<PAGE> 1
As filed pursuant to Rule 497(e)
Registration Nos. 2-86837 and
811-3859
AMERICAN PATHWAY II
ANCHOR NATIONAL LIFE INSURANCE COMPANY
VARIABLE SEPARATE ACCOUNT
-------------------------------------------------------
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 30, 1995
As of the date of this Supplement, the Company is not accepting telephone
withdrawal requests. A written request or Systematic Withdrawal Program
enrollment form must be sent to the Company at its Annuity Service Center.
Delete the third sentence of the first paragraph in the section entitled
"INSURANCE COMPANY" on page 8 and replace with the following:
The Company is a wholly owned subsidiary of SunAmerica Life Insurance Company,
an Arizona corporation which is wholly owned by SunAmerica Inc., a Maryland
corporation.
Delete the first sentence of the second paragraph in the section entitled
"INSURANCE COMPANY" on page 8 and replace with the following:
The Company and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, SunAmerica Asset Management Corp. and
Resources Trust Company, offer a full line of financial services, including
fixed and variable annuities, mutual funds and trust administration services.
Date: July 11, 1995
PLEASE KEEP THIS SUPPLEMENT WITH YOUR PROSPECTUS
<PAGE> 2
AMERICAN PATHWAY II
AN INDIVIDUAL DEFERRED VARIABLE BENEFIT AND FIXED BENEFIT ANNUITY
FLEXIBLE PURCHASE PAYMENT-NONPARTICIPATING CONTRACT
ISSUED BY
VARIABLE SEPARATE ACCOUNT
The contract described in this Prospectus is an Individual Deferred
Variable Benefit and Fixed Benefit Annuity Contract ("Contract") designed to
provide annuity benefits to individual purchasers in connection with retirement
plans that do not qualify for special federal income tax treatment under the
Internal Revenue Code, as amended ("Code"). The Contract described herein,
however, may also be used to provide annuity benefits to individual purchasers
in connection with retirement plans that do qualify under the Code. This
Prospectus describes only the variable portion of the Contract. Purchase
payments under the Contract may be allocated to the Variable Separate Account
("Separate Account"). The Separate Account will be invested in shares of the
Anchor Pathway Fund, a diversified, open-end investment company registered under
the Investment Company Act of 1940, as amended ("1940 Act"). Anchor Pathway Fund
consists of seven series each of which has its own investment objective and
policies.
Anchor National Life Insurance Company discontinued new sales of the
Contract as of the close of business on August 31, 1993, except for Michigan
where the Contract will continue to be available for new policy issuance until
January 31, 1995. The Company will continue to accept subsequent payments on
existing contracts and to issue the Contract to new participants in existing
qualified retirement plans using the Contract as a funding vehicle.
This Prospectus and the Prospectus for Anchor Pathway Fund set forth
concisely the information a prospective investor ought to know before investing.
Additional information about the Separate Account has been filed with the
Securities and Exchange Commission in a Statement of Additional Information,
dated January 30, 1995. The Statement of Additional Information is available
without charge upon written request to Anchor National Life Insurance Company,
Service Center, P.O. Box 54299, Los Angeles, California 90054-0299, or by
telephoning (800) 445-7861. The Table of Contents of the Statement of Additional
Information appears on page 24 of this Prospectus.
------------------------
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A
CURRENT PROSPECTUS OF ANCHOR PATHWAY FUND. BOTH
PROSPECTUSES SHOULD BE READ CAREFULLY AND
RETAINED FOR FUTURE REFERENCE.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS JANUARY 30, 1995.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TOPIC PAGE
- ----- ----
<S> <C>
DEFINITIONS..................................... 2
SUMMARY OF THE CONTRACTS........................ 3
CONDENSED FINANCIAL INFORMATION................. 7
FINANCIAL INFORMATION........................... 8
INSURANCE COMPANY............................... 8
SEPARATE ACCOUNT................................ 9
CHARGES AND DEDUCTIONS.......................... 9
ANCHOR PATHWAY FUND............................. 11
CONTRACT........................................ 12
VARIABLE ACCOUNT ACCUMULATION PROVISIONS........ 12
DEATH BENEFIT................................... 13
EXERCISE OF RIGHTS UNDER THE CONTRACT........... 13
FIXED AND VARIABLE ANNUITY PROVISIONS........... 16
ANNUITY OPTIONS AVAILABLE ON A FIXED
OR VARIABLE BASIS............................. 17
ANNUITY OPTIONS AVAILABLE ON A FIXED
BASIS ONLY.................................... 18
ADDITIONAL VARIABLE ANNUITY PROVISIONS.......... 18
MISCELLANEOUS PROVISIONS........................ 19
FEDERAL INCOME TAX STATUS....................... 20
DISTRIBUTION OF CONTRACTS....................... 22
PERFORMANCE RANKINGS............................ 22
VOTING RIGHTS................................... 23
OTHER INFORMATION............................... 23
STATEMENT OF ADDITIONAL INFORMATION
-- Table of Contents.......................... 24
APPENDIX -- The General Account................. A-1
</TABLE>
DEFINITIONS
Accumulation Unit: A measuring unit used to determine the value of a
Contract Owner's interest in a Variable Account of the Separate Account prior to
the Annuity Date.
Annuitant: The person on whose continuation of life annuity payments under
a Contract are based.
Annuity: A series of income payments made to the Contract Owner or
Contract Owner's designee for a defined period of time.
Annuity Date: The date on which annuity payments are to start.
Annuity Unit: A measuring unit used to compute the annuity payments from a
Variable Account of the Separate Account.
Beneficiary(ies): The person(s) designated to receive any benefits under a
Contract upon the death of the Annuitant.
Company: Anchor National Life Insurance Company.
Contract: The Individual Deferred Variable Benefit and Fixed Benefit
Annuity Contract issued by the Company. Only the variable portion of the
Contract is described in this Prospectus.
Contract Owner: The person entitled to exercise all rights under a
Contract.
Contract Value: The sum of the Contract Owner's interest in the Variable
Accounts of the Separate Account and the Contract Owner's interest in the
General Account. The Contract Owner's interest in the Separate Account is the
sum of the Accumulation Unit values. The Contract Owner's interest in the
General Account is the accumulated value of the amounts allocated to the General
Account, plus the interest credited thereon as guaranteed in the Contract, less
any prior withdrawals and/or amounts applied to annuity options and transaction
charges.
Contract Year: A year starting from the date a Contract is issued in one
calendar year and ending in the succeeding calendar year.
Due Proof of Death: (1) A certified copy of a death certificate; or (2) a
certified copy of a decree of a court of competent jurisdiction as to the
finding of death; or (3) a written statement by a medical doctor who attended
the deceased at the time of death; or (4) any other proof satisfactory to the
Company.
Fixed Annuity: An Annuity providing guaranteed level payments. These
payments are not based upon the investment experience of the Separate Account.
2
<PAGE> 4
General Account: All assets of the Company other than those in the Separate
Account or in any other segregated asset account of the Company.
Net Contract Value: The Contract Value less any applicable charges and
deductions.
Net Investment Factor: An index used to measure the investment experience
of a Variable Account from one Valuation Period to the next.
Purchase Payments: The money paid for a Contract.
Separate Account: Variable Separate Account, formerly known as American
Pathway II -- Separate Account of Anchor National Life Insurance Company, a
segregated asset account established by the Company to receive and invest
amounts allocated to provide variable and fixed benefits under the Contract.
Valuation Period: The interval from one valuation date on which the
Separate Account's Accumulation and Annuity Units are valued to the following
valuation date on which these Units are valued.
Variable Account: A division of the Separate Account. The Separate Account
consists of seven Variable Accounts. Each Variable Account is invested in a
specified series of Anchor Pathway Fund ("Fund").
Variable Annuity: A series of periodic payments that vary in amount
according to the investment experience of the Variable Accounts.
SUMMARY OF THE CONTRACTS
QUALIFIED AND NON-QUALIFIED CONTRACTS -- The Contract is intended to be
issued primarily for retirement plans that do not qualify for special tax
treatment ("Non-Qualified Contracts") and for individuals seeking to accumulate
funds for retirement whether or not the individuals are otherwise participating
in qualified or non-qualified retirement plans. The Contract may also be issued
to plans qualifying for special tax treatment ("Qualified Contracts"), such as
individual retirement annuities ("IRAs"), section 403(b) tax-sheltered
annuities, section 457 deferred compensation plans, money purchase pension plans
and profit-sharing plans. This Prospectus is intended to serve as a disclosure
document for the variable portion of the Contract only.
PURCHASE PAYMENTS -- The full amount of each Purchase Payment, undiminished
by an initial sales charge, is credited to the Separate Account, the General
Account or allocated between them, according to the Contract Owner's
designation. A contingent deferred sales charge, however, may be imposed in the
event of an early withdrawal (redemption) of Contract Value. See "Charges and
Deductions," page 9.
The Contract permits Purchase Payments to be made on a flexible basis at
any time prior to annuitization subject to the following restrictions. The
minimum initial Purchase Payment the Company will accept is $5,000 for
Non-Qualified Contracts and $2,000 for Qualified Contracts. The minimum
subsequent Purchase Payment the Company will accept is $500 for Non-Qualified
Contracts and $250 for Qualified Contracts. Subsequent Purchase Payments into
either a Non-Qualified or Qualified Contract are subject to a $25 minimum if
they are paid through the Automatic Payment Authorization Program, provided the
Contract Owner's financial institution is a member of the National Data
Corporation clearinghouse network. An enrollment form for this program is
available from the Company. Subsequent Purchase Payments for all policies issued
on or before March 31, 1991, will continue to be subject to an annual minimum of
$300 with a minimum payment amount of $25, the minimum requirements in effect at
the time such policies were issued. See "Purchase Payments," page 12.
VARIABLE ACCOUNTS -- The Separate Account is divided into seven Variable
Accounts, each of which is invested in shares of a designated series of the
Fund. One or more Variable Accounts may be selected by Contract Owners and the
selections may be changed subject to certain conditions described herein. The
Contract Value and the amount of the periodic Variable Annuity payments reflect
the investment experience of the particular Variable Account selected, subject
to the deduction of certain fees and charges. See "Separate Account," and
"Charges and Deductions," page 9.
3
<PAGE> 5
ANCHOR PATHWAY FUND -- The Fund consists of seven series: the Growth
Series, the International Series, the Growth-Income Series, the Asset Allocation
Series, the High-Yield Bond Series, the U.S. Government/AAA-Rated Securities
Series and the Cash Management Series. See "Anchor Pathway Fund," page 10.
CHARGES AND DEDUCTIONS -- A contingent deferred sales charge is deducted in
the event of early withdrawals of the Contract Value, with certain exceptions.
