SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended December 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from to
Commission File No. 33-47472
ANCHOR NATIONAL LIFE INSURANCE COMPANY
Incorporated in Arizona 86-0198983
IRS Employer
Identification No.
1 SunAmerica Center, Los Angeles, California 90067-6022
Registrant's telephone number, including area code: (310) 772-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS Yes X No
--
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. X
--
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANTS COMMON STOCK ON MARCH
28, 2000 WAS AS FOLLOWS:
Common Stock (par value $1,000 per share) 3,511 shares
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION
Anchor National Life Insurance Company, including its wholly owned
subsidiaries, (The "Company") is an indirect wholly owned subsidiary of American
International Group, Inc. ("AIG"), an international insurance and financial
services holding company. At December 31, 1998, the Company was a wholly owned
indirect subsidiary of SunAmerica Inc., a Maryland Corporation. On January 1,
1999, SunAmerica Inc. merged with and into AIG in a tax-free reorganization that
has been treated as a pooling of interests for accounting purposes. Thus,
SunAmerica Inc. ceased to exist on that date. However, immediately prior to the
date of the merger, substantially all of the net assets of SunAmerica Inc. were
contributed to a newly formed subsidiary of AIG named SunAmerica Holdings, Inc.,
a Delaware Corporation. SunAmerica Holdings, Inc. subsequently changed its name
to SunAmerica Inc. ("SunAmerica").
The Company ranks among the largest U.S. issuers of variable annuities.
Complementing these annuity operations are the Company's guaranteed investment
contract ("GIC") operations, its asset management operations and its wholly
owned and affiliated broker-dealer operations, which provide a broad range of
financial planning and investment services through more than 8,600 independent
registered representatives nationwide. At December 31, 1999, the Company managed
$32.47 billion of assets, consisting of $26.87 billion of assets on its balance
sheet and $5.60 billion of assets managed in mutual funds.
The Company is incorporated in Arizona and maintains its principal
executive offices at 1 SunAmerica Center, Los Angeles, California 90067-6022,
telephone (310) 772-6000. The Company has no employees; however, employees of
SunAmerica and its other subsidiaries perform various services for the Company.
SunAmerica had approximately 2,500 employees at December 31, 1999, approximately
1,500 of whom perform services for the Company as well as for certain of its
affiliates.
The Company believes that demographic trends have produced strong consumer
demand for long-term, investment-oriented products. According to U.S. Census
Bureau projections, the number of individuals between the ages of 45 to 64 grew
from 46 million to 60 million during the 1990s, making this age group the
fastest-growing segment of the U.S. population. Between 1988 and 1998, annual
industry premiums from fixed and variable annuities and fund deposits increased
from $103.87 billion to $229.47 billion. During the same period, annual
industry sales of mutual funds, excluding money market accounts, rose from $95.1
billion to $1.06 trillion.
Benefiting from continued strong growth of the retirement savings market,
industry sales of tax-deferred savings products have represented, for a number
of years, a significantly larger source of new premiums for the U.S. life
insurance industry than have traditional life insurance products. Recognizing
the growth potential of this market, the Company focuses its life insurance
operations on the sale of annuities and GICs.
The Company's six affiliated broker-dealers comprise the largest network of
independent registered representatives in the nation and the fifth-largest
securities sales force, based on industry data. Its wholly owned or affiliated
broker-dealers accounted for approximately one-third of the Company's total
annuity sales in 1999. The Company also distributes its products and services
through an extensive network of independent broker-dealers, full-service
securities firms, independent general insurance
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agents, major financial institutions and, in the case of its GICs, by marketing
directly to banks, municipalities, asset management firms and direct plan
sponsors and through intermediaries, such as managers or consultants servicing
these groups.
The Company and its affiliates have made significant investments in
technology over the past several years in order to lower operating costs and
enhance their marketing efforts. Its use of optical disk imaging and artificial
intelligence has substantially reduced the more traditional paper-intensive life
insurance processing procedures, reducing annuity processing and servicing costs
and improving customer service. This has also enabled the Company to more
efficiently assimilate acquired business. The Company has also implemented
technology to interface with its wholly owned or affiliated broker-dealers,
which enables the Company to more effectively market its products and help the
affiliated financial professionals to better serve their clients.
In recent years, the Company has enhanced its marketing efforts and
expanded its offerings of fee-based products such as variable annuities and
mutual funds, resulting in significantly increased fee income. Fee income has
also expanded through the receipt of broker-dealer net retained commissions,
resulting primarily from increased demand for long-term investment products.
The Company's fee-generating businesses entail no portfolio credit risk and
require significantly less capital support than its fixed-rate business, which
generates net investment income.
For the year ended December 31, 1999, the Company's net investment income
(including net realized investment losses) and fee income by primary product
line or service are as follows:
<TABLE>
<CAPTION>
NET INVESTMENT AND FEE INCOME
Primary product or
Amount Percent service
------ ------- ------------------
(In thousands)
<S> <C> <C> <C>
Net investment income
(including net realized
investment losses). . . . $ 144,596 24.1% Fixed-rate products
--------------- ------
Fee income:
Variable annuity fees . . 306,417 51.1 Variable annuities
Net retained commissions. 51,039 8.5 Broker-dealer sales
Asset management fees . . 43,510 7.2 Mutual funds
Universal life insurance
fees. . . . . . . . . . 23,290 3.9 Fixed-rate universal
life insurance
Surrender charges . . . . 17,137 2.9 Fixed- and variable-
rate products
Other fees. . . . . . . . 13,999 2.3
--------------- ------
Total fee income. . . . . 455,392 75.9
--------------- ------
Total . . . . . . . . . . . $ 599,988 100.0%
=============== ======
</TABLE>
For financial information on the Company's business segments, see Part IV -
"Notes to Consolidated Financial Statements - Note 14 - Business Segments".
The business segments defined by the Company for disclosure under the
requirements of Financial Accounting Standards No. 131, "Disclosures about
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Segments of an Enterprise and Related information," are Annuity Operations,
Asset Management Operations and Broker-Dealer Operations. Annuity Operations
are discussed in the following four sections, and Asset Management and
Broker-Dealer Operation are discussed on pages 6 and 7 respectively.
ANNUITY OPERATIONS
Founded in 1965, the Company is an Arizona-chartered company licensed in 49
states and the District of Columbia which markets flexible-premium variable
annuities and GICs. It has a "AAA" (Extremely Strong) financial strength rating
from Standard & Poor's Corporation ("S&P"), a "AAA"(Highest) rating from Duff &
Phelps Credit Rating Co. ("DCR"), an "Aaa"(Exceptional) rating from Moody's
Investors Service ("Moody's") and an "A++" (Superior) rating from industry
analyst A.M. Best Company.
In addition to distributing its variable annuity products through its six
wholly owned or affiliated broker-dealers, the Company distributes its products
through over 800 other independent broker-dealers, full-service securities firms
and financial institutions as well as through independent general insurance
agents. In total, more than 55,000 independent sales representatives nationally
are licensed to sell the Company's annuity products.
On December 31, 1998, the Company acquired the individual life business and
the individual and group annuity business of MBL Life Assurance Corporation
("MBL Life"), via a 100% coinsurance transaction. The Company assumed reserves
in this acquisition totaling $5,793,256,000, including $3,460,503,000 of fixed
annuity contracts, $2,308,742,000 of universal life insurance contracts and
$24,011,000 of guaranteed investment contracts. Policyholders of MBL annuity
products were required to transfer their funds into an existing product of the
Company or one of its affiliates by December 31, 1999 in order to receive the
policy enhancements due under the MBL Life rehabilitation agreement. Over 92%
of the deferred annuity reserves had either been transferred or surrendered by
December 31, 1999.
Included in the block of business acquired from MBL Life were policies
whose owners are residents of New York State ("the New York Business"). On July
1, 1999, the New York Business was acquired by the Company's New York affiliate,
First SunAmerica Life Insurance Company ("FSA"), via an assumption reinsurance
agreement, and the remainder of the business converted to assumption
reinsurance, which superseded the coinsurance agreement. As part of this
transfer, invested assets equal to $678,272,000, life reserves equal to
$282,247,000, group pension reserves equal to $406,118,000, and other net assets
of $10,093,000 were transferred to FSA.
Substantially all of the Company's revenues are derived from the United
States.
ANNUITY OPERATIONS - VARIABLE ANNUITIES
The variable annuity products of the Company offer investors a broad
spectrum of fund alternatives, with a choice of investment managers, as well as
guaranteed fixed-rate account options. The Company earns fee income through the
sale, administration and management of the variable account options of its
variable annuity products. The Company also earns investment income on monies
allocated to the fixed-rate account options of these products. Variable
annuities offer retirement planning features similar to those offered by fixed
annuities, but differ in that the contractholder's rate of return is generally
dependent upon the investment performance of the particular equity,
fixed-income, money market or asset allocation fund selected by the
contractholder. Because the investment risk is borne by the
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customer in all but the fixed-rate account options, these products require
significantly less capital support than fixed annuities.
The Company's flagship Polaris variable annuity products are multimanager
variable annuities that offer investors a choice of more than 25 variable funds
and a number of guaranteed fixed-rate funds. Polaris sales have increased
significantly in recent years due to 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.
At December 31, 1999, total variable product reserves were $22.27 billion,
of which $19.95 billion were held in separate accounts. The Company's variable
annuity products incorporate surrender charges to encourage persistency. At
December 31, 1999, 82% of the Company's variable annuity reserves held in the
separate accounts were subject to surrender penalties. The Company's variable
annuity products also generally limit the number of transfers made in a
specified period between account options without the assessment of a fee. The
average size of a new variable annuity contract sold by the Company in 1999 was
approximately $52,000.
ANNUITY OPERATIONS - FIXED ANNUITIES AND GICs
The Company's general account obligations are fixed-rate products,
including fixed annuity and universal life contracts issued in prior years and
fixed-rate options of its variable annuity contracts. Although the Company's
annuity contracts remain in force an average of seven to ten years, a majority
(approximately 83% at December 31, 1999) of the annuity contracts, as well as
the universal life contracts, reprice annually at discretionary rates determined
by the Company. In repricing, the Company takes into account yield
characteristics of its investment portfolio, surrender assumptions and
competitive industry pricing, among other factors.
The Company augments its retail annuity business with the sale of
institutional products. At December 31, 1999, the Company had $284.6 million of
fixed-maturity, variable-rate GIC obligations that reprice periodically based
upon certain defined indexes and $21.0 million of fixed-maturity, fixed-rate
GICs acquired from MBL Life. Of the total GIC portfolio at December 31, 1999,
approximately 68% was sold to asset management firms, 16% was sold to banks, 9%
was sold to state and local government entities and 7% was sold to corporations.
The Company designs its fixed-rate products and conducts its investment
operations in order to closely match the duration of the assets in its
investment portfolio to its fixed annuity, universal life and GIC obligations.
The Company seeks to achieve a predictable spread between what it earns on its
assets and what it pays on its liabilities by investing principally in
fixed-rate securities. The Company's fixed annuity and universal life products
incorporate surrender charges and its GIC products incorporate other
restrictions in order to encourage persistency. Approximately 48% of the
Company's fixed annuity, universal life and GIC reserves had surrender penalties
or other restrictions at December 31, 1999.
INVESTMENT OPERATIONS
The Company believes that its fixed-rate liabilities should be backed by a
portfolio principally composed of fixed-rate investments that generate
predictable rates of return. The Company does not have a specific target rate
of return. Instead, its rates of return vary over time depending on a variety
of factors, including the current interest rate environment, the slope of the
yield curve, the spread at which fixed-rate investments are priced over the
yield curve, default rates and general economic conditions.
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The Company manages most of its invested assets internally. 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.
As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-rate assets and liabilities
under commonly used stress-test interest rate scenarios. With the results of
these computer simulations, the Company can measure the potential gain or loss
in fair value of its interest-rate sensitive instruments and seek to protect its
economic value and achieve a predictable spread between what it earns on its
invested assets and what it pays on its liabilities by designing its fixed-rate
products and conducting its investment operations to closely match the duration
of the fixed-rate assets to that of its fixed-rate liabilities. The Company's
fixed-rate assets include: cash and short-term investments; bonds, notes and
redeemable preferred stocks; mortgage loans; and investments in limited
partnerships that invest primarily in fixed-rate securities and are accounted
for by using the cost method. At December 31, 1999, these assets had an
aggregate fair value of $5.05 billion with a duration of 3.2. The Company's
fixed-rate liabilities include fixed annuity, GIC and universal life reserves
and subordinated notes. At December 31, 1999, these liabilities had an
aggregate fair value (determined by discounting future contractual cash flows by
related market rates of interest) of $4.81 billion with a duration of 4.1. For
the years ended December 31, 1999 and September 30, 1998 and 1997, the Company's
yields on average invested assets were 7.11%, 8.53% and 7.97%, respectively; its
average rates paid on all interest-bearing liabilities were 5.00%, 5.49% and
5.46%, respectively; it realized net investment spreads of 2.24%, 3.34% and
2.77%, respectively, on average invested assets; and net realized investment
gains and losses were 0.27%, 0.75% and 0.66%, respectively, of average invested
assets.
The Company's general investment philosophy is to hold fixed-rate assets
for long-term investment. Thus, it does not have a trading portfolio. However,
the Company has determined that all of its portfolio of bonds, notes and
redeemable preferred stocks (the "Bond Portfolio") is available to be sold in
response to changes in market interest rates, changes in relative value of asset
sectors and individual securities, changes in prepayment risk, changes in credit
quality outlook for certain securities, and the Company's need for liquidity and
other similar factors.
The following table summarizes the Company's investment portfolio at
December 31, 1999:
<TABLE>
<CAPTION>
SUMMARY OF INVESTMENTS
Carrying Percent of
value portfolio
--------------- -----------
(In thousands)
<S> <C> <C>
Cash and short-term investments . . . . . $ 475,162 8.6%
U.S. government securities. . . . . . . . 22,884 0.4
Mortgage-backed securities. . . . . . . . 1,412,134 25.4
Other bonds, notes and redeemable
preferred stocks. . . . . . . . . . . . 2,518,151 45.4
Mortgage loans. . . . . . . . . . . . . . 674,679 12.2
Policy loans. . . . . . . . . . . . . . . 260,066 4.7
Investment in separate account seed money 141,499 2.5
Partnerships. . . . . . . . . . . . . . . 4,009 0.1
Real estate . . . . . . . . . . . . . . . 24,000 0.4
Other invested assets . . . . . . . . . . 19,385 0.3
--------------- -----------
Total investments . . . . . . . . . . . . $ 5,551,969 100.0%
=============== ===========
</TABLE>
5
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At December 31, 1999, the Bond Portfolio (excluding $4.5 million of
redeemable preferred stocks) included $3.81 billion of bonds rated by S&P,
Moody's, DCR, Fitch Investors Service, L.P. ("Fitch") or the National
Association of Insurance Commissioners ("NAIC"), and $138.5 million of bonds
rated by the Company pursuant to statutory ratings guidelines established by the
NAIC. At December 31, 1999, approximately $3.57 billion of the Bond Portfolio
was investment grade, including $1.43 billion of U.S. government/agency
securities and mortgage-backed securities.
At December 31, 1999, the Bond Portfolio included $377.1 million of bonds
that were not investment grade. These non-investment-grade bonds accounted for
1.4% of the Company's total assets and 6.8% of its invested assets.
Senior secured loans ("Secured Loans") are included in the Bond Portfolio
and aggregated $373.6 million at December 31, 1999. Secured Loans are senior to
subordinated debt and equity, and are secured by assets of the issuer. At
December 31, 1999, Secured Loans consisted of loans to 66 borrowers spanning 17
industries, with 13% of these assets concentrated in utilities and 11%
concentrated in financial institutions. No other industry concentration
constituted more than 7% of these assets.
Mortgage loans aggregated $674.7 million at December 31, 1999 and consisted
of 136 commercial first mortgage loans with an average loan balance of
approximately $5.0 million, collateralized by properties located in 29 states.
Approximately 36% of this portfolio was office, 17% was multifamily residential,
10% was hotels, 10% was manufactured housing, 9% was industrial, 5% was retail
and 13% was other types. At December 31, 1999, approximately 36% and 11% of
this portfolio were secured by properties located in California and New York,
respectively, and no more than 8% of this portfolio was secured by properties
located in any other single state.
At December 31, 1999, the carrying value (after impairment writedowns) of
all investments in default as to the payment of principal or interest totaled
$1.5 million, which constituted less than 0.1% of total invested assets.
For more information concerning the Company's investments, including the
risks inherent in such investments, see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial Condition
and Liquidity."
MUTUAL FUNDS AND INVESTMENT SERVICES
Through its registered investment advisor, SunAmerica Asset Management
Corp. ("SunAmerica Asset Management"), and its related distributor, the Company
earns fee income by distributing and managing a diversified family of mutual
funds and by providing professional management of individual, corporate and
pension plan portfolios. The Company offers investors an array of equity,
fixed-income, money market and tax-exempt mutual funds. Sales growth in recent
years is primarily due to sales of the Company's "Style Select Series" product,
which was introduced in November 1996. The "Style Select Series" is a group of
mutual funds that are each managed by three industry-recognized fund managers.
In 1999, one "Focus Portfolio" was added to the "Style Select Series",
increasing to ten the number of portfolios. The Focus Portfolios utilize three
leading independent money managers, each of whom manages one-third of the
portfolio by choosing ten favorite stocks. In 1999, the Company introduced the
Focused Value Portfolio. This portfolio, along with the two existing Focus
Portfolios introduced in 1998, climbed to over $1.28 billion in assets. Founded
in 1983 and acquired by the Company in January 1990, SunAmerica Asset Management
managed approximately $7.56 billion of assets at December 31,
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1999, including mutual fund assets, private accounts and certain of the variable
annuity assets of the Company and its affiliates.
The SunAmerica mutual funds are distributed nationally through a network of
approximately 450 financial institutions and unaffiliated broker-dealers, as
well as by the Company's broker-dealer subsidiary and its affiliated
broker-dealers.
BROKER-DEALER
The Company owns two broker-dealers, Royal Alliance Associates, Inc.
("Royal") and SunAmerica Capital Services, Inc. ("SACS"). SACS underwrites
proprietary mutual fund sales only and does not sell to the public. Royal sells
proprietary insurance products and mutual funds, as well as a full range of
non-proprietary investment products. Royal currently has a network of
approximately 2,900 representatives.
REGULATION
The Company, in common with other insurers, is subject to regulation and
supervision by the states and other jurisdictions in which it does business.
Within the United States, the method of such regulation varies but generally has
its source in statutes that delegate regulatory and supervisory powers to an
insurance official. The regulation and supervision relate primarily to approval
of policy forms and rates, the standards of solvency that must be met and
maintained, including risk based capital measurements, the licensing of insurers
and their agents, the nature of and limitations on investments, restrictions on
the size of risks which may be insured under a single policy, deposits of
securities for the benefit of policyholders, methods of accounting, periodic
examinations of the affairs of insurance companies, the form and content of
reports of financial condition required to be filed, and reserves for unearned
premiums, losses and other purposes. In general, such regulation is for the
protection of policyholders rather than security holders.
Risk-based capital ("RBC") standards are designed to measure the adequacy
of an insurer's statutory capital and surplus in relation to the risks inherent
in its business. The RBC standards consist of formulas that establish capital
requirements relating to insurance, business, asset and interest rate risks.
The standards are intended to help identify companies which are
under-capitalized and require specific regulatory actions in the event an
insurer's RBC is deficient. The RBC formula develops a risk- adjusted target
level of adjusted statutory capital and surplus by applying certain factors to
various asset, premium and reserve items. Higher factors are applied to more
risky items and lower factors are applied to less risky items. Thus, the target
level of statutory surplus varies not only as a result of the insurer's size,
but also on the risk profile of the insurer's operations. The statutory capital
and surplus of the Company exceeded its RBC requirements by a considerable
margin as of December 31, 1999.
Federal legislation has been recently enacted allowing combinations between
insurance companies, banks and other entities. It is not yet known what effect
this legislation will have on insurance companies. In addition, from time to
time, Federal initiatives are proposed that could affect the Company'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 and other investment products. Proposals made in recent years to
limit the tax deferral of annuities or otherwise modify the tax rules related to
the treatment of annuities have not been enacted. While certain of such
proposals, if implemented, could have an adverse effect on the Company's sales
of affected products, and, consequently, on its results of operations, the
Company believes these
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proposals have a small likelihood of being enacted, because they would
discourage retirement savings and there is strong public and industry opposition
to them.
SunAmerica Asset Management Corp., a subsidiary of the Company, is
registered with the SEC as an investment adviser under the Investment Advisers
Act of 1940. The mutual funds that it markets are subject to regulation under
the Investment Company Act of 1940. SunAmerica Asset Management Corp. and the
mutual funds are subject to regulation and examination by the SEC. In addition,
variable annuities and the related separate accounts of the Company are subject
to regulation by the SEC under the Securities Act of 1933 and the Investment
Company Act of 1940.
The Company's broker-dealer subsidiaries are subject to regulation and
supervision by the states in which they transact business, as well as by the SEC
and the National Association of Securities Dealers ("NASD"). The SEC and the
NASD have broad administrative and supervisory powers relative to all aspects of
business and may examine each subsidiary's business and accounts at any time.
The SEC also has broad jurisdiction to oversee various activities of the Company
and its other subsidiaries.
COMPETITION
The businesses conducted by the Company are highly competitive. The
Company competes with other life insurers, and also compete for customers' funds
with a variety of investment products offered by financial services companies
other than life insurance companies, such as banks, investment advisors, mutual
fund companies and other financial institutions. During 1998, net annuity
premiums written among the top 100 companies range from approximately $100
million to approximately $10 billion annually. The Company together with its
affiliates ranks in the top quartile of this group. The Company believes the
primary competitive factors among life insurance companies for
investment-oriented insurance products, such as annuities and GICs, include
product flexibility, net return after fees, innovation in product design, the
claims-paying ability rating and the name recognition of the issuing company,
the availability of distribution channels and service rendered to the customer
before and after a contract is issued. Other factors affecting the annuity
business include the benefits (including before-tax and after-tax investment
returns) and guarantees provided to the customer and the commissions paid.
Competitors of SunAmerica Asset Management include a large number of mutual
fund organizations, both independent and affiliated with other financial
services companies, including banks and insurance companies.
The Company's broker-dealer faces competition from regional firms and
large, national full service and discount brokerage firms.
ITEM 2. PROPERTIES
The Company's executive offices and its principal office are in leased
premises at 1 SunAmerica Center, Los Angeles, California 90067. The Company,
through an affiliate, also leases office space in Woodland Hills, California.
The Company's broker-dealer and asset management subsidiaries lease offices in
New York, New York.
The Company believes that such properties, including the equipment located
therein, are suitable and adequate to meet the requirements of its businesses.
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ITEM 3. LEGAL PROCEEDINGS
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, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted during the quarter ending December 31, 1999 to a
vote of security-holders, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Not applicable.
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<TABLE>
<CAPTION>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company and its subsidiaries should be
read in conjunction with the consolidated financial statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations, both of which are included
elsewhere herein.
Year Ended Three Months Ended Years Ended September 30,
------------------------------------------
December 31, 1999 December 31, 1998 1998 1997 1996 1995
----------------- ---------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
RESULTS OF OPERATIONS
Net investment income . . . $ 164,216 $ 26,583 $ 86,872 $ 73,201 $ 56,843 $ 50,083
Net realized investment
gains (losses). . . . . . (19,620) 271 19,482 (17,394) (13,355) (4,363)
Fee income. . . . . . . . . 455,392 83,330 290,362 213,146 169,505 145,105
General and administrative
expenses. . . . . . . . . (154,665) (21,993) (96,102) (98,802) (81,552) (64,457)
Amortization of deferred
acquisition costs . . . . (116,840) (27,070) (72,713) (66,879) (57,520) (58,713)
Annual commissions. . . . . (40,760) (6,624) (18,209) (8,977) (4,613) (2,658)
------------------- --------- --------- --------- --------- ---------
Pretax income . . . . . . . 287,723 54,497 209,692 94,295 69,308 64,997
Income tax expense. . . . . (103,025) (20,106) (71,051) (31,169) (24,252) (25,739)
------------------- --------- --------- --------- --------- ---------
NET INCOME. . . . . . . . . $ 184,698 $ 34,391 $138,641 $ 63,126 $ 45,056 $ 39,258
=================== ========= ========= ========= ========= =========
</TABLE>
The results of operations of the Company for 1999 are affected by the
acquisition of business from MBL Life on December 31, 1998 (See Note 4 of the
accompanying consolidated financial statements).
10
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<TABLE>
<CAPTION>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (Continued)
At December 31, At September 30,
--------------------- ------------------------------------------------
1999 1998 1998 1997 1996 1995
----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
FINANCIAL POSITION
Investments . . . . . . . . . $ 5,551,969 $ 8,306,943 $ 2,734,742 $ 2,608,301 $2,329,232 $2,114,908
Variable annuity assets
held in separate accounts . 19,949,145 13,767,213 11,133,569 9,343,200 6,311,557 5,230,246
Deferred acquisition costs. . 1,089,979 866,053 539,850 536,155 443,610 383,069
Deferred income taxes 53,445 --- --- --- --- ---
Other assets. . . . . . . . . 229,956 206,124 142,107 85,573 144,578 55,474
----------- ----------- ----------- ----------- ---------- ----------
TOTAL ASSETS. . . . . . . . . $26,874,494 $23,146,333 $14,550,268 $12,573,229 $9,228,977 $7,783,697
=========== =========== =========== =========== ========== ==========
Reserves for fixed annuity
contracts . . . . . . . . . $ 3,254,895 $ 5,500,157 $ 2,189,272 $ 2,098,803 $1,789,962 $1,497,052
Reserves for universal life
insurance contracts 1,978,332 2,339,194 --- --- --- ---
Reserves for guaranteed
investment contracts. . . . 305,570 306,461 282,267 295,175 415,544 277,095
Variable annuity liabilities
related to separate
accounts. . . . . . . . . . 19,949,145 13,767,213 11,133,569 9,343,200 6,311,557 5,230,246
Other payables and accrued
liabilities . . . . . . . . 413,610 171,143 157,551 157,546 120,638 227,953
Subordinated notes payable
to affiliates . . . . . . . 37,816 209,367 39,182 36,240 35,832 35,832
Deferred income taxes --- 105,772 95,758 67,047 70,189 73,459
Shareholder's equity. . . . . 935,126 747,026 652,669 575,218 485,255 442,060
----------- ----------- ----------- ----------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY. . . . $26,874,494 $23,146,333 $14,550,268 $12,573,229 $9,228,977 $7,783,697
=========== =========== =========== =========== ========== ==========
</TABLE>
The financial position of the Company as of December 31, 1998 and thereafter is
affected by the acquisition of business from MBL Life (See Note 4 of the
accompanying consolidated financial statements).
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations of Anchor National Life Insurance Company (the "Company") for the
three years ended December 31, 1999, September 30, 1998 and 1997 follows.
Effective December 31, 1998, the Company changed its fiscal year end from
September 30 to December 31. Accordingly, the three- month period ended
December 31, 1998 was a transition period.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions readers regarding certain
forward-looking statements contained in this report and in any other statements
made by, or on behalf of, the Company, whether or not in future filings with the
Securities and Exchange Commission (the "SEC"). Forward-looking statements are
statements not based on historical information and which relate to future
operations, strategies, financial results, or other developments. Statements
using verbs such as "expect," "anticipate," "believe" or words of similar import
generally involve forward-looking statements. Without limiting the foregoing,
forward-looking statements include statements which represent the Company's
beliefs concerning future levels of sales and redemptions of the Company's
products, investment spreads and yields, or the earnings and profitability of
the Company's activities.
Forward-looking statements are necessarily based on estimates and
assumptions that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Company's control and many of which are subject to change. These uncertainties
and contingencies could cause actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. Whether or not actual results differ materially from forward-looking
statements may depend on numerous foreseeable and unforeseeable developments.
Some may be national in scope, such as general economic conditions, changes in
tax law and changes in interest rates. Some may be related to the insurance
industry generally, such as pricing competition, regulatory developments and
industry consolidation. Others may relate to the Company specifically, such as
credit, volatility and other risks associated with the Company's investment
portfolio. Investors are also directed to consider other risks and
uncertainties discussed in documents filed by the Company with the SEC. The
Company disclaims any obligation to update forward-looking information.
RESULTS OF OPERATIONS
NET INCOME totaled $184.7 million in 1999, compared with $138.6 million in
1998 and $63.1 million in 1997. On December 31, 1998, the Company acquired the
individual life business and the individual and group annuity business of MBL
Life Assurance Corporation (the "Acquisition"). Since the Acquisition was
accounted for under the purchase method of accounting, results of operations
include those of the Acquisition only from its date of acquisition.
Consequently, the operating results for 1999 are not comparable with those of
1998 and 1997. On a pro forma basis, using the historical financial information
of the acquired business and assuming that the Acquisition had been consummated
on October 1, 1996, the beginning of the prior-year periods discussed herein,
net income would have been $158.9 million and $83.4 million for the years ended
September 30, 1998 and 1997, respectively.
PRETAX INCOME totaled $287.7 million in 1999, $209.7 million in 1998 and
$94.3 million in 1997. The 37.2% improvement in 1999 over 1998 primarily
resulted from increased fee income and higher net investment
12
<PAGE>
income, partially offset by higher net realized investment losses, increased
general and administrative expenses and increased amortization of deferred
acquisition costs. The 122.4% improvement in 1998 over 1997 primarily resulted
from increased fee income and higher net realized investment gains, partially
offset by increased annual commissions and increased amortization of deferred
acquisition costs.
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 $164.2 million in 1999 from $86.9
million in 1998 and $73.2 million in 1997. These amounts equal 2.24% on average
invested assets (computed on a daily basis) of $7.34 billion in 1999, 3.34% on
average invested assets of $2.60 billion in 1998, and 2.77% on average invested
assets of $2.65 billion in 1997. On a pro forma basis, assuming the Acquisition
had been consummated on October 1, 1996, net investment income on related
average invested assets would have been 1.32% and 1.14% in the years ended
September 30, 1998 and 1997, respectively. The improvement in 1999 net
investment yields over these pro forma amounts reflects a redeployment of assets
received in the Acquisition into higher yielding investment categories.
Net investment spreads include the effect of income earned on the
difference between average invested assets and average interest-bearing
liabilities. Average invested assets exceeded average interest-bearing
liabilities by $187.8 million in 1999, $140.4 million in 1998 and $126.5 million
in 1997. The difference between the Company's yield on average invested assets
and the rate paid on average interest-bearing liabilities (the "Spread
Difference") was 2.11% in 1999, 3.04% in 1998 and 2.51% in 1997. On a pro forma
basis, assuming the Acquisition had been consummated on October 1, 1996, the
Spread Difference would have been 1.31% and 1.13% for the years ended September
30, 1998 and 1997, reflecting primarily the effect of the lower yielding assets
received in the Acquisition.
Investment income (and the related yields on average invested assets)
totaled $522.0 million (7.11%) in 1999, compared with $222.0 million (8.53%) in
1998 and $210.8 million (7.97%) in 1997. Both the significant increases in
investment income and the decreases in the related yields in 1999 as compared
with 1998 and 1997 principally resulted from the Acquisition. The invested
assets associated with the Acquisition included high-grade corporate, government
and government/agency bonds and cash and short-term investments, which are
generally lower yielding than a significant portion of the invested assets that
comprise the remainder of the Company's portfolio. The increased yield in 1998
over 1997 includes the effects of an increasing proportion of mortgage loans in
the Company's portfolio, which on average have higher yields than that of the
Company's overall portfolio. Also in 1998, the Company experienced higher
returns on its investments in partnerships. On a pro forma basis, assuming the
Acquisition had been consummated on October 1, 1996, the yield on related
average invested assets would have been 6.59% and 6.41% in the years ended
September 30, 1998 and 1997, respectively.
Investment income and related yields in all periods also reflect the
Company's investments in limited partnerships. Partnership income decreased to
$13.1 million, (a yield of 24.66% on related average assets of $53.2 million) in
1999, compared with $25.8 million (a yield of 185.62% on related average assets
of $13.9 million) in 1998, and $7.1 million (a yield of 16.17% on related
average assets of $44.0 million) in 1997. Partnership income is based primarily
upon cash distributions received from limited partnerships, the operations of
which the Company does not influence. Consequently, such income is not
predictable and there can be no assurance that the Company will realize
comparable levels of such income in the future.
13
<PAGE>
Total interest expense equaled $357.7 million in 1999, $135.1 million in
1998 and $137.6 million in 1997. The average rate paid on all interest-bearing
liabilities was 5.00% in 1999, compared with 5.49% in 1998 and 5.46% in 1997.
Interest-bearing liabilities averaged $7.15 billion during 1999, compared with
$2.46 billion during 1998 and $2.52 billion during 1997. Total interest expense
in 1999 and related average rates paid reflect the effects of the Acquisition.
On a pro forma basis, assuming the Acquisition had been consummated on October
1, 1996, the average rate paid on all interest-bearing liabilities would have
been 5.28% in the years ended September 30, 1998 and 1997, respectively, and
interest-bearing liabilities would have averaged $7.84 billion and $7.89
billion, respectively, in those years. The decreases in the overall rates paid
in 1999 result primarily from a generally lower interest rate environment in
1999.
GROWTH IN AVERAGE INVESTED ASSETS since 1998 largely resulted from the
impact of the Acquisition. Changes in average invested assets also reflect
sales of fixed annuities and the fixed account options of the Company's variable
annuity products ("Fixed Annuity Premiums"), and renewal premiums on its
universal life product ("UL Premiums") acquired in the Acquisition, partially
offset by net exchanges from fixed accounts into the separate accounts of
variable annuity contracts. Fixed Annuity Premiums and UL Premiums totaled
$2.10 billion in 1999, compared with $1.51 billion in 1998 and $1.10 billion in
1997, and are largely premiums for the fixed accounts of variable annuities.
Such premiums have increased principally because of greater customer allocation
of new premium dollars to the fixed account options of variable products,
particularly from the Acquisition business, resulting in greater inflows into
the one-year and six-month fixed accounts of these products. Such fixed
accounts are principally used for dollar-cost averaging into the variable
accounts. Accordingly, the Company anticipates that it will see a large portion
of these premiums transferred into the variable funds. These premiums represent
27%, 72% and 61%, respectively, of the related reserve balances at the beginning
of the respective periods. The decrease in 1999 premiums when expressed as a
percentage of related reserve balances results from the impact of the
Acquisition. When premium and reserve balances resulting from the Acquisition
are excluded, the resulting premiums represent 94% of the beginning fixed
annuity reserve balance in 1999.
There were no guaranteed investment contract ("GIC") premiums in 1999. GIC
premiums totaled $5.6 million in 1998 and $55.0 million in 1997. GIC surrenders
and maturities totaled $19.7 million in 1999, $36.3 million in 1998 and $198.1
million in 1997. The Company does not actively market GICs; consequently,
premiums and surrenders may vary substantially from period to period. The GICs
issued by the Company generally guarantee the payment of principal and interest
at fixed or variable rates for a term of three to five years. GICs that are
purchased by banks for their long-term portfolios or by state and local
governmental entities either prohibit withdrawals or permit scheduled book value
withdrawals subject to the terms of the underlying indenture or agreement. GICs
purchased by asset management firms for their short-term portfolios either
prohibit withdrawals or permit withdrawals with notice ranging from 90 to 270
days. In pricing GICs, the Company analyzes cash flow information and prices
accordingly so that it is compensated for possible withdrawals prior to
maturity.
NET REALIZED INVESTMENT LOSSES totaled $19.6 in 1999, compared to net
realized investment gains of $19.5 million in 1998 and net realized investment
losses of $17.4 million in 1997. Net realized investment gains (losses) include
impairment writedowns of $6.1 million in 1999, $13.1 million in 1998, and $20.4
million in 1997. Thus, net gains (losses) from sales and redemptions of
investments totaled $13.5 million of losses in 1999, $32.6 million of gains in
1998 and $3.0 million of gains in 1997.
14
<PAGE>
The Company sold or redeemed invested assets, principally bonds and notes,
aggregating $4.43 billion in 1999, $2.23 billion in 1998 and $2.62 billion in
1997. Sales of investments result from the active management of the Company's
investment portfolio, including assets received as part of the Acquisition.
Because redemptions of investments are generally involuntary and sales of
investments are made in both rising and falling interest rate environments, net
gains and losses from sales and redemptions of investments fluctuate from period
to period, and represent 0.18%, 1.25%, and 0.11% of average invested assets for
1999, 1998 and 1997, respectively. Active portfolio management involves the
ongoing evaluation of asset sectors, individual securities within the investment
portfolio and the reallocation of investments from sectors that are perceived to
be relatively overvalued to sectors that are perceived to be relatively
undervalued. The intent of the Company's active portfolio management is to
maximize total returns on the investment portfolio, taking into account credit,
option, liquidity and interest-rate risk.
Impairment writedowns include $6.1 million of provisions applied to bonds
in 1999, $9.4 million of provisions applied to partnerships in 1998 and $15.7
million of provisions applied to non-income producing land owned in Arizona in
1997. The statutory carrying value of this land had been guaranteed by the
Company's former ultimate parent, SunAmerica Inc. SunAmerica Inc. made a capital
contribution of $28.4 million on December 31, 1996 to the Company through the
Company's direct parent, SunAmerica Life Insurance Company (the "Parent"), in
exchange for the termination of its guaranty with respect to this land.
Accordingly, the Company reduced the carrying value of this land to estimated
fair value to reflect the full termination of the guaranty. Impairment
writedowns represent 0.08%, 0.50%, and 0.77% of average invested assets for
1999, 1998 and 1997, respectively. For the five years ended December 31, 1999,
impairment writedowns as a percentage of average invested assets have ranged
from 0.06% to 0.77% and have averaged 0.40%. 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 $306.4
million in 1999, $200.9 million in 1998 and $139.5 million in 1997. The
increased fees reflect growth in average variable annuity assets, principally
due to the receipt of variable annuity premiums, net exchanges into the separate
accounts from the fixed accounts of variable annuity contracts and increased
market values, partially offset by surrenders. Variable annuity fees represent
1.9%, 1.9%, and 1.8% of average variable annuity assets for 1999, 1998 and 1997,
respectively. Variable annuity assets averaged $16.15 billion in 1999, $10.70
billion during 1998 and $7.55 billion during 1997. Variable annuity premiums,
which exclude premiums allocated to the fixed accounts of variable annuity
products, aggregated $1.70 billion in 1999, $1.82 billion in 1998 and $1.27
billion in 1997. These amounts represent 12%, 19% and 20% of variable annuity
reserves at the beginning of the respective periods. Such premiums have
decreased in 1999 principally because of greater customer allocation of new
premium dollars to the fixed account options of variable products, particularly
from the Acquisition business, resulting in greater inflows into the one-year
and six-month fixed accounts of these products. Transfers from the fixed
accounts of the Company's variable annuity products to the separate accounts
(see "Growth in Average Invested Assets") are not classified in variable annuity
premiums (in accordance with generally accepted accounting principles).
Accordingly, changes in variable annuity premiums are not necessarily indicative
of the ultimate allocation by customers among fixed and variable account options
of the Company's variable annuity products.
Sales of variable annuity products (which include premiums allocated
15
<PAGE>
to the fixed accounts) ("Variable Annuity Product Sales") amounted to $3.66
billion, $3.33 billion and $2.37 billion in 1999, 1998 and 1997, respectively.
Variable Annuity Product Sales primarily reflect sales of the Company's flagship
variable annuity, Polaris. The Polaris products are multimanager variable
annuities that offer investors a choice of more than 25 variable funds and a
number of guaranteed fixed-rate funds. Increases in Variable Annuity Product
Sales are due, in part, to enhanced distribution efforts and consumer demand for
flexible retirement savings products that offer a variety of equity, fixed
income and guaranteed fixed account investment choices.
The Company has encountered increased competition in the variable annuity
marketplace during recent years and anticipates that the market will remain
highly competitive for the foreseeable future. Also, from time to time, Federal
initiatives are proposed that could affect the taxation of variable annuities
and annuities generally (See "Regulation").
NET RETAINED COMMISSIONS are primarily derived from commissions on the
sales of nonproprietary investment products by the Company's subsidiary and
affiliate broker-dealers, after deducting the substantial portion of such
commissions that is passed on to registered representatives. Net retained
commissions totaled $51.0 million in 1999, $48.6 million in 1998 and $39.1
million in 1997. Broker-dealer sales (mainly sales of general securities,
mutual funds and annuities) totaled $13.40 million in 1999, $14.37 billion in
1998 and $11.56 billion in 1997. Fluctuations in net retained commissions may
not be proportionate to fluctuations in sales primarily due to changes in sales
mix.
ASSET MANAGEMENT FEES, which include investment advisory fees and 12b-1
distribution fees, are based on the market value of assets managed in mutual
funds by SunAmerica Asset Management Corp. Such fees totaled $43.5 million on
average assets managed of $4.19 billion in 1999, $29.6 million on average assets
managed of $2.89 billion in 1998 and $25.8 million on average assets managed of
$2.34 billion in 1997. Asset management fees are not necessarily proportionate
to average assets managed, principally due to changes in product mix. Mutual
fund sales, excluding sales of money market accounts, aggregated $1.48 billion
in 1999, compared with $853.6 million in 1998 and $454.8 million in 1997. The
increase in sales during 1999 and 1998 resulted in part from increased sales of
the Company's "Style Select Series" product. The "Style Select Series" is a
group of mutual funds that are each managed by three industry-recognized fund
managers. In 1999, the number of portfolios in the "Style Select Series"
increased by one "Focus Portfolio" to ten. The Focus Portfolios utilize three
leading independent money managers, each of whom manages one-third of the
portfolio by choosing ten favorite stocks. Sales of the "Style Select Series"
products totaled $938.5 million in 1999, compared to $550.6 million in 1998 and
$267.8 million in 1997. Redemptions of mutual funds, excluding redemptions of
money market accounts, amounted to $571.5 million in 1999, $402.5 million in
1998 and $412.8 million in 1997, which represent 16.8%, 17.5% and 22.0%,
respectively, of average related mutual fund assets.
