THE CERTIFICATE, WHEN
BASED ON INVESTMENT EXPERIENCE OF VARIABLE ACCOUNT(S), ARE
VARIABLE AND NOT GUARANTEED AS TO DOLLAR AMOUNT. I UNDERSTAND
THAT ALL PAYMENTS AND VALUES BASED ON THE GENERAL ACCOUNT ARE
SUBJECT TO A MARKET VALUE ADJUSTMENT FORMULA, WHICH MAY RESULT
IN UPWARD AND DOWNWARD ADJUSTMENTS IN AMOUNTS PAYABLE. I
ACKNOWLEDGE RECEIPT OF THE CURRENT PROSPECTUSES FOR POLARIS,
INCLUDING THE SUNAMERICA SERIES TRUST AND ANCHOR SERIES TRUST
PROSPECTUSES. I HAVE READ THEM CAREFULLY AND UNDERSTAND THEIR
CONTENTS.
Signed at______________________________________ _____________
CITY STATE DATE
_____________________________ ______________________________
PARTICIPANT'S SIGNATURE REGISTERED REPRESENTATIVE'S
SIGNATURE
_____________________________
JOINT PARTICIPANT'S SIGNATURE
(IF APPLICABLE)
K. LICENSED/ Will this Certificate replace in whole or in part any existing
REGISTERED life insurance or annuity contract? [ ] YES [ ] NO
REPRESENT-
ATIVE --------------------------------------------- ----------------
INFORMATION REPRESENTATIVE'S LAST NAME FIRST NAME M. I. SOC. SEC. NUMBER
----------------------------------------------------- --------
REPRESENTATIVE'S STREET ADDRESS CITY STATE ZIP CODE
--------------------------- ----------------------------------
BROKER/DEALER FIRM NAME REPRESENTATIVE'S TELEPHONE NO.
-------------------------------
LICENSED AGENT ID NUMBER
FRAUD WARNING: ANY PERSON WHO WITH INTENT TO DEFRAUD OR KNOWING
THAT HE IS FACILITATING A FRAUD AGAINST AN INSURER, SUBMITS AN
APPLICATION OR FILES A CLAIM CONTAINING A FALSE OR DECEPTIVE
STATEMENT MAY BE GUILTY OF INSURANCE FRAUD.
R-5325NB(12/97)
<PAGE> 1
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 for Variable Separate Account (Portion
Relating to the POLARIS Variable Annuity) of Anchor National Life Insurance
Company, of our report dated November 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.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Los Angeles, California
March 19, 1998
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT OF ANCHOR NATIONAL LIFE INSURANCE COMPANY'S FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 1,957,256,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 288,000
<MORTGAGE> 334,156,000
<REAL-ESTATE> 24,000,000
<TOTAL-INVEST> 2,620,072,000
<CASH> 264,176,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 564,931,000
<TOTAL-ASSETS> 12,882,569,000
<POLICY-LOSSES> 2,389,177,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 36,311,000
0
0
<COMMON> 3,511,000
<OTHER-SE> 615,305,000
<TOTAL-LIABILITY-AND-EQUITY> 12,882,569,000
0
<INVESTMENT-INCOME> 58,853,000
<INVESTMENT-GAINS> 20,935,000
<OTHER-INCOME> 63,984,000
<BENEFITS> 32,371,000
<UNDERWRITING-AMORTIZATION> 17,202,000
<UNDERWRITING-OTHER> 3,526,000
<INCOME-PRETAX> 67,654,000
<INCOME-TAX> 23,306,000
<INCOME-CONTINUING> 44,348,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,348,000
<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>