The charge will be 5% of any amounts withdrawn that are attributable to Purchase
Payments made within five years prior to the date of withdrawal, determined on a
first-in, first-out basis. No charge will be made for the part of the first
withdrawal in a Contract Year that does not exceed 10% of the sum of Purchase
Payments made more than one year prior to the date of withdrawal. In addition,
no charge will apply to scheduled withdrawals made under the Systematic
Withdrawal Program, page 16. However, during the time a Contract Owner is
participating in that Program, the charge will apply to all nonscheduled
withdrawals, including the first in any Contract Year.
The cumulative sum of contingent deferred sales charges against amounts
attributable to Purchase Payments made within five years prior to the date of
withdrawal will never be more than 5% of the sum of all Purchase Payments made
during the same period. See "Contingent Deferred Sales Charge," page 9.
A Contract administration charge of $30 is deducted from the Contract Value
on each Contract anniversary that occurs on or prior to the Annuity Date. The
Contract administration charge is also deducted, without proration, if a full
withdrawal is made before the next Contract anniversary. See "Contract
Administration Charge," page 9.
Premium taxes payable to a state or other governmental entity are deducted
from the Contract Value at the time of surrender, upon death of the Annuitant or
when annuity payments begin. Premium taxes currently range from 0% to 3.0%. See
"Premium Taxes," page 10.
The Company deducts a daily mortality risk premium at an annual rate of
0.80% of the total net assets of the Separate Account. See "Mortality Risk
Charge," page 10. The Company deducts a daily expense risk charge at an annual
rate of 0.35% of the total net assets of the Separate Account. See "Expense Risk
Charge," page 10. In addition, the Company deducts a daily distribution expense
risk charge at an annual rate of 0.15% of the total net assets of the Separate
Account. See "Distribution Expense Risk Charge," page 10.
A charge of $25 per transaction ($10 in Texas and Pennsylvania) is assessed
against any transaction effecting transfer in excess of the fifteen permitted
without charge in any Contract Year. See "Certain Transfers Charge," page 10.
An investment advisory fee and a management fee are charged on a monthly
basis, and accrued daily, for each series of the Fund. For each series except
the International Series, these charges together are made at the annual rate of
0.60% of that portion of each series' average daily net assets not exceeding $30
million, plus 0.50% of that portion of each series' average daily net assets in
excess of $30 million. The fees charged for the International Series are made at
the annual rate of 0.90% of that portion of the series' average daily net assets
not exceeding $60 million, plus 0.82% of that portion of the series' average
daily net assets in excess of $60 million. See the Anchor Pathway Fund
Prospectus for a discussion of the deductions and expenses paid out of the
assets of the Fund.
4
<PAGE> 6
CONTRACT OWNER TRANSACTION EXPENSES(1):
Maximum Contingent Deferred Sales Charge(2), as a percentage of Purchase
Payments.............................................................5.00%
ANNUAL CONTRACT ADMINISTRATION CHARGE(3):.................................$30.00
SEPARATE ACCOUNT ANNUAL FEES AND CHARGES, as a percentage of total net assets:
<TABLE>
<S> <C> <C>
Mortality Risk Charge................................................... .80%
Expense Risk Charge..................................................... .35%
Distribution Expense Risk Charge........................................ .15%
TOTAL SEPARATE ACCOUNT ANNUAL FEES AND CHARGES..........................................1.30%
</TABLE>
ANNUAL OPERATING EXPENSES OF ANCHOR PATHWAY FUND(4), as a percentage of average
net assets for the November 30, 1994 fiscal year:
<TABLE>
<CAPTION>
U.S.
GROWTH- ASSET GOVERNMENT/ CASH
GROWTH INTERNATIONAL INCOME ALLOCATION HIGH-YIELD AAA RATED MANAGEMENT
SERIES SERIES SERIES SERIES BOND SERIES SERIES SERIES
------ ------------- ------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee..... 0.30% 0.60% 0.30% 0.31% 0.31% 0.31% 0.31%
Business Management Fee..... 0.20% 0.24% 0.20% 0.21% 0.21% 0.21% 0.21%
Other Expenses:
Custodian and trustee
fees.................... 0.03% 0.18% 0.03% 0.05% 0.05% 0.04% 0.03%
Auditing and legal fees... 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%
Other expenses............ 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%
TOTAL FUND OPERATING
EXPENSES.................. 0.55% 1.04% 0.55% 0.59% 0.59% 0.58% 0.57%
</TABLE>
- ------------
(1) Premium taxes, currently ranging between 0% and 3%, are not included. The
rate of the premium tax varies depending upon the Contract Owner's state of
residence, and not all states impose premium taxes.
(2) There are some circumstances where the contingent deferred sales charge does
not apply.
(3) The administrative expense charge is deducted from the Contract Value on
eachContract anniversary prior to the Annuity Date, or in full upon
surrender of the Contract. The administrative charge is not deducted after
the Annuity Date.
(4) The operating expenses of Anchor Pathway Fund, the underlying investment of
the Separate Account, are paid by the Fund and accordingly, are borne
indirectly by Contract Owners.
<TABLE>
<CAPTION>
U.S.
GROWTH- ASSET GOVERNMENT/ CASH
GROWTH INTERNATIONAL INCOME ALLOCATION HIGH-YIELD AAA RATED MANAGEMENT
EXAMPLE(1) SERIES SERIES SERIES SERIES BOND SERIES SERIES SERIES
------ ------------- ------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
If you surrender your Contract at
the end of the applicable time
period:
You would pay the following
expenses on a $1,000
investment, assuming 5%
annual return on assets:
1 year......... $ 70 $ 75 $ 70 $ 70 $ 70 $ 70 $ 70
3 years........ 111 125 111 112 112 112 111
5 years........ 154 179 154 156 156 156 155
10 years........ 225 276 225 230 230 229 228
</TABLE>
<TABLE>
<CAPTION>
U.S.
GROWTH- ASSET GOVERNMENT/ CASH
GROWTH INTERNATIONAL INCOME ALLOCATION HIGH-YIELD AAA RATED MANAGEMENT
EXAMPLE(1) SERIES SERIES SERIES SERIES BOND SERIES SERIES SERIES
------ ------------- ------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
If you do not surrender your
Contract:
You would pay the following
expenses on a $1,000
investment, assuming 5% annual
return on assets:
1 year..................... $ 20 $ 25 $ 20 $ 20 $ 20 $ 20 $ 20
3 years.................... 61 75 61 62 62 62 61
5 years.................... 104 129 104 106 106 106 105
10 years.................... 225 276 225 230 230 229 228
</TABLE>
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(1) The EXAMPLE, a projection, should not be considered a representation of past
or future expenses. Actual expenses may be greater or lesser than those
shown.
5
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THE PURPOSE OF THE TABLE IS TO ASSIST CONTRACT OWNERS IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT THEY BEAR
DIRECTLY AND INDIRECTLY. SEE "CHARGES AND DEDUCTIONS," PAGE 9 AND
THE PROSPECTUS FOR ANCHOR PATHWAY FUND.
TEN DAY REVIEW -- Within 10 days (or longer period if required by state
law) of receipt of the Contract by a purchaser it may be returned to the Company
for cancellation. Except as otherwise required by law, the Company will refund
the Contract Value for the Valuation Period in which the Contract is received.
The Contract Owner bears the investment risk during the ten day review period,
except that for IRAs, the Purchase Payments or Contract Value, whichever is
greater, will be returned.
ANNUITY PAYMENTS -- Monthly annuity payments will start on the Annuity
Date. The Contract Owner selects the Annuity Date and an annuity payment option.
These selections may be changed prior to the Annuity Date. See "Change of
Annuity Date or Annuity Option," page 17. The amount of Variable Annuity
payments vary with the investment experience of the series in which Contract
Value is invested.
If the Net Contract Value at the Annuity Date is less than $5,000, the
Company reserves the right to pay the Net Contract Value in a lump sum. If any
annuity payment would be less than $50, the Company reserves the right to change
the frequency of payments to such intervals as will result in payments of at
least $50, or to pay the Contract Value in a lump sum. See "Minimum Annuity
Payments," page 16.
DEATH BENEFIT -- If the Annuitant dies prior to the Annuity Date, the
Company will pay to the Beneficiary the greater of (a) the sum of all Purchase
Payments net of withdrawals, or (b) the current Contract Value. Following the
fifth Contract anniversary, the Company will pay the Beneficiary the greater of
(a) above, (b) above or (c) the Contract Value on the Contract anniversary
preceding the death of the Annuitant less withdrawals since such anniversary.
See "Death Benefit -- Before the Annuity Date," page 13.
WITHDRAWALS -- Prior to the Annuity Date, the Contract Owner may withdraw
all or part of the Contract Value. No withdrawals are permitted after annuity
payments commence. The amount withdrawn must be at least $500 ($250 for
withdrawals made under the Systematic Withdrawal Program) and, if the Contract
is to continue in force, the remaining Contract Value must be at least $500. See
"Exercise of Rights Under the Contract -- Withdrawals," page 15. A contingent
deferred sales charge and a Contract administration charge may be imposed. See
"Contingent Deferred Sales Charge" and "Contract Administration Charge," page 9.
In addition, with the exception of section 403(b) Contracts, the earnings
withdrawn are taxable as ordinary income and may be subject to a 10% federal tax
penalty if withdrawn before age 59 1/2. Values may not be withdrawn from section
403(b) Contracts except under certain circumstances. See "Federal Income Tax
Status," page 20.
TRANSFERS TO AND FROM SEPARATE ACCOUNT -- Contract Owners may transfer all
or part of Contract Value between the Separate Account and the General Account,
subject to certain conditions. See "Transfers," page 14.
TRANSFERS AMONG VARIABLE ACCOUNTS -- Contract Owners may, subject to
certain conditions, transfer all or part of Contract Value from one Variable
Account to one or more of the remaining Variable Accounts. See "Transfers," page
14.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFER DESCRIBED HEREIN AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER
WOULD BE UNLAWFUL THEREIN.
