<PAGE> 1
File Nos. 333-25473
811-3859
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 9 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 10
(Check appropriate box or boxes)
VARIABLE SEPARATE ACCOUNT
(Exact Name of Registrant)
Anchor National Life Insurance Company
(Name of Depositor)
1 SunAmerica Center
Los Angeles, California 90067-6022
(Address of Depositor's Principal Offices) (Zip Code)
Depositor's Telephone Number, including Area Code
(310) 772-6000
Susan L. Harris, Esq.
Anchor National Life Insurance Company
1 SunAmerica Center
Los Angeles, California 90067-6022
(Name and Address of Agent for Service)
<TABLE>
<CAPTION>
Title
of Securities
Being Registered
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<S> <C>
Flexible Payment
Deferred Annuity
Contracts
</TABLE>
It is proposed that this filing will become effective:
-- immediately upon filing pursuant to paragraph (b) of Rule 485
X on June 28, 1999 pursuant to paragraph (b) of Rule 485
-- 60 days after filing pursuant to paragraph (a) of Rule 485
-- on [ ] pursuant to paragraph (a) of Rule 485
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VARIABLE SEPARATE ACCOUNT
Cross Reference Sheet
PART A - PROSPECTUS
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption
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<S> <C> <C>
1. Cover Page............................. Cover Page
2. Definitions............................ Definitions
3. Synopsis............................... Profile; Fee Tables;
Portfolio Expenses;
Examples
4. Condensed Financial Information........ Appendix A -
Condensed Financial
Information
5. General Description of Registrant,
Depositor and Portfolio Companies...... The Polaris II Variable
Annuity; Other
Information
6. Deductions............................. Expenses
7. General Description of
Variable Annuity Contracts............. The Polaris II Variable
Annuity; Purchasing a
Polaris II Variable
Annuity Contract;
Investment Options
8. Annuity Period......................... Income Options
9. Death Benefit.......................... Death Benefit
10. Purchases and Contract Value........... Purchasing a Polaris II
Variable Annuity Contract
11. Redemptions............................ Access To Your Money
12. Taxes.................................. Taxes
13. Legal Proceedings...................... Other Information - Legal
Proceedings
14. Table of Contents of Statement
of Additional Information.............. Table of Contents of
Statement of Additional
Information
</TABLE>
<PAGE> 3
PART B - STATEMENT OF ADDITIONAL INFORMATION
Certain information required in part B of the Registration Statement has
been included within the Prospectus forming part of this Registration Statement;
the following cross-references suffixed with a "P" are made by reference to the
captions in the Prospectus.
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption
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<S> <C> <C>
15. Cover Page............................. Cover Page
16. Table of Contents...................... Table of Contents
17. General Information and History........ The Polaris II Variable
Annuity (P); Separate
Account; General Account;
Investment Options (P);
Other Information
18. Services............................... Other Information (P)
19. Purchase of Securities Being Offered... Purchasing a Polaris II
Variable Annuity Contract
(P)
20. Underwriters........................... Distribution of Contracts
21. Calculation of Performance Data........ Performance Data
22. Annuity Payments....................... Income Options (P);
Income Payments;
Annuity Unit Values
23. Financial Statements................... Depositor: Other
Information - Financial
Statements; Registrant:
Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE> 4
[POLARIS II LOGO]
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
KNOW AND CONSIDER BEFORE PURCHASING THE POLARISII VARIABLE ANNUITY. THE ANNUITY
IS MORE FULLY DESCRIBED IN THE PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY.
June 28, 1999
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1. THE POLARISII VARIABLE ANNUITY
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The PolarisII Variable Annuity is a contract between you and Anchor National
Life Insurance Company. It is designed to help you invest on a tax-deferred
basis and meet long-term financial goals, such as retirement funding. Tax
deferral means all your money, including the amount you would otherwise pay in
current income taxes, remains in your contract to generate more earnings. Your
money could grow faster than it would in a comparable taxable investment.
PolarisII offers a diverse selection of money managers and investment options.
You may divide your money among any or all 27 variable portfolios and 5 fixed
account options. Additionally, if you do not elect to participate in the
Principal Rewards Program, you may also allocate money to the 2 dollar cost
averaging ("DCA") fixed account options. To the extent you invest in the
variable portfolios, your investment is not guaranteed. The value of your
PolarisII contract can fluctuate up and down, based on the performance of the
underlying investments you select and you may experience a loss.
The variable portfolios offer professionally managed investment choices with
goals ranging from capital preservation to aggressive growth. Your choices for
the various investment options are found on the next page.
The contract also offers 5 fixed account options and, if you do not elect to
participate in the Principal Rewards Program, 2 DCA fixed account options for
different time periods. Each may have a different interest rate. Interest rates
are guaranteed by Anchor National.
Like most annuities, the contract has an accumulation phase and an income phase.
During the accumulation phase, you invest money in your contract. Your earnings
are based on the investment performance of the variable portfolios to which your
money is allocated and/or the interest rate(s) earned on the fixed account
option(s) in which you invest. You may withdraw money from your contract during
the accumulation phase. However, as with other tax-deferred investments, you
will pay taxes on earnings and untaxed contributions when you withdraw them. A
federal tax penalty may apply if you make withdrawals before age 59 1/2.
During the income phase, you may receive income payments from your annuity. Your
income payments may be fixed in dollar amount, vary with investment performance
or a combination of both, depending on where your money is allocated. Among
other factors, the amount of money you are able to accumulate in your contract
during the accumulation phase will affect the amount of your income payments
during the income phase.
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2. INCOME OPTIONS
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You can select from one of five income options:
(1) payments for your lifetime;
(2) payments for your lifetime and your survivor's lifetime;
(3) payments for your lifetime and your survivor's lifetime, but for not less
than 10 or 20 years;
(4) payments for your lifetime, but for not less than 10 or 20 years; and
(5) payments for a specified period of 5 to 30 years.
You will also need to decide when your income payments begin and if you want
your income payments to fluctuate with investment performance or remain
constant. Once you begin receiving income payments, you cannot change your
income option.
If your contract is part of a non-qualified retirement plan (one that is
established with after-tax dollars), payments during the income phase are
considered partly a return of your original investment. The "original
investment" part of each payment is not taxable as income. For contracts which
are part of a qualified retirement plan using before-tax dollars, the entire
income payment is taxable as income.
In addition to the above income options, you may elect to take income payments
under the income protector feature, subject to the provisions thereof.
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3. PURCHASING A POLARISII VARIABLE
ANNUITY CONTRACT
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You can buy a contract through your financial representative, who can also help
you complete the proper forms. For non-qualified contracts, the minimum initial
purchase payment is $5,000 and subsequent amounts of $500 or more may be added
to your contract at any time during the accumulation phase. For qualified
contracts, the minimum initial purchase payment is $2,000 and subsequent amounts
of $250 or more may be added to your contract at any time during the
accumulation phase.
<PAGE> 5
You may elect to participate in the principal rewards program when you apply for
your contract. Under this program, we add an amount to your contract (an
"initial payment enhancement") each time you invest a purchase payment.
Additionally, we may also pay an amount to your contract at a future date (a
"deferred payment enhancement"). Payment enhancement amounts are calculated as a
percentage of each purchase payment. The Principal Rewards Program may not be
available to you. Please check with your financial representative regarding
availability of this program.
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4. INVESTMENT OPTIONS
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You may allocate money to the following variable portfolios of the Anchor Series
Trust and/or the SunAmerica Series Trust:
ANCHOR SERIES TRUST
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Natural Resources Portfolio
- Government and Quality Bond Portfolio
SUNAMERICA SERIES TRUST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
- Real Estate Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Mid-Cap Growth
- MFS Growth and Income Portfolio
- MFS Total Return Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
You may also allocate money to the 1-year fixed account option or the 3, 5, 7
and 10-year market value adjustment ("MVA") fixed account options and, under
certain circumstances, the 6-month and 1-year DCA fixed account options.
The interest rates applicable for these fixed account options may differ from
time to time, however, we will never credit less than a 3% annual effective
rate. Once established, the rate will not change during the selected period.
Your contract value will be adjusted up or down for withdrawals or transfers
from the 3, 5, 7 and 10-year fixed account options prior to the end of the
guarantee period.
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5. EXPENSES
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Each year, we deduct a $35 contract maintenance fee ($30 in North Dakota) from
your contract. We also deduct insurance charges which equal 1.52% annually of
the average daily value of your contract allocated to the variable portfolios.
As with other professionally managed investments, there are investment charges
imposed on contracts with money allocated to the variable portfolios. We
estimate these fees to range from .58 to 1.90.
If you take money out of your contract, you may be assessed a withdrawal charge
which is a percentage of purchase payments. The percentage declines over the
time the money is in the contract. The withdrawal charge schedule also varies
dependent upon whether you elect to participate in the Principal Rewards Program
when you purchase your contract. The two withdrawal charge schedules are as
follows:
WITHDRAWAL CHARGE WITHOUT THE PRINCIPAL REWARDS PROGRAM (SCHEDULE A)
<TABLE>
<CAPTION>
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Year 1 2 3 4 5 6 7 8
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
WITHDRAWAL
CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
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</TABLE>
WITHDRAWAL CHARGE WITH THE PRINCIPAL REWARDS PROGRAM (SCHEDULE B)
<TABLE>
<CAPTION>
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Year 1 2 3 4 5 6 7 8 9 10
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WITHDRAWAL
CHARGE 9% 9% 8% 7% 6% 5% 4% 3% 2% 0%
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</TABLE>
Each year, you are allowed to make 15 transfers without charge. After your first
15 free transfers, a $25 transfer fee ($10 in Pennsylvania and Texas) applies to
each subsequent transfer.
In a limited number of states, you may also be assessed a state premium tax of
up to 3.5% depending upon the state.
The following chart is designed to help you understand the charges in your
contract. The column "Total Annual Charges" shows the total of the 1.52%
insurance charges, the $35 contract maintenance fee and the investment charges
for each variable portfolio. We converted the contract maintenance fee to a
percentage using an assumed contract size of $40,000. The actual impact of this
charge on your contract may differ from this percentage.
<PAGE> 6
The next two columns show two examples of the charges you would pay under the
contract. The examples assume that you invested $1,000 in a contract which earns
5% annually and that you withdraw your money: (1) at the end of year 1, and (2)
at the end of year 10. The premium tax is assumed to be 0% in both examples.
<TABLE>
<CAPTION>
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EXAMPLES:
TOTAL EXPENSES
AT END OF
1 YEAR
TOTAL ANNUAL TOTAL ANNUAL WITHOUT/WITH TOTAL EXPENSES
INSURANCE INVESTMENT TOTAL ANNUAL PRINCIPAL AT END OF
ANCHOR SERIES TRUST PORTFOLIO CHARGES CHARGES CHARGES REWARDS PROGRAM 10 YEARS*
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<S> <C> <C> <C> <C> <C>
Capital Appreciation 1.61% .68% 2.29% $ 93/$113 $262
Growth 1.61% .75% 2.36% $ 94/$114 $269
Natural Resources 1.61% .88% 2.49% $ 95/$115 $282
Government and Quality Bond 1.61% .67% 2.28% $ 93/$113 $261
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SUNAMERICA SERIES TRUST PORTFOLIO
Emerging Markets** 1.61% 1.90% 3.51% $105/$125 $378
International Diversified
Equities 1.61% 1.26% 2.87% $ 99/$119 $319
Global Equities 1.61% .88% 2.49% $ 95/$115 $282
International Growth and
Income** 1.61% 1.46% 3.07% $101/$121 $338
Aggressive Growth** 1.61% .83% 2.44% $ 95/$115 $277
MFS Mid-Cap Growth 1.61% 1.00% 2.61% $ 96/$116 $294
Real Estate** 1.61% .95% 2.56% $ 96/$116 $289
Putnam Growth 1.61% .86% 2.47% $ 95/$115 $280
MFS Growth and Income(1) 1.61% .73% 2.34% $ 94/$114 $267
Alliance Growth 1.61% .64% 2.25% $ 93/$113 $258
"Dogs" of Wall Street** 1.61% .85% 2.46% $ 95/$115 $279
Venture Value 1.61% .75% 2.36% $ 94/$114 $269
Federated Value** 1.61% .83% 2.44% $ 95/$115 $277
Growth-Income 1.61% .60% 2.21% $ 92/$112 $254
Utility** 1.61% 1.01% 2.62% $ 96/$116 $295
Asset Allocation 1.61% .64% 2.25% $ 93/$113 $258
MFS Total Return(2) 1.61% .77% 2.38% $ 94/$114 $271
SunAmerica Balanced** 1.61% .78% 2.39% $ 94/$114 $272
Worldwide High Income 1.61% 1.08% 2.69% $ 97/$117 $302
High-Yield Bond 1.61% .69% 2.30% $ 93/$113 $263
Corporate Bond 1.61% .77% 2.38% $ 94/$114 $271
Global Bond 1.61% .85% 2.46% $ 95/$115 $279
Cash Management 1.61% .58% 2.19% $ 92/$112 $252
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</TABLE>
* Total expenses at the end of 10 years are the same for all contracts,
regardless of whether you participate in the Principal Rewards Program.
** For these Portfolios, the adviser, SunAmerica Asset Management Corp., has
voluntarily agreed to waive fees or reimburse expenses, if necessary, to keep
operating expenses at or below an established maximum amount. All waivers or
reimbursements may be terminated at any time. For more detailed information,
see Fee Tables and Examples in the prospectus.
(1) Formerly named Growth/Phoenix and managed by Phoenix Investment Counsel,
Inc.
(2) Formerly named Balanced/Phoenix and managed by Phoenix Investment Counsel,
Inc.
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6. TAXES
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Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts earned in a non-qualified contract are deferred until they are
withdrawn. In a qualified contract, all amounts are taxable when they are
withdrawn.
When you begin taking distributions or withdrawals from your contract, earnings
are considered to be taken out first and will be taxed at your ordinary income
rate. You may be subject to a 10% federal tax penalty for distributions or
withdrawals before age 59 1/2.
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7. ACCESS TO YOUR MONEY
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During the first year, you may withdraw free of a withdrawal charge an amount
that is equal to the penalty-free earnings in your contract as of the date you
make the withdrawal or, if you participate in the systematic withdrawal program,
you may withdraw 10% of your total invested amount less any withdrawals made
during the year. The penalty-free earnings amount is calculated by taking the
value of your contract on the day you make the withdrawal and subtracting your
total invested amount. After the first year, your maximum free withdrawal amount
is the greater of: (1) the penalty-free earnings or (2) 10% of your total
invested amount that has been invested for at least one year, less any
withdrawals made during the year. Withdrawals in excess of these limits will be
assessed a withdrawal charge.
If you withdraw your entire contract value, you will not receive the benefit of
any free withdrawal amount. After a purchase payment has been in the contract
for seven years, or nine years if you participate in the principal rewards
program, there are no withdrawal charges on that purchase payment.
<PAGE> 7
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8. PERFORMANCE
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When you invest in the PolarisII Variable Annuity, your money is actually
invested in the underlying portfolios of the Anchor Series Trust and/or the
SunAmerica Series Trust. The value of your annuity will fluctuate depending upon
the investment performance of the portfolio(s) you choose.
The following chart shows total returns for each portfolio for the time periods
shown. These numbers reflect the insurance charges, the contract maintenance fee
and the investment charges. Withdrawal charges are not reflected in the chart.
Past performance is no guarantee of future results.
<TABLE>
<CAPTION>
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ANCHOR SERIES CALENDAR
TRUST PORTFOLIO YEAR 1998*
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<S> <C>
Capital Appreciation 20.27%
Growth 26.93%
Natural Resources (18.80)%
Government and Quality Bond 7.42%
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SUNAMERICA SERIES
TRUST PORTFOLIO
Emerging Markets (25.62)%
International Diversified Equities 16.60%
Global Equities 20.86%
International Growth and Income 9.03%
Aggressive Growth 15.55%
MFS Mid-Cap Growth --**
Real Estate (16.76)%
Putnam Growth 32.60%
MFS Growth and Income1 27.22%
Alliance Growth 49.83%
"Dogs" of Wall Street (1.83)%***
Venture Value 11.96%
Federated Value 16.05%
Growth-Income 28.74%
Utility 12.21%
Asset Allocation 1.67%
MFS Total Return2 17.64%
SunAmerica Balanced 22.67%
Worldwide High Income (18.45)%
High-Yield Bond (4.51)%
Corporate Bond 4.31%
Global Bond 9.04%
Cash Management 3.51%
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</TABLE>
* The total returns listed here do not take into account the effect of any
payment enhancement made under the Principal Rewards Program.
** This portfolio was not available for sale during calendar year 1998.
*** Inception to 12/31/98.
1 Formerly named Growth/Phoenix and managed by Phoenix Investment Counsel,
Inc.
2 Formerly named Balanced/Phoenix and managed by Phoenix Investment Counsel,
Inc.
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9. DEATH BENEFIT
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If you should die during the accumulation phase, your beneficiary will receive a
death benefit. You must select from the two death benefit options described
below at the time you purchase your contract. Once selected, your death benefit
may not be changed. You should discuss with your financial representative the
options available to you and which option is best for you.
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION:
The death benefit is the greater of:
(1) the value of your contract at the time we receive satisfactory proof of
death; or
(2) total purchase payments less withdrawals (and any fees or charges applicable
to such withdrawals), compounded at a 4% annual growth rate until the date
of death (3% growth rate if 70 or older at the time of contract issue) plus
any purchase payments less withdrawals recorded after the date of death (and
any fees or charges applicable to such withdrawals); or
(3) the value of your contract on the seventh contract anniversary, plus any
purchase payments since the seventh anniversary and less any withdrawals
(and any fees or charges applicable to such withdrawals), all compounded at
a 4% annual growth rate until the date of death (3% if 70 or older at the
time of contract issue) plus any purchase payments less withdrawals recorded
after the date of death (and any fees or charges applicable to such
withdrawals).
OPTION 2 - MAXIMUM ANNIVERSARY OPTION:
The death benefit is the greater of:
(1) the value of your contract at the time we receive satisfactory proof of
death; or
(2) total purchase payments less any withdrawals (and any fees or charges
applicable to such withdrawals); or
(3) the maximum anniversary value on any contract anniversary prior to your 81st
birthday. The anniversary value equals the value of your contract on a
contract anniversary plus any purchase payments and less any withdrawals
(and any fees or charges applicable to such withdrawals) since that
anniversary.
If you participate in the principal rewards program and die prior to a deferred
payment enhancement date, we will not allocate the corresponding deferred
payment enhancement(s) to your contract.
If you are age 90 or older at the time of death and selected the option 2 death
benefit, the death benefit will be equal to the value of your contract at the
time we receive satisfactory proof of death.
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10. OTHER INFORMATION
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FREE LOOK: You may cancel your contract within ten days (or longer if required
by your state) by mailing it to our Annuity Service Center. Your contract will
be treated as void on the date we receive it and we will pay you an amount equal
to the value of your contract on the day we receive your request (unless
otherwise required by state law) less the free look payment enhancement
deduction. The amount returned to you may be more or less than the money you
initially invested.
PRINCIPAL REWARDS PROGRAM: If elected by you, we add an amount to your contract
(an "initial payment enhancement") each time you submit a purchase payment.
Additionally, we may also add an amount to your contract at a future date (a
"deferred payment enhancement"). Payment enhancement amounts are calculated as a
percentage of your purchase
<PAGE> 8
payment amount and are treated as earnings under your contract. The program may
not be available to you. Please check with your financial representative
regarding the availability of this program.
ASSET ALLOCATION REBALANCING PROGRAM: If elected by you, this program seeks to
keep your investment in line with your goals. We will maintain your specified
allocation mix in the variable portfolios and the 1-year fixed account option by
readjusting your money on a calendar quarter, semiannual or annual basis.
SYSTEMATIC WITHDRAWAL PROGRAM: If elected by you, this program allows you to
receive either monthly, quarterly, semiannual or annual checks during the
accumulation phase. Systematic withdrawals may also be electronically
transferred to your bank account. Of course, withdrawals may be taxable and a
10% federal tax penalty may apply if you are under age 59 1/2.
PRINCIPAL ADVANTAGE PROGRAM: If elected by you, this program allows you to
obtain growth potential without any market risk to your principal. We will
guarantee that the portion of your money allocated to the 1, 3, 5, 7 or 10-year
fixed account option will grow to equal your principal investment when it is
allocated in accordance with the program.
DOLLAR COST AVERAGING: If elected by you, this program allows you to invest
gradually in the variable portfolios from any of the variable portfolios or the
1-year fixed account option. You may also invest in the variable portfolios from
the 6-month DCA fixed account option or the 1-year DCA fixed account option if
you do not participate in the principal rewards program.
AUTOMATIC PAYMENT PLAN: You can add to your contract directly from your bank
account with as little as $20 per month.
CONFIRMATIONS AND QUARTERLY STATEMENTS: During the accumulation phase, you will
receive confirmation of transactions within your contract. Transactions made
pursuant to contractual or systematic agreements, such as deduction of the
annual maintenance fee and dollar cost averaging, may be confirmed quarterly.
Purchase payments received through the automatic payment plan or a salary
reduction arrangement, may also be confirmed quarterly. For all other
transactions, we send confirmations immediately.
During the accumulation and income phases, you will receive a statement of your
transactions over the past quarter and a summary of your account values.
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11. INQUIRIES
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If you have questions about your contract or need to make changes, call your
financial representative or contact us at:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
If money accompanies your correspondence, you should direct it to:
Anchor National Life Insurance Company
P.O. Box 100330
Pasadena, California 91189-0001
<PAGE> 9
[POLARIS II LOGO]
PROSPECTUS
JUNE 28, 1999
<TABLE>
<S> <C> <C>
Please read this prospectus carefully FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
before investing and keep it for issued by
future reference. It contains ANCHOR NATIONAL LIFE INSURANCE COMPANY
important information about the in connection with
Polaris(II) Variable Annuity. VARIABLE SEPARATE ACCOUNT
The annuity has 34 investment choices -7 fixed account
To learn more about the annuity options and 27 Variable Portfolios listed below. The 7 fixed
offered by this prospectus, you can account options include specified periods of 1, 3, 5, 7 and
obtain a copy of the Statement of 10 years and DCA accounts for 6-month and 1-year periods.
Additional Information ("SAI") dated The 27 Variable Portfolios are part of the Anchor Series
June 28, 1999. The SAI has been filed Trust or the SunAmerica Series Trust.
with the Securities and Exchange
Commission ("SEC") and is ANCHOR SERIES TRUST:
incorporated by reference into this MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
prospectus. The Table of Contents of - Capital Appreciation Portfolio
the SAI appears on page 23 of this - Growth Portfolio
prospectus. For a free copy of the - Natural Resources Portfolio
SAI, call us at (800) 445-SUN2 or - Government and Quality Bond Portfolio
write to us at our Annuity Service
Center, P.O. Box 54299, Los Angeles, SUNAMERICA SERIES TRUST:
California 90054-0299. MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
In addition, the SEC maintains a - Alliance Growth Portfolio
website (http://www.sec.gov) that - Growth-Income Portfolio
contains the SAI, materials MANAGED BY DAVIS SELECTED ADVISERS, L.P.
incorporated by reference and other - Venture Value Portfolio
information filed electronically with - Real Estate Portfolio
the SEC by Anchor National. MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
ANNUITIES INVOLVE RISKS, INCLUDING - Utility Portfolio
POSSIBLE LOSS OF PRINCIPAL, AND ARE - Corporate Bond Portfolio
NOT A DEPOSIT OR OBLIGATION OF, OR MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
GUARANTEED OR ENDORSED BY, ANY BANK. GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
THEY ARE NOT FEDERALLY INSURED BY THE - Asset Allocation Portfolio
FEDERAL DEPOSIT INSURANCE - Global Bond Portfolio
CORPORATION, THE FEDERAL RESERVE MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
BOARD OR ANY OTHER AGENCY. - MFS Mid-Cap Growth
- MFS Growth and Income Portfolio
- MFS Total Return Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE> 10
- ----------------------------------------------------------------
- ----------------------------------------------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Anchor National's Annual Report on Form 10-K for the year ended September 30,
1998, and its quarterly report on Form 10-Q for the quarters ended December 31,
1998 and March 31, 1999 are incorporated herein by reference. In addition,
Anchor National filed three reports on Form 8-K on January 14 and 15 and March
12, 1999. These reports are also incorporated herein by reference.
All documents or reports filed by Anchor National under Section 13(a), 13(c),
14, or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") after the effective date of this prospectus are also incorporated by
reference. Statements contained in this prospectus and subsequently filed
documents which are incorporated by reference or deemed to be incorporated by
reference are deemed to modify or supersede documents incorporated herein by
reference.
Anchor National files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000006342.
Anchor National is subject to the informational requirements of the Securities
and Exchange Act of 1934 (as amended). We file reports and other information
with the SEC to meet those requirements. You can inspect and copy this
information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
7 World Trade Center, 13th Fl.
New York, NY 10048
To obtain copies by mail contact the Washington, D.C. location. After you pay
the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the registration
statements and exhibits. For further information regarding the separate account,
Anchor National and its general account, the Variable Portfolios and the
contract, please refer to the registration statements and exhibits.
The SEC also maintains a website (http://www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by Anchor National.
Anchor National will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of the above
documents incorporated by reference. Requests for these documents should be
directed to Anchor National's Annuity Service Center, as follows:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
- ----------------------------------------------------------------
- ----------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") is provided to Anchor National's officers, directors and controlling
persons. The SEC has advised that it believes such indemnification is against
public policy under the Act and unenforceable. If a claim for indemnification
against such liabilities (other than for Anchor National's payment of expenses
incurred or paid by its directors, officers or controlling persons in the
successful defense of any legal action) is asserted by a director, officer or
controlling person of Anchor National in connection with the securities
registered under this prospectus, Anchor National will submit to a court with
jurisdiction to determine whether the indemnification is against public policy
under the Act. Anchor National will be governed by final judgment of the issue.
However, if in the opinion of Anchor National's counsel, this issue has been
determined by controlling precedent, Anchor National will not submit the issue
to a court for determination.
2
<PAGE> 11
<TABLE>
<S> <C> <C>
------------------------------------------------------------------
------------------------------------------------------------------
TABLE OF CONTENTS
------------------------------------------------------------------
------------------------------------------------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 2
SECURITIES AND EXCHANGE COMMISSION POSITION ON
INDEMNIFICATION........................................... 2
GLOSSARY.................................................... 3
FEE TABLES.................................................. 4
Owner Transaction Expenses............................ 4
Annual Separate Account Expenses...................... 4
Portfolio Expenses.................................... 4
EXAMPLES.................................................... 5
THE POLARIS(II) VARIABLE ANNUITY............................ 7
PURCHASING A POLARIS(II) VARIABLE ANNUITY................... 8
Allocation of Purchase Payments....................... 8
Principal Rewards Program............................. 8
Accumulation Units.................................... 9
Free Look............................................. 9
INVESTMENT OPTIONS.......................................... 9
Variable Portfolios................................... 9
Anchor Series Trust................................... 10
SunAmerica Series Trust............................... 10
Fixed Account Options................................. 10
Market Value Adjustment ("MVA")....................... 11
Transfers During the Accumulation Phase............... 11
Dollar Cost Averaging................................. 12
Asset Allocation Rebalancing Program.................. 12
Principal Advantage Program........................... 13
Voting Rights......................................... 13
Substitution.......................................... 13
ACCESS TO YOUR MONEY........................................ 13
Systematic Withdrawal Program......................... 14
Nursing Home Waiver................................... 14
Minimum Contract Value................................ 14
DEATH BENEFIT............................................... 14
EXPENSES.................................................... 15
Insurance Charges..................................... 15
Withdrawal Charges.................................... 15
Investment Charges.................................... 16
Contract Maintenance Fee.............................. 16
Transfer Fee.......................................... 16
Premium Tax........................................... 16
Income Taxes.......................................... 16
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited........................... 16
INCOME OPTIONS.............................................. 17
Annuity Date.......................................... 17
Income Options........................................ 17
Fixed or Variable Income Payments..................... 17
Income Payments....................................... 17
Transfers During the Income Phase..................... 18
Deferment of Payments................................. 18
The Income Protector Feature.......................... 18
TAXES....................................................... 19
Annuity Contracts in General.......................... 19
Tax Treatment of Distributions - Non-Qualified
Contracts............................................. 19
Tax Treatment of Distributions - Qualified
Contracts............................................. 20
Minimum Distributions................................. 20
Diversification....................................... 20
PERFORMANCE................................................. 20
OTHER INFORMATION........................................... 21
Anchor National....................................... 21
The Separate Account.................................. 21
The General Account................................... 21
Distribution of the Contract.......................... 21
Administration........................................ 21
Year 2000............................................. 22
Legal Proceedings..................................... 22
Ownership............................................. 22
Custodian............................................. 22
Independent Accountants............................... 22
Registration Statement................................ 23
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION....
23
APPENDIX A -- CONDENSED FINANCIAL INFORMATION............... A-1
APPENDIX B -- PRINCIPAL REWARDS PROGRAM DEFERRED PAYMENT
ENHANCEMENT EXAMPLES...................................... B-1
APPENDIX C -- MARKET VALUE ADJUSTMENT ("MVA")............... C-1
APPENDIX D -- PREMIUM TAXES................................. D-1
------------------------------------------------------------------
------------------------------------------------------------------
GLOSSARY
------------------------------------------------------------------
------------------------------------------------------------------
We have capitalized some of the technical terms used in this
prospectus. To help you understand these terms, we have defined
them in this glossary.
ACCUMULATION PHASE - The period during which you invest money in
your contract.
ACCUMULATION UNITS - A measurement we use to calculate the value
of the variable portion of your contract during the Accumulation
Phase.
ANNUITANT(S) - The person(s) on whose life (lives) we base income
payments.
ANNUITY DATE - The date on which income payments are to begin, as
selected by you.
ANNUITY UNITS - A measurement we use to calculate the amount of
income payments you receive from the variable portion of your
contract during the Income Phase.
BENEFICIARY - The person designated to receive any benefits under
the contract if you or the Annuitant dies.
COMPANY - Anchor National Life Insurance Company, We, Us, the
insurer which issues this contract.
INCOME PHASE - The period during which we make income payments to
you.
IRS - The Internal Revenue Service.
NON-QUALIFIED (CONTRACT) - A contract purchased with after-tax
dollars. In general, these contracts are not under any pension
plan, specially sponsored program or individual retirement account
("IRA").
PAYMENT ENHANCEMENT(S) - The amount(s) allocated to your contract
by us under the Principal Rewards Program. Payment Enhancements
are calculated as a percentage of your Purchase Payments and are
considered earnings.
PURCHASE PAYMENTS - The money you give us to buy the contract, as
well as any additional money you give us to invest in the contract
after you own it.
QUALIFIED (CONTRACT) - A contract purchased with pretax dollars.
These contracts are generally purchased under a pension plan,
specially sponsored program or IRA.
TRUSTS - Refers to the Anchor Series Trust and the SunAmerica
Series Trust collectively.
VARIABLE PORTFOLIO(S) - The variable investment options available
under the contract. Each Variable Portfolio has its own investment
objective and is invested in the underlying investments of the
Anchor Series Trust or the SunAmerica Series Trust.
</TABLE>
ALL FINANCIAL REPRESENTATIVES OR AGENTS THAT SELL THE CONTRACTS OFFERED BY THIS
PROSPECTUS ARE REQUIRED TO DELIVER A PROSPECTUS.
3
<PAGE> 12
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEARS:.................. 1 2 3 4 5 6 7 8 9 10
Schedule A*............. 7% 6% 5% 4% 3% 2% 1% 0% 0% 0%
Schedule B**............ 9% 9% 8% 7% 6% 5% 4% 3% 2% 0%
</TABLE>
* This schedule applies to each Purchase Payment if you are not participating
in the Principal Rewards Program.
** This schedule applies to each Purchase Payment if you are participating in
the Principal Rewards Program.
<TABLE>
<S> <C> <C> <C>
TRANSFER FEE.................... No charge for first 15 transfers
each contract year; thereafter,
fee is $25 ($10 in Pennsylvania
and Texas) per transfer
</TABLE>
CONTRACT MAINTENANCE FEE*
$35 ($30 in North Dakota)
*waived if contract value is $50,000 or more
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge................ 1.37%
Distribution Expense Charge...................... 0.15%
-----
TOTAL SEPARATE ACCOUNT EXPENSES 1.52%
=====
</TABLE>
PORTFOLIO EXPENSES
ANCHOR SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S TWELVE-MONTH PERIOD ENDED
NOVEMBER 30, 1998)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Capital Appreciation .64% .04% .68%
- -----------------------------------------------------------------------------------------------------------
Growth .70% .05% .75%
- -----------------------------------------------------------------------------------------------------------
Natural Resources .75% .13% .88%
- -----------------------------------------------------------------------------------------------------------
Government and Quality Bond .61% .06% .67%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SUNAMERICA SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER REIMBURSEMENT OR WAIVER OF EXPENSES
FOR THE TRUST'S FISCAL YEAR ENDED NOVEMBER 30, 1998)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Emerging Markets* 1.25% .65% 1.90%
- -----------------------------------------------------------------------------------------------------------
International Diversified Equities 1.00% .26% 1.26%
- -----------------------------------------------------------------------------------------------------------
Global Equities .74% .14% .88%
- -----------------------------------------------------------------------------------------------------------
International Growth and Income** 1.00% .46% 1.46%
- -----------------------------------------------------------------------------------------------------------
Aggressive Growth .74% .09% .83%
- -----------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth*** .75% .25% 1.00%
- -----------------------------------------------------------------------------------------------------------
Real Estate** .80% .15% .95%
- -----------------------------------------------------------------------------------------------------------
Putnam Growth .81% .05% .86%
- -----------------------------------------------------------------------------------------------------------
MFS Growth and Income****+ .70% .03% .73%
- -----------------------------------------------------------------------------------------------------------
Alliance Growth+ .61% .03% .64%
- -----------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street* .60% .25% .85%*****
- -----------------------------------------------------------------------------------------------------------
Venture Value .72% .03% .75%
- -----------------------------------------------------------------------------------------------------------
Federated Value .75% .08% .83%
- -----------------------------------------------------------------------------------------------------------
Growth-Income .56% .04% .60%
- -----------------------------------------------------------------------------------------------------------
Utility** .75% .26% 1.01%
- -----------------------------------------------------------------------------------------------------------
Asset Allocation .59% .05% .64%
- -----------------------------------------------------------------------------------------------------------
MFS Total Return****+ .67% .10% .77%
- -----------------------------------------------------------------------------------------------------------
SunAmerica Balanced .68% .10% .78%
- -----------------------------------------------------------------------------------------------------------
Worldwide High Income 1.00% .08% 1.08%
- -----------------------------------------------------------------------------------------------------------
High-Yield Bond .63% .06% .69%
- -----------------------------------------------------------------------------------------------------------
Corporate Bond .65% .12% .77%
- -----------------------------------------------------------------------------------------------------------
Global Bond .70% .15% .85%
- -----------------------------------------------------------------------------------------------------------
Cash Management .53% .05% .58%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Absent fee waivers or reimbursement of expenses by the adviser, you would
have incurred the following expenses during the last fiscal year: Emerging
Markets (2.01%) and "Dogs" of Wall Street (.92%).
** Absent recoupment of expenses by the adviser, you would have incurred the
following expenses during the last fiscal year: International Growth and
Income (1.40%); Real Estate (.93%); and Utility (.92%).
*** This Portfolio was not available for sale during fiscal year 1998. The
percentages are based on estimated amounts for the current fiscal year.
**** As of January 4, 1998, the Growth/Phoenix Portfolio was renamed the MFS
Growth and Income Portfolio, and the Balanced/Phoenix Portfolio was
renamed the MFS Total Return Portfolio, each managed by Massachusetts
Financial Services Company.