UNIVERSAL LIFE INSURANCE FEES result from the universal life insurance
contract reserves acquired in the Acquisition and the ongoing receipt of renewal
premiums on such contracts, and comprise mortality charges, up-front fees earned
on premiums received and administrative fees, net of the excess mortality
expense on these contracts. Universal life insurance fees amounted to $23.3
million in 1999. Such fees represent 1.10% of average reserves for universal
life insurance contracts for 1999. Since the Acquisition occurred on December
31, 1998, there were no such fees earned in 1998 or 1997.
16
<PAGE>
SURRENDER CHARGES on fixed and variable annuity contracts and universal
life contracts totaled $17.1 million in 1999 (including $1.5 million
attributable to the Acquisition), $7.4 million in 1998 and $5.5 million in 1997.
Surrender charges generally are assessed on withdrawals at declining rates
during the first seven years of a contract. Withdrawal payments, which include
surrenders and lump-sum annuity benefits, totaled $3.12 billion in 1999
(including $1.58 billion attributable to the Acquisition), $1.14 billion in 1998
and $1.06 billion in 1997. These payments when expressed as a percentage of
average fixed and variable annuity and universal life reserves are 13.8% (7.0%
attributable to the Acquisition), 9.0% and 11.2% for 1999, 1998 and 1997,
respectively. The relatively high surrenders in the acquisition block of
business were expected and occurred because July 1, 1999 was the first time
since 1991 that these policyholders were able to surrender their policies
without a moratorium fee. Excluding the effects of the Acquisition, withdrawal
payments represent 8.3% of related average fixed and variable annuity reserves
in 1999. Withdrawals include variable annuity withdrawals from the separate
accounts totaling $1.34 billion (8.3% of average variable annuity reserves),
$952.1 million (8.9% of average variable annuity reserves) and $822.0 million
(10.9% of average variable annuity reserves) in 1999, 1998 and 1997,
respectively.
GENERAL AND ADMINISTRATIVE EXPENSES totaled $154.7 million in 1999,
compared with $96.1 million in 1998 and $98.8 million in 1997. The increases in
1999 over 1998 principally reflect the increased costs related to the business
acquired in the Acquisition and expenses related to servicing the Company's
growing block of variable annuity policies. 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 $116.8 million
(including $8.9 million attributable to the Acquisition) in 1999, compared with
$72.7 million in 1998 and $66.9 million in 1997. The increases in amortization
were 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 represent renewal commissions paid quarterly in arrears
to maintain the persistency of certain of the Company's variable annuity
contracts. Substantially all of the Company's currently available variable
annuity products allow for an annual commission payment option in return for a
lower immediate commission. Annual commissions totaled $40.8 million in 1999,
$18.2 million in 1998 and $9.0 million in 1997. The increases in annual
commissions since 1997 reflect increased sales of annuities that offer this
commission option and gradual expiration of the initial fifteen-month periods
before such payments begin. The Company estimates that over 55% of its variable
annuity product liabilities are currently subject to such annual commissions.
Based on current sales, this percentage is expected to increase in future
periods.
INCOME TAX EXPENSE totaled $103.0 million in 1999, compared with $71.1
million in 1998 and $31.2 million in 1997, representing effective tax rates of
36% in 1999, 34% in 1998 and 33% in 1997.
FINANCIAL CONDITION AND LIQUIDITY
SHAREHOLDER'S EQUITY increased 25.2% to $935.1 million at December 31, 1999
from $747.0 million at December 31, 1998, due principally to $184.7 million of
net income recorded in 1999, partially offset by a $110.9 million increase in
accumulated other comprehensive loss. In addition, the Company received a
$114.3 million net capital contribution from the Parent (see Note
17
<PAGE>
10 of Notes to Consolidated Financial Statements).
INVESTED ASSETS at December 31, 1999 totaled $5.55 billion, compared with
$8.31 billion at December 31, 1998. The decrease in invested assets in 1999
compared to 1998 is primarily due to the expected high surrenders in the
business acquired in the Acquisition. The Company manages most of its invested
assets internally. The Company's general investment philosophy is to hold
fixed-rate assets for long-term investment. Thus, it does not have a trading
portfolio. However, the Company has determined that all of its portfolio of
bonds, notes and redeemable preferred stocks (the "Bond Portfolio") is available
to be sold in response to changes in market interest rates, changes in relative
value of asset sectors and individual securities, changes in prepayment risk,
changes in the credit quality outlook for certain securities, the Company's need
for liquidity and other similar factors.
THE BOND PORTFOLIO, which constituted 71% of the Company's total investment
portfolio, had an amortized cost that was $202.6 million greater than its
aggregate fair value at December 31, 1999, compared with an excess of $3.9
million at December 31, 1998. The net unrealized losses on the Bond Portfolio
in 1999 principally reflect the recent increase in prevailing interest rates and
the corresponding effect on the fair value of the Bond Portfolio at December 31,
1999.
At December 31, 1999, the Bond Portfolio (excluding $4.5 million of
redeemable preferred stocks) included $3.81 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 $138.5 million of
bonds rated by the Company pursuant to statutory ratings guidelines established
by the NAIC. At December 31, 1999, approximately $3.57 billion of the Bond
Portfolio was investment grade, including $1.43 billion of U.S.
government/agency securities and mortgage-backed securities ("MBSs").
At December 31, 1999, the Bond Portfolio included $376.1 million of bonds
that were not investment grade. These non-investment-grade bonds accounted for
1.4% of the Company's total assets and 6.8% of its invested assets.
Non-investment-grade securities generally provide higher yields and involve
greater risks than investment-grade securities because their issuers typically
are more highly leveraged and more vulnerable to adverse economic conditions
than investment-grade issuers. In addition, the trading market for these
securities is usually more limited than for investment-grade securities. The
Company had no material concentrations of non-investment-grade securities at
December 31, 1999.
The table on the next page summarizes the Company's rated bonds by rating
classification as of December 31, 1999.
18
<PAGE>
<TABLE>
<CAPTION>
RATED BONDS BY RATING CLASSIFICATION
(Dollars in thousands)
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 Estimated Percent of
[DCR] {Fitch} Amortized fair category Amortized fair Amortized fair invested
category (1) cost value (2) cost value cost value assets
- ------------------- ---------- ---------- --------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA+ to A-
(Aaa to A3)
[AAA to A-]
{AAA to A-} . . . $2,809,442 $2,663,519 1 $ 167,810 $ 168,798 $2,977,252 $2,832,317 51.01%
BBB+ to BBB-
(Baal to Baa3)
[BBB+ to BBB-]
{BBB+ to BBB-}. . 636,752 609,079 2 133,351 131,111 770,103 740,190 13.33
BB+ to BB-
(Ba1 to Ba3)
[BB+ to BB-]
{BB+ to BB-}. . . 71,360 67,472 3 0 0 71,360 67,472 1.22
B+ to B-
(B1 to B3)
[B+ to B-]
{B+ to B-}. . . . 290,407 275,381 4 10,876 9,970 301,283 285,351 5.14
CCC+ to C
(Caa to C)
[CCC]
{CCC+ to C-}. . . 17,357 11,638 5 13,867 11,523 31,224 23,161 0.42
CI to D
[DD]
{D} . . . . . . . 0 0 6 131 131 131 131 0.00
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RATED ISSUES. $3,825,318 $3,627,089 $ 326,035 $ 321,533 $4,151,353 $3,948,622
========== ========== ========== ========== ========== ==========
<FN>
Footnotes appear on the following page.
</TABLE>
19
<PAGE>
Footnotes to the table of Rated Bonds by Rating Classification
-----------------------------------------------------------------------
(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, DCR 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 $138.5 million of assets that were rated by the Company pursuant to
applicable NAIC rating guidelines.
20
<PAGE>
Senior secured loans ("Secured Loans") are included in the Bond Portfolio
and aggregated $373.6 million at December 31, 1999. Secured Loans are senior to
subordinated debt and equity, and are secured by assets of the issuer. At
December 31, 1999, Secured Loans consisted of $73.0 million of publicly traded
securities and $300.6 million of privately traded securities. These Secured
Loans are composed of loans to 66 borrowers spanning 17 industries, with 13% of
these assets concentrated in utilities and 11% concentrated in financial
institutions. No other industry concentration constituted more than 7% of these
assets.
While the trading market for the Company's privately traded Secured Loans
is more limited than for publicly traded issues, management believes that
participation in these transactions has enabled the Company to improve its
investment yield. As a result of restrictive financial covenants, these 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 these Secured Loans is mitigated by such financial covenants
and the collateral values underlying the Secured Loans. The Company's Secured
Loans are rated by S&P, Moody's, DCR, Fitch, the NAIC or by the Company,
pursuant to comparable statutory ratings guidelines established by the NAIC.
MORTGAGE LOANS aggregated $674.7 million at December 31, 1999 and consisted
of 136 commercial first mortgage loans with an average loan balance of
approximately $5.0 million, collateralized by properties located in 29 states.
Approximately 36% of this portfolio was office, 17% was multifamily residential,
10% was hotels, 10% was manufactured housing, 9% was industrial, 5% was retail,
and 13% was other types. At December 31, 1999, approximately 36% and 11% of
this portfolio were secured by properties located in California and New York,
respectively, and no more than 8% of this portfolio was secured by properties
located in any other single state. At December 31, 1999, there were 10 mortgage
loans with outstanding balances of $10 million or more, which collectively
aggregated approximately 30% of this portfolio. At December 31, 1999,
approximately 31% of the mortgage loan portfolio consisted of loans with balloon
payments due before January 1, 2003. During 1999, 1998 and 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, 1999, approximately 12% of the mortgage loans were seasoned
loans underwritten to the Company's standards and purchased at or near par from
other financial institutions. Such loans generally have higher average interest
rates than loans that could be originated today. The balance of the mortgage
loan portfolio has been originated by the Company under strict underwriting
standards. Commercial mortgage loans on properties such as offices, hotels and
shopping centers generally represent a higher level of risk than do mortgage
loans secured by multifamily residences. This greater risk is due to several
factors, including the larger size of such loans and the more immediate effects
of general economic conditions on these commercial property types. However, due
to the strict underwriting standards utilized, the Company believes that it has
prudently managed the risk attributable to its mortgage loan portfolio while
maintaining attractive yields.
POLICY LOANS aggregated $260.1 million at December 31, 1999, compared to
$320.7 million at December 31, 1998. This decrease was primarily due to
repayment of policy loans by surrendering policyholders from the Acquisition.
PARTNERSHIP INVESTMENTS totaled $4.0 million at December 31, 1999,
constituting investments in 6 separate partnerships with an average size of
21
<PAGE>
approximately $0.7 million. These partnerships are accounted for by using the
cost method of accounting and are managed by independent money managers that
invest in a broad selection of equity and fixed-income securities, currently
including 8 separate issuers. The risks generally associated with partnerships
include those related to their underlying investments (i.e., equity securities
and debt securities), plus a level of illiquidity, which is mitigated to some
extent by the existence of contractual termination provisions.
SEPARATE ACCOUNT SEED MONEY totaled $141.5 million at December 31, 1999,
consisting of seed money for mutual funds used as investment vehicles for the
Company's variable annuity separate accounts.
OTHER INVESTED ASSETS aggregated $19.4 million at December 31, 1999,
compared with $15.2 million at December 31, 1998, and consist of collateralized
bond obligations.
ASSET-LIABILITY MATCHING is utilized by the Company to minimize the risks
of interest rate fluctuations and disintermediation. The Company believes that
its fixed-rate liabilities should be backed by a portfolio principally composed
of fixed-rate investments that generate predictable rates of return. The
Company does not have a specific target rate of return. Instead, its rates of
return vary over time depending on the current interest rate environment, the
slope of the yield curve, the spread at which fixed-rate investments are priced
over the yield curve, default rates and general economic conditions. Its
portfolio strategy is constructed with a view to achieve adequate risk-adjusted
returns consistent with its investment objectives of effective asset-liability
matching, liquidity and safety. The Company's fixed-rate products incorporate
surrender charges or other restrictions in order to encourage persistency.
Approximately 48% of the Company's fixed annuity, universal life and GIC
reserves had surrender penalties or other restrictions at December 31, 1999.
As part of its asset-liability matching discipline, the Company conducts
detailed computer simulations that model its fixed-rate assets and liabilities
under commonly used stress-test interest rate scenarios. With the results of
these computer simulations, the Company can measure the potential gain or loss
in fair value of its interest-rate sensitive instruments and seek to protect its
economic value and achieve a predictable spread between what it earns on its
invested assets and what it pays on its liabilities by designing its fixed-rate
products and conducting its investment operations to closely match the duration
of the fixed-rate assets to that of its fixed-rate liabilities. The Company's
fixed-rate assets include: cash and short-term investments; bonds, notes and
redeemable preferred stocks; mortgage loans; and investments in limited
partnerships that invest primarily in fixed-rate securities and are accounted
for by using the cost method. At December 31, 1999, these assets had an
aggregate fair value of $5.05 billion with a duration of 3.2. The Company's
fixed-rate liabilities include fixed annuity, GIC and universal life reserves
and subordinated notes. At December 31, 1999, these liabilities had an
aggregate fair value (determined by discounting future contractual cash flows by
related market rates of interest) of $4.81 billion with a duration of 4.1. The
Company's potential exposure due to a 10% decrease in prevailing interest rates
from their December 31, 1999 levels is a loss of approximately $22.4 million,
representing an increase in the fair value of its fixed-rate liabilities that is
not offset by an increase in the fair value of its fixed-rate assets. Because
the Company actively manages its assets and liabilities and has strategies in
place to minimize its exposure to loss as interest rate changes occur, it
expects that actual losses would be less than the estimated potential loss.
22
<PAGE>
Duration is a common option-adjusted measure for the price sensitivity of a
fixed-maturity portfolio to changes in interest rates. It measures the
approximate percentage change in the market value of a portfolio if interest
rates change by 100 basis points, recognizing the changes in cash flows
resulting from embedded options such as policy surrenders, investment
prepayments and bond calls. It also incorporates the assumption that the
Company will continue to utilize its existing strategies of pricing its fixed
annuity, universal life and GIC products, allocating its available cash flow
amongst its various investment portfolio sectors and maintaining sufficient
levels of liquidity. Because the calculation of duration involves estimation
and incorporates assumptions, potential changes in portfolio value indicated by
the portfolio's duration will likely be different from the actual changes
experienced under given interest rate scenarios, and the differences may be
material.
As a component of its asset and liability management strategy, the Company
utilizes interest rate swap agreements ("Swap Agreements") to match assets 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 into fixed-rate
instruments. At December 31, 1999, the Company had one outstanding Swap
Agreement with a notional principal amount of $21.5 million. This agreement
matures in December 2024.
The Company also seeks to provide liquidity from time to time by using
reverse repurchase agreements ("Reverse Repos") and by investing in MBSs. It
also seeks to enhance its spread income by using Reverse Repos. Reverse Repos
involve a sale of securities and an agreement to repurchase the same securities
at a later date at an agreed upon price and are generally over-collateralized.
MBSs are generally investment-grade securities collateralized by large pools of
mortgage loans. MBSs generally pay principal and interest monthly. The amount
of principal and interest payments may fluctuate as a result of prepayments of
the underlying mortgage loans.
There are risks associated with some of the techniques the Company uses to
provide liquidity, enhance its spread income and match its assets and
liabilities. The primary risk associated with the Company's Reverse Repos and
Swap Agreements is counterparty risk. The Company believes, however, that the
counterparties to its Reverse Repos and Swap Agreements are financially
responsible and that the counterparty risk associated with those transactions is
minimal. It is the Company's policy that these agreements are entered into with
counterparties who have a debt rating of A/A2 or better from both S&P and
Moody's. The Company continually monitors its credit exposure with respect to
these agreements. In addition to counterparty risk, Swap Agreements also have
interest rate risk. However, the Company's Swap Agreements typically hedge
variable-rate assets or liabilities, and interest rate fluctuations that
adversely affect the net cash received or paid under the terms of a Swap
Agreement would be offset by increased interest income earned on the
variable-rate assets or reduced interest expense paid on the variable-rate
liabilities. The primary risk associated with MBSs is that a changing interest
rate environment might cause prepayment of the underlying obligations at speeds
slower or faster than anticipated at the time of their purchase. As part of its
decision to purchase an MBS, the Company assesses the risk of prepayment by
analyzing the security's projected performance over an array of interest-rate
scenarios. Once an MBS is purchased, the Company monitors its actual prepayment
experience monthly to reassess the relative attractiveness of the
23
<PAGE>
security with the intent to maximize total return.
INVESTED ASSETS EVALUATION is routinely conducted by the Company.
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. For investments in partnerships, management reviews
the financial statements and other information provided by the general partners.
The carrying values of investments that are determined to have declines in
value that are other than temporary are reduced to net realizable value and, in
the case of bonds, no further accruals of interest are made. The provisions for
impairment 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 $0.9 ($0.2 million of bonds and
$0.7 million of mortgage loans) at December 31, 1999, and constituted less than
0.1% of total invested assets. At December 31, 1998, defaulted investments
totaled $1.9 million, including $1.2 million of bonds and $0.7 million of
mortgage loans, and constituted less than 0.1% of total invested assets.
SOURCES OF LIQUIDITY are readily available to the Company in the form of
the Company's existing portfolio of cash and short-term investments, Reverse
Repo capacity on invested assets and, if required, proceeds from invested asset
sales. At December 31, 1999, approximately $484.1 million of the Company's Bond
Portfolio had an aggregate unrealized gain of $18.0 million, while approximately
$3.47 billion of the Bond Portfolio had an aggregate unrealized loss of $220.5
million. In addition, the Company's investment portfolio currently provides
approximately $46.4 million of monthly cash flow from scheduled principal and
interest payments. Historically, cash flows from operations and from the sale of
the Company's annuity and GIC products have been more than sufficient in amount
to satisfy the Company's liquidity needs. As the Company anticipated, liquidity
needs were unusually high this past year due to the Acquisition. Short-term
investments were sold as needed to satisfy these current cash requirements.
Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, the
Company's average cost of funds would increase over time as it prices its new
and renewing annuities and GICs to maintain a generally competitive market rate.
Management would seek to place new funds in investments that were matched in
duration to, and higher yielding than, the liabilities assumed. The Company
believes that liquidity to fund withdrawals would be available through
incoming cash flow, the sale of short-term or floating-
24
<PAGE>
rate instruments or Reverse Repos on the Company's substantial MBS segment of
the Bond Portfolio, thereby avoiding the sale of fixed-rate assets in an
unfavorable bond market.
In a declining rate environment, the Company's cost of funds would decrease
over time, reflecting lower interest crediting rates on its fixed annuities and
GICs. Should increased liquidity be required for withdrawals, the Company
believes that a significant portion of its investments could be sold without
adverse consequences in light of the general strengthening that would be
expected in the bond market.
CONTINGENT LIABILITIES are discussed in Note 9 of the accompanying
consolidated financial statements.
RECENTLY ISSUED ACCOUNTING STANDARDS are discussed in Note 2 of the
accompanying consolidated financial statements.
YEAR 2000
The year 2000 issue arose from computer programs written using two digits
rather than four digits to define the applicable year. This possibly could have
caused a failure of the information technology systems (IT systems) and other
equipment containing imbedded technology (non-IT systems) in the year 2000. The
Company implemented a plan to address the Year 2000 issue and to assess Year
2000 issues relating to third parties with which the Company has critical
relationships. The Company's cost to make necessary repairs had no significant
impact on its results of operations. The Company has not experienced any
business disruption from the Year 2000 issue. Its IT and non-IT systems were
compliant on January 1, 2000, and there have been no problems related to any
third parties compliance.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The quantitative and qualitative disclosures about market risk are
contained in the Asset-Liability Matching section of Management's Disclosure and
Analysis of Financial Condition and Results of Operations on pages 22 and 23
herein. Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," will be effective for the
Company as of January 1, 2001. Therefore, it is not included in the
accompanying financial statements. The Company has not completed its analysis
of the effect of SFAS 133, but management believes that it will not have a
material impact on the Company's results of operations, financial condition or
liquidity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements begin on page F-3.
Reference is made to the Index to Financial Statements on page F-1 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
<TABLE>
<CAPTION>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The directors and principal officers of Anchor National Life Insurance Company
(the "Company") as of March 29, 2000 are listed below, together with information as to
their ages, dates of election and principal business occupation during the last five
years (if other than their present business occupation).
Other Positions and
Year Other Business
Present Assumed Experience Within
Name Age Position Position Last Five Years** From-To
---- --- -------- -------- ----------------- -------
<S> <C> <C> <C> <C> <C>
Eli Broad*. . . . 66 Chairman, 1994 Cofounded SAI
Chief Executive in 1957
Officer and
President of
the Company
Chairman, Chief 1986
Executive Officer
and President of
SunAmerica Inc.
("SAI")
Jay S. Wintrob* . 42 Executive Vice 1991 (Joined SAI in 1987)
President of the
Company
Vice Chairman and 1998
Chief Operating
Officer of SAI
James R. Belardi* 42 Senior Vice 1992 (Joined SAI in 1986)
President of the
Company
Executive Vice 1995
President of SAI
Marc H. Gamsin* . 44 Senior Vice 1999 Executive Vice President 1998 to
President of the SunAmerica Investments, Present
Company Inc. (GA)
Senior Vice 1996 Executive Vice President, 1997-1998
President of SAI SunAmerica Investments,
Inc. (DE)
Partner, O'Melveny & 1976-1996
Myers, LLP
Jana W. Greer*. . 47 Senior Vice 1994 (Joined SAI in 1974)
President of the
Company
Senior Vice
President of SAI 1992
<FN>
____________________________________
* Also services as a director
** Unless otherwise indicated, officers and positions are with SunAmerica Inc.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Other Positions and
Year Other Business
Present Assumed Experience Within
Name Age Position Position Last Five Years** From-To
---- --- -------- -------- ------------------- -------
<S> <C> <C> <C> <C> <C>
Susan L. Harris* . . 42 Senior Vice 1994 Vice President, 1994-1995
President and General Counsel-
Secretary of the Corporate Affairs and
Company Secretary of SAI
Senior Vice 1995
President,
General Counsel
and Secretary of
SAI (Joined SAI in 1985)
N. Scott Gillis* . . 46 Senior Vice 2000 Senior Vice President 1994-1999
President of the and Controller,
Company SunAmerica Life Insurance
Vice President of 1997 Companies ("SLC")
SAI (Joined SAI in 1985)
Gregory M. Outcalt . 37 Senior Vice 2000 Vice President, SLC 1993-1999
President of the (Joined SAI in 1986)
Company
Edwin R. Raquel. . . 42 Senior Vice 1995 Vice President, 1990-1995
President and Actuary, SLC
Chief Actuary
of the Company
David R. Bechtel . . 32 Vice President 1998 Vice President, 1996-1998
and Treasurer of Deutsche Morgan
the Company Grenfell, Inc.
Vice President 1998 Associate, 1995-1996
and Treasurer of UBS Securities LLC
SAI Associate, 1994
Wachtell Lipton Rosen
& Katz
P. Daniel Demko, Jr. 50 Vice President 1999 Executive Vice President, 1998 to
of the Company SunAmerica Retirement Present
Markets, Inc.
President & Vice 1995-1998
Chairman, Global Health
Network, LLC
Owner, P. Demko Company 1992-1995
J. Franklin Grey . . 47 Vice President 1994 Vice President of 1994 to
of the Company Certain SLC Present
<FN>
____________________________________
* Also serves as a director
** Unless otherwise indicated, officers and positions are with SunAmerica Inc.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Other Positions and
Year Other Business
Present Assumed Experience Within
Name Age Position Position Last Five Years** From-To
---- --- -------- -------- ------------------ -------
<S> <C> <C> <C> <C> <C>
Kevin J. Hart. . . . 45 Vice President 1999 Executive Vice President, 1995 to
of the Company SunAmerica Retirement Present
Markets, Inc.
National Sales Manager, 1991-1995
American Skandia Life
Assurance Corporation
Edward P. Nolan, Jr. 50 Vice President 1993 (Joined SAI in 1989)
of the Company
Stewart R. Polakov . 40 Vice President 2000 Vice President, 1997-1999
of the Company SunAmerica Financial,
division of the Company
Director, Investment 1994-1997
Accounting, SAI
(Joined SAI in 1991)
Scott H. Richland. . 37 Vice President 1994 Senior Vice President 1997-1998
of the Company and Treasurer of SAI
Senior Vice 1997 Vice President and 1995-1997
President of SAI Treasurer of SAI
Vice President and 1994-1995
Assistant Treasurer
of SAI
(Joined SAI in 1990)
<FN>
____________________________________
* Also services as a director
** Unless otherwise indicated, officers and positions are with SunAmerica Inc.
</TABLE>
28
<PAGE>
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
All of the executive officers of the Company also serve as employees of
SunAmerica Inc. or its affiliates and receive no compensation directly from the
Company. Some of the officers also serve as officers of other companies
affiliated with the Company. Allocations have been made as to each individual's
time devoted to his or her duties as an executive officer of the Company.
The following table shows the cash compensation paid or earned, based on
these allocations, to the chief executive officer and top four executive
officers of the Company whose allocated compensation exceeds $100,000 for
services rendered in all capacities to the Company during 1999:
<TABLE>
<CAPTION>
Name of Individual or Capacities In Allocated Cash
Number in Group Which Served Compensation
----------------------- ---------------------- --------------
<S> <C> <C>
Eli Broad . . . . . . . . Chairman, Chief Executive $1,717,681
Officer and President
Jay S. Wintrob. . . . . . Executive Vice President 858,159
Jana Waring Greer . . . . Senior Vice President 673,541
Daniel P. Demko . . . . . Vice President 521,513
Scott H. Richland . . . . Vice President 273,303
</TABLE>
Directors of the Company who are also employees of SunAmerica Inc. or its
affiliates receive no compensation in addition to their compensation as
employees of SunAmerica Inc. or its affiliates.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is an indirect wholly owned subsidiary of American
International Group, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reference is made to the index set forth on page F-1 of this report.
EXHIBITS
Exhibit
No. Description
- ------ -----------
2(a) Purchase and Sale Agreement, dated as of July 15, 1998, by and among
the Company, SunAmerica Inc. ("SAI"), First SunAmerica Life Insurance Company
and MBL Life Assurance Corporation, is incorporated herein by reference to
Exhibit 2(e) to SAI's 1998 Annual Report on Form 10-K, filed December 21, 1998.
3(a) Amended and Restated Articles of Incorporation and Articles of
Redomestication, filed with the Arizona Department of Insurance on December 22,
1995, is incorporated herein by reference to Exhibit 3(a) to the Company's
quarterly report on Form 10-Q for the quarter ended December 31, 1995, filed
February 14, 1996.
3(b) Amended and Restated Bylaws, as adopted January 1, 1996, is
incorporated herein by reference to Exhibit 3(b) to the Company's quarterly
report on Form 10-Q for the quarter ended December 31, 1995, filed February 14,
1996.
4(a) Amended and Restated Articles of Incorporation and Articles of
Redomestication, filed with the Arizona Department of Insurance on December 12,
1996. See Exhibit 3(a).
4(b) Amended and Restated Bylaws, as adopted January 1, 1996. See Exhibit
3(b).
10(a) Amendment to the Subordinated Loan Agreement for Equity Capital,
dated as of August 22, 1996, between the Company's subsidiary, SunAmerica
Capital Services, Inc. ("SACS") and SAI, extending the maturity date to
September 30, 1999 of a Subordinated Loan Agreement for Equity Capital, dated as
of September 30, 1992, defining SAI's rights with respect to the 9% notes due
September 29, 1996, is incorporated herein by reference to Exhibit 10(f) to the
Company's Form 10-K, filed December 19, 1996.
10(b) Subordinated Loan Agreement for Equity Capital, dated as of July 24,
1996, between the Company's subsidiary, Royal Alliance Associates, Inc. and SAI,
defining SAI's rights with respect to the 9% notes due August 23, 1999 is
incorporated herein by reference to Exhibit 10(k) to the Company's Form 10-K,
filed December 19, 1996.
10(c) Amendment to the Subordinated Loan Agreement for Equity Capital,
dated as of September 3, 1996, between the Company's subsidiary, SunAmerica
Asset Management Corp., and SAI, extending the maturity date to September 13,
1999 of a Subordinated Loan Agreement for Equity Capital, dated as of September
3, 1993, defining SAI's rights with respect to the 7% notes due September 13,
1996, is incorporated herein by reference to Exhibit 10(l) to the Company's Form
10-K, filed December 19, 1996.
10(d) Subordinated Loan Agreement for Equity Capital, dated as of February
19, 1997, between the Company's subsidiary, SACS, and SAI, defining SAI's rights
with respect to the 9% notes due Exhibit March 14, 2000, is incorporated herein
by reference to Exhibit 10(a) to Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1997, filed May 15, 1997.
30
<PAGE>
Exhibit
No. Description
- ------ -----------
10(e) Subordinated Loan Agreement for Equity Capital, dated as of April 29,
1998, between the Company's subsidiary, SACS, and SAI, defining SAI's rights
with respect to the 8.5% notes due June 27, 2001, is incorporated herein by
reference to Exhibit 10(a) to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1998, filed August 14, 1998.
10(f) Subordinated Loan Agreement for Equity Capital, dated as of June 3,
1998, between the Company's subsidiary, SACS, and SAI, defining SAI's rights
with respect to the 8.5% notes due July 30, 2001, is incorporated herein by
reference to Exhibit 10(b) to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1998, filed August 14, 1998.
10(g) Subordinated Loan Agreement for Equity Capital, dated as of August
25, 1998, between the Company's subsidiary, SACS, and SAI, defining SAI's rights
with respect to the 8.5% notes due October 30, 2001, is incorporated herein by
reference to Exhibit 10(g) to the Company's Form 10-K, filed December 23, 1998.
10(h) Subordinated Loan Agreement for Equity Capital, dated as of March 12,
1999, between the Company's subsidiary, SACS, and SAI, defining SAI's rights
with respect to the 8.5% notes due April 30, 2002, is incorporated herein by
reference to Exhibit 10(a) to the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 1999, filed May 14, 1999.
10(i) Subordinated Loan Agreement for Equity Capital, dated as of August 9,
1999, between the Company's subsidiary, SACS, and SAI, defining SAI's rights
with respect to the 8% notes due September 30, 2002, is incorporated herein by
reference to Exhibit 10(a) to the Company's quarterly report on Form 10-Q for
the quarter ended September 30, 1999, filed November 15, 1999.
10(j) Asset Lease Agreement, dated June 26, 1998, between the Company and
Aurora National Life Assurance Company ("Aurora"), relating to a lease from
Aurora of certain information relating to single premium deferred annuities, is
incorporated herein by reference by Exhibit 10(h) to the Company's Form 10-K,
filed December 23, 1998.
21 Subsidiaries of the Company.
27 Financial Data Schedule
REPORTS ON FORM 8-K
No current report on Form 8-K was filed during the three months ended December
31, 1999.
31
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ANCHOR NATIONAL LIFE INSURANCE COMPANY
By/s/ N. SCOTT GILLIS
------------------------
N. Scott Gillis
March 30, 2000 Senior Vice President and Director
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated:
Signature Title Date
- ------------------------------- ------------------------- --------------
<S> <C> <C>
/s/ ELI BROAD . . . . . . . . Chairman, Chief Executive March 30, 2000
- -------------------------------
Eli Broad . . . . . . . . Officer and President
(Principal Executive Officer)
/s/ N. SCOTT GILLIS . . . . . Senior Vice President and March 30, 2000
- -------------------------------
N. Scott Gillis . . . . . Director (Principal
Financial Officer)
/s/ GREGORY M. OUTCALT. . . . Senior Vice President and March 30, 2000
- -------------------------------
Gregory M. Outcalt. . . . Controller (Principal
Accounting Officer)
/s/ JAY S. WINTROB. . . . . . Executive Vice President March 30, 2000
- -------------------------------
Jay S. Wintrob. . . . . . and Director
/s/ JAMES R. BELARDI. . . . . Senior Vice President, March 30, 2000
- -------------------------------
James R. Belardi. . . . . Treasurer and Director
/s/ MARC H. GAMSIN. . . . . . Senior Vice President March 30, 2000
- -------------------------------
Marc H. Gamsin. . . . . . and Director
/s/ JANA W. GREER . . . . . . Senior Vice President March 30, 2000
- -------------------------------
Jana W. Greer . . . . . . and Director
/s/ SUSAN L. HARRIS . . . . . Senior Vice President, March 30, 2000
- -------------------------------
Susan L. Harris . . . . . Secretary and Director
/s/ EDWIN R. RAQUEL . . . . . Senior Vice President March 30, 2000
- -------------------------------
Edwin R. Raquel . . . . . and Chief Actuary
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Number(s)
------------
<S> <C>
Report of Independent Accountants . . . . . . . . . F-2
Consolidated Balance Sheet - December 31, 1999,
December 31, 1998, and September 30, 1998 . . . . . F-3 to F-4
Consolidated Statement of Income and Comprehensive
Income - Year Ended December 31, 1999, Three Months
Ended December 31, 1998, Years Ended September 30,
1998 and 1997 . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statement of Cash Flows - Year Ended
December 31, 1999, Three Months Ended December 31,
1998, Years Ended September 30, 1998 and 1997 . . . F-6 to F-7
Notes to Consolidated Financial Statements. . . . . F-8 to F-37
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder of
Anchor National Life Insurance Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and comprehensive income and of cash flows
present fairly, in all material respects, the financial position of Anchor
National Life Insurance Company and its subsidiaries (the "Company") at December
31, 1999, December 31, 1998, and September 30, 1998, and the results of their
operations and their cash flows for the year ended December 31, 1999, for the
three months ended December 31, 1998 and for each of the two fiscal years in the
period ended September 30, 1998, in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States, 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.
PricewaterhouseCoopers LLP
Los Angeles, California
January 31, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
December 31, December 31, September 30,
1999 1998 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Investments:
Cash and short-term investments . . . . $ 475,162,000 $ 3,303,454,000 $ 333,735,000
Bonds, notes and redeemable
preferred stocks available for sale,
at fair value (amortized cost:
December 1999, $4,155,728,000;
December 1998, $4,252,740,000;
September 1998, $1,934,863,000) . . . 3,953,169,000 4,248,840,000 1,954,754,000
Mortgage loans. . . . . . . . . . . . . 674,679,000 388,780,000 391,448,000
Policy loans. . . . . . . . . . . . . . 260,066,000 320,688,000 11,197,000
Separate account seed money 141,499,000 --- ---
Common stocks available for sale,
at fair value (cost: December 1999,
$0; December 1998, $1,409,000;
September 1998, $115,000) --- 1,419,000 169,000
Partnerships. . . . . . . . . . . . . . 4,009,000 4,577,000 4,403,000
Real estate . . . . . . . . . . . . . . 24,000,000 24,000,000 24,000,000
Other invested assets . . . . . . . . . 19,385,000 15,185,000 15,036,000
--------------- --------------- ---------------
Total investments . . . . . . . . . . . 5,551,969,000 8,306,943,000 2,734,742,000
Variable annuity assets held in separate
accounts. . . . . . . . . . . . . . . . 19,949,145,000 13,767,213,000 11,133,569,000
Accrued investment income . . . . . . . . 60,584,000 73,441,000 26,408,000
Deferred acquisition costs. . . . . . . . 1,089,979,000 866,053,000 539,850,000
Receivable from brokers for sales of
securities. . . . . . . . . . . . . . . 54,760,000 22,826,000 23,904,000
Income taxes currently receivable --- --- 5,869,000
Deferred income taxes 53,445,000 --- ---
Other assets. . . . . . . . . . . . . . . 114,612,000 109,857,000 85,926,000
--------------- --------------- ---------------
TOTAL ASSETS. . . . . . . . . . . . . . . $26,874,494,000 $23,146,333,000 $14,550,268,000
=============== =============== ===============
</TABLE>
See accompanying notes
F-3
<PAGE>
<TABLE>
<CAPTION>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET (Continued)
December 31, December 31, September 30,
1999 1998 1998
---------------- ---------------- ---------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts . . . $ 3,254,895,000 $ 5,500,157,000 $ 2,189,272,000
Reserves for universal life insurance
contracts 1,978,332,000 2,339,194,000 ---
Reserves for guaranteed investment
contracts. . . . . . . . . . . . . . . . 305,570,000 306,461,000 282,267,000
Payable to brokers for purchases of
securities 139,000 --- 50,957,000
Income taxes currently payable 23,490,000 11,123,000 ---
Modified coinsurance deposit liability 140,757,000 --- ---
Other liabilities. . . . . . . . . . . . . 249,224,000 160,020,000 106,594,000
---------------- ---------------- ---------------
Total reserves, payables
and accrued liabilities. . . . . . . . . 5,952,407,000 8,316,955,000 2,629,090,000
---------------- ---------------- ---------------
Variable annuity liabilities related to
separate accounts. . . . . . . . . . . . . 19,949,145,000 13,767,213,000 11,133,569,000
---------------- ---------------- ---------------
Subordinated notes payable to affiliates . . 37,816,000 209,367,000 39,182,000
---------------- ---------------- ---------------
Deferred income taxes --- 105,772,000 95,758,000
---------------- ---------------- ---------------
Shareholder's equity:
Common Stock . . . . . . . . . . . . . . . 3,511,000 3,511,000 3,511,000
Additional paid-in capital . . . . . . . . 493,010,000 378,674,000 308,674,000
Retained earnings. . . . . . . . . . . . . 551,158,000 366,460,000 332,069,000
Accumulated other comprehensive
income (loss). . . . . . . . . . . . . . (112,553,000) (1,619,000) 8,415,000
---------------- ---------------- ---------------
Total shareholder's equity . . . . . . . . 935,126,000 747,026,000 652,669,000
---------------- ---------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY . $26,874,494,000 $23,146,333,000 $14,550,268,000
================ ================ ===============
</TABLE>
See accompanying notes
F-4
<PAGE>
<TABLE>
<CAPTION>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
Year Ended Three Months Ended Years Ended September 30,
-----------------------------
December 31, 1999 December 31, 1998 1998 1997
---------------------------------- ------------- --------------
<S> <C> <C> <C> <C>
Investment income. . . . . . . . $ 521,953,000 $ 54,278,000 $ 221,966,000 $ 210,759,000
------------------- ------------- -------------- --------------
Interest expense on:
Fixed annuity contracts. . . . (231,929,000) (22,828,000) (112,695,000) (109,217,000)
Universal life insurance
contracts (102,486,000) --- --- ---
Guaranteed investment
contracts. . . . . . . . . . (19,649,000) (3,980,000) (17,787,000) (22,650,000)
Senior indebtedness. . . . . . (199,000) (34,000) (1,498,000) (2,549,000)
Subordinated notes payable
to affiliates. . . . . . . . (3,474,000) (853,000) (3,114,000) (3,142,000)
------------------- ------------- -------------- --------------
Total interest expense . . . . (357,737,000) (27,695,000) (135,094,000) (137,558,000)
------------------- ------------- -------------- --------------
NET INVESTMENT INCOME. . . . . . 164,216,000 26,583,000 86,872,000 73,201,000
------------------- ------------- -------------- --------------
NET REALIZED INVESTMENT
GAINS (LOSSES) . . . . . . . . (19,620,000) 271,000 19,482,000 (17,394,000)
------------------- ------------- -------------- --------------
Fee income:
Variable annuity fees. . . . . 306,417,000 58,806,000 200,867,000 139,492,000
Net retained commissions . . . 51,039,000 11,479,000 48,561,000 39,143,000
Asset management fees. . . . . 43,510,000 8,068,000 29,592,000 25,764,000
Universal life insurance
fees 23,290,000 --- --- ---
Surrender charges. . . . . . . 17,137,000 3,239,000 7,404,000 5,529,000
Other fees . . . . . . . . . . 13,999,000 1,738,000 3,938,000 3,218,000
------------------- ------------- -------------- --------------
TOTAL FEE INCOME . . . . . . . . 455,392,000 83,330,000 290,362,000 213,146,000
------------------- ------------- -------------- --------------
GENERAL AND ADMINISTRATIVE
EXPENSES . . . . . . . . . . . (154,665,000) (21,993,000) (96,102,000) (98,802,000)
------------------- ------------- -------------- --------------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS. . . . . . . (116,840,000) (27,070,000) (72,713,000) (66,879,000)
------------------- ------------- -------------- --------------
ANNUAL COMMISSIONS . . . . . . . (40,760,000) (6,624,000) (18,209,000) (8,977,000)
------------------- ------------- -------------- --------------
PRETAX INCOME. . . . . . . . . . 287,723,000 54,497,000 209,692,000 94,295,000
Income tax expense . . . . . . . (103,025,000) (20,106,000) (71,051,000) (31,169,000)
------------------- ------------- -------------- --------------
NET INCOME . . . . . . . . . . . 184,698,000 34,391,000 138,641,000 63,126,000
------------------- ------------- -------------- --------------
Other comprehensive income
(loss), net of tax:
Net unrealized gains (losses)
on debt and equity securities
available for sale:
Net unrealized gains
(losses) identified in
the current period . . . . (118,669,000) (10,249,000) (4,027,000) 16,605,000
Less reclassification
adjustment for net
realized (gains) losses
included in net income . . 7,735,000 215,000 (5,963,000) 7,321,000
------------------- ------------- -------------- --------------
OTHER COMPREHENSIVE INCOME
(LOSS) . . . . . . . . . . . . (110,934,000) (10,034,000) (9,990,000) 23,926,000
------------------- ------------- -------------- --------------
COMPREHENSIVE INCOME . . . . . . $ 73,764,000 $ 24,357,000 $ 128,651,000 $ 87,052,000
=================== ============= ============== ==============
</TABLE>
See accompanying notes
F-5
<PAGE>
<TABLE>
<CAPTION>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended Three Months Ended Years Ended September 30,
---------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------- --------------- ----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income. . . . . . . . . . . . $ 184,698,000 $ 34,391,000 $ 138,641,000 $ 63,126,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Interest credited to:
Fixed annuity contracts . . 231,929,000 22,828,000 112,695,000 109,217,000
Universal life insurance
contracts 102,486,000 --- --- ---
Guaranteed investment
contracts . . . . . . . . 19,649,000 3,980,000 17,787,000 22,650,000
Net realized investment
losses (gains). . . . . . . 19,620,000 (271,000) (19,482,000) 17,394,000
Amortization (accretion) of
net premiums (discounts)
on investments. . . . . . . (18,343,000) (1,199,000) 447,000 (18,576,000)
Universal life insurance
fees (23,290,000) --- --- ---
Amortization of goodwill. . . 776,000 356,000 1,422,000 1,187,000
Provision for deferred
income taxes. . . . . . . . (100,013,000) 15,945,000 34,087,000 (16,024,000)
Change in:
Accrued investment income . . . 9,155,000 (1,512,000) (4,649,000) (2,084,000)
Deferred acquisition costs. . . (208,228,000) (34,328,000) (160,926,000) (113,145,000)
Other assets. . . . . . . . . . (5,661,000) (21,070,000) (19,374,000) (14,598,000)
Income taxes currently
payable . . . . . . . . . . . 12,367,000 16,992,000 (38,134,000) 10,779,000
Other liabilities . . . . . . . 49,504,000 5,617,000 (2,248,000) 14,187,000
Other, net. . . . . . . . . . . . 15,087,000 5,510,000 (5,599,000) 418,000
------------------- --------------- ---------------- ----------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES. . . . . . . . . . . . 289,736,000 47,239,000 54,667,000 74,531,000
------------------- --------------- ---------------- ----------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of:
Bonds, notes and redeemable
preferred stocks. . . . . . . (4,130,682,000) (392,515,000) (1,970,502,000) (2,566,211,000)
Mortgage loans. . . . . . . . . (331,398,000) (4,962,000) (131,386,000) (266,771,000)
Other investments, excluding
short-term investments (227,268,000) (1,992,000) --- (75,556,000)
Sales of:
Bonds, notes and redeemable
preferred stocks. . . . . . . 2,660,931,000 265,039,000 1,602,079,000 2,299,063,000
Other investments, excluding
short-term investments. . . . 65,395,000 142,000 42,458,000 6,421,000
Redemptions and maturities of:
Bonds, notes and redeemable
preferred stocks. . . . . . . 1,274,764,000 37,290,000 424,393,000 376,847,000
Mortgage loans. . . . . . . . . 46,760,000 7,699,000 80,515,000 25,920,000
Other investments, excluding
short-term investments. . . . 33,503,000 853,000 67,213,000 23,940,000
Cash and short-term investments
acquired in coinsurance
transaction with MBL Life
Assurance Corporation --- 3,083,211,000 --- ---
Short-term investments
transferred to First
SunAmerica Life Insurance
Company in assumption
reinsurance transaction with
MBL Life Assurance Corporation (371,634,000) --- --- ---
------------------- --------------- ---------------- ----------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES. . . . . . . (979,629,000) 2,994,765,000 114,770,000 (176,347,000)
------------------- --------------- ---------------- ----------------
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
Year Ended Three Months Ended Years Ended September 30,
---------------------------------
December 31, 1999 December 31, 1998 1998 1997
--------------------------------- --------------- ----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Premium receipts on:
Fixed annuity contracts. . . . $ 2,016,851,000 $ 351,616,000 $ 1,512,994,000 $1,097,937,000
Universal life insurance
contracts 78,864,000 --- --- ---
Guaranteed investment
contracts --- --- 5,619,000 55,000,000
Net exchanges from the fixed
accounts of variable annuity
contracts. . . . . . . . . . . (1,821,324,000) (448,762,000) (1,303,790,000) (620,367,000)
Withdrawal payments on:
Fixed annuity contracts. . . . (2,232,374,000) (41,554,000) (191,690,000) (242,589,000)
Universal life insurance
contracts (81,634,000) --- --- ---
Guaranteed investment
contracts. . . . . . . . . . (19,742,000) (3,797,000) (36,313,000) (198,062,000)
Claims and annuity payments on:
Fixed annuity contracts. . . . (46,578,000) (9,333,000) (40,589,000) (35,731,000)
Universal life insurance
contracts (158,043,000) --- --- ---
Net receipts from (repayments
of) other short-term
financings . . . . . . . . . . (129,512,000) 9,545,000 (10,944,000) 34,239,000
Net receipt/(payment) related
to a modified coinsurance
transaction 140,757,000 (170,436,000) 166,631,000 ---
Receipts from issuance of
subordinated note payable
to affiliate --- 170,436,000 --- ---
Net of capital contributions
and return of capital 114,336,000 70,000,000 --- 28,411,000
Dividends paid --- --- (51,200,000) (25,500,000)
------------------- --------------- ---------------- ---------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES . . . . . . (2,138,399,000) (72,285,000) 50,718,000 93,338,000
------------------- --------------- ---------------- ---------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS . . . (2,828,292,000) 2,969,719,000 220,155,000 (8,478,000)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD . . . . . 3,303,454,000 333,735,000 113,580,000 122,058,000
------------------- --------------- ---------------- ---------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD . . . . . . . . $ 475,162,000 $3,303,454,000 $ 333,735,000 $ 113,580,000
=================== =============== ================ ===============
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid on indebtedness. . $ 3,787,000 $ 1,169,000 $ 3,912,000 $ 7,032,000
=================== =============== ================ ===============
Net income taxes paid
(refunded) . . . . . . . . . . $ 190,126,000 $ (12,302,000) $ 74,932,000 $ 36,420,000
=================== =============== ================ ===============
</TABLE>
See accompanying notes
F-7
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company, including its wholly owned subsidiaries,
(the "Company") is an Arizona-domiciled life insurance company which conducts
its business through three segments: annuity operations, asset management
operations and broker-dealer operations. Annuity operations include the sale and
administration of deposit-type insurance contracts, including fixed and variable
annuities, universal life contracts and guaranteed investment contracts. Asset
management operations, which include the distribution and management of mutual
funds, are 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 Company is an indirect wholly owned subsidiary of American International
Group, Inc. ("AIG"), an international insurance and financial services holding
company. At December 31, 1998, the Company was a wholly owned indirect
subsidiary of SunAmerica Inc., a Maryland Corporation. On January 1, 1999,
SunAmerica Inc. merged with and into AIG in a tax-free reorganization that has
been treated as a pooling of interests for accounting purposes. Thus,
SunAmerica Inc. ceased to exist on that date. However, immediately prior to the
date of the merger, substantially all of the net assets of SunAmerica Inc. were
contributed to a newly formed subsidiary of AIG named SunAmerica Holdings, Inc.,
a Delaware Corporation. SunAmerica Holdings, Inc. subsequently changed its name
to SunAmerica Inc. ("SunAmerica").