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CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR 11
YEAR MONTHS YEAR YEAR YEAR
VARIABLE ACCOUNTS ENDED ENDED ENDED ENDED ENDED
OF SEPARATE ACCOUNT 12/31/85 11/30/86 11/30/87 11/30/88 11/30/89
- ------------------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Growth
Beg. AUV.......... 10.09 11.97 15.59 14.72 17.70
End AUV............ 11.97 15.59 14.72 17.70 25.99
End # AUs
(000)............ 1,794 2,824 5,362 5,299 7,318
International(1)
Beg. AUV........... -- -- -- -- --
End AUV............ -- -- -- -- --
End # AUs
(000)............ -- -- -- -- --
Growth-Income
Beg. AUV........... 10.79 14.64 17.86 16.12 19.50
End AUV............ 14.64 17.86 16.12 19.50 25.58
End # AUs
(000)............ 3,346 7,226 10,884 10,819 14,235
Asset Allocation(2)
Beg. AUV........... -- -- -- -- 10.00
End AUV............ -- -- -- -- 10.91
End # AUs
(000)............ -- -- -- -- 2,138
High-Yield Bond
Beg. AUV........... 10.88 13.52 15.77 16.03 18.40
End AUV............ 13.52 15.77 16.03 18.40 19.78
End # AUs
(000)............ 1,878 3,365 3,886 4,258 4,338
U.S. Government/
AAA-Rated
Securities(3)
Beg. AUV........... 10.00 10.33 11.69 11.17 12.13
End AUV............ 10.33 11.69 11.17 12.13 13.39
End # AUs
(000)............ 104 2,753 3,448 3,676 6,415
Cash Management
Beg. AUV........... 10.72 11.35 11.86 12.39 13.10
End AUV............ 11.35 11.86 12.39 13.10 14.08
End # AUs
(000)............ 994 1,586 4,013 4,891 5,637
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
VARIABLE ACCOUNTS ENDED ENDED ENDED ENDED ENDED
OF SEPARATE ACCOUNT 11/30/90 11/30/91 11/30/92 11/30/93 11/30/94
- ------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Growth
Beg. AUV.......... 25.99 23.47 29.37 35.17 41.05
End AUV........... 23.47 29.37 35.17 41.05 41.86
End # AUs
(000)........... 11,434 15,619 18,313 17,915 17,020
International(1)
Beg. AUV.......... 10.00 9.61 10.01 9.91 12.48
End AUV........... 9.61 10.01 9.91 12.48 13.32
End # AUs
(000)........... 1,426 5,058 8,666 15,403 19,494
Growth-Income
Beg. AUV.......... 25.58 23.35 27.93 31.99 35.47
End AUV........... 23.35 27.93 31.99 35.47 35.70
End # AUs
(000)........... 18,151 20,935 24,304 24,321 21,452
Asset Allocation(2)
Beg. AUV.......... 10.91 10.61 12.41 13.96 15.25
End AUV........... 10.61 12.41 13.96 15.25 14.93
End # AUs
(000)........... 5,189 6,306 9,611 10,926 9,558
High-Yield Bond
Beg. AUV.......... 19.78 19.55 24.93 28.06 32.25
End AUV........... 19.55 24.93 28.06 32.25 30.34
End # AUs
(000)........... 4,051 4,723 5,272 5,907 4,200
U.S. Government/
AAA-Rated
Securities(3)
Beg. AUV.......... 13.39 14.16 15.89 17.23 19.15
End AUV........... 14.16 15.89 17.23 19.15 18.12
End # AUs
(000)........... 9,061 12,105 13,392 11,935 8,242
Cash Management
Beg. AUV.......... 14.08 15.01 15.69 15.99 16.20
End AUV........... 15.01 15.69 15.99 16.20 16.56
End # AUs
(000)........... 10,920 12,618 12,728 11,875 11,258
</TABLE>
- ------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(1) First offered May 9, 1990.
(2) First offered March 31, 1989.
(3) Previously known as U.S. Government Guaranteed Securities Series (first
offered November 19, 1985).
PERFORMANCE DATA -- From time to time the Cash Management Account may
advertise its "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Cash Management Account refers to the net income generated for a
Contract funded by an investment in the Account over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in the Cash Management
Account is assumed to be reinvested at the end of each seven-day period. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. Neither the yield nor the
effective yield takes into consideration the effect of any capital changes that
might have occurred during the seven-day period, nor do they reflect the impact
of premium taxes or withdrawal charges. The impact of other recurring charges on
both yield figures is, however, reflected in them to the same extent it would
affect the yield (or effective yield) for a Contract of average size.
7
<PAGE> 9
In addition, the Variable Accounts may advertise "total return" data. Like
the yield figures described above, total return figures are based on historical
data and are not intended to indicate future performance. The "total return" is
a computed rate of return that, when compounded annually over a stated period of
time and applied to a hypothetical initial investment in a Variable Account made
at the beginning of the period, will produce the same Contract Value at the end
of the period that the hypothetical investment would have produced over the same
period (assuming a complete redemption of the Contract at the end of the
period). Recurring Contract charges are reflected in the total return figures in
the same manner as they are reflected in the yield data for Contracts funded
through the Cash Management Account. The effect of applicable withdrawal charges
due to the assumed redemption will be reflected in the return figures, but may
be omitted in additional return figures given for comparison.
For a more complete description of Contract charges, see "Charges and
Deductions" on page 9; for a more detailed description of the performance data
computations, please refer to the Statement of Additional Information.
FINANCIAL INFORMATION
Financial statements of the Separate Account may be found in the Statement
of Additional Information. Financial statements of the Company are also
contained in the Statement of Additional Information. A copy of the Statement of
Additional Information may be obtained without charge by sending a written
request to Anchor National Life Insurance Company, Service Center, P.O. Box
54299, Los Angeles, California 90054-0299 or by calling (800) 445-7861.
INSURANCE COMPANY
The Company is a stock life insurance company organized under the laws of
the state of California in April 1965. Its legal domicile and its principal
business address are 1 SunAmerica Center, Los Angeles, California 90067-6022.
The Company is a wholly owned subsidiary of Sun Life Insurance Company of
America, an Arizona corporation wholly owned by SunAmerica Inc.
The Company and its affiliates, Sun Life Insurance Company of America,
First SunAmerica Life Insurance Company, SunAmerica Asset Management Corp. and
Resources Trust Company, offer a full line of financial services, including
fixed and variable annuities, mutual funds and trust administration services. As
of September 30, 1994, the Company had approximately $6.6 billion in assets
while SunAmerica Inc., the Company's ultimate parent, together with its
subsidiaries, held approximately $23.4 billion of assets, consisting of over
$14.7 billion of assets owned, approximately $2.2 billion of assets managed in
mutual funds and private accounts, and approximately $6.5 billion under custody
in retirement trust accounts.
The Company may from time to time publish in advertisements, sales
literature and reports to Contract Owners, the ratings and other information
assigned to it by one or more independent rating organizations such as A.M. Best
Company ("A.M. Best"), Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Insurance Rating Services ("Standard & Poor's"), and Duff & Phelps. A.M.
Best and Moody's ratings reflect their current opinion on the relative financial
strength and operating performance of an insurance company in comparison to the
norms of the life/health insurance industry. Standard & Poor's and Duff & Phelps
provide ratings which measure the claims-paying ability of insurance companies.
These ratings are opinions of an operating insurance company's financial
capacity to meet the obligations of its insurance policies in accordance with
their terms. Claims-paying ability ratings do not refer to an insurer's ability
to meet non-policy obligations (i.e., debt/commercial paper). These ratings do
not apply to the Separate Account. However, the contractual obligations under
the Contracts are the general corporate obligations of the Company.
The Company is admitted to conduct life insurance business in the District
of Columbia and in all states except New York. It markets the Contract in all
jurisdictions in which it is admitted to conduct life insurance business.
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SEPARATE ACCOUNT
The Separate Account was established by the Company on June 25, 1981,
pursuant to the provisions of California law, as a segregated investment account
of the Company. The Separate Account is divided into seven Variable Accounts,
each of which is invested in shares of a designated series of the Fund. The
Separate Account and each Variable Account therein is administered as part of
the general business of the Company, but the income, gains and losses, whether
or not realized, from assets allocated to each Variable Account are credited to
or charged against that Variable Account in accordance with the terms of the
Contract, without regard to other income, gains or losses of any other Variable
Account or arising out of any other business the Company may conduct. The assets
within each Variable Account are not chargeable with liabilities arising out of
the business conducted by any other Variable Account, nor will the Separate
Account as a whole be chargeable with liabilities arising out of any other
business the Company may conduct.
All obligations arising under a Contract, including the guarantee to make
annuity payments, are general corporate obligations of the Company, and all of
the Company's assets are available to meet its expenses and obligations under
the Contract. While the Company is obligated to make the variable benefit
annuity payments under a Contract, the amount of these payments is not
guaranteed. The Contract Value allocated to the Separate Account and the amount
of the Variable Annuity payments vary with the investment experience of the
Variable Account(s) and are subject to certain fees and charges. See "Charges
and Deductions", below.
The Company has caused the Separate Account to be registered with the
Securities and Exchange Commission as a unit investment trust under the 1940
Act. Such registration does not involve supervision of the management or
investment practices or policies of the Separate Account or the Company by the
Securities and Exchange Commission.
CHARGES AND DEDUCTIONS
CONTINGENT DEFERRED SALES CHARGE -- No initial sales charge is deducted
from Purchase Payments. A contingent deferred sales charge, however, may be
imposed in the event of withdrawal (redemption) of the Contract Value. The
contingent deferred sales charge is intended to recover the Company's expenses
relating to the sale of the Contract, including commissions, preparation of
sales literature and other sales activities.
The contingent deferred sales charge is 5% of the amount withdrawn
attributable to Purchase Payments made within five years prior to the date of
withdrawal, determined on a first-in, first-out basis. The charge is assessed
against the amount requested, but is deducted from the remaining Contract Value
after the Contract Owner is paid the requested amount. If the Contract Owner is
not participating in the Systematic Withdrawal Program, page 16, no charge is
made for the part of the first withdrawal in a Contract Year that does not
exceed 10% of the sum of Purchase Payments made more than one year prior to the
date of withdrawal. If the Contract Owner is participating in the Systematic
Withdrawal Program, the charge will be assessed against all withdrawals other
than those made under that Program.
In no event will the cumulative sum of contingent deferred sales charges
against amounts attributable to Purchase Payments made within five years prior
to the day of withdrawal be more than 5% of the sum of all Purchase Payments
made during the same period.
The 10% free withdrawal right discussed above will result in a monetary
benefit to the Contract Owner only where the amount withdrawn is less than 110%
of applicable Purchase Payments.
The contingent deferred sales charge is eliminated when Contracts are
issued to officers, directors or bona fide full-time employees of the Company,
the investment adviser to the Fund or the principal underwriter of the Contract.
Contracts so purchased are purchased for investment purposes and may not be
resold.
In addition, the contingent deferred sales charge may be waived by the
Company on withdrawals from the Separate Account where the amount withdrawn is
used to purchase another annuity contract issued by the Company. Additional
information regarding the elimination or waiver of the contingent deferred sales
charge may be obtained by contacting the Company.