***** Annualized.
+ The expenses noted here are restated to reflect an estimate of fees for
each portfolio for the current fiscal year.
THE ABOVE PORTFOLIO EXPENSES WERE PROVIDED BY THE TRUSTS. WE HAVE NOT
INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
4
<PAGE> 13
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXAMPLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You will pay the following expenses on a $1,000 investment in each Variable
Portfolio, assuming a 5% annual return on assets, no participation in the
Principal Rewards Program and:
(a) you surrender the contract at the end of the stated time period.
(b) you do not surrender the contract.*
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Capital Appreciation (a) $ 93 (a) $121 (a) $152 (a) $262
(b) $ 23 (b) $ 71 (b) $122 (b) $262
- ------------------------------------------------------------------------------------------------------
Growth (a) $ 94 (a) $124 (a) $156 (a) $269
(b) $ 24 (b) $ 74 (b) $126 (b) $269
- ------------------------------------------------------------------------------------------------------
Natural Resources (a) $ 95 (a) $127 (a) $162 (a) $282
(b) $ 25 (b) $ 77 (b) $132 (b) $282
- ------------------------------------------------------------------------------------------------------
Government and Quality Bond (a) $ 93 (a) $121 (a) $152 (a) $261
(b) $ 23 (b) $ 71 (b) $122 (b) $261
- ------------------------------------------------------------------------------------------------------
Emerging Markets (a) $105 (a) $158 (a) $212 (a) $378
(b) $ 35 (b) $108 (b) $182 (b) $378
- ------------------------------------------------------------------------------------------------------
International Diversified Equities (a) $ 99 (a) $139 (a) $181 (a) $319
(b) $ 29 (b) $ 89 (b) $151 (b) $319
- ------------------------------------------------------------------------------------------------------
Global Equities (a) $ 95 (a) $127 (a) $162 (a) $282
(b) $ 25 (b) $ 77 (b) $132 (b) $282
- ------------------------------------------------------------------------------------------------------
International Growth and Income (a) $101 (a) $145 (a) $191 (a) $338
(b) $ 31 (b) $ 95 (b) $161 (b) $338
- ------------------------------------------------------------------------------------------------------
Aggressive Growth (a) $ 95 (a) $126 (a) $160 (a) $277
(b) $ 25 (b) $ 76 (b) $130 (b) $277
- ------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth (a) $ 96 (a) $131 (a) $168 (a) $294
(b) $ 26 (b) $ 81 (b) $138 (b) $294
- ------------------------------------------------------------------------------------------------------
Real Estate (a) $ 96 (a) $130 (a) $166 (a) $289
(b) $ 26 (b) $ 80 (b) $136 (b) $289
- ------------------------------------------------------------------------------------------------------
Putnam Growth (a) $ 95 (a) $127 (a) $161 (a) $280
(b) $ 25 (b) $ 77 (b) $131 (b) $280
- ------------------------------------------------------------------------------------------------------
MFS Growth and Income (a) $ 94 (a) $123 (a) $155 (a) $267
(b) $ 24 (b) $ 73 (b) $125 (b) $267
- ------------------------------------------------------------------------------------------------------
Alliance Growth (a) $ 93 (a) $120 (a) $150 (a) $258
(b) $ 23 (b) $ 70 (b) $120 (b) $258
- ------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street (a) $ 95 (a) $127 (a) $161 (a) $279
(b) $ 25 (b) $ 77 (b) $131 (b) $279
- ------------------------------------------------------------------------------------------------------
Venture Value (a) $ 94 (a) $124 (a) $156 (a) $269
(b) $ 24 (b) $ 74 (b) $126 (b) $269
- ------------------------------------------------------------------------------------------------------
Federated Value (a) $ 95 (a) $126 (a) $160 (a) $277
(b) $ 25 (b) $ 76 (b) $130 (b) $277
- ------------------------------------------------------------------------------------------------------
Growth-Income (a) $ 92 (a) $119 (a) $148 (a) $254
(b) $ 22 (b) $ 69 (b) $118 (b) $254
- ------------------------------------------------------------------------------------------------------
Utility (a) $ 96 (a) $131 (a) $169 (a) $295
(b) $ 26 (b) $ 81 (b) $139 (b) $295
- ------------------------------------------------------------------------------------------------------
Asset Allocation (a) $ 93 (a) $120 (a) $150 (a) $258
(b) $ 23 (b) $ 70 (b) $120 (b) $258
- ------------------------------------------------------------------------------------------------------
MFS Total Return (a) $ 94 (a) $124 (a) $157 (a) $271
(b) $ 24 (b) $ 74 (b) $127 (b) $271
- ------------------------------------------------------------------------------------------------------
SunAmerica Balanced (a) $ 94 (a) $124 (a) $157 (a) $272
(b) $ 24 (b) $ 74 (b) $127 (b) $272
- ------------------------------------------------------------------------------------------------------
Worldwide High Income (a) $ 97 (a) $133 (a) $172 (a) $302
(b) $ 27 (b) $ 83 (b) $142 (b) $302
- ------------------------------------------------------------------------------------------------------
High-Yield Bond (a) $ 93 (a) $122 (a) $153 (a) $263
(b) $ 23 (b) $ 72 (b) $123 (b) $263
- ------------------------------------------------------------------------------------------------------
Corporate Bond (a) $ 94 (a) $124 (a) $157 (a) $271
(b) $ 24 (b) $ 74 (b) $127 (b) $271
- ------------------------------------------------------------------------------------------------------
Global Bond (a) $ 95 (a) $127 (a) $161 (a) $279
(b) $ 25 (b) $ 77 (b) $131 (b) $279
- ------------------------------------------------------------------------------------------------------
Cash Management (a) $ 92 (a) $118 (a) $147 (a) $252
(b) $ 22 (b) $ 68 (b) $117 (b) $252
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
* We do not currently charge a surrender charge upon annuitization
unless the contract is annuitized using the Income Protector feature.
We assess the applicable surrender charge upon annuitization under
the Income Protector feature assuming a full surrender of your
contract.
5
<PAGE> 14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXAMPLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You will pay the following expenses on a $1,000 investment in each Variable
Portfolio, assuming a 5% annual return on assets, participation in the Principal
Rewards Program and:
(a) you surrender the contract at the end of the stated time period.
(b) you do not surrender the contract*
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Capital Appreciation (a) $113 (a) $151 (a) $182 (a) $262
(b) $ 23 (b) $ 71 (b) $122 (b) $262
- ------------------------------------------------------------------------------------------------------
Growth (a) $114 (a) $154 (a) $186 (a) $269
(b) $ 24 (b) $ 74 (b) $126 (b) $269
- ------------------------------------------------------------------------------------------------------
Natural Resources (a) $115 (a) $157 (a) $192 (a) $282
(b) $ 25 (b) $ 77 (b) $132 (b) $282
- ------------------------------------------------------------------------------------------------------
Government and Quality Bond (a) $113 (a) $151 (a) $182 (a) $261
(b) $ 23 (b) $ 71 (b) $122 (b) $261
- ------------------------------------------------------------------------------------------------------
Emerging Markets (a) $125 (a) $188 (a) $242 (a) $378
(b) $ 35 (b) $108 (b) $182 (b) $378
- ------------------------------------------------------------------------------------------------------
International Diversified Equities (a) $119 (a) $169 (a) $211 (a) $319
(b) $ 29 (b) $ 89 (b) $151 (b) $319
- ------------------------------------------------------------------------------------------------------
Global Equities (a) $115 (a) $157 (a) $192 (a) $282
(b) $ 25 (b) $ 77 (b) $132 (b) $282
- ------------------------------------------------------------------------------------------------------
International Growth and Income (a) $121 (a) $175 (a) $221 (a) $338
(b) $ 31 (b) $ 95 (b) $161 (b) $338
- ------------------------------------------------------------------------------------------------------
Aggressive Growth (a) $115 (a) $156 (a) $190 (a) $277
(b) $ 25 (b) $ 76 (b) $130 (b) $277
- ------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth (a) $116 (a) $161 (a) $198 (a) $294
(b) $ 26 (b) $ 81 (b) $138 (b) $294
- ------------------------------------------------------------------------------------------------------
Real Estate (a) $116 (a) $160 (a) $196 (a) $289
(b) $ 26 (b) $ 80 (b) $136 (b) $289
- ------------------------------------------------------------------------------------------------------
Putnam Growth (a) $115 (a) $157 (a) $191 (a) $280
(b) $ 25 (b) $ 77 (b) $131 (b) $280
- ------------------------------------------------------------------------------------------------------
MFS Growth and Income (a) $114 (a) $153 (a) $185 (a) $267
(b) $ 24 (b) $ 73 (b) $125 (b) $267
- ------------------------------------------------------------------------------------------------------
Alliance Growth (a) $113 (a) $150 (a) $180 (a) $258
(b) $ 23 (b) $ 70 (b) $120 (b) $258
- ------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street (a) $115 (a) $157 (a) $191 (a) $279
(b) $ 25 (b) $ 77 (b) $131 (b) $279
- ------------------------------------------------------------------------------------------------------
Venture Value (a) $114 (a) $154 (a) $186 (a) $269
(b) $ 24 (b) $ 74 (b) $126 (b) $269
- ------------------------------------------------------------------------------------------------------
Federated Value (a) $115 (a) $156 (a) $190 (a) $277
(b) $ 25 (b) $ 76 (b) $130 (b) $277
- ------------------------------------------------------------------------------------------------------
Growth-Income (a) $112 (a) $149 (a) $178 (a) $254
(b) $ 22 (b) $ 69 (b) $118 (b) $254
- ------------------------------------------------------------------------------------------------------
Utility (a) $116 (a) $161 (a) $199 (a) $295
(b) $ 26 (b) $ 81 (b) $139 (b) $295
- ------------------------------------------------------------------------------------------------------
Asset Allocation (a) $113 (a) $150 (a) $180 (a) $258
(b) $ 23 (b) $ 70 (b) $120 (b) $258
- ------------------------------------------------------------------------------------------------------
MFS Total Return (a) $114 (a) $154 (a) $187 (a) $271
(b) $ 24 (b) $ 74 (b) $127 (b) $271
- ------------------------------------------------------------------------------------------------------
SunAmerica Balanced (a) $114 (a) $154 (a) $187 (a) $272
(b) $ 24 (b) $ 74 (b) $127 (b) $272
- ------------------------------------------------------------------------------------------------------
Worldwide High Income (a) $117 (a) $163 (a) $202 (a) $302
(b) $ 27 (b) $ 83 (b) $142 (b) $302
- ------------------------------------------------------------------------------------------------------
High-Yield Bond (a) $113 (a) $152 (a) $183 (a) $263
(b) $ 23 (b) $ 72 (b) $123 (b) $263
- ------------------------------------------------------------------------------------------------------
Corporate Bond (a) $114 (a) $154 (a) $187 (a) $271
(b) $ 24 (b) $ 74 (b) $127 (b) $271
- ------------------------------------------------------------------------------------------------------
Global Bond (a) $115 (a) $157 (a) $191 (a) $279
(b) $ 25 (b) $ 77 (b) $131 (b) $279
- ------------------------------------------------------------------------------------------------------
Cash Management (a) $112 (a) $148 (a) $177 (a) $252
(b) $ 22 (b) $ 68 (b) $117 (b) $252
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
* We do not currently charge a surrender charge upon annuitization
unless the contract is annuitized using the Income Protector feature.
We assess the applicable surrender charge upon annuitization under
the Income Protector feature assuming a full surrender of your
contract.
6
<PAGE> 15
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract.
2. For certain Variable Portfolios, the adviser, SunAmerica Asset Management
Corp., has voluntarily agreed to waive fees or reimburse certain expenses,
if necessary, to keep annual operating expenses at or below the lesser of
the maximum allowed by any applicable state expense limitations or the
following percentages of each Variable Portfolio's average net assets:
SunAmerica Balanced (1.00%); "Dogs" of Wall Street (.85%); Aggressive Growth
(.90%); Federated Value (1.03%); Utility (1.05%); Emerging Markets (1.90%);
International Growth and Income (1.60%); and Real Estate (1.25%). The
adviser also may voluntarily waive or reimburse additional amounts to
increase a Variable Portfolio's investment return. All waivers and/or
reimbursements may be terminated at any time. Furthermore, the adviser may
recoup any waivers or reimbursements within two years after such waivers or
reimbursements are granted, provided that the Variable Portfolio is able to
make such payment and remain in compliance with the foregoing expense
limitations.
3. The Examples assume that no transfer fees were imposed. Although premium
taxes may apply in certain states, they are not reflected in the Examples.
4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE HISTORICAL ACCUMULATION UNIT VALUES ARE CONTAINED IN APPENDIX A -- CONDENSED
FINANCIAL INFORMATION.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
THE POLARIS(II) VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: This means that you do not pay taxes on your earnings from
the annuity until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer
payment of taxes on earnings until withdrawal. If you are considering funding a
tax-qualified retirement plan with an annuity, you should know that an annuity
does not provide any additional tax deferral treatment of earnings beyond the
treatment provided by the tax-qualified retirement plan itself. However,
annuities do provide other features and benefits which may be valuable to you.
You should fully discuss this decision with your financial representative.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request us to start
making income payments to you out of the money accumulated in your contract.
The contract is called a "variable" annuity because it allows you to invest in
variable portfolios which, like mutual funds, have different investment
objectives and performance which varies. You can gain or lose money if you
invest in these Variable Portfolios. The amount of money you accumulate in your
contract depends on the performance of the Variable Portfolios in which you
invest. This contract currently offers 27 Variable Portfolios.
The contract also offers several fixed account options for varying time periods.
Fixed account options earn interest at a rate set and guaranteed by Anchor
National. If you allocate money to the fixed account options, the amount of
money that accumulates in the contract depends on the total interest credited to
the particular fixed account option(s) in which you invest.
For more information on investment options available under this contract SEE
INVESTMENT OPTIONS ON PAGE 9.
This annuity is designed to assist in contributing to retirement savings of
investors whose personal circumstances allow for a long-term investment time
horizon. As a function of the Internal Revenue Code ("IRC"), you may be assessed
a 10% federal tax penalty on any withdrawal made prior to your reaching age
59 1/2. Additionally, this contract provides that you will be charged a
withdrawal charge on each purchase payment withdrawn if that purchase payment
has not been invested in this contract for at least 7 years, or 9 years if you
elect to participate in the Principal Rewards Program. Because of these
potential penalties, you should fully discuss all of the benefits and risks of
this contract with your financial representative prior to purchase.
Anchor National Life Insurance Company (Anchor National, The Company, Us, We)
issues the PolarisII Variable Annuity. When you purchase a PolarisII Variable
Annuity, a contract exists between you and Anchor National. The Company is a
stock life insurance company organized under the laws of the state of Arizona.
Its principal place of business is 1 SunAmerica Center, Los Angeles, California
90067. The Company conducts life insurance and annuity business in the District
of Columbia and all states except New York. Anchor National is an indirect,
wholly owned subsidiary of American International Group, Inc. ("AIG"), a
Delaware corporation.
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PURCHASING A POLARIS(II) VARIABLE ANNUITY
- ----------------------------------------------------------------
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An initial Purchase Payment is the money you give us to buy a contract. Any
additional money you give us to invest in the contract after purchase is a
subsequent Purchase Payment.
The following chart shows the minimum initial and subsequent Purchase Payments
permitted under your contract. These amounts depend upon whether a contract is
Qualified or Non-qualified for tax purposes. FOR FURTHER EXPLANATION, SEE TAXES
ON PAGE 19.
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------
Minimum
Minimum Initial Subsequent
Purchase Payment Purchase Payment
- -----------------------------------------------------------
Qualified $2,000 $250
- -----------------------------------------------------------
Non-Qualified $5,000 $500
- -----------------------------------------------------------
</TABLE>
Prior Company approval is required to accept Purchase Payments greater than
$1,000,000. The Company reserves the right to refuse any Purchase Payment
including to one which would cause the contract value or total Purchase Payments
to exceed $1,000,000 at the time of the Purchase Payment. Also, the optional
automatic payment plan allows you to make subsequent Purchase Payments of as
little as $20.00.
We may refuse any Purchase Payment. In general, we will not issue a Qualified
contract to anyone who is age 70 1/2 or older, unless it is shown that the
minimum distribution required by the IRS is being made. In addition, we may not
issue a contract to anyone over age 90. You may not elect to participate in the
Principal Rewards Program if you are over age 80 at the time of contract issue.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed and variable investment options
according to your instructions. If we receive a Purchase Payment without
allocation instructions, we will invest the money according to your last
allocation instructions. SEE INVESTMENT OPTIONS ON PAGE 9.
In order to issue your contract, we must receive your completed application,
Purchase Payment allocation instructions and any other required paperwork at our
principal place of business. We allocate your initial Purchase Payment within
two days of receiving it. If we do not have complete information necessary to
issue your contract, we will contact you. If we do not have the information
necessary to issue your contract within 5 business days we will:
- Send your money back to you, or;
- Ask your permission to keep your money until we get the information
necessary to issue the contract.
PRINCIPAL REWARDS PROGRAM
If you elect to participate in this program at contract issue, we contribute an
amount to your contract with each Purchase Payment you invest during the life of
your contract. This amount is referred to as a Payment Enhancement. If you elect
to participate in this program, all Purchase Payments are subject to a nine year
withdrawal charge period. You may not elect to participate in this program if
you are over age 80 at the time of contract issue. Payment Enhancements are
considered earnings under your contract and are allocated to your contract as
described below.
Initial Payment Enhancement
An Initial Payment Enhancement is the amount we add to your contract on the day
we receive a Purchase Payment. An Initial Payment Enhancement is calculated as a
percentage of each Purchase Payment and is allocated among the fixed and
variable investment options according to the allocation instructions in effect
on the day we receive the Purchase Payment. The Initial Payment Enhancement is
2.00% of each Purchase Payment.
Purchase Payments may not be invested in the 6-month or the 1-year Dollar Cost
Averaging fixed accounts if you participate in the Principal Rewards Program.
However, you may use the 1-year fixed account option as a Dollar Cost Averaging
source account.
Deferred Payment Enhancement
A Deferred Payment Enhancement is the amount we may add to your contract on a
future date (the "Deferred Payment Enhancement Date"). The amount and date of a
Deferred Payment Enhancement are guaranteed based on the Current Deferred
Payment Enhancement Percentage and Current Deferred Payment Enhancement Date in
effect at the time we receive your Purchase Payment.
The Deferred Payment Enhancement amount, if any, is determined as a percentage
of each Purchase Payment (the "Deferred Payment Enhancement Percentage"). If you
withdraw any portion of a Purchase Payment prior to the Deferred Payment
Enhancement Date, we reduce the amount of the corresponding Deferred Payment
Enhancement in the same proportion that your withdrawal reduces your Purchase
Payment (and any fees and charges associated with such withdrawals). Withdrawals
are assumed to be taken from earnings first then from Purchase Payments, on a
first-in-first-out basis. APPENDIX B shows how we calculate the Deferred Payment
Enhancement amount.
We periodically establish the Current Deferred Payment Enhancement Percentage
and Date. For Purchase Payments received by March 31, 2000, the Current Deferred
Payment Enhancement Percentage is 2.00% and the Current Deferred Payment
Enhancement Date is nine years from the date we receive each Purchase Payment.
After March 31, 2000, the Current Deferred Payment Enhancement Percentage may be
increased, decreased or eliminated by the us. Additionally, the Current Deferred
Payment Enhancement Date may be different for Purchase Payments received after
March 31, 2000.
We will not allocate a Deferred Payment Enhancement to your contract if any of
the following circumstances occurs prior to the Deferred Payment Enhancement
Date:
- You surrender your contract;
- A death benefit is paid on your contract;
- You switch to the Income Phase of your contract; or
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<PAGE> 17
- You fully withdraw the corresponding Purchase Payment.
The Principal Rewards Program may not be available to you. Please check with
your financial representative regarding the availability of this program.
We reserve the right to modify, suspend or terminate the Principal Rewards
Program at any time.
ACCUMULATION UNITS
When you allocate a Purchase Payment to the Variable Portfolios, we credit your
contract with Accumulation Units of the separate account. We base the number of
Accumulation Units you receive on the unit value of the Variable Portfolio as of
the day we receive your money if we receive it before 1 p.m. Pacific Standard
Time, or on the next business day's unit value if we receive your money after 1
p.m. Pacific Standard Time. The value of an Accumulation Unit goes up and down
based on the performance of the Variable Portfolios.
We calculate the value of an Accumulation Unit each day that the New York Stock
Exchange ("NYSE") is open as follows:
1. We determine the total value of money invested in a particular Variable
Portfolio;
2. We subtract from that amount all applicable contract charges; and
3. We divide this amount by the number of outstanding Accumulation Units.
We determine the number of Accumulation Units credited to your contract by
dividing the Purchase Payment and Payment Enhancement, if applicable, by the
Accumulation Unit value for the specific Variable Portfolio.
EXAMPLE (CONTRACTS WITHOUT PRINCIPAL REWARDS):
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Global Bond Portfolio. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,000 by $11.10 and credit your
contract on Wednesday night with 2252.2523 Accumulation Units for the
Global Bond Portfolio.
EXAMPLE (CONTRACTS WITH PRINCIPAL REWARDS):
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Global Bond Portfolio. The Initial Payment Enhancement is
2.00% of your Purchase Payment. Therefore, we add an Initial Payment
Enhancement of $500 to your contract. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,500 by $11.10 and credit your
contract on Wednesday with 2,297.2973 Accumulation Units for the Global
Bond Portfolio.
Performance of the Variable Portfolios and expenses under your contract affect
Accumulation Unit values. These factors cause the value of your contract to go
up and down.
FREE LOOK
You may cancel your contract within ten days after receiving it (or longer if
required by state law). We call this a "free look." To cancel, you must mail the
contract along with your free look request to our Annuity Service Center at P.O.
Box 54299, Los Angeles, California 90054-0299.
If you decide to cancel your contract during the free look period, we will
refund to you the value of your contract on the day we receive your request
minus the Free Look Payment Enhancement Deduction, if applicable. The Free Look
Payment Enhancement Deduction is equal to the lesser of (1) the value of any
Payment Enhancement(s) on the day we receive your free look request; or (2) the
Payment Enhancement amount(s), if any, which we allocated to your contract.
Thus, you receive any gain and we bear any loss on any Payment Enhancement(s) if
you decide to cancel your contract during the free look period.
Certain states require us to return your Purchase Payments upon a free look
request. Additionally, all contracts issued as an IRA require the full return of
Purchase Payments upon a free look. With respect to those contracts, we reserve
the right to put your money in the Cash Management Portfolio during the free
look period and will allocate your money according to your instructions at the
end of the applicable free look period. Currently, we do not put your money in
the Cash Management Portfolio during the free look period unless you allocate
your money to it. If your contract was issued in a state requiring return of
Purchase Payments or as an IRA and you cancel your contract during the free look
period, we return the greater of (1) your Purchase Payments; or (2) the value of
your contract minus the Free Look Payment Enhancement Deduction, if applicable.
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INVESTMENT OPTIONS
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VARIABLE PORTFOLIOS
The contract currently offers 27 Variable Portfolios. These Variable Portfolios
invest in shares of the Anchor Series Trust and the SunAmerica Series Trust (the
"Trusts"). Additional Variable Portfolios may be available in the future. The
Variable Portfolios operate similar to a mutual fund but are only available
through the purchase of certain insurance contracts.
SunAmerica Asset Management Corp., an indirect wholly owned subsidiary of AIG,
is the investment adviser to the Trusts. The Trusts serve as the underlying
investment vehicles for other variable annuity contracts issued by Anchor
National, and other affiliated/unaffiliated insurance companies. Neither Anchor
National nor the Trusts believe that offering shares of the Trusts in this
manner disadvantages you. The adviser monitors the Trusts for potential
conflicts.
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<PAGE> 18
The Variable Portfolios along with their respective subadvisers are listed
below:
ANCHOR SERIES TRUST
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust Portfolios. Anchor Series Trust has investment portfolios in addition to
those listed below which are not available for investment under the contract.
The 4 available investment portfolios are:
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Natural Resources Portfolio
- Government and Quality Bond Portfolio
SUNAMERICA SERIES TRUST
Various subadvisers provide investment advice for the SunAmerica Series Trust
Portfolios. SunAmerica Series Trust has investment portfolios in addition to
those listed below which are not available for investment under the contract.
The 23 investment portfolios and the subadvisers are:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
- Real Estate Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/GOLDMAN
SACHS ASSET MANAGEMENT INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Mid-Cap Growth
- MFS Growth and Income Portfolio
- MFS Total Return Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT, INC.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
YOU SHOULD READ THE ATTACHED PROSPECTUSES FOR THE TRUSTS CAREFULLY. THESE
PROSPECTUSES CONTAIN DETAILED INFORMATION ABOUT THE VARIABLE PORTFOLIOS,
INCLUDING EACH VARIABLE PORTFOLIO'S INVESTMENT OBJECTIVE AND RISK FACTORS.
FIXED ACCOUNT OPTIONS
The contract also offers seven fixed account options. Anchor National will
guarantee the interest rate earned on money you allocate to any of these fixed
account options. We currently offer fixed account options for periods of one,
three, five, seven and ten years, which we call guarantee periods. If you do not
elect to participate in the Principal Rewards Program, you also have the option
of allocating your money to the 6-month DCA fixed account and/or the 1-year DCA
fixed account (the "DCA fixed accounts") which are available in conjunction with
the Dollar Cost Averaging Program. The 6-month and 1-year DCA fixed account
options are not available to you if you elect to participate in the Principal
Rewards Program. Please see the section on DOLLAR COST AVERAGING ON PAGE 12 for
additional information about, including limitations on, and the availability and
operation of the DCA fixed accounts. The DCA fixed accounts are only available
for new Purchase Payments.
Each guarantee period may offer a different interest rate but will never be less
than an annual effective rate of 3%. Once established the rates for specified
payments do not change during the guarantee period. The guarantee period is that
period for which we credit the applicable rate (one, three, five, seven or ten
years).
There are three scenarios in which you may put money into the fixed account
options other than the DCA fixed accounts options. In each scenario your money
may be credited a different rate of interest as follows:
- Initial Rate: Rate credited to amounts allocated to the fixed account
when you purchase your contract.
- Current Rate: Rate credited to subsequent amounts allocated to the fixed
account.
- Renewal Rate: Rate credited to money transferred from a fixed account or
a Variable Portfolio into a fixed account and to money remaining in a
fixed account after expiration of a guarantee period.
Each of these rates may differ from one another. Once declared, the applicable
rate is guaranteed until the corresponding guarantee period expires.
When a guarantee period ends, you may leave your money in the same fixed
investment option. You may also reallocate your money to another fixed
investment option (other than the DCA fixed accounts) or to the Variable
Portfolios. If you want to reallocate your money to a different fixed account
option or a Variable Portfolio, you must contact us within 30 days after the end
of the current interest guarantee period and instruct us how to reallocate the
money. We do not contact you. If we do not hear from you, your money will remain
in the same fixed account option, where it will earn interest at the renewal
rate then in effect for the fixed account option.
The DCA fixed accounts also credit a fixed rate of interest. Interest is
credited to amounts allocated to the 6-month or
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1-year DCA fixed account while your investment is systematically transferred to
the Variable Portfolios. The rates applicable to the DCA fixed accounts may
differ from each other and/or the other fixed account options but will never be
less than an annual effective rate of 3%. See DOLLAR COST AVERAGING ON PAGE 12
for more information.
MARKET VALUE ADJUSTMENT ("MVA")
NOTE: THE FOLLOWING DISCUSSION APPLIES TO THE 3, 5, 7 AND 10-YEAR FIXED ACCOUNT
OPTIONS ONLY. THESE OPTIONS ARE NOT AVAILABLE IN ALL STATES. PLEASE CONTACT YOUR
FINANCIAL REPRESENTATIVE FOR MORE INFORMATION.
If you take money out of the multi-year fixed account options before the end of
the guarantee period, we make an adjustment to your contract. We refer to the
adjustment as a market value adjustment (the "MVA"). The MVA reflects any
difference in the interest rate environment between the time you place your
money in the fixed account option and the time when you withdraw or transfer
that money. This adjustment can increase or decrease your contract value. You
have 30 days after the end of each guarantee period to reallocate your funds
without incurring any MVA.
We calculate the MVA by doing a comparison between current rates and the rate
being credited to you in the fixed account option. For the current rate we use a
rate being offered by us for a guarantee period that is equal to the time
remaining in the guarantee period from which you seek withdrawal. If we are not
currently offering a guarantee period for that period of time, we determine an
applicable rate by using a formula to arrive at a number between the interest
rates currently offered for the two closest periods available.
Generally, if interest rates drop between the time you put your money into the
fixed account options and the time you take it out, we credit a positive
adjustment to your contract. Conversely, if interest rates increase during the
same period, we post a negative adjustment to your contract.
Where the MVA is negative, we first deduct the adjustment from any money
remaining in the fixed account option. If there is not enough money in the fixed
account option to meet the negative deduction, we deduct the remainder from your
withdrawal. Where the MVA is positive, we add the adjustment to your withdrawal
amount.
Anchor National does not assess a MVA against withdrawals under the following
circumstances:
- If made within 30 days after the end of a guarantee period;
- If made to pay contract fees and charges;
- To pay a death benefit; and
- Upon annuitization, if occurring on the latest Annuity Date.
APPENDIX C shows how we calculate the MVA.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Portfolios and/or the fixed account options. Funds already in your contract
cannot be transferred into the DCA fixed accounts. You must transfer at least
$100. If less than $100 will remain in any Variable Portfolio after a transfer,
that amount must be transferred as well.
You may request transfers of your account value between the Variable Portfolios
and/or the fixed account options in writing or by telephone. Additionally, you
may access your account and request transfers between Variable Portfolios and/or
the fixed account options through SunAmerica's website
(http://www.sunamerica.com). We currently allow 15 free transfers per contract
per year. We charge $25 ($10 in Pennsylvania and Texas) for each additional
transfer in any contract year. Transfers resulting from your participation in
the DCA program count against your 15 free transfers per contract year. However,
transfers resulting from your participation in the automatic asset rebalancing
program do not count against your 15 free transfers.
We accept transfer requests by telephone unless you tell us not to on your
contract application. Additionally, you may request transfers over the internet.
When receiving instructions over the telephone or the internet, we follow
appropriate procedures to provide reasonable assurance that the transactions
executed are genuine. Thus, we are not responsible for any claim, loss or
expense from any error resulting from instructions received over the telephone.
If we fail to follow our procedures, we may be liable for any losses due to
unauthorized or fraudulent instructions.
We may limit the number of transfers in any contract year or refuse any transfer
request for you or others invested in the contract if we believe that excessive
trading or a specific transfer request or group transfer requests may have a
detrimental effect on unit values or the share prices of the underlying Variable
Portfolios.
Where permitted by law, we may accept your authorization for a third party to
make transfers for you subject to our rules. We reserve the right to suspend or
cancel such acceptance at any time and will notify you accordingly.
Additionally, we may restrict the investment options available for transfers
during any period in which such third party acts for you. We notify such third
party beforehand regarding any restrictions. However, we will not enforce these
restrictions if we are satisfied that:
- such third party has been appointed by a court of competent jurisdiction
to act on your behalf; or
- such third party is a trustee/fiduciary, for you or appointed by you, to
act on your behalf for all your financial affairs.
We may provide administrative or other support services to independent third
parties you authorize to make transfers on your behalf. We do not currently
charge you extra for providing these support services. This includes, but is not
limited to, transfers between investment options in accordance with market
timing strategies. Such independent third parties may or may not be appointed
with us for the sale of annuities. However, WE DO NOT ENGAGE ANY THIRD PARTIES
TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE. WE TAKE NO RESPONSIBILITY
FOR THE INVESTMENT ALLOCATION AND
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TRANSFERS TRANSACTED ON YOUR BEHALF BY SUCH THIRD PARTIES OR FOR ANY INVESTMENT
ALLOCATION RECOMMENDATIONS MADE BY SUCH PARTIES.
For information regarding transfers during the Income Phase, SEE INCOME OPTIONS
ON PAGE 17.
We reserve the right to modify, suspend, waive or terminate these transfer
provisions at any time.
DOLLAR COST AVERAGING
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the
Variable Portfolios. Under the program you systematically transfer a set dollar
amount or percentage of portfolio value from one Variable Portfolio or the
1-year fixed account option (source accounts) to any other Variable Portfolio.
Transfers may be monthly or quarterly and count against your 15 free transfers
per contract year. You may change the frequency at any time by notifying us in
writing. The minimum transfer amount under the DCA program is $100, regardless
of the source account.
We also offer the 6-month and 1-year DCA fixed accounts exclusively to
facilitate this program. If you elected to participate in the Principal Rewards
Program, the 6-month and 1-year DCA fixed accounts are not available under your
contract. The DCA fixed accounts only accept new Purchase Payments. You cannot
transfer money already in your contract into these options. If you allocate new
Purchase Payments into a DCA fixed account, we transfer all your money allocated
to that account into the Variable Portfolios over the selected 6-month or 1-year
period. You cannot change the option or the frequency of transfers once
selected.
If allocated to the 6-month DCA fixed account, we transfer your money over a
maximum of 6 monthly transfers. We base the actual number of transfers on the
total amount allocated to the account. For example, if you allocate $500 to the
6-month DCA fixed account, we transfer your money over a period of five months,
so that each payment complies with the $100 per transfer minimum.
We determine the amount of the transfers from the 1-year DCA fixed account based
on
- the total amount of money allocated to the account, and
- the frequency of transfers selected.
For example, let's say you allocate $1,000 to the 1-year DCA fixed account. You
select monthly transfers. We completely transfer all of your money to the
selected investment options over a period of ten months.
You may terminate your DCA program at any time. If money remains in the DCA
fixed accounts, we transfer the remaining money to the 1-year fixed account
option, unless we receive different instructions from you. Transfers resulting
from a termination of this program do not count towards your 15 free transfers.
The DCA program is designed to lessen the impact of market fluctuations on your
investment. However, we cannot ensure that you will make a profit. When you
elect the DCA program, you are continuously investing in securities regardless
of fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Aggressive Growth Portfolio over six quarters.
You set up dollar cost averaging and purchase Accumulation Units at the
following values:
<TABLE>
<CAPTION>
- -------------------------------------------
ACCUMULATION UNITS
QUARTER UNIT PURCHASED
- -------------------------------------------
<S> <C> <C>
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
- -------------------------------------------
</TABLE>
You paid an average price of only $6.67 per Accumulation Unit over six
quarters, while the average market price actually was $7.08. By investing
an equal amount of money each month, you automatically buy more
Accumulation Units when the market price is low and fewer Accumulation
Units when the market price is high. This example is for illustrative
purposes only.
ASSET ALLOCATION REBALANCING PROGRAM
Earnings in your contract may cause the percentage of your investment in each
investment option to differ from your original allocations. The Automatic Asset
Rebalancing Program addresses this situation. At your election, we periodically
rebalance your investments in the Variable Portfolios to return your allocations
to their original percentages. Asset rebalancing typically involves shifting a
portion of your money out of an investment option with a higher return into an
investment option with a lower return.
At your request, rebalancing occurs on a quarterly, semiannual or annual basis.
Transfers made as a result of rebalancing do not count against your 15 free
transfers for the contract year.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Variable Portfolios. You want 50% in the Corporate Bond Portfolio and 50%
in the Growth Portfolio. Over the next calendar quarter, the bond market
does very well while the stock market performs poorly. At the end of the
calendar quarter, the Corporate Bond Portfolio now represents 60% of your
holdings
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<PAGE> 21
because it has increased in value and the Growth Portfolio represents 40%
of your holdings. If you had chosen quarterly rebalancing, on the last day
of that quarter, we would sell some of your units in the Corporate Bond
Portfolio to bring its holdings back to 50% and use the money to buy more
units in the Growth Portfolio to increase those holdings to 50%.