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, the 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 items have been reclassified to conform to the current
period's presentation.
F-8
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Under generally accepted accounting principles, premiums collected on the
non-traditional life and annuity insurance products, such as those sold by the
Company, are not reflected as revenues in the Company's statement of earnings,
as they are recorded directly to policyholders liabilities upon receipt.
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.
INVESTED ASSETS: 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. Policy loans are carried at unpaid balances. Separate
account seed money consists of seed money for mutual funds used as investment
vehicles for the Company's variable annuity separate accounts and is valued at
market. Limited partnerships are accounted for by the cost method of
accounting. Real estate is carried at cost, reduced by impairment provisions.
Other invested assets include collateralized bond obligations.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined by using the specific cost
identification method. Premiums and discounts on investments are amortized to
investment income by 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 Investment Income or Interest
Expense in the income statement. Initially, Swap Agreements are designated as
hedges and, therefore, are not marked to market. However, when a hedged
asset/liability is sold or repaid before the related Swap Agreement matures, the
Swap Agreement is marked to market and any gain/loss is classified with any
gain/loss realized on the disposition of the hedged asset/liability.
Subsequently, the Swap Agreement is marked to market and the resulting change
in fair value is included in Investment Income in the income
F-9
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
statement. When a Swap Agreement that is designated as a hedge is terminated
before its contractual maturity, any resulting gain/loss is credited/charged to
the carrying value of the asset/liability that it hedged and is treated as a
premium/discount for the remaining life of the asset/liability.
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, universal life insurance
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 ("DAC") 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 DAC 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 accumulated other
comprehensive income/(loss) that is credited or charged directly to
shareholder's equity. DAC has been increased by $29,400,000 at December 31,
1999, increased by $1,400,000 at December 31, 1998, and decreased by $7,000,000
at September 30, 1998 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 $22,206,000 at December 31, 1999, 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,
universal life insurance 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).
MODIFIED COINSURANCE DEPOSIT LIABILITY: Cash received as part of the modified
coinsurance transaction described in Note 8 is recorded as a deposit liability.
F-10
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FEE INCOME: Variable annuity fees, asset management fees, universal life
insurance 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 files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Its federal income tax return
is consolidated with those of its direct parent, SunAmerica Life Insurance
Company (the "Parent"), and its affiliate, First SunAmerica Life Insurance
Company. 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.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1998, the FASB issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 addresses the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. SFAS 133 was postponed by
SFAS 137, and now will be effective for the Company as of January 1, 2001.
Therefore, it is not included in the accompanying financial statements. The
Company has not completed its analysis of the effect of SFAS 133, but management
believes that it will not have a material impact on the Company's results of
operations, financial condition or liquidity.
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information," was adopted for the year ended
December 31, 1999 and is included in Note 14 of the accompanying financial
statements.
3. FISCAL YEAR CHANGE
Effective December 31, 1998, the Company changed its fiscal year end from
September 30 to December 31. Accordingly, the consolidated financial statements
include the results of operations and cash flows for the three-month transition
period ended December 31, 1998. Such results are not necessarily indicative of
operations for a full year. The consolidated financial statements as of and for
the three months ended December 31, 1998 were originally filed as the Company's
unaudited Transition Report on Form 10-Q.
Results for the comparable prior year period are summarized below.
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1997
-----------------
<S> <C>
Investment income . . . . . . 59,855,000
Net investment income . . . . 26,482,000
Net realized investment gains 20,935,000
Total fee income. . . . . . . 63,984,000
Pretax income . . . . . . . . 67,654,000
Net income. . . . . . . . . . 44,348,000
=================
</TABLE>
F-11
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. ACQUISITION
On December 31, 1998, the Company acquired the individual life business and the
individual and group annuity business of MBL Life Assurance Corporation ("MBL
Life") ("the Acquisition"), via a 100% coinsurance transaction, for a cash
purchase price of $128,420,000. As part of this transaction, the Company
acquired assets having an aggregate fair value of $5,718,227,000, composed
primarily of invested assets totaling $5,715,010,000. Liabilities assumed in
this acquisition totaled $5,831,266,000, including $3,460,503,000 of fixed
annuity reserves, $2,308,742,000 of universal life reserves and $24,011,000 of
guaranteed investment contract reserves. The excess of the purchase price over
the fair value of net assets received amounted to $104,509,000 at December 31,
1999, after adjustment for the transfer of the New York business to First
SunAmerica Life Insurance Company (see below), and is included in Deferred
Acquisition Costs in the accompanying consolidated balance sheet. The income
statement for the year ended December 31, 1999 includes the impact of the
Acquisition. On a pro forma basis, assuming the Acquisition had been
consummated on October 1, 1996, the beginning of the prior-year periods
discussed within, investment income would have been $517,606,000 and net income
would have been $158,887,000 for the year ended September 30, 1998. For the
year ended September 30, 1997, investment income would have been $506,399,000
and net income would have been $83,372,000.
Included in the block of business acquired from MBL Life were policies whose
owners are residents of New York State ("the New York Business"). On July 1,
1999, the New York Business was acquired by the Company's New York affiliate,
First SunAmerica Life Insurance Company ("FSA"), via an assumption reinsurance
agreement, and the remainder of the business converted to assumption reinsurance
in the Company, which superseded the coinsurance agreement. As part of this
transfer, invested assets equal to $678,272,000, life reserves equal to
$282,247,000, group pension reserves equal to $406,118,000, and other net assets
of $10,093,000 were transferred to FSA.
The $128,420,000 purchase price was allocated between the Company and FSA based
on the estimated future gross profits of the two blocks of business. The
portion allocated to FSA was $10,000,000.
As part of the Acquisition, the Company received $242,473,000 from MBL to pay
policy enhancements guaranteed by the MBL Life rehabilitation agreement to
policyholders meeting certain requirements. A primary requirement was that
annuity policyholders must have converted their MBL Life policy to a policy type
currently offered by the Company or one of its affiliates by December 31, 1999.
The enhancements are to be credited in four installments on January 1, 2000,
June 30, 2001, June 30, 2002 and June 30, 2003, to eligible policies still
active on each of those dates. On December 31, 1999 the enhancement reserve for
such payments totaled $223,032,000, which includes interest accredited at 6.75%
on the original reserve. Of this amount, $69,836,000 was credited to
policyholders in February 2000 for the January 1, 2000 installment.
F-12
<PAGE>
<TABLE>
<CAPTION>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by major category follow:
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
AT DECEMBER 31, 1999:
Securities of the United States
Government. . . . . . . . . . $ 24,688,000 $ 22,884,000
Mortgage-backed securities. . . 1,505,729,000 1,412,134,000
Securities of public utilities. 114,933,000 107,596,000
Corporate bonds and notes . . . 1,676,006,000 1,596,469,000
Redeemable preferred stocks . . 4,375,000 4,547,000
Other debt securities . . . . . 829,997,000 809,539,000
-------------- --------------
Total . . . . . . . . . . . . $4,155,728,000 $3,953,169,000
============== ==============
AT DECEMBER 31, 1998:
Securities of the United States
Government. . . . . . . . . . $ 6,033,000 $ 6,272,000
Mortgage-backed securities. . . 546,790,000 553,990,000
Securities of public utilities. 208,074,000 205,119,000
Corporate bonds and notes . . . 2,624,330,000 2,616,073,000
Redeemable preferred stocks . . 6,125,000 7,507,000
Other debt securities . . . . . 861,388,000 859,879,000
-------------- --------------
Total . . . . . . . . . . . . $4,252,740,000 $4,248,840,000
============== ==============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government. . . . . . . . . . $ 84,377,000 $ 88,239,000
Mortgage-backed securities. . . 569,613,000 584,007,000
Securities of public utilities. 108,431,000 106,065,000
Corporate bonds and notes . . . 883,890,000 884,209,000
Redeemable preferred stocks . . 6,125,000 6,888,000
Other debt securities . . . . . 282,427,000 285,346,000
-------------- --------------
Total . . . . . . . . . . . . $1,934,863,000 $1,954,754,000
============== ==============
</TABLE>
F-13
<PAGE>
<TABLE>
<CAPTION>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by contractual maturity, as of December 31,
1999, follow:
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
Due in one year or less. . . $ 199,679,000 $ 199,198,000
Due after one year through
five years . . . . . . . . 552,071,000 530,289,000
Due after five years through
ten years. . . . . . . . . 1,243,298,000 1,187,044,000
Due after ten years. . . . . 654,951,000 624,504,000
Mortgage-backed securities . 1,505,729,000 1,412,134,000
-------------- --------------
Total. . . . . . . . . . . $4,155,728,000 $3,953,169,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above due to prepayments and redemptions.
F-14
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. 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 DECEMBER 31, 1999:
Securities of the United States
Government. . . . . . . . . . $ 47,000 $ (1,852,000)
Mortgage-backed securities. . . 3,238,000 (96,832,000)
Securities of public utilities. 13,000 (7,350,000)
Corporate bonds and notes . . . 10,222,000 (89,758,000)
Redeemable preferred stocks 172,000 ---
Other debt securities . . . . . 4,275,000 (24,734,000)
----------- --------------
Total . . . . . . . . . . . . $17,967,000 $(220,526,000)
=========== ==============
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 239,000 $ ---
Mortgage-backed securities. . . 9,398,000 (2,198,000)
Securities of public utilities. 926,000 (3,881,000)
Corporate bonds and notes . . . 22,227,000 (30,484,000)
Redeemable preferred stocks 1,382,000 ---
Other debt securities . . . . . 2,024,000 (3,533,000)
----------- --------------
Total . . . . . . . . . . . . $36,196,000 $ (40,096,000)
=========== ==============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 3,862,000 $ ---
Mortgage-backed securities. . . 15,103,000 (709,000)
Securities of public utilities. 2,420,000 (4,786,000)
Corporate bonds and notes . . . 31,795,000 (31,476,000)
Redeemable preferred stocks 763,000 ---
Other debt securities . . . . . 5,235,000 (2,316,000)
----------- --------------
Total . . . . . . . . . . . . $59,178,000 $ (39,287,000)
=========== ==============
</TABLE>
There were no gross unrealized gains on equity securities available for
sale at December 31, 1999. Gross unrealized gains on equity securities
available for sale aggregated $10,000 and $54,000 at December 31, 1998 and
September 30, 1998, respectively. There were no unrealized losses at December
31, 1999, December 31, 1998, or September 30, 1998.
F-15
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
Gross realized investment gains and losses on sales of investments are as
follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended Years Ended September 30,
---------------------------
December 31, 1999 December 31, 1998 1998 1997
---------------------- ------------------- ------------ -------------
<S> <C> <C> <C> <C>
BONDS, NOTES AND
REDEEMABLE PREFERRED
STOCKS:
Realized gains . . . $ 8,333,000 $ 6,669,000 $ 28,086,000 $ 22,179,000
Realized losses. . . (26,113,000) (5,324,000) (4,627,000) (25,310,000)
COMMON STOCKS:
Realized gains . . . 4,239,000 12,000 337,000 4,002,000
Realized losses (11,000) (9,000) --- (312,000)
OTHER INVESTMENTS:
Realized gains --- 573,000 8,824,000 2,450,000
IMPAIRMENT WRITEDOWNS. (6,068,000) (1,650,000) (13,138,000) (20,403,000)
------------------- ------------ ------------- -------------
Total net realized
investment gains
and losses . . . . . $ (19,620,000) $ 271,000 $ 19,482,000 $(17,394,000)
=================== ============ ============= =============
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended Years Ended September 30,
-------------------------
December 31,1999 December 31, 1998 1998 1997
----------------- ------------------- ----------- -------------
<S> <C> <C> <C> <C>
Short-term investments . $ 61,764,000 $ 4,649,000 $ 12,524,000 $ 11,780,000
Bonds, notes and
redeemable preferred
stocks . . . . . . . . 348,373,000 39,660,000 156,140,000 163,038,000
Mortgage loans . . . . . 47,480,000 7,904,000 29,996,000 17,632,000
Common stocks 7,000 --- 34,000 16,000
Real estate. . . . . . . (525,000) 13,000 (467,000) (296,000)
Cost-method partnerships 6,631,000 352,000 24,311,000 6,725,000
Other invested assets. . 58,223,000 1,700,000 (572,000) 11,864,000
------------------- ----------- ------------- -------------
Total investment
income . . . . . . . $ 521,953,000 $54,278,000 $221,966,000 $210,759,000
=================== =========== ============= =============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to $10,014,000 for
the year ended December 31, 1999, $500,000 for the three months ended December
31, 1998, $1,910,000 for the year ended September 30, 1998 and $2,050,000 for
the year ended September 30, 1997, and are included in General and
Administrative Expenses in the income statement. Investment expenses have
increased significantly because the size of the portfolio increased as a result
of the Acquisition.
F-16
<PAGE>
<TABLE>
<CAPTION>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
At December 31, 1999, the following investments exceeded 10% of the Company's
consolidated shareholder's equity of $935,126,000:
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Provident Institutional Funds Inc.
Del Treasury Trust Fund. . . . . 113,000,000 113,000,000
Salomon Smith Barney Repurchase
Agreement. . . . . . . . . . . . 97,000,000 97,000,000
------------ ------------
Total. . . . . . . . . . . . . . $210,000,000 $210,000,000
============ ============
</TABLE>
At December 31, 1999, mortgage loans were collateralized by properties
located in 29 states, with loans totaling approximately 36% of the aggregate
carrying value of the portfolio secured by properties located in California and
approximately 11% by properties located in New York. No more than 8% of the
portfolio was secured by properties in any other single state.
At December 31, 1999, bonds, notes and redeemable preferred stocks included
$377,149,000 of bonds and notes not rated investment grade. The Company had no
material concentrations of non-investment-grade assets at December 31, 1999.
At December 31, 1999, the carrying value of investments in default as to
the payment of principal or interest was $1,529,000, composed of $870,000 of
bonds and $659,000 of mortgage loans. Such nonperforming investments had an
estimated fair value of $872,000.
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 December 31,
1999, the Company had one outstanding Swap Agreement with a notional principal
amount of $21,538,000, which matures in December 2024. The net interest paid
amounted to $215,000 for the year ended December 31, 1999, $54,000 for the three
months ended December 31, 1998, $278,000 for the year ended September 30, 1998,
and $125,000 for the year ended September 30, 1997, and is included in Interest
Expense on Guaranteed Investment Contracts in the income statement.
At December 31, 1999, $7,418,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory requirements.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to
F-17
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
reasonable estimates of the fair value of only the Company's financial
instruments. The disclosures do not address the value of the Company's
recognized and unrecognized nonfinancial assets (including its real estate
investments and other invested assets except for cost-method partnerships) and
liabilities or the value of anticipated future business. The Company does not
plan to sell most of its assets or settle most of its liabilities at these
estimated fair values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Selling expenses and potential
taxes are not included. The estimated fair 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.
SEPARATE ACCOUNT SEED MONEY: Carrying value is the market value of the
underlying securities.
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 HELD IN SEPARATE ACCOUNTS: Variable annuity assets
are carried at the market value of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity 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 UNIVERSAL LIFE INSURANCE CONTRACTS: Universal life and
F-18
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
single life premium life contracts are assigned a fair value equal to
current net surrender value.
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 a hedging Swap Agreement, determined from independent
broker quotes.
RECEIVABLE FROM/PAYABLE TO BROKERS FOR PURCHASES OF SECURITIES: Such
obligations represent transactions of a short-term nature for which the carrying
value is considered a reasonable estimate of fair value.
MODIFIED COINSURANCE DEPOSIT LIABILITY: Fair value is based on discounting
the liability by the appropriate cost of funds, and therefore approximates
carrying value.
VARIABLE ANNUITY LIABILITIES RELATED TO SEPARATE ACCOUNTS: Fair values of
contracts in the accumulation phase are based on net surrender values. Fair
values of contracts in the payout phase are based on the present value of future
cash flows at assumed investment rates.
SUBORDINATED NOTES PAYABLE TO AFFILIATES: Fair value is estimated based on
the quoted market prices for similar issues.
F-19
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Company's financial instruments at
December 31, 1999, December 31, 1998 and September 30, 1998 compared with their
respective carrying values, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
--------------- ---------------
DECEMBER 31, 1999:
<S> <C> <C>
ASSETS:
Cash and short-term investments . . . $ 475,162,000 $ 475,162,000
Bonds, notes and redeemable
preferred stocks. . . . . . . . . . 3,953,169,000 3,953,169,000
Mortgage loans. . . . . . . . . . . . 674,679,000 673,781,000
Separate account seed money . . . . . 141,499,000 141,499,000
Common stocks --- ---
Cost-method partnerships. . . . . . . 4,009,000 9,114,000
Variable annuity assets held in
separate accounts . . . . . . . . . 19,949,145,000 19,949,145,000
Receivable from brokers for sales
of securities . . . . . . . . . . . 54,760,000 54,760,000
LIABILITIES:
Reserves for fixed annuity contracts. 3,254,895,000 3,053,660,000
Reserves for universal life insurance
contracts . . . . . . . . . . . . . 1,978,332,000 1,853,442,000
Reserves for guaranteed investment
contracts . . . . . . . . . . . . . 305,570,000 305,570,000
Payable to brokers for purchases
of securities . . . . . . . . . . . 139,000 139,000
Modified coinsurance deposit
liability . . . . . . . . . . . . . 140,757,000 140,757,000
Variable annuity liabilities related
to separate accounts. . . . . . . . 19,949,145,000 19,367,834,000
Subordinated notes payable to
affiliates. . . . . . . . . . . . . 37,816,000 38,643,000
=============== ===============
DECEMBER 31, 1998:
ASSETS:
Cash and short-term investments . . . $ 3,303,454,000 $ 3,303,454,000
Bonds, notes and redeemable
preferred stocks. . . . . . . . . . 4,248,840,000 4,248,840,000
Mortgage loans. . . . . . . . . . . . 388,780,000 411,230,000
Separate account seed money --- ---
Common stocks . . . . . . . . . . . . 1,419,000 1,419,000
Cost-method partnerships. . . . . . . 4,577,000 12,802,000
Variable annuity assets held in
separate accounts . . . . . . . . . 13,767,213,000 13,767,213,000
Receivable from brokers for sales
of securities . . . . . . . . . . . 22,826,000 22,826,000
LIABILITIES:
Reserves for fixed annuity contracts. 5,500,157,000 5,437,045,000
Reserves for universal life
insurance contracts . . . . . . . . 2,339,194,000 2,339,061,000
Reserves for guaranteed investment
contracts . . . . . . . . . . . . . 306,461,000 306,461,000
Variable annuity liabilities related
to separate accounts. . . . . . . . 13,767,213,000 13,287,434,000
Subordinated notes payable to
affiliates. . . . . . . . . . . . . 209,367,000 211,058,000
=============== ===============
</TABLE>
F-20
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
Carrying Fair
Value Value
--------------- ---------------
SEPTEMBER 30, 1998:
<S> <C> <C>
ASSETS:
Cash and short-term investments. . . $ 333,735,000 $ 333,735,000
Bonds, notes and redeemable
preferred stocks . . . . . . . . . 1,954,754,000 1,954,754,000
Mortgage loans . . . . . . . . . . . 391,448,000 415,981,000
Separate account seed money --- ---
Common stocks. . . . . . . . . . . . 169,000 169,000
Cost-method partnerships . . . . . . 4,403,000 12,744,000
Variable annuity assets held in
separate accounts. . . . . . . . . 11,133,569,000 11,133,569,000
Receivable from brokers for sales
of securities. . . . . . . . . . . 23,904,000 23,904,000
LIABILITIES:
Reserves for fixed annuity contracts 2,189,272,000 2,116,874,000
Reserves for guaranteed investment
contracts. . . . . . . . . . . . . 282,267,000 282,267,000
Payable to brokers for purchases
of securities. . . . . . . . . . . 50,957,000 50,957,000
Variable annuity liabilities related
to separate accounts . . . . . . . 11,133,569,000 10,696,607,000
Subordinated notes payable to
affiliates . . . . . . . . . . . . 39,182,000 41,272,000
=============== ===============
</TABLE>
7. SUBORDINATED NOTES PAYABLE TO AFFILIATES
At December 31, 1998, Subordinated Notes Payable to Affiliates included a
surplus note (the "Note") payable to its immediate parent, SunAmerica Life
Insurance Company (the "Parent"), for $170,436,000. On June 30, 1999, the
Parent cancelled the Note and forgave the interest earned. Funds received were
reclassified to Additional Paid-in Capital in the accompanying consolidated
balance sheet.
Subordinated notes and accrued interest payable to affiliates totaled
$37,816,000 at interest rates ranging from 8% to 9% at December 31, 1999, and
require principal payments of $5,400,000 in 2000, $10,000,000 in 2001 and
$22,060,000 in 2002.
8. REINSURANCE
The business which was assumed from MBL Life is subject to existing reinsurance
ceded agreements. At December 31, 1998, the maximum retention on any single
life was $2,000,000, and a total credit of $5,057,000 was taken against the life
insurance reserves, representing predominantly yearly renewable term
reinsurance. In order to limit even further the exposure to loss on any single
insured and to recover an additional portion of the benefits paid over such
limits, the Company entered into a reinsurance treaty effective January 1, 1999
under which the Company retains no more than $100,000 of risk on any
F-21
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. REINSURANCE (Continued)
one insured life. At December 31, 1999, a total reserve credit of $3,560,000
was taken against the life insurance reserves. With respect to these
coinsurance agreements, the Company could become liable for all obligations of
the reinsured policies if the reinsurers were to become unable to meet the
obligations assumed under the respective reinsurance agreements. The Company
monitors its credit exposure with respect to these agreements. However, due to
the high credit ratings of the reinsurers, such risks are considered to be
minimal.
On August 1, 1999, the Company entered into a modified coinsurance transaction,
approved by the Arizona Department of Insurance, which involved the ceding of
approximately $6,000,000,000 of variable annuities to ANLIC Insurance Company
(Hawaii), a non-affiliated stock life insurer. The transaction is accounted for
as reinsurance for statutory reporting purposes. As part of the transaction,
the Company received cash in the amount of $150,000,000 and recorded a
corresponding deposit liability. As payments are made to the reinsurer, the
deposit liability is relieved. The cost of this program, $3,621,000 in 1999, is
classified as General and Administrative Expenses in the income statement.
On August 11, 1998, the Company entered into a similar modified coinsurance
transaction, approved by the Arizona Department of Insurance, which involved the
ceding of approximately $6,000,000,000 of variable annuities to ANLIC Insurance
Company (Cayman), a Cayman Islands stock life insurance company, effective
December 31, 1997. As a part of this transaction, the Company received cash
amounting to approximately $188,700,000, and recorded a corresponding reduction
of DAC related to the coinsured annuities. As payments were made to the
reinsurer, the reduction of DAC was relieved. Certain expenses related to this
transaction were charged directly to DAC amortization in the income statement.
The net effect of this transaction in the income statement was not material.
On December 31, 1998, the Company recaptured this business. As part of this
recapture, the Company paid cash of $170,436,000 and recorded an increase in DAC
of $167,202,000 with the balance of $3,234,000 being recorded as DAC
amortization in the income statement.
9. CONTINGENT LIABILITIES
The Company has entered into four agreements in which it has provided liquidity
support for certain short-term securities of municipalities and non-profit
organizations 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 $359,400,000. The Company's
Parent currently shares in the liabilities and fees of two of these agreements.
The Parent's share in these liabilities will increase by $150,000,000 subsequent
to December 31, 1999, and the Company's share will decrease to $209,400,000.
Management does not anticipate any material future losses with respect to these
liquidity support facilities.
F-22
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. CONTINGENT LIABILITIES (Continued)
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, results of
operations or cash flows.
The Company's current financial strength and counterparty credit ratings from
Standard & Poor's are based in part on a guarantee (the "Guarantee") of the
Company's insurance policy obligations by American Home Assurance Company
("American Home"), a subsidiary of AIG, and a member of an AIG intercompany
pool, and the belief that the Company is viewed as a strategically important
member of AIG. The Guarantee is unconditional and irrevocable, and
policyholders have the right to enforce the Guarantee directly against American
Home.
The Company's current financial strength rating from Moody's is based in part on
a support agreement between the Company and AIG (the "Support Agreement"),
pursuant to which AIG has agreed that AIG will cause the Company to maintain a
policyholder's surplus of not less than $1 million or such greater amount as
shall be sufficient to enable the Company to perform its obligations under any
policy issued by it. The Support Agreement also provides that if the Company
needs funds not otherwise available to it to make timely payment of its
obligations under policies issued by it, AIG will provide such funds at the
request of the Company. The Support Agreement is not a direct or indirect
guarantee by AIG to any person of any obligation of the Company. AIG may
terminate the Support Agreement with respect to outstanding obligations of the
Company only under circumstances where the Company attains, without the benefit
of the Support Agreement, a financial strength rating equivalent to that held by
the Company with the benefit of the support agreement. Policyholders have the
right to cause the Company to enforce its rights against AIG and, if the Company
fails or refuses to take timely action to enforce the Support Agreement or if
the Company defaults in any claim or payment owed to such policyholder when due,
have the right to enforce the Support Agreement directly against AIG.
American Home does not publish financial statements, although it files statutory
annual and quarterly reports with the New York State Insurance Department, where
such reports are available to the public. AIG is a reporting company under the
Securities Exchange Act of 1934, and publishes annual reports on Form 10-K and
quarterly reports on Form 10-Q, which are available from the Securities and
Exchange Commission.
F-23
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value Common
Stock. At December 31, 1999, December 31, 1998 and September 30, 1998, 3,511
shares were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended Years Ended September 30,
-----------------------
December 31, 1999 December 31, 1998 1998 1997
-------------------- ------------------- ----------- ------------
<S> <C> <C> <C> <C>
ADDITIONAL PAID-IN
CAPITAL:
Beginning balances . . $ 378,674,000 $308,674,000 $308,674,000 $280,263,000
Reclassification of
Note by the Parent 170,436,000 --- --- ---
Return of capital (170,500,000) --- --- ---
Capital contributions
received 114,250,000 70,000,000 --- 28,411,000
Contribution of
partnership
investment 150,000 --- --- ---
------------------- ------------- ------------- -------------
Ending balances. . . . . $ 493,010,000 $378,674,000 $308,674,000 $308,674,000
=================== ============= ============= =============
RETAINED EARNINGS:
Beginning balances . . $ 366,460,000 $332,069,000 $244,628,000 $207,002,000
Net income . . . . . . 184,698,000 34,391,000 138,641,000 63,126,000
Dividends paid --- --- (51,200,000) (25,500,000)
------------------- ------------- ------------- -------------
Ending balances. . . . . $ 551,158,000 $366,460,000 $332,069,000 $244,628,000
=================== ============= ============= =============
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(LOSS):
Beginning balances . $ (1,619,000) $ 8,415,000 $ 18,405,000 $ (5,521,000)
Change in net
unrealized gains
(losses) on debt
securities
available for sale (198,659,000) (23,791,000) (23,818,000) 57,463,000
Change in net
unrealized gains
(losses) on equity
securities
available for sale (10,000) (44,000) (950,000) (55,000)
Change in adjustment
to deferred
acquisition costs. 28,000,000 8,400,000 9,400,000 (20,600,000)
Tax effects of net
changes. . . . . . $ 59,735,000 5,401,000 5,378,000 (12,882,000)
------------------- ------------- ------------- -------------
Ending balances. . . . . $ (112,553,000) $ (1,619,000) $ 8,415,000 $ 18,405,000
=================== ============= ============= =============
</TABLE>
F-24
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. SHAREHOLDER'S EQUITY (Continued)
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 less equity in undistributed income or loss of subsidiaries
included in net investment income if, after paying the dividend, the Company's
capital and surplus would be adequate in the opinion of the Arizona Department
of Insurance. No dividends were paid in the year ended December 31, 1999 or the
three months ended December 31, 1998. Dividends in the amounts of $51,200,000
and $25,500,000 were paid on June 4, 1998 and April 1, 1997, respectively.
Dividends of $69,000,000 were paid on March 1, 2000.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the year ended December 31,
1999 was $261,539,000. The statutory net loss for the year ended December 31,
1998 was $98,766,000. The statutory net income for the year ended December 31,
1997 totaled $74,407,000. The Company's statutory capital and surplus totaled
$694,621,000 at December 31, 1999, $443,394,000 at December 31, 1998 and
$537,542,000 at September 30, 1998.
On June 30, 1999, the Parent cancelled the Company's surplus note payable of
$170,436,000 and funds received were reclassified to Additional Paid-in Capital
in the accompanying consolidated balance sheet. On September 9, 1999, the
Company paid $170,500,000 to its Parent as a return of capital. On September
14, 1999 and October 25, 1999, the Parent contributed additional capital to the
Company in the amounts of $54,250,000 and $60,000,000, respectively. Also on
December 31, 1999, the Parent made a $150,000 contribution of partnership
investments.
F-25
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. 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>
YEAR ENDED DECEMBER 31, 1999:
Currently payable . . . . . . . $ 6,846,000 $196,192,000 $ 203,038,000
Deferred. . . . . . . . . . . . (13,713,000) (86,300,000) (100,013,000)
--------------- ------------- --------------
Total income tax expense
(benefit) . . . . . . . . . $ (6,867,000) $109,892,000 $ 103,025,000
=============== ============= ==============
THREE MONTHS ENDED DECEMBER
31, 1998:
Currently payable . . . . . . . $ 740,000 $ 3,421,000 $ 4,161,000
Deferred. . . . . . . . . . . . (620,000) 16,565,000 15,945,000
--------------- ------------- --------------
Total income tax expense. . . $ 120,000 $ 19,986,000 $ 20,106,000
=============== ============= ==============
YEAR ENDED SEPTEMBER 30, 1998:
Currently payable . . . . . . . $ 4,221,000 $ 32,743,000 $ 36,964,000
Deferred. . . . . . . . . . . . (550,000) 34,637,000 34,087,000
--------------- ------------- --------------
Total income tax expense. . . $ 3,671,000 $ 67,380,000 $ 71,051,000
=============== ============= ==============
YEAR ENDED SEPTEMBER 30, 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
(benefit) . . . . . . . . . $ (5,893,000) $ 37,062,000 $ 31,169,000
=============== ============= ==============
</TABLE>
F-26
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. INCOME TAXES (Continued)
Income taxes computed at the United States federal income tax rate of 35% and
income taxes provided differ as follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended Years Ended September 30,
---------------------------
December 31, 1999 December 31, 1998 1998 1997
--------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Amount computed at
statutory rate . . . . . $ 100,703,000 $19,074,000 $73,392,000 $33,003,000
Increases (decreases)
resulting from:
Amortization of
differences between
book and tax bases
of net assets
acquired . . . . . . 609,000 146,000 460,000 666,000
State income taxes,
net of federal tax
benefit. . . . . . . 7,231,000 1,183,000 5,530,000 1,950,000
Dividends-received
deduction. . . . . . (3,618,000) (345,000) (7,254,000) (4,270,000)
Tax credits. . . . . . (1,346,000) (1,296,000) (318,000)
Other, net . . . . . . (554,000) 48,000 219,000 138,000
------------------- ------------ ------------ ------------
Total income tax
expense. . . . . . . $ 103,025,000 $20,106,000 $71,051,000 $31,169,000
=================== ============ ============ ============
</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 December 31, 1999. The Company does not anticipate any
transactions which would cause any part of this surplus to be taxable.
F-27
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. 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>
December 31, December 31, September 30,
1999 1998 1998
-------------- -------------- --------------
<S> <C> <C> <C>
DEFERRED TAX LIABILITIES:
Investments. . . . . . . . . . $ 23,208,000 $ 18,174,000 $ 17,643,000
Deferred acquisition costs . . 272,697,000 222,943,000 223,392,000
State income taxes . . . . . . 5,203,000 3,143,000 2,873,000
Other liabilities. . . . . . . 18,658,000 13,906,000 144,000
Net unrealized gains on debt
and equity securities
available for sale --- --- 4,531,000
-------------- -------------- --------------
Total deferred tax liabilities $ 319,766,000 258,166,000 248,583,000
-------------- -------------- --------------
DEFERRED TAX ASSETS:
Contractholder reserves. . . . (261,781,000) (148,587,000) (149,915,000)
Guaranty fund assessments. . . (2,454,000) (2,935,000) (2,910,000)
Deferred income (48,371,000) --- ---
Other assets --- --- ---
Net unrealized losses on
debt and equity securities
available for sale (60,605,000) ( 872,000) ---
-------------- -------------- --------------
Total deferred tax assets. . . (373,211,000) (152,394,000) (152,825,000)
-------------- -------------- --------------
Deferred income taxes. . . . . $ (53,445,000) $ 105,772,000 $ 95,758,000
============== ============== ==============
</TABLE>
12. COMPREHENSIVE INCOME
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130")
which requires the reporting of comprehensive income in addition to net income
from operations. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income. The
adoption of SFAS 130 did not have an impact on the Company's results of
operations, financial condition or liquidity. Comprehensive income amounts for
the prior year are disclosed to conform to the current year's presentation.