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CONTRACT ADMINISTRATION CHARGE -- The Company has primary responsibility
for administration of the Contract. Administrative services include issuing
Contracts and maintaining Contract Owner records, including accounting,
valuation and reporting services. The Company deducts a Contract administration
charge of $30 per Contract Year for the administration charge. The Company does
not anticipate realizing a gain from this charge. The Company, in its sole
discretion, reserves the right to reduce the administration charge for Qualified
Contracts where certain economies in administration costs are realized. The
charge is deducted from the Contract Value on each Contract anniversary that
occurs on or prior to the Annuity Date. The charge is also deducted upon full
withdrawal of the Contract Value, without proration, if the withdrawal is made
other than on a Contract anniversary. Even though administrative expenses may
increase, the amount of this charge will not increase.
PREMIUM TAXES -- Premium taxes or other taxes payable to a state or other
governmental entity will be charged against the Contract Values. Some states
assess premium taxes at the time Purchase Payments are made; others assess
premium taxes at the time of surrender or when annuity payments begin. The
Company currently intends to advance any premium taxes due at the time Purchase
Payments are made and then deduct premium taxes from a Contract Owner's Contract
Value at the time of surrender, upon death of the Annuitant or when annuity
payments begin. The Company, however, reserves the right to deduct premium taxes
when incurred. Premium taxes currently range from 0% to 3.0%.
CERTAIN TRANSFERS CHARGE -- Up to fifteen transactions transferring amounts
from the General Account or one or more Variable Accounts of the Separate
Account, to one or more of the Variable Accounts or to the General Account may
be made each Contract Year without charge. A charge of $25 per transaction ($10
in Texas and Pennsylvania) is assessed against any transaction in excess of the
fifteen permitted without charge in any Contract Year. The charge will be
deducted from the account or accounts from which the transfer was made. If the
entire Contract Value in an account is transferred then the charge will be
deducted from the transferred Contract Value.
MORTALITY RISK CHARGE -- Annuity payments are not affected by the mortality
experience (death rate) of persons receiving annuity payments or of the general
population. For assuming this mortality risk and the risk inherent in the death
benefit (see "Death Benefit -- Before the Annuity Date," page 13), the Company
deducts a mortality risk premium from the Separate Account daily. The premium is
computed and deducted from each Variable Account at an annual rate of 0.80% of
the total net assets of the Variable Account. If the mortality risk premium is
insufficient to cover the actual costs of the mortality risk, the Company will
bear the loss. However, if the amount proves more than sufficient, the excess
will be a gain that the Company may use in its discretion to pay distribution
and other expenses. The rate imposed for the mortality risk premium may not be
increased.
EXPENSE RISK CHARGE -- The Company guarantees that the Contract
administration charge will not increase, regardless of actual expenses incurred
by the Company. For assuming this expense risk, the Company deducts an expense
risk charge from the Separate Account. The charge is computed and deducted daily
from each Variable Account, at an annual rate of 0.35% of the total net assets
of the Variable Account. If the expense risk charge is insufficient to cover the
actual cost of the expense risk, the Company will bear the loss. However, if the
charge is more than sufficient, the excess will be a gain that the Company may
use in its discretion to pay distribution and other expenses. The rate imposed
for the expense risk charge may not be increased.
DISTRIBUTION EXPENSE RISK CHARGE -- The Company guarantees that the
contingent deferred sales charge stated in the Contract will not be increased.
For assuming this distribution expense risk, the Company deducts a distribution
expense risk charge daily from each Variable Account at an annual rate of 0.15%
of the total net assets of the Variable Account. If the distribution expense
risk charge and the contingent deferred sales charge are insufficient to cover
the actual cost of distribution, the Company will bear the loss. However, if the
charges are more than sufficient, the excess will be a gain that the Company may
use in its discretion. The rate imposed for the distribution expense risk charge
may not be increased.
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ANCHOR PATHWAY FUND
Anchor Pathway Fund was organized as a Massachusetts business trust on
March 23, 1987, and is registered as a diversified, open-end management
investment company under the 1940 Act. Such registration does not involve
supervision by the Securities and Exchange Commission of the investments or
investment policies of the Fund. The Fund consists of seven series: the Growth
Series, the International Series, the Growth-Income Series, the Asset Allocation
Series, the High-Yield Bond Series, the U.S. Government/AAA-Rated Securities
Series and the Cash Management Series. The Board of Trustees of the Fund may
establish additional series at any time. Series' assets are segregated and a
shareholder's interest is limited to the series in which he or she owns shares.
Capital Research and Management Company, 333 South Hope Street, Los
Angeles, California 90071, one of the nation's largest and oldest investment
management organizations, serves as the investment adviser to the Fund. The
administration and business affairs of the Fund are managed by Anchor Investment
Adviser, Inc., an indirectly wholly owned subsidiary of the Company.
The seven series have, and are subject to, certain investment policies and
restrictions that may not be changed without a majority vote of the shareholders
in that series. The rights of Contract Owners to instruct the Company on the
voting of the Fund shares are described under "Voting Rights," page 23.
The GROWTH SERIES seeks growth of capital by investing primarily in common
stocks or securities with common stock characteristics.
The INTERNATIONAL SERIES seeks long-term growth of capital by investing in
securities of issuers domiciled outside the United States.
The GROWTH-INCOME SERIES seeks growth of capital and income by investing
primarily in securities which demonstrate the potential for appreciation and/or
dividends.
The ASSET ALLOCATION SERIES seeks high total return (including income and
capital gains) consistent with preservation of capital over the long term
through a diversified portfolio that can include common stocks and other
equity-type securities (such as convertible bonds and preferred stocks), bonds
and other intermediate and long-term fixed-income securities and money market
instruments (debt securities maturing in one year or less) in any combination.
The HIGH-YIELD BOND SERIES seeks a high level of current income and
secondarily seeks capital appreciation by investing primarily in intermediate
and long-term corporate obligations, with emphasis on higher-yielding,
higher-risk, lower-rated or unrated securities.
The U.S. GOVERNMENT/AAA-RATED SECURITIES SERIES seeks a high level of
current income consistent with prudent investment risk and preservation of
capital by investing primarily in a combination of (i) securities guaranteed by
the U.S. Government and (ii) other debt securities rated AAA by Standard &
Poor's Corporation or Aaa by Moody's Investors Service, Inc. or that have not
received a rating but are determined to be of comparable quality by the
investment adviser.
The CASH MANAGEMENT SERIES seeks high current yield while preserving
capital by investing in a diversified selection of money market instruments.
The Fund offers its shares solely to the Separate Account. Fund shares are
used solely as the underlying investment medium for the Contracts offered in
this Prospectus. In the future, however, Fund shares may be used as the
underlying investment medium for other annuity contracts or variable life
contracts offered by the Company. The offering of Fund shares to variable
annuity and variable life separate accounts is referred to as "mixed funding."
It may be disadvantageous for variable life separate accounts and variable
annuity separate accounts to invest in the Fund simultaneously. Although neither
the Company nor the Fund currently foresees such disadvantages either to
variable life or variable annuity owners, the Board of Trustees of the Fund
would monitor events in order to identify any material conflicts to determine
what action, if any, would need to be taken in response thereto.
DETAILED INFORMATION ABOUT THE FUND IS CONTAINED IN THE ACCOMPANYING
CURRENT PROSPECTUS OF THE FUND. AN INVESTOR SHOULD CAREFULLY
REVIEW THE FUND'S PROSPECTUS BEFORE ALLOCATING AMOUNTS
TO BE INVESTED IN ITS SERIES.
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CONTRACT
CONTRACT DESCRIPTION -- This Prospectus describes only the variable portion
and not the fixed portion of the Contract. See the Appendix for a description of
the fixed portion of the Contract.
PURCHASE PAYMENTS -- The minimum initial Purchase Payment the Company will
accept is $5,000 for Non-Qualified Contracts and $2,000 for Qualified Contracts.
The minimum subsequent Purchase Payment the Company will accept is $500 for
Non-Qualified Contracts and $250 for Qualified Contracts. Subsequent Purchase
Payments into either a Non-Qualified or Qualified Contract are subject to a $25
minimum if they are paid through the Automatic Payment Authorization Program,
provided the Contract Owner's financial institution is a member of the National
Data Corporation clearinghouse network. An enrollment form for this program is
available from the Company. Subsequent Purchase Payments for all policies issued
on or before March 31, 1991, will continue to be subject to an annual minimum of
$300 with a minimum payment amount of $25, the minimum requirements in effect at
the time such policies were issued.
At the time the initial Purchase Payment is made, Contract Owners should
instruct the Company how to allocate the Payment among the General Account and
the seven Variable Accounts. If no allocation is indicated, the entire amount of
the initial Purchase Payment will be allocated to the Cash Management Series
pending instruction from the Contract Owner. Subsequent Purchase Payments may be
made at any time prior to the Annuity Date and will be allocated in accordance
with the Contract Owner's instructions. If no allocation instructions are
provided, the Payment will be deposited in accordance with the most recent
allocation instructions received by the Company. The Contract will not be in
default if subsequent Purchase Payments are not made. No Purchase Payments will
be accepted after the Annuity Date.
The Company reserves the right to reject any application or Purchase
Payments not in compliance with the terms of the Contract or applicable state
law provisions. In the event that an application fails to recite all necessary
information, the Company will promptly request that the Contract Owner furnish
further instructions and will hold the initial Purchase Payment in a suspense
account, without interest, for a period of up to five business days pending
receipt of the information by the Company. If the necessary information is not
received within five business days, the Company will return the initial Purchase
Payment to the prospective Contract Owner unless the prospective Contract Owner,
after being informed of the reasons for the delay, specifically consents to the
Company retaining the initial Purchase Payment until the application is made
complete.
VARIABLE ACCOUNT ACCUMULATION PROVISIONS
ACCUMULATION UNITS -- The number of Accumulation Units purchased for a
Contract Owner with respect to his or her initial Purchase Payment is determined
by dividing the amount credited to each Variable Account by the Accumulation
Unit value for that Variable Account next computed following acceptance of the
application (generally the next business day after receipt of payment by the
Company). The number of Accumulation Units purchased with respect to subsequent
Purchase Payments is determined by dividing the amount credited to each Variable
Account by the applicable Accumulation Unit value for the Valuation Period next
determined following receipt of the payment by the Company. The Accumulation
Unit value of each Variable Account varies in accordance with the investment
experience of that Variable Account and is affected by the investment experience
of the respective Fund series, by expenses and by the deduction of certain
charges.