PRINCIPAL ADVANTAGE PROGRAM
The Principal Advantage Program allows you to invest in one or more Variable
Portfolios without putting your principal at direct risk. The program
accomplishes this by allocating your investment strategically between the fixed
account options and Variable Portfolios. You decide how much you want to invest
and approximately when you want a return of principal. We calculate how much of
your Purchase Payment to allocate to the particular fixed account option to
ensure that it grows to an amount equal to your total principal invested under
this program. We invest the rest of your principal in the Variable Portfolio(s)
of your choice.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed account option. You want the amount allocated to
the fixed account option to grow to $100,000 in 7 years. If the 7-year
fixed account option is offering a 5% interest rate, we will allocate
$71,069 to the 7-year fixed account option to ensure that this amount will
grow to $100,000 at the end of the 7-year period. The remaining $28,931 may
be allocated among the Variable Portfolios, as determined by you, to
provide opportunity for greater growth.
VOTING RIGHTS
Anchor National is the legal owner of the Trusts' shares. However, when a
Variable Portfolio solicits proxies in conjunction with a vote of shareholders,
we must obtain your instructions on how to vote those shares. We vote all of the
shares we own in proportion to your instructions. This includes any shares we
own on our own behalf. Should we determine that we are no longer required to
comply with these rules, we will vote the shares in our own right.
SUBSTITUTION
If underlying Trust portfolios become unavailable for investment, we may be
required to substitute shares of another underlying Trust portfolio. We will
seek prior approval of the SEC and give you notice before substituting shares.
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ACCESS TO YOUR MONEY
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You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. SEE INCOME OPTIONS
ON PAGE 17.
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal and a MVA if a partial withdrawal comes from the 3, 5, 7 or 10 year
fixed account options. If you withdraw your entire contract value, we also
deduct premium taxes and a contract maintenance fee. SEE EXPENSES ON PAGE 15.
Your contract provides for a free withdrawal amount each year. A free withdrawal
amount is the portion of your account that we allow you to take out each year
without being charged a surrender penalty. However, upon a future full surrender
of your contract we will recoup any withdrawal charges which would have been due
if your free withdrawal had not been free. Additionally, if you participate in
the Principal Rewards Program you will not receive your Deferred Payment
Enhancement if you fully withdraw a Purchase Payment or your contract value
prior to the corresponding Deferred Payment Enhancement Date. SEE PRINCIPAL
REWARDS PROGRAM ON PAGE 8.
Purchase payments, above and beyond the amount of your free withdrawal amount,
that are withdrawn prior to the end of the seventh or ninth year if you elect to
participate in the Principal Rewards Program will result in your paying a
penalty in the form of a surrender charge. The amount of the charge and how it
applies are discussed more fully below. SEE EXPENSES ON PAGE 15. You should
consider, before purchasing this contract, the effect this charge will have on
your investment if you need to withdraw more money than the free withdrawal
amount. You should fully discuss this decision with your financial
representative.
To determine your free withdrawal amount and your withdrawal charge, we refer to
two special terms. These are penalty free earnings and the total invested
amount.
The penalty-free earnings portion of your contract is simply your account value
less your total invested amount. The total invested amount is the total of all
Purchase Payments you have made into the contract less portions of some prior
withdrawals you made. The portions of prior withdrawals that reduce your total
invested amount are as follows:
- Free withdrawals in any year that were in excess of your penalty-free
earnings and were based on the part of the total invested amount that was
no longer subject to withdrawal charges at the time of the withdrawal,
and
- Any prior withdrawals (including withdrawal charges on those withdrawals)
of the total invested amount on which you already paid a surrender
penalty.
When you make a withdrawal, we assume that it is taken from penalty-free
earnings first, then from the total invested amount on a first-in, first-out
basis. This means that you can also access your Purchase Payments which are no
longer subject to a withdrawal charge before those Purchase Payments which are
still subject to the withdrawal charge.
During the first year after we issue your contract your free withdrawal amount
is the greater of (1) your penalty-free earnings; and (2) if you are
participating in the Systematic Withdrawal program, a total of 10% of your total
invested amount. If you are a Washington resident, you may withdraw
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<PAGE> 22
during the first contract year, the greater of (1); (2); or (3) interest
earnings from the amounts allocated to the fixed account options, not previously
withdrawn.
After the first contract year, you can take out the greater of the following
amounts each year (1) your penalty-free earnings and any portion of your total
invested amount no longer subject to withdrawal charges; and (2) 10% of the
portion of your total invested amount that has been in your contract for at
least one year. If you are a Washington resident, your maximum free withdrawal
amount, after the first contract year, is the greater of (1); (2); or (3)
interest earnings from amounts allocated to the fixed account options, not
previously withdrawn.
Although we do not assess a withdrawal charge when you take a 10% penalty-free
withdrawal, we will proportionally reduce the amount of any corresponding
Deferred Payment Enhancement.
We calculate charges due on a total withdrawal on the day after we receive your
request and your contract. We return to you your contract value less any
applicable fees and charges.
Under most circumstances, the partial withdrawal minimum is $1,000. We require
that the value left in any investment option be at least $100, after the
withdrawal. You must send a written withdrawal request. Unless you provide us
with different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and the fixed account option in which your contract is
invested.
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made prior to age 59 1/2 may result in a
10% IRS penalty tax. SEE TAXES ON PAGE 19.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Variable Portfolios is not reasonably practicable; (4) the SEC, by order, so
permits for the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from a
fixed account in option. Such deferrals are limited to no longer than six
months.
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income payments
under the systematic withdrawal program. Under the program, you may choose to
take monthly, quarterly, semi-annual or annual payments from your contract.
Electronic transfer of these funds to your bank account is also available. The
minimum amount of each withdrawal is $100. If you are an Oregon resident, the
minimum withdrawal amount is $100 per withdrawal or an amount equal to your free
withdrawal amount, as described on page 10. There must be at least $500
remaining in your contract at all times. Withdrawals may be taxable and a 10%
IRS penalty tax may apply if you are under age 59 1/2. There is no additional
charge for participating in this program, although a withdrawal charge and/or
MVA may apply.
The program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
NURSING HOME WAIVER
If you are confined to a nursing home for 60 days or longer, we may waive the
withdrawal charge and/or market value adjustment on certain withdrawals prior to
the Annuity Date (not available in Texas). The waiver applies only to
withdrawals made while you are in a nursing home or within 90 days after you
leave the nursing home. Your contract prohibits use of this waiver during the
first 90 days after you purchase your contract. In addition, the confinement
period for which you seek the waiver must begin after you purchase your
contract.
In order to use this waiver, you must submit with your withdrawal request, the
following documents: (1) a doctor's note recommending admittance to a nursing
home; (2) an admittance form which shows the type of facility you entered; and
(3) a bill from the nursing home which shows that you met the 60 day confinement
requirement.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals;
and (2) you have not made any Purchase Payments during the past three years. We
will provide you with sixty days written notice. At the end of the notice
period, we will distribute the contract's remaining value to you.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
DEATH BENEFIT
- ----------------------------------------------------------------
- ----------------------------------------------------------------
If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary. At the time you purchase your contract, you must
select one of the two death benefits described below. Once selected, you can not
change your death benefit option. You should discuss the available options with
your financial representative to determine which option is best for you.
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION
The death benefit is the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Purchase Payments less withdrawals (and any fees or charges
applicable to such withdrawals), compounded at a 4% annual growth rate
until the date of death (3% growth rate if 70 or older at the time of
contract issue) plus any Purchase Payments less withdrawals recorded
after the date of death (and any fees or charges applicable to such
withdrawals); or
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<PAGE> 23
3. the value of your contract on the seventh contract anniversary, plus any
Purchase Payments and less any withdrawals (and any fees or charges
applicable to such withdrawals), since the seventh contract anniversary,
all compounded at a 4% annual growth rate until the date of death (3%
growth rate if age 70 or older at the time of contract issue) plus any
Purchase Payments less withdrawals recorded after the date of death (and
any fees or charges applicable to such withdrawals).
OPTION 2 - MAXIMUM ANNIVERSARY OPTION
The death benefit is the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Purchase Payments less any withdrawals (and any fees or charges
applicable to such withdrawals); or
3. the maximum anniversary value on any contract anniversary prior to your
81st birthday. The anniversary value equals the value of your contract
on a contract anniversary plus any Purchase Payments and less any
withdrawals (and any fees or charges applicable to such withdrawals),
since that contract anniversary.
If you are age 90 or older at the time of death and selected the Option 2 death
benefit, the death benefit will be equal to the value of your contract at the
time we receive satisfactory proof of death. Accordingly, you do not get the
advantage of option 2 if:
- you are over age 80 at the time of contract issue, or
- you are 90 or older at the time of your death.
We will not pay a Deferred Payment Enhancement on a Purchase Payment if you die
before the corresponding Deferred Payment Enhancement Date. SEE PRINCIPAL
REWARDS PROGRAM ON PAGE 8.
We do not pay the death benefit if you die after you switch to the Income Phase.
However, if you die during the Income Phase, your Beneficiary receives any
remaining guaranteed income payments in accordance with the income option you
selected. SEE INCOME OPTIONS ON PAGE 17.
You name your Beneficiary. You may change the Beneficiary at any time, unless
you previously made an irrevocable Beneficiary designation.
We pay the death benefit when we receive satisfactory proof of death. We
consider the following satisfactory proof of death:
1. a certified copy of the 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 us.
We may require additional proof before we pay the death benefit.
The death benefit payment must begin immediately upon receipt of all necessary
documents. In any event, the death benefit must be paid within 5 years of the
date of death unless the Beneficiary elects to have it payable in the form of an
income option. If the Beneficiary elects an income option, it must be paid over
the Beneficiary's lifetime or for a period not extending beyond the
Beneficiary's life expectancy. Payments must begin within one year of your
death.
If the Beneficiary is the spouse of a deceased owner, he or she can elect to
continue the Contract at the then current value. If the Beneficiary/spouse
continues the contract, we do not pay a death benefit to him or her.
If a Beneficiary does not elect a specific form of pay out within 60 days of our
receipt of proof of death, we pay a lump sum death benefit to the Beneficiary.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------
- ----------------------------------------------------------------
There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the contract
maintenance fee or the insurance and withdrawal charges under your contract.
However, the investment charges under your contract may increase or decrease.
Some states may require that we charge less than the amounts described below.
INSURANCE CHARGES
The amount of this charge is 1.52% annually, of the value of your contract
invested in the Variable Portfolios. We deduct the charge daily.
The insurance charge compensates us for the mortality and expense risks and the
costs of contract distribution assumed by Anchor National.
If these charges do not cover all of our expenses, we will pay the difference.
Likewise, if these charges exceed our expenses, we will keep the difference.
WITHDRAWAL CHARGES
The contract provides a free withdrawal amount every year. SEE ACCESS TO YOUR
MONEY, PAGE 13. If you take money out in excess of the free withdrawal amount,
and upon a full surrender, you may incur a withdrawal charge.
We apply a withdrawal charge against each Purchase Payment you put into the
contract. After a Purchase Payment has been in the contract for 7 complete
years, or 9 years if you elected to participate in the Principal Rewards
Program, no withdrawal charge applies. The withdrawal charge equals a percentage
of the Purchase Payment you take out of the contract. The withdrawal charge
percentage declines each
15
<PAGE> 24
year a Purchase Payment is in the contract. The two withdrawal charge schedules
are as follows:
WITHDRAWAL CHARGE WITHOUT THE PRINCIPAL REWARDS PROGRAM
(SCHEDULE A)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Year 1 2 3 4 5 6 7 8
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WITHDRAWAL
CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------------------------------------
</TABLE>
WITHDRAWAL CHARGE WITH THE PRINCIPAL REWARDS PROGRAM
(SCHEDULE B)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5 6 7 8 9 10
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WITHDRAWAL
CHARGE 9% 9% 8% 7% 6% 5% 4% 3% 2% 0%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
When calculating the withdrawal charge, we treat withdrawals as coming first
from the Purchase Payments that have been in your contract the longest. However,
for tax purposes, your withdrawals are considered earnings first, then Purchase
Payments.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract. If you withdraw all of your contract value, we deduct any
applicable withdrawal charges from the amount withdrawn.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit or to pay contract fees or charges. We will not assess a withdrawal
charge when you switch to the Income Phase, except when you elect to receive
income payments using the Income Protector feature. If you elect to receive
income payments using the Income Protector feature, we assess the entire
withdrawal charge applicable to Purchase Payments remaining in your contract
when calculating your income benefit base. SEE INCOME OPTIONS ON PAGE 17.
Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE, TAXES ON
PAGE 19.
INVESTMENT CHARGES
Charges are deducted from your Variable Portfolios for the advisory and other
expenses of the Variable Portfolios. THE FEE TABLES LOCATED AT PAGE 4 illustrate
these charges and expenses. For more detailed information on these investment
charges, refer to the prospectuses for the Trusts, enclosed or attached.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from your
account once per year. This charge compensates us for the cost of contract
administration. We deduct the $35 contract maintenance fee ($30 in North Dakota)
from your account value on your contract anniversary. If you withdraw your
entire contract value, we deduct the fee from that withdrawal.
If your contract value is $50,000 or more on your contract anniversary date, we
will waive the charge. This waiver is subject to change without notice.
TRANSFER FEE
We currently permit 15 free transfers between investment options each contract
year. We charge you $25 for each additional transfer that contract year ($10 in
Pennsylvania and Texas). SEE INVESTMENT OPTIONS ON PAGE 9.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract. We deduct from your contract these premium tax charges. Currently we
deduct the charge for premium taxes when you take a full withdrawal or begin the
Income Phase of the contract. In the future, we may assess this deduction at the
time you put Purchase Payment(s) into the contract or upon payment of a death
benefit.
APPENDIX D provides more information about premium taxes.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the right
to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated individuals may
lower our administrative and/or sales expenses. We reserve the right to reduce
or waive certain charges and expenses when this type of sale occurs. In
addition, we may also credit additional interest to policies sold to such
groups. We determine which groups are eligible for such treatment. Some of the
criteria we evaluate to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that our expenses will be reduced; and/or any other
factors that we believe indicate that administrative and/or sales expenses may
be reduced.
Anchor National may make such a determination regarding sales to its employees,
it affiliates' employees and employees of currently contracted broker-dealers;
its registered representatives and immediate family members of all of those
described.
We reserve the right to change or modify any such determination or the treatment
applied to a particular group, at any time.
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<PAGE> 25
- ----------------------------------------------------------------
- ----------------------------------------------------------------
INCOME OPTIONS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to make
regular income payments to you. You may switch to the Income Phase any time
after your 2nd contract anniversary. You select the month and year you want
income payments to begin. The first day of that month is the Annuity Date. You
may change your Annuity Date, so long as you do so at least seven days before
the income payments are scheduled to begin. Once you begin receiving income
payments, you cannot change your income option. Except as indicated under Option
5 below, once you begin receiving income payments, you cannot otherwise access
your money through a withdrawal or surrender.
If you switch to the Income Phase prior to a Deferred Payment Enhancement Date,
we will not allocate the corresponding Deferred Payment Enhancement to your
contract. SEE PRINCIPAL REWARDS PROGRAM ON PAGE 8.
Income payments must begin on or before your 90th birthday or on your tenth
contract anniversary, whichever occurs later. If you do not choose an Annuity
Date, your income payments will automatically begin on this date. Certain states
may require your income payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose its
status as an annuity under Federal tax laws. This may cause you to incur adverse
tax consequences.
In addition, most Qualified contracts require you to take minimum distributions
after you reach age 70 1/2. SEE TAXES ON PAGE 19.
INCOME OPTIONS
Currently, this Contract offers five income options. If you elect to receive
income payments but do not select an option, your income payments will be made
in accordance with option 4 for a period of 10 years. For income payments based
on joint lives, we pay according to option 3 for a period of 10 years.
We base our calculation of income payments on the life of the Annuitant and the
annuity rates set forth in your contract. As the contract owner, you may change
the Annuitant at any time prior to the Annuity Date. You must notify us if the
Annuitant dies before the Annuity Date and designate a new Annuitant.
OPTION 1 - LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for the
life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop when the survivor dies.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to option 2 above, with an additional guarantee of
payments for at least 10 years. If the Annuitant and the survivor die before all
of the guaranteed income payments have been made, the remaining payments are
made to the Beneficiary under your contract.
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to option 1 above. In addition, this option provides a
guarantee that income payments will be made for at least 10 or 20 years. You
select the number of years. If the Annuitant dies before all guaranteed income
payments are made, the remaining income payments go to the Beneficiary under
your contract.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 5 to
30 years. If the Annuitant dies before all the guaranteed income payments are
made, the remaining income payments are made to the Beneficiary under your
contract. Additionally, if variable income payments are elected under this
option, you (or the Beneficiary under the contract if the Annuitant dies prior
to all guaranteed income payments being made) may redeem any remaining
guaranteed variable income payments after the Annuity Date. The amount available
upon such redemption would be the discounted present value of any remaining
guaranteed variable income payments. If provided for in your contract, any
applicable withdrawal charge will be deducted from the discounted value as if
you fully surrendered your contract.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. Since Option 5 does not contain
an element of mortality risk, no benefit is derived from this charge.
Please read the Statement of Additional Information ("SAI") for a more detailed
discussion of the income options.
FIXED OR VARIABLE INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. If at the date
when income payments begin you are invested in the Variable Portfolios only,
your income payments will be variable. If your money is only in fixed accounts
at that time, your income payments will be fixed in amount. Further, if you are
invested in both fixed and variable investment options when income payments
begin, your payments will be fixed and variable. If income payments are fixed,
Anchor National guarantees the amount of each payment. If the income payments
are variable the amount is not guaranteed.
INCOME PAYMENTS
We make income payments on a monthly, quarterly, semiannual or annual basis. You
instruct us to send you a check or to have the payments directly deposited into
your bank account. If state
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<PAGE> 26
law allows, we distribute annuities with a contract value of $5,000 or less in a
lump sum. Also, if the selected income option results in income payments of less
than $50 per payment, we may decrease the frequency of payments, state law
allowing.
If you are invested in the Variable Portfolios after the Annuity date, your
income payments vary depending on four things:
- for life options, your age when payments begin, and;
- the value of your contract in the Variable Portfolios on the Annuity
Date, and;
- the 3.5% assumed investment rate used in the annuity table for the
contract, and;
- the performance of the Variable Portfolios in which you are invested
during the time you receive income payments.
If you are invested in both the fixed account options and the Variable
Portfolios after the Annuity Date, the allocation of funds between the fixed and
variable options also impacts the amount of your annuity payments.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one transfer per month is permitted between the
Variable Portfolios. No other transfers are allowed during the Income Phase.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period.
THE INCOME PROTECTOR FEATURE
The Income Protector feature is a future "safety net" which offers you the
ability to receive a guaranteed fixed minimum retirement income when you switch
to the Income Phase. With the Income Protector feature you know the level of
minimum income that will be available to you upon annuitization, regardless of
fluctuating market conditions.
The Income Protector is a standard feature of your contract, if available in
your state. There is no additional charge associated with this feature.
Other options were previously available under the Income Protector feature.
Generally, if you purchased your contract between November 2, 1998 and March 31,
1999 and the Income Protector feature was available in your state at that time,
the other provisions continue to apply to your contract. Please contact our
Annuity Service Center for more information.
We reserve the right to modify, suspend or terminate the Income Protector
feature at any time.
HOW WE DETERMINE THE AMOUNT OF YOUR MINIMUM GUARANTEED INCOME
We base the amount of minimum income available to you if you elect to receive
income payments using the Income Protector feature upon a calculation we call
the income benefit base.
The income benefit base is only a calculation. It does not represent a contract
value, nor does it guarantee performance of the Variable Portfolios in which you
invest.
Your income benefit base increases if you make subsequent Purchase Payments and
decreases if you withdraw money from your contract. The exact income benefit
base calculation is equal to (a) plus (b) minus (c) where:
(a) is equal to, for the first year of calculation, your initial Purchase
Payment, or for each subsequent year of calculation, the income benefit
base on the prior contract anniversary, and;
(b) is equal to the sum of all subsequent Purchase Payments made into the
contract since the last contract anniversary, and;
(c) is equal to all withdrawals and applicable fees and charges since the
last contract anniversary, in an amount proportionate to the amount by
which such withdrawals decreased your contract value.
ELECTING TO RECEIVE INCOME PAYMENTS
You may elect to begin the Income Phase of your contract using the Income
Protector feature ONLY within the 30 days after the seventh or later contract
anniversary.
The contract anniversary prior to your election to begin receiving income
payments is your income benefit date. This is the date as of which we calculate
your income benefit base to use in determining your guaranteed minimum fixed
retirement income. Your final income benefit base is equal to (a) minus (b)
where:
(a) is equal to your income benefit base as of your income benefit date,
and;
(b) is equal to any partial withdrawals of contract value and any charges
applicable to those withdrawals and any withdrawal charges otherwise
applicable, calculated as if you fully surrender your contract as the
income benefit date, and any applicable premium taxes.
To arrive at the minimum guaranteed retirement income available to you we apply
to your final income benefit base to the annuity rates stated in your Income
Protector endorsement for the income option you select. You then choose if you
would like to receive that income annually, semi-annually quarterly or monthly
for the time guaranteed under your selected income option. The income options
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<PAGE> 27
available when using the income protector feature to receive your retirement
income are:
- Life Annuity with 10 Years Guaranteed, or
- Joint and Survivor Life Annuity with 20 Years Guaranteed
At the time you elect to begin receiving income payments, we will calculate your
income payments using both your income benefit base and your contract value. We
will use the same income option for each calculation, however, the annuity
factors used to calculate your income under the Income Protector feature will be
different. You will receive whichever provides a greater stream of income. If
you elect to receive income payments using the Income Protector feature your
income payments will be fixed in amount. You are not required to use the Income
Protector feature to receive income payments.
NOTE TO QUALIFIED CONTRACT HOLDERS
Qualified contracts generally require that you select an income option which
does not exceed your life expectancy. That restriction, if it applies to you,
may limit your ability to use the Income Protector feature.
You may wish to consult your tax advisor for information concerning your
particular circumstances.
HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR FEATURE
This table assumes $100,000 initial investment in a Non-qualified contract with
no withdrawals, additional Purchase Payments or premium taxes.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Minimum annual income if you elect to receive income payments
If at issue on contract anniversary . . .
you are . . . 7 10 15 20
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Male 6,108 6,672 7,716 8,832
age 60*
- -------------------------------------------------------------------------------------------------------------
Female 5,388 5,880 6,900 8,112
age 60*
- -------------------------------------------------------------------------------------------------------------
Joint** 4,716 5,028 5,544 5,928
Male-60
Female-60
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Life annuity with 10 years guaranteed
** Joint and survivor life annuity with 20 years guaranteed
- ----------------------------------------------------------------
- ----------------------------------------------------------------
TAXES
- ----------------------------------------------------------------
- ----------------------------------------------------------------
NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL DISCUSSION OF
THE SUBJECT. IT IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE
ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR
ANNUITY. TAX LAWS CONSTANTLY CHANGE, THEREFORE WE CANNOT GUARANTEE THAT THE
INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, taxes on the earnings in your annuity
contract are deferred until you take the money out. Qualified retirement
investments automatically provide tax deferral regardless of whether the
underlying contract is an annuity. Different rules apply depending on how you
take the money out and whether your contract is Qualified or Non-qualified.
If you do not purchase your contract under a pension plan, a specially sponsored
employer program or an individual retirement account, your contract is referred
to as a Non-qualified contract. A Non-qualified contract receives different tax
treatment than a Qualified contract. In general, your cost basis in a
Non-qualified contract is equal to the Purchase Payments you put into the
contract. You have already been taxed on the cost basis in your contract.
If you purchase your contract under a pension plan, a specially sponsored
employer program or as an individual retirement account, your contract is
referred to as a Qualified contract. Examples of qualified plans are: Individual
Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as
403(b) contracts), H.R. 10 Plans (referred to as Keogh Plans) and pension and
profit sharing plans, including 401(k) plans. Typically you have not paid any
tax on the Purchase Payments used to buy your contract and therefore, you have
no cost basis in your contract.
TAX TREATMENT OF DISTRIBUTIONS -
NON-QUALIFIED CONTRACTS
If you make a withdrawal from a Non-qualified contract, the IRC treats such a
withdrawal as first coming from the
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<PAGE> 28
earnings and then as coming from your Purchase Payments. For income payments,
any portion of each payment that is considered a return of your Purchase Payment
will not be taxed. Withdrawn earnings are treated as income to you and are
taxable. The IRC provides for a 10% penalty tax on any earnings that are
withdrawn other than in conjunction with the following circumstances: (1) after
reaching age 59 1/2; (2) when paid to your Beneficiary after you die; (3) after
you become disabled (as defined in the IRC); (4) when paid in a series of
substantially equal installments made for your life or for the joint lives of
you and you Beneficiary; (5) under an immediate annuity; or (6) which come from
Purchase Payments made prior to August 14, 1982.
TAX TREATMENT OF DISTRIBUTIONS - QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract. Any amount of money you take out as a withdrawal or as
income payments is taxable income. The IRC further provides for a 10% penalty
tax on any withdrawal or income payment paid to you other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) in a series of substantially equal installments made for your life
or for the joint lives of you and your Beneficiary; (5) to the extent such
withdrawals do not exceed limitations set by the IRC for amounts paid during the
taxable year for medical care; (6) to fund higher education expenses (as defined
in IRC); (7) to fund certain first-time home purchase expenses; and, except in
the case of an IRA; (8) when you separate from service after attaining age 55;
and (9) when paid to an alternate payee pursuant to a qualified domestic
relations order.
The IRC limits the withdrawal of Purchase Payments from certain Tax-Sheltered
Annuities. Withdrawals can only be made when an owner: (1) reaches age 59 1/2;
(2) leaves his or her job; (3) dies; (4) becomes disabled (as defined in the
IRC); or (5) experiences a hardship (as defined in the IRC). In the case of
hardship, the owner can only withdraw Purchase Payments.
MINIMUM DISTRIBUTIONS
Generally, the IRS requires that you begin taking annual distributions from
qualified annuity contracts by April 1 of the calendar year following the later
of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year
in which you retire.
We currently waive surrender charges and MVA on withdrawals taken to meet
minimum distribution requirements. Current operational practice is to provide a
free withdrawal of the greater of the contract's maximum penalty free amount or
the required minimum distribution amount for a particular contract (but not
both).
Failure to satisfy the minimum distribution requirements may result in a tax
penalty. You should consult your tax advisor for more information.
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that each underlying Variable
Portfolios' management monitors the Variable Portfolios so as to comply with
these requirements. To be treated as a variable annuity for tax purposes, the
underlying investments must meet these requirements.
The diversification regulations do not provide guidance as to the circumstances
under which you, because of the degree of control you exercise over the
underlying investments, and not Anchor National, would be considered the owner
of the shares of the Variable Portfolios. It is unknown to what extent owners
are permitted to select investments, to make transfers among Variable Portfolios
or the number and type of Variable Portfolios owners may select from. If any
guidance is provided which is considered a new position, then the guidance would
generally be applied prospectively. However, if such guidance is considered not
to be a new position, it may be applied retroactively. This would mean you, as
the owner of the contract, could be treated as the owner of the underlying
Variable Portfolios. Due to the uncertainty in this area, we reserve the right
to modify the contract in an attempt to maintain favorable tax treatment.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PERFORMANCE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other Variable Portfolios advertise total return, gross yield and
yield-to-maturity. These figures represent past performance of the Variable
Portfolios. These performance numbers do not indicate future results.
When we advertise performance for periods prior to the date the contracts were
first issued, we derive the figures from the performance of the corresponding
portfolios for the Trusts, if available. We modify these numbers to reflect
charges and expenses as if the contract was in existence during the period
stated in the advertisement. Figures calculated in this manner do not represent
actual historic performance of the particular Variable Portfolio.
Consult the SAI for more detailed information regarding the calculation of
performance data. The performance of each Variable Portfolio may also be
measured against unmanaged market indices. The indices we use include but are
not limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the
Russell 1000 Growth Index, the Morgan Stanley Capital International Europe,
Australia and Far East Index ("EAFE") and the Morgan Stanley Capital
International World Index. We may compare the Variable Portfolios'
20
<PAGE> 29
performance to that of other variable annuities with similar objectives and
policies as reported by independent ranking agencies such as Morningstar, Inc.,
Lipper Analytical Services, Inc. or Variable Annuity Research & Data Service
("VARDS").
Anchor National may also advertise the rating and other information assigned to
it by independent industry ratings organizations. Some of those organizations
are A.M. Best Company ("A.M. Best"), Moody's Investor's Service ("Moody's"),
Standard & Poor's Insurance Rating Services ("S&P"), and Duff & Phelps. A.M.
Best's and Moody's ratings reflect their current opinion of our financial
strength and performance in comparison to others in the life and health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues.
These two ratings do not measure the insurer's ability to meet non-policy
obligations. Ratings in general do not relate to the performance of the Variable
Portfolios.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
OTHER INFORMATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
ANCHOR NATIONAL
Anchor National is a stock life insurance company originally organized under the
laws of the state of California in April 1965. On January 1, 1996, Anchor
National redomesticated under the laws of the state of Arizona.
Anchor National and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, CalAmerica Life Insurance Company, SunAmerica
National Life Insurance Company, SunAmerica Asset Management Corp., Resources
Trust Company, and the SunAmerica Financial Network, Inc. broker-dealers,
specialize in retirement savings and investment products and services. Business
focuses include fixed and variable annuities, mutual funds, broker-dealer
services and trust administration services.
THE SEPARATE ACCOUNT
Anchor National established Variable Separate Account ("separate account"),
under Arizona law on January 1, 1996 when it assumed the separate account,
originally established under California law on June 25, 1981. The separate
account is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940, as amended.
Anchor National owns the assets in the separate account. However, the assets in
the separate account are not chargeable with liabilities arising out of any
other business conducted by Anchor National. Income gains and losses (realized
and unrealized) resulting from assets in the separate account are credited to or
charged against the separate account without regard to other income gains or
losses of Anchor National.
THE GENERAL ACCOUNT
Money allocated to the fixed account options goes into Anchor National's general
account. The general account consists of all of Anchor National's assets other
than assets attributable to a separate account. All of the assets in the general
account are chargeable with the claims of any Anchor National contract holders
as well as all of its creditors. The general account funds are invested as
permitted under state insurance laws.
DISTRIBUTION OF THE CONTRACT
Registered representatives of broker-dealers sell the contract. We pay
commissions to these representatives for the sale of the contracts. We do not
expect the total commissions to exceed 7% of your Purchase Payments. We may also
pay a bonus to representatives for contracts which stay active for a particular
period of time, in addition to standard commissions. We do not deduct
commissions paid to registered representatives directly from your Purchase
Payments.
From time to time, we may pay or allow additional promotional incentives in the
form of cash or other compensation. We reserve the right to offer these
additional incentives only to certain broker-dealers that sell or are expected
to sell, certain minimum amounts of the contract, or other contracts offered by
us. Promotional incentives may change at any time.
SunAmerica Capital Services, Inc., 733 Third Avenue, 4th Floor, New York, New
York 10017 distributes the contracts. SunAmerica Capital Services, an affiliate
of Anchor National, is registered as a broker-dealer under the Exchange Act of
1934 and is a member of the National Association of Securities Dealers, Inc. No
underwriting fees are paid in connection with the distribution of the contracts.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact our Annuity Service Center
at 1-800-445-SUN2, if you have any comment, question or service request.
We send out transaction confirmations and quarterly statements. It is your
responsibility to review these documents carefully and notify us of any
inaccuracies immediately. We investigate all inquiries. To the extent that we
believe we made an error, we retroactively adjust your contract, provided you
notify us within 30 days of receiving the transaction confirmation or quarterly
statement. Any other adjustments we deem warranted are made as of the time we
receive notice of the error.
21
<PAGE> 30
YEAR 2000
We rely significantly on computer systems and applications in our daily
operations. Many of our systems are not presently year 2000 compliant, which
means that because they have historically used only two digits to identify the
year in a date, they will fail to distinguish dates in the "2000s" from dates in
the "1900s." Anchor National's business, financial condition and results of
operations could be materially and adversely affected by the failure of our
systems and applications (and those operated by third parties interfacing with
our systems and applications) to properly operate or manage these dates.
Anchor National has a coordinated plan to repair or replace these noncompliant
systems and to obtain similar assurances from third parties interfacing with our
systems and applications. In fiscal 1997, the Company's parent recorded a $15.0
million provision for estimated programming costs to make necessary repairs of
certain specific noncompliant systems of which $6.2 million was allocated to
Anchor National. In addition, the Company's parent is making expenditures which
it expects will ultimately total $12.3 million to replace certain other
noncompliant systems. Of these expenditures, approximately $5.0 million will be
allocated to Anchor National. Total expenditures relating to the replacement of
noncompliant systems will be capitalized as software costs and will be amortized
over future periods. Both phases of the project are progressing according to
plan and were substantially completed by the end of calendar 1998. Testing of
both the repaired and replacement systems is expected to be substantially
completed by July 31, 1999. However, Anchor National will continue to test all
of its computer systems and applications through 1999 to ensure continued
compliance.
In addition, we distributed a year 2000 questionnaire to our significant
suppliers, distributors, financial institutions, lessors and others we do
business with to evaluate their year 2000 compliance plans and state of
readiness and to determine how our systems and applications may be affected by
their failure to solve their own year 2000 issues. To date, however, we have
only received preliminary feedback from such parties and have not independently
confirmed any information received from other parties with respect to the year
2000 issues. Therefore, we cannot assure that such other parties will complete
their year 2000 conversions in a timely fashion or will not suffer a year 2000
business disruption that may adversely affect our financial condition and
results of operations.
Because we expect to complete our year 2000 conversion prior to any potential
disruption to our business, we have not developed a comprehensive year 2000
contingency plan. Anchor National closely monitors the progression of its plan
for compliance, and if necessary, would devote additional resources to assure
the timely completion of our year 2000 plan. If we determine that our business
is at material risk of disruption due to the year 2000 issue or anticipate that
we will not complete our year 2000 conversion in a timely fashion, we will work
to enhance our contingency plans.
The above statements are forward-looking. The costs of our year 2000 conversion,
the date which we have set to complete such conversion and the possible risks
associated with the year 2000 issue are based on our current estimates and are
subject to various uncertainties that could cause the actual results to differ
materially from our expectations. Such uncertainties include, among others, our
success in identifying systems and applications that are not year 2000
compliant, the nature and amount of programming required to upgrade or replace
each of the affected systems and applications, the availability of qualified
personnel, consultants and other resources, and the success of the year 2000
conversion efforts of others.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the separate account. Anchor
National and its subsidiaries engage in various kinds of routine litigation. In
management's opinion, these matters are not of material importance to their
respective total assets nor are they material with respect to the separate
account.
OWNERSHIP
The PolarisII Variable Annuity is a Flexible Payment Group Deferred Annuity
contract. We issue a group contract to a contract holder for the benefit of the
participants in the group. As a participant in the group, you will receive a
certificate which evidences your ownership. As used in this prospectus, the term
contract refers to your certificate. In some states, a Flexible Payment
Individual Modified Guaranteed and Variable Deferred Annuity contract is
available instead. Such a contract is identical to the contract described in
this prospectus, with the exception that we issue it directly to the owner.
CUSTODIAN
State Street Bank and Trust Company, 255 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the separate account. Anchor
National pays State Street Bank for services provided, based on a schedule of
fees.