F-28
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. COMPREHENSIVE INCOME (Continued)
The before tax, after tax, and tax benefit (expense) amounts for each component
of the increase or decrease in unrealized losses or gains on debt and equity
securities available for sale for both the current and prior periods are
summarized below:
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------- ----------- --------------
YEAR ENDED DECEMBER 31,
1999:
<S> <C> <C> <C>
Net unrealized losses on debt and
equity securities available
for sale identified in the
current period. . . . . . . . . $(217,259,000) $ 76,041,000 $(141,218,000)
Increase in deferred acquisition
cost adjustment identified in
the current period. . . . . . . 34,690,000 (12,141,000) 22,549,000
-------------- ------------- --------------
Subtotal. . . . . . . . . . . . . (182,569,000) 63,900,000 (118,669,000)
-------------- ------------- --------------
Reclassification adjustment for:
Net realized losses included
in net income . . . . . . . . 18,590,000 (6,507,000) 12,083,000
Related change in deferred
acquisition costs . . . . . . (6,690,000) 2,342,000 (4,348,000)
-------------- ------------- --------------
Total reclassification
adjustment. . . . . . . . . . 11,900,000 (4,165,000) 7,735,000
-------------- ------------- --------------
Total other comprehensive
loss. . . . . . . . . . . . . . $(170,669,000) $ 59,735,000 $(110,934,000)
============== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1998:
<S> <C> <C> <C>
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period. . . . . . . . . $(24,345,000) $ 8,521,000 $(15,824,000)
Increase in deferred acquisition
cost adjustment identified in
the current period. . . . . . . 8,579,000 (3,004,000) 5,575,000
------------- ------------ -------------
Subtotal. . . . . . . . . . . . . (15,766,000) 5,517,000 (10,249,000)
------------- ------------ -------------
Reclassification adjustment for:
Net realized losses included
in net income . . . . . . . . 510,000 (179,000) 331,000
Related change in deferred
acquisition costs . . . . . . . (179,000) 63,000 (116,000)
------------- ------------ -------------
Total reclassification
adjustment. . . . . . . . . . 331,000 (116,000) 215,000
------------- ------------ -------------
Total other comprehensive loss. . $(15,435,000) $ 5,401,000 $(10,034,000)
============= ============ =============
</TABLE>
F-29
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMPREHENSIVE INCOME (Continued)
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------- ----------- -------------
YEAR ENDED SEPTEMBER 30,
1998:
<S> <C> <C> <C>
Net unrealized losses on debt and
equity securities available
for sale identified in the
current period. . . . . . . . . $(10,281,000) $ 3,598,000 $(6,683,000)
Increase in deferred acquisition
cost adjustment identified in
the current period. . . . . . . 4,086,000 (1,430,000) 2,656,000
------------- ------------ ------------
Subtotal. . . . . . . . . . . . . (6,195,000) 2,168,000 (4,027,000)
------------- ------------ ------------
Reclassification adjustment for:
Net realized losses included
in net income . . . . . . . . (14,487,000) 5,070,000 (9,417,000)
Related change in deferred
acquisition costs . . . . . . . 5,314,000 (1,860,000) 3,454,000
------------- ------------ ------------
Total reclassification
adjustment. . . . . . . . . . (9,173,000) 3,210,000 (5,963,000)
------------- ------------ ------------
Total other comprehensive loss. . $(15,368,000) $ 5,378,000 $(9,990,000)
============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997:
<S> <C> <C> <C>
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period. . . . . . . . . $ 40,575,000 $(14,201,000) $26,374,000
Decrease in deferred acquisition
cost adjustment identified in
the current period. . . . . . . (15,031,000) 5,262,000 (9,769,000)
------------- ------------- ------------
Subtotal. . . . . . . . . . . . . 25,544,000 (8,939,000) 16,605,000
------------- ------------- ------------
Reclassification adjustment for:
Net realized losses included
in net income . . . . . . . . 16,832,000 (5,891,000) 10,941,000
Related change in deferred
acquisition costs . . . . . . (5,569,000) 1,949,000 (3,620,000)
------------- ------------- ------------
Total reclassification
adjustment. . . . . . . . . . 11,263,000 (3,942,000) 7,321,000
------------- ------------- ------------
Total other comprehensive
income. . . . . . . . . . . . . $ 36,807,000 $(12,881,000) $23,926,000
============= ============= ============
</TABLE>
F-30
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED-PARTY MATTERS
The Company pays commissions to five affiliated companies: SunAmerica
Securities, Inc.; Advantage Capital Corp.; Financial Services Corp.; Sentra
Securities Corp.; and Spelman & Co. Inc. Commissions paid to these
broker-dealers totaled $37,435,000 in the year ended December 31, 1999,
$6,977,000 in the three months ended December 31, 1998, and $32,946,000 in the
year ended September 30, 1998 and $25,492,000 in the year ended September 30,
1997. 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 35.6% of premiums in the year ended December 31, 1999
and the three months ended December 31, 1998, 33.6% in the year ended September
30, 1998 and 36.1% in the year ended September 30, 1997.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from its Parent and SunAmerica, an
indirect parent. Amounts paid for such services totaled $105,059,000 for the
year ended December 31, 1999, $21,593,000 for the three months ended December
31, 1998, $84,975,000 for the year ended September 30, 1998 and $86,116,000 for
the year ended September 30, 1997. The marketing component of such costs during
these periods amounted to $53,385,000, $9,906,000, $39,482,000 and $31,968,000,
respectively, and are deferred and amortized as part of Deferred Acquisition
Costs. The other components of such costs are included in General and
Administrative Expenses in the income statement.
At December 31, 1999 and 1998, the Company held bonds with a fair value of
$50,000 and $84,965,000, respectively, which were issued by its affiliate,
International Lease Finance Corp. The amortized cost of these bonds is equal to
the fair value. At September 30, 1998 and 1997, the Company held no investments
issued by any of its affiliates.
During the year ended December 31, 1999, the Company transferred short-term
investments and bonds to FSA with an aggregate fair value of $634,596,000 as
part of the transfer of the New York Business from the Acquisition (See Note 7).
The Company recorded a net realized loss of $5,144,000 on the transfer of these
assets.
During the year ended December 31, 1999, the Company purchased certain invested
assets from SunAmerica for cash equal to their current market value of
$161,159,000.
For the three months ended December 31, 1998, the Company made no purchases
or sales of invested assets from or to the Parent or its affiliates.
During the year ended September 30, 1998, the Company sold various invested
assets to SunAmerica for cash equal to their current market value of
$64,431,000. The Company recorded a net gain aggregating $16,388,000 on such
transactions.
During the year ended September 30, 1998, the Company purchased certain
invested assets from SunAmerica, the Parent and CalAmerica Life Insurance
Company ("CalAmerica"), a wholly-owned subsidiary of the Parent that has since
merged into the Parent, for cash equal to their current market value which
aggregated $20,666,000, $10,468,000
F-31
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. RELATED-PARTY MATTERS (Continued)
and $61,000, respectively.
During the year ended September 30, 1997, the Company sold various invested
assets to the Parent and CalAmerica for cash equal to their current market value
of $15,776,000 and $15,000, respectively. The Company recorded a net gain
aggregating $276,000 on such transactions.
During the year ended September 30, 1997, the Company purchased certain
invested assets from the Parent and CalAmerica for cash equal to their current
market value of $8,717,000 and $284,000, respectively.
14. BUSINESS SEGMENTS
Effective January 1, 1999, the Company adopted Statement of Financial
Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an
Enterprise and Related Information," which requires the reporting of certain
financial information by business segment. For the purpose of providing segment
information, the Company has three business segments: annuity operations, asset
management operations and broker-dealer operations. The annuity operations
focus primarily on the marketing of variable annuity products and the
administration of the universal life business acquired from MBL Life in 1998
(See Note 4). The Company's variable annuity products offer investors a broad
spectrum of fund alternatives, with a choice of investment managers, as well as
guaranteed fixed-rate account options. The Company earns fee income on
investments in the variable options and net investment income on the fixed-rate
options. The asset management operations are conducted by the Company's
registered investment advisor subsidiary, SunAmerica Asset Management Corp.
("SunAmerica Asset Management"), and its related distributor. SunAmerica Asset
Management earns fee income by distributing and managing a diversified family of
mutual funds, by managing certain subaccounts within the Company's variable
annuity products and by providing professional management of individual,
corporate and pension plan portfolios. The broker-dealer operations are
conducted by the Company's broker-dealer subsidiary, Royal Alliance Associates,
Inc. ("Royal"), which sells proprietary annuities and mutual funds, as well as a
full range of non-proprietary investment products.
F-32
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
Asset Broker
Annuity Management Dealer
Operations Operations Operations Total
------------ ----------- ----------- ----------
YEAR ENDED DECEMBER 31,
1999:
<S> <C> <C> <C> <C>
Total assets . . . . . . . $26,649,310,000 $150,966,000 $74,218,000 $26,874,494,000
Expenditures for long-
lived assets --- 2,563,000 2,728,000 5,291,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers. . . . . . . . 790,697,000 54,652,000 41,185,000 886,534,000
Intersegment revenue --- 62,998,000 8,193,000 71,191,000
---------------- ------------- ------------ ----------------
Total revenue. . . . . . . 790,697,000 117,650,000 49,378,000 957,725,000
================ ============= ============ ================
Investment income. . . . . 511,914,000 9,072,000 967,000 521,953,000
Interest expense . . . . . (354,263,000) (3,085,000) (389,000) (357,737,000)
Depreciation and
amortization expense . . (95,408,000) (23,249,000) (3,234,000) (121,891,000)
Income from unusual
transactions --- --- --- ---
Pretax income. . . . . . . 199,333,000 67,779,000 20,611,000 287,723,000
Income tax expense . . . . (65,445,000) (28,247,000) (9,333,000) (103,025,000)
Income from extraordinary
items --- --- --- ---
Net income . . . . . . . . $ 133,888,000 $ 39,532,000 $11,278,000 $ 184,698,000
================ ============= ============ ================
Significant non-cash
items $ --- $ --- $ --- $ ---
================ ============= ============ ================
</TABLE>
F-33
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
Asset Broker-
Annuity Management Dealer
Operations Operations Operations Total
------------ ----------- ----------- ----------
THREE MONTHS ENDED
DECEMBER 31, 1998:
<S> <C> <C> <C> <C>
Total assets . . . . . . . $22,982,323,000 $104,473,000 $59,537,000 $23,146,333,000
Expenditures for long-
lived assets --- 328,000 1,005,000 1,333,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers. . . . . . . . 103,626,000 11,103,000 9,605,000 124,334,000
Intersegment revenue --- 11,871,000 1,674,000 13,545,000
---------------- ------------- ------------ ----------------
Total revenue. . . . . . . 103,626,000 22,974,000 11,279,000 137,879,000
================ ============= ============ ================
Investment income. . . . . 53,149,000 971,000 158,000 54,278,000
Interest expense . . . . . (26,842,000) (752,000) (101,000) (27,695,000)
Depreciation and
amortization expense . . (23,236,000) (4,204,000) (561,000) (28,001,000)
Income from unusual
transactions --- --- --- ---
Pretax income. . . . . . . 36,961,000 13,092,000 4,444,000 54,497,000
Income tax expense . . . . (12,978,000) (5,181,000) (1,947,000) (20,106,000)
Income from extraordinary
items --- --- --- ---
Net income . . . . . . . . $ 23,983,000 $ 7,911,000 $ 2,497,000 $ 34,391,000
================ ============= ============ ================
Significant non-cash
items $ --- $ --- $ --- $ ---
================ ============= ============ ================
</TABLE>
F-34
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
Asset Broker-
Annuity Management Dealer
Operations Operations Operations Total
------------ ----------- ----------- ----------
YEAR ENDED SEPTEMBER 30,
1998:
<S> <C> <C> <C> <C>
Total assets . . . . . . . $14,389,922,000 $104,476,000 $ 55,870,000 $14,550,268,000
Expenditures for long-
lived assets --- 477,000 5,289,000 5,766,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers. . . . . . . . 410,011,000 34,396,000 39,729,000 484,136,000
Intersegment revenue --- 40,040,000 7,634,000 47,674,000
---------------- ------------- ------------- ----------------
Total revenue. . . . . . . 410,011,000 74,436,000 47,363,000 531,810,000
================ ============= ============= ================
Investment income. . . . . 218,044,000 2,839,000 1,083,000 221,966,000
Interest expense . . . . . (131,980,000) (2,709,000) (405,000) (135,094,000)
Depreciation and
amortization expense . . (60,731,000) (14,780,000) (1,770,000) (77,281,000)
Income from unusual
transactions --- --- --- ---
Pretax income. . . . . . . 148,084,000 39,207,000 22,401,000 209,692,000
Income tax expense . . . . (44,706,000) (15,670,000) (10,675,000) (71,051,000)
Income from extraordinary
items --- --- --- ---
Net income . . . . . . . . $ 103,378,000 $ 23,537,000 $ 11,726,000 $ 138,641,000
================ ============= ============= ================
Significant non-cash
items $ --- $ --- $ --- $ ---
================ ============= ============= ================
</TABLE>
F-35
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
Asset Broker-
Annuity Management Dealer
Operations Operations Operations Total
------------ ------------ ----------- ----------
YEAR ENDED SEPTEMBER 30,
1997:
<S> <C> <C> <C> <C>
Total assets . . . . . . . $12,440,311,000 $ 81,518,000 $51,400,000 $12,573,229,000
Expenditures for long-
lived assets --- 804,000 4,527,000 5,331,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers. . . . . . . . 317,061,000 28,655,000 31,678,000 377,394,000
Intersegment revenue --- 22,790,000 6,327,000 29,117,000
---------------- ------------- ------------ ----------------
Total revenue. . . . . . . 317,061,000 51,445,000 38,005,000 406,511,000
================ ============= ============ ================
Investment income. . . . . 208,382,000 1,445,000 932,000 210,759,000
Interest expense . . . . . (134,416,000) (2,737,000) (405,000) (137,558,000)
Depreciation and
amortization expense . . (55,675,000) (16,357,000) (689,000) (72,721,000)
Income from unusual
transactions --- --- --- ---
Pretax income. . . . . . . 58,291,000 19,299,000 16,705,000 94,295,000
Income tax expense . . . . (16,318,000) (7,850,000) (7,001,000) (31,169,000)
Income from extraordinary
items --- --- --- ---
Net income . . . . . . . . $ 41,973,000 $ 11,449,000 $ 9,704,000 $ 63,126,000
================ ============= ============ ================
Significant non-cash
items $ --- $ --- $ --- $ ---
================ ============= ============ ================
</TABLE>
Substantially all of the Company's revenues are derived from the United
States.
The accounting policies of the segments are as described in the summary of
significant accounting policies (Note 2). The Parent makes expenditures for
long-lived assets for the annuity operations segment and allocates depreciation
of such assets to the annuity operations segment. The annuity operations and
asset management operations pay commissions to Royal for sales of their
proprietary products. Approximately 90% of these commission payments are in
turn paid to registered representatives of Royal, with the remainder of the
revenue reflected in Net Retained Commissions. In addition, premiums from
variable annuity policies sold by the Company are held in trusts that are owned
by the Company, although the assets directly support policyholder obligations.
SunAmerica Asset Management is the Investment Advisor for all of the subaccounts
of these trusts, for which service it receives fees which are direct expenses of
the trusts. Such fees are reported as Variable Annuity Fees in the consolidated
income statement and are shown as intersegment revenues in the business segments
disclosure above, although there is no corresponding expense on the books of any
segment.
The annuity operations segment's products are marketed through over 800
independent broker-dealers, full-service securities firms and financial
institutions, in addition to the Company's affiliated broker-dealers.
Those independent selling organizations
F-36
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
responsible for over 10% of sales represented 12.0% of sales in the year
ended December 31, 1999, 14.7% in the three months ended December 31, 1998,
16.8% in the year ended September 30, 1998, and 18.4% and 10.2% in the year
ended September 30, 1997. Registered representatives sell products for the
Company's asset management operations and sell products offered by the
broker-dealer operations. Revenue from any single registered representative or
group of registered representatives do not compose a material percentage of
total revenues in either the asset management operations or the broker-dealer
operations.
15. SUBSEQUENT EVENTS
On March 1, 2000, the Company paid dividends of $69,000,000 to the Parent.
F-37
REINSURANCE AGREEMENT
between
ANCHOR NATIONAL LIFE INSURANCE COMPANY
Phoenix, Arizona,
and
ANLIC INSURANCE COMPANY (HAWAII), LTD.
Honolulu, Hawaii
Dated as of August 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Definitions and Interpretation
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2. Other Definitional Provisions . . . . . . . . . . . . . . . 11
ARTICLE II
General Provision
Section 2.1. Risks Reinsured . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.2. Coverages and Exclusions. . . . . . . . . . . . . . . . . . 11
Section 2.3. Plan of Reinsurance; Modified Coinsurance . . . . . . . . . 11
Section 2.4. Plan of Reinsurance; Yearly Renewable Term. . . . . . . . . 12
Section 2.5. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.6. Extra-Contractual Liability . . . . . . . . . . . . . . . . 12
Section 2.7. Annuity Administration. . . . . . . . . . . . . . . . . . . 12
Section 2.8. Inspection. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.9. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.10. Proxy Tax Reimbursement . . . . . . . . . . . . . . . . . . 12
Section 2.11. Election to Determine Specified Policy Acquisition Expenses 13
Section 2.12. Condition . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.13. Misunderstandings and Oversights. . . . . . . . . . . . . . 13
Section 2.14. Adjustments . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.15. Reinstatements. . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.16. Currency. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.17. Maintenance of CG YRT Retrocession Agreement; Successor YRT
Retrocession Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE III
Payments by Anchor
Section 3.1. Initial Consideration . . . . . . . . . . . . . . . . . . . 15
Section 3.2. Modco Reinsurance Premiums; Recapture Fee; YRT Reinsurance
Premiums. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.3. Payment of Charges and Fixed Account Investment Spread. . . 15
Section 3.4. Net Separate Account Transfer CARVM Reserve Adjustment. . . 15
ARTICLE IV
Payments by ANLIC (Hawaii): Commissions and Expenses
Section 4.1. Ceding Commission . . . . . . . . . . . . . . . . . . . . . 16
Section 4.2. Premium Tax . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.3. Allowance for Commissions . . . . . . . . . . . . . . . . . 16
Section 4.4. Allowance for Expenses. . . . . . . . . . . . . . . . . . . 16
Section 4.5. Anchor YRT Expense Recovery . . . . . . . . . . . . . . . . 17
Section 4.6. Anchor YRT Reinsurance Premium Refund . . . . . . . . . . . 17
Section 4.7. Net Fixed Account Transfer CARVM Reserve Adjustment . . . . 17
Section 4.8. Negative Fixed Account Investment Spread. . . . . . . . . . 17
</TABLE>
<PAGE>
TABLE OF CONTENTS (Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V
Payments by ANLIC (Hawaii): Benefit Payments
Section 5.1. Death Benefit Claim . . . . . . . . . . . . . . 17
Section 5.2. Total Surrender . . . . . . . . . . . . . . . . 17
Section 5.3. Partial Withdrawal. . . . . . . . . . . . . . . 18
Section 5.4. Payout Annuity Payment; Annuity Benefit Payment 18
Section 5.5. Claims Settlements. . . . . . . . . . . . . . . 18
Section 5.6. Contested Death Benefit Claims. . . . . . . . . 18
ARTICLE VI
Reserve Adjustments
Section 6.1. Initial Reserve Adjustment. . . . . . . . . . . 19
Section 6.2. Modified Coinsurance Reserve Adjustment . . . . 19
ARTICLE VII
[Reserved]
ARTICLE VIII
Accounting and Settlements
Section 8.1. Monthly Accounting Periods. . . . . . . . . . . 20
Section 8.2. Reinsurance Servicer Reports. . . . . . . . . . 20
Section 8.3. Initial Settlement. . . . . . . . . . . . . . . 20
Section 8.4. Monthly Settlements . . . . . . . . . . . . . . 20
Section 8.5. Amounts Due . . . . . . . . . . . . . . . . . . 21
Section 8.6. Annual Accounting Reports . . . . . . . . . . . 21
Section 8.7. Estimations . . . . . . . . . . . . . . . . . . 21
Section 8.8. Delayed Payments. . . . . . . . . . . . . . . . 21
Section 8.9. Form of Payment; Offset . . . . . . . . . . . . 21
ARTICLE IX
Duration and Recapture
Section 9.1. ANLIC (Hawaii)'s Liability. . . . . . . . . . . 22
Section 9.2. Termination . . . . . . . . . . . . . . . . . . 22
Section 9.3. Recapture . . . . . . . . . . . . . . . . . . . 23
Section 9.4. Recapture Payment . . . . . . . . . . . . . . . 23
Section 9.5. Reduction of Reinsurance Percentage . . . . . . 23
Section 9.6. No Deemed Recapture . . . . . . . . . . . . . . 23
</TABLE>
<PAGE>
TABLE OF CONTENTS (Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE X
Terminal Accounting and Settlement
Section 10.1. Terminal Accounting. . . . . . . . . . . . . . . . 23
Section 10.2. Date . . . . . . . . . . . . . . . . . . . . . . . 23
Section 10.3. Settlement . . . . . . . . . . . . . . . . . . . . 24
Section 10.4. Supplementary Accounting and Settlement. . . . . . 24
ARTICLE XI
Insolvency
Section 11.1. In General . . . . . . . . . . . . . . . . . . . . 24
ARTICLE XII
Conditions to Effective Time
Section 12.1. Effective Time . . . . . . . . . . . . . . . . . . 25
Section 12.2. Condition Precedent to Reinsurance . . . . . . . . 25
Section 12.3. Additional Conditions Precedent to Effective Time. 26
ARTICLE XIII
Representation and Warranties
Section 13.1. Representations and Warranties of Anchor . . . . . 26
Section 13.2. Representations and Warranties of ANLIC (Hawaii) . 29
ARTICLE XIV
Covenants
Section 14.1. Anchor Internal Replacements . . . . . . . . . . . 30
Section 14.2. Anchor Current Practices . . . . . . . . . . . . . 31
Section 14.3. Anchor Other Reinsurance . . . . . . . . . . . . . 31
Section 14.4. Affirmative General Covenants of Anchor. . . . . . 31
Section 14.5. Reporting Requirements of Anchor . . . . . . . . . 33
Section 14.6. Negative Covenants of Anchor . . . . . . . . . . . 35
Section 14.7. Anchor Changes in Investment Funds, etc. . . . . . 35
Section 14.8. Negative Covenants of ANLIC (Hawaii) . . . . . . . 36
ARTICLE XV
Reserve Credit
Section 15.1. Security . . . . . . . . . . . . . . . . . . . . . 37
Section 15.2. Letters of Credit. . . . . . . . . . . . . . . . . 37
Section 15.3. Letters of Credit; Return of Excess Security . . . 37
</TABLE>
<PAGE>
TABLE OF CONTENTS (Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE XVI
Events of Recapture
Section 16.1. Definition . . . . . . . . . . 37
ARTICLE XVII
Miscellaneous
Section 17.1. Parties to this Agreement. . . 38
Section 17.2. Assignment . . . . . . . . . . 38
Section 17.3. Counterparts . . . . . . . . . 38
Section 17.4. Notices. . . . . . . . . . . . 38
Section 17.5. Further Assurances . . . . . . 39
Section 17.6. No Waiver; Cumulative Remedies 39
Section 17.6 Amendment and Waiver . . . . . 39
Section 17.8. Entire Agreement . . . . . . . 39
Section 17.9. Governing Law. . . . . . . . . 40
Section 17.10.Consent to Jurisdiction. . . . 40
Section 17.11.Special Service of Process . . 40
Section 17.12 WAIVER OF JURY TRIAL . . . . . 40
Section 17.13 Headings . . . . . . . . . . . 40
</TABLE>
<PAGE>
SCHEDULES
2.1 Annuities
3.3-1 Contractual Charges
4.1 Form of ANLIC (Hawaii) Note
4.3 Commission Schedule
8.2 Reinsurance Servicer Report
12.2 Opinion of Counsel for Anchor
13.1-1 Forms of Annuity Agreements
13.1-2 Standing Instructions
13.1-3 Methodology for Calculating CARVM Reserve
14.4 Fixed Account Segregated Asset Requirements and Procedures
14.6-1 Collection Procedures
14.6-2 Allocation Procedures
<PAGE>
REINSURANCE AGREEMENT, dated as of August 1, 1999 (the "Agreement"),
---------
between Anchor National Life Insurance Company, an Arizona stock life insurance
company ("Anchor"), and ANLIC Insurance Company (Hawaii), Ltd., a Hawaii stock
------
captive insurance company ("ANLIC (Hawaii)").
---------------
WHEREAS, Anchor desires to reinsure certain risks under the Annuities (such
term and other capitalized terms are defined in Section 1.1), other than the Net
Amount at Risk with respect to the Annuities, with ANLIC (Hawaii) on a modified
coinsurance basis as set forth more fully in this Agreement;
WHEREAS, Anchor desires to reinsure the Net Amount at Risk under the
Annuities with ANLIC (Hawaii) on a yearly renewable term basis as set forth more
fully in this Agreement;
WHEREAS, ANLIC (Hawaii) intends to pay a Ceding Commission to Anchor by
delivery of the ANLIC (Hawaii) Note referred to in Section 4.1;
WHEREAS, ANLIC (Hawaii) intends to retrocede all the risks reinsured under
this Agreement with respect to the Annuities pursuant to a retrocession
agreement (the "AIC Retrocession Agreement") with Anchor Insurance Company
----------------------------
(Hawaii), Ltd. ("AIC");
---
WHEREAS, AIC will further retrocede the Net Amount at Risk reinsured under
the AIC Retrocession Agreement with respect to the Annuities pursuant to a
retrocession agreement (the "ANLIC (Hawaii) YRT Retrocession Agreement") with
-----------------------------------------
ANLIC (Hawaii) on a yearly renewable term basis;
WHEREAS, ANLIC (Hawaii) intends to further retrocede the risks reinsured
under the ANLIC (Hawaii) YRT Retrocession Agreement pursuant to an agreement
with Connecticut General Life Insurance Company on a yearly renewable term basis
(the "CG YRT Retrocession Agreement") or a Successor YRT Retrocession Agreement;
-----------------------------
WHEREAS, the Servicer will perform certain services pursuant to a servicing
agreement dated as of the date hereof (the "Servicing Agreement");
--------------------
WHEREAS, ANLIC (Hawaii) will designate Citicorp North America, Inc. as its
agent for certain purposes under this Agreement pursuant to a consent and
agreement dated as of the date hereof; and
WHEREAS, the foregoing transactions will take place at the same time and in
the order in which they are described above.
1
<PAGE>
NOW, THEREFORE, in consideration of the representations and warranties made
herein and the mutual covenants contained herein, the Parties hereto agree as
follows:
ARTICLE I
Definitions and Interpretation
------------------------------
Section 1.1. Definitions. As used herein for purposes of this Agreement
-----------
and the Schedules hereto, the following terms have the following respective
meanings:
"Accounting Period": as defined in Section 8.1.
------------------
"Adverse Claim": any lien, pledge, hypothecation, security interest or
--------------
other charge or encumbrance, any reinsurance agreement or any other type of
preferential arrangement that prefers one creditor of a Person to another.
"Affiliate": of a Person means a Person that directly or indirectly
---------
controls, is con-trolled by, or is under common control with, the first Person.
"Agreement": as defined in the recitals to this Agreement.
---------
"AIC": as defined in the recitals to this Agreement.
---
"AIC Retrocession Agreement": as defined in the recitals to this
----------------------------
Agreement.
---
"Allocation Procedures": those administration procedures specified in
----------------------
Schedule 14.6-2 in effect on the date hereof as modified from time to time in
compliance with Section 14.6(d).
"Allowances for Commissions": the payment for reimbursement of commissions
--------------------------
as set forth in Section 4.3.
"Allowance for Expenses": the payment for Annuity servicing as set forth
------------------------
in Section 4.4.
"Alternate Base Rate": for any period, a fluctuating interest rate per
---------------------
annum as shall be in effect from time to time, which rate per annum shall at all
times be equal to the higher of:
(a) the rate of interest announced publicly by Citibank in New York, New
York, from time to time as Citibank's base rate; or
(b) 1/2 of one percent above the latest three-week moving average of
secondary market morning offering rates in the United States for three-month
certificates of deposit of major United States money market banks, such
three-week moving average being determined weekly on each Monday (or, if such
day is not a Business Day, on the next succeeding Business Day) for the
three-week period ending on the previous Friday by Citibank (i) on the basis of
such rates reported by certificate of deposit dealers
2
<PAGE>
to and published by the Federal Reserve Bank of New York or (ii) if such
publication shall be suspended or terminated, on the basis of quotations for
such rates received by Citibank from three New York certificate of deposit
dealers of recognized standing selected by Citibank, in the case of clause (i)
or (ii), adjusted to the nearest 1/4 of one percent or, if there is no nearest
1/4 of one percent, to the next higher 1/4 of one percent.
"Anchor": as defined in the introductory paragraph of this Agreement.
------
"Anchor Annual Reports": as defined in Section 13.1(e).
-----------------------
"Anchor's Knowledge": the knowledge (other than imputed or constructive
-------------------
knowledge) of any authorized officer of Anchor who has the title of vice
president or higher or an officer performing substantially the same function of
such officer.
"Anchor Payment Amounts": the sum of (i) the amounts payable pursuant to
------------------------
Section 3.2(b), (ii) Charges payable pursuant to Section 3.3(i), (iii) any Fixed
Account Investment Spread payable pursuant to Section 3.3(ii), (iv) any
Recapture Payment payable pursuant to Section 9.4, and (v) any Replacement Fee
payable pursuant to Section 14.1.
"Anchor Quarterly Reports": as defined in Section 13.1(e).
--------------------------
"Anchor Statutory Financial Statements": as defined in Section 13.1(e).
----------------------------------------
"Anchor YRT Expense Recovery": as defined in Section 2.6.
------------------------------
"Anchor YRT Reinsurance Premium Refund": as defined in Section 4.6
-----------------------------------------
"ANLIC (Hawaii)": as defined in the introductory paragraph of this
---------------
Agreement.
-
"ANLIC (Hawaii) Note": as defined in Section 4.1.
---------------------
"ANLIC (Hawaii) YRT Retrocession Agreement": as defined in the recitals to
-----------------------------------------
this Agreement.
"Annuities": the (i) individual variable annuity contracts and group
---------
variable annuity certificates identified in Schedule 2.1, as such contracts and
certificates are in effect and are reinsured hereunder from time to time,
subject to Section 2.15, and (ii) the other annuity contracts reinsured pursuant
to Section 14.1.
"Annuity Benefit Payment": as defined in Section 5.4.
-------------------------
"Annuity Benefits": amounts paid by Anchor on annuitization under an
-----------------
Annuity.
"Benefit Payments": the amounts paid by Anchor for (i) Death Benefit Claim
----------------
Payments, (ii) Total Surrender Payments, (iii) Partial Withdrawal Payments; (iv)
Payout Annuity Payments; and (v) Annuity Benefit Payments.
3
<PAGE>
"Business Day": each day on which (i) dealings are carried on in the
-------------
London interbank market, and (ii) all of the following are open for business at
their principal offices in the cities designated: (x) Anchor in Los Angeles;
(y) the Custodian in North Quincy, Massachusetts, and (z) the New York Stock
Exchange trading floor in New York City.
"CARVM Reserve": the statutory Commissioners Annuity Reserve Valuation
--------------
Method reserve required to be held by Anchor with respect to the Annuities under
the laws of the State of Arizona.
"Ceding Commission": as defined in Section 4.1.
------------------
"CG YRT Retrocession Agreement": as defined in the recitals to this
--------------------------------
Agreement.
"Change": as defined in Section 14.7.
------
"Charges": the charges and deductions relating to the Annuities identified
-------
in Schedule 3.3-1 in the column labeled "Charges."
"Citibank": Citibank, N.A., a national banking association.
--------
"Code": the Internal Revenue Code of 1986, as amended.
----
"Collection Procedures": those administration procedures specified in
----------------------
Schedule 14.6-1 in effect on the date hereof as modified from time to time in
compliance with Section 14.6(c).
"Collections": with respect to any Charge, all cash collections and other
-----------
cash proceeds of each Charge, provided that no amount earned or deemed to have
--------
been earned by Anchor on or with respect to any Charges prior to their payment
to ANLIC (Hawaii) pursuant to Section 8.4. shall be deemed to be "Collections."
"Contract Change": as defined in Section 14.7.
----------------
"Contractholder": the Person who is the owner of an Annuity.
--------------
"Contract Value": for an Annuity, the sum of the Fixed Account Value and
---------------
the Separate Account Value.
"Convention Statement": each annual and quarterly financial statement of
---------------------
Anchor as filed with the appropriate Governmental Authority of its state of
domicile, as such form may be amended from time to time pursuant to the
requirements of such Governmental Authority.
"Custodian": State Street Bank and Trust Company.
---------
"Death Benefit Claim Payment": as defined in Section 5.1.
------------------------------
"Death Benefit Claim": a claim for death benefits during the accumulation
--------------------
phase in respect of an Annuity.
4
<PAGE>
"Death Benefit Surrender Value": the accumulation value of the Annuity
--------------------------------
reduced by the surrender charge which would be applicable to the Annuity if the
Annuity were surrendered on the same date the death benefit liability is
incurred.
"Department": the Governmental Authority responsible for the regulation of
----------
the insurance business of Anchor in its state of domicile.
"Determination Date": as defined in the definition of Fixed Account
-------------------
Coverage Percentage.
"Effective Time": as defined in Section 12.1.
---------------
"Event of Recapture": as defined in Section 16.1.
--------------------
"Excess Fixed Account Transfers": in the event that the Fixed Account
---------------------------------
Coverage Percentage changes from a zero to a positive number in an Accounting
Period, an amount, determined at the end of such Accounting Period, equal to the
product of (i) and (ii), where:
(i) is the Reinsurance Percentage.
(ii) equals the amount by which the aggregate Net Fixed Account Transfers
for all Annuities from the Determination Date to the end of such Accounting
Period is greater than zero.
"Excess Separate Account Transfers": in the event that the Fixed Account
-----------------------------------
Coverage Percentage changes from a positive number to zero in an Accounting
Period, an amount, determined at the end of such Accounting Period, equal to
(ii) minus (i), where:
-----
(i) equals the product of (x) and (y), where:
(x) equals the Fixed Account Coverage Percentage at the end of the next
preceding Accounting Period.
(y) equals the Fixed Account Values for all Annuities plus
----
(ii) equals the Net Separate Account Transfers for such Accounting Period.
"Extra-Contractual Liability": liability (i) arising from the practices of
---------------------------
Anchor, its agents or representatives, in the marketing, sale, issuance,
cancellation or administration of any Annuity, including, liability arising from
advertising claims, errors or omissions relating to annuity information
disclosure, engaging in unfair methods of competition or deceptive acts or
practices and replacement transactions, (ii) arising from the handling of claims
by Anchor, including liability arising from failure by Anchor to settle within
the limit of any Annuity, or by reason of alleged or actual negligence or bad
faith, failure to exercise good faith or tortious conduct of Anchor in rejecting
an offer of settlement or in the preparation of defense or in the trial of any
action by or against any Contractholder or Person insured by Anchor or in the
preparation or prosecution of an appeal consequent upon such action,
5
<PAGE>
(iii) fine or other statutory penalties assessed against Anchor, its agents or
representatives arising from items (i) and (ii), and (iv) consequential,
compensatory, exemplary or punitive damages assessed against Anchor, its agents
or representatives arising from items (i) and (ii).
"Fixed Accounts": the accounts under the Annuities in which amounts are
---------------
allocated to and made part of the general account of Anchor.
"Fixed Account Coverage Percentage": an amount expressed as a percentage,
----------------------------------
equal to the greater of zero or (i) over (ii), where:
----
(i) equals (x) the product of (A) and (B), plus (y) (C), where
----
(A) is equal to the Fixed Account Coverage Percentage at the end of next
preceding Accounting Period.
(B) is equal to the Fixed Account Value for all Annuities determined at the
end of the Accounting Period, less the Net Fixed Account Transfers for all
----
Annuities for the Accounting Period.
(C) is equal to the Net Fixed Account Transfers for all Annuities for the
Accounting Period; and
(ii) equals the Fixed Account Value for all Annuities determined at the end
of the Accounting Period;
provided that from the later of (i) the Effective Time, or (ii) the end of the
- --------
next Accounting Period in which the Fixed Account Coverage Percentage changes
from a positive percentage to zero (the "Determination Date"), the Fixed Account
- - ------------------
Coverage Percentage shall remain zero until the end of the next succeeding
Accounting Period when the aggregate Net Fixed Account Transfers for all
Annuities from the Determination Date to the end of such Accounting Period is
greater than zero. The Fixed Account Coverage Percentage will be determined as
of the end of each Accounting Period, except that the Fixed Account Coverage
------
Percentage will be determined as of the end of the next preceding Accounting
Period for purposes of (i) determining any Benefit Payment, (ii) calculating the
Fixed Account Investment Spread, and (iii) determining the Allowance for
Expenses in Section 4.4.
"Fixed Account Credited CARVM Reserve Interest": for all Annuities, the
------------------------------------------------
interest credited by Anchor on the Reinsurance Percentage of the Transferred
Fixed Account CARVM Reserve for all Annuities.
"Fixed Account Investment Spread": for all Annuities, the lesser of (i)
----------------------------------
the Fixed Account Net Investment Income less the Fixed Account Credited CARVM
----
Reserve Interest, or (ii) the product of .0152 per annum (computed on the basis
of a 360-day year of twelve 30-day months) and the Reinsurance Percentage of the
Transferred Fixed Account Value for all Annuities.
"Fixed Account Net Investment Income": for all Annuities, the sum of all
-------------------------------------
accrued investment income, including realized capital gains and
6
<PAGE>
losses, as reflected in Anchor's Convention Statement and unrealized capital
gains and losses, as reflected in Exhibit 4 of Anchor's Convention Statement,
actually earned on the Fixed Account Segregated Assets, net of investment
expenses.
"Fixed Account Segregated Assets": those assets supporting the Reinsurance
-------------------------------
Percentage of the Transferred Fixed Account CARVM Reserve for all Annuities,
segregated by Anchor.
"Fixed Account Transfer": any amount transferred from a Separate Account
------------------------
to a Fixed Account.
"Fixed Account Value": for an Annuity, the accumulation value in any Fixed
-------------------
Account allocated to such Annuity.
"Fund": as defined in Section 14.7.
----
"Fundamental Investment Objectives and Policies": the investment
--------------------------------------------------
restrictions set forth in the Prospectus dated (i) April 1, 1999 for the Polaris
---
variable annuity under the headings "SunAmerica Series Trust; Trust Highlights;
Q. What are the Portfolio's investment goals and principal investment
strategies?," "SunAmerica Series Trust; More Information About the Portfolios,"
"Anchor Series Trust; Trust Highlights; Q. What are the Portfolio's investment
goals and strategies?" and "Anchor Series Trust; More Information About the
Portfolios; Investment Strategies," and (ii) January 29, 1999 for the American
Pathway II variable annuity under the headings "American Pathway Fund; Fund
Highlights; Q. What are the Series' investment goals and strategies?" and
"American Pathway Fund; More Information About the Series; Investment
Strategies," each as amended from time to time pursuant to Section 14.7.
"GAAP": generally accepted accounting principles.
----
"Governmental Authority": any nation or government, any state or other
-----------------------
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of government.
"Gross Amounts Payable": every amount payable to ANLIC (Hawaii) and its
-----------------------
successors and assigns under this Agreement, including the Charges and
Collections thereof and the Fixed Account Investment Spread, without regard to
the netting provisions set forth in Article VIII of this Agreement.
"Initial Accounting Period": as defined in Section 8.1.
---------------------------
"Initial Consideration": as defined in Section 3.1.
----------------------
"Initial Reserve Adjustment": as defined in Section 6.1.
----------------------------
"Internal Replacement": any instance in which an Annuity or any portion
---------------------
of the cash value of an Annuity is exchanged for another life
7
<PAGE>
insurance policy or annuity contract, not reinsured under this Agreement, which
is written by Anchor, its Affiliates, successors or assigns.
"Modco Benefit Payments": as defined in Section 2.3.
------------------------
"Modco Reinsurance Premium": as defined in Section 3.2.
---------------------------
"Modified Coinsurance Reserve": an amount equal to the Reinsurance
------------------------------
Percentage of the CARVM Reserve with respect to all Modco Benefit Payment
-
obligations of Anchor.
"Modified Coinsurance Reserve Adjustment": the amount determined pursuant
----------------------------------------
to Section 6.2.
"Modified Coinsurance Reserve Investment Credit": an amount equal to the
------------------------------------------------
sum of (i) the Reinsurance Percentage of the sum of all accrued investment
income and capital gains and losses, realized and unrealized, on the assets held
by Anchor equal to the CARVM Reserve with respect to the Separate Account Value
for all Annuities for the current Accounting Period after deducting all costs,
expenses and deductions of Funds and their respective advisors and
subcontractors properly allocable to such assets to the extent that same have
not been deducted at the Fund level, and (ii) the Fixed Account Credited CARVM
Reserve Interest. For the Annuities, the Modified Coinsurance Reserve
Investment Credit will be reduced for Charges for the current Accounting Period.
The Modified Coinsurance Reserve Investment Credit may be positive, zero or
negative.
"Net Amount at Risk": in the case of a death benefit being payable under
--------------------
an Annuity during the accumulation phase of an Annuity, an amount, if any, equal
to (i) the minimum guaranteed death benefit under such Annuity, less (ii) the
----
Death Benefit Surrender Value of such Annuity.
"Net Fixed Account Transfers": for each Accounting Period, an amount equal
---------------------------
to the (i) the Fixed Account Transfers for all Annuities for such Accounting
Period, over (ii) the Separate Account Transfers for all Annuities for such
----
Accounting Period, provided that, following any Determination Date, such an
--------
amount will be accumulated for all Accounting Periods until the end of the next
succeeding Accounting Period when such cumulative amount is greater than zero,
and, provided further, that on any Determination Date, the Net Fixed Account
-----------------
Transfers will be deemed to be equal to the negative of the amount of the Excess
Separate Account Transfers, and provided further that, in the event that the
----------------
Fixed Account Coverage Percentage changes from a zero to a positive number in an
Accounting Period, then the Net Fixed Account Transfers will be deemed to be
equal to the amount of the Excess Fixed Account Transfers. The amount of Net
Fixed Account Transfers may be positive, zero or negative.
"Net Fixed Account Transfer CARVM Reserve Adjustment": as defined in
Section 4.7.
"Net Separate Account Transfers": for each Accounting Period, an amount,
not less than zero, equal to the (i) Separate Account Transfers for all
Annuities for such Accounting Period, minus (ii) the Fixed Account Transfers for
all Annuities for such Accounting Period.
8
<PAGE>
"Net Separate Account Transfer CARVM Reserve Adjustment": as defined in
Section 3.4.
"Obligor": each Person from whom Anchor has the right to receive any
-------
Charges pursuant to an Annuity.
"Other Charges": the charges and deductions relating to the Separate
--------------
Accounts identified in Schedule 3.3-1 in the column labeled "Other Charges."
"Partial Withdrawal Payment": as defined in Section 5.3.
----------------------------
"Party": Anchor or ANLIC (Hawaii).
-----
"Payment Date": the twenty-third calendar day after the end of each
-------------
Accounting Period if such day falls on a Business Day, if not, then the first
Business Day thereafter.
"Payout Annuity Payment": as defined in Section 5.4.
------------------------
"Person": an individual, a partnership, a corporation, a limited liability
------
company, a trust (including any beneficiary thereof) or other entity, including
any unincorporated organization or government or agency or political subdivision
thereof. The term "corporation" for the purposes of the preceding sentence
shall mean a corporation, joint stock company, business trust or other similar
association.