VALUE OF AN ACCUMULATION UNIT -- The value of an Accumulation Unit of a
particular Variable Account may increase or decrease from one Valuation Period
to the next. The value is determined by multiplying the value of an Accumulation
Unit for the last prior Valuation Period by the Net Investment Factor for that
Variable Account for the current Valuation Period. The value of an Accumulation
Unit is independently computed for each Variable Account using the Net
Investment Factor applicable to that Variable Account. The Contract Owner bears
the investment risk that the aggregate value of the amounts allocated to the
Separate Account may at any time be less than, equal to, or more than the
amounts invested in the Separate
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Account. Accumulation Unit value calculations are made at the close of general
trading on the New York Stock Exchange, currently 4 p.m., New York time.
NET INVESTMENT FACTOR -- The Net Investment Factor is an index used to
measure the investment performance of a Variable Account from one Valuation
Period to the next. For each Variable Account, the Net Investment Factor for a
Valuation Period may be greater or less than 1.0, depending upon the investment
performance of the particular series in whose shares the Variable Account is
invested.
DEATH BENEFIT
BEFORE THE ANNUITY DATE -- If the Annuitant dies prior to the Annuity Date,
the Company will pay to the Beneficiary, upon receipt by the Company of Due
Proof of Death of the Annuitant, the greater of (a) the sum of all Purchase
Payments, adjusted for withdrawals; or (b) the Contract Value for the Valuation
Period in which such proof is received at the Company. After the fifth Contract
anniversary, the Company will pay to the Beneficiary the greater of (a) above,
(b) above or, (c) the Contract Value on the Contract anniversary preceding the
death of the Annuitant less withdrawals since such anniversary. Payment will be
in a lump sum unless the Beneficiary elects an annuity option or elects to apply
the amount payable under the Contract to the purchase of a new Contract on the
same form.
AFTER THE ANNUITY DATE -- If the Annuitant dies after the Annuity Date, the
amount payable, if any, is specified in the annuity option selected. See "Fixed
and Variable Annuity Provisions," page 16.
The death benefit is calculated upon receipt by the Company of Due Proof of
Death.
EXERCISE OF RIGHTS UNDER THE CONTRACT
BENEFICIARY -- The Beneficiary is named in the application. Unless the
Beneficiary has been irrevocably designated, the Beneficiary may be changed
while the Annuitant is living if a written request of the Contract Owner is
received by the Company. The estate or heirs of any Beneficiary who dies before
the Annuitant have no rights under the Contract. If no Beneficiary survives the
Annuitant, payment is made to the Contract Owner, the contingent owner (if any),
or to the Contract Owner's estate.
OWNERSHIP -- The Contract Owner is the person entitled to exercise all
rights under the Contract. The Annuitant is the Contract Owner unless otherwise
designated in the application or by endorsement. If permitted by the retirement
plan under which a Contract is purchased, a contingent owner may be designated
by a Contract Owner other than the Annuitant. The interest of any contingent
owner who dies before the Contract Owner will end at the death of such
contingent owner. If ownership passes to the contingent owner and the contingent
owner is the surviving spouse of the Contract Owner, the new Contract Owner will
have all the rights and privileges of the previous Contract Owner. If the
contingent owner is not the surviving spouse, the contingent owner must elect to
continue the Contract and receive the entire Contract Value within five years of
the Contract Owner's death, unless an Annuity for the life or a period not
exceeding the life expectancy of the contingent owner is elected and commenced
within one year of the Contract Owner's death. Ownership of the Contract may be
transferred to a new Contract Owner. Such a transfer of ownership cancels any
designation of a contingent owner, but does not affect a beneficiary
designation. The Contract Owner should consult a competent tax adviser prior to
making any such designations or transfers.
ASSIGNMENT -- Unless the Contract is issued in connection with a Qualified
Plan, a Contract Owner may assign the Contract at any time prior to the earlier
of the Annuity Date or the date of death of the Annuitant. The right to change
the Beneficiary under the Contract may be assigned after the Annuity Date, if
prior to the date of death of the Annuitant. Amounts payable under a Contract
may not be assigned or encumbered and, to the extent permitted by law, are not
subject to levy, attachment or any other judicial process for the payment of the
payee's debts or obligations, except that the right to change the Beneficiary
may be assigned prior to the date of death of the Annuitant. Moreover, in the
event that the Contract is issued pursuant to a Qualified Plan or a
Non-Qualified Plan that is subject to Title I of the Employee Retirement Income
Security Act of 1974 ("ERISA"), it may not be assigned, pledged or transferred
except as permitted by law. A collateral
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assignment does not change Contract ownership. Because an assignment may be a
taxable event, the Contract Owner should consult a competent tax adviser prior
to making any such designations, transfers or assignments.
No assignment of any interest under the Contract is binding upon the
Company until a written assignment is filed with the Company, and the Company
assumes no obligation with respect to the effect or validity of any such
assignment. An assignment will not affect any payments the Company may make or
actions it may take before it receives notice of the assignment.
TRANSFERS -- Transfers, subject to the restrictions listed below, may be
made before or after the Annuity Date by sending a written request to the
Company or by telephone authorization. If the Contract application does not
require the Contract Owner to make an election to permit telephone transfers,
telephone transfers are automatically accepted unless the Company is otherwise
instructed by the Contract Owner. The Company has in place procedures which are
designed to provide reasonable assurance that telephone authorizations are
genuine, including tape recording all telephone communications and requesting
identifying information. Accordingly, the Company and its affiliates disclaim
all liability for any claim, loss or expense resulting from any alleged error or
mistake in connection with a telephone transfer which was not properly
authorized by the Contract Owner. However, if the Company fails to employ
reasonable procedures to ensure that all telephone transfer or withdrawal
instructions are properly authorized, the Company may be held liable for such
losses. Telephone calls authorizing transfers must be completed by 4 p.m.
Eastern time in order to effect the transfer the day of receipt. All other
transfers will be processed on the next business day. The Company reserves the
right to modify, suspend or terminate the telephone transfer service at any
time. Transfers are effected at the first valuation date after receipt of
written instructions.
MINIMUM AMOUNTS, ALL TRANSFERS -- The amount transferred must be at least
$500. No transfer is permitted if such transfer would result in the
transferor account having a balance of less than $500, unless the entire
amount is transferred. For transfers made after the Annuity Date, also see
"Additional Variable Annuity Provisions -- Transfers," page 19.
TIME LIMITATIONS, ALL TRANSFERS; CHARGES -- Transfers may not be made
during the first 30 days after the date of issue of the Contract, and
transactions effecting transfer may not be made more often than fifteen
times in any Contract year without charge. A charge of $25 per
transaction is assessed ($10 in Texas and Pennsylvania) against any
transaction effecting transfer in excess of the fifteen permitted without
charge in any Contract year. Transfers made under the Dollar Cost Averaging
Program, described below, are counted against this limitation in the same
manner as other transfers.
TRANSFER WITHIN THE SEPARATE ACCOUNT -- The Contract Owner may transfer all
or part of the Contract Value or Annuity Unit value from one Variable
Account of the Separate Account to one or more of the remaining Variable
Accounts.
TRANSFER TO SEPARATE ACCOUNT -- The Contract Owner may transfer all or part
of the Contract Value from the General Account to the Separate Account
subject to the following additional limitations: (a) no more than 25% of
the total amount allocated to the General Account may be transferred to the
Separate Account in any one Contract Year, and (b) any such transfer may be
made not later than 90 days before the Annuity Date. These limitations also
apply to transfers made from the General Account under the Automatic Dollar
Cost Averaging Program, below.
TRANSFER TO GENERAL ACCOUNT -- The Contract Owner may transfer all or part
of the Contract Value from the Separate Account to the General Account. To
the extent that monies are transferred to the General Account, they are not
affected by the investment performance of the Fund.
AUTOMATIC DOLLAR COST AVERAGING PROGRAM -- Contract Owners who wish to
purchase units of the Variable Accounts over a period of time may be able to do
so through the Dollar Cost Averaging ("DCA") Program. Under this DCA Program, a
Contract Owner may authorize the automatic transfer of a fixed dollar amount
($100 minimum) of his or her choice at regular intervals from either the Cash
Management Account or the General Account to one or more of the Variable
Accounts (other than the Cash Management Account) at the unit values determined
on the dates of the transfers. The intervals between transfers may be monthly,
quarterly, semi-annually or annually, at the option of the Contract Owner. The
theory of Dollar Cost
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Averaging is that greater numbers of units are purchased at times when the unit
prices are relatively low than are purchased when the prices are higher. This
has the effect of reducing the aggregate average cost per unit to less than the
average of the unit prices on the same purchase dates. However, participation in
the DCA Program does not assure the Contract Owner of a greater profit, or any
profit, from his or her purchases under the program; nor will it prevent or
necessarily alleviate losses in a declining market.
Another option under the DCA Program is the periodic transfer of a selected
percentage of the value of the Cash Management Account or the General Account to
one of the Variable Accounts (other than the Cash Management Account). Although
the various options under the DCA Program will allow transfers to be made either
from the Cash Management Account or the General Account, a Contract Owner must
elect to have the transfers made exclusively from one or the other of these two
sources.
A Contract Owner may not simultaneously participate in both the DCA Program
and the Systematic Withdrawal Program described below. Participation in the DCA
Program will be effective one month after the Company has received and approved
the application to participate in the DCA Program, which application must be in
writing. A Contract Owner may elect to increase, decrease or change the
frequency or amount of Purchase Payments under the DCA Program. The Company
reserves the right to modify, suspend or terminate the DCA Program at any time.
WITHDRAWALS -- A Contract Owner may effect a withdrawal by submitting a
request to the Company. The request must be submitted in writing and must be
signed by the Contract Owner. The signature should be in exactly the same form
as the name reflected on the Contract Owner's account. The request should
include the name of the General Account and/or the Variable Accounts involved,
and the Contract Owner's account number. The request must also be accompanied by
the Contract or a Lost Contract Affidavit (which may be obtained by calling the
Company) where a complete withdrawal is requested.
The Company may also accept telephone requests for certain withdrawals from
Contract Owners who elect this option either through the Contract application or
by completing a Telephone Redemption Authorization Form provided by the Company.
The proceeds of a withdrawal will be sent by check to the Contract Owner at the
address of record only. The Company has in place procedures which are designed
to provide reasonable assurance that telephone authorizations are genuine,
including tape recording all telephone communications and requesting identifying
information. Accordingly, the Company and its affiliates disclaim all liability
for any claim, loss or expense resulting from any alleged error or mistake in
connection with a telephone withdrawal which was not properly authorized by the
Contract Owner. However, if the Company fails to employ reasonable procedures to
ensure that all telephone withdrawal instructions are properly authorized, the
Company may be held liable for such losses. Telephone calls authorizing
withdrawals must be completed by 4:00 p.m. Eastern time in order to effect the
withdrawal the day of receipt. All other withdrawals will be processed on the
next business day. The Company reserves the right to modify, suspend or
terminate the telephone withdrawal service at any time.