INDEPENDENT ACCOUNTANTS
The financial statements of Anchor National as of September 30, 1998 and 1997
and for each of the three years in the period ended September 30, 1998
incorporated by reference in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
22
<PAGE> 31
REGISTRATION STATEMENT
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Additional information concerning the operations of the separate account is
contained in a Statement of Additional Information ("SAI"), which is available
without charge upon written request addressed to us at our Annuity Service
Center, P.O. Box 54299, Los Angeles, California 90054-0299 or by calling (800)
445-SUN2. The contents of the SAI are tabulated below.
<TABLE>
<S> <C>
Separate Account.............................. 3
General Account............................... 3
Performance Data.............................. 4
Income Payments............................... 10
Annuity Unit Values........................... 11
Taxes......................................... 14
Distribution of Contracts..................... 17
Financial Statements.......................... 18
</TABLE>
23
<PAGE> 32
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A - CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCEPTION TO FISCAL YEAR
PORTFOLIOS 11/30/97 11/30/98
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Capital Appreciation (Inception Date - 6/3/97)
Beginning AUV.................................. $ 18.52 $ 21.26
Ending AUV..................................... $ 21.26 $ 23.72
Ending Number of AUs........................... 1,392,262 7,356,862
- -------------------------------------------------------------------------------------------
Growth (Inception Date - 6/3/97)
Beginning AUV.................................. $ 17.93 $ 20.31
Ending AUV..................................... $ 20.31 $ 24.41
Ending Number of AUs........................... 789,274 3,678,108
- -------------------------------------------------------------------------------------------
Natural Resources (Inception Date - 6/4/97)
Beginning AUV.................................. $ 12.39 $ 11.14
Ending AUV..................................... $ 11.14 $ 9.30
Ending Number of AUs........................... 195,946 641,479
- -------------------------------------------------------------------------------------------
Government and Quality Bond (Inception Date - 6/11/97)
Beginning AUV.................................. $ 11.99 $ 12.65
Ending AUV..................................... $ 12.65 $ 13.66
Ending Number of AUs........................... 395,258 5,697,571
- -------------------------------------------------------------------------------------------
Emerging Markets (Inception Date - 6/5/97)
Beginning AUV.................................. $ 10.14 $ 7.97
Ending AUV..................................... $ 7.97 $ 6.14
Ending Number of AUs........................... 663,212 2,574,316
- -------------------------------------------------------------------------------------------
International Diversified Equities (Inception Date - 6/4/97)
Beginning AUV.................................. $ 12.04 $ 11.62
Ending AUV..................................... $ 11.62 $ 13.53
Ending Number of AUs........................... 1,040,812 4,519,545
- -------------------------------------------------------------------------------------------
Global Equities (Inception Date - 6/3/97)
Beginning AUV.................................. $ 16.54 $ 16.90
Ending AUV..................................... $ 16.90 $ 19.21
Ending Number of AUs........................... 600,294 2,566,912
- -------------------------------------------------------------------------------------------
International Growth and Income (Inception Date - 6/4/97)
Beginning AUV.................................. $ 9.97 $ 10.33
Ending AUV..................................... $ 10.33 $ 11.16
Ending Number of AUs........................... 1,310,126 6,738,263
- -------------------------------------------------------------------------------------------
Aggressive Growth (Inception Date - 6/9/97)
Beginning AUV.................................. $ 10.03 $ 11.51
Ending AUV..................................... $ 11.51 $ 11.86
Ending Number of AUs........................... 821,105 2,794,187
- -------------------------------------------------------------------------------------------
MFS Mid-Cap Growth (Inception Date - 4/1/99)
Beginning AUV.................................. $ -- $ --
Ending AUV..................................... $ -- $ --
Ending Number of AUs........................... -- --
- -------------------------------------------------------------------------------------------
Real Estate (Inception Date - 6/4/97)
Beginning AUV.................................. $ 9.98 $ 11.44
Ending AUV..................................... $ 11.44 $ 9.80
Ending Number of AUs........................... 887,321 3,336,767
- -------------------------------------------------------------------------------------------
Putnam Growth (Inception Date - 6/3/97)
Beginning AUV.................................. $ 15.80 $ 18.47
Ending AUV..................................... $ 18.47 $ 22.29
Ending Number of AUs........................... 831,178 4,949,624
- -------------------------------------------------------------------------------------------
MFS Growth and Income* (Inception Date - 6/4/97)
Beginning AUV.................................. $ 15.82 $ 17.63
Ending AUV..................................... $ 17.63 $ 20.46
Ending Number of AUs........................... 191,101 694,076
- -------------------------------------------------------------------------------------------
Alliance Growth (Inception Date - 6/2/97)
Beginning AUV.................................. $ 21.81 $ 24.51
Ending AUV..................................... $ 24.51 $ 32.81
Ending Number of AUs........................... 2,092,044 12,001,651
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
* Formerly named Growth/Phoenix and managed by Phoenix Investment
Counsel, Inc.
AUV - Accumulation Unit Value
AU - Accumulation Units
A-1
<PAGE> 33
<TABLE>
<CAPTION>
INCEPTION TO FISCAL YEAR
PORTFOLIOS 11/30/97 11/30/98
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
<S> <C> <C>
"Dogs of Wall Street" (Inception Date - 4/1/98)
Beginning AUV.................................. $ -- $ 10.00
Ending AUV..................................... $ -- $ 9.71
Ending Number of AUs........................... -- 4,324,225
- -------------------------------------------------------------------------------------------
Venture Value (Inception Date - 6/2/97)
Beginning AUV.................................. $ 18.63 $ 21.30
Ending AUV..................................... $ 21.30 $ 23.36
Ending Number of AUs........................... 4,281,879 20,734,371
- -------------------------------------------------------------------------------------------
Federated Value (Inception Date - 6/4/97)
Beginning AUV.................................. $ 12.14 $ 13.62
Ending AUV..................................... $ 13.62 $ 15.86
Ending Number of AUs........................... 736,333 3,783,248
- -------------------------------------------------------------------------------------------
Growth-Income (Inception Date - 6/3/97)
Beginning AUV.................................. $ 18.84 $ 21.41
Ending AUV..................................... $ 21.41 $ 25.71
Ending Number of AUs........................... 1,949,292 9,786,202
- -------------------------------------------------------------------------------------------
Utility (Inception Date - 6/6/97)
Beginning AUV.................................. $ 11.41 $ 12.74
Ending AUV..................................... $ 12.74 $ 14.56
Ending Number of AUs........................... 177,618 1,807,529
- -------------------------------------------------------------------------------------------
Asset Allocation (Inception Date - 6/3/97)
Beginning AUV.................................. $ 16.59 $ 17.98
Ending AUV..................................... $ 17.98 $ 18.22
Ending Number of AUs........................... 1,498,681 8,996,522
- -------------------------------------------------------------------------------------------
MFS Total Return** (Inception Date - 6/10/97)
Beginning AUV.................................. $ 14.44 $ 15.45
Ending AUV..................................... $ 15.45 $ 17.28
Ending Number of AUs........................... 218,391 1,492,175
- -------------------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date - 6/5/97)
Beginning AUV.................................. $ 11.84 $ 13.22
Ending AUV..................................... $ 13.22 $ 15.60
Ending Number of AUs........................... 363,136 3,543,245
- -------------------------------------------------------------------------------------------
Worldwide High Income (Inception Date - 6/5/97)
Beginning AUV.................................. $ 15.57 $ 15.98
Ending AUV..................................... $ 15.98 $ 13.57
Ending Number of AUs........................... 596,308 2,430,509
- -------------------------------------------------------------------------------------------
High-Yield Bond (Inception Date - 6/9/97)
Beginning AUV.................................. $ 13.63 $ 14.66
Ending AUV..................................... $ 14.66 $ 14.25
Ending Number of AUs........................... 758,856 5,006,115
- -------------------------------------------------------------------------------------------
Corporate Bond (Inception Date - 6/9/97)
Beginning AUV.................................. $ 11.83 $ 12.54
Ending AUV..................................... $ 12.54 $ 13.15
Ending Number of AUs........................... 328,300 3,633,064
- -------------------------------------------------------------------------------------------
Global Bond (Inception Date - 6/11/97)
Beginning AUV.................................. $ 12.41 $ 13.08
Ending AUV..................................... $ 13.08 $ 14.40
Ending Number of AUs........................... 183,563 1,342,157
- -------------------------------------------------------------------------------------------
Cash Management (Inception Date - 6/5/97)
Beginning AUV.................................. $ 11.24 $ 11.43
Ending AUV..................................... $ 11.43 $ 11.83
Ending Number of AUs........................... 1,514,290 5,488,046
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
** Formerly named Balanced/Phoenix and managed by Phoenix
Investment Counsel, Inc.
AUV - Accumulation Unit Value
AU - Accumulation Units
A-2
<PAGE> 34
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX B - PRINCIPAL REWARDS PROGRAM
DEFERRED PAYMENT ENHANCEMENT EXAMPLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you elect to participate in the Principal Rewards Program at contract issue,
we contribute 2.00% of each Purchase Payment to your contract for each Purchase
Payment we receive. Any applicable Deferred Payment Enhancement is allocated to
your contract on the corresponding Deferred Payment Enhancement Date and, if
declared by the Company, is a percentage of your REMAINING Purchase Payment on
the Deferred Payment Enhancement Date. Deferred Purchase Payment Enhancements
are reduced proportionately by partial withdrawals of that Purchase Payment
prior to the Deferred Payment Enhancement Date.
The examples that follow assume an initial Purchase Payment of $50,000 and that
the Deferred Payment Enhancement is 2.00%. For purposes of the example, the
Deferred Payment Enhancement Date is the 9th anniversary of the Purchase
Payment.
EXAMPLE 1 - NO WITHDRAWALS ARE MADE
The Initial Payment Enhancement allocated to your contract is $1,000.00 (2.00%
of $50,000.00).
On your 9th contract anniversary, the Deferred Payment Enhancement Date, your
Deferred Payment Enhancement of $1,000.00 (2.00% of your remaining Purchase
Payment or $50,000.00) will be allocated to your contract.
EXAMPLE 2 - WITHDRAWAL MADE PRIOR TO DEFERRED PAYMENT ENHANCEMENT DATE
As in Example 1, your Initial Payment Enhancement is $1,000.00.
This example also assumes the following:
1. Your contract value on your 5th contract anniversary is $75,000.00.
2. You request a withdrawal of $30,000.00 on your 5th contract anniversary.
3. No subsequent Purchase Payments have been made.
4. No prior withdrawals have been taken.
5. Funds are not allocated to any of the MVA Fixed Accounts.
On your 5th contract anniversary, your penalty-free earnings in the contract are
$25,000.00 ($75,000.00 contract value less your $50,000.00 investment in the
contract). Therefore, you are withdrawing $5,000.00 of your initial Purchase
Payment. Your contract value will also be reduced by a $250.00 withdrawal charge
on the $5,000.00 Purchase Payment (5.00% of $5,000.00). Your gross withdrawal is
$30,250.00 of which $5,250 constitutes part of your initial Purchase Payment.
The withdrawal of $5,250.00 of your $50,000.00 Purchase Payment is a withdrawal
of 10.50% of your Purchase Payment. Therefore, only 89.50%, or $44,750.00, of
your initial Purchase Payment remains in your contract.
On your 9th contract anniversary, the Deferred Payment Enhancement Date,
assuming no other transactions occur affecting the Purchase Payment, we allocate
your Deferred Payment Enhancement of $895.00 (2.00% of your remaining Purchase
Payment, $44,750.00) to your contract.
B-1
<PAGE> 35
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX C - MARKET VALUE ADJUSTMENT ("MVA")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The MVA reflects the impact that changing interest rates have on the value of
money invested at a fixed interest rate. The longer the period of time remaining
in the term you initially agreed to leave your money in the fixed account
option, the greater the impact of changing interest rates. The impact of the MVA
can be either positive or negative, and is computed by multiplying the amount
withdrawn, transferred or switched to the Income Phase by the following factor:
(N/12)
[(1+I/(1+J+0.005)] - 1
The MVA formula may differ in certain states
where:
I is the interest rate you are earning on the money invested in the
fixed account option;
J is the interest rate then currently available for the period of time
equal to the number of years remaining in the term you initially agreed
to leave your money in the fixed account option; and
N is the number of full months remaining in the term you initially
agreed to leave your money in the fixed account option.
EXAMPLES OF THE MVA
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to the
10-year fixed account option at a rate of 5%;
(2) You make a partial withdrawal of $4,000 when 1 year (12 months) remains
in the 10-year term you initially agreed to leave your money in the
fixed account option (N=12); and
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals.
No withdrawal charges are reflected because your Purchase Payment has been in
the contract for nine full years. If a withdrawal charge applies, it is deducted
before the MVA. The MVA is assessed on the amount withdrawn less any withdrawal
charges.
POSITIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for a new
Purchase Payments in the 1-year fixed account option is 4%.
(N/12)
The MVA factor is = [(1+I/(1+J+0.005)] - 1
(12/12)
= [(1.05)/(1.04+0.005)] - 1
(1)
= (1.004785) - 1
= 1.004785 - 1
= + 0.004785
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 x (+0.004785) = +$19.14
$19.14 represents the MVA that would be added to your withdrawal.
NEGATIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year fixed account option is 6%.
(N/12)
The MVA factor is = [(1+I)/(1+J+0.005)] - 1
(12/12)
= [(1.05)/(1.06+0.005)] - 1
(1)
= (0.985915) - 1
= 0.985915 - 1
= - 0.014085
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (-0.014085) = -$56.34
$56.34 represents the MVA that will be deducted from the money remaining in the
10-year fixed account option.
C-1
<PAGE> 36
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX D - PREMIUM TAXES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Premium taxes vary according to the state and are subject to change without
notice. In many states, there is no tax at all. Listed below are the current
premium tax rates in those states that assess a premium tax. For current
information, you should consult your tax adviser.
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
STATE CONTRACT CONTRACT
<S> <C> <C>
========================================================================================
California .50% 2.35%
- ----------------------------------------------------------------------------------------
Kentucky 2% 2%
- ----------------------------------------------------------------------------------------
Maine 0% 2%
- ----------------------------------------------------------------------------------------
Nevada 0% 3.5%
- ----------------------------------------------------------------------------------------
South Dakota 0% 1.25%
- ----------------------------------------------------------------------------------------
West Virginia 1% 1%
- ----------------------------------------------------------------------------------------
Wyoming 0% 1%
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
D-1
<PAGE> 37
- --------------------------------------------------------------------------------
Please forward a copy (without charge) of the Polaris(II) Variable Annuity
Statement of Additional Information to:
(Please print or type and fill in all information.)
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City/State/Zip
<TABLE>
<S> <C> <C> <C>
Date: ------------------------------------ Signed: ---------------------------------------
</TABLE>
Return to: Anchor National Life Insurance Company, Annuity Service Center,
P.O. Box 52499, Los Angeles, California 90054-0299
- --------------------------------------------------------------------------------
<PAGE> 38
[POLARIS II PROFILE LOGO]
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
KNOW AND CONSIDER BEFORE PURCHASING THE POLARIS II VARIABLE ANNUITY. THE ANNUITY
IS MORE FULLY DESCRIBED IN THE PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY.
June 28, 1999
- ----------------------------------------------------------------
- ----------------------------------------------------------------
1. THE POLARIS II VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
The Polaris II Variable Annuity is a contract between you and Anchor National
Life Insurance Company. It is designed to help you invest on a tax-deferred
basis and meet long-term financial goals, such as retirement funding. Tax
deferral means all your money, including the amount you would otherwise pay in
current income taxes, remains in your contract to generate more earnings. Your
money could grow faster than it would in a comparable taxable investment.
Polaris II offers a diverse selection of money managers and investment options.
You may divide your money among any or all 27 variable portfolios and 7 fixed
account options. To the extent you invest in the variable portfolios, your
investment is not guaranteed. The value of your Polaris II contract can
fluctuate up and down, based on the performance of the underlying investments
you select and you may experience a loss.
The variable portfolios offer professionally managed investment choices with
goals ranging from capital preservation to aggressive growth. Your choices for
the various investment options are found on the next page.
The contract also offers 7 fixed account options, for different time periods.
Each may have a different interest rate. Interest rates are guaranteed by Anchor
National.
Like most annuities, the contract has an accumulation phase and an income phase.
During the accumulation phase, you invest money in your contract. Your earnings
are based on the investment performance of the variable portfolios to which your
money is allocated and/or the interest rate(s) earned on the fixed account
option(s) in which you invest. You may withdraw money from your contract during
the accumulation phase. However, as with other tax-deferred investments, you
will pay taxes on earnings and untaxed contributions when you withdraw them. A
federal tax penalty may apply if you make withdrawals before age 59 1/2.
During the income phase, you may receive income payments from your annuity. Your
income payments may be fixed in dollar amount, vary with investment performance
or a combination of both, depending on where your money is allocated. Among
other factors, the amount of money you are able to accumulate in your contract
during the accumulation phase will affect the amount of your income payments
during the income phase.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
2. INCOME OPTIONS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
You can select from one of five income options:
(1) payments for your lifetime;
(2) payments for your lifetime and your survivor's lifetime;
(3) payments for your lifetime and your survivor's lifetime, but for not less
than 10 or 20 years;
(4) payments for your lifetime, but for not less than 10 or 20 years; and
(5) payments for a specified period of 5 to 30 years.
You will also need to decide when your income payments begin and if you want
your income payments to fluctuate with investment performance or remain
constant. Once you begin receiving income payments, you cannot change your
income option.
If your contract is part of a non-qualified retirement plan (one that is
established with after-tax dollars), payments during the income phase are
considered partly a return of your original investment. The "original
investment" part of each payment is not taxable as income. For contracts which
are part of a qualified retirement plan using before-tax dollars, the entire
income payment is taxable as income.
In addition to the above income options, you may elect to take income payments
under the income protector feature, subject to the provisions thereof.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
3. PURCHASING A POLARIS II VARIABLE
ANNUITY CONTRACT
- ----------------------------------------------------------------
- ----------------------------------------------------------------
You can buy a contract through your financial representative, who can also help
you complete the proper forms. For non-qualified contracts, the minimum initial
purchase payment is $5,000 and subsequent amounts of $500 or more may be added
to your contract at any time during the accumulation phase. For qualified
contracts, the minimum initial purchase payment is $2,000 and subsequent amounts
of $250 or more may be added to your contract at any time during the
accumulation phase.
<PAGE> 39
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4. INVESTMENT OPTIONS
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You may allocate money to the following variable portfolios of the Anchor Series
Trust and/or the SunAmerica Series Trust:
ANCHOR SERIES TRUST
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Natural Resources Portfolio
- Government and Quality Bond Portfolio
SUNAMERICA SERIES TRUST
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth-Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
- Real Estate Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Mid-Cap Growth
- MFS Growth and Income Portfolio
- MFS Total Return Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
You may also allocate money to the 1-year fixed account option or the 3, 5, 7
and 10-year market value adjustment ("MVA") fixed account options and, under
certain circumstances, the 6-month and 1-year Dollar Cost Averaging ("DCA")
fixed account options.
The interest rates applicable for these fixed account options may differ from
time to time, however, we will never credit less than a 3% annual effective
rate. Once established, the rate will not change during the selected period.
Your contract value will be adjusted up or down for withdrawals or transfers
from the 3, 5, 7 and 10-year fixed account options prior to the end of the
guarantee period.
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5. EXPENSES
----------------------------------------------------------------
----------------------------------------------------------------
Each year, we deduct a $35 contract maintenance fee ($30 in North Dakota) from
your contract. We also deduct insurance charges which equal 1.52% annually of
the average daily value of your contract allocated to the variable portfolios.
As with other professionally managed investments, there are investment charges
imposed on contracts with money allocated to the variable portfolios. We
estimate these fees to range from .58 to 1.90.
If you take money out of your contract, you may be assessed a withdrawal charge
which is a percentage of the money you withdraw. The percentage declines over
the time the money is in the contract.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Year 1 2 3 4 5 6 7 8
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WITHDRAWAL
CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
- -----------------------------------------------------------------------------------------
</TABLE>
Each year, you are allowed to make 15 transfers without charge. After your first
15 free transfers, a $25 transfer fee ($10 in Pennsylvania and Texas) applies to
each subsequent transfer.
In a limited number of states, you may also be assessed a state premium tax of
up to 3.5% depending upon the state.
The following chart is designed to help you understand the charges in your
contract. The column "Total Annual Charges" shows the total of the 1.52%
insurance charges, the $35 contract maintenance fee and the investment charges
for each variable portfolio. We converted the contract maintenance fee to a
percentage using an assumed contract size of $40,000. The actual impact of this
charge on your contract may differ from this percentage.
The next two columns show two examples of the charges you would pay under the
contract. The examples assume that you invested $1,000 in a contract which earns
5% annually and that you withdraw your money: (1) at the end of year 1, and (2)
at the end of year 10. The premium tax is assumed to be 0% in both examples.
<PAGE> 40
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
EXAMPLES:
TOTAL ANNUAL TOTAL ANNUAL TOTAL EXPENSES TOTAL EXPENSES
INSURANCE INVESTMENT TOTAL ANNUAL AT END OF AT END OF
ANCHOR SERIES TRUST PORTFOLIO CHARGES CHARGES CHARGES 1 YEAR 10 YEARS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation 1.61% .68% 2.29% $ 93 $262
Growth 1.61% .75% 2.36% $ 94 $269
Natural Resources 1.61% .88% 2.49% $ 95 $282
Government and Quality Bond 1.61% .67% 2.28% $ 93 $261
- ----------------------------------------------------------------------------------------------------------------------------
SUNAMERICA SERIES TRUST PORTFOLIO
Emerging Markets* 1.61% 1.90% 3.51% $105 $378
International Diversified Equities 1.61% 1.26% 2.87% $ 99 $319
Global Equities 1.61% .88% 2.49% $ 95 $282
International Growth and Income* 1.61% 1.46% 3.07% $101 $338
Aggressive Growth* 1.61% .83% 2.44% $ 95 $277
MFS Mid-Cap Growth 1.61% 1.00% 2.61% $ 96 $294
Real Estate* 1.61% .95% 2.56% $ 96 $289
Putnam Growth 1.61% .86% 2.47% $ 95 $280
MFS Growth and Income(1) 1.61% .73% 2.34% $ 94 $267
Alliance Growth 1.61% .64% 2.25% $ 93 $258
"Dogs" of Wall Street* 1.61% .85% 2.46% $ 95 $279
Venture Value 1.61% .75% 2.36% $ 94 $269
Federated Value* 1.61% .83% 2.44% $ 95 $277
Growth-Income 1.61% .60% 2.21% $ 92 $254
Utility* 1.61% 1.01% 2.62% $ 96 $295
Asset Allocation 1.61% .64% 2.25% $ 93 $258
MFS Total Return(2) 1.61% .77% 2.38% $ 94 $271
SunAmerica Balanced* 1.61% .78% 2.39% $ 94 $272
Worldwide High Income 1.61% 1.08% 2.69% $ 97 $302
High-Yield Bond 1.61% .69% 2.30% $ 93 $263
Corporate Bond 1.61% .77% 2.38% $ 94 $271
Global Bond 1.61% .85% 2.46% $ 95 $279
Cash Management 1.61% .58% 2.19% $ 92 $252
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For these Portfolios, the adviser, SunAmerica Asset Management Corp., has
voluntarily agreed to waive fees or reimburse expenses, if necessary, to keep
operating expenses at or below an established maximum amount. All waivers or
reimbursements may be terminated at any time. For more detailed information,
see Fee Tables and Examples in the prospectus.
(1) Formerly named Growth/Phoenix and managed by Phoenix Investment Counsel,
Inc.
(2) Formerly named Balanced/Phoenix and managed by Phoenix Investment Counsel,
Inc.
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6. TAXES
----------------------------------------------------------------
----------------------------------------------------------------
Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts earned in a non-qualified contract are deferred until they are
withdrawn. In a qualified contract, all amounts are taxable when they are
withdrawn.
When you begin taking distributions or withdrawals from your contract, earnings
are considered to be taken out first and will be taxed at your ordinary income
rate. You may be subject to a 10% federal tax penalty for distributions or
withdrawals before age 59 1/2.
----------------------------------------------------------------
----------------------------------------------------------------
7. ACCESS TO YOUR MONEY
----------------------------------------------------------------
----------------------------------------------------------------
During the first year, you may withdraw free of a withdrawal charge an amount
that is equal to the penalty-free earnings in your contract as of the date you
make the withdrawal or, if you participate in the systematic withdrawal program,
you may withdraw 10% of your total invested amount less any withdrawals made
during the year. The penalty-free earnings amount is calculated by taking the
value of your contract on the day you make the withdrawal and subtracting your
total invested amount. After the first year, your maximum free withdrawal amount
is the greater of: (1) the penalty-free earnings or (2) 10% of your total
invested amount that has been invested for at least one year, less any
withdrawals made during the year. Withdrawals in excess of these limits will be
assessed a withdrawal charge.
If you withdraw your entire contract value, you will not receive the benefit of
any free withdrawal amount. After your money has been in the contract for seven
full years, there are no withdrawal charges on that portion of the money that
you have invested for at least seven full years.
----------------------------------------------------------------
----------------------------------------------------------------
8. PERFORMANCE
----------------------------------------------------------------
----------------------------------------------------------------
When you invest in the PolarisII Variable Annuity, your money is actually
invested in the underlying portfolios of the Anchor Series Trust and/or the
SunAmerica Series Trust. The value of your annuity will fluctuate depending upon
the investment performance of the portfolio(s) you choose.
The following chart shows total returns for each portfolio for the time periods
shown. These numbers reflect the insurance charges, the contract maintenance fee
and the investment charges. Withdrawal charges are not reflected in the chart.
Past performance is no guarantee of future results.
<PAGE> 41
<TABLE>
<CAPTION>
- --------------------------------------------------------------
ANCHOR SERIES CALENDAR
TRUST PORTFOLIO YEAR 1998
- --------------------------------------------------------------
<S> <C>
Capital Appreciation 20.27%
Growth 26.93%
Natural Resources (18.80)%
Government and Quality Bond 7.42%
- --------------------------------------------------------------
SUNAMERICA SERIES
TRUST PORTFOLIO
Emerging Markets (25.62)%
International Diversified Equities 16.60%
Global Equities 20.86%
International Growth and Income 9.03%
Aggressive Growth 15.55%
MFS Mid-Cap Growth --*
Real Estate (16.76)%
Putnam Growth 32.60%
MFS Growth and Income1 27.22%
Alliance Growth 49.83%
"Dogs" of Wall Street (1.83)%**
Venture Value 11.96%
Federated Value 16.05%
Growth-Income 28.74%
Utility 12.21%
Asset Allocation 1.67%
MFS Total Return2 17.64%
SunAmerica Balanced 22.67%
Worldwide High Income (18.45)%
High-Yield Bond (4.51)%
Corporate Bond 4.31%
Global Bond 9.04%
Cash Management 3.51%
- --------------------------------------------------------------
- --------------------------------------------------------------
</TABLE>
* This portfolio was not available for sale during calendar year 1998.
** Inception to 12/31/98.
1 Formerly named Growth/Phoenix and managed by Phoenix Investment Counsel, Inc.
2 Formerly named Balanced/Phoenix and managed by Phoenix Investment Counsel,
Inc.
----------------------------------------------------------------
----------------------------------------------------------------
9. DEATH BENEFIT
----------------------------------------------------------------
----------------------------------------------------------------
If you should die during the accumulation phase, your beneficiary will receive a
death benefit. You must select from the two death benefit options described
below at the time you purchase your contract. Once selected, your death benefit
may not be changed. You should discuss with your financial representative the
options available to you and which option is best for you.
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION:
The death benefit is the greater of:
(1) the value of your contract at the time we receive satisfactory proof of
death; or
(2) total purchase payments less withdrawals (and any fees or charges applicable
to such withdrawals), compounded at a 4% annual growth rate until the date
of death (3% growth rate if 70 or older at the time of contract issue) plus
any purchase payments less withdrawals recorded after the date of death (and
any fees or charges applicable to such withdrawals); or
(3) the value of your contract on the seventh contract anniversary, plus any
purchase payments since the seventh anniversary and less any withdrawals
(and any fees or charges applicable to such withdrawals), all compounded at
a 4% annual growth rate until the date of death (3% if 70 or older at the
time of contract issue) plus any purchase payments less withdrawals recorded
after the date of death (and any fees or charges applicable to such
withdrawals).
OPTION 2 - MAXIMUM ANNIVERSARY OPTION:
The death benefit is the greater of:
(1) the value of your contract at the time we receive satisfactory proof of
death; or
(2) total purchase payments less any withdrawals (and any fees or charges
applicable to such withdrawals); or
(3) the maximum anniversary value on any contract anniversary prior to your 81st
birthday. The anniversary value equals the value of your contract on a
contract anniversary plus any purchase payments and less any withdrawals
(and any fees or charges applicable to such withdrawals) since that
anniversary.
If you are age 90 or older at the time of death and selected the option 2 death
benefit, the death benefit will be equal to the value of your contract at the
time we receive satisfactory proof of death.
----------------------------------------------------------------
----------------------------------------------------------------
10. OTHER INFORMATION
----------------------------------------------------------------
----------------------------------------------------------------
FREE LOOK: You may cancel your contract within ten days (or longer if required
by your state) by mailing it to our Annuity Service Center. Your contract will
be treated as void on the date we receive it and we will pay you an amount equal
to the value of your contract (unless otherwise required by state law). Its
value may be more or less than the money you initially invested.
ASSET ALLOCATION REBALANCING: If selected by you, this program seeks to keep
your investment in line with your goals. We will maintain your specified
allocation mix in the variable portfolios and the 1-year fixed account option by
readjusting your money on a calendar quarter, semiannual or annual basis.
SYSTEMATIC WITHDRAWAL PROGRAM: If selected by you, this program allows you to
receive either monthly, quarterly, semiannual or annual checks during the
accumulation phase. Systematic withdrawals may also be electronically
transferred to your bank account. Of course, withdrawals may be taxable and a
10% federal tax penalty may apply if you are under age 59 1/2.
PRINCIPAL ADVANTAGE PROGRAM: If selected by you, this program allows you to
obtain growth potential without any market risk to your principal. We will
guarantee that the portion of your money allocated to the 1, 3, 5, 7 or 10-year
fixed account option will grow to equal your principal investment when it is
allocated in accordance with the program.
DOLLAR COST AVERAGING: If selected by you, this program allows you to invest
gradually in the variable portfolios from any of the variable portfolios, the
1-year fixed account option,
<PAGE> 42
the 6-month DCA fixed account option or the 1-year DCA fixed account option.
AUTOMATIC PAYMENT PLAN: You can add to your contract directly from your bank
account with as little as $20 per month.
CONFIRMATIONS AND QUARTERLY STATEMENTS: During the accumulation phase, you will
receive confirmation of transactions within your contract. Transactions made
pursuant to contractual or systematic agreements, such as deduction of the
annual maintenance fee and dollar cost averaging, may be confirmed quarterly.
Purchase payments received through the automatic payment plan or a salary
reduction arrangement, may also be confirmed quarterly. For all other
transactions, we send confirmations immediately.
During the accumulation and income phases, you will receive a statement of your
transactions over the past quarter and a summary of your account values.
----------------------------------------------------------------
----------------------------------------------------------------
11. INQUIRIES
----------------------------------------------------------------
----------------------------------------------------------------
If you have questions about your contract or need to make changes, call your
financial representative or contact us at:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
If money accompanies your correspondence, you should direct it to:
Anchor National Life Insurance Company
P.O. Box 100330
Pasadena, California 91189-0001
<PAGE> 43
[POLARIS II LOGO]
PROSPECTUS
JUNE 28, 1999
<TABLE>
<S> <C> <C>
Please read this prospectus carefully FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
before investing and keep it for issued by
future reference. It contains ANCHOR NATIONAL LIFE INSURANCE COMPANY
important information about the in connection with
Polaris(II) Variable Annuity. VARIABLE SEPARATE ACCOUNT
The annuity has 34 investment choices -7 fixed account
To learn more about the annuity options and 27 Variable Portfolios listed below. The 7 fixed
offered by this prospectus, you can account options include specified periods of 1, 3, 5, 7 and
obtain a copy of the Statement of 10 years and DCA accounts for 6-month and 1-year periods.
Additional Information ("SAI") dated The 27 Variable Portfolios are part of the Anchor Series
June 28, 1999. The SAI has been filed Trust or the SunAmerica Series Trust.
with the Securities and Exchange
Commission ("SEC") and is ANCHOR SERIES TRUST:
incorporated by reference into this MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
prospectus. The Table of Contents of - Capital Appreciation Portfolio
the SAI appears on page 21 of this - Growth Portfolio
prospectus. For a free copy of the - Natural Resources Portfolio
SAI, call us at (800) 445-SUN2 or - Government and Quality Bond Portfolio
write to us at our Annuity Service
Center, P.O. Box 54299, Los Angeles, SUNAMERICA SERIES TRUST:
California 90054-0299. MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
In addition, the SEC maintains a - Alliance Growth Portfolio
website (http://www.sec.gov) that - Growth-Income Portfolio
contains the SAI, materials MANAGED BY DAVIS SELECTED ADVISERS, L.P.
incorporated by reference and other - Venture Value Portfolio
information filed electronically with - Real Estate Portfolio
the SEC by Anchor National. MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
ANNUITIES INVOLVE RISKS, INCLUDING - Utility Portfolio
POSSIBLE LOSS OF PRINCIPAL, AND ARE - Corporate Bond Portfolio
NOT A DEPOSIT OR OBLIGATION OF, OR MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
GUARANTEED OR ENDORSED BY, ANY BANK. GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
THEY ARE NOT FEDERALLY INSURED BY THE - Asset Allocation Portfolio
FEDERAL DEPOSIT INSURANCE - Global Bond Portfolio
CORPORATION, THE FEDERAL RESERVE MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
BOARD OR ANY OTHER AGENCY. - MFS Mid-Cap Growth
- MFS Growth and Income Portfolio
- MFS Total Return Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT, INC.
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT CORP.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
</TABLE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE> 44
- ----------------------------------------------------------------
- ----------------------------------------------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Anchor National's Annual Report on Form 10-K for the year ended September 30,
1998, and its quarterly report on Form 10-Q for the quarters ended December 31,
1998 and March 31, 1999 are incorporated herein by reference. In addition,
Anchor National filed three reports on Form 8-K on January 14 and 15 and March
12, 1999. These reports are also incorporated herein by reference.
All documents or reports filed by Anchor National under Section 13(a), 13(c),
14, or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") after the effective date of this prospectus are also incorporated by
reference. Statements contained in this prospectus and subsequently filed
documents which are incorporated by reference or deemed to be incorporated by
reference are deemed to modify or supersede documents incorporated herein by
reference.
Anchor National files its Exchange Act documents and reports, including its
annual and quarterly reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000006342.
Anchor National is subject to the informational requirements of the Securities
and Exchange Act of 1934 (as amended). We file reports and other information
with the SEC to meet those requirements. You can inspect and copy this
information at SEC public facilities at the following locations:
WASHINGTON, DISTRICT OF COLUMBIA
450 Fifth Street, N.W., Room 1024
Washington, D.C. 20549
CHICAGO, ILLINOIS
500 West Madison Street
Chicago, IL 60661
NEW YORK, NEW YORK
7 World Trade Center, 13th Fl.
New York, NY 10048
To obtain copies by mail contact the Washington, D.C. location. After you pay
the fees as prescribed by the rules and regulations of the SEC, the required
documents are mailed.
Registration statements under the Securities Act of 1933, as amended, related to
the contracts offered by this prospectus are on file with the SEC. This
prospectus does not contain all of the information contained in the registration
statements and its exhibits. For further information regarding the separate
account, Anchor National and its general account, the Variable Portfolios and
the contract, please refer to the registration statements and exhibits.