"Policy Change": as defined in Section 14.7.
--------------
"Prospectus": at any time, the prospectus (as such term is defined in the
----------
Securities Act of 1933, as amended) under which the Annuities are sold.
"Recapture Payment": as defined in Section 9.4.
------------------
"Recapture Percentage": as defined in Section 9.3.
---------------------
"Reinsurance Percentage": 100 percent, as adjusted pursuant to Section
-----------------------
9.5.
"Reinsurance Servicer Report": as defined in Section 8.2.
-----------------------------
"Replacement Fee": as defined in Section 14.1.
----------------
"SAP": statutory accounting practices prescribed or permitted by the state
---
insurance regulator of the state of domicile of Anchor.
"Separate Account": each segregated asset account of Anchor identified in
-----------------
Schedule 2.1 to which amounts under the Annuities are allocated by Anchor.
"Separate Account Transfer": any amount transferred from the Fixed Account
-------------------------
to a Separate Account.
9
<PAGE>
"Separate Account Value" for an Annuity, the sum of the values of the
------------------------
accumulation units in the Separate Account allocated to such Annuity.
"Servicer": as defined in the Servicing Agreement.
--------
"Standing Instructions": the irrevocable standing instructions in
----------------------
substantially the form of Schedule 13.1-2.
--
"Subsidiary": a corporation of which more than 50% of the outstanding
----------
capital stock having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether or not at the time
capital stock of any class or classes of such corporation shall or might have
voting power upon the occurrence of any contingency) is at the time directly or
indirectly owned by Anchor, by Anchor and one or more other Subsidiaries, or by
one or more other Subsidiaries.
"Successor Servicer": as defined in the Servicing Agreement.
-------------------
"SunAmerica": SunAmerica Inc.
----------
"Successor YRT Retrocession Agreement": as defined in Section 2.17.
---------------------------------------
"Terminal Accounting and Settlement": as defined in Section 10.1.
-------------------------------------
"Terminal Accounting Date": as defined in Section 10.2.
--------------------------
"Total Surrender Payment": as defined in Section 5.2.
-------------------------
"Transferred Fixed Account Value": for an Annuity, an amount equal to the
--------------------------------
product of (i) Fixed Account Coverage Percentage, and (ii) the Fixed Account
Value of such Annuity.
"Transferred Fixed Account CARVM Reserve": for an Annuity, the amount of
-----------------------------------------
the CARVM Reserve with respect to the Transferred Fixed Account Value of such
Annuity.
"Unearned Ceding Commission Amount": an amount equal to (i) $155,000,000
-----------------------------------
reduced by (x) the amount of all prior Recapture Payments, and (y) the amount of
---------
all prior Unearned Ceding Commission Reduction Amounts, and increased by (ii) an
------------
amount equal to the Unearned Ceding Commission Rate per annum on the amount in
Item (i) above applied in arrears on Payment Date for the period from and
including the later of the Effective Time or the most recent Payment Date to but
excluding the Payment Date in which the amount determined under this Item (ii)
is applied; provided that, on any Payment Date, the then Unearned Ceding
--------
Commission Amount will first be increased by the application of Item (ii) above
and then reduced for any Unearned Ceding Commission Reduction Amount.
"Unearned Ceding Commission Rate": the percentage rate identified in Item
--------------------------------
173 of the Reinsurance Servicer Report.
"Unearned Ceding Commission Reduction Amount": the amount identified in
----------------------------------------------
Item 182 of the Reinsurance Servicer Report, without regard to any Recapture
Payment.
10
<PAGE>
"Waiver Allowance": as defined in Section 14.2.
-----------------
"YRT Reinsurance Premium": as defined in Section 3.2(c).
-------------------------
Section 1.2. Other Definitional Provisions. (a) The headings of the
-------------------------------
sections of this Agreement are solely for convenience of reference and shall not
affect the meaning, construction or effect of this Agreement.
(b) All terms defined in this Agreement shall have the defined meaning when
used in any Schedule, certificate or other documents attached hereto or made or
delivered pursuant hereto unless otherwise defined therein.
(c) As used herein, and in any certificate or other document made or
delivered pursuant hereto or thereto, accounting terms not defined in Section
1.1, and accounting terms partly defined in Section 1.1 to the extent not
defined, shall have the respective meanings given to them under SAP in effect on
the date hereof. To the extent that the definitions of accounting terms are
inconsistent with the meanings of such terms under SAP, the definitions
contained herein shall control. The term "including" means "including but not
limited to."
(d) Any reference herein to any statute, agreement or document, or any
section thereof, shall, unless otherwise expressly provided, be a reference to
such statute, agreement, document or section as amended, modified or
supplemented (including any successor section) and in effect from time to time.
ARTICLE II
General Provisions
------------------
Section 2.1. Risks Reinsured. ANLIC (Hawaii) will indemnify Anchor for,
----------------
and Anchor will reinsure with ANLIC (Hawaii), according to the terms and
conditions hereof, the Benefit Payments under the Annuities.
Section 2.2. Coverages and Exclusions. Only the Annuities are reinsured
-------------------------
under this Agreement. Except for the Net Amount at Risk and except as provided
in Article V, all liabilities in respect of the Fixed Accounts are excluded from
this Agreement. Liabilities in respect of Separate Account Transfers and Net
Fixed Account Transfers are reinsured under this Agreement.
Section 2.3. Plan of Reinsurance; Modified Coinsurance. The portion of
-------------------------------------------
this indemnity reinsurance with respect to all Benefit Payments other than
payments with respect to the Net Amount at Risk portion of Death Benefit Claim
Payments with respect to the Annuities (the "Modco Benefit Payments") will be on
-----------------------
a modified coinsurance basis. Anchor will retain, control and own all assets
held in relation to the Modified Coinsurance Reserve. ANLIC (Hawaii) agrees to
establish a separate account governed by the laws of Hawaii and the obligations
of ANLIC (Hawaii) under this Agreement with respect to the Separate Account
portion of the Modco Benefit Payments will be obligations of such separate
account. Furthermore, the obligations of ANLIC (Hawaii) under this Agreement
with respect to the Fixed Account portion of the Modco Benefit Payments will
be obligations of the
11
<PAGE>
general account of ANLIC (Hawaii). Notwithstanding the preceding two sentences,
all the assets of ANLIC (Hawaii) will be available to meet ANLIC (Hawaii)'s
obligations under this Agreement.
Section 2.4. Plan of Reinsurance; Yearly Renewable Term. The portion of
-------------------------------------------
this indemnity reinsurance with respect to the Net Amount at Risk portion of
Death Benefit Claim Payments with respect to the Annuities will be on a yearly
renewable term reinsurance basis.
Section 2.5. Expenses. ANLIC (Hawaii) will bear no part of the expenses
--------
incurred in connection with the Annuities reinsured hereunder, except as
specifically provided herein.
Section 2.6. Extra-Contractual Liability. ANLIC (Hawaii) does not
----------------------------
indemnify Anchor for, and will not be liable for, any Extra-Contractual
Liability, provided that ANLIC (Hawaii) shall be liable for costs and expenses
--------
of Anchor with respect to the same liability for Extra-Contractual Liability of
Anchor, its agents and representatives as are indemnified by the reinsurer
pursuant to the CG YRT Retrocession Agreement or any Successor YRT Retrocession
Agreement but only to the extent payment is actually received by ANLIC (Hawaii)
under the CG YRT Retrocession Agreement or any Successor YRT Retrocession
Agreement, such payment is actually received by AIC under the ANLIC (Hawaii) YRT
Retrocession Agreement and such payment is actually received by ANLIC (Hawaii)
under the AIC Retrocession Agreement (the "Anchor YRT Expense Recovery").
---------------------------
Section 2.7. Annuity Administration. Anchor will administer the Annuities
----------------------
reinsured hereunder and will perform all accounting for such Annuities, all in
accordance with Articles VIII, X, XIV and XV.
Section 2.8. Inspection. At any time during normal business hours upon
----------
reasonable notice, ANLIC (Hawaii) and its agents and representatives shall each
have the right to inspect, at the principal office of Anchor or such other
location as Anchor designates in writing to ANLIC (Hawaii) and its agents and
representatives, the original papers and any and all other books or documents
relating to or affecting the Annuities and the reinsurance under this Agreement.
Neither ANLIC (Hawaii) nor its agents and representatives will use any
information obtained through any inspection pursuant to this Section 2.8 for any
purpose not relating to the reinsurance hereunder. ANLIC (Hawaii) shall hold
all such information derived from such records in confidence and shall not
disclose it to any other Person without Anchor's prior written consent.
Section 2.9. Taxes. Premium taxes will not be reimbursed in connection
-----
with the Annuities reinsured hereunder but are included in the Ceding
Commission. ANLIC (Hawaii) will not reimburse or be liable to Anchor for any
other taxes payable by Anchor in connection with the Annuities reinsured
hereunder. Anchor shall be liable for U.S. federal excise tax, if any, on the
Initial Consideration, the Modco Reinsurance Premiums, the YRT Reinsurance
Premiums and any other amounts paid by Anchor to ANLIC (Hawaii) under this
Agreement.
Section 2.10. Proxy Tax Reimbursement. Pursuant to Code Section 848,
-------------------------
insurance companies are required to capitalize and amortize specified policy
12
<PAGE>
acquisition expenses. The amount capitalized is determined by proxy based on a
percentage of "net premiums" as defined in the regulations relating to Code
Section 848. ANLIC (Hawaii) will not reimburse or be liable to Anchor for any
costs which result from the application of Code Section 848.
Section 2.11. Election to Determine Specified Policy Acquisition Expenses.
-----------------------------------------------------------
Anchor and ANLIC (Hawaii) agree that the Party with net positive consideration
for any tax year under this Agreement will capitalize specified policy
acquisition expenses with respect to Annuities reinsured under this Agreement
without regard to the general deductions limitation of Code Section 848(c)(1).
Anchor and ANLIC (Hawaii) will exchange information pertaining to the amount of
net consideration under this Agreement each year to ensure consistency. Anchor
will submit a schedule to ANLIC (Hawaii) by May 1 of each year presenting its
calculation of the net consideration for the preceding taxable year. ANLIC
(Hawaii) may contest the calculation in writing within 30 days of receipt of
Anchor's schedule referred to in the preceding sentence. Any differences will
be resolved between the Parties so that consistent amounts are reported on the
respective tax returns for the preceding taxable year. This election to
capitalize specified policy acquisition expenses without regard to the general
deductions limitation is effective for all taxable years during which this
Agreement remains in effect.
Section 2.12. Condition. The reinsurance hereunder is subject to the same
---------
limitations and conditions as the Annuities which are reinsured hereunder,
except as otherwise provided in this Agreement.
Section 2.13. Misunderstandings and Oversights. If any failure to pay
----------------------------------
amounts due or to perform any other act required by this Agreement is
unintentional and caused by misunderstanding or oversight, Anchor and ANLIC
(Hawaii) will promptly adjust the situation to what it would have been had the
misunderstanding or oversight not occurred.
Section 2.14. Adjustments. If Anchor's liability under any of the
-----------
Annuities is changed because of a misstatement of age, sex or any other material
fact, ANLIC (Hawaii) will (i) assume that portion of any increase in Anchor's
liability resulting from the change which corresponds to the Reinsurance
Percentage of the risks reinsured under the Annuities hereunder, and (ii)
receive credit for that portion of any decrease in Anchor's liability resulting
from the change which corresponds to the Reinsurance Percentage of the risks
reinsured under the Annuities hereunder.
Section 2.15. Reinstatements. If an Annuity is surrendered and is
--------------
subsequently reinstated while this Agreement is in effect, the reinsurance for
such Annuity will not be reinstated. If an Annuity is surrendered, or is
annuitized and is not reinsured under Section 5.4, then such contract shall no
longer be deemed to be an "Annuity" for purposes of this Agreement.
Section 2.16. Currency. All of the provisions of this Agreement are
--------
expressed in terms of United States dollars and all amounts shall be paid in
United States funds in same day funds.
Section 2.17 Maintenance of CG YRT Retrocession Agreement; Successor YRT
------------------------------------------------------------
Retrocession Agreement. (a) ANLIC (Hawaii) has entered into and will
----------------------
13
<PAGE>
maintain in effect the CG YRT Retrocession Agreement until all obligations of
ANLIC (Hawaii) hereunder have terminated, provided that:
--------
(i) If the insurer financial strength rating assigned by Standard & Poor's
Rating Services or Moody's Investors Service of the reinsurer under the CG YRT
Retrocession Agreement (or the reinsurer under a Successor YRT Retrocession
Agreement entered into pursuant to this Section 2.17(a)), to the extent so
rated, drops below BBB- or Baa3, respectively, then (x) Anchor may, and if such
a successor reinsurer is available, shall (A) designate a successor reinsurer to
replace the reinsurer under the CG YRT Retrocession Agreement) that has an
insurer financial strength rating assigned by Standard & Poor's Rating Services
and Moody's Investors Service of a least A and that will provide reinsurance on
substantially the same terms and conditions as the CG YRT Retrocession Agreement
(the "Successor YRT Retrocession Agreement"), and (B) instruct ANLIC (Hawaii) in
------------------------------------
writing to terminate the CG YRT Retrocession Agreement (or such Successor YRT
Retrocession Agreement) and enter into the Successor YRT Retrocession Agreement
(or a new Successor YRT Retrocession Agreement), and (y) ANLIC (Hawaii) shall so
terminate the CG YRT Retrocession Agreement (or such Successor YRT Retrocession
Agreement) and enter into the Successor YRT Retrocession Agreement.
(ii) During any period that ANLIC (Hawaii) may terminate the CG YRT
Retrocession Agreement (or any Successor YRT Retrocession Agreement) without
breach thereunder and enter into a Successor YRT Retrocession Agreement, then
(x) Anchor may (A) designate a successor reinsurer to replace the reinsurer
under the CG YRT Retrocession Agreement (or such Successor YRT Retrocession
Agreement) that has an insurer financial strength rating assigned by Standard &
Poor's Rating Services and Moody's Investors Service of a least A and that will
enter into a Successor YRT Retrocession Agreement, and (B) instruct ANLIC
(Hawaii) in writing to terminate the CG YRT Retrocession Agreement (or such
Successor YRT Retrocession Agreement) and enter into the Successor YRT
Retrocession Agreement, and (y) ANLIC (Hawaii) shall so terminate the CG YRT
Retrocession Agreement (or such Successor YRT Retrocession Agreement) and enter
into the Successor YRT Retrocession Agreement.
(b) Anchor shall act as the agent of ANLIC (Hawaii) with respect to the CG
YRT Retrocession Agreement and any Successor YRT Retrocession Agreement to the
extent expressly provided therein, and ANLIC (Hawaii) shall have the right to
cause Anchor to take such actions and maintain in effect such practices of
Anchor as are expressly provided by the CG YRT Retrocession Agreement and any
Successor YRT Retrocession Agreement or in this Agreement.
(c) ANLIC (Hawaii) shall have the right pursuant to the CG YRT Retrocession
Agreement or any Successor YRT Retrocession Agreement to delegate to the
reinsurer thereunder ANLIC (Hawaii)'s right of access to Anchor records, to the
extent such records directly pertain to the CG YRT Retrocession Agreement and
any Successor YRT Retrocession Agreement.
(d) ANLIC (Hawaii) hereby assigns its rights and delegates its duties to
Anchor with regard to arbitration against the reinsurer under the CG YRT
Retrocession Agreement or any Successor YRT Retrocession Agreement. Anchor
14
<PAGE>
hereby accepts such assignment and delegation. Anchor shall conduct any
arbitration within its sole discretion and shall (i) have full power and right
to prosecute, settle or abandon any such dispute, and (ii) bear all costs of
arbitration incurred by it.
(e) To the extent that ANLIC (Hawaii) is obligated to indemnify, defend and
hold harmless the reinsurer under the CG YRT Retrocession Agreement or any
Successor YRT Retrocession Agreement (other than for liability with respect to
the Net Amount at Risk under the Annuities), Anchor shall so indemnify, defend
and hold harmless ANLIC (Hawaii).
(f) To the extent that ANLIC (Hawaii) is obligated to prepare and deliver
accounting and premium reports under the CG YRT Retrocession Agreement or any
Successor YRT Retrocession Agreement, Anchor or its agent or representative
shall prepare and deliver such reports in the form and by the time required
under the CG YRT Retrocession Agreement or any Successor YRT Retrocession
Agreement, as the case may be.
ARTICLE III
Payments by Anchor
------------------
Section 3.1. Initial Consideration. At the Effective Time, Anchor will
----------------------
pay ANLIC (Hawaii) an initial consideration equal to 100 percent of the Modified
Coinsurance Reserve calculated as of August 1, 1999 (the "Initial
-------
Consideration").
Section 3.2. Modco Reinsurance Premiums; Recapture Fee; YRT Reinsurance
------------------------------------------------------------
Premiums. (a) Anchor will pay ANLIC (Hawaii) reinsurance premiums on all
------
Annuities in effect under this Agreement in an amount equal to the sum of (i)
----
the Reinsurance Percentage of that portion of the gross deposits and premiums
collected by Anchor during an Accounting Period which are to be allocated to the
Separate Accounts for the Annuities, and (ii) the Reinsurance Percentage of the
Fixed Account Coverage Percentage of that portion of the gross deposits and
premiums collected by Anchor during an Accounting Period which are to be
allocated to the Fixed Accounts for the Annuities (the "Modco Reinsurance
-----------------
Premium").
-
(b) Anchor will also pay ANLIC (Hawaii) an amount equal to any recapture
fee payable by ANLIC (Hawaii) under the CG YRT Retrocession Agreement or any
Successor YRT Retrocession Agreement.
(c) Included in the amount payable by Anchor to ANLIC (Hawaii) under
Section 3.3 is an amount equal to the actual reinsurance premium required to be
paid from time to time by ANLIC (Hawaii) under the CG YRT Retrocession Agreement
or any Successor YRT Retrocession Agreement, including any interest due with
respect thereto (the "YRT Reinsurance Premium").
-------------------------
Section 3.3. Payment of Charges and Fixed Account Investment Spread.
-----------------------------------------------------------
Anchor will pay to ANLIC (Hawaii) (i) the Reinsurance Percentage of all Charges
for all Annuities, and (ii) the Fixed Account Investment Spread if such amount
is a positive amount.
Section 3.4. Net Separate Account Transfer CARVM Reserve Adjustment.
----------------------------------------------------------
15
<PAGE>
In the event that (i) the Fixed Account Coverage Percentage is zero, and (ii)
Net Separate Account Transfers is greater than zero, then Anchor will pay to
ANLIC (Hawaii) an amount equal to the Reinsurance Percentage of the CARVM
Reserve with respect to Net Separate Account Transfers (the "Net Separate
------------
Account Transfer CARVM Reserve Adjustment"), provided that, in the event that
-------------------------------------- --------
the Fixed Account Coverage Percentage changes from a positive number to zero in
an Accounting Period, then the Net Separate Account Transfer CARVM Reserve
Adjustment shall be deemed to be an amount equal to the Reinsurance Percentage
of the CARVM Reserve with respect the Excess Separate Account Transfers.
ARTICLE IV
Payments by ANLIC (Hawaii): Commissions and Expenses
----------------------------------------------------
Section 4.1. Ceding Commission. At the Effective Time and simultaneously
-----------------
with the payment of the Initial Consideration, ANLIC (Hawaii) will pay a ceding
commission (the "Ceding Commission") to Anchor by delivery of a note in the
------------------
principal amount of $155,000,000 in the form attached hereto as Schedule 4.1,
with such changes therein as the Parties may agree upon prior to the Effective
Time (the "ANLIC (Hawaii) Note").
---------------------
Section 4.2. Premium Tax. ANLIC (Hawaii) shall not reimburse Anchor for
------------
any premium taxes on the Modco Reinsurance Premiums or the YRT Reinsurance
Premiums; these costs are included in the Ceding Commission.
Section 4.3. Allowance for Commissions. ANLIC (Hawaii) will reimburse
---------------------------
Anchor for all the Reinsurance Percentage of commissions (other than trail
commissions) incurred on the Modco Reinsurance Premiums. Reimbursement of trail
commissions on the Annuities is included in the amount paid under Section
4.4(i). No commission reimbursement shall be made for amounts paid by Anchor to
ANLIC (Hawaii) or ANLIC (Hawaii) to Anchor for Separate Account Transfers or
Fixed Account Transfers. Schedule 4.3 shows the commission schedules for the
Annuities reinsured hereunder as of August 1, 1999.
Section 4.4. Allowance for Expenses. ANLIC (Hawaii) will pay to Anchor as
----------------------
reimbursement for servicing the Annuities pursuant to Section 2.7 and for
managing the assets in the Separate Accounts pursuant to Section 2.3, (i) the
sum of (x) an amount equal to the product of the Reinsurance Percentage times 13
basis points per anum of the sum of (A) the aggregate average daily Separate
Account Value of all Annuities, and (B) the aggregate Transferred Fixed Account
Values of all Annuities determined at the end of the Accounting Period less the
----
Fixed Account Coverage Percentage of any Fixed Account Transfers for the
Accounting Period plus the Fixed Account Coverage Percentage of any Separate
----
Account Transfers for the Accounting Period, and (y) the greater of (A) an
amount equal to the product of the Reinsurance Percentage times 13 basis points
per anum of the sum of (xx) the aggregate average daily Separate Account Value
of all Annuities, and (yy) the aggregate Transferred Fixed Account Values of all
Annuities determined at the end of the Accounting Period less the Fixed Account
----
Coverage Percentage of any Fixed Account Transfers for the Accounting Period
plus the Fixed Account Coverage Percentage of any Separate Account Transfers for
-
the Accounting Period, or (B) $55.00 for each Annuity per anum, and (ii)
the
16
<PAGE>
Reinsurance Percentage of the amount of the Other Charges, provided, however,
-------- -------
that in the event that a Successor Servicer is appointed pursuant to the
Servicing Agreement and the Department approves a lower amount to be paid to
Anchor by virtue of the responsibilities then being performed by the Successor
Servicer, the amount payable to Anchor pursuant to Section 4.4(i) shall be the
product of the Reinsurance Percentage times the lower amount approved by the
Department.
Section 4.5. Anchor YRT Expense Recovery. ANLIC (Hawaii) will pay to
------------------------------
Anchor the Anchor YRT Expense Recovery but only to the extent actually received
under the AIC Retrocession Agreement.
Section 4.6. Anchor YRT Reinsurance Premium Refund. In the event that
----------------------------------------
(i) the YRT Reinsurance Premium is less than (ii) an amount equal to the sum of
(x) 8 basis points per annum of the Reinsurance Percentage of the aggregate
average daily Separate Account Values of all Annuities, and (y) 8 basis points
per annum (computed on the basis of a 360-day year of twelve 30-day months) of
the Reinsurance Percentage of the Transferred Fixed Account Values of all
Annuities, then ANLIC (Hawaii) will pay Anchor and amount equal to (ii) less (i)
----
(the "Anchor YRT Reinsurance Premium Refund").
-----------------------------------------
Section 4.7. Net Fixed Account Transfer CARVM Reserve Adjustment. In the
---------------------------------------------------
event that (i) the Fixed Account Coverage Percentage is zero, and (ii) Net Fixed
Account Transfers is greater than zero, then ANLIC (Hawaii) will pay to Anchor
an amount equal to the Reinsurance Percentage of the CARVM Reserve with respect
to Net Fixed Account Transfers (the "Net Fixed Account Transfer CARVM Reserve
----------------------------------------
Adjustment"), provided that, in the event that the Fixed Account Coverage
-------- --------
Percentage changes from a zero to a positive number in an Accounting Period,
----
then the Net Fixed Account Transfer CARVM Reserve Adjustment shall be deemed to
-
be an amount equal to the Reinsurance Percentage of the CARVM Reserve with
respect the Excess Fixed Account Transfers.
Section 4.8. Negative Fixed Account Investment Spread. In the event that
----------------------------------------
the Fixed Account Investment Spread is negative, ANLIC (Hawaii) will pay Anchor
the absolute value of such amount.
ARTICLE V
Payments by ANLIC (Hawaii): Benefit Payments
--------------------------------------------
Section 5.1. Death Benefit Claim. ANLIC (Hawaii)'s obligation for a Death
-------------------
Benefit Claim paid by Anchor on an Annuity reinsured hereunder will be satisfied
in full by the payment to Anchor of the sum of (i) an amount equal to the
Reinsurance Percentage of the CARVM Reserve with respect to the Separate Account
Value of such Annuity, (ii) an amount equal to the Reinsurance Percentage of the
Transferred Fixed Account CARVM Reserve with respect to such Annuity, and (iii)
the Net Amount at Risk with respect to such Annuity, each determined as of the
date the Death Benefit Claim is determined under such Annuity (the "Death
-----
Benefit Claim Payment").
-----------------
Section 5.2. Total Surrender. On a complete surrender by the
----------------
Contractholder of an Annuity during the accumulation phase of such Annuity,
ANLIC (Hawaii) will pay Anchor the Reinsurance Percentage of the sum of (i)
17
<PAGE>
the Separate Account Value, and (ii) the Transferred Fixed Account Value of such
Annuity, as paid by Anchor on an Annuity reinsured hereunder adjusted for any
required market value adjustment under such Annuity, each less any applicable
----
charges and deductions (the "Total Surrender Payment").
-------------------------
Section 5.3. Partial Withdrawal. On a withdrawal by the Contractholder
-------------------
under an Annuity during the accumulation phase of such Annuity of part but not
all of the Separate Account Value or Fixed Account Value, ANLIC (Hawaii) will
pay Anchor the Reinsurance Percentage of the sum of (i) such partial withdrawal
in respect of the Separate Account Value, if any, and (ii) such partial
withdrawal in respect of the Transferred Fixed Account Value, if any, as paid by
Anchor on an Annuity reinsured hereunder adjusted for any required market value
adjustment under such Annuity, each less any applicable charges and deductions
----
(the "Partial Withdrawal Payment").
-----------------------------
Section 5.4. Payout Annuity Payment; Annuity Benefit Payment. (a) ANLIC
------------------------------------------------
(Hawaii) will be liable for the Reinsurance Percentage of its portion (described
below) of Annuity Benefits made on an Annuity reinsured hereunder if the Annuity
Benefits are based on the fixed settlement options at terms guaranteed in such
Annuity at the time of issue of such Annuity (the "Payout Annuity Payment"),
----------------------
provided that ANLIC (Hawaii) shall not be so liable if and to the extent that,
-----
prior to or upon receiving notice of the decision by a Contractholder to choose
such settlement option, Anchor notifies ANLIC (Hawaii) that it has elected to
recapture such Annuity upon the effective date of such settlement option, at
which time such Annuity will be considered surrendered and ANLIC (Hawaii)'s
obligation for Annuity Benefits paid by Anchor on such an Annuity reinsured
hereunder will be satisfied in full by the payment to Anchor of the Annuity
Benefit Payment (as defined in Section 5.4(b)) therefore. The notice of
election to recapture by Anchor referred to in the preceding sentence may
provide that it applies to one or more Annuities or all the Annuities and may
recite that the election to recapture will remain in effect until written notice
is given by Anchor to ANLIC (Hawaii) revoking the prior election to recapture,
in whole or in part with respect to future Annuity Benefits made on an Annuity
reinsured hereunder. In the event that ANLIC (Hawaii) is liable for the
Reinsurance Percentage of its portion of Annuity Benefits under this Section
5.4(a), then such portion shall be a percentage equal to (i) the Reinsurance
Percentage of the sum of (x) the Separate Account Value of such Annuity and (y)
the Transferred Fixed Account Value of such Annuity adjusted for any required
market value adjustment under such Annuity, each less any applicable charges and
----
deductions (but not premium taxes), divided by (ii) the Contract Value of such
Annuity adjusted for any required market value adjustment under such Annuity,
each less any applicable charges and deductions (but not premium taxes), each
----
determined as of the date the proceeds of such Annuity are applied to purchase
Annuity Benefits.
(b) ANLIC (Hawaii) will not be liable for the reinsurance of an Annuity
annuitizing at terms more favorable than those guaranteed at the time of issue
of such Annuity. In the event that Anchor allows annuitization at terms more
favorable than those guaranteed in an Annuity at the time of issue of such
Annuity, such Annuity will be considered surrendered and ANLIC (Hawaii)'s
obligation for Annuity Benefits paid by Anchor on such an Annuity reinsured
hereunder will be satisfied in full by
18
<PAGE>
the payment to Anchor of the "Annuity Benefit Payment," which shall be an amount
-----------------------
equal to the Reinsurance Percentage of the sum of (i) the Separate Account Value
of such Annuity, and (ii) the Transferred Fixed Account Value of such Annuity
adjusted for any required market value adjustment under such Annuity, each less
----
any applicable charges and deductions, determined as of the date the proceeds of
such Annuity are applied to pay for the Separate Account and Fixed Account
amounts applied to purchase Annuity Benefits.
Section 5.5. Claims Settlements. The procedures for settlement of claims
------------------
under this Agreement with respect to the Annuities shall conform to the
procedures set forth in the CG YRT Retrocession Agreement (including Article VII
thereunder) or any Successor YRT Retrocession Agreement so that ANLIC (Hawaii)
may comply with all claim settlement procedures under the CG YRT Retrocession
Agreement or any Successor YRT Retrocession Agreement. ANLIC (Hawaii) will
accept the decision of Anchor with respect to Benefit Payments on Annuities
reinsured hereunder. Except as specifically provided in this Agreement or
otherwise provided under the Annuities reinsured hereunder, ANLIC (Hawaii) will
pay the Benefit Payments in a lump sum to Anchor. Anchor must determine all
Death Benefit Claims within the period of time specified under the CG YRT
Retrocession Agreement or any Successor YRT Retrocession Agreement.
Section 5.6. Contested Death Benefit Claims. Anchor hereby grants to
---------------------------------
ANLIC (Hawaii) the same rights the reinsurer has under the CG YRT Retrocession
Agreement (including Articles VII and X thereunder) or any Successor YRT
Retrocession Agreement with respect to ANLIC (Hawaii) with respect to contested
Death Benefit Claims. Such rights may be delegated by ANLIC (Hawaii) to such
reinsurer.
ARTICLE VI
Reserve Adjustments
-------------------
Section 6.1. Initial Reserve Adjustment. Simultaneously with the payment
--------------------------
of the Initial Consideration by Anchor to ANLIC (Hawaii) at the Effective Time,
ANLIC (Hawaii) will pay Anchor an initial reserve adjustment in an amount that
is equal to the Modified Coinsurance Reserve determined as of August 1, 1999
(the "Initial Reserve Adjustment").
----------------------------
Section 6.2. Modified Coinsurance Reserve Adjustment. (a) The Modified
----------------------------------------- --------
Coinsurance Reserve Adjustment" will be computed as of the end of each
------------------------------
Accounting Period equal to the result of (i) less (ii) less (iii), where:
------- ---- ----
(i) equals the Modified Coinsurance Reserve determined at the end of such
Accounting Period;
(ii) equals the Modified Coinsurance Reserve determined at the end of the
preceding Accounting Period; and
(iii) equals the Modified Coinsurance Reserve Investment Credit determined
as of the end of such Accounting Period.
(b) For any Accounting Period in which the amount computed in Section
19
<PAGE>
6.2(a) is positive, ANLIC (Hawaii) will pay Anchor the absolute value of such
amount. For any Accounting Period in which the amount computed in Section
6.2(a) is negative, Anchor will pay ANLIC (Hawaii) the absolute value of such
amount.
ARTICLE VII
[Reserved]
----------
ARTICLE VIII
Accounting and Settlements
--------------------------
Section 8.1. Monthly Accounting Periods. Each accounting period under
----------------------------
this Agreement (an "Accounting Period") will be a calendar month, except that:
-----------------
(i) the initial Accounting Period runs from August 1, 1999 through August 31,
1999 (the "Initial Accounting Period"), and (ii) the final Accounting Period
---------------------------
runs from the end of the preceding Accounting Period until the Terminal
Accounting Date.
Section 8.2. Reinsurance Servicer Reports. A servicer report in the form
----------------------------
attached hereto as Schedule 8.2 (the "Reinsurance Servicer Report") will be
---------------------------
provided by the Servicer to ANLIC (Hawaii) and Anchor for each Accounting Period
as provided in the Servicing Agreement not later than two Business Days prior to
the Payment Date immediately following such Accounting Period.
Section 8.3. Initial Settlement. At the Effective Time:
-------------------
(i) Anchor will settle its obligation to pay ANLIC (Hawaii) the Initial
Consideration.
(ii) ANLIC (Hawaii) will settle its obligation to pay Anchor: (x) the
Initial Reserve Adjustment, and (y) the Ceding Commission.
(iii) A settlement as provided in Section 8.4 will be computed for the
Initial Accounting Period for each calendar month thereof.
Section 8.4. Monthly Settlements. (a) On or prior to each Payment Date
--------------------
immediately following each monthly Accounting Period, Anchor will settle its
obligation to pay ANLIC (Hawaii) for such Accounting Period the sum of:
(i) the Modco Reinsurance Premiums, determined in accordance with Section
3.2(a); plus
----
(ii) any Net Separate Account Transfer CARVM Reserve Adjustment, determined
in accordance with Section 3.4; plus
----
(iii) any Modified Coinsurance Reserve Adjustment payable to ANLIC
(Hawaii), determined in accordance with Section 6.2; plus
----
(iv) the Anchor Payment Amounts.
20
<PAGE>
(b) Simultaneously with the payments in Section 8.4(a), ANLIC (Hawaii) will
settle its obligation to pay Anchor the sum of:
(i) the amount of Benefit Payments, as described in Article V; plus
----
(ii) the Allowance for Commissions, determined in accordance with Section
4.3; plus
----
(iii) the Allowance for Expense, determined in accordance with Section 4.4;
plus
- ----
(iv) the Anchor YRT Reinsurance Premium Refund, if any, determined in
accordance with Section 4.6; plus
----
(v) any Net Fixed Account Transfer CARVM Reserve Adjustment, determined in
accordance with Section 4.7; plus
----
(vi) any amount determined in accordance with Section 4.8; plus
----
(vii) any Modified Coinsurance Reserve Adjustment payable to Anchor,
determined in accordance with Section 6.2; plus
----
(viii) any Anchor YRT Expense Recovery.
Section 8.5. Amounts Due. Except as provided in Section 8.9 and as
------------
otherwise specifically provided in this Agreement, all amounts due to be paid to
either Anchor or ANLIC (Hawaii) under this Agreement will be determined on a net
basis as of the last day of each monthly Accounting Period and will be due as of
such date and payable on or prior to the Payment Date immediately following such
Accounting Period.
Section 8.6. Annual Accounting Reports. Anchor will provide ANLIC
---------------------------
(Hawaii) with annual accounting reports within 30 days after the end of the
calendar year for which such reports are prepared. These reports will contain
sufficient information about the portion of all Annuities reinsured hereunder to
enable ANLIC (Hawaii) to prepare its annual financial reports and to verify the
information reported in Anchor annual financial reports relating to the portion
of all Annuities reinsured hereunder.
Section 8.7. Estimations. If the amounts under Section 8.4 cannot be
-----------
precisely determined by the date described in Section 8.5, such payments will be
paid in accordance with a formula mutually agreed upon by the Parties in writing
which will approximate the actual payments. Adjustments will then be made to
reflect actual amounts promptly after they become available.
Section 8.8. Delayed Payments. Interest shall accrue on the amounts
-----------------
payable under Sections 8.4, 9.4 and 14.1 at the Alternate Base Rate, payable on
demand, provided that (i) interest shall not accrue on the amounts payable by
--------
ANLIC (Hawaii) to Anchor relating to reinsurance of the Fixed Account of all
Annuities under this Agreement for any Accounting Period until ANLIC (Hawaii)
receives a Reinsurance Servicer Report for the settlement of amounts relating to
reinsurance of the Fixed Account of all Annuities under this Agreement for such
Accounting Period, and (ii) interest
21
<PAGE>
shall accrue on the amounts payable by Anchor to ANLIC (Hawaii) relating to
reinsurance of the Fixed Account of all Annuities under this Agreement beginning
August 1, 1999 unless ANLIC (Hawaii) receives the Reinsurance Servicer Reports
for the settlement of amounts relating to reinsurance of the Fixed Account of
all Annuities under this Agreement for all Accounting Periods from the Effective
Time to the end of the Accounting Period ending November 30, 1999 within two
Business Days prior to the Payment Date immediately following the Accounting
Period ending November 30, 1999.
Section 8.9. Form of Payment; Offset. Each Party hereto shall have, and
------------------------
may exercise at any time and from time to time, the right to offset any balance
or balances due from such Party to the other Party under this Agreement. The
Party asserting the right of offset shall have and may exercise such right
whether the balance or balances due or to become due to such Party from the
other Party are on account of indemnity payments, reinsurance premiums,
allowances, commissions or otherwise and regardless of the capacity, whether as
assuming reinsurer or as ceding company, in which each Party acted under the
agreement or, if more than one, the different agreements involved. The
application of this Section 8.9 shall not be deemed to constitute diminution in
the event of insolvency.
ARTICLE IX
Duration and Recapture
----------------------
Section 9.1. ANLIC (Hawaii)'s Liability. The liability of ANLIC (Hawaii)
--------------------------
with respect to any Annuity will begin simultaneously with that of Anchor or as
of 12:01 a.m., Los Angeles, California local time, August 1, 1999, whichever
occurs later. ANLIC (Hawaii)'s liability with respect to each Annuity will
terminate on the earliest of (i) the date such Annuity is recaptured in full in
accordance with Section 9.3, (ii) the date Anchor's liability on such Annuity is
terminated, (iii) the date this Agreement is terminated in accordance with
Section 9.2, or (iv) the date such Annuity is recaptured in full under Section
14.1. Termination of ANLIC (Hawaii)'s liability under clause (i) or (iii) of
the preceding sentence is subject to payments in respect of such liability in
accordance with the provisions of Article X.
Section 9.2. Termination. (a) If an Event of Recapture exists, ANLIC
-----------
(Hawaii) may terminate this Agreement on no less than 5 day's prior written
notice to Anchor.
(b) This Agreement shall terminate automatically on the earlier of (i) the
close of business on September 30, 1999 if the Effective Time has not yet
occurred, and (ii) the date that ANLIC (Hawaii)'s liability terminates with
respect to all Annuities.
(c) Anchor may terminate this Agreement on prior written notice to ANLIC
(Hawaii) on or after the date the Unearned Ceding Commission Amount is reduced
to zero.
(d) Prior to the date the Unearned Ceding Commission Amount is reduced to
zero, this Agreement may be terminated by the mutual written agreement of Anchor
and ANLIC (Hawaii).
22
<PAGE>
(e) The obligation of Anchor to pay the Anchor Payment Amounts to ANLIC
(Hawaii) in accordance with this Agreement shall survive the termination of this
Agreement pursuant to Section 9.2(a) until all obligations of Anchor under this
Agreement, including the obligation to pay Recapture Payments pursuant to
Section 9.4, have been satisfied.
Section 9.3. Recapture. (a) Anchor may at any time recapture all or any
---------
percentage (the "Recapture Percentage") of the risks reinsured under the
---------------------
Annuities upon not less than 10 days' prior written notice to ANLIC (Hawaii).
(b) Any notice given pursuant to Section 9.3(a) shall specify the Recapture
Percentage.
(c) In the event that ANLIC (Hawaii) does not pay the entire amount due
under the ANLIC (Hawaii) Note by September 15, 1999, then Anchor may recapture a
Reinsurance Percentage of 100% of the risks reinsured under the Annuities as of
August 1, 1999 upon delivery of the ANLIC (Hawaii) Note to ANLIC (Hawaii),
without any additional payment by Anchor.
Section 9.4. Recapture Payment. If this Agreement is terminated by ANLIC
-----------------
(Hawaii) pursuant to Section 9.2(a) or if any portion of the Annuities are
recaptured pursuant to Section 9.3(a), Anchor shall, on the effective date of
such termination or recapture, remit by wire transfer to ANLIC (Hawaii) an
amount (the "Recapture Payment") equal to the sum of a notional amount
------------------
determined by multiplying the Recapture Percentage by the Unearned Ceding
Commission Amount on the effective date of termination or recapture (in the
event of a termination, the Recapture Percentage shall be 100%).
Section 9.5. Reduction of Reinsurance Percentage. Upon the effective date
-----------------------------------
of any recapture in which the Recapture Percentage is less than 100%, the
Reinsurance Percentage shall be reduced to that percentage equal to the product
of (i) 100% less the Recapture Percentage, and (ii) the Reinsurance Percentage
----
in effect immediately before such recapture.
Section 9.6. No Deemed Recapture. No transaction pursuant to Section 5.4
-------------------
shall be deemed to be a recapture pursuant to this Article IX.
ARTICLE X
Terminal Accounting and Settlement
----------------------------------
Section 10.1. Terminal Accounting. In the event that this Agreement is
--------------------
terminated in accordance with Section 9.2, all reinsurance under this Agreement
is recaptured in accordance with Section 9.3, or the Parties mutually agree to
terminate this Agreement, a final accounting and settlement (the "Terminal
--------
Accounting and Settlement") will take place in accordance with the provisions of
--------------------
this Article X. Article X of this Agreement will remain in effect following
termination until all obligations under Article X are satisfied in full.
Section 10.2. Date. The terminal accounting date will be the earliest of:
----
(i) the effective date of recapture pursuant to any notice of 100% recapture
given under this Agreement, (ii) the effective date of
23
<PAGE>
termination pursuant to any notice of termination given under this Agreement, or
(iii) or any other date mutually agreed to by the Parties in writing (the
"Terminal Accounting Date").