The Contract Owner may make a partial or complete withdrawal (redemption)
of the Net Contract Value. A request for withdrawal must be received prior to
the earlier of the Annuity Date or the death of the Annuitant. Upon request for
a complete withdrawal, the Contract Owner will receive his or her Net Contract
Value as of the date that the written request for the withdrawal is received by
the Company. If the withdrawal is partial, the amount withdrawn must be at least
$500 ($250 for withdrawals made pursuant to the Systematic Withdrawal Program
described below). Moreover, no partial withdrawal may be effected if it would
cause the remaining Contract Value to be less than $500. Unless otherwise
directed by the Contract Owner, a partial withdrawal will be made from the
General Account and each Variable Account in which Contract Value is invested,
in the ratio that the Contract Value in the General Account and each Variable
Account bears to total Contract Value. Under certain circumstances, withdrawals
are subject to a contingent deferred sales charge as well as a Contract
administration charge. See "Contingent Deferred Sales Charge" page 9 and
"Contract Administration Charge," page 10.
A withdrawal may result in adverse federal income tax consequences. See
"Federal Income Tax Status," page 20. In regard to section 403(b) contracts,
neither salary reduction contributions nor earnings accrued after December 31,
1988, may be withdrawn except under certain circumstances.
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Payment of withdrawals are normally made within seven days. The Company
reserves the right, however, to defer any withdrawal payment or transfer of
values if (a) the New York Stock Exchange is closed (other than customary
weekend and holiday closings), (b) trading on the New York Stock Exchange is
restricted, (c) an emergency exists making disposal of the Separate Account's
securities or the valuation of net assets of the Separate Account not reasonably
practicable, or (d) the Securities and Exchange Commission has by order
permitted suspension of redemptions for the protection of Contract Owners. The
Commission by rules and regulations determines the conditions under which
trading of securities shall be deemed to be restricted and the conditions under
which an emergency shall be deemed to exist.
SYSTEMATIC WITHDRAWAL PROGRAM -- The Systematic Withdrawal ("SW") Program
allows Contract Owners to initiate, at the time the Contract is issued or on or
after the first anniversary of the Contract issuance date, a procedure for
automatically withdrawing a portion of their investment at either monthly,
quarterly, semi-annual or annual intervals, subject to certain limitations.
Under the SW Program, the minimum payout amount is $250 per withdrawal and the
maximum amount that can be withdrawn in any twelve month period is equal to 10%
of the aggregate Purchase Payments paid under the Contract. A Contract Owner
electing the SW Program must specify, subject to the foregoing limits, the
amount to be withdrawn by prescribing either a fixed dollar amount per
withdrawal or a fixed percentage of the aggregate Purchase Payments paid to the
date of the withdrawal. The Contract Owner may, at least one month in advance,
specify a date for the termination of scheduled withdrawals under the SW
Program, which cannot be later than the Annuity Date (see "Annuity Date," page
17). Applications for participating in the SW Program must be in writing.
Participation under the SW Program will commence one month after the Company has
received and approved the application. If participation under the SW Program is
terminated, it cannot be reinstated before one year after the last withdrawal
made under the SW Program prior to termination.
The contingent deferred sales charge will be waived for withdrawals made
under the SW Program. Nonscheduled withdrawals made during the time the SW
Program is in effect (i.e., any withdrawals other than those scheduled under the
SW Program) will be subject to the contingent deferred sales charge, including
the charge that would normally not apply to the first withdrawal in each
calendar year. See "Contingent Deferred Sales Charge," page 9.
A Contract Owner may not simultaneously participate in both the SW Program
and the DCA Program, page 14. Like other withdrawals, withdrawals under the SW
Program may have adverse tax consequences. See "Federal Income Tax Status," page
20.
SUBSTITUTION AND CHANGE -- The Company reserves the right to offer Contract
Owners, at some future date and in accordance with the requirements of the 1940
Act, the option of directing their Purchase Payments to an investment company
other than the Fund, or to substitute another fund or series of the Fund for
their current investment in the Fund.
If shares of the Fund are not available for purchase by the Separate
Account, or if in the judgment of the Company, further investment in such shares
is no longer appropriate in view of the purposes of the Separate Account, then
(i) shares of another registered open-end, diversified management investment
company ("mutual fund") may be substituted for Fund shares held in the Separate
Account and/or (ii) payments received after a date specified by the Company may
be applied to the purchase of shares of another mutual fund in lieu of Fund
shares. In either event, approval of the Securities and Exchange Commission
shall be obtained. It is intended that any substitution would be of shares of a
mutual fund with investment objectives similar to those of the Fund.
FIXED AND VARIABLE ANNUITY PROVISIONS
MINIMUM ANNUITY PAYMENTS -- Annuity payments are made monthly, but if any
payment would be less than $50, the Company may change the frequency so payments
are at least $50 each. If the Net Contract Value to be applied at the Annuity
Date is less than $5,000, the Company may elect to pay such amount in a lump
sum. For tax consequences of a lump-sum payment, see "Federal Income Tax
Status," page 20.
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<PAGE> 18
ANNUITY DATE -- The Contract Owner selects the Annuity Date, which must be
the first day of a calendar month. It must be at least two years after the date
of issue of the Contract. It may not be later than the first day of the next
month after the Annuitant's 80th birthday (85th birthday for Contracts issued on
or after June 1, 1990).
PROOF OF AGE, SEX AND SURVIVAL -- The Company may require proof of age, sex
or survival of any payee upon whose continuation of life annuity payments
depend.
MISSTATEMENT OF AGE OR SEX -- If the age or sex of the Annuitant has been
misstated, any annuity amount payable shall be the annuity amount which the
proceeds applied would have purchased using the correct age and sex.
Overpayments made by the Company because of such misstatement, with interest at
6% per year, compounded annually, will be charged against benefits payable
subsequent to adjustment. The dollar amount of any underpayment made by the
Company as a result of a misstatement will be paid in full with the next payment
due under the Contract.
CHANGE OF ANNUITY DATE OR ANNUITY OPTION -- The Contract Owner may change
the Annuity Date or the annuity option on prior written notice to the Company at
least 30 days prior to the Annuity Date previously selected. The Annuity Date
may not be changed to a date later than the first day of the month following the
Annuitant's 80th birthday (85th birthday for Contracts issued on or after June
1, 1990).
IF NO ANNUITY OPTION IS SELECTED -- For amounts allocated to the Separate
Account, a variable life Annuity with 120 monthly payments guaranteed (OPTION 4
below), will be paid if no Annuity election has been made by the Annuity Date.
If the Contract Owner has not chosen an Annuity option prior to the Annuitant's
death, a beneficiary may make this choice upon the Annuitant's death.
ANNUITY OPTIONS UNDER EMPLOYER SPONSORED PLANS -- The Contract contains
annuity options calculated on the basis of the sex of the Annuitant. The United
States Supreme Court in its decision entitled Arizona Governing Committee for
Tax Deferred Annuity and Deferred Compensation Plans v. Norris determined that
an employer subject to Title VII of the Civil Rights Act of 1964 (primarily
section 403(b) tax-sheltered annuities) may not offer to its employees the
option of receiving retirement benefits calculated on the basis of sex. In
accordance with the Norris decision, the Company does not offer participants of
these plans the option of receiving retirement benefits calculated on the basis
of sex, but offers retirement benefits calculated on a unisex basis, as included
in the Contract.
ANNUITY OPTIONS -- Subject to the provisions of a retirement plan under
which a Contract is purchased, the Contract Owner shall select in the
application any one of the following annuity options.
Upon written election filed with the Company, the Contract Value, as
computed 10 days before the Annuity Date, is applied to provide one of the
following options. The Company will allow the Contract Owner the option of
choosing both a fixed and a variable annuity option if the Contract Owner so
desires.
ANNUITY OPTIONS AVAILABLE ON A FIXED OR VARIABLE BASIS
OPTION 1: LIFE ANNUITY, LIFETIME MONTHLY PAYMENTS GUARANTEED -- Monthly
payments during the lifetime of the Annuitant. No further payments are payable
after the death of the Annuitant and there is no provision for a death benefit
payable to a Beneficiary. While this option will generally offer a higher level
of monthly payments than the other options discussed below, it is possible that
only one payment could be made if the Annuitant dies before the due date of the
second payment, two if the Annuitant dies before the third payment, and so on.
OPTION 2: JOINT AND TWO-THIRDS SURVIVOR ANNUITY -- Monthly payments
payable during the joint lifetime of the payee and a designated second person
and during the lifetime of the survivor. During the lifetime of the survivor,
variable monthly payments will be determined using two-thirds of the number of
each type of Annuity Units credited to the Contract. Fixed monthly payments
during the lifetime of the survivor will be equal to two-thirds of the fixed
monthly payment payable during the joint lifetimes.
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<PAGE> 19
OPTION 3: JOINT AND SURVIVOR LIFE ANNUITY, 120 MONTHLY PAYMENTS
GUARANTEED -- Monthly payments, during the joint lifetime of two persons and
continuing during the remaining lifetime of the survivor, with the guarantee
that payments will be made for not less than 120 months. Payments will be made
as follows:
(a) If the Annuitant was the payee, then upon the death of the Annuitant,
any guaranteed annuity payments will be continued during the remainder of
the selected period to the Beneficiary. The Beneficiary may elect to have
the present value of the guaranteed number of annuity payments remaining
paid in a lump sum as specified in (b) immediately below.
(b) If the Beneficiary was the payee, then upon the death of the
Beneficiary, the present value of the remaining unpaid guaranteed annuity
payments shall be paid in a lump sum to the estate of the Beneficiary. Such
present value shall be determined as of the end of the Valuation Period
during which notice of the Beneficiary's death is received by the Company
and by discounting each remaining unpaid guaranteed annuity payment at the
effective annual interest rate assumed in determining the annuity purchase
rate.
OPTION 4: LIFE ANNUITY, 120 OR 240 MONTHLY PAYMENTS GUARANTEED -- An
Annuity payable monthly during the lifetime of the Annuitant, with the guarantee
that if, at the death of the Annuitant, payments have been made for less than
the 120 or 240 monthly periods, as selected, payments will be made in the same
manner as provided in paragraph (a) and (b) under OPTION 3 above.
ANNUITY OPTIONS AVAILABLE ON A FIXED BASIS ONLY
OPTION 5: MONTHLY PAYMENTS FOR A SPECIFIED PERIOD CERTAIN -- Monthly
payments for any specified period of time (three (3) years or more, but not
exceeding thirty (30) years), as elected. In the event of death of the payee
under this option, the Contract provides that in certain circumstances, the
discounted value of the remaining payments, if any, will be calculated and paid
in one sum.