The SEC also maintains a website (http://www.sec.gov) that contains the SAI,
materials incorporated by reference and other information filed electronically
with the SEC by Anchor National.
Anchor National will provide without charge to each person to whom this
prospectus is delivered, upon written or oral request, a copy of the above
documents incorporated by reference. Requests for these documents should be
directed to Anchor National's Annuity Service Center, as follows:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
Telephone Number: (800) 445-SUN2
- ----------------------------------------------------------------
- ----------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") is provided to Anchor National's officers, directors and controlling
persons. The SEC has advised that it believes such indemnification is against
public policy under the Act and unenforceable. If a claim for indemnification
against such liabilities (other than for Anchor National's payment of expenses
incurred or paid by its directors, officers or controlling persons in the
successful defense of any legal action) is asserted by a director, officer or
controlling person of Anchor National in connection with the securities
registered under this prospectus, Anchor National will submit to a court with
jurisdiction to determine whether the indemnification is against public policy
under the Act. Anchor National will be governed by final judgment of the issue.
However, if in the opinion of Anchor National's counsel this issue has been
determined by controlling precedent, Anchor National not submit the issue to a
court for determination.
2
<PAGE> 45
<TABLE>
<S> <C> <C>
------------------------------------------------------------------
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TABLE OF CONTENTS
------------------------------------------------------------------
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 2
SECURITIES AND EXCHANGE COMMISSION POSITION ON
INDEMNIFICATION........................................... 2
GLOSSARY.................................................... 3
FEE TABLES.................................................. 4
Owner Transaction Expenses............................ 4
Annual Separate Account Expenses...................... 4
Portfolio Expenses.................................... 4
EXAMPLES.................................................... 5
THE POLARIS(II) VARIABLE ANNUITY............................ 6
PURCHASING A POLARIS(II) VARIABLE ANNUITY................... 6
Allocation of Purchase Payments....................... 7
Accumulation Units.................................... 7
Free Look............................................. 7
INVESTMENT OPTIONS.......................................... 7
Variable Portfolios................................... 7
Anchor Series Trust................................... 8
SunAmerica Series Trust............................... 8
Fixed Account Options................................. 8
Market Value Adjustment ("MVA")....................... 9
Transfers During the Accumulation Phase............... 9
Dollar Cost Averaging................................. 10
Asset Allocation Rebalancing.......................... 10
Principal Advantage Program........................... 11
Voting Rights......................................... 11
Substitution.......................................... 11
ACCESS TO YOUR MONEY........................................ 11
Systematic Withdrawal Program......................... 12
Nursing Home Waiver................................... 12
Minimum Contract Value................................ 12
DEATH BENEFIT............................................... 12
EXPENSES.................................................... 13
Insurance Charges..................................... 13
Withdrawal Charges.................................... 13
Investment Charges.................................... 14
Contract Maintenance Fee.............................. 14
Transfer Fee.......................................... 14
Premium Tax........................................... 14
Income Taxes.......................................... 14
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited........................... 14
INCOME OPTIONS.............................................. 14
Annuity Date.......................................... 14
Income Options........................................ 15
Fixed or Variable Income Payments..................... 15
Income Payments....................................... 15
Transfers During the Income Phase..................... 16
Deferment of Payments................................. 16
The Income Protector Feature.......................... 16
TAXES....................................................... 17
Annuity Contracts in General.......................... 17
Tax Treatment of Distributions -
Non-Qualified Contracts............................... 17
Tax Treatment of Distributions -
Qualified Contracts................................... 18
Minimum Distributions................................. 18
Diversification....................................... 18
PERFORMANCE................................................. 18
OTHER INFORMATION........................................... 19
Anchor National....................................... 19
The Separate Account.................................. 19
The General Account................................... 19
Distribution of the Contract.......................... 19
Administration........................................ 19
Year 2000............................................. 19
Legal Proceedings..................................... 20
Ownership............................................. 20
Custodian............................................. 20
Independent Accountants............................... 20
Registration Statement................................ 20
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION....
21
APPENDIX A -- CONDENSED FINANCIAL INFORMATION............... A-1
APPENDIX B -- MARKET VALUE ADJUSTMENT ("MVA")............... B-1
APPENDIX C -- PREMIUM TAXES................................. C-1
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GLOSSARY
------------------------------------------------------------------
------------------------------------------------------------------
We have capitalized some of the technical terms used in this
prospectus. To help you understand these terms, we have defined
them in this glossary.
ACCUMULATION PHASE - The period during which you invest money in
your contract.
ACCUMULATION UNITS - A measurement we use to calculate the value
of the variable portion of your contract during the Accumulation
Phase.
ANNUITANT(S) - The person(s) on whose life (lives) we base income
payments.
ANNUITY DATE - The date on which income payments are to begin, as
selected by you.
ANNUITY UNITS - A measurement we use to calculate the amount of
income payments you receive from the variable portion of your
contract during the Income Phase.
BENEFICIARY - The person designated to receive any benefits under
the contract if you or the Annuitant dies.
COMPANY - Anchor National Life Insurance Company, We, Us, the
insurer which issues this contract.
INCOME PHASE - The period during which we make income payments to
you.
IRS - The Internal Revenue Service.
NON-QUALIFIED (CONTRACT) - A contract purchased with after-tax
dollars. In general, these contracts are not under any pension
plan, specially sponsored program or individual retirement account
("IRA").
PURCHASE PAYMENTS - The money you give us to buy the contract, as
well as any additional money you give us to invest in the contract
after you own it.
QUALIFIED (CONTRACT) - A contract purchased with pretax dollars.
These contracts are generally purchased under a pension plan,
specially sponsored program or IRA.
TRUSTS - Refers to the Anchor Series Trust and the SunAmerica
Series Trust collectively.
VARIABLE PORTFOLIO(S) - The variable investment options available
under the contract. Each Variable Portfolio has its own investment
objective and is invested in the underlying investments of the
Anchor Series Trust or the SunAmerica Series Trust.
</TABLE>
ALL FINANCIAL REPRESENTATIVES OR AGENTS THAT SELL THE CONTRACTS OFFERED BY THIS
PROSPECTUS ARE REQUIRED TO DELIVER A PROSPECTUS.
3
<PAGE> 46
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE (AS A PERCENTAGE OF EACH PURCHASE PAYMENT)
<TABLE>
<S> <C> <C> <C>
Year 1...................... 7% Year 5...................... 3%
Year 2...................... 6% Year 6...................... 2%
Year 3...................... 5% Year 7...................... 1%
Year 4...................... 4% Year 8+..................... 0%
TRANSFER FEE.................... No charge for first 15 transfers
each contract year; thereafter,
fee is $25 ($10 in Pennsylvania
and Texas) per transfer
CONTRACT MAINTENANCE FEE*....... $35 ($30 in North Dakota)
*waived if contract value is $50,000 or more
</TABLE>
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
<TABLE>
<S> <C>
Mortality and Expense Risk Charge................ 1.37%
Distribution Expense Charge...................... 0.15%
-----
TOTAL SEPARATE ACCOUNT EXPENSES 1.52%
=====
</TABLE>
PORTFOLIO EXPENSES
ANCHOR SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE TRUST'S TWELVE-MONTH PERIOD ENDED
NOVEMBER 30, 1998)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Capital Appreciation .64% .04% .68%
- -----------------------------------------------------------------------------------------------------------
Growth .70% .05% .75%
- -----------------------------------------------------------------------------------------------------------
Natural Resources .75% .13% .88%
- -----------------------------------------------------------------------------------------------------------
Government and Quality Bond .61% .06% .67%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SUNAMERICA SERIES TRUST
(AS A PERCENTAGE OF AVERAGE NET ASSETS AFTER REIMBURSEMENT OR WAIVER OF EXPENSES
FOR THE TRUST'S FISCAL YEAR ENDED NOVEMBER 30, 1998)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO FEE EXPENSES EXPENSES
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Emerging Markets* 1.25% .65% 1.90%
- -----------------------------------------------------------------------------------------------------------
International Diversified Equities 1.00% .26% 1.26%
- -----------------------------------------------------------------------------------------------------------
Global Equities .74% .14% .88%
- -----------------------------------------------------------------------------------------------------------
International Growth and Income** 1.00% .46% 1.46%
- -----------------------------------------------------------------------------------------------------------
Aggressive Growth .74% .09% .83%
- -----------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth*** .75% .25% 1.00%
- -----------------------------------------------------------------------------------------------------------
Real Estate** .80% .15% .95%
- -----------------------------------------------------------------------------------------------------------
Putnam Growth .81% .05% .86%
- -----------------------------------------------------------------------------------------------------------
MFS Growth and Income****+ .70% .03% .73%
- -----------------------------------------------------------------------------------------------------------
Alliance Growth+ .61% .03% .64%
- -----------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street* .60% .25% .85%*****
- -----------------------------------------------------------------------------------------------------------
Venture Value .72% .03% .75%
- -----------------------------------------------------------------------------------------------------------
Federated Value .75% .08% .83%
- -----------------------------------------------------------------------------------------------------------
Growth-Income .56% .04% .60%
- -----------------------------------------------------------------------------------------------------------
Utility** .75% .26% 1.01%
- -----------------------------------------------------------------------------------------------------------
Asset Allocation .59% .05% .64%
- -----------------------------------------------------------------------------------------------------------
MFS Total Return****+ .67% .10% .77%
- -----------------------------------------------------------------------------------------------------------
SunAmerica Balanced .68% .10% .78%
- -----------------------------------------------------------------------------------------------------------
Worldwide High Income 1.00% .08% 1.08%
- -----------------------------------------------------------------------------------------------------------
High-Yield Bond .63% .06% .69%
- -----------------------------------------------------------------------------------------------------------
Corporate Bond .65% .12% .77%
- -----------------------------------------------------------------------------------------------------------
Global Bond .70% .15% .85%
- -----------------------------------------------------------------------------------------------------------
Cash Management .53% .05% .58%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Absent fee waivers or reimbursement of expenses by the adviser, you would
have incurred the following expenses during the last fiscal year: Emerging
Markets (2.01%) and "Dogs" of Wall Street (.92%).
** Absent recoupment of expenses by the adviser, you would have incurred the
following expenses during the last fiscal year: International Growth and
Income (1.40%); Real Estate (.93%); and Utility (.92%).
*** This Portfolio was not available for sale during fiscal year 1998. The
percentages are based on estimated amounts for the current fiscal year.
**** As of January 4, 1998, the Growth/Phoenix Portfolio was renamed the MFS
Growth and Income Portfolio, and the Balanced/Phoenix Portfolio was
renamed the MFS Total Return Portfolio, each managed by Massachusetts
Financial Services Company.
***** Annualized.
+ The expenses noted here are restated to reflect an estimate of fees for
each portfolio for the current fiscal year.
THE ABOVE PORTFOLIO EXPENSES WERE PROVIDED BY THE TRUSTS. WE HAVE NOT
INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
4
<PAGE> 47
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXAMPLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You will pay the following expenses on a $1,000 investment in each Variable
Portfolio, assuming a 5% annual return on assets and:
(a) you surrender the contract at the end of the stated time period.
(b) you do not surrender the contract.*
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Capital Appreciation (a) $ 93 (a) $121 (a) $152 (a) $262
(b) $ 23 (b) $ 71 (b) $122 (b) $262
- ------------------------------------------------------------------------------------------------------
Growth (a) $ 94 (a) $124 (a) $156 (a) $269
(b) $ 24 (b) $ 74 (b) $126 (b) $269
- ------------------------------------------------------------------------------------------------------
Natural Resources (a) $ 95 (a) $127 (a) $162 (a) $282
(b) $ 25 (b) $ 77 (b) $132 (b) $282
- ------------------------------------------------------------------------------------------------------
Government and Quality Bond (a) $ 93 (a) $121 (a) $152 (a) $261
(b) $ 23 (b) $ 71 (b) $122 (b) $261
- ------------------------------------------------------------------------------------------------------
Emerging Markets (a) $105 (a) $158 (a) $212 (a) $378
(b) $ 35 (b) $108 (b) $182 (b) $378
- ------------------------------------------------------------------------------------------------------
International Diversified Equities (a) $ 99 (a) $139 (a) $181 (a) $319
(b) $ 29 (b) $ 89 (b) $151 (b) $319
- ------------------------------------------------------------------------------------------------------
Global Equities (a) $ 95 (a) $127 (a) $162 (a) $282
(b) $ 25 (b) $ 77 (b) $132 (b) $282
- ------------------------------------------------------------------------------------------------------
International Growth and Income (a) $101 (a) $145 (a) $191 (a) $338
(b) $ 31 (b) $ 95 (b) $161 (b) $338
- ------------------------------------------------------------------------------------------------------
Aggressive Growth (a) $ 95 (a) $126 (a) $160 (a) $277
(b) $ 25 (b) $ 76 (b) $130 (b) $277
- ------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth (a) $ 96 (a) $131 (a) $168 (a) $294
(b) $ 26 (b) $ 81 (b) $138 (b) $294
- ------------------------------------------------------------------------------------------------------
Real Estate (a) $ 96 (a) $130 (a) $166 (a) $289
(b) $ 26 (b) $ 80 (b) $136 (b) $289
- ------------------------------------------------------------------------------------------------------
Putnam Growth (a) $ 95 (a) $127 (a) $161 (a) $280
(b) $ 25 (b) $ 77 (b) $131 (b) $280
- ------------------------------------------------------------------------------------------------------
MFS Growth and Income (a) $ 94 (a) $123 (a) $155 (a) $267
(b) $ 24 (b) $ 73 (b) $125 (b) $267
- ------------------------------------------------------------------------------------------------------
Alliance Growth (a) $ 93 (a) $120 (a) $150 (a) $258
(b) $ 23 (b) $ 70 (b) $120 (b) $258
- ------------------------------------------------------------------------------------------------------
"Dogs" of Wall Street (a) $ 95 (a) $127 (a) $161 (a) $279
(b) $ 25 (b) $ 77 (b) $131 (b) $279
- ------------------------------------------------------------------------------------------------------
Venture Value (a) $ 94 (a) $124 (a) $156 (a) $269
(b) $ 24 (b) $ 74 (b) $126 (b) $269
- ------------------------------------------------------------------------------------------------------
Federated Value (a) $ 95 (a) $126 (a) $160 (a) $277
(b) $ 25 (b) $ 76 (b) $130 (b) $277
- ------------------------------------------------------------------------------------------------------
Growth-Income (a) $ 92 (a) $119 (a) $148 (a) $254
(b) $ 22 (b) $ 69 (b) $118 (b) $254
- ------------------------------------------------------------------------------------------------------
Utility (a) $ 96 (a) $131 (a) $169 (a) $295
(b) $ 26 (b) $ 81 (b) $139 (b) $295
- ------------------------------------------------------------------------------------------------------
Asset Allocation (a) $ 93 (a) $120 (a) $150 (a) $258
(b) $ 23 (b) $ 70 (b) $120 (b) $258
- ------------------------------------------------------------------------------------------------------
MFS Total Return (a) $ 94 (a) $124 (a) $157 (a) $271
(b) $ 24 (b) $ 74 (b) $127 (b) $271
- ------------------------------------------------------------------------------------------------------
SunAmerica Balanced (a) $ 94 (a) $124 (a) $157 (a) $272
(b) $ 24 (b) $ 74 (b) $127 (b) $272
- ------------------------------------------------------------------------------------------------------
Worldwide High Income (a) $ 97 (a) $133 (a) $172 (a) $302
(b) $ 27 (b) $ 83 (b) $142 (b) $302
- ------------------------------------------------------------------------------------------------------
High-Yield Bond (a) $ 93 (a) $122 (a) $153 (a) $263
(b) $ 23 (b) $ 72 (b) $123 (b) $263
- ------------------------------------------------------------------------------------------------------
Corporate Bond (a) $ 94 (a) $124 (a) $157 (a) $271
(b) $ 24 (b) $ 74 (b) $127 (b) $271
- ------------------------------------------------------------------------------------------------------
Global Bond (a) $ 95 (a) $127 (a) $161 (a) $279
(b) $ 25 (b) $ 77 (b) $131 (b) $279
- ------------------------------------------------------------------------------------------------------
Cash Management (a) $ 92 (a) $118 (a) $147 (a) $252
(b) $ 22 (b) $ 68 (b) $117 (b) $252
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
* We do not currently charge a surrender charge upon annuitization
unless the contract is annuitized using the Income Protector feature.
We assess the applicable surrender charge upon annuitization under
the Income Protector feature assuming a full surrender of your
contract.
5
<PAGE> 48
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the Fee Tables is to show you the various expenses you would
incur directly and indirectly by investing in the contract.
2. For certain Variable Portfolios, the adviser, SunAmerica Asset Management
Corp., has voluntarily agreed to waive fees or reimburse certain expenses,
if necessary, to keep annual operating expenses at or below the lesser of
the maximum allowed by any applicable state expense limitations or the
following percentages of each Variable Portfolio's average net assets:
SunAmerica Balanced (1.00%); "Dogs" of Wall Street (.85%); Aggressive Growth
(.90%); Federated Value (1.03%); Utility (1.05%); Emerging Markets (1.90%);
International Growth and Income (1.60%); and Real Estate (1.25%). The
adviser also may voluntarily waive or reimburse additional amounts to
increase a Variable Portfolio's investment return. All waivers and/or
reimbursements may be terminated at any time. Furthermore, the adviser may
recoup any waivers or reimbursements within two years after such waivers or
reimbursements are granted, provided that the Variable Portfolio is able to
make such payment and remain in compliance with the foregoing expense
limitations.
3. The Examples assume that no transfer fees were imposed. Although premium
taxes may apply in certain states, they are not reflected in the Examples.
4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE HISTORICAL ACCUMULATION UNIT VALUES ARE CONTAINED IN APPENDIX A -- CONDENSED
FINANCIAL INFORMATION.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
THE POLARIS(II) VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
An annuity is a contract between you and an insurance company. You are the owner
of the contract. The contract provides three main benefits:
- Tax Deferral: This means that you do not pay taxes on your earnings from
the annuity until you withdraw them.
- Death Benefit: If you die during the Accumulation Phase, the insurance
company pays a death benefit to your Beneficiary.
- Guaranteed Income: If elected, you receive a stream of income for your
lifetime, or another available period you select.
Tax-qualified retirement plans (e.g., IRAs, 401(k) or 403(b) plans) defer
payment of taxes on earnings until withdrawal. If you are considering funding a
tax-qualified retirement plan with an annuity, you should know that an annuity
does not provide any additional tax deferral treatment of earnings beyond the
treatment provided by the tax-qualified retirement plan itself. However,
annuities do provide other features and benefits which may be valuable to you.
You should fully discuss this decision with your financial representative.
This annuity was developed to help you contribute to your retirement savings.
This annuity works in two stages, the Accumulation Phase and the Income Phase.
Your contract is in the Accumulation Phase during the period when you make
payments into the contract. The Income Phase begins when you request us to start
making income payments to you out of the money accumulated in your contract.
The contract is called a "variable" annuity because it allows you to invest in
variable portfolios which, like mutual funds, have different investment
objectives and performance which varies. You can gain or lose money if you
invest in these Variable Portfolios. The amount of money you accumulate in your
contract depends on the performance of the Variable Portfolios in which you
invest. This contract currently offers 27 Variable Portfolios.
The contract also offers several fixed account options for varying time periods.
Fixed account options earn interest at a rate set and guaranteed by Anchor
National. If you allocate money to the fixed account options, the amount of
money that accumulates in the contract depends on the total interest credited to
the particular fixed account option(s) in which you invest.
For more information on investment options available under this contract SEE
INVESTMENT OPTIONS ON PAGE 7.
This annuity is designed to assist in contributing to retirement savings of
investors whose personal circumstances allow for a long-term investment time
horizon. As a function of the Internal Revenue Code ("IRC"), you may be assessed
a 10% federal tax penalty on any withdrawal made prior to your reaching age
59 1/2. Additionally, this contract provides that you will be charged a
withdrawal charge on each purchase payment withdrawn if that purchase payment
has not been invested in this contract for at least 7 years. Because of these
potential penalties, you should fully discuss all of the benefits and risks of
this contract with your financial representative prior to purchase.
Anchor National Life Insurance Company (Anchor National, The Company, Us, We)
issues the PolarisII Variable Annuity. When you purchase a PolarisII Variable
Annuity, a contract exists between you and Anchor National. The Company is a
stock life insurance company organized under the laws of the state of Arizona.
Its principal place of business is 1 SunAmerica Center, Los Angeles, California
90067. The Company conducts life insurance and annuity business in the District
of Columbia and all states except New York. Anchor National is an indirect,
wholly owned subsidiary of American International Group, Inc. ("AIG"), a
Delaware corporation.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PURCHASING A POLARIS(II) VARIABLE ANNUITY
- ----------------------------------------------------------------
- ----------------------------------------------------------------
An initial Purchase Payment is the money you give us to buy a contract. Any
additional money you give us to invest in the contract after purchase is a
subsequent Purchase Payment.
6
<PAGE> 49
The following chart shows the minimum initial and subsequent Purchase Payments
permitted under your contract. These amounts depend upon whether a contract is
Qualified or Non-qualified for tax purposes. FOR FURTHER EXPLANATION, SEE TAXES
ON PAGE 17.
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------
Minimum
Minimum Initial Subsequent
Purchase Payment Purchase Payment
- -----------------------------------------------------------
Qualified $2,000 $250
- -----------------------------------------------------------
Non-Qualified $5,000 $500
- -----------------------------------------------------------
</TABLE>
Prior Company approval is required to accept Purchase Payments greater than
$1,000,000. The Company reserves the right to refuse any Purchase Payment
including one which would cause the contract value or total Purchase Payments to
exceed $1,000,000 at the time of the Purchase Payment. Also, the optional
automatic payment plan allows you to make subsequent Purchase Payments of as
little as $20.00.
We may refuse any Purchase Payment. In general, we will not issue a Qualified
contract to anyone who is age 70 1/2 or older, unless it is shown that the
minimum distribution required by the IRS is being made. In addition we may not
issue a contract to anyone over age 90.
ALLOCATION OF PURCHASE PAYMENTS
We invest your Purchase Payments in the fixed and variable investment options
according to your instructions. If we receive a Purchase Payment without
allocation instructions, we will invest the money according to your last
allocation instructions. SEE INVESTMENT OPTIONS BELOW.
In order to issue your contract, we must receive your completed application,
Purchase Payment allocation instructions and any other required paperwork at our
principal place of business. We allocate your initial Purchase Payment within
two days of receiving it. If we do not have complete information necessary to
issue your contract, we will contact you. If we do not have the information
necessary to issue your contract within 5 business days we will:
- Send your money back to you, or;
- Ask your permission to keep your money until we get the information
necessary to issue the contract.
ACCUMULATION UNITS
When you allocate a Purchase Payment to the Variable Portfolios, we credit your
contract with Accumulation Units of the separate account. We base the number of
Accumulation Units you receive on the unit value of the Variable Portfolio as of
the day we receive your money if we receive it before 1 p.m. Pacific Standard
Time, or on the next business day's unit value if we receive your money after 1
p.m. Pacific Standard time. The value of an Accumulation Unit goes up and down
based on the performance of the Variable Portfolios.
We calculate the value of an Accumulation Unit each day that the New York Stock
Exchange ("NYSE") is open as follows:
1. We determine the total value of money invested in a particular Variable
Portfolio;
2. We subtract from that amount all applicable contract charges; and
3. We divide this amount by the number of outstanding Accumulation Units.
We determine the number of Accumulation Units credited to your contract by
dividing the Purchase Payment by the Accumulation Unit value for the specific
Variable Portfolio.
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Global Bond Portfolio. We determine that the value of an
Accumulation Unit for the Global Bond Portfolio is $11.10 when the NYSE
closes on Wednesday. We then divide $25,000 by $11.10 and credit your
contract on Wednesday night with 2252.52 Accumulation Units for the Global
Bond Portfolio.
Performance of the Variable Portfolios and expenses under your contract affect
Accumulation Unit values. These factors cause the value of your contract to go
up and down.
FREE LOOK
You may cancel your contract within ten days after receiving it (or longer if
required by state law). We call this a "free look." To cancel, you must mail the
contract along with your free look request to our Annuity Service Center at P.O.
Box 54299, Los Angeles, California 90054-0299. We will refund to you the value
of your contract on the day we receive your request. The amount refunded to you
may be more or less than the amount you originally invested.
Certain states require us to return your Purchase Payments upon a free look
request. Additionally, all contracts issued as an IRA require the full return of
Purchase Payments upon a free look. With respect to those contracts, we reserve
the right to put your money in the Cash Management Portfolio during the free
look period. If you cancel your contract during the free look period, we return
the greater of (1) your Purchase Payments or (2) the value of your contract. At
the end of the free look period, we allocate your money according to your
instructions.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
INVESTMENT OPTIONS
- ----------------------------------------------------------------
- ----------------------------------------------------------------
VARIABLE PORTFOLIOS
The contract currently offers 27 Variable Portfolios. These Variable Portfolios
invest in shares of the Anchor Series Trust and the SunAmerica Series Trust (the
"Trusts"). Additional Variable Portfolios may be available in the future. The
Variable Portfolios operate similar to a mutual fund but are
7
<PAGE> 50
only available through the purchase of certain insurance contracts.
SunAmerica Asset Management Corp., an indirect wholly owned subsidiary of AIG,
is the investment adviser to the Trusts. The Trusts serve as the underlying
investment vehicles for other variable annuity contracts issued by Anchor
National, and other affiliated/unaffiliated insurance companies. Neither Anchor
National nor the Trusts believe that offering shares of the Trusts in this
manner disadvantages you. The adviser monitors the Trusts for potential
conflicts.
The Variable Portfolios along with their respective subadvisers are listed
below:
ANCHOR SERIES TRUST
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust portfolios. Anchor Series Trust has investment portfolios in addition to
those listed below which are not available for investment under the contract.
The 4 available investment portfolios are:
MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
- Capital Appreciation Portfolio
- Growth Portfolio
- Natural Resources Portfolio
- Government and Quality Bond Portfolio
SUNAMERICA SERIES TRUST
Various subadvisers provide investment advice for the SunAmerica Series Trust
portfolios. SunAmerica Series Trust has investment portfolios in addition to
those listed below which are not available for investment under the contract.
The 23 investment portfolios and the subadvisers are:
MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
- Global Equities Portfolio
- Alliance Growth Portfolio
- Growth Income Portfolio
MANAGED BY DAVIS SELECTED ADVISERS, L.P.
- Venture Value Portfolio
- Real Estate Portfolio
MANAGED BY FEDERATED INVESTORS
- Federated Value Portfolio
- Utility Portfolio
- Corporate Bond Portfolio
MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/GOLDMAN
SACHS ASSET MANAGEMENT INTERNATIONAL
- Asset Allocation Portfolio
- Global Bond Portfolio
MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
- MFS Mid-Cap Growth
- MFS Growth and Income Portfolio
- MFS Total Return Portfolio
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
- International Diversified Equities Portfolio
- Worldwide High Income Portfolio
MANAGED BY PUTNAM INVESTMENT MANAGEMENT
- Putnam Growth Portfolio
- International Growth and Income Portfolio
- Emerging Markets Portfolio
MANAGED BY SUNAMERICA ASSET MANAGEMENT, INC.
- Aggressive Growth Portfolio
- "Dogs" of Wall Street Portfolio
- SunAmerica Balanced Portfolio
- High-Yield Bond Portfolio
- Cash Management Portfolio
YOU SHOULD READ THE ATTACHED PROSPECTUSES FOR THE TRUSTS CAREFULLY. THESE
PROSPECTUSES CONTAIN DETAILED INFORMATION ABOUT THE VARIABLE PORTFOLIOS,
INCLUDING EACH VARIABLE PORTFOLIO'S INVESTMENT OBJECTIVE AND RISK FACTORS.
FIXED ACCOUNT OPTIONS
The contract also offers seven fixed account options. Anchor National will
guarantee the interest rate earned on money you allocate to any of these fixed
account options. We currently offer fixed account options for periods of one,
three, five, seven and ten years, which we call guarantee periods. Additionally,
we guarantee the interest rate for money allocated to the six-month DCA fixed
account and/or the one year DCA fixed account (the "DCA fixed accounts") which
are available only in conjunction with the Dollar Cost Averaging Program. Please
see the section on DOLLAR COST AVERAGING ON PAGE 10 for additional information
about, including limitations on, and the availability and operation of the DCA
fixed accounts. The DCA fixed accounts are only available for new Purchase
Payments.
Each guarantee period may offer a different interest rate but will never be less
than an annual effective rate of 3%. Once established the rates for specified
payments do not change during the guarantee period. The guarantee period is that
period for which we credit the applicable rate (one, three, five, seven or ten
years).
There are three scenarios in which you may put money into the MVA fixed account
options. In each scenario your money may be credited a different rate of
interest as follows:
- Initial Rate: Rate credited to new Purchase Payments allocated to the
fixed account when you purchase your contract.
- Current Rate: Rate credited to subsequent Purchase Payments allocated to
the fixed account.
- Renewal Rate: Rate credited to money transferred from a fixed account or
a Variable Portfolio into a fixed account and to money remaining in a
fixed account after expiration of a guarantee period.
8
<PAGE> 51
Each of these rates may differ from one another. Once declared, the applicable
rate is guaranteed until the corresponding guarantee period expires.
When a guarantee period ends, you may leave your money in the same fixed
investment option. You may also reallocate your money to another fixed
investment option (other than the DCA fixed accounts) or to the Variable
Portfolios. If you want to reallocate your money to a different fixed account
option or a Variable Portfolio, you must contact us within 30 days after the end
of the current interest guarantee period and instruct us how to reallocate the
money. We do not contact you. If we do not hear from you, your money will remain
in the same fixed account option, where it will earn interest at the renewal
rate then in effect for the fixed account option.
The DCA fixed accounts also credit a fixed rate of interest. Interest is
credited to amounts allocated to the 1-year or 6-month DCA fixed account while
your investment is systematically transferred to the Variable Portfolios. The
rates applicable to the DCA fixed accounts may differ from each other and/or the
other fixed account options but will never be less than an effective rate of 3%.
See DOLLAR COST AVERAGING ON PAGE 10 for more information.
MARKET VALUE ADJUSTMENT ("MVA")
NOTE: THE FOLLOWING DISCUSSION APPLIES TO THE 3, 5, 7 AND 10-YEAR FIXED ACCOUNT
OPTIONS, ONLY. THESE OPTIONS ARE NOT AVAILABLE IN ALL STATES. PLEASE CONTACT
YOUR FINANCIAL REPRESENTATIVE FOR MORE INFORMATION.
If you take money out of the multi-year fixed account options before the end of
the guarantee period, we make an adjustment to your contract. We refer to the
adjustment as a market value adjustment (the "MVA"). The MVA reflects any
difference in the interest rate environment between the time you place your
money in the fixed account option and the time when you withdraw that money.
This adjustment can increase or decrease your contract value. You have 30 days
after the end of each guarantee period to reallocate your funds without
incurring any MVA.
We calculate the MVA by doing a comparison between current rates and the rate
being credited to you in the fixed account option. For the current rate we use a
rate being offered by us for a guarantee period that is equal to the time
remaining in the guarantee period from which you seek withdrawal. If we are not
currently offering a guarantee period for that period of time, we determine an
applicable rate by using a formula to arrive at a number between the interest
rates currently offered for the two closest periods available.
Generally, if interest rates drop between the time you put your money into the
fixed account options and the time you take it out, we credit a positive
adjustment to your contract. Conversely, if interest rates increase during the
same period, we post a negative adjustment to your contract.
Where the MVA is negative, we first deduct the adjustment from any money
remaining in the fixed account option. If there is not enough money in the fixed
account option to meet the negative deduction, we deduct the remainder from your
withdrawal. Where the MVA is positive, we add the adjustment to your withdrawal
amount.
Anchor National does not assess a MVA against withdrawals under the following
circumstances:
- If made within 30 days after the end of a guarantee period;
- If made to pay contract fees and charges;
- To pay a death benefit; and
- Upon annuitization, if occurring on the latest Annuity Date.
APPENDIX B shows how we calculate the MVA.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Portfolios and/or the fixed account options. Funds already in your contract
cannot be transferred into the DCA fixed accounts. You must transfer at least
$100. If less than $100 will remain in any Variable Portfolio after a transfer,
that amount must be transferred as well.
You may request transfers of your account value between the Variable Portfolios
and/or the fixed account options in writing or by telephone. Additionally, you
may access your account and request transfers between Variable Portfolios and/or
the fixed account options through SunAmerica's website
(http://www.sunamerica.com). We currently allow 15 free transfers per contract
per year. We charge $25 ($10 in Pennsylvania and Texas) for each additional
transfer in any contract year. Transfers resulting from your participation in
the DCA program count against your 15 free transfers per contract year. However,
transfers resulting from your participation in the automatic asset rebalancing
program do not count against your 15 free transfers.
We accept transfer requests by telephone unless you tell us not to on your
contract application. Additionally, you may request transfers over the internet.
When receiving instructions over the telephone or the internet, we follow
appropriate procedures to provide reasonable assurance that the transactions
executed are genuine. Thus, we are not responsible for any claim, loss or
expense from any error resulting from instructions received over the telephone.
If we fail to follow our procedures, we may be liable for any losses due to
unauthorized or fraudulent instructions.
We may limit the number of transfers in any contract year or refuse any transfer
request for you or others invested in the contract if we believe that excessive
trading or a specific transfer request or group transfer requests may have a
detrimental effect on unit values or the share prices of the underlying Variable
Portfolios.
Where permitted by law, we may accept your authorization for a third party to
make transfers for you subject to our
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rules. We reserve the right to suspend or cancel such acceptance at any time and
will notify you accordingly. Additionally, we may restrict the investment
options available for transfers during any period in which such third party acts
for you. We notify such third party beforehand regarding any restrictions.
However, we will not enforce these restrictions if we are satisfied that:
- such third party has been appointed by a court of competent jurisdiction
to act on your behalf; or
- such third party is a trustee/fiduciary, for you or appointed by you, to
act on your behalf for all your financial affairs.
We may provide administrative or other support services to independent third
parties you authorize to make transfers on your behalf. We do not currently
charge you extra for providing these support services. This includes, but is not
limited to, transfers between investment options in accordance with market
timing strategies. Such independent third parties may or may not be appointed
with us for the sale of annuities. However, WE DO NOT ENGAGE ANY THIRD PARTIES
TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE. WE TAKE NO RESPONSIBILITY
FOR THE INVESTMENT ALLOCATION AND TRANSFERS TRANSACTED ON YOUR BEHALF BY SUCH
THIRD PARTIES OR FOR ANY INVESTMENT ALLOCATION RECOMMENDATIONS MADE BY SUCH
PARTIES.
For information regarding transfers during the Income Phase, SEE INCOME OPTIONS
ON PAGE 14.
We reserve the right to modify, suspend, waive or terminate these transfer
provisions at any time.
DOLLAR COST AVERAGING
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in the
Variable Portfolios. Under the program you systematically transfer a set dollar
amount or percentage of portfolio value from one Variable Portfolio or the
1-year fixed account option (source accounts) to any other Variable Portfolio.
Transfers may be monthly or quarterly and count against your 15 free transfers
per contract year. You may change the frequency at any time by notifying us in
writing. The minimum transfer amount under the DCA program is $100, regardless
of the source account.
We also offer the 6-month and 1-year DCA fixed accounts exclusively to
facilitate this program. The DCA fixed accounts only accept new Purchase
Payments. You cannot transfer money already in your contract into these options.
If you allocate a Purchase Payment into a DCA fixed account, we transfer all
your money allocated to that account into the Variable Portfolios over the
selected 6-month or 1-year period. You cannot change the option or the frequency
of transfers once selected.