---------------------
Section 10.3. Settlement. The Terminal Accounting and Settlement will
----------
consist of:
(i) the monthly settlement as provided in Section 8.4, computed as of the
Terminal Accounting Date as if this Agreement were still in effect;
(ii) payment by Anchor to ANLIC (Hawaii) of a terminal reserve equal to the
Modified Coinsurance Reserve as of the Terminal Accounting Date; and
(iii) payment by ANLIC (Hawaii) to Anchor of a terminal reserve adjustment
equal to the Modified Coinsurance Reserve as of the Terminal Accounting Date.
If the calculation of the Terminal Accounting and Settlement produces an amount
owing to Anchor, such amount will be paid by ANLIC (Hawaii) to Anchor. If the
calculation of the Terminal Accounting and Settlement produces an amount owing
to ANLIC (Hawaii), such amount will be paid by Anchor to ANLIC (Hawaii).
Section 10.4. Supplementary Accounting and Settlement. In the event that,
---------------------------------------
subsequent to the Terminal Accounting and Settlement as provided above, a change
is made with respect to any amounts due, a supplementary accounting will be made
by Anchor in the form of an accounting of the items specified in Section 10.3.
Any amount owed to Anchor or to ANLIC (Hawaii) by reason of such supplementary
accounting will be paid promptly upon the completion thereof.
ARTICLE XI
Insolvency
----------
Section 11.1. In General. In the event of Anchor's insolvency, any
-----------
payments due Anchor from ANLIC (Hawaii) pursuant to the terms of this Agreement
will be made directly to Anchor or its liquidator, receiver or statutory
successor. The reinsurance will be payable by ANLIC (Hawaii) on the basis of
the liability of Anchor under the Annuities reinsured without diminution because
of the insolvency of Anchor. The liquidator, receiver or statutory successor of
Anchor will give ANLIC (Hawaii) written notice of the pendency of a claim
against Anchor on any Annuity reinsured within a reasonable time after such
claim is filed in the insolvency proceeding. During the pendency of any such
claim, ANLIC (Hawaii) may investigate such claim and interpose in Anchor's name
(or in the name of Anchor's liquidator, receiver or statutory successor), in the
proceeding where such claim is to be adjudicated, any defense or defenses which
ANLIC (Hawaii) may deem available to Anchor or its liquidator, receiver or
statutory successor. The expense thus incurred by ANLIC (Hawaii) will be
chargeable, subject to court approval, against Anchor as a part of the expense
of liquidation to the extent of a proportionate share of the benefit which may
accrue to Anchor solely as a result of the defense undertaken by ANLIC
(Hawaii).
24
<PAGE>
ARTICLE XII
Conditions to Effective Time
----------------------------
Section 12.1. Effective Time. The obligation of ANLIC (Hawaii) to
---------------
reinsure the Annuities and to perform its obligations hereunder relating thereto
shall take effect as of August 1, 1999 at the time, which must occur prior to
the close of business on September 30, 1999, at which all of the conditions set
forth in Sections 12.2 and 12.3 have been satisfied or, in the discretion of
ANLIC (Hawaii), waived (the "Effective Time").
---------------
Section 12.2. Condition Precedent to Reinsurance. (a) ANLIC (Hawaii)
-------------------------------------
shall have received on or before the Effective Time the following, each (unless
otherwise indicated) dated such date, in form and substance satisfactory to
ANLIC (Hawaii):
(i) Certified copies of the resolutions or rules adopted by the Board of
Directors or an authorized committee thereof of Anchor granting the appropriate
officers the authority to approve, execute and deliver this Agreement on behalf
of Anchor.
(ii) A certificate of the secretary or assistant secretary of Anchor
certifying the names and true signatures of the officers of Anchor authorized to
sign this Agreement and the other documents to be delivered by it hereunder.
(iii) A certificate of an authorized officer of Anchor certifying as to
satisfaction of the conditions set forth in Section 12.3.
(iv) Favorable opinions of Barger & Wolen, Low & Childers, Char Hamilton
Campbell & Thom, each counsel for Anchor, and Susan Harris, general counsel of
SunAmerica, each substantially in the form attached hereto as Schedule 12.2, as
to such matters as ANLIC (Hawaii) may reasonably request.
(v) Evidence that authorization or approval or other action by, and notice
to or filing with, the following Governmental Authorities shall have been
obtained or made to the extent required for the due execution, delivery and
performance by Anchor of this Agreement, or for the exercise by ANLIC (Hawaii)
of its rights and remedies under this Agreement: the Department.
(vi) Evidence that all conditions precedent to the obligations of all
parties under the AIC Retrocession Agreement, the ANLIC (Hawaii) YRT
Retrocession Agreement, the CG YRT Retrocession Agreement and the Servicing
Agreement have been satisfied.
(b) Anchor shall have received on or before the Effective Time the
following, each (unless otherwise indicated) dated such date, in form and
substance satisfactory to Anchor:
(i) Evidence that authorization or approval or other action by, and notice
to or filing with, the following Governmental Authorities shall have been
obtained or made to the extent required for the due execution,
25
<PAGE>
delivery and performance by ANLIC (Hawaii) of this Agreement: the Hawaii
Insurance Commissioner.
(ii) Evidence that all conditions precedent to the obligations of all
parties under the AIC Retrocession Agreement, the ANLIC (Hawaii) YRT
Retrocession Agreement, the CG YRT Retrocession Agreement and the Servicing
Agreement have been satisfied and all covenants required to have been performed
have been performed.
Section 12.3. Additional Conditions Precedent to Effective Time. The
-----------------------------------------------------
Effective Time shall be subject to the further conditions precedent that at the
Effective Time the following statements shall be true (and the acceptance by
Anchor of the Ceding Commission shall constitute a representation and warranty
by Anchor that at the Effective Time such statements are true):
(i) the representations and warranties contained in Section 13.1 are
correct at, as of and immediately after the Effective Time, as though made on
and as of the Effective Time; and
(ii) no event has occurred and is continuing, or would result from the
reinsurance hereunder or from the application of the proceeds therefrom, that
constitutes an Event of Recapture or would constitute an Event of Recapture but
for the requirement that notice be given or time elapse or both;
and ANLIC (Hawaii) shall have received such other approvals, opinions or
documents as ANLIC (Hawaii) may reasonably request.
ARTICLE XIII
Representations and Warranties
------------------------------
Section 13.1. Representations and Warranties of Anchor. Anchor represents
----------------------------------------
and warrants as of the date hereof as follows:
(a) Anchor is a stock life insurance company duly incorporated, validly
existing and in good standing under the laws of Arizona and is duly qualified
and licensed in the District of Columbia and all states of the United States of
America except for the State of New York and in good standing as a foreign
insurer in each jurisdiction where the failure to be so qualified would have a
material adverse effect on the interests of ANLIC (Hawaii) hereunder or the
ability of ANLIC (Hawaii) to enforce its rights hereunder or the ability of
Anchor to perform its obligations under the Annuities and this Agreement.
(b) The execution, delivery and performance by Anchor of this Agreement and
Anchor's use of the proceeds of the Ceding Commission, are within Anchor's
corporate powers, have been duly authorized by all necessary corporate action,
do not contravene (i) Anchor's articles of incorporation or by-laws or (ii) law
or any regulation or contractual restriction binding on or affecting Anchor, and
do not result in or require the creation of any Adverse Claim (other than
pursuant hereto) upon or with respect to the Separate Accounts or Annuities or
any of its
26
<PAGE>
properties; and no transaction contemplated hereby requires compliance with any
bulk sales act or similar law (other than California Civil Code 3440.1, which
has been duly complied with).
(c) No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority is required for the due execution,
delivery and performance by Anchor of this Agreement, or for the exercise by
ANLIC (Hawaii) of its rights and remedies under this Agreement, except for (i)
those set forth in Section 12.2(a)(v), and (ii) such filings with and approvals
of such Governmental Authorities as will have been duly made and obtained prior
to the Effective Time.
(d) This Agreement is the legal, valid and binding obligation of Anchor
enforceable against Anchor in accordance with its terms. This Agreement has
been duly executed and delivered by Anchor.
(e)(i) The annual Convention Statement of Anchor, including the provisions
made therein for investments and the valuation thereof, reserves, policy and
contract claims and statutory liabilities, as filed with the Department and
delivered to ANLIC (Hawaii) prior to the execution and delivery of this
Agreement, as of and for the years ended December 31, 1996, 1997 and 1998
(collectively, the "Anchor Statutory Financial Statements"), have been prepared
-------------------------------------
in accordance with SAP applicable thereto applied on a consistent basis (except
as noted therein). Each such Anchor Statutory Financial Statement was in
compliance with applicable law when filed. According to the best of Anchor's
information, knowledge and belief, the Anchor Statutory Financial Statements are
a full and true statement of all the assets and liabilities and of the condition
and affairs of Anchor as of the respective dates thereof and of its income and
deductions therefrom for the respective years ended on such dates and have been
completed in accordance with the NAIC annual statement instructions and
accounting practices and procedures manuals except to the extent that state law
may differ or that state rules or regulations require differences in reporting
not related to accounting practices and procedures.
(ii) Anchor has delivered to ANLIC (Hawaii) complete and correct copies of
the annual reports for the fiscal years ended September 30, 1997 and 1998 on
Form 10-K (collectively, the "Anchor Annual Reports") and all quarterly reports
---------------------
on Form 10-Q of Anchor for periods ending after September 30, 1998, in each case
as filed with the Securities and Exchange Commission (collectively, the "Anchor
------
Quarterly Reports"). The Anchor Annual Reports and the Anchor Quarterly Reports
- -----------------
correctly describe, as of their respective dates, the business then conducted
and proposed to be conducted by Anchor. There are included in the Anchor
Quarterly Reports and the Anchor Annual Reports consolidated financial
statements at and for the periods specified therein. Anchor has also delivered
to ANLIC (Hawaii) complete and correct copies of all current reports on Form
8-K, proxy statements, registration statements and prospectuses, if any, filed
by Anchor with the Securities and Exchange Commission since September 30, 1998.
All financial statements delivered to ANLIC (Hawaii) in the foregoing materials
(except as otherwise specified therein) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods specified with respect
to each
27
<PAGE>
consolidated entity, and present fairly the financial position of the
corporation or corporations to which they relate as of the respective dates
specified and the results of its or their operations and changes in financial
position for the respective periods specified.
(f)(i) The value of the assets of Anchor calculated in accordance with SAP
is greater than the total amount of its liabilities, including contingent
liabilities, (ii) the present fair salable value of the assets of Anchor
calculated in accordance with SAP is not less than the amount that will be
required to pay all probable liabilities of Anchor on its debts as they become
absolute and matured, (iii) Anchor does not intend to, and does not believe that
it will incur debts or liabilities beyond Anchor's ability to pay such debts and
liabilities as they mature, (iv) Anchor is not engaged in a business or a
transaction, and is not about to engage in a business or a transaction, for
which Anchor's property would constitute unreasonably small statutory surplus;
and (v) Anchor's Total Adjusted Capital is greater than the product of 2.5 times
Anchor's Authorized Control Level Risk-Based Capital (where "Total Adjusted
Capital" and "Authorized Control Level Risk-Based Capital" have the meanings
given those terms in the Risk-Based Capital (RBC) for Insurer Model Act adopted
by the National Association of Insurance Commissioners).
(g) There is no pending or, to the knowledge of Anchor, threatened action
or proceeding against or involving Anchor before any court, Governmental
Authority or arbitrator that may materially adversely affect (i) the financial
condition or operations of Anchor or (ii) the ability of Anchor to perform its
obligations under this Agreement, or that purports to affect the legality,
validity or enforceability of this Agreement.
(h) Anchor is the legal and beneficial owner of the right to receive
payment of the Charges free and clear of any Adverse Claim. No effective
financing statement or other instrument similar in effect covering any rights of
Anchor in any Separate Account or Annuity or any Charges or the Collections with
respect thereto or any proceeds thereof is on file in any recording office.
(i) Each Prospectus, information, exhibit, financial statement, document,
book, record or report (but in each case excluding any projections or forecasts
contained therein) furnished or to be furnished at any time by Anchor to ANLIC
(Hawaii) in connection with this Agreement is or will be accurate in all
material respects as of its date, and (except as otherwise disclosed to ANLIC
(Hawaii) at such time) as of the date so furnished, Anchor will have no
knowledge of a material inaccuracy as of the date thereof contained therein, and
no such document contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements contained therein, in the light of the circumstances under which
they were made, not misleading.
(j) The chief place of business and chief executive office of Anchor and
the office where Anchor keeps its records concerning the Annuities and Gross
Amounts Payable, including the original copies of each of the
28
<PAGE>
Annuities and the Charges are located at the address specified in Section 17.4
(or, solely with respect to where Anchor keeps such records, Storeretrieve, Inc,
1150 South Taylor Avenue, Montebello, California) or in each case at such other
locations, notified to ANLIC (Hawaii) in accordance with Section 17.4. The
Obligors are the Separate Account and the Funds.
(k) All the Charges are Eligible Charges.
(l) The Charges are legal, valid and binding as to the Obligors and the
Contractholders and are enforceable in accordance with their terms against the
Obligors and no payment of any charge is past due.
(m) Schedule 13.1-1 contains true, correct and complete copies of each of
the forms of Annuity agreements (including the form of each endorsement included
in any Annuity) and such forms of Annuity contracts have been furnished to
Connecticut General Life Insurance Company in connection with the CG YRT
Retrocession Agreement.
(n) Anchor, each Fund and the Separate Account have irrevocably instructed
the Custodian to make all payments on account of Charges directly to ANLIC
(Hawaii) as and when required in the Standing Instructions.
(o) Schedule 13.1-3 sets forth the CARVM reserve methodology in use by
Anchor, as approved by the Department and in use in other applicable
jurisdictions.
(p) All of the Annuities reinsured under this Agreement are
non-participating.
(q) None of the Annuities reinsured under this Agreement provide for policy
loans.
Section 13.2. Representations and Warranties of ANLIC (Hawaii). ANLIC
----------------------------------------------------
(Hawaii) represents and warrants as of the date hereof as follows:
(a) ANLIC (Hawaii) is a stock captive insurance company duly incorporated,
validly existing and in good standing under the corporate laws of Hawaii.
(b) The execution, delivery and performance by ANLIC (Hawaii) of this
Agreement are within ANLIC (Hawaii)'s corporate powers, have been duly
authorized by all necessary corporate action, do not contravene (i) ANLIC
(Hawaii)'s articles of incorporation or by-laws or (ii) law or any regulation or
contractual restriction binding on or affecting ANLIC (Hawaii).
(c) No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority is required for the due execution,
delivery and performance by ANLIC (Hawaii) of this Agreement except for (i)
those set forth in Section 12.2(b)(i), and (ii) such filings with, and approvals
of such Governmental Authorities as will have been made and obtained prior to
the Effective Time.
29
<PAGE>
(d) This Agreement is the legal, valid and binding obligation of ANLIC
(Hawaii) enforceable against ANLIC (Hawaii) in accordance with its terms.
(e) ANLIC (Hawaii) has provided to Anchor a true and correct copy of the CG
YRT Retrocession Agreement as the same will be in effect at the time provided in
the recitals to this Agreement.
ARTICLE XIV
Covenants
---------
Section 14.1. Anchor Internal Replacements. (a) Anchor will not permit an
----------------------------
Internal Replacement to occur except (i) an Internal Replacement made in the
ordinary course of business that is not described in subparagraph (i) or (ii) of
paragraph (b) of this Section 14.1, (ii) pursuant to paragraph (b) of this
Section 14.1, and (iii) an Internal Replacement as to which Anchor has obtained
the prior written consent of ANLIC (Hawaii). Anchor shall report all Internal
Replacements in the Reinsurance Servicer Report.
(b) If an Internal Replacement
(i) results from a program of Internal Replacement initiated or promoted by
(x) Anchor, its Affiliates, successors or assigns, or (y) an insurance agency,
an insurance or securities broker, or a bank or other organization authorized by
Anchor, its Affiliates, successors or assigns to sell fixed or variable life
insurance policies or annuity contracts, or
(ii) involves the issue, in substitution for or replacement of an Annuity,
of a fixed or variable life insurance policy or annuity contract by Anchor or
its Affiliates, successors or assigns that is not on a fixed or variable life
insurance policy or annuity contract form available for sale in substantially
all states in which Anchor is licensed to do an insurance business at the
Effective Time, and if such new form contains significant features that are not
features of the Annuity being replaced,
then Anchor must elect one of the following options with respect to such
Internal Replacement:
Replacement Option A - Anchor reinsures the replacement policy or contract
issued by Anchor with ANLIC (Hawaii) under this Agreement on terms and
conditions specified and agreed to by ANLIC (Hawaii).
Replacement Option B - (i) Anchor recaptures the Annuity subject to such an
Internal Replacement prior to its surrender, (ii) Anchor remits to ANLIC
(Hawaii) an amount (the "Replacement Fee") equal to the product of (x) an amount
---------------
equal the Unearned Ceding Commission Amount as of the beginning of the current
monthly Accounting Period, and (y) a fraction (A) the numerator of which is the
sum of (xx) the aggregate Separate Account Values, and (yy) the aggregate
Transferred Fixed Account Values for all Annuities so replaced during the period
from the end of the last monthly Accounting Period when a Replacement Fee was
last payable to the end of the current monthly Accounting Period (the
"Replacement Period"),
-----------
30
<PAGE>
and (B) the denominator of which is the sum of (xx) the Separate Account Values,
and (yy) the Transferred Fixed Account Values of all Annuities at the end of the
current monthly Accounting Period without deduction for the aggregate Separate
Account Values and aggregate Transferred Fixed Account Values for all Annuities
so replaced during the Replacement Period, provided that the fraction in Item
--------
(ii)(y) is equal to or greater than 0.01 (one-one-hundredth), and provided
--------
further that any Replacement Fee due on August 1, 2019 shall be remitted
immediately notwithstanding the immediately preceding proviso, and (iii) the
payment to be made by ANLIC (Hawaii) under Section 5.2 for an Annuity subject to
such an Internal Replacement is reduced by the amount of any contingent deferred
sales charge waived by Anchor.
Section 14.2. Anchor Current Practices. While this Agreement is in
--------------------------
effect, Anchor will not, without the prior written consent of ANLIC (Hawaii),
(i) materially change or alter (x) its claims paying or administrative practices
with respect to the Annuities, or (y) its reserving practices with respect to
the Fixed Accounts or the Separate Accounts (including the methodology for
calculating the CARVM Reserve as set forth on Schedule 13.1-3), other than as
specifically required to satisfy the law or regulations of its state of domicile
or the directive of the director, commissioner of equivalent official thereof,
or with respect to any required filing in a non-domiciliary state, pursuant to
the laws, regulations or directives thereof, and then only if it gives prior
written notice to ANLIC (Hawaii), provided that such prior notice requirement
--------
will not apply if inconsistent with compliance with such law, regulation or
directive, or (ii) agree to adjust, settle, waive, compromise or make any change
in the terms or conditions of any Annuity, allow a credit or discount thereon,
or release wholly or partially the Custodian or any Obligor thereunder, provided
--------
that Anchor may, in the ordinary course of business consistent with its
administrative practices in effect at the Effective Time, adjust, settle, waive
or compromise the amount or payment of any Charges, allow a credit or discount
thereon, or release wholly or partially the Custodian or any Obligor thereunder
in an aggregate amount not to exceed (x) $100,000 in any monthly Accounting
Period, or (y) $500,000 in any calendar year, to be pro-rated for any portion of
a calendar year this Agreement is in effect (the "Waiver Allowance").
-----------------
Section 14.3. Anchor Other Reinsurance. While this Agreement is in
--------------------------
effect, Anchor will not reinsure any risks under the Annuities reinsured
hereunder other than pursuant to the reinsurance provided under this Agreement.
Section 14.4. Affirmative General Covenants of Anchor. Until the Terminal
---------------------------------------
Accounting and Settlement, Anchor will, unless ANLIC (Hawaii) shall otherwise
consent in writing:
(a) Performance. Duly and punctually observe and perform each and every
-----------
obligation on its part to be observed or performed under this Agreement, as
modified or amended from time to time as permitted herein.
(b) Compliance with Laws, Etc. Comply in all material respects with all
---------------------------
applicable laws, rules. regulations and orders with respect to (i) it and its
business and properties, except to the extent noncompliance would
31
<PAGE>
not, individually or in the aggregate, have a material adverse effect on the
interest of ANLIC (Hawaii) hereunder or in the Gross Amounts Payable, or the
ability of Anchor to perform its obligations hereunder or under the Annuities
and (ii) all Charges and related Annuities and Collections with respect thereto.
(c) Preservation of Corporate Existence. Preserve and maintain its
--------------------------------------
corporate existence, rights, franchises and privileges in the jurisdiction of
its incorporation, and qualify and remain qualified in good standing as a
foreign corporation in each other jurisdiction, where the failure to preserve
and maintain such existence, rights, franchises, privileges and qualifications
would materially adversely affect the interest of ANLIC (Hawaii) hereunder or in
the Gross Amounts Payable, or the ability of Anchor to perform its obligations
hereunder or under the Annuities.
(d) Audits. At any time and from time to time during regular business
------
hours, permit ANLIC (Hawaii) or its agents or representatives (including any
Successor Servicer), upon reasonable advance notice (i) to examine and make
copies of and abstracts from all books, records and documents (including
computer tapes and disks) in the possession or under control of Anchor relating
to the Annuities and the Gross Amounts Payable, and (ii) to visit the offices
and properties of Anchor for the purpose of examining such materials described
in clause (i) above, and to discuss matters relating to the Annuities and the
Gross Amounts Payable or Anchor's performance hereunder or under the Annuities
with any of the officers or employees of Anchor having knowledge of such
matters, provided that by exercising any such rights ANLIC (Hawaii) agree that
--------
they will hold in confidence all information so obtained and will use the same
only for the purposes contemplated by this Agreement.
(e) Maintenance of Separate Existence. Do all things reasonably necessary
---------------------------------
to maintain its corporate existence separate and apart from SunAmerica and other
Affiliates of Anchor, including (i) maintaining corporate records and books of
account separate from those of its Affiliates; (ii) except as otherwise provided
in this Agreement, not commingling its assets and funds with those of its
Affiliates; (iii) holding such appropriate meetings or obtaining such
appropriate consents of its board of directors as are necessary to authorize all
Anchor's corporate actions required by law to be authorized by the board of
directors, keeping minutes of such meetings and of meetings of its
stockholder(s) and observing all other customary corporate formalities; and (iv)
at all times holding itself out to the public under Anchor's own name as a legal
entity separate and distinct from its Affiliates.
(f) Keeping of Records and Books of Account. (i) Keep, or cause to be
-------------------------------------------
kept, proper books of record and account, which shall be maintained or caused to
be maintained by Anchor and shall be separate and apart from those of any
Affiliate of Anchor, in which (x) full and correct entries shall be made of all
financial transactions and the assets and business of Anchor in accordance with
SAP, and (y) it is clearly shown that the Annuities have been reinsured under
this Agreement, and (ii) maintain and implement administrative and operating
procedures (including an ability to recreate records evidencing the
Annuities and the Gross Amounts
32
<PAGE>
Payable in the event of the destruction of the originals thereof), and keep and
maintain all documents, books, records and other information reasonably
necessary or advisable for the collection of all Gross Amounts Payable
(including records adequate to permit the daily identification of each new
Charge and all Collections of and adjustments to each existing Charge and all
Gross Amounts Payable), and (iii) mark its master data processing records
evidencing such the Annuities and the Gross Amounts Payable with a legend,
acceptable to ANLIC (Hawaii), evidencing that such Gross Amounts Payable is
subject to this Agreement.
(g) Performance and Compliance. At its expense timely and fully perform
----------------------------
and comply with all material provisions, covenants and other promises required
to be observed by it under the Annuities and the Gross Amounts Payable.
(h) Location of Records. Keep its chief place of business and chief
---------------------
executive office and the office where it keeps the originals of its records
concerning the Annuities and the Gross Amounts Payable at the address of Anchor
referred to in Section 13.1(j) or, upon 30 days' prior written notice to ANLIC
(Hawaii), at any other locations in a jurisdiction where all action required by
Section 17.5 shall have been taken.
(i) Collection Procedures, Allocation Procedures and Standing Instructions.
----------------------------------------------------------------------
Implement and comply at all times with the Collection Procedures, the Allocation
Procedures and the Standing Instructions.
(j) Payment of Taxes, Etc. Pay promptly when due all taxes, assessments
-----------------------
and governmental charges or levies imposed upon it or any Annuity or the Gross
Amounts Payable (including any intangibles, property or similar tax), or in
respect of its income or profits therefrom, any and all claims of any kind
(including claims for labor, materials and supplies), except for such taxes,
assessments, governmental charges or levies and claims as are being contested in
good faith by proper proceedings and against which adequate reserves shall have
been established, unless and until any Adverse Claim resulting from the failure
to pay such taxes, assessments, governmental charges or levies and claims shall
have attached and become enforceable against its other creditors.
(k) Fixed Account Segregated Assets. Establish and maintain the Fixed
----------------------------------
Account Segregated Assets in accordance with the requirements and procedures set
forth in Schedule 14.4.
Section 14.5. Reporting Requirements of Anchor. Until the Terminal
-----------------------------------
Accounting and Settlement, Anchor will, unless ANLIC (Hawaii) shall otherwise
consent in writing, furnish to ANLIC (Hawaii):
(a)(i)(x) promptly upon becoming available, but in any event within 75 days
after the end of each calendar year, a copy of the annual Convention Statements
of Anchor for such calendar year, and (y) promptly upon becoming available, but
in any event within 60 days after the end of each of the first three calendar
quarters, a copy of the quarterly Convention Statements of Anchor for such
quarter, in each case as filed by Anchor
33
<PAGE>
with the Department and executed by the appropriate officer under the laws of
the state of domicile of Anchor, prepared in accordance with SAP and accompanied
by the certification of the chief financial officer or chief executive officer
or controller or treasurer of Anchor that such annual or quarterly Convention
Statement presents, to the best of his or her information, knowledge and belief,
a full and true statement of all the assets and liabilities and of the condition
and affairs of Anchor as of the date thereof and of its income and deductions
therefrom for the period ended on such date and have been completed in
accordance with the NAIC statement instructions and accounting practices and
procedures manuals except to the extent that state law may differ or that state
rules or regulations require differences in reporting not related to accounting
practices and procedures;
(ii)(x) promptly upon becoming available, but in any event within 75 days
after the end of each calendar year, a copy of the annual report on Form 10-K of
Anchor for such calendar year, and (y) promptly upon becoming available, but in
any event within 60 days after the end of each of the first three calendar
quarters, a copy of the quarterly report on Form 10-Q of Anchor for such
quarter, in each case prepared in accordance with GAAP and accompanied by the
certification of the chief financial officer or chief executive officer or
controller or treasurer of Anchor that such annual or quarterly financial
statement presents fairly, in accordance with GAAP, the financial position and
results of operations of Anchor as at and for the period ending on the date of
such financial statement;
(b) Within 90 days after the end of each calendar year, a copy of each
"Statement of Actuarial Opinion" that is provided to the Department (or
equivalent information should the Department no longer require such a statement)
as to the adequacy of aggregate reserves for life policies and contracts of
Anchor;
(c) as soon as possible and in any event within 5 Business Days after
Anchor's Knowledge of the occurrence of each Event of Recapture or each event
that, with the giving of notice or lapse of time or both, would constitute an
Event of Recapture, the statement of an authorized officer of Anchor setting
forth details of such Event of Recapture and the action that Anchor proposes to
take with respect thereto;
(d) as soon as possible and in any event within 5 Business Days after the
occurrence of any adjustment, settlement, waiver, compromise or change in the
terms or conditions of any Annuity or any credit, discount or release in respect
thereof, other than (i) that which is permitted by the Waiver Allowance, and
(ii) any adjustments, settlements, waivers, compromises or changes in the terms
or conditions of any Charges or any credits, discounts or releases in respect
thereof which, in the aggregate, exceeds $500,000 in excess of the Waiver
Allowance in any calendar year (such amount to be pro-rated for any portion of a
calendar year this Agreement is in effect), the statement of the general counsel
or chief financial officer of Anchor setting forth details thereof;
(e) promptly after the receipt thereof and in any event within 5 Business
Days, copies of each communication received by Anchor from the
34
<PAGE>
Securities and Exchange Commission or the National Association of Securities
Dealers reporting the final results of, any audit or other investigation related
to the Annuities or any aspect of the sale, maintenance, investment or
administration thereof; and
(f) promptly, from time to time, such other information, documents, records
or reports respecting the Annuities the Gross Amounts Payable or the conditions
or operations, financial or otherwise, of Anchor, as ANLIC (Hawaii) may from
time to time reasonably request in writing in order to protect ANLIC (Hawaii)'s
interests under or contemplated by this Agreement.
Section 14.6. Negative Covenants of Anchor. Until the Terminal Accounting
----------------------------
and Settlement, Anchor will not, without the written consent of ANLIC (Hawaii):
(a) Sales, Liens, Etc. Except as otherwise provided herein, (i) sell,
-------------------
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to, or create or suffer to exist any Adverse Claim upon or
with respect to, any interest in any Annuity or the Gross Amounts Payable, other
than, in the case of a Contractholder's interest in an Annuity, a lien,
encumbrance or assignment made or suffered by a Contractholder on such interest,
or (ii) assign any right of Anchor to receive income in respect of any thereof.
(b) Extension or Amendment of Annuities. Cancel or terminate any Annuity
------------------------------------
except pursuant to the request of a Contractholder (other than in connection
with an Internal Replacement), or amend or otherwise modify or waive the terms
of any Annuity, including any Charge, except as permitted by the Waiver
Allowance.
(c) Change in Collection Procedures. Make or consent to any change in the
-------------------------------
Collection Procedures, which change would be reasonably likely to impair the
collectibility of any Gross Amounts Payable, except as permitted by the Waiver
Allowance.
(d) Change in Allocation Procedures. Make or consent to any change in the
-------------------------------
Allocation Procedures, except with the prior written consent of ANLIC (Hawaii).
(e) Grant a Security Interest in the Gross Amounts Payable. Grant a
------------------------------------------------------------
security interest in the Annuities or the Gross Amounts Payable to any Person.
Section 14.7. Anchor Changes in Investment Funds, etc. (a) Except as
permitted by this Section 14.7, Anchor shall not agree to or permit to exist (i)
any termination, modification or amendment (a "Change") in any investment
------
management or advisory agreement under which any of the assets of the Separate
Accounts are managed (a "Contract Change"), or (ii) a Change in the Fundamental
---------------
Investment Objectives and Policies of any fund in which the assets of the
Separate Account are managed (a "Policy Change"), or (iii) the elimination of
-------------
any portfolio in which the assets of the Separate Account are managed (a "Fund")
----
or the addition of any new Fund, all except as required by Section 15 of the
Investment Company Act of 1940.
35
<PAGE>
(b) Anchor may agree to or permit to exist any Contract Change or Policy
Change (i) with the prior consent of ANLIC (Hawaii), or (ii) of which Anchor has
given ANLIC (Hawaii) prior notice and which does not result in a reasonable
probability of a material adverse change in the Charges (other than an increase
in the payment of contingent deferred sales charges due to an increase in
surrenders resulting from the Contract Change or Policy Change) to which the
Contract Change or Policy Change relates, such probability to be measured as of
the date of the Contract Change or Policy Change, or (iii) if Anchor elects to
make a partial recapture under Section 14.7(d).
(c) Anchor may agree to the addition or elimination of any Fund if Anchor
has given ANLIC (Hawaii) prior notice of the circumstances of such addition or
elimination and any replacement Fund, and (i) Anchor obtains the prior consent
of ANLIC (Hawaii), or (ii) in the case of the elimination of any Fund, if such
Fund is replaced contemporaneously by another Fund with substantially similar
fundamental investment objectives and policies, or (iii) if such addition or
elimination does not result in a reasonable probability of a material adverse
change in the Charges (other than an increase in the payment of contingent
deferred sales charges due to an increase in surrenders resulting from the
Contract Change or Policy Change) to which the addition or elimination relates,
such probability to be measured as of the date of such addition or elimination,
or (iv) if Anchor elects to make a partial recapture under Section 14.7(d).
(d) If Anchor elects to make a partial recapture under Section 14.7(b) or
Section 14.7(c), it shall recapture under Section 9.3 (subject to the terms
thereof) a Recapture Percentage of the risks reinsured hereunder equal to that
percentage which the portion of the aggregate Separate Account Values of all
Annuities attributable to the Fund to which the Contract Change, Policy Change
or the addition or elimination of a Fund relates bears to the aggregate Separate
Account Values of all Annuities, such values to be determined as of the close of
business on the Business Day on which the notice of recapture is received by
ANLIC (Hawaii).
(e) Anchor shall inform ANLIC (Hawaii) and the reinsurer under the CG YRT
Retrocession Agreement or any Successor YRT Retrocession Agreement of any change
in any Fund, including the addition or elimination of any Fund.
(f) Notwithstanding the provisions of this Section 14.7, Anchor shall not
eliminate any Fund without adding another Fund except as permitted under the CG
YRT Retrocession Agreement or any Successor YRT Retrocession Agreement.
Section 14.8. Negative Covenants of ANLIC (Hawaii). Until the Terminal
--------------------------------------
Accounting and Settlement, ANLIC (Hawaii) will not, without the written consent
of Anchor, make or consent to any change to the AIC Retrocession Agreement, the
ANLIC (Hawaii) YRT Retrocession Agreement, the CG YRT Retrocession Agreement or
any Successor YRT Retrocession Agreement that would either (i) increase an
amount that is payable, directly or indirectly, by Anchor, or (ii) reduce any
obligation to pay an amount that will be payable, directly or indirectly, to
Anchor, by any party to such agreements.
36
<PAGE>
ARTICLE XV
Reserve Credit
--------------
Section 15.1. Security. ANLIC (Hawaii) shall comply with Section 15.2 for
--------
the purpose of qualifying the reinsurance provided under Section 2.4 for
statutory financial statement credit by Anchor under the credit for reinsurance
rules applicable in Arizona.
Section 15.2. Letters of Credit. ANLIC (Hawaii) must apply for and
-------------------
provide to Anchor one or more letters of credit that meet the requirements of
Arizona laws and regulations in an amount equal to or greater than the reserves
ceded by Anchor with respect to the reinsurance provided under Section 2.4.
Such letter of credit may be drawn upon at any time and be used by Anchor or any
successor by operation of law of Anchor, including any liquidator,
rehabilitator, receiver or conservator of Anchor, without diminution because of
insolvency of Anchor or ANLIC (Hawaii), for the following purposes but only as
they relate to the reinsurance provided under Section 2.4:
(a) to reimburse Anchor for ANLIC (Hawaii)'s share of premiums returned to
the owners of the Annuities on account of cancellations of the Annuities;
(b) to reimburse Anchor for ANLIC (Hawaii)'s share of surrenders and
benefits paid by Anchor under the Annuities;
(c) to fund an account with Anchor in an amount at least equal to the
deduction, for reinsurance ceded, from Anchor's liabilities for the Annuities.
Interest on the amount of funds in such account shall accrue to the benefit of
ANLIC (Hawaii) at a rate not in excess of the prime rate of interest. Such an
amount shall include, but not be limited to, amounts for policy reserves,
reserves for claims and losses incurred (including losses incurred but not
reported), loss adjustment expenses and unearned premiums; and
(d) to pay any other amounts Anchor claims are due under this Agreement.
Section 15.3. Letters of Credit; Return of Excess Security. Anchor shall
--------------------------------------------
return any amounts drawn on letters of credit in excess of the actual amounts
required under Sections 15.2(a) through 15.2(c) and amounts under Section
15.2(d) that are subsequently determined not to be due.
ARTICLE XVI
Events of Recapture
-------------------
Section 16.1. Definition. If any of the following events shall occur and
----------
be continuing, an "Event of Recapture" shall exist:
--------------------
(a) Anchor fails to perform or observe any material term or agreement
hereunder (other than those terms and agreements set forth in Sections 3.3,
14.5(c) and 14.6(a)) on its part to be performed or observed and
37
<PAGE>
such failure remains unremedied for 10 days.
(b) Anchor fails to perform or observe any material term, covenant or
agreement hereunder on its part to be performed or observed, other than those
which constitute an Event of Recapture under Section 16.1(a) or Section 16.1(c).
(c) Anchor fails to make any payment or deposit required under this
Agreement when due except with respect to an adjustment made under Section 2.13,
provided that payment by Anchor with respect to such adjustment is made within 3
- --------
Business Days after discovery thereof.
(d) Any representation or warranty or statement made by Anchor under this
Agreement was false in any material respect when made.
(e) There shall occur, without the consent of ANLIC (Hawaii), any
termination, modification or amendment in the terms and conditions applicable to
the Charges, except as permitted by the Waiver Allowance.
ARTICLE XVII
Miscellaneous
-------------
Section 17.1. Parties to this Agreement. This Agreement is solely between
-------------------------
Anchor and ANLIC (Hawaii), and performance of the obligations of each Party
under this Agreement shall be rendered solely to the other Party. In no instance
shall anyone other than Anchor or ANLIC (Hawaii) and their respective successors
and assigns have any rights under this Agreement. The acceptance of reinsurance
hereunder shall not create any right or legal relation whatever between ANLIC
(Hawaii) and the Contractholder, the insured or any beneficiary under any
Annuity reinsured hereunder and Anchor shall be and remain solely liable to such
Contractholder, insured or beneficiary under any such Annuity.
Section 17.2. Assignment. Anchor may not assign any of its rights, duties
----------
or obligations under this Agreement without prior written consent of ANLIC
(Hawaii), except as permitted hereby. ANLIC (Hawaii) may (i) grant a security
interest in all its right, title and interest in this Agreement, and (ii)
retrocede the risks reinsured hereunder but solely as contemplated by the AIC
Retrocession Agreement and by Section 2.17.
Section 17.3. Counterparts. This Agreement may be executed in any number
------------
of counterparts by the Parties on separate counterparts, each of which, when so
executed and delivered, shall be deemed an original, but all such counterparts
shall together constitute one and the same instrument.
Section 17.4. Notices. (a) Except as otherwise expressly provided herein,
-------
all notices, requests, demands, instructions, consents or other communications
provided for hereunder shall be in writing and delivered or mailed by registered
or certified mail or by overnight courier or by facsimile communication, in each
case prepaid and addressed to the intended recipient at its address for notices
specified in Section 17.4(b).
38
<PAGE>
(b) All notices, requests, demands, consents, approvals or other
communications under this Agreement shall be addressed as follows (or to any
other address as may be designated in writing by the recipient):
If to Anchor:
Anchor National Life Insurance Company
1 SunAmerica Center
Los Angeles, CA 90067-6022
Attention: Lawrence M. Goldman, Associate General Counsel and James R. Belardi,
Senior Vice President
Facsimile: 310-772-6574
Telephone: 310-772-6000
If to ANLIC (Hawaii):
ANLIC Insurance Company (Hawaii), Ltd.
c/o 50th State Risk Management Services, Inc.
Six Waterfront Plaza, Room 405
500 Ala Moana Boulevard
Honolulu, HI 96813
Attention: Ann Nakagawa
Facsimile: 808-524-9526
Telephone: 808-543-9737
Section 17.5. Further Assurances. Anchor will do and perform, from time
-------------------
to time, any and all acts and execute any and all further instruments required
or reasonably requested by ANLIC (Hawaii) more fully to effect the purposes of
this Agreement.
Section 17.6. No Waiver; Cumulative Remedies. No failure to exercise and
------------------------------
no delay in exercising, on the part of ANLIC (Hawaii), any right, remedy, power
or privilege hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, remedy, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges therein
provided are cumulative and not exhaustive of any rights, remedies, powers and
privileges provided by law.
Section 17.7. Amendment and Waiver. No amendment, modification or
----------------------
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the Party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the Party
granting such waiver in any other respect or at any other time.
Section 17.8. Entire Agreement. The terms expressed herein constitutes
-----------------
the entire agreement between the Parties with respect to the Annuities reinsured
hereunder. There are no understandings between the Parties with respect to the
Annuities reinsured hereunder other than as expressed in this Agreement.
39
<PAGE>
Section 17.9. Governing Law. This Agreement shall be governed by,
--------------
interpreted, construed and enforced by and in accordance with the internal laws
of the State of Arizona without regard to its choice-of-law rules.
Section 17.10. Consent to Jurisdiction. (a) Each Party hereto hereby
-------------------------
irrevocably submits to the exclusive jurisdiction of any State or Federal court
sitting in the State of Delaware, or, if no court in Delaware will exercise
jurisdiction, Arizona, and any appellate court from any thereof in any action or
proceeding arising out of or relating to this Agreement or any other instrument
or document furnished pursuant hereto, and each such Party hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined in such Delaware or Arizona State court, as the case may be, or in
such Federal court sitting in Delaware or Arizona, as the case may be. Each
such Party hereby irrevocably waives, to the fullest extent it may effectively
do so, the defense of an inconvenient forum to the maintenance of such action or
proceeding. Each such Party irrevocably consents to the service of copies of
the summons and complaint and any other process that may be served in any such
action or proceeding by the mailing of copies of such process to such Party at
its address specified pursuant to Section 17.4. Each such Party agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
(b) Nothing in this Section 17.10 shall affect the right of any such Party
to serve legal process in any other manner permitted by law or affect the right
of any such Party to bring any action or proceeding against any other such Party
or their respective property in the courts of other jurisdictions other than the
State of New York if no court in the States of Delaware or Arizona will exercise
jurisdiction.
Section 17.11. Special Service of Process. Pursuant to any statute of any
--------------------------
state, territory or district of the United States which makes provision
therefore, ANLIC (Hawaii) hereby designates the Superintendent, Commissioner or
Director of Insurance, or other officer specified for that purpose in the
statute, or the successor or successors in office as its true and lawful
attorney upon whom may be served any lawful process in any action, suit or
proceeding instituted by or on behalf of Anchor or any beneficiary hereunder
arising out of this Agreement, and hereby designates the person specified for
ANLIC (Hawaii) pursuant to Section 17.4 as the person to whom the said officer
is authorized to mail such process or a true copy thereof.