OPTION 6: FIXED PAYMENTS -- The amount applied to provide fixed payments in
accordance with this option will be held by the Company at interest. Fixed
payments will be made in such amounts and at such times as may be agreed upon
with the Company, and will continue until the amount held by the Company with
interest is exhausted. The final payment will be for the balance remaining and
may be less than the amount of each preceding payment. Interest will be credited
yearly on the amount remaining unpaid at a rate determined by the Company from
time to time, but not less than 4% per year compounded annually. The rate may be
changed at any time and as often as may be determined by the Company, provided,
however, that the rate may not be reduced more frequently than once during each
calendar year.
ADDITIONAL VARIABLE ANNUITY PROVISIONS
FIRST VARIABLE ANNUITY PAYMENT -- The dollar amount of the first monthly
annuity payment is determined by applying the Contract Value to the Annuity
table applicable to the annuity option chosen. If more than one Variable Account
has been selected, the value of the interest in each series is applied
separately to the Annuity table to determine the amount of the first annuity
payment attributable to that Variable Account. The Annuity tables are in the
Contract, and are based on the 1971 Individual Annuity Mortality Table with
interest at 4% for the life of the Contract.
ASSUMED INVESTMENT RATE -- A 4% assumed investment rate is built into the
Annuity tables in the Contract. A higher assumption would mean a higher first
annuity payment but more slowly rising and more rapidly falling subsequent
payments. A lower assumption would have the opposite effect. If the actual net
investment rate is 4% annually, annuity payments would be level.
NUMBER OF ANNUITY UNITS -- The number of Annuity Units for each applicable
Variable Account is the amount of the first monthly annuity payment attributable
to that Variable Account divided by the value of an Annuity Unit of that
Variable Account as of the Annuity Date. The number used in computing monthly
18
<PAGE> 20
payments remains constant during the annuity period unless amounts are
transferred among the Variable Accounts.
SUBSEQUENT VARIABLE ANNUITY PAYMENTS -- Subsequent monthly annuity payments
vary in amount according to the investment performance of the applicable
Variable Account. The part of each subsequent Variable Annuity payment
attributable to a Variable Account is the number of Annuity Units of that
Variable Account multiplied by the value of an Annuity Unit of that Variable
Account for the Valuation Period in which payment is due. The amount of each
subsequent annuity payment is not affected by variations in expenses or
mortality experience.
VALUE OF EACH ANNUITY UNIT -- The Annuity Unit value of each Variable
Account was arbitrarily set at $10 when the Variable Account was established.
The value may increase or decrease from one Valuation Period to the next. For
any Valuation Period, the value of an Annuity Unit of a particular Variable
Account is the value of that Annuity Unit during the last Valuation Period
multiplied by the Net Investment Factor for that Variable Account for the
current Valuation Period. The result is then multiplied by a factor that
neutralizes the assumed investment rate.
TRANSFERS -- After the Annuity Date, transfers may be requested at the end
of any month. Transfers will then be effected on the first day of the month
following such request.
MISCELLANEOUS PROVISIONS
NOTICES AND ELECTIONS -- All notices and elections under the Contract must
be in writing, signed by the proper party and received at the Company to be
effective. All notices and elections should refer to the General Account and/or
the Variable Accounts involved, and should note the Contract Owner's account
number. If acceptable to the Company, notices or elections relating to
beneficiaries and ownership will take effect as of the date signed, unless the
Company has already acted in reliance on the prior status. The Company is not
responsible for the validity of such notices and elections.
AMENDMENT OF CONTRACT -- A condition or provision of the Contract may be
waived or modified only in writing signed by the Chairman, President, a Vice
President, Secretary or Assistant Secretary of the Company.
The Contract may be amended at any time as required to make it conform with
any law or regulation issued by any government agency to which the Contract is
subject.
TEN DAY RIGHT TO REVIEW -- Within 10 days (or longer period if required by
state law) of the receipt of a Contract it may be returned to the Company for
cancellation. Except as otherwise required by law, the Company will refund the
Contract Value for the Valuation Period in which the Contract is received.
Except for IRA Contracts, the Contract Owner bears the investment risk during
the ten day review period. For IRA Contracts, the Owner will receive the greater
of Contract Value or Purchase Payments made.
RETIREMENT PLAN CONDITIONS -- A Contract acquired in connection with a
Qualified Plan may be subject to special restrictions or consequences. The
Contract Owner should understand the features of any Qualified Plan in which he
or she participates and, if necessary, seek an explanation thereof from a
competent tax adviser.
REPORTS TO CONTRACT OWNERS -- The Company keeps all records relating to the
Contracts. At least once a year, a report setting forth information regarding
Contract Value is sent to Contract Owners. Contract Owners will also be
furnished notices, proxies and solicitation materials relating to the Fund.
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<PAGE> 21
FEDERAL INCOME TAX STATUS
GENERAL -- The operations of the Separate Account form part of the
operations of the Company; however, the Internal Revenue Code of 1986, as
amended ("Code") provides that no federal income tax will be payable by the
Company on the investment income and capital gains of the Separate Account
provided it complies with certain requirements.
WITHHOLDING TAX ON DISTRIBUTIONS
The Code generally requires the Company (or, in some cases, a plan
administrator) to withhold tax on the taxable portion of any distribution or
withdrawal from a Contract. For "eligible rollover distributions" from Contracts
issued under certain types of Qualified Plans, 20% of the distribution must be
withheld, unless the payee elects to have the distribution "rolled over" to
another eligible plan in a direct "trustee to trustee" transfer. This
requirement is mandatory and cannot be waived by the Contract Owner. Withholding
on other types of distributions can be waived.
An "eligible rollover distribution" is the estimated taxable portion of any
amount received by a covered employee from a plan qualified under section 401(a)
or 403(a) of the Code, or from a tax-sheltered annuity qualified under section
403(b) of the Code (other than (1) annuity payments for the life (or life
expectancy) of the employee, or joint lives (or joint life expectancies) of the
employee and his or her designated Beneficiary, or for a specified period of ten
years or more; and (2) distributions required to be made under the Code).
Failure to "roll over" the entire amount of an eligible rollover distribution
(including an amount equal to the 20% portion of the distribution that was
withheld) could have adverse tax consequences, including the imposition of a
penalty tax on premature withdrawals, described later in this section.
Withdrawals or distributions from a Contract other than eligible rollover
distributions are also subject to withholding on the estimated taxable portion
of the distribution, but the Contract Owner may elect in such cases to waive the
withholding requirement. If not waived, withholding is imposed (1) for periodic
payments, at the rate that would be imposed if the payments were wages, or (2)
for other distributions, at the rate of 10%. If no withholding exemption
certificate is in effect for the payee, the rate under (1) above is computed by
treating the payee as a married individual claiming 3 withholding exemptions.
NON-QUALIFIED CONTRACTS -- Distributions before the Annuity Date are
treated as coming first from earnings, rather than Purchase Payments, until the
entire amount of earnings has been distributed. For federal tax purposes, these
distributions include the receipt of proceeds from loans and the assignment or
pledge of any portion of the Contract Value, as well as partial withdrawals and
surrenders. Distributions before the Annuity Date are taxable as ordinary income
to the extent that Contract Value, unreduced by surrender charges, exceeds
Purchase Payments.
Distributions may be subject to a penalty tax equal to 10% of the amount
treated as taxable income. However, there should be no penalty tax on
distributions (1) made on or after age 59 1/2, (2) made as a result of death or
disability, or (3) received in substantially equal installments as a life or
life expectancy Annuity. The penalty will also be imposed if an individual
receiving substantially equal annuity payments changes the method of
distribution before age 59 1/2 or before payments have been received for five
years.
Section 817(h) of the Code authorized the Secretary of the Treasury
("Treasury") to set standards by regulation or otherwise for the investments of
separate accounts to be considered "adequately diversified" in order for the
contract to be treated as an annuity contract for federal tax purposes. The
Separate Account, through the Fund, intends to comply with the diversification
requirements. The Company has entered into an agreement regarding participation
in the Fund, that requires the Fund to be operated in compliance with the
requirements prescribed by the Treasury. Thus, the Company believes that the
Contract will be treated as an annuity contract for federal tax purposes.
In certain circumstances, variable Contract Owners may be considered the
owners, for federal tax purposes, of the assets of the separate account used to
support such contracts. In those circumstances, income and gains from separate
account assets would be includible in the variable Contract Owners' gross
income.
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<PAGE> 22
QUALIFIED CONTRACTS -- If the Contract is used with a corporate pension or
profit-sharing plan described in section 401(a) of the Code, an annuity plan
described in section 403(a), a simplified employee pension plan described in
section 408(k), or a tax-sheltered annuity described in section 403(b) of the
Code ("Qualified Plans"), deductible employer contributions up to prescribed
limits are permitted. Employers may deduct their contributions to self-employed
and corporate pension and profit-sharing plans and tax-sheltered annuities in
the year when made, up to the limits specified in the Code. In addition, some
Qualified Plans may permit nondeductible employee contributions. If the Contract
is used as an IRA, all or a portion of the contribution up to $2,000 may be
deducted. Under present interpretations and authority, until a distribution is
made, no federal income tax is payable on the investment earnings.
The taxable portion of a withdrawal or distribution from Contracts issued
under certain types of plans may, under some circumstances, be "rolled over"
into another eligible plan so as to continue to defer income tax on the taxable
portion. Effective January 1, 1993, such treatment is available for any
"eligible rollover distribution" made by certain types of plans (as described
above under "Federal Income Tax Status -- Withholding Tax on Distributions,"
page 20) that is transferred within 60 days of receipt into a plan qualified
under section 401(a) or 403(a) of the Code, a tax-sheltered annuity, an IRA, or
an individual retirement account described in section 408(a) of the Code. Plans
making such eligible rollover distributions are also required, with some
exceptions specified in the Code, to provide for a direct "trustee to trustee"
transfer of the distribution to the transferee plan designated by the recipient.
Distributions to a participant in a Qualified Plan under section 401(a)
that are made prior to age 59 1/2 and that are not on account of death,
disability, a domestic relations order, for deductible medical expense, early
retirement after age 55, or that are not received as a series of substantially
equal payments for the life or a period equal to the life expectancy of the
participant or the joint life expectancy of the participant and a designated
beneficiary, will be subject to an additional 10% tax. The 10% tax also applies
to certain distributions from IRAs under similar circumstances.
The Code also contains requirements as to the ages by which distributions
must begin under Qualified Plans, and the percentage of payments that must go to
the participant vis-a-vis a Beneficiary.