If allocated to the 6-month DCA fixed account, we transfer your money over a
maximum of 6 monthly transfers. We base the actual number of transfers on the
total amount allocated to the account. For example, if you allocate $500 to the
6-month DCA fixed account, we transfer your money over a period of five months,
so that each payment complies with the $100 per transfer minimum.
We determine the amount of the transfers from the 1-year DCA fixed account based
on
- the total amount of money allocated to the account, and
- the frequency of transfers selected.
For example, let's say you allocate $1,000 to the 1-year DCA account. You select
monthly transfers. We completely transfer all of your money to the selected
investment options over a period of ten months.
You may terminate your DCA program at any time. If money remains in the DCA
fixed accounts, we transfer the remaining money to the 1-year fixed account
option, unless we receive different instructions from you. Transfers resulting
from a termination of this program do not count towards your 15 free transfers.
The DCA program is designed to lessen the impact of market fluctuations on your
investment. However, we cannot ensure that you will make a profit. When you
elect the DCA program, you are continuously investing in securities regardless
of fluctuating price levels. You should consider your tolerance for investing
through periods of fluctuating price levels.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Portfolio to the Aggressive Growth Portfolio over six quarters.
You set up dollar cost averaging and purchase Accumulation Units at the
following values:
<TABLE>
<CAPTION>
- -------------------------------------------
ACCUMULATION UNITS
QUARTER UNIT PURCHASED
- -------------------------------------------
<S> <C> <C>
1 $ 7.50 100
2 $ 5.00 150
3 $10.00 75
4 $ 7.50 100
5 $ 5.00 150
6 $ 7.50 100
- -------------------------------------------
</TABLE>
You paid an average price of only $6.67 per Accumulation Unit over six
quarters, while the average market price actually was $7.08. By investing
an equal amount of money each month, you automatically buy more
Accumulation Units when the market price is low and fewer Accumulation
Units when the market price is high. This example is for illustrative
purposes only.
ASSET ALLOCATION REBALANCING
Earnings in your contract may cause the percentage of your investment in each
investment option to differ from your original allocations. The Automatic Asset
Rebalancing
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<PAGE> 53
program addresses this situation. At your election, we periodically rebalance
your investments in the variable Portfolios to return your allocations to their
original percentages. Asset rebalancing typically involves shifting a portion of
your money out of an investment option with a higher return into an investment
option with a lower return.
At your request, rebalancing occurs on a quarterly, semiannual or annual basis.
Transfers made as a result of rebalancing do not count against your 15 free
transfers for the contract year.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want your initial Purchase Payment split between two
Variable Portfolios. You want 50% in the Corporate Bond Portfolio and 50%
in the Growth Portfolio. Over the next calendar quarter, the bond market
does very well while the stock market performs poorly. At the end of the
calendar quarter, the Corporate Bond Portfolio now represents 60% of your
holdings because it has increased in value and the Growth Portfolio
represents 40% of your holdings. If you had chosen quarterly rebalancing,
on the last day of that quarter, we would sell some of your units in the
Corporate Bond Portfolio to bring its holdings back to 50% and use the
money to buy more units in the Growth Portfolio to increase those holdings
to 50%.
PRINCIPAL ADVANTAGE PROGRAM
The Principal Advantage Program allows you to invest in one or more Variable
Portfolios without putting your principal at direct risk. The program
accomplishes this by allocating your investment strategically between the fixed
account options and Variable Portfolios. You decide how much you want to invest
and approximately when you want a return of principal. We calculate how much of
your Purchase Payment to allocate to the particular fixed account option to
ensure that it grows to an amount equal to your total principal invested under
this program. We invest the rest of your principal in the Variable Portfolio(s)
of your choice.
We reserve the right to modify, suspend or terminate this program at any time.
EXAMPLE:
Assume that you want to allocate a portion of your initial Purchase Payment
of $100,000 to the fixed account option. You want the amount allocated to
the fixed account option to grow to $100,000 in 7 years. If the 7-year
fixed account option is offering a 5% interest rate, we will allocate
$71,069 to the 7-year fixed account option to ensure that this amount will
grow to $100,000 at the end of the 7-year period. The remaining $28,931 may
be allocated among the Variable Portfolios, as determined by you, to
provide opportunity for greater growth.
VOTING RIGHTS
Anchor National is the legal owner of the Trusts' shares. However, when a
Variable Portfolio solicits proxies in conjunction with a vote of shareholders,
we must obtain your instructions on how to vote those shares. We vote all of the
shares we own in proportion to your instructions. This includes any shares we
own on our own behalf. Should we determine that we are no longer required to
comply with these rules, we will vote the shares in our own right.
SUBSTITUTION
If underlying funds of the Trusts become unavailable for investment, we may be
required to substitute shares of another underlying fund. We will seek prior
approval of the SEC and give you notice before substituting shares.
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ACCESS TO YOUR MONEY
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You can access money in your contract in two ways:
- by making a partial or total withdrawal, and/or;
- by receiving income payments during the Income Phase. SEE INCOME OPTIONS
ON PAGE 14.
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal and a MVA if a partial withdrawal comes from the 3, 5, 7 or 10 year
fixed account options. If you withdraw your entire contract value, we also
deduct premium taxes and a contract maintenance fee. SEE EXPENSES ON PAGE 13.
Your contract provides for a free withdrawal amount each year. A free withdrawal
amount is the portion of your account that we allow you to take out each year
without being charged a surrender penalty. However, upon a future full surrender
of your contract we will recoup any withdrawal charges which would have been due
if your free withdrawal had not been free.
Purchase payments, above and beyond the amount of your free withdrawal amount,
that are withdrawn prior to the end of the seventh year will result in your
paying a penalty in the form of a surrender charge. The amount of the charge and
how it applies are discussed more fully below. SEE EXPENSES ON PAGE 13. You
should consider, before purchasing this contract, the effect this charge will
have on your investment if you need to withdraw more money than the free
withdrawal amount. You should fully discuss this decision with your financial
representative.
To determine your free withdrawal amount and your withdrawal charge, we refer to
two special terms. These are penalty free earnings and the total invested
amount.
The penalty-free earnings portion of your contract is simply your account value
less your total invested amount. The total invested amount is the total of all
Purchase Payments you have made into the contract less portions of some prior
withdrawals you made. The portions of prior withdrawals that reduce your total
invested amount is as follows:
- Free withdrawals in any year that were in excess of your penalty free
earnings and were based on the part of the total invested amount that was
no longer
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subject to withdrawal charges at the time of the withdrawal, and
- Any prior withdrawals (including surrender charges on those withdrawals)
of the total invested amount on which you already paid a surrender
penalty.
When you make a withdrawal, we assume that it is taken from penalty-free
earnings first, then from the total invested amount on a first-in, first-out
basis. This means that you can also access your Purchase Payments which are no
longer subject to a withdrawal charge before those Purchase Payments which are
still subject to the withdrawal charge.
During the first year after we issue your contract your free withdrawal amount
is the greater of (1) your penalty-free earnings; and (2) if you are
participating in the Systematic Withdrawal program, a total of 10% of your total
invested amount. If you are a Washington resident, you may withdraw during the
first contract year, the greater of (1); (2); or (3) interest earnings from the
amounts allocated to the fixed account options, not previously withdrawn.
After the first contract year, you can take out the greater of the following
amounts each year (1) your penalty free earnings and any portion of your total
invested amount no longer subject to withdrawal charges; and (2) 10% of the
portion of your total invested amount that has been in your contract for at
least one year. If you are a Washington resident, your maximum free withdrawal
amount, after the first contract year, is the greater of (1); (2); or (3)
interest earnings from amounts allocated to the fixed account options, not
previously withdrawn.
We calculate charges due on a total withdrawal on the day after we receive your
request and your contract. We return to you your contract value less any
applicable fees and charges.
Under most circumstances, the partial withdrawal minimum is $1,000. We require
that the value left in any investment option be at least $100, after the
withdrawal. You must send a written withdrawal request. Unless you provide us
with different instructions, partial withdrawals will be made pro rata from each
Variable Portfolio and the fixed account option in which your contract is
invested.
Under certain Qualified plans, access to the money in your contract may be
restricted. Additionally, withdrawals made prior to age 59 1/2 may result in a
10% IRS penalty tax. SEE TAXES ON PAGE 17.
We may be required to suspend or postpone the payment of a withdrawal for any
period of time when: (1) the NYSE is closed (other than a customary weekend and
holiday closings); (2) trading with the NYSE is restricted; (3) an emergency
exists such that disposal of or determination of the value of shares of the
Variable Portfolios is not reasonably practicable; (4) the SEC, by order, so
permits for the protection of contract owners.
Additionally, we reserve the right to defer payments for a withdrawal from a
fixed account in option. Such deferrals are limited to no longer than six
months.
SYSTEMATIC WITHDRAWAL PROGRAM
During the Accumulation Phase, you may elect to receive periodic income payments
under the systematic withdrawal program. Under the program, you may choose to
take monthly, quarterly, semi-annual or annual payments from your contract.
Electronic transfer of these funds to your bank account is also available. The
minimum amount of each withdrawal is $250. If you are an Oregon resident, the
minimum withdrawal amount is $250 per withdrawal or an amount equal to your free
withdrawal amount, as described on page 10. There must be at least $500
remaining in your contract at all times. Withdrawals may be taxable and a 10%
IRS penalty tax may apply if you are under age 59 1/2. There is no additional
charge for participating in this program, although a withdrawal charge and/or
MVA may apply.
The program is not available to everyone. Please check with our Annuity Service
Center, which can provide the necessary enrollment forms. We reserve the right
to modify, suspend or terminate this program at any time.
NURSING HOME WAIVER
If you are confined to a nursing home for 60 days or longer, we may waive the
withdrawal charge and/or market value adjustment on certain withdrawals prior to
the Annuity Date (not available in Texas). The waiver applies only to
withdrawals made while you are in a nursing home or within 90 days after you
leave the nursing home. Your contract prohibits use of this waiver during the
first 90 days after you purchase your contract. In addition, the confinement
period for which you seek the waiver must begin after you purchase your
contract.
In order to use this waiver, you must submit with your withdrawal request, the
following documents: (1) a doctor's note recommending admittance to a nursing
home; (2) an admittance form which shows the type of facility you entered; and
(3) a bill from the nursing home which shows that you met the 60 day confinement
requirement.
MINIMUM CONTRACT VALUE
Where permitted by state law, we may terminate your contract if both of the
following occur: (1) your contract is less than $500 as a result of withdrawals;
and (2) you have not made any Purchase Payments during the past three years. We
will provide you with sixty days written notice. At the end of the notice
period, we will distribute the contract's remaining value to you.
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DEATH BENEFIT
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If you die during the Accumulation Phase of your contract, we pay a death
benefit to your Beneficiary. At the time you purchase your contract, you must
select one of the two death benefits described below. Once selected, you can not
change your death benefit option. You should discuss the available options with
your financial representative to determine which option is best for you.
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<PAGE> 55
OPTION 1 - PURCHASE PAYMENT ACCUMULATION OPTION
The death benefit is the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Purchase Payments less withdrawals (and any fees or charges
applicable to such withdrawals), compounded at a 4% annual growth rate
until the date of death (3% growth rate if 70 or older at the time of
contract issue) plus any Purchase Payments less withdrawals recorded
after the date of death (and any fees or charges applicable to such
withdrawals); or
3. the value of your contract on the seventh contract anniversary, plus any
Purchase Payments and less any withdrawals (and any fees or charges
applicable to such withdrawals), since the seventh contract anniversary,
all compounded at a 4% annual growth rate until the date of death (3%
growth rate if age 70 or older at the time of contract issue) plus any
Purchase Payments less withdrawals recorded after the date of death (and
any fees or charges applicable to such withdrawals).
OPTION 2 - MAXIMUM ANNIVERSARY OPTION
The death benefit is the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Purchase Payments less any withdrawals (and any fees or charges
applicable to such withdrawals); or
3. the maximum anniversary value on any contract anniversary prior to your
81st birthday. The anniversary value equals the value of your contract
on a contract anniversary plus any Purchase Payments and less any
withdrawals (and any fees or charges applicable to such withdrawals),
since that contract anniversary.
If you are age 90 or older at the time of death and selected the Option 2 death
benefit, the death benefit will be equal to the value of your contract at the
time we receive satisfactory proof of death. Accordingly, you do not get the
advantage of option 2 if:
- you are over age 80 at the time of contract issue, or
- you are 90 or older at the time of your death.
We do not pay the death benefit if you die after you switch to the Income Phase.
However, if you die during the Income Phase, your Beneficiary receives any
remaining guaranteed income payments in accordance with the income option you
selected. SEE INCOME OPTIONS ON PAGE 14.
You name your Beneficiary. You may change the Beneficiary at any time, unless
you previously made an irrevocable Beneficiary designation.
We pay the death benefit when we receive satisfactory proof of death. We
consider the following satisfactory proof of death:
1. a certified copy of the 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 us.
We may require additional proof before we pay the death benefit.
The death benefit payment must begin immediately upon receipt of all necessary
documents. In any event, the death benefit must be paid within 5 years of the
date of death unless the Beneficiary elects to have it payable in the form of an
income option. If the Beneficiary elects an income option, it must be paid over
the Beneficiary's lifetime or for a period not extending beyond the
Beneficiary's life expectancy. Payments must begin within one year of your
death.
If the Beneficiary is the spouse of a deceased owner, he or she can elect to
continue the Contract at the then current value. If the Beneficiary/spouse
continues the contract, we do not pay a death benefit to him or her.
If a Beneficiary does not elect a specific form of pay out within 60 days of our
receipt of proof of death, we pay a lump sum death benefit to the Beneficiary.
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EXPENSES
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There are charges and expenses associated with your contract. These charges and
expenses reduce your investment return. We will not increase the contract
maintenance fee or the insurance and withdrawal charges under your contract.
However, the investment charges under your contract may increase or decrease.
Some states may require that we charge less than the amounts described below.
INSURANCE CHARGES
The amount of this charge is 1.52% annually, of the value of your contract
invested in the Variable Portfolios. We deduct the charge daily.
The insurance charge compensates us for the mortality and expense risks and the
costs of contract distribution assumed by Anchor National.
If these charges do not cover all of our expenses, we will pay the difference.
Likewise, if these charges exceed our expenses, we will keep the difference.
WITHDRAWAL CHARGES
The contract provides a free withdrawal amount every year. SEE ACCESS TO YOUR
MONEY, PAGE 11. If you take money out in excess of the free withdrawal amount,
and upon a full surrender, you may incur a withdrawal charge.
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We apply a withdrawal charge against each Purchase Payment you put into the
contract. After a Purchase Payment has been in the contract for 7 complete
years, no withdrawal charge applies. The withdrawal charge equals a percentage
of the Purchase Payment you take out of the contract. The withdrawal charge
percentage declines each year a Purchase Payment is in the contract, as follows
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Year 1 2 3 4 5 6 7 8
- -------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C>
WITHDRAWAL CHARGE 7% 6% 5% 4% 3% 2% 1% 0%
- -------------------------------------------------------------------
</TABLE>
When calculating the withdrawal charge, we treat withdrawals as coming first
from the Purchase Payments that have been in your contract the longest. However,
for tax purposes, your withdrawals are considered earnings first, then Purchase
Payments.
Whenever possible, we deduct the withdrawal charge from the money remaining in
your contract. If you withdraw all of your contract value, we deduct any
applicable withdrawal charges from the amount withdrawn.
We will not assess a withdrawal charge for money withdrawn to pay a death
benefit or to pay contract fees or charges. We will not assess a withdrawal
charge when you switch to the Income Phase, except when you elect to receive
income payments using the Income Protector feature. If you elect to receive
income payments using the Income Protector feature, we assess the entire
withdrawal charge applicable to Purchase Payments remaining in your contract
when calculating your income benefit base. SEE INCOME OPTIONS BELOW.
Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE TAXES ON
PAGE 17.
INVESTMENT CHARGES
Charges are deducted from your Variable Portfolios for the advisory and other
expenses of the Variable Portfolios. THE FEE TABLES LOCATED AT PAGE 4 illustrate
these charges and expenses. For more detailed information on these investment
charges, refer to the prospectuses for the Trusts, enclosed or attached.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from your
account once per year. This charge compensates us for the cost of contract
administration. We deduct the $35 contract maintenance fee ($30 in North Dakota)
from your account value on your contract anniversary. If you withdraw your
entire contract value, we deduct the fee from that withdrawal.
If your contract value is $50,000 or more on your contract anniversary date, we
will waive the charge. This waiver is subject to change without notice.
TRANSFER FEE
We currently permit 15 free transfers between investment options each contract
year. We charge you $25 for each additional transfer that contract year ($10 in
Pennsylvania and Texas). SEE INVESTMENT OPTIONS ON PAGE 7.
PREMIUM TAX
Certain states charge the Company a tax on the premiums you pay into the
contract. We deduct from your contract these premium tax charges. Currently we
deduct the charge for premium taxes when you take a full withdrawal or begin the
Income Phase of the contract. In the future, we may assess this deduction at the
time you put Purchase Payment(s) into the contract or upon payment of a death
benefit.
APPENDIX C provides more information about premium taxes.
INCOME TAXES
We do not currently deduct income taxes from your contract. We reserve the right
to do so in the future.
REDUCTION OR ELIMINATION OF CHARGES AND EXPENSES, AND ADDITIONAL AMOUNTS
CREDITED
Sometimes sales of the contracts to groups of similarly situated individuals may
lower our administrative and/or sales expenses. We reserve the right to reduce
or waive certain charges and expenses when this type of sale occurs. In
addition, we may also credit additional interest to policies sold to such
groups. We determine which groups are eligible for such treatment. Some of the
criteria we evaluate to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that our expenses will be reduced; and/or any other
factors that we believe indicate that administrative and/or sales expenses may
be reduced.
Anchor National may make such a determination regarding sales to its employees,
it affiliates' employees and employees of currently contracted broker-dealers;
its registered representatives and immediate family members of all of those
described.
We reserve the right to change or modify any such determination or the treatment
applied to a particular group, at any time.
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INCOME OPTIONS
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ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to make
regular income payments to you. You may switch to the Income Phase any time
after your 2nd
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<PAGE> 57
contract anniversary. You select the month and year you want income payments to
begin. The first day of that month is the Annuity Date. You may change your
Annuity Date, so long as you do so at least seven days before the income
payments are scheduled to begin. Once you begin receiving income payments, you
cannot change your income option. Except as indicated under Option 5 below, once
you begin receiving income payments, you cannot otherwise access your money
through a withdrawal or surrender.
Income payments must begin on or before your 90th birthday or on your tenth
contract anniversary, whichever occurs later. If you do not choose an Annuity
Date, your income payments will automatically begin on this date. Certain states
may require your income payments to start earlier.
If the Annuity Date is past your 85th birthday, your contract could lose its
status as an annuity under Federal tax laws. This may cause you to incur adverse
tax consequences.
In addition, most Qualified contracts require you to take minimum distributions
after you reach age 70 1/2. SEE TAXES ON PAGE 17.
INCOME OPTIONS
Currently, this Contract offers five income options. If you elect to receive
income payments but do not select an option, your income payments will be made
in accordance with option 4 for a period of 10 years. For income payments based
on joint lives, we pay according to option 3.
We base our calculation of income payments on the life of the Annuitant and the
annuity rates set forth in your contract. As the contract owner, you may change
the Annuitant at any time prior to the Annuity Date. You must notify us if the
Annuitant dies before the Annuity Date and designate a new Annuitant.
OPTION 1 - LIFE INCOME ANNUITY
This option provides income payments for the life of the Annuitant. Income
payments stop when the Annuitant dies.
OPTION 2 - JOINT AND SURVIVOR LIFE ANNUITY
This option provides income payments for the life of the Annuitant and for the
life of another designated person. Upon the death of either person, we will
continue to make income payments during the lifetime of the survivor. Income
payments stop when the survivor dies.
OPTION 3 - JOINT AND SURVIVOR LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to option 2 above, with an additional guarantee of
payments for at least 10 years. If the Annuitant and the survivor die before all
of the guaranteed income payments have been made, the remaining payments are
made to the Beneficiary under your contract.
OPTION 4 - LIFE ANNUITY WITH 10 OR 20 YEARS GUARANTEED
This option is similar to option 1 above. In addition, this option provides a
guarantee that income payments will be made for at least 10 or 20 years. You
select the number of years. If the Annuitant dies before all guaranteed income
payments are made, the remaining income payments go to the Beneficiary under
your contract.
OPTION 5 - INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 5 to
30 years. If the Annuitant dies before all the guaranteed income payments are
made, the remaining income payments are made to the Beneficiary under your
contract. Additionally, if variable income payments are elected under this
option, you (or the Beneficiary under the contract if the Annuitant dies prior
to all guaranteed payments being made) may redeem the contract value after the
Annuity Date. The amount available upon such redemption would be the discounted
present value of any remaining guaranteed payments.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. Since Option 5 does not contain
an element of mortality risk, no benefit is derived from this charge.
Please read the Statement of Additional Information ("SAI") for a more detailed
discussion of the income options.
FIXED OR VARIABLE INCOME PAYMENTS
You can choose income payments that are fixed, variable or both. If at the date
when income payments begin you are invested in the Variable Portfolios only,
your income payments will be variable. If your money is only in fixed accounts
at that time, your income payments will be fixed in amount. Further, if you are
invested in both fixed and variable investment options when income payments
begin, your payments will be fixed and variable. If income payments are fixed,
Anchor National guarantees the amount of each payment. If the income payments
are variable the amount is not guaranteed.
INCOME PAYMENTS
We make income payments on a monthly, quarterly, semiannual or annual basis. You
instruct us to send you a check or to have the payments directly deposited into
your bank account. If state law allows, we distribute annuities with a contract
value of $5,000 or less in a lump sum. Also, if the selected income option
results in income payments of less than $50 per payment, we may decrease the
frequency of payments, state law allowing.
If you are invested in the Variable Portfolios after the Annuity date, your
income payments vary depending on four things:
- for life options, your age when payments begin, and;
- the value of your contract in the Variable Portfolios on the Annuity
Date, and;
15
<PAGE> 58
- the 3.5% assumed investment rate used in the annuity table for the
contract, and;
- the performance of the Variable Portfolios in which you are invested
during the time you receive income payments.
If you are invested in both the fixed account options and the Variable
Portfolios after the Annuity Date, the allocation of funds between the fixed and
variable options also impacts the amount of your annuity payments.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one transfer per month is permitted between the
Variable Portfolios. No other transfers are allowed during the Income Phase.
DEFERMENT OF PAYMENTS
We may defer making fixed payments for up to six months, or less if required by
law. Interest is credited to you during the deferral period.
THE INCOME PROTECTOR FEATURE
The Income Protector feature is a future "safety net" which offers you the
ability to receive a guaranteed fixed minimum retirement income when you switch
to the Income Phase. With the Income Protector feature you know the level of
minimum income that will be available to you upon annuitization, regardless of
fluctuating market conditions.
The Income Protector is a standard feature of your contract, if available in
your state. There is no additional charge associated with this feature.
Other options were previously available under the Income Protector feature.
Generally, if you purchased your contract between November 2, 1998 and March 31,
1999 and the Income Protector feature was available in your state at that time,
the other provisions continue to apply to your contract. Please contact our
Annuity Service Center for more information.
We reserve the right to modify, suspend or terminate the Income Protector
feature at any time.
HOW WE DETERMINE THE AMOUNT OF YOUR MINIMUM GUARANTEED INCOME
We base the amount of minimum income available to you if you elect to receive
income payments using the Income Protector feature upon a calculation we call
the income benefit base.
The income benefit base is only a calculation. It does not represent a contract
value, nor does it guarantee performance of the Variable Portfolios in which you
invest.
Your income benefit base increases if you make subsequent Purchase Payments and
decreases if you withdraw money from your contract. The exact income benefit
base calculation is equal to (a) plus (b) minus (c) where:
(a) is equal to, for the first year of calculation, your initial Purchase
Payment, or for each subsequent year of calculation, the income benefit
base on the prior contract anniversary, and;
(b) is equal to the total of all Purchase Payments made to the contract
since the last contract anniversary, and;
(c) is equal to all withdrawals and applicable fees and charges since the
last contract anniversary, in an amount proportionate to the amount by
which such withdrawals decreased your contract value.
ELECTING TO RECEIVE INCOME PAYMENTS
You may elect to begin the Income Phase of your contract using the Income
Protector feature ONLY within the 30 days after the seventh or later contract
anniversary.
The contract anniversary prior to your election to begin receiving income
payments is your income benefit date. This is the date as of which we calculate
your income benefit base to use in determining your guaranteed minimum fixed
retirement income. Your final income benefit base is equal to (a) minus (b)
where:
(a) is equal to your income benefit base as of your income benefit date,
and;
(b) is equal to any partial withdrawals of contract value and any charges
applicable to those withdrawals and any withdrawal charges otherwise
applicable, calculated as if you fully surrender your contract as the
income benefit date, and any applicable premium taxes.
To arrive at the minimum guaranteed retirement income available to you we apply
your final income benefit base to the annuity rates stated in your Income
Protector endorsement for the income option you select. You then choose if you
would like to receive that income annually, semi-annually quarterly or monthly
for the time guaranteed under your selected income option. The income options
available when using the Income Protector feature to receive your retirement
income are:
- Life Annuity with 10 Years Guaranteed, or
- Joint and Survivor Life Annuity with 20 Years Guaranteed
At the time you elect to begin receiving income payments, we will calculate your
annual income using both your income benefit base and your contract value. We
will use the same income option for each calculation, however, the annuity
16
<PAGE> 59
factors used to calculate your income under the Income Protector feature will be
different. You will receive whichever provides a greater stream of income. If
you elect to receive income payments using the Income Protector feature your
income payments will be fixed in amount. You are not required to use the Income
Protector feature to receive income payments.
NOTE TO QUALIFIED CONTRACT HOLDERS
Qualified contracts generally require that you select an income option which
does not exceed your life expectancy. That restriction, if it applies to you,
may limit your ability to use the Income Protector feature.
You may wish to consult your tax advisor for information concerning your
particular circumstances.
HYPOTHETICAL EXAMPLE OF THE OPERATION OF THE INCOME PROTECTOR FEATURE
This table assumes $100,000 initial investment in a Non-qualified contract with
no withdrawals, additional Purchase Payments or premium taxes.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Minimum annual income if you elect to receive income payments
If at issue on contract anniversary . . .
you are . . . 7 10 15 20
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Male age 60* 6,108 6,672 7,716 8,832
- -------------------------------------------------------------------------------------------------------------
Female age 60* 5,388 5,880 6,900 8,112
- -------------------------------------------------------------------------------------------------------------
Joint** 4,716 5,028 5,544 5,928
Male-60
Female-60
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Life annuity with 10 years guaranteed
** Joint and survivor life annuity with 20 years guaranteed
- ----------------------------------------------------------------
- ----------------------------------------------------------------
TAXES
- ----------------------------------------------------------------
- ----------------------------------------------------------------
NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL DISCUSSION OF
THE SUBJECT. IT IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK COMPETENT TAX ADVICE
ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX STATUS OF YOUR
ANNUITY. TAX LAWS CONSTANTLY CHANGE, THEREFORE WE CANNOT GUARANTEE THAT THE
INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the tax
treatment of annuity contracts. Generally, taxes on the earnings in your annuity
contract are deferred until you take the money out. Qualified retirement
investments automatically provide tax deferral regardless of whether the
underlying contract is an annuity. Different rules apply depending on how you
take the money out and whether your contract is Qualified or Non-qualified.
If you do not purchase your contract under a pension plan, a specially sponsored
employer program or an individual retirement account, your contract is referred
to as a Non-qualified contract. A Non-qualified contract receives different tax
treatment than a Qualified contract. In general, your cost basis in a
Non-qualified contract is equal to the Purchase Payments you put into the
contract. You have already been taxed on the cost basis in your contract.
If you purchase your contract under a pension plan, a specially sponsored
employer program or as an individual retirement account, your contract is
referred to as a Qualified contract. Examples of qualified plans are: Individual
Retirement Accounts ("IRAs"), Roth IRAs, Tax-Sheltered Annuities (referred to as
403(b) contracts), H.R. 10 Plans (referred to as Keogh Plans) and pension and
profit sharing plans, including 401(k) plans. Typically you have not paid any
tax on the Purchase Payments used to buy your contract and therefore, you have
no cost basis in your contract.
TAX TREATMENT OF DISTRIBUTIONS -
NON-QUALIFIED CONTRACTS
If you make a withdrawal from a Non-qualified contract, the IRC treats such a
withdrawal as first coming from the earnings and then as coming from your
Purchase Payments. For income payments, any portion of each payment that is
considered a return of your Purchase Payment will not be taxed. Withdrawn
earnings are treated as income to you and are taxable. The IRC provides for a
10% penalty tax on any earnings that are withdrawn other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2;
17
<PAGE> 60
(2) when paid to your Beneficiary after you die; (3) after you become disabled
(as defined in the IRC); (4) when paid in a series of substantially equal
installments made for your life or for the joint lives of you and you
Beneficiary; (5) under an immediate annuity; or (6) which come from Purchase
Payments made prior to August 14, 1982.
TAX TREATMENT OF DISTRIBUTIONS - QUALIFIED CONTRACTS
Generally, you have not paid any taxes on the Purchase Payments used to buy a
Qualified contract. Any amount of money you take out as a withdrawal or as
income payments is taxable income. The IRC further provides for a 10% penalty
tax on any withdrawal or income payment paid to you other than in conjunction
with the following circumstances: (1) after reaching age 59 1/2; (2) when paid
to your Beneficiary after you die; (3) after you become disabled (as defined in
the IRC); (4) in a series of substantially equal installments made for your life
or for the joint lives of you and your Beneficiary; (5) to the extent such
withdrawals do not exceed limitations set by the IRC for amounts paid during the
taxable year for medical care; (6) to fund higher education expenses (as defined
in IRC); (7) to fund certain first-time home purchase expenses; and, except in
the case of an IR; (8) when you separate from service after attaining age 55;
and (9) when paid to an alternate payee pursuant to a qualified domestic
relations order.
The IRC limits the withdrawal of Purchase Payments from certain Tax-Sheltered
Annuities. Withdrawals can only be made when an owner: (1) reaches age 59 1/2;
(2) leaves his or her job; (3) dies; (4) becomes disabled (as defined in the
IRC); or (5) experiences a hardship (as defined in the IRC). In the case of
hardship, the owner can only withdraw Purchase Payments.
MINIMUM DISTRIBUTIONS
Generally, the IRS requires that you begin taking annual distributions from
qualified annuity contracts by April 1 of the calendar year following the later
of (1) the calendar year in which you attain age 70 1/2 or (2) the calendar year
in which you retire.
We currently waive surrender charges and MVA on withdrawals taken to meet
minimum distribution requirements. Current operational practice is to provide a
free withdrawal of the greater of the contract's maximum penalty free amount or
the required minimum distribution amount for a particular contract (but not
both).
Failure to satisfy the minimum distribution requirements may result in a tax
penalty. You should consult your tax advisor for more information.
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that each underlying Variable
Portfolios' management monitors the Variable Portfolios so as to comply with
these requirements. To be treated as a variable annuity for tax purposes, the
underlying investments must meet these requirements.
The diversification regulations do not provide guidance as to the circumstances
under which you, because of the degree of control you exercise over the
underlying investments, and not Anchor National, would be considered the owner
of the shares of the Variable Portfolios. It is unknown to what extent owners
are permitted to select investments, to make transfers among Variable Portfolios
or the number and type of Variable Portfolios owners may select from. If any
guidance is provided which is considered a new position, then the guidance would
generally be applied prospectively. However, if such guidance is considered not
to be a new position, it may be applied retroactively. This would mean you, as
the owner of the contract, could be treated as the owner of the underlying
Variable Portfolios. Due to the uncertainty in this area, we reserve the right
to modify the contract in an attempt to maintain favorable tax treatment.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PERFORMANCE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
We advertise the Cash Management Portfolio's yield and effective yield. In
addition, the other Variable Portfolios advertise total return, gross yield and
yield-to-maturity. These figures represent past performance of the Variable
Portfolios. These performance numbers do not indicate future results.
When we advertise performance for periods prior to the date the contracts were
first issued, we derive the figures from the performance of the corresponding
portfolios for the Trusts, if available. We modify these numbers to reflect
charges and expenses as if the contract was in existence during the period
stated in the advertisement. Figures calculated in this manner do not represent
actual historic performance of the particular Variable Portfolio.
Consult the SAI for more detailed information regarding the calculation of
performance data. The performance of each Variable Portfolio may also be
measured against unmanaged market indices. The indices we use include but are
not limited to the Dow Jones Industrial Average, the Standard & Poor's 500, the
Russell 1000 Growth Index, the Morgan Stanley Capital International Europe,
Australia and Far East Index ("EAFE") and the Morgan Stanley Capital
International World Index. We may compare the Variable Portfolios' performance
to that of other variable annuities with similar objectives and policies as
reported by independent ranking agencies such as Morningstar, Inc., Lipper
Analytical Services, Inc. or Variable Annuity Research & Data Service ("VARDS").
Anchor National may also advertise the rating and other information assigned to
it by independent industry ratings
18
<PAGE> 61
organizations. Some of those organizations are A.M. Best Company ("A.M. Best"),
Moody's Investor's Service ("Moody's"), Standard & Poor's Insurance Rating
Services ("S&P"), and Duff & Phelps. A.M. Best's and Moody's ratings reflect
their current opinion of our financial strength and performance in comparison to
others in the life and health insurance industry. S&P's and Duff & Phelps'
ratings measure the ability of an insurance company to meet its obligations
under insurance policies it issues. These two ratings do not measure the
insurer's ability to meet non-policy obligations. Ratings in general do not
relate to the performance of the Variable Portfolios.
- ----------------------------------------------------------------
- ----------------------------------------------------------------
OTHER INFORMATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
ANCHOR NATIONAL
Anchor National is a stock life insurance company originally organized under the
laws of the state of California in April 1965. On January 1, 1996, Anchor
National redomesticated under the laws of the state of Arizona.
Anchor National and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, CalAmerica Life Insurance Company, SunAmerica
National Life Insurance Company, SunAmerica Asset Management Corp., Resources
Trust Company, and the SunAmerica Financial Network, Inc. broker-dealers,
specialize in retirement savings and investment products and services. Business
focuses include fixed and variable annuities, mutual funds, broker-dealer
services and trust administration services.
THE SEPARATE ACCOUNT
Anchor National established Variable Separate Account ("separate account"),
under Arizona law on January 1, 1996 when it assumed the separate account,
originally established under California law on June 25, 1981. The separate
account is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940, as amended.
Anchor National owns the assets in the separate account. However, the assets in
the separate account are not chargeable with liabilities arising out of any
other business conducted by Anchor National. Income gains and losses (realized
and unrealized) resulting from assets in the separate account are credited to or
charged against the separate account without regard to other income gains or
losses of Anchor National.
THE GENERAL ACCOUNT
Money allocated to the fixed account options goes into Anchor National's general
account. The general account consists of all of Anchor National's assets other
than assets attributable to a separate account. All of the assets in the general
account are chargeable with the claims of any Anchor National contract holders
as well as all of its creditors. The general account funds are invested as
permitted under state insurance laws.
DISTRIBUTION OF THE CONTRACT
Registered representatives of broker-dealers sell the contract. We pay
commissions to these representatives for the sale of the contracts. We do not
expect the total commissions to exceed 7% of your Purchase Payments. We may also
pay a bonus to representatives for contracts which stay active for a particular
period of time, in addition to standard commissions. We do not deduct
commissions paid to registered representatives directly from your Purchase
Payments.
From time to time, we may pay or allow additional promotional incentives in the
form of cash or other compensation. We reserve the right to offer these
additional incentives only to certain broker-dealers that sell or are expected
to sell, certain minimum amounts of the contract, or other contracts offered by
us. Promotional incentives may change at any time.