Section 17.12. WAIVER OF JURY TRIAL. ANCHOR AND ANLIC (HAWAII) HEREBY
-----------------------
IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHT TO A TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
Section 17.13. Headings. The headings contained in this Agreement are for
--------
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
40
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
and delivered as of the date first above written.
ANCHOR NATIONAL LIFE INSURANCE COMPANY
By________________________________
Name:
Title:
ANLIC INSURANCE COMPANY (HAWAII), LTD.
By_________________________________
Name:
Title:
41
EXECUTION COPY
IRREVOCABLE STANDING INSTRUCTIONS
These IRREVOCABLE STANDING INSTRUCTIONS, dated as of September 9, 1999 are
given pursuant to this agreement by and among Anchor National Life Insurance
Company ("Anchor"), ANLIC Insurance Company (Hawaii), Ltd. ("ANLIC (Hawaii)"),
------ --------------
Variable Separate Account of Anchor National Life Insurance Company ("Variable
--------
Separate Account"), Anchor Pathway Fund, Anchor Series Trust, SunAmerica Series
----------------
Trust, and State Street Bank and Trust Company.
RECITAL
Anchor has entered into a Reinsurance Agreement, dated as of August 1, 1999
(said Agreement, as the same may be supplemented, amended, replaced or otherwise
modified from time to time, the "Reinsurance Agreement"), with ANLIC (Hawaii),
---------------------
pursuant to which Anchor will reinsure certain risks under the Annuities (as
defined herein) with ANLIC (Hawaii).
Section 1. Certain Defined Terms. Capitalized terms used herein shall
---------------------
have the following meanings:
"Annuities" shall mean (i) the individual variable annuity contracts and
---------
group variable annuity certificates identified in Schedule 1.1 hereto, as such
contracts and certificates are in effect and are reinsured under the Reinsurance
Agreement from time to time, subject to reinstatement or surrender, and (ii) the
other annuity contracts reinsured pursuant to the terms of the Reinsurance
Agreement.
"Business Day" shall mean each day on which (i) dealings are carried on in
-------------
the London interbank market, and (ii) all of the following are open for business
at their principal offices in the cities designated: (x) Anchor in Los Angeles;
(y) the Custodian in North Quincy, Massachusetts; and (z) the New York Stock
Exchange trading floor in New York City.
"CDSC Fees" shall mean the Charges which are designated as "Contingent
----------
Deferred Sales Charges" in Schedule 1.2 hereto in the column labeled "Charges".
"Charges" means the charges and deductions relating to the Annuities
-------
identified in Schedule 1.2 hereto in the column labeled "Charges".
"Custodian" shall mean State Street Bank and Trust Company, a Massachusetts
---------
trust company.
Page 1
<PAGE>
"Daily Reinsurance Servicer Report" shall mean a report in substantially
------------------------------------
the form of Exhibit 2.2 hereto.
"Delinquent Daily Reinsurance Servicer Report" shall mean a Daily
------------------------------------------------
Reinsurance Servicer Report which is not delivered to the Custodian on the
---
Business Day to which it relates.
"Fund" shall mean one or more of Anchor Pathway Fund, a Massachusetts
----
business trust, Anchor Series Trust, a Massachusetts business trust, SunAmerica
Series Trust, a Massachusetts business trust, and any successor to any thereof
and any other Person that executes a counterpart hereof.
"Investment Company" shall mean any entity registered as a separate
-------------------
investment company under the Investment Company Act.
-
"Investment Company Act" shall mean the Investment Company Act of 1940, as
-----------------------
amended, and the rules and regulations of the SEC thereunder, all as from time
to time in effect, or any successor law, rule or regulation, and any reference
to any statutory or regulatory provision shall be deemed to be a reference to
any successor statutory or regulatory provision.
"M&E Fees" shall mean all Charges other than CDSC Fees.
---------
"Person" shall mean an individual, a partnership, a corporation, a limited
------
liability company, a trust (including any beneficiary thereof) or other entity,
including any unincorporated organization or governmental agency or political
subdivision thereof. The term "corporation" for purposes of the preceding
sentence shall mean a corporation, joint stock company, business trust or other
similar association.
"Portfolio" shall mean a separate investment portfolio or series of an
---------
Investment Company which is itself not an Investment Company.
"Reinsurance Servicer Report" shall mean a report in substantially the form
---------------------------
of Exhibit 2.3 hereto furnished by the servicer pursuant to the Servicing
Agreement to ANLIC (Hawaii).
"SEC" shall mean the Securities and Exchange Commission or any other
---
governmental authority of the United States of America at the time administering
the Securities Act of 1933, as amended, the Investment Company Act or the
Securities Exchange Act of 1934, as amended.
Section 2. Irrevocable Payment Instructions. The Custodian is hereby
---------------------------------
irrevocably directed by Anchor, the Variable Separate Account and each of the
Funds, upon receipt of a notice in substantially the form of Exhibit 2.1
attached hereto, to make all payments in respect of all Charges (hereinafter,
"Payments") as follows:
-------
Page 2
<PAGE>
(i) in the case of all CDSC Fees Collected, as identified on Line 5 of
the Daily Reinsurance Servicer Report, remit all Payments in respect thereof
directly to Anchor;
(ii) in the case of all M&E Fees, as identified as M&E Fees Collected
on Line 3 of the Daily Reinsurance Servicer Report, accrue, segregate and hold
such M&E Fees for the benefit of Anchor and ANLIC (Hawaii) and, then, no later
than two Business Days following receipt of a Reinsurance Servicer Report, (i)
remit all Payments that, pursuant to Line 199 of the Reinsurance Servicer
Report, are allocable to Anchor directly to Anchor and (ii) wire all Payments
that, pursuant to Line 198 of the Reinsurance Servicer Report, are allocable to
ANLIC (Hawaii) directly and in immediately available funds to the
non-interest-bearing cash collateral account with Citibank, N.A. at its office
at 399 Park Avenue, New York, New York 10043, Account No. 40800176; and
(iii) in the event the Custodian does not receive a Daily Reinsurance
Servicer Report on any Business Day, the Custodian shall accrue, segregate and
hold either (a) 110% of the amount of the M&E Fees withheld as indicated on Line
3 of the Daily Reinsurance Servicer Report last provided to the Custodian or (b)
the maximum cash amount distributable to Anchor on that day by the Funds,
whichever is less. Upon receiving such a Delinquent Daily Reinsurance Servicer
Report, the Custodian shall remit to Anchor any amount withheld by the Custodian
with respect to the M&E Fees in excess of that required to be withheld as
indicated on Line 3 of such Delinquent Daily Reinsurance Servicer Report.
Prior to any delivery of the above-referenced notice, however, the Custodian is
to collect and remit Charges in accordance with the applicable custodial
agreements then in effect.
Section 3. Interest on Amounts Held by Custodian. All amounts
------------------------------------------
segregated and held by the Custodian for more than one Business Day pursuant to
these Standing Instructions shall be held in a non-interest-bearing demand
deposit account in the name of "State Street Bank and Trust Company as
Custodian."
Section 4. Miscellaneous. The Custodian and each of the Funds are
-------------
further notified that:
(a) These Irrevocable Standing Instructions are delivered on behalf of
ANLIC (Hawaii) and are irrevocable and cannot be waived, amended or otherwise
modified without the prior written consent of ANLIC (Hawaii).
Page 3
<PAGE>
(b) By its acknowledgment, the Custodian authorizes Anchor to deliver a
copy of these Irrevocable Standing Instructions and the Custodian's
acknowledgment to ANLIC (Hawaii) and its respective successors and assigns.
(c) Any payment by the Custodian other than in compliance with the
directions herein shall not be deemed to discharge its obligations in respect of
the Payments.
(d) THESE IRREVOCABLE STANDING INSTRUCTIONS SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND FOR ALL PURPOSES SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE.
(e) EACH FUND'S AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST
IS ON FILE WITH THE SECRETARY OF THE COMMONWEALTH OF MASSACHUSETTS AND NOTICE IS
HEREBY GIVEN THAT THIS AGREEMENT IS MADE AND EXECUTED ON BEHALF OF SUCH FUND,
AND NOT BY THE TRUSTEES OR OFFICERS OF SUCH FUND INDIVIDUALLY, AND OBLIGATIONS
OF OR ARISING OUT OF THIS AGREEMENT ARE NOT BINDING UPON THE TRUSTEES, OFFICERS
OR SHAREHOLDERS OF SUCH FUND INDIVIDUALLY BUT ARE BINDING ONLY UPON THE ASSETS
OF SUCH FUND.
(f) Each Person which hereafter becomes a Fund party to these
Irrevocable Standing Instructions by executing a counterpart hereof shall
thereafter be bound by the terms hereof to the same extent as if these
Irrevocable Standing Instructions had been addressed to and signed by such Fund.
(g) ANLIC (Hawaii) has granted a security agreement in certain
collateral, including, but not limited to, ANLIC (Hawaii)'s rights under these
Irrevocable Standing Instructions.
These Irrevocable Standing Instructions may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original, and all of which counterparts, taken together, shall constitute but
one and the same Irrevocable Standing Instructions.
By its execution of these Irrevocable Standing Instructions the Custodian
hereby acknowledges and agrees (i) to abide by the foregoing instructions, it
being understood that such acknowledgment and waiver does not constitute a
waiver of any defenses and (ii) that it has not received any prior notice from
any other party that Anchor has granted a security interest in, or collaterally
assigned, the Charges to such other party or that any other party has any
interest in the Charges.
Page 4
<PAGE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
By:------------------------------------
ANLIC NSURANCE COMPANY (HAWAII), LTD.
By:----------------------------------
VARIABLE SEPARATE ACCOUNT OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
by ANCHOR NATIONAL LIFE INSURANCE COMPANY
By:---------------------------------
Authorized Signatory
ANCHOR PATHWAY FUND
By:---------------------------------
Authorized Signatory
ANCHOR SERIES TRUST
By:--------------------------------
Authorized Signatory
Page 5
<PAGE>
SUNAMERICA SERIES TRUST
By:-------------------------------
Authorized Signatory
----------------------------------
[Add name of any future Fund]
By:-------------------------------
Authorized Signatory
Acknowledged and
agreed to as of the date
first written above:
STATE STREET BANK AND TRUST COMPANY
By:-------------------------------
Authorized Signatory
Page 6
EXECUTION COPY
ANCHOR CONSENT AND AGREEMENT
CONSENT AND AGREEMENT dated as of August 1, 1999 among ANCHOR NATIONAL LIFE
INSURANCE COMPANY, an Arizona stock life insurance corporation ("Anchor"), ANLIC
------
INSURANCE COMPANY (HAWAII), LTD., a Hawaii stock captive insurance company
("ANLIC (Hawaii)"), and CITICORP NORTH AMERICA, INC., as agent (the "Agent").
------------ -----
RECITALS
--------
A. Anchor and ANLIC (Hawaii) have entered into a Reinsurance Agreement
dated as of August 1, 1999 (said Agreement, as it may be supplemented, amended,
replaced or otherwise modified from time to time, being the "Reinsurance
-----------
Agreement"; unless otherwise defined herein, terms defined in the Reinsurance
--
Agreement and in the Servicing Agreement (as defined in the Reinsurance
Agreement) are used herein as therein defined).
B. To obtain financing necessary to perform its obligations in
connection with the Reinsurance Agreement, ANLIC (Hawaii) will sell to Corporate
Receivables Corporation (the "Purchaser") a promissory note owed to ANLIC
---------
(Hawaii) and will grant to the Agent and to Citibank, N.A., respectively,
security interests in all right, title and interest of ANLIC (Hawaii) in and to
certain collateral (as described below).
C. The execution and delivery of this Consent and Agreement is a
condition precedent to ANLIC (Hawaii) obtaining such financing.
D. This Consent and Agreement is intended to clarify the procedures by
which Anchor will fulfill its payment obligations as set forth in the
Reinsurance Agreement.
NOW THEREFORE, to induce the Purchaser to purchase the promissory note
being sold by ANLIC (Hawaii) and in consideration of the premises and of other
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as follows:
Section 1. No Change in Reinsurance Agreement. Nothing in this Consent
----------------------------------
and Agreement shall amend or otherwise modify in any respect the Reinsurance
Agreement, the terms of which (including but not limited to the netting
provisions of Section 8.5 thereof) shall exclusively govern whether Anchor or
ANLIC (Hawaii) shall at any time have any obligation to make any payment
thereunder. The Agent agrees that, while assuming the power to enforce the
rights and remedies of ANLIC (Hawaii), the Agent will not interfere with or
impede the duties and obligations that ANLIC (Hawaii) owes to Anchor under the
Reinsurance Agreement.
Section 2. Notices and Acknowledgments. (a) Anchor hereby
-----------------------------
acknowledges notice of and consents to the assignment and grant by ANLIC
(Hawaii) to the Agent of a security interest in all right, title and interest of
ANLIC (Hawaii) in and to certain collateral, including but not limited to all
right, title and interest of ANLIC (Hawaii) in and to each of the agreements set
forth on Schedule 1 hereto and the proceeds thereof (such agreements, as the
same may be amended, supplemented or modified from time to time, being the
"Assigned Agreements").
----------------
(b) Anchor hereby acknowledges notice of and consents to the assignment
and grant by ANLIC (Hawaii) to Citibank, N.A. of a security interest in all
right, title and interest of ANLIC (Hawaii) in and to certain collateral,
including but not limited to all right, title and interest of ANLIC (Hawaii) in
and to each of the Assigned Agreements.
Section 3. Appointment and Authorization of the Agent. (a) ANLIC
----------------------------------------------
(Hawaii) hereby appoints the Agent as ANLIC (Hawaii)'s attorney-in-fact, with
full authority in the place and stead of ANLIC (Hawaii) and in the name of ANLIC
(Hawaii) or otherwise, from time to time in the Agent's discretion, to take any
action and to execute any instrument that the Agent may deem necessary or
advisable for the purpose of exercising or enforcing (or abstaining from
exercising or enforcing) any right, remedy, power or privilege of ANLIC (Hawaii)
under any Reinsurance Document or Assigned Agreement, including, without
limitation:
(i) to ask for, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or in
respect of any of the Reinsurance Documents or Assigned Agreements,
(ii) to receive, indorse and collect any drafts or other instruments,
documents and chattel paper in connection with this Section 3(a),
(iii) to file any claims or take any action or institute any
proceedings that the Agent may deem necessary or desirable for the collection of
any amounts payable under any Assigned Agreement or to enforce compliance with
the terms of any Reinsurance Document or Assigned Agreement or the rights of
ANLIC (Hawaii) or the Agent with respect thereto.
(b) Anchor acknowledges and agrees that all rights of ANLIC (Hawaii)
under the Reinsurance Documents and the Assigned Agreements will be exercised by
the Agent.
(c) Neither the Agent nor any of its directors, officers, agents or
employees shall be liable for any action taken or omitted to be taken by it or
them as Agent or attorney-in-fact under or in connection with any Reinsurance
Document or Assigned Agreement (including the Agent's servicing, administering
or collecting any amounts payable), except for its own gross negligence or
willful misconduct. Without limiting the generality of the foregoing, the
Agent: (i) may consult with legal counsel (including counsel for Anchor, ANLIC
(Hawaii) or any of their respective Affiliates), independent public accountants
and other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (ii) makes no warranty or representation to
Anchor, ANLIC (Hawaii) or any of their respective Affiliates, and shall not
be responsible to Anchor, ANLIC (Hawaii) or any of their
2
<PAGE>
respective Affiliates, for any statement, warranty or representation (whether
written or oral) made in or in connection with this Consent and Agreement, any
Reinsurance Document or Assigned Agreement or any instrument or document
furnished pursuant to any of the foregoing (collectively, the "Consent
-------
Documents"); (iii) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of any
Consent Document on the part of Anchor, ANLIC (Hawaii) or any other Person or
to inspect the property (including the books and records) of Anchor, ANLIC
(Hawaii) or any other Person; (iv) shall not be responsible to Anchor, ANLIC
(Hawaii) or any other Person for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Consent Document; and
(v) shall incur no liability under or in respect of any Consent Document by
acting upon any notice (including notice by telephone), consent, certificate or
other instrument or writing (which may be by telecopier, telegram, cable or
telex) believed by it to be genuine and signed or sent by the proper party or
parties.
(d) CNAI and Affiliates. With respect to any right, remedy, privilege
--------------------
or power of CNAI individually, CNAI shall have the same rights, remedies,
privileges and powers and may exercise the same as though it were not the Agent
and not the attorney-in fact of ANLIC (Hawaii). CNAI and its Affiliates may
generally engage in any kind of business with Anchor, any of its Affiliates and
any Person who may do business with or own securities of Anchor or any of its
Affiliates, all as if CNAI were not the Agent and were not the attorney-in-fact
of ANLIC (Hawaii) and without any duty to account therefore to Anchor, ANLIC
(Hawaii) or any other Person.
Section 4. Agreements. In furtherance of Anchor's consent to the grant
----------
by ANLIC (Hawaii) of the security interest referenced in Section 2, Anchor
hereby agrees with the Agent as follows:
(a) Anchor will make all payments to be made by it under or in
connection with each Assigned Agreement (which shall at all times be subject to
the netting provisions of Section 8.5 of the Reinsurance Agreement) directly to
the non-interest bearing cash collateral account that ANLIC (Hawaii) has opened
with Citibank, N.A. at its office at 399 Park Avenue, New York, New York 10043,
Account No. 40800176 strictly in accordance with the terms of such Assigned
Agreement.
(b) Except solely to the extent set forth in Section 8.5 of the
Reinsurance Agreement, the obligation of Anchor to make the payments referred to
in Section 4(a) is absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, (i) any set-off, counterclaim,
recoupment, defense or other right against Anchor, ANLIC (Hawaii) or any other
Person for any reason whatsoever (whether in connection with the transactions
contemplated in the Reinsurance Documents or in connection with any unrelated
transaction), (ii) any insolvency, bankruptcy, reorganization or similar
proceeding by or against Anchor, ANLIC (Hawaii), the Purchaser, the Agent or any
other Person or (iii) any other circumstance, happening or event whatsoever,
whether foreseen or unforeseen and whether or not similar to any of the
foregoing. All such payments made by Anchor shall be final, and Anchor will not
seek to recover from the Agent for any reason any such payment once made.
3
<PAGE>
(c) The Agent shall be exclusively entitled to exercise any and all
rights and remedies of ANLIC (Hawaii) under each and every Assigned Agreement in
accordance with the terms of such Assigned Agreement, and Anchor shall comply in
all respects with such exercise. The Agent shall not have any obligation to
perform any duty of ANLIC (Hawaii) or any other Person under any Assigned
Agreement or any Reinsurance Document.
(d) Anchor will not (i) cancel or terminate any Assigned Agreement or
consent to or accept any cancellation or termination thereof except pursuant to
the terms thereof in effect on the date hereof, (ii) amend or otherwise modify
any Reinsurance Document or any Assigned Agreement or this Consent and Agreement
or (iii) make any payment of amounts to become due by it under or in connection
with any Assigned Agreement except as expressly provided therein.
Section 5. Representations and Warranties. Anchor represents and
--------------------------------
warrants as of the date hereof:
(a) Anchor is a stock life insurance company duly incorporated, validly
existing and in good standing under the laws of Arizona.
(b) The execution, delivery and performance by Anchor of this Consent
and Agreement are within Anchor's corporate powers, have been duly authorized by
all necessary corporate action, and do not contravene (i) Anchor's articles of
incorporation or by-laws or (ii) law or any regulation or contractual
restriction binding on or affecting Anchor.
(c) No authorization or approval or other action by, and no notice to
or filing with, any Governmental Authority is required for the due execution,
delivery and performance by Anchor of this Consent and Agreement, or for the
exercise by the Agent of its rights and remedies under this Consent and
Agreement, except for such other filings with and approvals as have been duly
made and obtained prior to the date hereof.
(d) This Consent and Agreement has been duly executed and delivered by
Anchor and is the legal, valid and binding obligation of Anchor enforceable
against Anchor in accordance with its terms.
Section 6. Governing Law, Etc. THIS CONSENT AND AGREEMENT (I) SHALL BE
-------------------
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
(ii) may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which taken together shall constitute but one and
the same agreement, and (iii) shall be binding upon, and inure to the benefit of
and be enforceable by, each of the parties hereto and their respective
successors, transferees and assigns.
4
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has duly executed this Consent
and Agreement as of the day and year first above written.
ANCHOR NATIONAL LIFE INSURANCE COMPANY
By:_______________________________________
Title:
ANLIC INSURANCE COMPANY (HAWAII), LTD.
By:_______________________________________
Title:
CITICORP NORTH AMERICA, INC., as Agent
By:_______________________________________
Title: Vice President
5
<PAGE>
Schedule 1
Assigned Agreements
-------------------
1. Reinsurance Agreement, dated as of August 1, 1999, between Anchor
National Life Insurance Company and ANLIC Insurance Company (Hawaii), Ltd., as
such agreement is supplemented, amended, replaced or otherwise modified from
time to time (the "Reinsurance Agreement"), including, without limitation, the
---------------------
Allocation Procedures, Collection Procedures and Fixed Account Segregated Asset
Requirements and Procedures, as the foregoing are defined in the Reinsurance
Agreement.
2. Servicing Agreement, dated as of August 1, 1999, among ANLIC Insurance
Company (Hawaii), Ltd., Anchor Insurance Company (Hawaii), Ltd., Anchor National
Life Insurance Company and SunAmerica Life Insurance Company, as such agreement
is supplemented, amended, replaced or otherwise modified from time to time (the
"Servicing Agreement"), including, without limitation, the Daily Reinsurance
--------------------
Servicer Report and the Reinsurance Servicer Report, as the foregoing are
--
defined in the Servicing Agreement.
--
3. Irrevocable Standing Instructions among Anchor National Life Insurance
Company, ANLIC Insurance Company (Hawaii), Ltd., State Street Bank and Trust
Company, Variable Separate Account, Anchor Pathway Fund, Anchor Series Trust and
SunAmerica Series Trust, as such instructions are supplemented, amended,
replaced or otherwise modified from time to time, together with all Schedules
and Exhibits thereto.
6
SERVICING AGREEMENT
Dated as of August 1, 1999
ANLIC INSURANCE COMPANY (HAWAII), LTD., a Hawaii stock captive insurance
company ("ANLIC (Hawaii)"), ANCHOR NATIONAL LIFE INSURANCE COMPANY, an Arizona
---------------
stock life insurance company ("Anchor"), ANCHOR INSURANCE COMPANY (HAWAII),
------
LTD., a Hawaii stock captive insurance company ("AIC") and SUNAMERICA LIFE
---
INSURANCE COMPANY, an Arizona stock life insurance company, as Servicer, agree
as follows:
PRELIMINARY STATEMENTS. (1) Certain terms that are capitalized and used
throughout this Agreement (in addition to those defined above) are defined in
Article I of this Agreement.
(2) ANLIC (Hawaii), AIC and Anchor have requested the Servicer to
provide various services in connection with the Reinsurance Agreement (as
defined below) between Anchor and ANLIC (Hawaii), and the Servicer is willing to
furnish such services on the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the terms
---------------------
defined in the Reinsurance Agreement (as defined below) shall have the
respective meanings specified therein, and the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):
"Affiliate" means (i) as to any Person, any other Person that directly or
---------
indirectly, is in control of, is controlled by or is under common control with
such Person.
"Agent's Account" means the special account (account number 38858088) in
----------------
the name of CNAI, as agent, maintained at the office of Citibank at 399 Park
Avenue, New York, New York.
"Allocation Procedures" means those allocation procedures in substantially
----------------------
the form of Schedule 14.6-2 of the Reinsurance Agreement.
"Alternate Base Rate" means, for any period, a fluctuating interest rate
---------------------
per annum as shall be in effect from time to time, which rate per annum shall at
all times be equal to the higher of:
1
<PAGE>
(a) the rate of interest announced publicly by Citibank in New York,
New York, from time to time as Citibank's base rate; or
(b) of one percent above the latest three-week moving average of
secondary market morning offering rates in the United States for three-month
certificates of deposit of major United States money market banks, such
three-week moving average being determined weekly on each Monday (or, if such
day is not a Business Day, on the next succeeding Business Day) for the
three-week period ending on the previous Friday by Citibank (i) on the basis of
such rates reported by certificate of deposit dealers to and published by the
Federal Reserve Bank of New York or (ii) if such publication shall be suspended
or terminated, on the basis of quotations for such rates received by Citibank
from three New York certificate of deposit dealers of recognized standing
selected by Citibank, in the case of clause (i) or (ii), adjusted to the nearest
1/4 of one percent or, if there is no nearest 1/4 of one percent, to the next
higher 1/4 of one percent.
"Anchor" has the meaning specified in the first paragraph of this Agreement
------
and includes the Separate Account.
"Anchor Parties" means SunAmerica, ANLIC (Hawaii) (but only so long as it
---------------
is an Affiliate of Anchor) and the following other parties irrespective of their
affiliation with SunAmerica: the Servicer, AIC and Anchor.
"ANLIC (Hawaii) Security Agreement" means a Security Agreement dated the
------------------------------------
date hereof in favor of CNAI, as agent, as such agreement may be supplemented,
amended, replaced or otherwise modified from time to time.
"Cash Collateral Account" means a non-interest bearing cash collateral
-------------------------
account (the "Cash Collateral Account") with Citibank, N.A. at its office at 399
-----------------------
Park Avenue, New York, New York 10043, Account No. 40800176.
"Citibank" means Citibank, N.A., a national banking association.
--------
"Citicorp Product Information" has the meaning specified in Section 6.08.
------------------------------
"CNAI" means Citicorp North America, Inc.
----
"Collection Procedures" means those administration procedures specified in
----------------------
Schedule 14.6-1 to the Reinsurance Agreement in effect on the date hereof
relating to Annuities and Charges as modified in compliance with Section 14.6(c)
of the Reinsurance Agreement.
"Company Representatives" has the meaning specified in Section 6.08.
------------------------
"Daily Reinsurance Servicer Report" means a report substantially in the
------------------------------------
form of Exhibit 1.01A hereto, furnished by the Servicer to ANLIC (Hawaii)
pursuant to Section 4.02.
"Debt" means (i) indebtedness for borrowed money, (ii) obligations
----
evidenced by bonds, debentures, notes or other similar instruments, (iii)
--
obligations to pay the deferred purchase price of property or services, (iv)
2
<PAGE>
obligations as lessee under leases that shall have been or should be, in
accordance with GAAP recorded as capital leases and (v) obligations under direct
or indirect guaranties in respect of, and obligations (contingent or otherwise)
to purchase or otherwise acquire, or otherwise to assure a creditor against loss
in respect of, indebtedness or obligations of others of the kinds referred to in
clauses (i) through (iv) above, excluding, however, obligations arising under
--------- -------
the Reinsurance Documents and, in the case of Anchor, obligations arising under
insurance, annuity and similar products sold by it in the ordinary course of its
business.
"Department" means the Governmental Authority responsible for the
----------
regulation of the insurance business of Anchor or the Initial Servicer, as the
---
case may be, in their respective states of domicile.
"Fixed Account Segregated Asset Requirements and Procedures" means the
---------------------------------------------------------------
requirements and procedures set forth in Schedule 14.4 to the Reinsurance
Agreement.
"Fund" means each of the following: Pathway Fund, an open management
----
investment company organized as a Massachusetts business trust under the laws of
the Commonwealth of Massachusetts, SunAmerica Series Trust, an open management
investment company organized as a Massachusetts business trust under the laws of
the Commonwealth of Massachusetts and Anchor Series Trust, an open management
investment company organized as a Massachusetts business trust under the laws of
the Commonwealth of Massachusetts.
"GAAP" means generally accepted accounting principles.
----
"Governmental Authority" means any nation or government, any state or other
----------------------
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of government.
"Initial Servicer" means SunAmerica Life Insurance Company, an Arizona
-----------------
stock life insurance company.
"Initial Servicer Statutory Financial Statements" has the meaning set forth
-----------------------------------------------
in Section 2.02(e).
"Investment Company" means a Person registered as a separate investment
-------------------
company under the Investment Company Act of 1940, as amended.
"Material Adverse Effect" means a material adverse effect on (a) the
-------------------------
business or properties of any Anchor Party, (b) the rights, remedies or
interests of ANLIC (Hawaii) under any Reinsurance Document or (c) the ability of
any Anchor Party to perform its obligations under any Annuity or any Reinsurance
Document.
"Moody's" means Moody's Investors Service, Inc.
-------
"Net Amounts Payable" means Gross Amounts Payable after application of the
--------------------
netting provisions set forth in Article VIII of the Reinsurance Agreement.
3
<PAGE>
"Obligor" means each Person from whom Anchor has the right to receive any
-------
Charges pursuant to an Annuity.
"Payment Date" shall mean the 23rd calendar day of each month if such day
-------------
falls on a Business Day, if not, then the first Business Day thereafter.
"Reinsurance Agreement" means the Reinsurance Agreement dated as of the
----------------------
date hereof between Anchor and ANLIC (Hawaii), as such agreement may be
supplemented, amended, replaced or otherwise modified from time to time.
"Reinsurance Documents" means this Agreement, the Reinsurance Agreement,
----------------------
the Standing Instructions, the Collection Procedures, the Allocation Procedures,
the Daily Reinsurance Servicer Report, the Reinsurance Servicer Report, the AIC
Retrocession Agreement, the ANLIC (Hawaii) YRT Retrocession Agreement, the CG
YRT Retrocession Agreement, the Successor YRT Retrocession Agreement and the
Fixed Account Segregated Asset Requirements and Procedures.
"Reinsurance Servicer Report" means a report in substantially the form of
-----------------------------
Exhibit 1.01B hereto, furnished by the Servicer to ANLIC (Hawaii) pursuant to
Section 4.02.
"Responsible Officer" means, in respect of any Person, any authorized
--------------------
officer of such Person who has the title of vice president or higher or an
officer performing substantially the same function of such officer.
"S&P" means Standard & Poor's, a division of The McGraw Hill Companies.
---
"SAP" means, with respect to any Person, statutory accounting practices
---
prescribed or permitted by the insurance regulator of the jurisdiction of
domicile of such Person.
"Service Transfer" has the meaning assigned to that term in Section
-----------------
4.01(b).
-
"Servicer" has the meaning specified in Section 4.01(a) and on the date
--------
hereof means the Initial Servicer.
"Servicer Default" means any one or more of the following:
-----------------
(a) a Servicer Remedy Event specified in Section 5.01(a); or
(b) any action taken or omitted by the Initial Servicer or any Servicer
that is an Affiliate of Anchor which has a Material Adverse Effect; or
(c) a Servicer Remedy Event specified in Section 5.01(g) with respect
to the Initial Servicer or any Servicer that is an Affiliate of Anchor.
"Servicer Remedy Event" has the meaning specified in Section 5.01.
-----------------------
"Standing Instructions" means the irrevocable standing instructions in
----------------------
4
<PAGE>
substantially the form of Schedule 13.1-2 of the Reinsurance Agreement.
"Successor Servicer" means at any time the Person (including CNAI, as
-------------------
agent, but excluding the Initial Servicer) then authorized pursuant to Article
IV to service, administer and collect the Gross Amounts Payable.
"Surrender" means, with respect to an Annuity, a total withdrawal of 100%
---------
of the accumulated value of the Annuity (other than through the receipt of
annuity payments during the Income Phase (as defined in the Prospectus) or the
payment of a death benefit) which results in a cancellation of the Annuity. For
purposes of this Agreement, partial withdrawals shall not be deemed Surrenders.
"Surrendered Annuity" means an Annuity with respect to which a Surrender
--------------------
has occurred.
SECTION 1.02. Other Terms. As used herein, and in any certificate or
------------
other document made or delivered pursuant hereto or thereto, accounting terms
not defined in Section 1.01, and accounting terms partly defined in Section 1.01
to the extent not defined, shall have the respective meanings given to them
under GAAP or SAP, as applicable, in effect on the date hereof. To the extent
that the definitions of accounting terms are inconsistent with the meanings of
such terms under GAAP or SAP, as applicable, the definitions contained herein
shall control. The term "including" means "including but not limited to". All
terms used in Article 9 of the UCC, and not specifically defined herein, are
used herein as defined in such Article 9. As used in any Reinsurance Document,
the phrase "hold in trust" shall not require segregation of assets unless
expressly set forth to the contrary.
SECTION 1.03. Computation of Time Periods. Unless otherwise stated in
------------------------------
this Agreement, in the computation of a period of time from a specified date to
a later specified date, the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding".
SECTION 1.04. Other Definitional Provisions. (a) The headings of the
-------------------------------
sections of this Agreement are solely for convenience of reference and shall not
affect the meaning, construction or effect of this Agreement.
(b) All terms defined in this Agreement shall have the defined meaning
when used in any certificate or other documents made or delivered pursuant
hereto unless otherwise defined therein.
(c) Any reference herein to any statute, agreement or document, or any
section thereof, shall, unless otherwise expressly provided, be a reference to
such statute, agreement, document or section as amended, modified or
supplemented (including any successor section) and in effect from time to time.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.01. Representations and Warranties of Anchor. Anchor
---------------------------------------------
5
<PAGE>
represents and warrants as of the date hereof as follows:
(a) The execution, delivery and performance by Anchor of the
Reinsurance Documents to which it is a party are within Anchor's corporate
powers, have been duly authorized by all necessary corporate action, do not
contravene (i) Anchor's articles of incorporation or by-laws or (ii) law or any
regulation or contractual restriction binding on or affecting Anchor, and do not
result in or require the creation of any Adverse Claim (other than pursuant
thereto) upon or with respect to the Separate Accounts or Annuities or any of
its properties; and no transaction contemplated hereby requires compliance with
any bulk sales act or similar law (other than California Civil Code 3440.1,
which has been duly complied with).
(b) No authorization or approval or other action by, and no notice to
or filing with, any Governmental Authority is required for the due execution,
delivery and performance by Anchor of any Reinsurance Document to which it is a
party, or for the exercise by ANLIC (Hawaii) of its rights and remedies under
any such Reinsurance Document, except for such other filings with and approvals
of such Governmental Authorities as have been duly made and obtained prior to
the date hereof.
(c) Each Reinsurance Document to which it is a party is the legal,
valid and binding obligation of Anchor enforceable against Anchor in accordance
with its respective terms. The Reinsurance Documents to which it is a party
have been duly executed and delivered by Anchor.
(d) There is no pending or, to the knowledge of Anchor, threatened
action or proceeding against or involving any Anchor Party before any court,
Governmental Authority or arbitrator that may have a Material Adverse Effect or
that purports to affect the legality, validity or enforceability of the
Reinsurance Documents.
(e) Schedule 2.01(e) hereof contains true, correct and complete copies
of each of the forms of Annuity agreements (including but not limited to the
form of each endorsement included in any Annuity) and such forms of Annuity
contracts have been furnished to Connecticut General Life Insurance Company in
connection with the CG YRT Retrocession Agreement.
(f) Set forth on Schedule 2.01(f) hereto are the CARVM reserve
methodology for the Polaris program and for the Pathway program in use by
Anchor, as approved by the Arizona Department of Insurance and in use in other
applicable jurisdictions.
SECTION 2.02. Representations and Warranties of the Initial Servicer. The
------------------------------------------------------
Initial Servicer represents and warrants as of the date hereof as follows:
(a) The Initial Servicer is a stock life insurance company duly
incorporated, validly existing and in good standing under the laws of Arizona
and is duly qualified and licensed in the District of Columbia and all States of
the United States of America except the States of New York and Wyoming and in
good standing as a foreign insurer in each jurisdiction where the failure to be
so qualified would have a Material Adverse Effect.
6
<PAGE>
(b) The execution, delivery and performance by the Initial Servicer of
each Reinsurance Document to which it is a party are within the Initial
Servicer's corporate powers, have been duly authorized by all necessary
corporate action, do not contravene (i) the Initial Servicer's articles of
incorporation or by-laws or (ii) law or any regulation or contractual
restriction binding on or affecting the Initial Servicer, and do not result in
or require the creation of any Adverse Claim (other than pursuant thereto) upon
or with respect to the Separate Account or Annuities or any of its properties;
and no transaction contemplated hereby requires compliance with any bulk sales
act or similar law (other than California Civil Code 3440.1, which has been duly
complied with).
(c) No authorization or approval or other action by, and no notice to
or filing with, any Governmental Authority is required for the due execution,
delivery and performance by the Initial Servicer of any Reinsurance Document to
which it is a party, or for the exercise by ANLIC (Hawaii) of its rights and
remedies under any such Reinsurance Document, except for such other filings with
and approvals of such Governmental Authorities as have been duly made and
obtained prior to the date hereof.
(d) Each Reinsurance Document to which it is a party is the legal,
valid and binding obligation of the Initial Servicer enforceable against the
Initial Servicer in accordance with its terms. The Reinsurance Documents to
which it is a party have been duly executed and delivered by the Initial
Servicer.
(e) The annual Convention Statement of the Initial Servicer including,
the provisions made therein for investments and the valuation thereof, reserves,
policy and contract claims and statutory liabilities, as filed with the
Department and delivered to ANLIC (Hawaii) prior to the execution and delivery
of this Agreement, as of and for the years ended December 31, 1996, 1997 and
1998 (collectively, the "Initial Servicer Statutory Financial Statements"), have
-----------------------------------------------
been prepared in accordance with SAP applicable thereto applied on a consistent
basis (except as noted therein). Each such Initial Servicer Statutory Financial
Statement was in compliance with applicable law when filed. According to the
best of the Initial Servicer's information, knowledge and belief, the Initial
Servicer Statutory Financial Statements are a full and true statement of all the
assets and liabilities and of the condition and affairs of the Initial Servicer
as of the respective dates thereof and of its income and deductions therefrom
for the respective years ended on such dates and have been completed in
accordance with the NAIC annual statement instructions and accounting practices
and procedures manuals except to the extent that state law may differ or that
state rules or regulations require differences in reporting not related to
accounting practices and procedures.
(f) There is no pending or, to the knowledge of the Initial Servicer,
threatened action or proceeding against or involving any Anchor Party before any
court, Governmental Authority or arbitrator that may materially adversely affect
(i) the financial condition or operations of the Initial Servicer or (ii) the
ability of the Initial Servicer to perform its obligations under any Reinsurance
Document to which it is a party, or that purports to affect the legality,
validity or enforceability of any Reinsurance Document.
7
<PAGE>
ARTICLE III
GENERAL COVENANTS
SECTION 3.01. Affirmative Covenants of Anchor. Until the Terminal
----------------------------------
Accounting Date, Anchor will, unless ANLIC (Hawaii) shall otherwise consent in
writing:
(a) Other Agreements. Duly and punctually observe and perform each and
----------------
every obligation on its part to be observed or performed under each Reinsurance
Document to which it is a party, all of the terms of which (as the same may be
modified or amended from time to time as permitted herein) are hereby
incorporated herein by reference to the same extent as if set forth in full
herein irrespective of any expiration or termination of the such Reinsurance
Document.
(b) Collections Received by Anchor. (i) Deposit to the Cash Collateral
------------------------------
Account on each Payment Date all Net Amounts Payable received from time to time
by Anchor and (ii) if Anchor has a claim's payment rating below A by S&P or
below A2 by Moody's, to the extent any distribution representing M&E Fees (as
defined in the Standing Instructions) other than a distribution on a Payment
Date pursuant to a Reinsurance Servicer Report shall be received by Anchor
notwithstanding the Custodian's receipt of the notice delivered pursuant to the
Standing Instructions, return such M&E Fees to the Custodian immediately upon
receipt and, until the same are so returned, hold and segregate the same.
(c) Notices. Furnish to Citicorp North America, Inc., at 399 Park
-------
Avenue, 6th Floor/Zone #2, New York, NY 10043, Telecopy (212) 758-6272, Attn:
Art Bovino, all notices delivered under the Reinsurance Agreement.
SECTION 3.02. Negative Covenants of Anchor. Until the Terminal Accounting
----------------------------
Date, Anchor will not, unless ANLIC (Hawaii) shall otherwise consent in writing:
(a) Waive, amend or otherwise modify in any respect any Reinsurance
Document;
(b) Waive, amend or otherwise modify in any respect the CARVM reserve
methodology and pricing assumptions set forth on Schedule 2.01(f) hereto, except
to the extent permitted by Section 14.2(i) of the Reinsurance Agreement;
(c) Add any Fund pursuant to Section 14.7 of the Reinsurance Agreement
unless Anchor shall have delivered to ANLIC (Hawaii) a counterpart of the
Standing Instructions duly executed by such Fund; or
(d) Make any change in the character of its business or consent to any
change of the Collection Procedures, which change would be reasonably likely to
impair the collectability of the Gross Amounts Payable.
SECTION 3.03. Affirmative Covenants of the Initial Servicer. Until the
-----------------------------------------------
payment in full in cash of all amounts payable under the Reinsurance Documents,
8
<PAGE>
the Initial Servicer will, unless ANLIC (Hawaii) shall otherwise consent in
writing:
(a) Performance. Duly and punctually observe and perform each and
-----------
every obligation on its part to be observed or performed under this Agreement,
all of the terms of which (as the same may be modified or amended from time to
time as permitted herein) are hereby incorporated herein by reference to the
same extent as if set forth in full herein irrespective of any expiration or
termination of the Reinsurance Agreement.
(b) Performance and Compliance with Charges and Annuities. Timely and
------------------------------------------------------
fully perform and comply with all material provisions, covenants and other
promises required to be observed by it under the Annuities.
(c) Collections Received by the Initial Servicer. Deposit to the Cash
---------------------------------------------
Collateral Account, on each date when such a deposit is required for the
Servicer under Article IV of this Agreement or is required pursuant to the
Standing Instructions, all Net Amounts Payable received from time to time by the
Initial Servicer or by Anchor.