All distributions, with the exception of a return of nondeductible employee
contributions, received from a section 401, 403(b), 457 plan or IRA are included
in gross income. After the Annuity Date, any nondeductible contributions are
recovered tax-free as a portion of each annuity payment. In the case of section
401 or 403(b) plans and IRAs, a distribution is includible in the year in which
it is paid. In the case of a section 457 plan, a distribution is includible in
the year it is paid or when made available, depending upon whether certain Code
requirements are met.
The Code imposes restrictions on distributions (i.e., withdrawals or
surrenders) from annuity contracts sold to plans qualified under section 403(b)
of the Code. Section 403(b)(11) of the Code requires that for these annuity
contracts to receive tax-deferred treatment, they must provide that
distributions attributable to contributions made pursuant to a salary reduction
agreement be paid only:
(1) when the employee attains age 59 1/2, separates from service, dies,
or becomes disabled (within the meaning of section 72(m)(7)); or
(2) in hardship cases, where only the distribution of contributed
amounts is permitted; distribution of any income attributable to these
amounts is prohibited.
Assets held as of December 31, 1988, are not subject to such Code
restrictions.
The Contracts have been modified to comply with these changes in the Code.
The Company is relying on a no-action letter from the Securities and Exchange
Commission that was issued to the American Council of Life Insurance and made
publicly available on November 28, 1988. That letter outlines further conditions
that must be met if a company offering registered annuity contracts imposes the
limitations required by the Code. The Company will comply with the conditions of
the no-action letter.
TAXATION OF ANNUITY PAYMENTS AND OTHER DISTRIBUTIONS -- Where Purchase
Payments were nondeductible, a portion of each annuity payment is treated as a
nontaxable return of Purchase Payments. The remaining
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<PAGE> 23
portion of this Annuity payment is taxable as ordinary income. The taxable
amount of each annuity payment is based on the period over which payments are to
be made or, in the case of a life Annuity, the life expectancy of the Annuitant.
On annuities paid out under Qualified Contracts consisting of Purchase Payments
that were not taxed currently to the Contract Owner, the entire annuity payment
is taxable since the Purchase Payments have not been included in taxable income
when made.
The Company is required to withhold federal income tax on annuity payments,
distributions, and partial and full surrenders. However, recipients of such
Contract distributions are allowed to make an election not to have federal
income tax withheld, except as provided in "Federal Income Tax
Status -- Withholding Tax on Distributions" on page 20. After an election is
made with respect to annuity payments, an Annuitant may revoke the election at
any time, and thereafter commence withholding. The Company will notify the payee
at least annually of his or her right to revoke the election. Payees are
required by law to provide the Company (as payor) with their correct taxpayer
identification number ("TIN"). If the payee is an individual, the TIN is his or
her Social Security number.
The above discussion is for information only and is not to be considered to
constitute tax advice. For advice regarding your particular tax situation, you
should consult a competent tax adviser.
DISTRIBUTION OF CONTRACTS
Contracts are sold by broker-dealers who are licensed insurance agents of
the Company, either individually or through an incorporated insurance agency.
Sales commissions are paid by the Company and typically range to 5.5% of
Purchase Payments paid.
SunAmerica Capital Services, Inc. ("SunAmerica"), located at 733 Third
Avenue, 4th Floor, New York, New York 10017, serves as the distributor of the
Contracts pursuant to a distribution agreement. SunAmerica Capital Services,
Inc. is an indirect wholly-owned subsidiary of SunAmerica Inc. and is registered
as a broker-dealer under the Securities Exchange Act of 1934, as amended, and is
a member of the National Association of Securities Dealers, Inc.
PERFORMANCE RANKINGS
The performance of each or all of the Variable Accounts of the Separate
Account may be compared in its advertising and sales literature to the
performance of other variable annuity issuers in general or to the performance
of particular types of variable annuities investing in mutual funds, or
investment series of mutual funds with investment objectives similar to each of
the Variable Accounts of the Separate Account. Lipper Analytical Services, Inc.
("Lipper") and the Variable Annuity Research and Data Service ("VARDS(R)") are
independent services which monitor and rank the performance of variable annuity
issuers in each of the major categories of investment objectives on an
industry-wide basis.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS(R) rankings compare only variable annuity issuers. The
performance analysis prepared by Lipper and VARDS(R) each rank such issuers on
the basis of total return, assuming reinvestment of distributions, but do not
take sales charges, redemption fees or certain expense deductions at the
separate account level into consideration.
An investment series which has been in existence for a period shorter than
what is being measured will not be included in rankings. Accordingly, the
International Series and the Asset Allocation Series, which were initiated May
9, 1990 and March 31, 1989, respectively, do not appear in rankings for longer
periods of performance. Another effect of this is that competitors' funds which
have been in existence for periods of time shorter than the comparable Variable
Account of the Separate Account may not be compared in a specific ranking.
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<PAGE> 24
As a Separate Account Contract Owner you may wish to know that the Variable
Accounts of the Separate Account were ranked for performance by Lipper among
variable annuity and life insurance issuers and VARDS(R) among variable annuity
issuers with related investment categories for the indicated periods, as
follows:
<TABLE>
<CAPTION>
TOTAL RETURN RANKINGS FOR YEARS ENDED 12/31/94
-----------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS
----------------------------- ----------------------------- -------------------
SERIES VARDS(R) LIPPER VARDS(R) LIPPER VARDS(R) LIPPER
- ---------------------------- ------------- ------------- ------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Growth...................... 181/448 57/163 60/286 16/96 28/212 9/72
International............... 247/448 49/69 83/286 8/29 * *
Growth-Income............... 163/448 32/89 159/286 20/56 119/212 21/44
Asset Allocation............ 29/150 43/135 55/125 45/99 53/101 39/72
High-Yield Bond............. 196/252 56/65 39/198 46/53 29/161 35/44
U.S. Government/AAA-Rated
Securities................ 148/252 21/54 100/198 10/36 83/161 16/29
Cash Management............. 83/124 121/182 89/107 114/137 70/90 85/107
</TABLE>
- ------------
* No ranking available at this time
VOTING RIGHTS
Unless otherwise restricted by the plan under which a Contract is issued,
each Contract Owner has the right to instruct the Company with respect to voting
his or her interest in the shares of the Fund held by the Separate Account at
all shareholder meetings. Shareholder meetings ordinarily will not be held
unless required by the 1940 Act.
The number of votes that may be cast by a Contract Owner is based on the
number of units owned as of the record date of the meeting. Shares for which no
instructions are received are voted in the same proportion as the shares for
which instructions have been received. Contract Owners receive various
materials, such as proxy materials and voting instruction forms, that relate to
voting Fund shares. Contract Owners will also receive periodic reports relating
to the Fund series in which they have an interest.
OTHER INFORMATION
LEGAL PROCEEDINGS -- There are no legal proceedings to which the Separate
Account is a party or to which the assets of the Separate Account are subject.
The Company is engaged in various kinds of routine litigation that in the
Company's judgment are not material to the Company's economic condition. None of
this litigation relates to the Separate Account.
REGISTRATION STATEMENT -- A registration statement has been filed with the
Securities and Exchange Commission under the Securities Act of 1933 with respect
to the Contract. This Prospectus does not contain all information set forth in
the registration statement, its amendments and exhibits, to all of which
reference is made for further information concerning the Separate Account, the
Company and the Contract. Statements contained in this Prospectus as to the
content of the Contract and other legal instruments are summaries. For a
complete statement of the terms thereof, reference is made to these instruments
as filed.
CUSTODIAN OF ASSETS -- State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, serves as the custodian of the assets of
the Separate Account. The custodian is remunerated by the Company based on a
schedule of fees under an agreement between the custodian and the Company.
CONTRACT OWNER INQUIRIES -- Any questions regarding the Contract should be
directed to the insurance agent from whom the Contract was purchased, or to the
Company. Contract Owners may telephone the Company at (800) 445-7861.
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STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TOPIC PAGE
<S> <C>
Insurance Company..................................................................... 2
Purchase Payments..................................................................... 2
Variable Account Accumulation Provisions.............................................. 3
Performance Data...................................................................... 5
Additional Federal Income Tax Information............................................. 7
The Company and the Separate Account............................................. 7
Non-Qualified Plans.............................................................. 8
Qualified Plans.................................................................. 8
Distributions.................................................................... 10
Tax Withholding.................................................................. 11
Distribution of Contracts............................................................. 12
Financial Statements.................................................................. 12
</TABLE>
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APPENDIX
THE GENERAL ACCOUNT
Contributions under the fixed portion of the Contract become part of the
General Account of the Company, that supports insurance and annuity obligations.
Because of exemptive and exclusionary provisions, interests in the General
Account have not been registered under the Securities Act of 1933, as amended
("1933 Act"), nor is the General Account registered as an investment company
under the Investment Company Act of 1940, as amended ("1940 Act"). Accordingly,
neither the General Account nor any interests therein is generally subject to
the provisions of the 1933 or 1940 Acts. Disclosures regarding the fixed portion
of the Annuity Contract and the General Account, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses. The staff
of the Securities and Exchange Commission has not reviewed this portion of the
Prospectus relating to the General Account.
If selected by the Contract Owner, Purchase Payments may be allocated to
the General Account in addition to, or in lieu of, the Separate Account.
Interest is credited to the General Account from the day the amounts are
received at a guaranteed rate of 4%. The Company may in its discretion determine
an effective annual rate of interest to be applied to the General Account over
and above the guaranteed interest rate ("excess interest"). The rate of excess
interest is declared in advance of the date that amounts are credited, and may
vary from time to time except that once a rate of excess interest is declared,
that rate is maintained by the Company for at least twelve months. Interest is
compounded annually on the anniversary of the date amounts are first allocated
to the General Account by the Contract Owner.
GENERAL ACCOUNT ACCUMULATION PROVISION
ACCUMULATION VALUE -- The General Account Accumulation Value under a
Contract shall be the sum of all monies allocated or transferred to the General
Account after giving effect to the crediting of and compounding of all
guaranteed interest and excess interest on the General Account during the period
that the Contract has been in effect. This amount shall be adjusted for all
transfers out of the General Account and withdrawals from the General Account.
A-1
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ANCHOR NATIONAL LIFE INSURANCE COMPANY
SERVICE CENTER
P.O. BOX 54299
LOS ANGELES, CA 90054-0299
<PAGE> 28
Please forward a copy (without charge) of the Statement of Additional
Information concerning American Pathway II Variable Annuity Contracts to:
(Please print or type and fill in all information.)
- ------------------------------------------------------------------------------
Name
- ------------------------------------------------------------------------------
Address
- ------------------------------------------------------------------------------
City/State/Zip
- ------------------------------------------------------------------------------
Date: Signed:
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