SunAmerica Capital Services, Inc., 733 Third Avenue, 4th Floor, New York, New
York 10017 distributes the contracts. SunAmerica Capital Services, an affiliate
of Anchor National, is registered as a broker-dealer under the Exchange Act of
1934 and is a member of the National Association of Securities Dealers, Inc. No
underwriting fees are paid in connection with the distribution of the contracts.
ADMINISTRATION
We are responsible for the administrative servicing of your contract. Please
contact our Annuity Service Center
at 1-800-445-SUN2, if you have any comment, question or service request.
We send out transaction confirmations and quarterly statements. It is your
responsibility to review these documents carefully and notify us of any
inaccuracies immediately. We investigate all inquiries. To the extent that we
believe we made an error, we retroactively adjust your contract, provided you
notify us within 30 days of receiving the transaction confirmation or quarterly
statement. Any other adjustments we deem warranted are made as of the time we
receive notice of the error.
YEAR 2000
We rely significantly on computer systems and applications in our daily
operations. Many of our systems are not presently year 2000 compliant, which
means that because they have historically used only two digits to identify the
year in a date, they will fail to distinguish dates in the "2000s" from dates in
the "1900s." Anchor National's business, financial condition and results of
operations could be materially and adversely affected by the failure of our
systems and applications (and those operated by third parties interfacing with
our systems and applications) to properly operate or manage these dates.
19
<PAGE> 62
Anchor National has a coordinated plan to repair or replace these noncompliant
systems and to obtain similar assurances from third parties interfacing with our
systems and applications. In fiscal 1997, the Company's parent recorded a $15.0
million provision for estimated programming costs to make necessary repairs of
certain specific noncompliant systems, of which $6.2 million was allocated to
Anchor National. In addition, the Company's parent is making expenditures which
it expects will ultimately total $12.3 million to replace certain other
noncompliant systems. Of these expenditures approximately $5.0 million will be
allocated to Anchor National. Total expenditures relating to the replacement of
noncompliant systems will be capitalized as software costs and will be amortized
over future periods. Both phases of the project are progressing according to
plan and were substantially completed by the end of calendar 1998. Testing of
both the repaired and replacement systems is expected to be substantially
completed by July 31, 1999. However, Anchor National will continue to test all
of its computer systems and applications through 1999 to ensure continued
compliance.
In addition, we distributed a year 2000 questionnaire to our significant
suppliers, distributors, financial institutions, lessors and others we do
business with to evaluate their year 2000 compliance plans and state of
readiness and to determine how our systems and applications may be affected by
their failure to solve their own year 2000 issues. To date, however, we have
only received preliminary feedback from such parties and have not independently
confirmed any information received from other parties with respect to the year
2000 issues. Therefore, we cannot assure that such other parties will complete
their year 2000 conversions in a timely fashion or will not suffer a year 2000
business disruption that may adversely affect our financial condition and
results of operations.
Because we expect to complete our year 2000 conversion prior to any potential
disruption to our business, we have not developed a comprehensive year 2000
contingency plan. Anchor National closely monitors the progression of its plan
for compliance, and if necessary, would devote additional resources to assure
the timely completion of our year 2000 plan. If we determine that our business
is at material risk of disruption due to the year 2000 issue or anticipate that
we will not complete our year 2000 conversion in a timely fashion, we will work
to enhance our contingency plans.
The above statements are forward-looking. The costs of our year 2000 conversion,
the date which we have set to complete such conversion and the possible risks
associated with the year 2000 issue are based on our current estimates and are
subject to various uncertainties that could cause the actual results to differ
materially from our expectations. Such uncertainties include, among others, our
success in identifying systems and applications that are not year 2000
compliant, the nature and amount of programming required to upgrade or replace
each of the affected systems and applications, the availability of qualified
personnel, consultants and other resources, and the success of the year 2000
conversion efforts of others.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the separate account. Anchor
National and its subsidiaries engage in various kinds of routine litigation. In
management's opinion, these matters are not of material importance to their
respective total assets nor are they material with respect to the separate
account.
OWNERSHIP
The PolarisII Variable Annuity is a Flexible Payment Group Deferred Annuity
contract. We issue a group contract to a contract holder for the benefit of the
participants in the group. As a participant in the group, you will receive a
certificate which evidences your ownership. As used in this prospectus, the term
contract refers to your certificate. In some states, a Flexible Payment
Individual Modified Guaranteed and Variable Deferred Annuity contract is
available instead. Such a contract is identical to the contract described in
this prospectus, with the exception that we issue it directly to the owner.
CUSTODIAN
State Street Bank and Trust Company, 255 Franklin Street, Boston, Massachusetts
02110, serves as the custodian of the assets of the separate account. Anchor
National pays State Street Bank for services provided, based on a schedule of
fees.
INDEPENDENT ACCOUNTANTS
The financial statements of Anchor National as of September 30, 1998 and 1997
and for each of the three years in the period ended September 30, 1998
incorporated by reference in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
A registration statement has been filed with the SEC under the Securities Act of
1933 relating to the contract. This prospectus does not contain all the
information in the registration statement as permitted by SEC regulations. The
omitted information can be obtained from the SEC's principal office in
Washington, D.C., upon payment of a prescribed fee.
20
<PAGE> 63
- ----------------------------------------------------------------
- ----------------------------------------------------------------
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Additional information concerning the operations of the separate account is
contained in a Statement of Additional Information ("SAI"), which is available
without charge upon written request addressed to us at our Annuity Service
Center, P.O. Box 54299, Los Angeles, California 90054-0299 or by calling (800)
445-SUN2. The contents of the SAI are tabulated below.
<TABLE>
<S> <C>
Separate Account.............................. 3
General Account............................... 3
Performance Data.............................. 4
Income Payments............................... 10
Annuity Unit Values........................... 11
Taxes......................................... 14
Distribution of Contracts..................... 17
Financial Statements.......................... 18
</TABLE>
21
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A - CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCEPTION TO FISCAL YEAR
PORTFOLIOS 11/30/97 11/30/98
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Capital Appreciation (Inception Date - 6/3/97)
Beginning AUV.................................. $ 18.52 $ 21.26
Ending AUV..................................... $ 21.26 $ 23.72
Ending Number of AUs........................... 1,392,262 7,356,862
- -------------------------------------------------------------------------------------------
Growth (Inception Date - 6/3/97)
Beginning AUV.................................. $ 17.93 $ 20.31
Ending AUV..................................... $ 20.31 $ 24.41
Ending Number of AUs........................... 789,274 3,678,108
- -------------------------------------------------------------------------------------------
Natural Resources (Inception Date - 6/4/97)
Beginning AUV.................................. $ 12.39 $ 11.14
Ending AUV..................................... $ 11.14 $ 9.30
Ending Number of AUs........................... 195,946 641,479
- -------------------------------------------------------------------------------------------
Government and Quality Bond (Inception Date - 6/11/97)
Beginning AUV.................................. $ 11.99 $ 12.65
Ending AUV..................................... $ 12.65 $ 13.66
Ending Number of AUs........................... 395,258 5,697,571
- -------------------------------------------------------------------------------------------
Emerging Markets (Inception Date - 6/5/97)
Beginning AUV.................................. $ 10.14 $ 7.97
Ending AUV..................................... $ 7.97 $ 6.14
Ending Number of AUs........................... 663,212 2,574,316
- -------------------------------------------------------------------------------------------
International Diversified Equities (Inception Date - 6/4/97)
Beginning AUV.................................. $ 12.04 $ 11.62
Ending AUV..................................... $ 11.62 $ 13.53
Ending Number of AUs........................... 1,040,812 4,519,545
- -------------------------------------------------------------------------------------------
Global Equities (Inception Date - 6/3/97)
Beginning AUV.................................. $ 16.54 $ 16.90
Ending AUV..................................... $ 16.90 $ 19.21
Ending Number of AUs........................... 600,294 2,566,912
- -------------------------------------------------------------------------------------------
International Growth and Income (Inception Date - 6/4/97)
Beginning AUV.................................. $ 9.97 $ 10.33
Ending AUV..................................... $ 10.33 $ 11.16
Ending Number of AUs........................... 1,310,126 6,738,263
- -------------------------------------------------------------------------------------------
Aggressive Growth (Inception Date - 6/9/97)
Beginning AUV.................................. $ 10.03 $ 11.51
Ending AUV..................................... $ 11.51 $ 11.86
Ending Number of AUs........................... 821,105 2,794,187
- -------------------------------------------------------------------------------------------
MFS Mid-Cap Growth (Inception Date - 4/1/99
Beginning AUV.................................. $ -- $ --
Ending AUV..................................... $ -- $ --
Ending Number of AUs........................... -- --
- -------------------------------------------------------------------------------------------
Real Estate (Inception Date - 6/4/97)
Beginning AUV.................................. $ 9.98 $ 11.44
Ending AUV..................................... $ 11.44 $ 9.80
Ending Number of AUs........................... 887,321 3,336,767
- -------------------------------------------------------------------------------------------
Putnam Growth (Inception Date - 6/3/97)
Beginning AUV.................................. $ 15.80 $ 18.47
Ending AUV..................................... $ 18.47 $ 22.29
Ending Number of AUs........................... 831,178 4,949,624
- -------------------------------------------------------------------------------------------
MFS Growth and Income* (Inception Date - 6/4/97)
Beginning AUV.................................. $ 15.82 $ 17.63
Ending AUV..................................... $ 17.63 $ 20.46
Ending Number of AUs........................... 191,101 694,076
- -------------------------------------------------------------------------------------------
Alliance Growth (Inception Date - 6/2/97)
Beginning AUV.................................. $ 21.81 $ 24.51
Ending AUV..................................... $ 24.51 $ 32.81
Ending Number of AUs........................... 2,092,044 12,001,651
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
* Formerly named Growth/Phoenix and managed by Phoenix Investment
Counsel, Inc.
AUV - Accumulation Unit Value
AU - Accumulation Units
A-1
<PAGE> 65
<TABLE>
<CAPTION>
INCEPTION TO FISCAL YEAR
PORTFOLIOS 11/30/97 11/30/98
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
<S> <C> <C>
"Dogs of Wall Street" (Inception Date - 4/1/98)
Beginning AUV.................................. $ -- $ 10.00
Ending AUV..................................... $ -- $ 9.71
Ending Number of AUs........................... -- 4,324,225
- -------------------------------------------------------------------------------------------
Venture Value (Inception Date - 6/2/97)
Beginning AUV.................................. $ 18.63 $ 21.30
Ending AUV..................................... $ 21.30 $ 23.36
Ending Number of AUs........................... 4,281,879 20,734,371
- -------------------------------------------------------------------------------------------
Federated Value (Inception Date - 6/4/97)
Beginning AUV.................................. $ 12.14 $ 13.62
Ending AUV..................................... $ 13.62 $ 15.86
Ending Number of AUs........................... 736,333 3,783,248
- -------------------------------------------------------------------------------------------
Growth-Income (Inception Date - 6/3/97)
Beginning AUV.................................. $ 18.84 $ 21.41
Ending AUV..................................... $ 21.41 $ 25.71
Ending Number of AUs........................... 1,949,292 9,786,202
- -------------------------------------------------------------------------------------------
Utility (Inception Date - 6/6/97)
Beginning AUV.................................. $ 11.41 $ 12.74
Ending AUV..................................... $ 12.74 $ 14.56
Ending Number of AUs........................... 177,618 1,807,529
- -------------------------------------------------------------------------------------------
Asset Allocation (Inception Date - 6/3/97)
Beginning AUV.................................. $ 16.59 $ 17.98
Ending AUV..................................... $ 17.98 $ 18.22
Ending Number of AUs........................... 1,498,681 8,996,522
- -------------------------------------------------------------------------------------------
MFS Total Return** (Inception Date - 6/10/97)
Beginning AUV.................................. $ 14.44 $ 15.45
Ending AUV..................................... $ 15.45 $ 17.28
Ending Number of AUs........................... 218,391 1,492,175
- -------------------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date - 6/5/97)
Beginning AUV.................................. $ 11.84 $ 13.22
Ending AUV..................................... $ 13.22 $ 15.60
Ending Number of AUs........................... 363,136 3,543,245
- -------------------------------------------------------------------------------------------
Worldwide High Income (Inception Date - 6/5/97)
Beginning AUV.................................. $ 15.57 $ 15.98
Ending AUV..................................... $ 15.98 $ 13.57
Ending Number of AUs........................... 596,308 2,430,509
- -------------------------------------------------------------------------------------------
High-Yield Bond (Inception Date - 6/9/97)
Beginning AUV.................................. $ 13.63 $ 14.66
Ending AUV..................................... $ 14.66 $ 14.25
Ending Number of AUs........................... 758,856 5,006,115
- -------------------------------------------------------------------------------------------
Corporate Bond (Inception Date - 6/9/97)
Beginning AUV.................................. $ 11.83 $ 12.54
Ending AUV..................................... $ 12.54 $ 13.15
Ending Number of AUs........................... 328,300 3,633,064
- -------------------------------------------------------------------------------------------
Global Bond (Inception Date - 6/11/97)
Beginning AUV.................................. $ 12.41 $ 13.08
Ending AUV..................................... $ 13.08 $ 14.40
Ending Number of AUs........................... 183,563 1,342,157
- -------------------------------------------------------------------------------------------
Cash Management (Inception Date - 6/5/97)
Beginning AUV.................................. $ 11.24 $ 11.43
Ending AUV..................................... $ 11.43 $ 11.83
Ending Number of AUs........................... 1,514,290 5,488,046
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
** Formerly named Balanced/Phoenix and managed by Phoenix
Investment Counsel, Inc.
AUV - Accumulation Unit Value
AU - Accumulation Units
A-2
<PAGE> 66
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX B - MARKET VALUE ADJUSTMENT ("MVA")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The MVA reflects the impact that changing interest rates have on the value of
money invested at a fixed interest rate. The longer the period of time remaining
in the term you initially agreed to leave your money in the fixed account
option, the greater the impact of changing interest rates. The impact of the MVA
can be either positive or negative, and is computed by multiplying the amount
withdrawn, transferred or switched to the Income Phase by the following factor:
(N/12)
[(1+I/(1+J+0.005)] - 1
The MVA formula may differ in certain states
where:
I is the interest rate you are earning on the money invested in the
fixed account option;
J is the interest rate then currently available for the period of time
equal to the number of years remaining in the term you initially agreed
to leave your money in the fixed account option; and
N is the number of full months remaining in the term you initially
agreed to leave your money in the fixed account option.
EXAMPLES OF THE MVA
The examples below assume the following:
(1) You made an initial Purchase Payment of $10,000 and allocated it to the
10-year fixed account option at a rate of 5%;
(2) You make a partial withdrawal of $4,000 when 1 1/2 years (18 months)
remain in the 10-year term you initially agreed to leave your money in
the fixed account option (N=18); and
(3) You have not made any other transfers, additional Purchase Payments, or
withdrawals.
No withdrawal charges are reflected because your Purchase Payment has been in
the contract for seven full years. If a withdrawal charge applies, it is
deducted before the MVA. The MVA is assessed on the amount withdrawn less any
withdrawal charges.
POSITIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for a new
Purchase Payments in the 1-year fixed account option is 3.5% and the 3-year
fixed account option is 4.5%. By linear interpolation, the interest rate for the
remaining 2 years (1 1/2 years rounded up to the next full year) in the contract
is calculated to be 4%.
(N/12)
The MVA factor is = [(1+I/(1+J+0.005)] - 1
(18/12)
= [(1.05)/(1.04+0.005)] - 1
(1.5)
= (1.004785) - 1
= 1.007186 - 1
= + 0.007186
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 x (+0.007186) = +$28.74
$28.74 represents the MVA that would be added to your withdrawal.
NEGATIVE ADJUSTMENT
Assume that on the date of withdrawal, the interest rate in effect for new
Purchase Payments in the 1-year fixed account option is 5.5% and the 3-year
fixed account option is 6.5%. By linear interpolation, the interest rate for the
remaining 2 years (1 1/2 years rounded up to the next full year) in the contract
is calculated to be 6%.
(N/12)
The MVA factor is = [(1+I)/(1+J+0.005)] - 1
(18/12)
= [(1.05)/(1.06+0.005)] - 1
(1.5)
= (0.985915) - 1
= 0.978948 - 1
= - 0.021052
The requested withdrawal amount is multiplied by the MVA factor to determine the
MVA:
$4,000 X (- 0.021052) = -$84.21
$84.21 represents the MVA that will be deducted from the money remaining in the
10-year fixed account option.
B-1
<PAGE> 67
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX C - PREMIUM TAXES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Premium taxes vary according to the state and are subject to change without
notice. In many states, there is no tax at all. Listed below are the current
premium tax rates in those states that assess a premium tax. For current
information, you should consult your tax adviser.
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
STATE CONTRACT CONTRACT
<S> <C> <C>
========================================================================================
California .50% 2.35%
- ----------------------------------------------------------------------------------------
Kentucky 2% 2%
- ----------------------------------------------------------------------------------------
Maine 0% 2%
- ----------------------------------------------------------------------------------------
Nevada 0% 3.5%
- ----------------------------------------------------------------------------------------
South Dakota 0% 1.25%
- ----------------------------------------------------------------------------------------
West Virginia 1% 1%
- ----------------------------------------------------------------------------------------
Wyoming 0% 1%
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
C-1
<PAGE> 68
- --------------------------------------------------------------------------------
Please forward a copy (without charge) of the Polaris(II) Variable Annuity
Statement of Additional Information to:
(Please print or type and fill in all information.)
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City/State/Zip
<TABLE>
<S> <C> <C> <C>
Date: ------------------------------------ Signed: ---------------------------------------
</TABLE>
Return to: Anchor National Life Insurance Company, Annuity Service Center,
P.O. Box 52499, Los Angeles, California 90054-0299
- --------------------------------------------------------------------------------
<PAGE> 69
STATEMENT OF ADDITIONAL INFORMATION
FLEXIBLE PAYMENT DEFERRED ANNUITY CONTRACTS
ISSUED BY
ANCHOR NATIONAL LIFE INSURANCE COMPANY
IN CONNECTION WITH
VARIABLE SEPARATE ACCOUNT
This Statement of Additional Information is not a prospectus; it should be read
with the prospectus, dated June 28, 1999, relating to the annuity contracts
described above. A copy of the prospectus may be obtained without charge by
calling (800) 445-SUN2 or writing us at:
ANCHOR NATIONAL LIFE INSURANCE COMPANY
ANNUITY SERVICE CENTER
P.O. BOX 54299
LOS ANGELES, CALIFORNIA 90054-0299
June 28, 1999
<PAGE> 70
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Separate Account 3
General Account 3
Performance Data 4
Income Payments 10
Annuity Unit Values 11
Taxes 14
Distribution of Contracts 17
Financial Statements 18
</TABLE>
<PAGE> 71
SEPARATE ACCOUNT
Variable Separate Account was originally established by Anchor National
Life Insurance Company (the "Company") on June 25, 1981, pursuant to the
provisions of California law, as a segregated asset account of the Company. The
separate account meets the definition of a "separate account" under the federal
securities laws and is registered with the Securities and Exchange Commission
(the "SEC") as a unit investment trust under the Investment Company Act of 1940.
This registration does not involve supervision of the management of the separate
account or the Company by the SEC.
The assets of the separate account are the property of the Company.
However, the assets of the separate account, equal to its reserves and other
contract liabilities, are not chargeable with liabilities arising out of any
other business the Company may conduct. Income, gains, and losses, whether or
not realized, from assets allocated to the separate account are credited to or
charged against the separate account without regard to other income, gains, or
losses of the Company.
The separate account is divided into Variable Portfolios, with the
assets of each Variable Portfolio invested in the shares of one of the
underlying funds. The Company does not guarantee the investment performance of
the separate account, its Variable Portfolios or the underlying funds. Values
allocated to the separate account and the amount of variable Income Payments
will vary with the values of shares of the underlying funds, and are also
reduced by contract charges.
The basic objective of a variable annuity contract is to provide
variable Income Payments which will be to some degree responsive to changes in
the economic environment, including inflationary forces and changes in rates of
return available from various types of investments. The contract is designed to
seek to accomplish this objective by providing that variable Income Payments
will reflect the investment performance of the separate account with respect to
amounts allocated to it both before and after the Annuity Date. Since the
separate account is always fully invested in shares of the underlying funds, its
investment performance reflects the investment performance of those entities.
The values of such shares held by the separate account fluctuate and are subject
to the risks of changing economic conditions as well as the risk inherent in the
ability of the underlying funds' managements to make necessary changes in their
funds to anticipate changes in economic conditions. Therefore, the owner bears
the entire investment risk that the basic objectives of the contract may not be
realized, and that the adverse effects of inflation may not be lessened. There
can be no assurance that the aggregate amount of variable Income Payments will
equal or exceed the Purchase Payments made with respect to a particular account
for the reasons described above, or because of the premature death of an
Annuitant.
Another important feature of the contract related to its basic objective
is the Company's promise that the dollar amount of variable Income Payments made
during the lifetime of the Annuitant will not be adversely affected by the
actual mortality experience of the Company or by the actual expenses incurred by
the Company in excess of expense deductions provided for in the contract
(although the Company does not guarantee the amounts of the variable Income
Payments).
GENERAL ACCOUNT
The general account is made up of all of the general assets of the
Company other than those
<PAGE> 72
allocated to the separate account or any other segregated asset account of the
Company. A Purchase Payment may be allocated to the 1, 3, 5, 7 or 10 year fixed
account options and the DCA accounts for 6-month and 1-year periods available in
connection with the general account, as elected by the owner at the time of
purchasing a contract or when making a subsequent Purchase Payment. Assets
supporting amounts allocated to fixed account options become part of the
Company's general account assets and are available to fund the claims of all
classes of customers of the Company, as well as of its creditors. Accordingly,
all of the Company's assets held in the general account will be available to
fund the Company's obligations under the contracts as well as such other claims.
The Company will invest the assets of the general account in the manner
chosen by the Company and allowed by applicable state laws regarding the nature
and quality of investments that may be made by life insurance companies and the
percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit investments, within specified limits
and subject to certain qualifications, in federal, state and municipal
obligations, corporate bonds, preferred and common stocks, real estate
mortgages, real estate and certain other investments.
PERFORMANCE DATA
From time to time the separate account may advertise the Cash Management
Portfolio's "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 Portfolio refers to the net income generated for
a contract funded by an investment in the Cash Management Portfolio (which
invests in shares of the Cash Management Portfolio of SunAmerica Series Trust)
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 Portfolio 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 any withdrawal charges. The impact of
other recurring charges (including the mortality and expense risk charge,
distribution expense charge and contract maintenance fee) 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.
In addition, the separate account may advertise "total return" data for
its other Variable Portfolios. 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 Portfolio 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 Portfolio.
For periods starting prior to the date the contracts were first offered
to the public, the total return data for the Variable Portfolios of the separate
account will be derived from the performance of the
<PAGE> 73
corresponding underlying funds of Anchor Series Trust and SunAmerica Series
Trust, modified to reflect the charges and expenses as if the contract had been
in existence since the inception date of each respective Anchor Series Trust and
SunAmerica Series Trust underlying fund. In some cases a particular Variable
Portfolio may have been available in another contract funded through this
separate account. If the Variable Portfolio was incepted in this separate
account prior to the offering of this contract, we report standardized contract
performance adjusted for the fees and charges on this contract. Performance
figures similarly adjusted but based on underlying SunAmerica Series Trust or
Anchor Series Trust performance (outside of this separate account) should not be
construed to be actual historical performance of the relevant separate account
Variable Portfolio. Rather, they are intended to indicate the historical
performance of the corresponding underlying funds of Anchor Series Trust and
SunAmerica Series Trust, adjusted to provide direct comparability to the
performance of the Variable Portfolios after the date the contracts were first
offered to the public (which will reflect the effect of fees and charges imposed
under the contracts). Anchor Series Trust and SunAmerica Series Trust have
served since their inception as underlying investment media for separate
accounts of other insurance companies in connection with variable contracts not
having the same fee and charge schedules as those imposed under the contracts.
Performance data for the various Variable Portfolios are computed in the
manner described below.
CASH MANAGEMENT PORTFOLIO
For contracts without the Principal Rewards Program, the annualized
current yield and the effective yield for the Cash Management Portfolio for the
7 day period ending November 30, 1998 were 2.97% and 3.02%, respectively. For
contracts with the Principal Rewards Program, the annualized current yield and
the effective yield for the Cash Management Portfolio for the 7 day period
ending November 30, 1998 were 5.07% and 5.20%, respectively.
Current yield is computed by first determining the Base Period
Return attributable to a hypothetical contract having a balance of one
Accumulation Unit at the beginning of a 7 day period using the formula:
For contracts without the Principal Rewards Program:
Base Period Return = (EV-SV-CMF)/(SV)
For contracts with the Principal Rewards Program:
Base Period Return = (EV-SV-CMF+E)/(SV)
where:
SV = value of one Accumulation Unit at the start of a 7 day
period
EV = value of one Accumulation Unit at the end of the 7 day
period
CMF = an allocated portion of the $35 annual contract
maintenance fee, prorated for 7 days
<PAGE> 74
E = Premium Enhancement Rate, prorated for 7 days.
The change in the value of an Accumulation Unit during the 7 day period
reflects the income received, minus any expenses accrued, during such 7 day
period. The Contract Maintenance Fee (CMF) is first allocated among the Variable
Portfolios and the general account so that each Variable Portfolio's allocated
portion of the charge is proportional to the percentage of the number of
contract owners' accounts that have money allocated to that Variable Portfolio.
The portion of the charge allocable to the Cash Management Portfolio is further
reduced, for purposes of the yield computation, by multiplying it by the ratio
that the value of the hypothetical contract bears to the value of an account of
average size for contracts funded by the Cash Management Portfolio. Finally, the
result is multiplied by the fraction 7/365 to arrive at the portion attributable
to the 7 day period.
The current yield is then obtained by annualizing the Base Period
Return:
Current Yield = (Base Period Return) x (365/7)
The Cash Management Portfolio also quotes an "effective yield" that
differs from the current yield given above in that it takes into account the
effect of dividend reinvestment in the underlying fund. The effective yield,
like the current yield, is derived from the Base Period Return over a 7 day
period. However, the effective yield accounts for dividend reinvestment by
compounding the current yield according to the formula:
Effective Yield = [(Base Period Return + 1)365/7 - 1]
The yield quoted should not be considered a representation of the yield
of the Cash Management Portfolio in the future since the yield is not fixed.
Actual yields will depend on the type, quality and maturities of the investments
held by the underlying fund and changes in interest rates on such investments.
Yield information may be useful in reviewing the performance of the Cash
Management Portfolio and for providing a basis for comparison with other
investment alternatives. However, the Cash Management Portfolio's yield
fluctuates, unlike bank deposits or other investments that typically pay a fixed
yield for a stated period of time.
OTHER VARIABLE PORTFOLIOS
The Variable Portfolios of the separate account other than the Cash
Management Portfolio compute their performance data as "total return."
The total returns since each Variable Portfolio's inception date, for a
1-year period and, if applicable, for a 5-year period, are shown on the
following two pages, both with and without an assumed complete redemption at the
end of the stated period. Total returns for contracts without the Principal
Rewards Program are on page 8 and total returns for contracts with the Principal
Rewards Program are on page 9.
<PAGE> 75
Standardized performance for the Variable Portfolios available in this
contract reflect total returns using the method of computation discussed below:
- - Using the seven year surrender charge schedule available on contracts issued
without the Principal Rewards Program. No enhancement is reflected under the
calculation, as the Payment Enhancement is not available unless the Principal
Rewards Program is elected; AND
- - Using the nine year surrender charge schedule available on contracts issued
with the Principal Rewards Program, including the minimum Initial Payment
Enhancement of 2% of Purchase Payments and calculating the value after
redemption only based on the initial $1,000 Purchase Payment.
- - We may, from time to time, advertise other variations of performance along
with the standardized performance as described above. We may, in sales
literature, show performance only applicable to one surrender charge schedule to
a contract holder who has already purchased the contract with or without the
Principal Rewards Program.
<PAGE> 76
CONTRACTS WITHOUT THE PRINCIPAL REWARDS PROGRAM:
TOTAL ANNUAL RETURN (IN PERCENT) FOR
PERIOD ENDING NOVEMBER 30, 1998
(RETURN WITH/WITHOUT REDEMPTION)
<TABLE>
<CAPTION>
INCEPTION SINCE
VARIABLE PORTFOLIO DATE 1 YEAR 5 YEAR INCEPTION
------------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Capital Appreciation 2/12/93 4.53/11.53 15.93/16.26 15.81/15.98
Growth 2/19/93 13.11/20.11 17.38/17.69 16.44/16.61
Natural Resources 10/31/94 -23.67/-16.67 N/A -2.71/-1.92
Government & Quality Bond 2/22/93 0.91/7.91 5.24/5.72 5.23/5.50
Aggressive Growth 6/3/96 -4.02/2.98 N/A 5.19/7.03
MFS Mid-Cap Growth 4/5/99 N/A N/A N/A
International Diversified Equities 10/31/94 9.42/16.42 N/A 6.99/7.58
Global Equities 2/9/93 6.53/13.53 11.62/12.00 11.59/11.79
Putnam Growth 2/9/93 13.60/20.60 17.20/17.51 14.53/14.71
MFS Growth and Income* 2/9/93 8.96/15.96 13.53/13.89 12.84/13.03
Alliance Growth 2/9/93 26.82/33.82 24.63/24.88 22.50/22.63
"Dogs" of Wall Street 4/1/98 N/A N/A -9.95/-2.95
Venture Value 10/31/94 2.63/9.63 N/A 22.65/23.04
Federated Value 6/3/96 9.39/16.39 N/A 18.76/20.29
Growth-Income 2/9/93 13.04/20.04 19.33/19.63 17.43/17.59
Utility 6/3/96 7.11/14.11 N/A 14.58/16.20
Asset Allocation 7/1/93 -5.76/1.24 11.60/11.98 11.41/11.64
MFS Total Return** 10/31/94 4.76/11.76 N/A 13.74/14.23
SunAmerica Balanced 6/3/96 10.94/17.94 N/A 17.93/19.49
Worldwide High Income 10/31/94 -22.17/-15.17 N/A 7.06/7.66
High-Yield Bond 2/9/93 -9.84/-2.84 4.80/5.30 5.96/6.22
Corporate Bond 7/1/93 -2.15/4.85 4.73/5.23 4.81/5.10
Global Bond 7/1/93 2.97/9.97 6.39/6.86 6.58/6.86
Emerging Markets 6/5/97 -30.24/-23.24 N/A -33.76/-28.91
International Growth and Income 6/4/97 0.87/7.87 N/A 3.78/7.70
Real Estate 6/4/97 -21.51/-14.51 N/A -5.45/-1.35
</TABLE>
* Formerly named Growth/Phoenix and managed by Phoenix Investment Counsel,
Inc.
** Formerly named Balanced/Phoenix and managed by Phoenix Investment Counsel.
Inc.
<PAGE> 77
Total return figures are based on historical data and are not intended to
indicate future performance.
CONTRACTS WITH THE PRINCIPAL REWARDS PROGRAM:
TOTAL ANNUAL RETURN (IN PERCENT) FOR
PERIOD ENDING NOVEMBER 30, 1998
(RETURN WITH/WITHOUT REDEMPTION)
<TABLE>
<CAPTION>
INCEPTION SINCE
VARIABLE PORTFOLIO DATE 1 YEAR 5 YEAR INCEPTION
------------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Capital Appreciation 2/12/93 4.76/13.76 16.07/16.73 15.96/16.38
Growth 2/19/93 13.51/22.51 17.54/18.16 16.60/17.01
Natural Resources 10/31/94 -24.00/-15.00 N/A -3.02/-1.44
Government & Quality Bond 2/22/93 1.07/10.07 5.18/6.14 5.19/5.86
Aggressive Growth 6/3/96 -3.96/5.04 N/A 4.96/7.89
MFS Mid-Cap Growth 4/5/99 N/A N/A N/A
International Diversified Equities 10/31/94 9.75/18.75 N/A 6.93/8.11
Global Equities 2/9/93 6.80/15.80 11.69/12.45 11.67/12.17
Putnam Growth 2/9/93 14.02/23.02 17.35/17.98 14.66/15.10
MFS Growth and Income* 2/9/93 9.28/18.28 13.63/14.34 12.94/13.42
Alliance Growth 2/9/93 27.50/36.50 24.89/25.38 22.73/23.05
"Dogs" of Wall Street 4/1/98 N/A N/A -10.01/-1.01
Venture Value 10/31/94 2.82/11.82 N/A 22.87/23.64
Federated Value 6/3/96 9.72/18.72 N/A 18.81/21.26
Growth-Income 2/9/93 13.44/22.44 19.52/20.10 17.60/17.99
Utility 6/3/96 7.39/16.39 N/A 14.55/17.13
Asset Allocation 7/1/93 -5.73/3.27 11.67/12.43 11.49/12.05
MFS Total Return** 10/31/94 4.99/13.99 N/A 13.82/14.79
SunAmerica Balanced 6/3/96 11.30/20.30 N/A 17.97/20.44
Worldwide High Income 10/31/94 -22.47/-13.47 N/A 7.01/8.18
High-Yield Bond 2/9/93 -9.90/-0.90 4.74/5.72 5.94/6.58
Corporate Bond 7/1/93 -2.06/6.94 4.66/5.65 4.75/5.49
Global Bond 7/1/93 3.17/12.17 6.36/7.28 6.57/7.25
Emerging Markets 6/5/97 -30.71/-21.71 N/A -35.24/-27.95
International Growth and Income 6/4/97 1.03/10.03 N/A 3.27/9.14
Real Estate 6/4/97 -21.80/-12.80 N/A -6.16/-0.03
</TABLE>
* Formerly named Growth/Phoenix and managed by Phoenix Investment Counsel,
Inc.
** Formerly named Balanced/Phoenix and managed by Phoenix Investment Counsel.
Inc.
<PAGE> 78
Total return figures are based on historical data and are not intended to
indicate future performance.
Total return for a Variable Portfolio represents a single computed
annual rate of return that, when compounded annually over a specified time
period (one, five, and ten years, or since inception) and applied to a
hypothetical initial investment in a contract funded by that Variable Portfolio
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. The total rate of return (T) is computed so that it satisfies the
formula:
For contracts without the Principal Rewards Program:
n
P(1+T) = ERV
For contracts with the Principal Rewards Program:
n
[P(1+E)](1+T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
E = Payment Enhancement Rate
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5, or 10 year period as of
the end of the period (or fractional portion thereof).
The total return figures reflect the effect of recurring charges, as
discussed herein. Recurring charges are taken into account in a manner similar
to that used for the yield computations for the Cash Management Portfolio,
described above. As with the Cash Management Portfolio yield figures, total
return figures are derived from historical data and are not intended to be a
projection of future performance.
INCOME PAYMENTS
INITIAL MONTHLY INCOME PAYMENTS
The initial Income Payment is determined by applying separately that
portion of the contract value allocated to the fixed account options and the
Variable Portfolio(s), less any premium tax, and then applying it to the annuity
table specified in the contract for fixed and variable Income Payments. Those
tables are based on a set amount per $1,000 of proceeds applied. The appropriate
rate must be determined by the sex (except where, as in the case of certain
Qualified contracts and other employer-sponsored retirement plans, such
classification is not permitted) and age of the Annuitant and designated second
person, if any, and the annuity option selected.
The dollars applied are then divided by 1,000 and the result multiplied
by the appropriate annuity factor appearing in the table to compute the amount
of the first monthly Income Payment. In the case of a variable annuity, that
amount is divided by the value of an Annuity Unit as of the Annuity Date to
establish the number of Annuity Units representing each variable Income Payment.
The number of
<PAGE> 79
Annuity Units determined for the first variable Income Payment remains constant
for the second and subsequent monthly variable Income Payments, assuming that no
reallocation of contract values is made.