(d) Collection Procedures, Allocation Procedures and Standing
--------------------------------------------------------------
Instructions. Implement and comply at all times with the Collection Procedures,
---
the Allocation Procedures and the Standing Instructions.
(e) Audits. At any time and from time to time during regular business
------
hours, permit ANLIC (Hawaii), or its agents or representatives (including any
Successor Servicer), upon reasonable advance notice (i) to examine and make
copies of and abstracts from all books, records and documents (including
computer tapes and disks) in the possession or under the control of Anchor
relating to the Annuities and the Gross Amounts Payable and (ii) to visit the
offices and properties of Anchor for the purpose of examining such materials
described in clause (i) above, and to discuss matters relating to the Annuities
and the Gross Amounts Payable or Anchor's performance under the Reinsurance
Documents or under the Annuities with any of the officers or employees of Anchor
having knowledge of such matters, provided that by exercising any such rights
ANLIC (Hawaii) agrees that it will hold in confidence all information so
obtained and will use the same only for the purposes contemplated by the
Reinsurance Documents.
SECTION 3.04. Reporting Requirements of the Initial Servicer. Until the
-----------------------------------------------
Terminal Accounting Date, the Initial Servicer will, unless ANLIC (Hawaii) shall
otherwise consent in writing, furnish to ANLIC (Hawaii) (in addition to the
Initial Servicer's obligations under Section 3.03(a)):
(a) as soon as possible and in any event within five Business Days
after the Initial Servicer's knowledge of the occurrence of (i) each Servicer
Remedy Event or Servicer Default, (ii) each Recapture Event, (iii) each event
that, with the giving of notice or lapse of time or both, would constitute a
Servicer Remedy Event, Recapture Event or Servicer Default, or (iii) any
Material Adverse Effect, a written statement of a Responsible Officer of the
Initial Servicer setting forth details of such Servicer Remedy Event, Recapture
Event, Servicer Default, Event of Default, other event or effect and the action
that the Initial Servicer proposes to take with respect thereto;
9
<PAGE>
(b) (A) promptly upon becoming available, but in any event within 75
days after the end of each calendar year, a copy of the annual Convention
Statements of the Initial Servicer for such calendar year, and (B) promptly upon
becoming available, but in any event within 60 days after the end of each of the
first three calendar quarters, a copy of the quarterly Conventions Statements of
the Initial Servicer for such quarter, in each case as filed by the Initial
Servicer with the Department and executed by the appropriate officer under the
laws of the state of domicile of the Initial Servicer, prepared in accordance
with SAP and accompanied by the certification of the chief financial officer or
chief executive officer or controller or treasurer of the Initial Servicer that
such annual or quarterly Convention Statement presents, to the best of his or
her information, knowledge and belief, a full and true statement of all the
assets and liabilities and of the condition and affairs of the Initial Servicer
as of the date thereof and of its income and deductions therefrom for the period
ended on such date and have been completed in accordance with the NAIC statement
instructions and accounting practices and procedures manuals except to the
extent that state law may differ or that state rules or regulations require
differences in reporting not related to accounting practices and procedures;
(c) within 90 days after the end of each calendar year, a copy of each
"Statement of Actuarial Opinion" that is provided to the Department (or
equivalent information should the Department no longer require such a statement)
as to the adequacy of aggregate reserves for life policies and contracts of the
Initial Servicer;
(d) as soon as possible and in any event within five Business Days
after the occurrence of any adjustment, settlement, waiver, compromise or change
in the terms or conditions of any Annuity or any credit, discount or release in
respect thereof, other than (i) that which is permitted by the Waiver Allowance,
and (ii) any adjustments, settlements, waivers, compromises or changes in the
terms or conditions of any charges or any credits, discounts or releases in
respect thereof which, in the aggregate, exceeds $500,000 in excess of the
Waiver Allowance in any calendar year, the statement of a Responsible Officer of
the Initial Servicer setting forth details thereof;
(e) promptly after the receipt thereof and in any event within five
Business Days, copies of each communication received by the Initial Servicer
from the Securities and Exchange Commission or the National Association of
Securities Dealers to Anchor reporting the final results of, any audit or other
investigation related to the Annuities or any aspect of the sale, maintenance,
investment or administration thereof; and
(f) promptly, from time to time, such other information, documents,
records or reports respecting the Annuities and the Gross Amounts Payable or the
conditions or operations, financial or otherwise, of the Initial Servicer, as
ANLIC (Hawaii) may from time to time reasonably request in writing in order to
protect ANLIC (Hawaii)'s interests under or contemplated by any Reinsurance
Document.
SECTION 3.05. Negative Covenants of the Initial Servicer. Until the
----------------------------------------------
10
<PAGE>
Terminal Accounting Date, the Initial Servicer will not, unless ANLIC (Hawaii)
shall otherwise consent in writing:
(a) Waive, amend or otherwise modify in any respect any Reinsurance
Document;
(b) Waive, amend or otherwise modify in any respect the CARVM reserve
methodology and pricing assumptions set forth on Schedule 2.01(f) hereto, except
to the extent permitted by Section 14.2(i) of the Reinsurance Agreement; and
(c) Consolidate with or merge with or into any other Person, provided
--------
that this Section 3.05(c) shall not apply to any merger of the Initial Servicer
with another Person if both (i) the Initial Servicer is the corporation
surviving to such merger and (ii) immediately after giving effect to such merger
no event or condition shall have occurred and be continuing which constitutes,
or with notice or lapse of time would constitute, a Servicer Remedy Event.
SECTION 3.06. Reporting Requirements of ANLIC (Hawaii). Until the
--------------------------------------------
Terminal Accounting Date, ANLIC (Hawaii) will, unless ANLIC (Hawaii) shall
otherwise consent in writing, furnish to the Agent:
(a) as soon as available and in any event within 60 days of the end of
each of the first three quarters of each calendar year, balance sheets of ANLIC
(Hawaii) prepared in accordance with GAAP as of the end of such quarter, and the
related statement of operations and surplus of ANLIC (Hawaii) each prepared in
accordance with GAAP for the period commencing at the end of the previous
calendar year and ending with the end of such quarter, certified by the chief
financial officer or chief accounting officer of ANLIC (Hawaii);
(b) as soon as available and in any event within 90 days after the end
of each calendar year, balance sheets of ANLIC (Hawaii) prepared in accordance
with GAAP as at the end of such year, and the related statement of operations
and surplus of ANLIC (Hawaii) for such year each prepared in accordance with
GAAP and certified by the chief financial officer or chief accounting officer of
ANLIC (Hawaii);
(c) promptly, from time to time, such other information, documents,
records or reports respecting the Annuities, the Gross Amounts Payable or the
conditions or operations, financial or otherwise, of ANLIC (Hawaii), as the
Agent may from time to time reasonably request in writing; and
(d) promptly prepare the annual actuarial report required by the
Insurance Division of the Department of Commerce & Consumer Affairs of the State
of Hawaii.
SECTION 3.07. Reporting Requirements of AIC. Until the Terminal
--------------------------------
Accounting Date, AIC will, unless ANLIC (Hawaii) shall otherwise consent in
writing, furnish to ANLIC (Hawaii):
(a) as soon as available and in any event within 60 days of the end of
11
<PAGE>
each of the first three quarters of each calendar year, balance sheets of AIC
prepared in accordance with GAAP as of the end of such quarter, and the related
statement of operations and surplus of AIC each prepared in accordance with GAAP
for the period commencing at the end of the previous calendar year and ending
with the end of such quarter, certified by the chief financial officer or chief
accounting officer of AIC;
(b) as soon as available and in any event within 90 days after the end
of each calendar year, balance sheets of AIC prepared in accordance with GAAP as
at the end of such year, and the related statement of operations and surplus of
AIC for such year each prepared in accordance with GAAP and certified by the
chief financial officer or chief accounting officer of AIC;
(c) promptly, from time to time, such other information, documents,
records or reports respecting the Reinsurance Documents or the conditions or
operations, financial or otherwise, of Anchor, as CNAI may from time to time
reasonably request in writing in order to protect ANLIC (Hawaii)'s interests
under or contemplated by any Reinsurance Document; and
(d) promptly prepare the annual actuarial report required by Insurance
Division of the Department of Commerce & Consumer Affairs of the State of
Hawaii.
ARTICLE IV
ADMINISTRATION AND COLLECTION
SECTION 4.01. Designation of Servicer. (a) The Gross Amounts Payable shall be
-----------------------
serviced, administered and collected by the Person (the "Servicer") designated
--------
to do so from time to time in accordance with this Section 4.01. Until ANLIC
(Hawaii) designates a new Servicer pursuant to this Section 4.01, SunAmerica
Life Insurance Company is hereby designated as, and hereby agrees to perform the
duties and obligations of, the Servicer pursuant to the terms hereof. Anchor
agrees to pay to the Initial Servicer on demand all of its fees, costs and
expenses in connection with the performance of its obligation as Servicer. If
any Servicer Default shall have occurred and be continuing, Anchor may designate
as Servicer any Person (a "Successor Servicer") permitted hereby to succeed in
------------------
whole or in part the Initial Servicer or any successor, if such Person shall be
approved by ANLIC (Hawaii) (which approval not to be unreasonably delayed or
withheld) and shall agree in writing (and obtain all necessary licenses and
regulatory approvals) to perform the duties and obligations of the Servicer
pursuant to the terms hereof to the extent requested by Anchor and permitted by
all applicable laws, rules and regulations. If Anchor is unable to obtain the
consent of a third party to succeed the Initial Servicer or a Successor
Servicer, as the case may be, as Servicer, ANLIC (Hawaii) hereby reserves the
right to act as Servicer in whole or in part in accordance with the preceding
sentence. Notwithstanding anything to the contrary in any Reinsurance Document
and without limiting the scope of duties and obligations that may be performed
by a Successor Servicer, the Successor Servicer may from time to time during
regular business hours inspect records and oversee activities of the Initial
Servicer in respect of its performance of obligations under the Reinsurance
Documents, including but not
12
<PAGE>
limited to taking all actions and reviewing all information appropriate to
confirm compliance with the Collection Procedures, Allocation Procedures and
Fixed Account Segregated Asset Requirements and Procedures. The Servicer may,
with the prior written consent of ANLIC (Hawaii), subcontract with any other
Person to service, administer or collect the Gross Amounts Payable if such
Person is permitted to do so by all applicable laws, rules and regulations,
provided that (i) the Person with whom the Servicer so subcontracts shall not
----
become the Servicer hereunder and the Servicer shall remain liable for the
performance of the duties and obligations of the Servicer pursuant to the terms
hereof and (ii) the Initial Servicer is not required to obtain the prior written
consent of ANLIC (Hawaii) to subcontract (A) with any Affiliate of the Initial
Servicer or (B) with any other Person approved by the Department.
(b) Upon the designation of any Successor Servicer pursuant to Section
4.01(a), all authority and power of the Servicer under this Agreement in respect
of the duties and obligations to be performed by such Successor Servicer shall
pass to and be vested in a Successor Servicer (a "Service Transfer"); provided,
---------------- --------
however, that the responsibilities and duties of the Servicer under this
- -------
Agreement for Collections received prior to such designation of a Successor
- -------
Servicer, and the responsibilities and duties of the Servicer which the
- ----
Successor Servicer has not expressly agreed to perform, shall not terminate.
- ----
Without limitation but solely to the extent permitted by applicable law, ANLIC
- --
(Hawaii) is hereby authorized and empowered (upon the failure of the Servicer to
cooperate) with full power of substitution to execute and deliver, on behalf of
the Servicer, as attorney-in-fact or otherwise, all documents and other
instruments upon the failure of the Servicer to execute or deliver such
documents or instruments, and to do and accomplish all other acts or things
necessary or appropriate to effect the purposes of such Service Transfer. The
Servicer agrees to cooperate with ANLIC (Hawaii) and such Successor Servicer in
effecting the termination of the responsibilities and rights of the Servicer to
conduct servicing hereunder, including the transfer to such Successor Servicer
of all authority of the Servicer to service the Gross Amounts Payable provided
for under this Agreement to the extent requested for such Service Transfer,
including all authority over all Collections that shall on the date of transfer
be held by the Servicer for deposit, or that have been deposited by the
Servicer, in the Cash Collateral Account or the Agent's Account, or that shall
thereafter be received with respect to the Charges, and in assisting the
Successor Servicer. To the extent requested by ANLIC (Hawaii) in connection
with such Service Transfer, the Servicer shall promptly at its own expense (i)
transfer its electronic records relating to the Gross Amounts Payable to the
Successor Servicer in such electronic form as the Successor Servicer may
reasonably request and (ii) transfer to the Successor Servicer copies (and, to
the extent required for enforcement, originals) of all other records,
correspondence and documents necessary for the continued servicing of the
Annuities and the Gross Amounts Payable, in the manner and at such times as the
Successor Servicer shall reasonably request. To the extent that compliance with
this Section 4.01(b) shall require the Servicer to disclose to the Successor
Servicer information of any kind that the Servicer reasonably deems to be
confidential or subject to licensing restrictions, the Successor Servicer shall
be required to enter into such customary licensing and confidentiality
agreements as the Servicer shall deem necessary to protect its interest or to
comply with the requirements of such licensing restrictions. The Initial
Servicer, however, will continue
13
<PAGE>
at all times to prepare and furnish in accordance with the Reinsurance Documents
(1) a Reinsurance Servicer Report on or before the fifteenth (15th) Business Day
of each month and (2) all reports as and when required by Section 3.06 for ANLIC
(Hawaii) and Section 3.07 for AIC, and each Successor Servicer shall make
available to the Initial Servicer any information in the possession of such
Successor Servicer necessary for the Initial Servicer to prepare any Reinsurance
Servicer Report.
SECTION 4.02. Duties of Servicer. (a) ANLIC (Hawaii), AIC and Anchor
--------------------
hereby appoint as their agent the Servicer, from time to time designated
pursuant to Section 4.01, to perform the functions which the Servicer is to
perform under the Reinsurance Documents. The Servicer shall take or cause to be
taken all such actions as may be necessary or advisable to collect all Gross
Amounts Payable from time to time, all in accordance with applicable laws, rules
and regulations, with reasonable care and diligence, and in accordance with the
Reinsurance Documents. In addition, the Servicer shall prepare on behalf of
ANLIC (Hawaii) and AIC the annual actuarial report required Insurance Division
of the Department of Commerce & Consumer Affairs of the State of Hawaii.
(b) Except as provided in Section 4.02(c), the Servicer will cause
Anchor to deposit all Net Amounts Payable in the Cash Collateral Account (to the
extent not previously so deposited) on each Payment Date. The Servicer shall,
not later than two Business Days prior to each Payment Date, deliver to ANLIC
(Hawaii) the Reinsurance Servicer Report.
(c) Upon receipt by the Servicer of a request to do so from ANLIC
(Hawaii) stating that an event or condition has occurred and is continuing which
constitutes, or with notice or lapse of time or both would constitute, a
Servicer Remedy Event or that the claims paying rating of Anchor or the Initial
Servicer has become less than A2 by Moody's or A by S&P, the Servicer shall:
(i) cause all Charges to be identified in the Daily Reinsurance
Servicer Report in accordance with the Reinsurance Documents on each Business
Day (A) in the case of contingent deferred sales charges, on the Business Day on
which they accrue, and (B) in the case of all other Gross Amounts Payable, on
the first Business Day after they accrue,
(ii) provide to the Custodian and to the Agent on each Business Day a
Daily Reinsurance Servicer Report, and
(iii) to the extent any distribution representing M&E Fees (as defined
in the Standing Instructions) other than a distribution on a Payment Date
pursuant to a Reinsurance Servicer Report shall be received by the Initial
Servicer notwithstanding the Custodian's receipt of the notice delivered
pursuant to the Standing Instructions, return such M&E Fees to the Custodian
immediately upon receipt and, until the same are so returned, hold in trust and
segregate the same.
ANLIC (Hawaii) may require compliance with this Section 4.02(c) whether or not
ANLIC (Hawaii) shall have designated a Successor Servicer under Section 4.01.
14
<PAGE>
(d) Upon the request of ANLIC (Hawaii) after a Servicer Default shall
have occurred and be continuing, the Initial Servicer shall deliver to the
Successor Servicer, and the Successor Servicer shall hold in trust for ANLIC
(Hawaii) in accordance with their respective interests, copies (and, to the
extent required for enforcement, originals) of all documents, instruments and
records (including computer tapes or disks) that evidence or relate to the Net
Amounts Payable.
(e) The Servicer's authorization under this Agreement shall terminate
upon the indefeasible payment in full in cash of amounts payable under the
Reinsurance Documents and receipt by ANLIC (Hawaii) and the Servicer,
respectively, of all other amounts owed to ANLIC (Hawaii) and the Servicer under
this Agreement (unless otherwise agreed by ANLIC (Hawaii) and the Servicer).
(f) No later than two Business Days prior to any Payment Date, the
Servicer shall provide to ANLIC (Hawaii) a Reinsurance Servicer Report as of the
last day of the immediately preceding calendar month.
SECTION 4.03. Rights of ANLIC (Hawaii). At any time following the
---------------------------
designation of a Servicer other than the Initial Servicer pursuant to Section
4.01 and subject at all times to compliance with applicable law:
(a) Anchor and the Initial Servicer shall, at ANLIC (Hawaii)'s request,
(i) assemble all of the documents, instruments and other records (including
computer tapes and disks) that evidence the Annuities and the Gross Amounts
Payable, or which are otherwise necessary or desirable to collect such Gross
Amounts Payable, and shall make copies (and, to the extent required for
enforcement, originals) of the same available to ANLIC (Hawaii) at a place
selected by ANLIC (Hawaii) or its designee, and (ii) promptly upon receipt,
segregate and remit all cash constituting Net Amounts Payable to ANLIC (Hawaii)
or its designee.
(b) ANLIC (Hawaii) may, to the maximum extent permitted by applicable
law, take any and all steps in Anchor's or the Initial Servicer's name and on
behalf of Anchor, the Initial Servicer and the other Anchor Parties necessary or
desirable, in the determination of ANLIC (Hawaii), to collect all amounts due in
respect of the Gross Amounts Payable.
SECTION 4.04. Responsibilities of Anchor. Anything herein to the contrary
--------------------------
notwithstanding:
(a) Anchor shall perform all of its obligations under the Annuities in
accordance with its customary practices and the exercise by ANLIC (Hawaii) of
its rights hereunder shall not relieve Anchor from such obligations or its
obligations with respect to Gross Amounts Payable.
(b) ANLIC (Hawaii) shall not have any obligation or liability with
respect to the Annuities or the Gross Amounts Payable.
(c) Anchor will deposit to the Cash Collateral Account, on each date
when such a deposit is required for the Servicer under Article IV of this
Agreement or is required pursuant to the Standing Instructions, all Net
15
<PAGE>
Amounts Payable received from time to time by Anchor. Anchor shall not adjust,
settle or compromise the amount or payment of any Charges, release wholly or
partly the Custodian or any obligor thereunder, or allow any credit or discount
thereon, except for the Waiver Allowance.
SECTION 4.05. Further Action. (a) ANLIC (Hawaii), AIC, Anchor and the
---------------
Initial Servicer each agrees that from time to time, at its expense, it will
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary, or that ANLIC (Hawaii) may reasonably
request, in order to, protect or more fully evidence the interests of ANLIC
(Hawaii) in the Reinsurance Documents, or to enable any of them to exercise and
enforce any of their respective rights and remedies under the Reinsurance
Documents.
ARTICLE V
SERVICER REMEDY EVENTS
SECTION 5.01. Servicer Remedy Event. Each of the following events shall
----------------------
constitute a "Servicer Remedy Event":
-----------------------
(a) The Servicer (i) shall fail to perform or observe any term,
covenant or agreement hereunder (other than as referred to in Section 3.04(b),
(c) or (e) or clause (ii) of this Section 5.01(a)) on its part to be performed
or observed and such failure shall remain unremedied for 3 Business Days or (ii)
shall fail to make any payment or deposit to be made by it under any Reinsurance
Document when due (or, upon the discovery of an unintentional error in a
Reinsurance Servicer Report as to an amount to be so paid or deposited, within 3
Business Days after such discovery if (A) the amount erroneously stated in such
Reinsurance Servicer Report was paid or deposited when due, (B) within such 3
Business Days the Servicer provides to ANLIC (Hawaii) a corrected Reinsurance
Servicer Report and (C) such Reinsurance Servicer Report states a greater amount
to be paid or deposited); or
(b) Anchor shall fail to perform or observe any term, covenant or
agreement contained in Section 3.01(b), Section 3.02, Section 14.4(g) of the
Reinsurance Agreement, or Section 14.5(c) of the Reinsurance Agreement; or
(c) Any representation or warranty or statement made by any Anchor
Party (or any of their respective officers) in or furnished pursuant to any
Reinsurance Document shall prove to have been incorrect in any material respect
when made; or
(d) Any Anchor Party shall fail to perform or observe any other term,
covenant or agreement contained in any Reinsurance Document on its part to be
performed or observed and any such failure shall remain unremedied for 10 days
after written notice thereof shall have been given to such Anchor Party by ANLIC
(Hawaii); or
(e) Anchor shall fail to pay any principal of or premium or interest on
any Debt which is outstanding in a principal amount of at least U.S.
16
<PAGE>
$50,000,000 in the aggregate, within the applicable grace period (if any) for
such payment after the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise); or any other
event shall occur or condition shall exist under any agreement or instrument
relating to any such Debt which has not been effectively waived under such
agreement or instrument if the effect of such event or condition (after the
expiration of any grace or cure periods provided for therein) is to accelerate,
or to permit the acceleration of, the maturity of such Debt; or any such Debt
shall be accelerated or otherwise declared to be due and payable, or required to
be prepaid (other than by a regularly scheduled required prepayment), redeemed,
purchased or defeased, or an offer to prepay, redeem, purchase or defease such
Debt shall be required to be made, in each case prior to the stated maturity
thereof; or
(f) Anchor shall fail for any reason to own all Annuities and Charges
and rights therein free and clear of any Adverse Claim; or
(g) There shall be a filing or entry of a decree or order for relief by
a court, or the commencement of a delinquency proceeding by a Governmental
Authority (including any insurance regulatory authority), having jurisdiction in
the premises in respect of any Anchor Party or any substantial part of their
respective property in an involuntary case or proceeding under any applicable
bankruptcy, insolvency, rehabilitation, liquidation, reorganization,
conservation, dissolution or other similar law now or hereafter in effect, or
there shall be appointed a receiver, liquidator, rehabilitator, conservator,
assignee, custodian, trustee, sequestrator or similar official for any Anchor
Party or for any substantial part of its respective property, or there shall be
ordered a winding-up, liquidation, rehabilitation, reorganization, conservation
or dissolution of any Anchor Party's business, and (other than in a case or
proceeding in which such case, proceeding, decree, order or appointment was
instituted by an Affiliate of an Anchor Party or by a Governmental Authority
(including any insurance regulatory authority)) where any of the foregoing
matters shall remain unstayed and in effect for a period of 60 consecutive days;
any Anchor Party shall commence a voluntary case or proceeding under any
applicable bankruptcy, insolvency, rehabilitation, liquidation, reorganization,
conservation, dissolution or other similar law now or hereafter in effect, or
any Anchor Party shall consent to the entry of an order for relief in an
involuntary case or proceeding under any such law or shall consent to the
appointment of or taking possession by a receiver, liquidator, rehabilitator,
conservator, assignee, custodian, trustee, sequestrator or similar official for
such Anchor Party or for any substantial part of its property, or any Anchor
Party shall make any general assignment for the benefit of creditors, or any
Anchor Party shall fail generally to pay its debts as such debts become due or
any Anchor Party shall admit in writing its inability to pay its debts
generally; or any Anchor Party shall take any corporate action to authorize any
of the actions set forth above in this subsection (g); or
(h) Any "Event of Recapture" shall occur under and as defined in the
Reinsurance Agreement or the AIC Retrocession Agreement;
then, and in any such event, or in the event that Anchor has a claim's payment
17
<PAGE>
rating below A by S&P or below A2 by Moody's, ANLIC (Hawaii) may at any time
thereafter deliver the notice referred to in Section 2 of the Standing
Instructions to the Custodian. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law or this or any other agreement.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Amendments, Etc. No amendment or waiver of any provision of
---------------
this Agreement, and no consent to any departure by Anchor or the Initial
Servicer herefrom, shall in any event be effective unless the same shall be in
writing and signed by ANLIC (Hawaii), and then such amendment, waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
SECTION 6.02. Notices, Etc. All notices and other communications provided
------------
for hereunder shall, unless otherwise stated herein, be in writing (including
telecopier, telegraphic, telex or cable communication) and mailed, telecopied,
telegraphed, telexed, cabled or delivered by hand or by overnight courier, as to
each party hereto, at its address set forth under its name on the signature
pages hereof or at such other address as shall be designated by such party in a
written notice to the other parties hereto. All such notices and communications
shall be effective when received.
SECTION 6.03. No Waiver; Remedies. No failure on the part of ANLIC
---------------------
(Hawaii) to exercise, and no delay in exercising, any of its rights hereunder or
under any Reinsurance Document shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 6.04. Binding Effect; Assignability. This Agreement shall be
-------------------------------
binding upon and inure to the benefit of ANLIC (Hawaii), Anchor, the Servicer
and their respective assigns, except that neither the Servicer nor Anchor shall
have the right to assign its rights hereunder or any interest herein without the
prior written consent of ANLIC (Hawaii). This Agreement shall create and
constitute the continuing obligation of the parties hereto in accordance with
its terms, and shall remain in full force and effect until such time, as all
amounts payable under the Reinsurance Documents shall have been indefeasibly
paid in full in cash.
SECTION 6.05. Consent to Jurisdiction. (a) Each party hereto hereby
-------------------------
irrevocably submits to the exclusive jurisdiction of any State or Federal court
sitting in the State of Delaware, or, if no court in Delaware will exercise
jurisdiction, Arizona, and any appellate court from any thereof in any action or
proceeding arising out of or relating to any Reinsurance Document or any other
instrument or document furnished pursuant hereto, and each such party hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such Delaware or Arizona State court, as the case may
be, or in such Federal court sitting in Delaware or Arizona, as the case may be.
Each such party hereby irrevocably waives, to the fullest
18
<PAGE>
extent it may effectively do so, the defense of an inconvenient forum to the
maintenance of such action or proceeding. Each such party irrevocably consents
to the service of copies of the summons and complaint and any other process that
may be served in any such action or proceeding by the mailing of copies of such
process to such party at its address specified pursuant to Section 6.02. Each
such party agrees that a final judgment in any such action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law.
(b) Nothing in this Section 6.05 shall affect the right of any such
party to serve legal process in any other manner permitted by law or affect the
right of any such party to bring any action or proceeding against any other such
party or their respective property in the courts of other jurisdictions other
than the State of New York if no court in the States of Delaware or Arizona will
exercise jurisdiction.
SECTION 6.06. GOVERNING LAW. THIS AGREEMENT AND THE CERTIFICATE SHALL BE
-------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
SECTION 6.07. No Proceedings. ANLIC (Hawaii), AIC, Anchor and the
---------------
Servicer each hereby agrees that it will not institute against the Purchaser any
proceeding of the type referred to in Section 5.01(g) so long as any commercial
paper or other debt securities issued by the Purchaser shall be outstanding or
there shall not have elapsed one year plus one day since the last day on which
any such commercial paper or other debt securities shall have been outstanding.
SECTION 6.08. Confidentiality. (a) The structure of the transactions
---------------
contemplated by the Reinsurance Documents (as defined in this Agreement and the
Servicing Agreement dated as of December 31, 1997 among ANLIC Insurance Company
(Hawaii), Anchor, Anchor Insurance Company (Hawaii) and SunAmerica Life
Insurance Company), any related analyses, computer models, information, tax,
legal or accounting opinions or other documents and any related written
information (collectively, "Citicorp Product Information") constitute CNAI's
------------------------------
proprietary information; provided that Citicorp Product Information shall not
--------
include any information that:
(i) is or becomes available to the public other than as a result of
disclosure by the Company Representatives, ANLIC (Hawaii), the Initial Servicer
or Anchor, or
(ii) was known by or was in the possession of ANLIC (Hawaii), the
Initial Servicer or Anchor prior to its disclosure by CNAI to ANLIC (Hawaii),
the Initial Servicer or Anchor, or
(iii) becomes available to ANLIC (Hawaii), the Initial Servicer or
Anchor on a non-confidential basis from a source not known to be bound by a
confidentiality agreement with or under other obligation of secrecy to CNAI.
(b) ANLIC (Hawaii), the Initial Servicer and Anchor agree to maintain
the confidentiality of the Citicorp Product Information (and all drafts thereof)
and not to disclose the Citicorp Product Information, directly or
19
<PAGE>
indirectly, without CNAI's consent, other than:
(i) to their respective officers, directors, employees, agents,
attorneys, accountants and advisors ("Company Representatives"), and then only
-----------------------
on a confidential, need-to-know basis,
(ii) as required by law, rule or regulation or judicial process or
(iii) as requested or required by any state, local, federal or foreign
authority or examiner regulating insurance or reinsurance companies or banking
or otherwise having jurisdiction.
(c) ANLIC (Hawaii), the Initial Servicer and Anchor agree to use the
Citicorp Product Information only in connection with the transaction
contemplated by the Reinsurance Documents and not for any other purpose.
(d) ANLIC (Hawaii), the Initial Servicer and Anchor agree to cause the
Company Representatives and the Anchor Parties to comply with these provisions
and to be responsible for any failure of any such representatives and the Anchor
Parties so to comply.
(e) In the event that ANLIC (Hawaii), the Initial Servicer and Anchor
are requested, compelled or required (by deposition, interrogatory, request for
information or production of documents, subpoena, civil investigative demand or
similar process) to disclose any Citicorp Product Information, then ANLIC
(Hawaii), the Initial Servicer and Anchor shall, to the extent permitted by law
and reasonably practicable under the circumstances, immediately give the other
party notice of such request so that the other party may seek a protective order
or other appropriate remedy. If, in the absence of a protective order or
waiver, ANLIC (Hawaii), the Initial Servicer and Anchor are nonetheless
compelled to disclose Citicorp Product Information, ANLIC (Hawaii), the Initial
Servicer and Anchor may disclose such information without liability hereunder;
provided that ANLIC (Hawaii), the Initial Servicer and Anchor exercise
-------
reasonable efforts (at CNAI's sole cost and expense) to obtain assurance that
-------
confidential treatment will be accorded to such disclosed information. ANLIC
-
(Hawaii), the Initial Servicer and Anchor shall not oppose any action by CNAI to
-
obtain a protective order or other assurance that confidential treatment will be
accorded.
(f) The parties agree that CNAI will suffer irreparable harm from and
will not have an adequate remedy at law with respect to any breach of this
Section. In addition to all other remedies, CNAI shall be entitled to specific
performance and injunctive or other equitable relief as a remedy for any such
breach. If the Anchor Parties obtain actual knowledge of any unauthorized
disclosure of the Citicorp Product Information by any Company Representative,
the Anchor Parties shall disclose to CNAI such unauthorized disclosure.
(g) The provisions of this Section 6.08 shall survive termination of
this Agreement.
SECTION 6.09. Payments and Computations, Etc. (a) All amounts to be paid
------------------------------
or deposited by Anchor or the Servicer pursuant to the Reinsurance Documents
shall be paid or deposited in accordance with the terms hereof no
20
<PAGE>
later than 11:00 A.M. (New York City time) on the day when due in lawful money
of the United States of America in same day funds to the Agent's Account (or,
where a Reinsurance Document so specifies, to the Cash Collateral Account) for
the account of ANLIC (Hawaii).
(b) Anchor or the Initial Servicer shall, to the extent permitted by
law, pay to ANLIC (Hawaii) interest on all amounts not paid or deposited when
due by Anchor or the Initial Servicer under the Reinsurance Documents at 2% per
annum above the Alternate Base Rate in effect from time to time, payable on
demand; provided, however, that such interest rate shall not at any time exceed
-------- -------
the maximum rate permitted by applicable law. All computations of interest and
fees hereunder shall be made on the basis of a year of 360 days for the actual
number of days (including the first but excluding the last day) elapsed.
SECTION 6.10. Execution in Counterparts; Severability. This Agreement may
---------------------------------------
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement. In case any provision in or obligation under
this Agreement should be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
SECTION 6.11. Judgment. (a) If, for the purposes of obtaining judgment
--------
in any court, it is necessary to convert a sum due under the Reinsurance
Documents in United States dollars into another currency, the parties hereto
agree, to the fullest extent that they may effectively do so, that the rate of
exchange used shall be that at which in accordance with normal banking
procedures CNAI could purchase United States dollars with such other currency in
New York on the Business Day preceding that on which final judgment is given.
(b) The transaction contemplated by the Reinsurance Documents is an
international insurance transaction in which the specification of United States
dollars and payment in New York, New York, is of the essence, and United States
dollars shall be the currency of account in all events. The obligation of each
Anchor Party party to any Reinsurance Document in respect of any sum due from it
to any other party under any Reinsurance Document shall, notwithstanding any
judgment in a currency other than United States dollars, be discharged only to
the extent that on the Business Day following receipt by such party of any sum
adjudged to be so due in such other currency such party may in accordance with
normal banking procedures purchase United States dollars with such other
currency; if the United States dollars so purchased are less than the sum
originally due to such party in United States dollars, each Anchor Party party
to this Agreement agrees, as a separate obligation and notwithstanding any such
judgment, to indemnify such party against such loss, and if the United States
dollars so purchased exceed the sum originally due to any party in United States
dollars, such party agrees to remit to such Anchor Party such excess.
21
<PAGE>
SECTION 6.12. WAIVER OF JURY TRIAL. EACH OF ANLIC (Hawaii), ANCHOR AND
---------------------
THE SERVICER, HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY
REINSURANCE DOCUMENT.
22
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers thereunto duly authorized, as of the date first above
written.
ANCHOR INSURANCE COMPANY (HAWAII), LTD.
By:____________________________________
Name
Title
Address for Notices:
c/o Anchor Insurance Company (Hawaii), Ltd.
c/o 50th State Risk Management Services, Inc.
Six Waterfront Plaza, Room 405
500 Ala Moana Boulevard
Honolulu, HI 96813
Attention: Ann Nakagawa
Facsimile: (808) 524-9526
Telephone: (808) 543-9737
with a copy to:
General Counsel
SunAmerica Inc.
1 SunAmerica Center
1999 Avenue of the Stars
Los Angeles, CA 90067
Telephone: 310-772-6000
Telecopy: 310-772-6574
ANCHOR NATIONAL LIFE INSURANCE COMPANY
By_____________________________________
Title:
1 SunAmerica Center
1999 Avenue of the Stars
Los Angeles, CA 90067
Attention: Jim Belardi
Telephone: 310-772-6000
Telecopy: 310-772-6635
with a copy to:
General Counsel
SunAmerica Inc.
1 SunAmerica Center
1999 Avenue of the Stars
Los Angeles, CA 90067
Telephone: 310-772-6000
Telecopy: 310-772-6574
23
<PAGE>
ANLIC INSURANCE COMPANY (HAWAII), LTD., as Seller
By__________________________________
Title:
c/o ANLIC Insurance Company (Hawaii), Ltd.
c/o 50th State Risk Management Services, Inc.
Six Waterfront Plaza, Room 405
500 Ala Moana Boulevard
Honolulu, HI 96813
Attention: Ann Nakagawa
Facsimile: (808) 524-9526
Telephone: (808) 543-9737
with a copy to:
General Counsel
SunAmerica Inc.
1 SunAmerica Center
1999 Avenue of the Stars
Los Angeles, CA 90067
Telephone: 310-772-6000
Telecopy: 310-772-6574
and
Citicorp North America, Inc.
399 Park Avenue
6th Floor/Zone 2
New York, NY 10043
Attention: Art Bovino
Telephone: (212) 559-6166
Telecopy: (212) 758-6272
SUNAMERICA LIFE INSURANCE COMPANY, as Servicer
By__________________________________
Title:
1 SunAmerica Center
1999 Avenue of the Stars
Los Angeles, CA 90067
Attention: Jim Belardi
Telephone: 310-772-6000
Telecopy: 310-772-6635
with a copy to:
General Counsel
SunAmerica Inc.
1 SunAmerica Center
1999 Avenue of the Stars
Los Angeles, CA 90067
Telephone: 310-772-6000
Telecopy: 310-772-6574
24
<PAGE>
EXECUTION COPY
SERVICING AGREEMENT
DATED AS OF AUGUST 1, 1999
AMONG
ANLIC INSURANCE COMPANY (HAWAII), LTD.,
INDIVIDUALLY,
ANCHOR INSURANCE COMPANY (HAWAII), LTD.,
INDIVIDUALLY,
ANCHOR NATIONAL LIFE INSURANCE COMPANY,
INDIVIDUALLY,
AND
SUNAMERICA LIFE INSURANCE COMPANY,
AS SERVICER
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRELIMINARY STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I DEFINITIONS
SECTION 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Other Terms . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 1.03. Computation of Time Periods . . . . . . . . . . . . . . 5
SECTION 1.04. Other Definitional Provisions . . . . . . . . . . . . . 5
ARTICLE II REPRESENTATIONS AND WARRANTIES
SECTION 2.01. Representations and Warranties of Anchor. . . . . . . . 5
SECTION 2.02. Representations and Warranties of the Initial Servicer. 6
ARTICLE III GENERAL COVENANTS
SECTION 3.01. Affirmative Covenants of Anchor . . . . . . . . . . . . 8
SECTION 3.02. Negative Covenants of Anchor. . . . . . . . . . . . . . 8
SECTION 3.03. Affirmative Covenants of the Initial Servicer . . . . . 8
SECTION 3.04. Reporting Requirements of the Initial Servicer. . . . . 9
SECTION 3.05. Negative Covenants of the Initial Servicer. . . . . . . 10
SECTION 3.06. Reporting Requirements of ANLIC (Hawaii). . . . . . . . 11
SECTION 3.07. Reporting Requirements of AIC . . . . . . . . . . . . . 11
ARTICLE IV ADMINISTRATION AND COLLECTION
SECTION 4.01. Designation of Servicer . . . . . . . . . . . . . . . . 12
SECTION 4.02. Duties of Servicer. . . . . . . . . . . . . . . . . . . 14
SECTION 4.03. Rights of ANLIC (Hawaii). . . . . . . . . . . . . . . . 15
SECTION 4.04. Responsibilities of Anchor. . . . . . . . . . . . . . . 15
SECTION 4.05. Further Action. . . . . . . . . . . . . . . . . . . . . 16
ARTICLE V SERVICER REMEDY EVENTS
SECTION 5.01. Servicer Remedy Event . . . . . . . . . . . . . . . . . 16
ARTICLE VI MISCELLANEOUS
SECTION 6.01. Amendments, Etc.. . . . . . . . . . . . . . . . . . . . 18
SECTION 6.02. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . 18
SECTION 6.03. No Waiver; Remedies . . . . . . . . . . . . . . . . . . 18
SECTION 6.04. Binding Effect; Assignability . . . . . . . . . . . . . 18
SECTION 6.05. Consent to Jurisdiction . . . . . . . . . . . . . . . . 18
SECTION 6.06. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . 19
SECTION 6.07. No Proceedings. . . . . . . . . . . . . . . . . . . . . 19
SECTION 6.08. Confidentiality . . . . . . . . . . . . . . . . . . . . 19
SECTION 6.09. Payments and Computations, Etc. . . . . . . . . . . . . 20
SECTION 6.10. Execution in Counterparts; Severability . . . . . . . . 21
SECTION 6.11. Judgment. . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 6.12. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . 22
</TABLE>
<PAGE>
EXHIBITS & SCHEDULES
EXHIBIT 1.01A Form of Daily Reinsurance Servicer Report
EXHIBIT 1.01B Form of Reinsurance Servicer Report
SCHEDULE 2.01(e) List of Annuity contracts together with a form of each
Annuity agreement
SCHEDULE 2.01(f) CARVM reserve methodology
EXHIBIT 21
ANCHOR NATIONAL LIFE INSURANCE COMPANY AND CONSOLIDATED SUBSIDIARIES
LIST OF SUBSIDIARIES
List of subsidiaries and certain other affiliates with percentage of voting
securities owned by Anchor National Life Insurance Company or Anchor National
Life Insurance Company or Anchor National Life Insurance Company's subsidiary
which is the immediate parent.
PERCENTAGE OF VOTING
SECURITIES OWNED BY
COMPANY OR COMPANY'S
SUBSIDIARY WHICH IS
THE IMMEDIATE PARENT
--------------------
NAME OF COMPANY
- -----------------
%
CALIFORNIA CORPORATIONS:
Sam Holdings Corporation 100
Sun Royal Holdings Corporation 100
DELAWARE CORPORATIONS:
Saamsun Holdings Corp. 100
Royal Alliance Associates, Inc. 100
SunAmerica Asset Management Corp. 100
SunAmerica Capital Services, Inc. 100
SunAmerica Fund Services, Inc. 100
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT INCOME FOR ANCHOR NATIONAL LIFE INSURANCE COMPANY'S FORM
10-K THE QUARTER ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 3953169000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 674679000
<REAL-ESTATE> 24000000
<TOTAL-INVEST> 5551969000
<CASH> 475162000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 1089979000
<TOTAL-ASSETS> 26874494000
<POLICY-LOSSES> 5538797000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 37816000
0
0
<COMMON> 3511000
<OTHER-SE> 931615000
<TOTAL-LIABILITY-AND-EQUITY> 26874494000
0
<INVESTMENT-INCOME> 518280000
<INVESTMENT-GAINS> (19620000)
<OTHER-INCOME> 455392000
<BENEFITS> (354064000)
<UNDERWRITING-AMORTIZATION> (116840000)
<UNDERWRITING-OTHER> (40760000)
<INCOME-PRETAX> 287723000
<INCOME-TAX> (103025000)
<INCOME-CONTINUING> 184698000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 184698000
<EPS-BASIC> 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>