SUBSEQUENT MONTHLY PAYMENTS
For fixed Income Payments, the amount of the second and each subsequent
monthly Income Payment is the same as that determined above for the first
monthly payment.
For variable Income Payments, the amount of the second and each
subsequent monthly Income Payment is determined by multiplying the number of
Annuity Units, as determined in connection with the determination of the initial
monthly payment, above, by the Annuity Unit value as of the day preceding the
date on which each Income Payment is due.
INCOME PAYMENTS UNDER THE INCOME PROTECTOR FEATURE
If contract holders elect to begin Income Payments using the Income
Protector feature, the income benefit base is determined as described in the
prospectus. The initial Income Payment is determined by applying the income
benefit base to the annuity table specifically designated for use in conjunction
with the Income Protector feature, either in the contract or in the endorsement
to the contract. Those tables are based on a set amount per $1,000 of income
benefit base applied. The appropriate rate must be determined by the sex (except
where, as in the case of certain Qualified contracts and other
employer-sponsored retirement plans, such classification is not permitted) and
age of the Annuitant and designated second person, if any, and the Income Option
selected.
The income benefit base is applied then divided by 1,000 and the result
multiplied by the appropriate annuity factor appearing in the table to compute
the amount of the first monthly Income Payment. The amount of the second and
each subsequent income payment is the same as that determined above for the
first monthly payment.
ANNUITY UNIT VALUES
The value of an Annuity Unit is determined independently for each
Variable Portfolio.
The annuity tables contained in the contract are based on a 3.5% per
annum assumed investment rate. If the actual net investment rate experienced by
a Variable Portfolio exceeds 3.5%, variable Income Payments derived from
allocations to that Variable Portfolio will increase over time. Conversely, if
the actual rate is less than 3.5%, variable Income Payments will decrease over
time. If the net investment rate equals 3.5%, the variable Income Payments will
remain constant. If a higher assumed investment rate had been used, the initial
monthly payment would be higher, but the actual net investment rate would also
have to be higher in order for Income Payments to increase (or not to decrease).
The payee receives the value of a fixed number of Annuity Units each
month. The value of a fixed number of Annuity Units will reflect the investment
performance of the Variable Portfolios elected, and the amount of each Income
Payment will vary accordingly.
For each Variable Portfolio, the value of an Annuity Unit is determined
by multiplying the Annuity Unit value for the preceding month by the Net
Investment Factor for the month for which the
<PAGE> 80
Annuity Unit value is being calculated. The result is then multiplied by a
second factor which offsets the effect of the assumed net investment rate of
3.5% per annum which is assumed in the annuity tables contained in the contract.
NET INVESTMENT FACTOR
The Net Investment Factor ("NIF") is an index applied to measure the net
investment performance of a Variable Portfolio from one day to the next. The NIF
may be greater or less than or equal to one; therefore, the value of an Annuity
Unit may increase, decrease or remain the same.
The NIF for any Variable Portfolio for a certain month is determined by
dividing (a) by (b) where:
(a) is the Accumulation Unit value of the Variable Portfolio
determined as of the end of that month, and
(b) is the Accumulation Unit value of the Variable Portfolio
determined as of the end of the preceding month.
The NIF for a Variable Portfolio for a given month is a measure of the
net investment performance of the Variable Portfolio from the end of the prior
month to the end of the given month. A NIF of 1.000 results in no change; a NIF
greater than 1.000 results in an increase; and a NIF less than 1.000 results in
a decrease. The NIF is increased (or decreased) in accordance with the increases
(or decreases, respectively) in the value of a share of the underlying fund in
which the Variable Portfolio invests; it is also reduced by separate account
asset charges.
ILLUSTRATIVE EXAMPLE
Assume that one share of a given Variable Portfolio had an Accumulation
Unit value of $11.46 as of the close of the New York Stock Exchange ("NYSE") on
the last business day in September; that its Accumulation Unit value had been
$11.44 at the close of the NYSE on the last business day at the end of the
previous month. The NIF for the month of September is:
NIF = ($11.46/$11.44)
= 1.00174825
The change in Annuity Unit value for a Variable Portfolio from one month
to the next is determined in part by multiplying the Annuity Unit value at the
prior month end by the NIF for that Variable Portfolio for the new month. In
addition, however, the result of that computation must also be multiplied by an
additional factor that takes into account, and neutralizes, the assumed
investment rate of 3.5 percent per annum upon which the Income Payment tables
are based. For example, if the net investment rate for a Variable Portfolio
(reflected in the NIF) were equal to the assumed investment rate, the variable
Income Payments should remain constant (i.e., the Annuity Unit value should not
change). The monthly factor that neutralizes the assumed investment rate of 3.5
percent per annum is:
(1/12)
1/[(1.035) ] = 0.99713732
In the example given above, if the Annuity Unit value for the Variable
Portfolio was $10.103523
<PAGE> 81
on the last business day in August, the Annuity Unit value on the last business
day in September would have been:
$10.103523 x 1.00174825 x 0.99713732 = $10.092213
To determine the initial payment, the initial annuity payment for
variable annuitization is calculated based on our mortality expectations and an
assumed interest rate (AIR) of 3.5%. Thus the initial variable annuity payment
is the same as the initial payment for a fixed interest payout annuity
calculated at an effective rate of 3.5%.
The NIF measures the performance of the funds that are basis for the
amount of future annuity payments. This performance is compared to the AIR, and
if the growth in the NIF is the same as the AIR rate the payment remains the
same as the prior month. If the rate of growth of the NIF is different than the
AIR, then the payment is changed proportionately to the ratio (1+NIF) / (1+AIR),
calculated on a monthly basis. If the NIF is greater than the AIR, then this
proportion is less that one and payments are decreased.
VARIABLE INCOME PAYMENTS
ILLUSTRATIVE EXAMPLE
Assume that a male owner, P, owns a contract in connection with which P
has allocated all of his contract value to a single Variable Portfolio. P is
also the sole Annuitant and, at age 60, has elected to annuitize his contract
under Option 4, a Life Annuity With 120 Monthly Payments Guaranteed. As of the
last valuation preceding the Annuity Date, P's Account was credited with
7543.2456 Accumulation Units each having a value of $15.432655, (i.e., P's
account value is equal to 7543.2456 x $15.432655 = $116,412.31). Assume also
that the Annuity Unit value for the Variable Portfolio on that same date is
$13.256932, and that the Annuity Unit value on the day immediately prior to the
second Income Payment date is $13.327695.
P's first variable Income Payment is determined from the annuity factor
tables in P's contract, using the information assumed above. From these tables,
which supply monthly annuity factors for each $1,000 of applied contract value,
P's first variable Income Payment is determined by multiplying the factor of
$4.92 (Option 4 tables, male Annuitant age 60 at the Annuity Date) by the result
of dividing P's account value by $1,000:
First Payment = $4.92 x ($116,412.31/$1,000) = $572.75
The number of P's Annuity Units (which will be fixed; i.e., it will not
change unless he transfers his Account to another Account) is also determined at
this time and is equal to the amount of the first variable Income Payment
divided by the value of an Annuity Unit on the day immediately prior to
annuitization:
Annuity Units = $572.75/$13.256932 = 43.203812
P's second variable Income Payment is determined by multiplying the
number of Annuity Units by the Annuity Unit value as of the day immediately
prior to the second payment due date:
<PAGE> 82
Second Payment = 43.203812 x $13.327695 = $575.81
The third and subsequent variable Income Payments are computed in a
manner similar to the second variable Income Payment.
Note that the amount of the first variable Income Payment depends on the
contract value in the relevant Variable Portfolio on the Annuity Date and thus
reflects the investment performance of the Variable Portfolio net of fees and
charges during the Accumulation Phase. The amount of that payment determines the
number of Annuity Units, which will remain constant during the Annuity Phase
(assuming no transfers from the Variable Portfolio). The net investment
performance of the Variable Portfolio during the Annuity Phase is reflected in
continuing changes during this phase in the Annuity Unit value, which determines
the amounts of the second and subsequent variable Income Payments.
TAXES
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code")
governs taxation of annuities in general. An owner is not taxed on increases in
the value of a contract until distribution occurs, either in the form of a
non-annuity distribution or as Income Payments under the annuity option elected.
For a lump sum payment received as a total surrender (total redemption), the
recipient is taxed on the portion of the payment that exceeds the cost basis of
the contract. For a payment received as a withdrawal (partial redemption),
federal tax liability is determined on a last-in, first-out basis, meaning
taxable income is withdrawn before the cost basis of the contract is withdrawn.
For contracts issued in connection with Nonqualified plans, the cost basis is
generally the Purchase Payments, while for contracts issued in connection with
Qualified plans there may be no cost basis. The taxable portion of the lump sum
payment is taxed at ordinary income tax rates. Tax penalties may also apply.
For Income Payments, the taxable portion is determined by a formula
which establishes the ratio that the cost basis of the contract bears to the
total value of Income Payments for the term of the annuity contract. The taxable
portion is taxed at ordinary income tax rates. Owners, Annuitants and
Beneficiaries under the contracts should seek competent financial advice about
the tax consequences of distributions under the retirement plan under which the
contracts are purchased.
The Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the separate account is not a separate entity from
the Company and its operations form a part of the Company.
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 owner. Withholding on other
types of distributions can be waived.
<PAGE> 83
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) Income 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 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.
DIVERSIFICATION - SEPARATE ACCOUNT INVESTMENTS
Section 817(h) of the Code imposes certain diversification standards on
the underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified, in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the contract as
an annuity contract would result in imposition of federal income tax to the
owner with respect to earnings allocable to the contract prior to the receipt of
any payments under the contract. The Code contains a safe harbor provision which
provides that annuity contracts, such as your contract, meet the diversification
requirements if, as of the close of each calendar quarter, the underlying assets
meet the diversification standards for a regulated investment company, and no
more than 55% of the total assets consist of cash, cash items, U.S. government
securities and securities of other regulated investment companies.
The Treasury Department has issued regulations which establish
diversification requirements for the investment portfolios underlying variable
contracts such as the contracts. The regulations amplify the diversification
requirements for variable contracts set forth in the Code and provide an
alternative to the safe harbor provision described above. Under the regulations
an investment portfolio will be deemed adequately diversified if (1) no more
than 55% of the value of the total assets of the portfolio is represented by any
one investment; (2) no more than 70% of the value of the total assets of the
portfolio is represented by any two investments; (3) no more than 80% of the
value of the total assets of the portfolio is represented by any three
investments; and (4) no more than 90% of the value of the total assets of the
portfolio is represented by any four investments. For purposes of determining
whether or not the diversification standards imposed on the underlying assets of
variable contracts by Section 817(h) of the Code have been met, "each United
States government agency or instrumentality shall be treated as a separate
issuer."
MULTIPLE CONTRACTS
Multiple annuity contracts which are issued within a calendar year to
the same contract owner by one company or its affiliates are treated as one
annuity contract for purposes of determining the tax
<PAGE> 84
consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
multiple contracts. The Company believes that Congress intended to affect the
purchase of multiple deferred annuity contracts which may have been purchased to
avoid withdrawal income tax treatment. Owners should consult a tax adviser prior
to purchasing more than one annuity contract in any calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment of a contract may have tax consequences, and may also be
prohibited by ERISA in some circumstances. Owners should therefore consult
competent legal advisers should they wish to assign their contracts.
QUALIFIED PLANS
The contracts offered by this prospectus are designed to be suitable for
use under various types of Qualified plans. Taxation of owners in each Qualified
plan varies with the type of plan and terms and conditions of each specific
plan. Owners, Annuitants and Beneficiaries are cautioned that benefits under a
Qualified plan may be subject to the terms and conditions of the plan,
regardless of the terms and conditions of the contracts issued pursuant to the
plan.
Following are general descriptions of the types of Qualified plans with
which the contracts may be used. Such descriptions are not exhaustive and are
for general information purposes only. The tax rules regarding Qualified plans
are very complex and will have differing applications depending on individual
facts and circumstances. Each purchaser should obtain competent tax advice prior
to purchasing a contract issued under a Qualified plan.
Contracts issued pursuant to Qualified plans include special provisions
restricting contract provisions that may otherwise be available and described in
this prospectus. Generally, contracts issued pursuant to Qualified plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified contracts.
(a) H.R. 10 PLANS
Section 401 of the Code permits self-employed individuals to
establish Qualified plans for themselves and their employees, commonly
referred to as "H.R. 10" or "Keogh" Plans. Contributions made to the
plan for the benefit of the employees will not be included in the gross
income of the employees until distributed from the plan. The tax
consequences to owners may vary depending upon the particular plan
design. However, the Code places limitations and restrictions on all
plans on such items as: amounts of allowable contributions; form, manner
and timing of distributions; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation; and the tax
treatment of distributions, withdrawals and surrenders. Purchasers of
contracts for use with an H.R. 10 Plan should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
(b) TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered
annuities" by public
<PAGE> 85
schools and certain charitable, education and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers
may make contributions to the contracts for the benefit of their
employees. Such contributions are not includible in the gross income of
the employee until the employee receives distributions from the
contract. The amount of contributions to the tax-sheltered annuity is
limited to certain maximums imposed by the Code. Furthermore, the Code
sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. Any
employee should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
(c) INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to
contribute to an individual retirement program known as an "Individual
Retirement Annuity" ("IRA"). Under applicable limitations, certain
amounts may be contributed to an IRA which will be deductible from the
individual's gross income. These IRAs are subject to limitations on
eligibility, contributions, transferability and distributions. Sales of
contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational
disclosure be given to persons desiring to establish an IRA. Purchasers
of contracts to be qualified as IRAs should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
(d) ROTH IRAS
Section 408(a) of the Code permits an individual to contribute to
an individual retirement program called a Roth IRA. Unlike contributions
to a regular IRA under Section 408(b) of the Code, contributions to a
Roth IRA are not made on a tax-deferred basis, but distributions are
tax-free if certain requirements are satisfied. Like regular IRAs, Roth
IRAs are subject to limitations on the amount that may be contributed,
those who may be eligible and the time when distributions may commence
without tax penalty. Certain persons may be eligible to convert a
regular IRA into a Roth IRA, and the taxes on the resulting income may
be spread over four years if the conversion occurs before January 1,
1999. If and when the contracts are made available for use with Roth
IRAs, they may be subject to special requirements imposed by the
Internal Revenue Service ("IRS"). Purchasers of the contracts for this
purpose will be provided with such supplementary information as may be
required by the IRS or other appropriate agency.
(e) CORPORATE PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit corporate employers
to establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the contracts to provide
benefits under the plan. Contributions to the plan for the benefit of
employees will not be includible in the gross income of the employee
until distributed from the plan. The tax consequences to owners may vary
depending upon the particular plan design. However, the Code places
limitations on all plans on such items as amount of allowable
contributions; form, manner and timing of distributions; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Purchasers of contracts for use with corporate pension or
profit sharing plans should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
<PAGE> 86
(f) DEFERRED COMPENSATION PLANS - SECTION 457
Under Section 457 of the Code, governmental and certain other
tax-exempt employers may establish, for the benefit of their employees, deferred
compensation plans which may invest in annuity contracts. The Code, as in the
case of Qualified plans, establishes limitations and restrictions on
eligibility, contributions and distributions. Under these plans, contributions
made for the benefit of the employees will not be includible in the employees'
gross income until distributed from the plan. However, under a 457 plan all the
plan assets shall remain solely the property of the employer, subject only to
the claims of the employer's general creditors until such time as made available
to an owner or a Beneficiary. As of January 1, 1999, all 457 plans of state and
local governments must hold assets and income in trust (or custodial accounts or
an annuity contract) for the exclusive benefit of participants and their
Beneficiaries.
DISTRIBUTION OF CONTRACTS
The contracts are offered on a continuous basis through SunAmerica
Capital Services, Inc., located at 733 Third Avenue, 4th Floor, New York, New
York 10017. SunAmerica Capital Services, Inc. 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. The Company and SunAmerica
Capital Services, Inc. are each an indirect wholly owned subsidiary of
SunAmerica Inc. No underwriting fees are paid in connection with the
distribution of the contracts.
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company as of
September 30, 1998 and 1997 and for each of the three years in the period ended
September 30, 1998 are presented in this Statement of Additional Information.
The consolidated financial statements of the Company should be considered only
as bearing on the ability of the Company to meet its obligation under the
contracts for amounts allocated to the 1, 3, 5, 7 or 10 year fixed account
options and the DCA accounts for 6-month and 1-year periods. The financial
statements of Variable Separate Account (Portion Relating to the POLARIS II
Variable Annuity) as of November 30, 1998 and for the year then ended, and for
the period from inception to November 30, 1998, are included in this Statement
of Additional Information.
PricewaterhouseCoopers LLP, 400 South Hope Street, Los Angeles,
California 90071, serves as the independent accountants for the separate account
and the Company. The financial statements referred to above have been so
included in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
<PAGE> 87
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Anchor National Life Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated income statement and statement of cash flows present fairly, in all
material respects, the financial position of Anchor National Life Insurance
Company and its subsidiaries (the "Company")at September 30, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended September 30, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
November 9, 1998
33
<PAGE> 88
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
ASSETS
Investments:
Cash and short-term investments........................... $ 333,735,000 $ 113,580,000
Bonds, notes and redeemable preferred stocks available for
sale, at fair value (amortized cost: 1998,
$1,934,863,000; 1997, $1,942,485,000).................. 1,954,754,000 1,986,194,000
Mortgage loans............................................ 391,448,000 339,530,000
Common stocks available for sale, at fair value (cost:
1998, $115,000; 1997, $271,000)........................ 169,000 1,275,000
Real estate............................................... 24,000,000 24,000,000
Other invested assets..................................... 30,636,000 143,722,000
--------------- ---------------
Total investments................................. 2,734,742,000 2,608,301,000
Variable annuity assets held in separate accounts........... 11,133,569,000 9,343,200,000
Accrued investment income................................... 26,408,000 21,759,000
Deferred acquisition costs.................................. 539,850,000 536,155,000
Income taxes currently receivable........................... 5,869,000 --
Other assets................................................ 85,926,000 61,524,000
--------------- ---------------
TOTAL ASSETS...................................... $14,526,364,000 $12,570,939,000
=============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts...................... $ 2,189,272,000 $ 2,098,803,000
Reserves for guaranteed investment contracts.............. 282,267,000 295,175,000
Payable to brokers for purchases of securities............ 27,053,000 263,000
Income taxes currently payable............................ -- 32,265,000
Other liabilities......................................... 106,594,000 122,728,000
--------------- ---------------
Total reserves, payables and accrued
liabilities...................................... 2,605,186,000 2,549,234,000
--------------- ---------------
Variable annuity liabilities related to separate accounts... 11,133,569,000 9,343,200,000
--------------- ---------------
Subordinated notes payable to Parent........................ 39,182,000 36,240,000
--------------- ---------------
Deferred income taxes....................................... 95,758,000 67,047,000
--------------- ---------------
Shareholder's equity:
Common Stock.............................................. 3,511,000 3,511,000
Additional paid-in capital................................ 308,674,000 308,674,000
Retained earnings......................................... 332,069,000 244,628,000
Net unrealized gains on debt and equity securities
available for sale..................................... 8,415,000 18,405,000
--------------- ---------------
Total shareholder's equity........................ 652,669,000 575,218,000
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY........ $14,526,364,000 $12,570,939,000
=============== ===============
</TABLE>
See accompanying notes.
34
<PAGE> 89
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Investment income........................................... $ 221,966,000 $ 210,759,000 $ 164,631,000
------------- ------------- -------------
Interest expense on:
Fixed annuity contracts................................... (112,695,000) (109,217,000) (82,690,000)
Guaranteed investment contracts........................... (17,787,000) (22,650,000) (19,974,000)
Senior indebtedness....................................... (1,498,000) (2,549,000) (2,568,000)
Subordinated notes payable to Parent...................... (3,114,000) (3,142,000) (2,556,000)
------------- ------------- -------------
Total interest expense............................ (135,094,000) (137,558,000) (107,788,000)
------------- ------------- -------------
NET INVESTMENT INCOME....................................... 86,872,000 73,201,000 56,843,000
------------- ------------- -------------
NET REALIZED INVESTMENT GAINS
(LOSSES).................................................. 19,482,000 (17,394,000) (13,355,000)
------------- ------------- -------------
Fee income:
Variable annuity fees..................................... 200,867,000 139,492,000 103,970,000
Net retained commissions.................................. 48,561,000 39,143,000 31,548,000
Asset management fees..................................... 29,592,000 25,764,000 25,413,000
Surrender charges......................................... 7,404,000 5,529,000 5,184,000
Other fees................................................ 3,938,000 3,218,000 3,390,000
------------- ------------- -------------
TOTAL FEE INCOME.................................. 290,362,000 213,146,000 169,505,000
------------- ------------- -------------
GENERAL AND ADMINISTRATIVE
EXPENSES.................................................. (96,102,000) (98,802,000) (81,552,000)
------------- ------------- -------------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS......................................... (72,713,000) (66,879,000) (57,520,000)
------------- ------------- -------------
ANNUAL COMMISSIONS.......................................... (18,209,000) (8,977,000) (4,613,000)
------------- ------------- -------------
PRETAX INCOME............................................... 209,692,000 94,295,000 69,308,000
Income tax expense.......................................... (71,051,000) (31,169,000) (24,252,000)
------------- ------------- -------------
NET INCOME.................................................. $ 138,641,000 $ 63,126,000 $ 45,056,000
============= ============= =============
</TABLE>
See accompanying notes.
35
<PAGE> 90
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 138,641,000 $ 63,126,000 $ 45,056,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest credited to:
Fixed annuity contracts............................... 112,695,000 109,217,000 82,690,000
Guaranteed investment contracts....................... 17,787,000 22,650,000 19,974,000
Net realized investment (gains) losses.................. (19,482,000) 17,394,000 13,355,000
Amortization (accretion) of net premiums (discounts) on
investments............................................ 447,000 (18,576,000) (8,976,000)
Amortization of goodwill................................ 1,422,000 1,187,000 1,169,000
Provision for deferred income taxes..................... 34,087,000 (16,024,000) (3,351,000)
Change in:
Accrued investment income............................... (4,649,000) (2,084,000) (5,483,000)
Deferred acquisition costs.............................. (160,926,000) (113,145,000) (60,941,000)
Other assets............................................ (19,374,000) (14,598,000) (8,000,000)
Income taxes currently payable.......................... (38,134,000) 10,779,000 5,766,000
Other liabilities....................................... (2,248,000) 14,187,000 5,474,000
Other, net................................................ (5,599,000) 418,000 (129,000)
--------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 54,667,000 74,531,000 86,604,000
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts................................. 1,512,994,000 1,097,937,000 741,774,000
Guaranteed investment contracts......................... 5,619,000 55,000,000 134,967,000
Net exchanges from the fixed accounts of variable annuity
contracts............................................... (1,303,790,000) (620,367,000) (236,705,000)
Withdrawal payments on:
Fixed annuity contracts................................. (191,690,000) (242,589,000) (263,614,000)
Guaranteed investment contracts......................... (36,313,000) (198,062,000) (16,492,000)
Claims and annuity payments on fixed annuity contracts.... (40,589,000) (35,731,000) (31,107,000)
Net receipts from (repayments of) other short-term
financings.............................................. (10,944,000) 34,239,000 (119,712,000)
Net receipts from a modified coinsurance transaction...... 166,631,000 -- --
Capital contributions received............................ -- 28,411,000 27,387,000
Dividends paid............................................ (51,200,000) (25,500,000) (29,400,000)
--------------- --------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 50,718,000 93,338,000 207,098,000
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred stocks............ $(1,970,502,000) $(2,566,211,000) $(1,937,890,000)
Mortgage loans.......................................... (131,386,000) (266,771,000) (15,000,000)
Other investments, excluding short-term investments..... -- (75,556,000) (36,770,000)
Sales of:
Bonds, notes and redeemable preferred stocks............ 1,602,079,000 2,299,063,000 1,241,928,000
Real estate............................................. -- -- 900,000
Other investments, excluding short-term investments..... 42,458,000 6,421,000 4,937,000
Redemptions and maturities of:
Bonds, notes and redeemable preferred stocks............ 424,393,000 376,847,000 288,969,000
Mortgage loans.......................................... 80,515,000 25,920,000 11,324,000
Other investments, excluding short-term investments..... 67,213,000 23,940,000 20,749,000
--------------- --------------- ---------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES............ 114,770,000 (176,347,000) (420,853,000)
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS............................................... 220,155,000 (8,478,000) (127,151,000)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD...... 113,580,000 122,058,000 249,209,000
--------------- --------------- ---------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD............ $ 333,735,000 $ 113,580,000 $ 122,058,000
=============== =============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness............................. $ 3,912,000 $ 7,032,000 $ 5,982,000
=============== =============== ===============
Net income taxes paid..................................... $ 74,932,000 $ 36,420,000 $ 22,031,000
=============== =============== ===============
</TABLE>
See accompanying notes.
36
<PAGE> 91
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company (the "Company") is a wholly owned
indirect subsidiary of SunAmerica Inc. (the "Parent"). The Company is an
Arizona-domiciled life insurance company and conducts its business through three
segments: annuity operations, asset management operations and broker-dealer
operations. Annuity operations include the sale and administration of fixed and
variable annuities and guaranteed investment contracts. Asset management
operations, which includes the sale and management of mutual funds, is conducted
by SunAmerica Asset Management Corp. Broker-dealer operations include the sale
of securities and financial services products, and are conducted by Royal
Alliance Associates, Inc.
The operations of the Company are influenced by many factors, including general
economic conditions, monetary and fiscal policies of the federal government, and
policies of state and other regulatory authorities. The level of sales of the
Company's financial products is influenced by many factors, including general
market rates of interest, strength, weakness and volatility of equity markets,
and terms and conditions of competing financial products. The Company is exposed
to the typical risks normally associated with a portfolio of fixed-income
securities, namely interest rate, option, liquidity and credit risk. The Company
controls its exposure to these risks by, among other things, closely monitoring
and matching the duration of its assets and liabilities, monitoring and limiting
prepayment and extension risk in its portfolio, maintaining a large percentage
of its portfolio in highly liquid securities, and engaging in a disciplined
process of underwriting, reviewing and monitoring credit risk. The Company also
is exposed to market risk, as market volatility may result in reduced fee income
in the case of assets managed in mutual funds and held in separate accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
include the accounts of the Company and all of its wholly owned subsidiaries.
All significant intercompany accounts and transactions are eliminated in
consolidation. Certain prior period amounts have been reclassified to conform
with the 1998 presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the amounts reported in the financial statements and the accompanying notes.
Actual results could differ from those estimates.
INVESTMENTS: Cash and short-term investments primarily include cash, commercial
paper, money market investments, repurchase agreements and short-term bank
participations. All such investments are carried at cost plus accrued interest,
which approximates fair value, have maturities of three months or less and are
considered cash equivalents for purposes of reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and common
stocks are carried at aggregate fair value and changes in unrealized gains or
losses, net of tax, are credited or charged directly to shareholder's equity.
Bonds, notes and redeemable preferred stocks are reduced to estimated net
realizable value when necessary for declines in value considered to be other
than temporary. Estimates of net realizable value are subjective and actual
realization will be dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of provisions for
estimated losses. Real estate is carried at the lower of cost or fair value.
Other invested assets include investments in limited partnerships, which are
accounted for by using the cost method of accounting; separate account
investments; leveraged leases; policy loans, which are carried at unpaid
balances; and collateralized mortgage obligation residuals.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined by using the specific cost
identification method. Premiums and discounts on investments are amortized to
investment income by using the interest method over the contractual lives of the
investments.
INTEREST RATE SWAP AGREEMENTS: The net differential to be paid or received on
interest rate swap agreements ("Swap Agreements") entered into to reduce the
impact of changes in interest rates is recognized over the lives of the
agreements, and such differential is classified as Investment Income or Interest
Expense in the income statement. Initially, Swap Agreements are designated as
hedges and, therefore, are not marked to market. However, when a hedged
asset/liability is sold or repaid before the related Swap Agreement matures, the
Swap Agreement is marked to market and any gain/loss is classified with any
gain/loss realized on the disposition of the hedged asset/liability.
Subsequently, the Swap Agreement is marked to market and
37
<PAGE> 92
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
the resulting change in fair value is included in Investment Income in the
income statement. When a Swap Agreement that is designated as a hedge is
terminated before its contractual maturity, any resulting gain/loss is
credited/charged to the carrying value of the asset/liability that it hedged and
is treated as a premium/discount for the remaining life of the asset/liability.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and amortized,
with interest, in relation to the incidence of estimated gross profits to be
realized over the estimated lives of the annuity contracts. Estimated gross
profits are composed of net interest income, net realized investment gains and
losses, variable annuity fees, surrender charges and direct administrative
expenses. Costs incurred to sell mutual funds are also deferred and amortized
over the estimated lives of the funds obtained. Deferred acquisition costs
("DAC") consist of commissions and other costs that vary with, and are primarily
related to, the production or acquisition of new business.
As debt and equity securities available for sale are carried at aggregate fair
value, an adjustment is made to DAC equal to the change in amortization that
would have been recorded if such securities had been sold at their stated
aggregate fair value and the proceeds reinvested at current yields. The change
in this adjustment, net of tax, is included with the change in net unrealized
gains/losses on debt and equity securities available for sale that is credited
or charged directly to shareholder's equity. DAC have been decreased by
$7,000,000 at September 30, 1998 and $16,400,000 at September 30, 1997 for this
adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities resulting
from the receipt of variable annuity premiums are segregated in separate
accounts. The Company receives administrative fees for managing the funds and
other fees for assuming mortality and certain expense risks. Such fees are
included in Variable Annuity Fees in the income statement.
GOODWILL: Goodwill, amounting to $23,339,000 at September 30, 1998, is amortized
by using the straight-line method over periods averaging 25 years and is
included in Other Assets in the balance sheet. Goodwill is evaluated for
impairment when events or changes in economic conditions indicate that the
carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity contracts and
guaranteed investment contracts are accounted for as investment-type contracts
in accordance with Statement of Financial Accounting Standards No. 97,
"Accounting and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of Investments," and
are recorded at accumulated value (premiums received, plus accrued interest,
less withdrawals and assessed fees).
FEE INCOME: Variable annuity fees, asset management fees and surrender charges
are recorded in income as earned. Net retained commissions are recognized as
income on a trade date basis.
INCOME TAXES: The Company is included in the consolidated federal income tax
return of the Parent and files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Income taxes have been
calculated as if the Company filed a separate return. Deferred income tax assets
and liabilities are recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and liabilities using
enacted income tax rates and laws.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1997, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of
Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131").
SFAS 130 establishes standards for reporting comprehensive income and its
components in a full set of general purpose financial statements. SFAS 130 is
effective for the Company as of October 1, 1998 and is not included in these
financial statements.
SFAS 131 establishes standards for the disclosure of information about the
Company's operating segments. SFAS 131 is effective for the year ending
September 30, 1999 and is not included in these financial statements.
Implementation of SFAS 130 and SFAS 131 will not have an impact on the Company's
results of operations, financial condition or liquidity.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 addresses the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. SFAS 133 is effective for the Company as of October 1, 1999 and is
not included in these financial statements. The Company has not completed its
analysis of the effect of
38
<PAGE> 93
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
SFAS 133, but management believes that it will not have a material impact on the
Company's results of operations, financial condition or liquidity.
3. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by major category follow:
<TABLE>
<CAPTION>
AMORTIZED COST ESTIMATED FAIR VALUE
-------------- --------------------
<S> <C> <C>
AT SEPTEMBER 30, 1998:
Securities of the United States Government................ $ 84,377,000 $ 88,239,000
Mortgage-backed securities................................ 569,613,000 584,007,000
Securities of public utilities............................ 108,431,000 106,065,000
Corporate bonds and notes................................. 883,890,000 884,209,000
Redeemable preferred stocks............................... 6,125,000 6,888,000
Other debt securities..................................... 282,427,000 285,346,000
-------------- --------------
Total..................................................... $1,934,863,000 $1,954,754,000
============== ==============
AT SEPTEMBER 30, 1997:
Securities of the United States Government................ $ 18,496,000 $ 18,962,000
Mortgage-backed securities................................ 636,018,000 649,196,000
Securities of public utilities............................ 22,792,000 22,893,000
Corporate bonds and notes................................. 984,573,000 1,012,559,000
Redeemable preferred stocks............................... 6,125,000 6,681,000
Other debt securities..................................... 274,481,000 275,903,000
-------------- --------------
Total..................................................... $1,942,485,000 $1,986,194,000
============== ==============
</TABLE>
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by contractual maturity, as of September 30,
1998, follow:
<TABLE>
<CAPTION>
AMORTIZED COST ESTIMATED FAIR VALUE
-------------- --------------------
<S> <C> <C>
Due in one year or less..................................... $ 19,124,000 $ 19,319,000
Due after one year through five years....................... 313,396,000 318,943,000
Due after five years through ten years...................... 744,740,000 750,286,000
Due after ten years......................................... 287,990,000 282,199,000
Mortgage-backed securities.................................. 569,613,000 584,007,000
-------------- --------------
Total....................................................... $1,934,863,000 $1,954,754,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will differ
from those shown above due to prepayments and redemptions.
39
<PAGE> 94
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS -- (CONTINUED)
Gross unrealized gains and losses on bonds, notes and redeemable preferred
stocks available for sale by major category follow:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
GAINS LOSSES
----------- ------------
<S> <C> <C>
AT SEPTEMBER 30, 1998:
Securities of the United States Government................ $ 3,862,000 $ --
Mortgage-backed securities................................ 15,103,000 (709,000)
Securities of public utilities............................ 2,420,000 (4,786,000)
Corporate bonds and notes................................. 31,795,000 (31,476,000)
Redeemable preferred stocks............................... 763,000 --
Other debt securities..................................... 5,235,000 (2,316,000)
----------- ------------
Total..................................................... $59,178,000 $(39,287,000)
=========== ============
AT SEPTEMBER 30, 1997:
Securities of the United States Government................ $ 498,000 $ (32,000)
Mortgage-backed securities................................ 14,998,000 (1,820,000)
Securities of public utilities............................ 141,000 (40,000)
Corporate bonds and notes................................. 28,691,000 (705,000)
Redeemable preferred stocks............................... 556,000 --
Other debt securities..................................... 1,569,000 (147,000)
----------- ------------
Total..................................................... $46,453,000 $ (2,744,000)
=========== ============
</TABLE>
Gross unrealized gains on equity securities available for sale aggregated
$54,000 and $1,004,000 at September 30, 1998 and 1997, respectively. There were
no unrealized losses at September 30, 1998 and 1997.
Gross realized investment gains and losses on sales of investments are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS:
Realized gains........................................ $ 28,086,000 $ 22,179,000 $ 14,532,000
Realized losses....................................... (4,627,000) (25,310,000) (10,432,000)
COMMON STOCKS:
Realized gains........................................ 337,000 4,002,000 511,000
Realized losses....................................... -- (312,000) (3,151,000)
OTHER INVESTMENTS:
Realized gains........................................ 8,824,000 2,450,000 1,135,000
IMPAIRMENT WRITEDOWNS................................... (13,138,000) (20,403,000) (15,950,000)
------------ ------------ ------------
Total net realized investment gains and
losses...................................... $ 19,482,000 $(17,394,000) $(13,355,000)
============ ============ ============
</TABLE>
40
<PAGE> 95
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENTS -- (CONTINUED)
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Short-term investments.................................. $ 12,524,000 $ 11,780,000 $ 10,647,000
Bonds, notes and redeemable preferred stocks............ 156,140,000 163,038,000 140,387,000
Mortgage loans.......................................... 29,996,000 17,632,000 8,701,000
Common stocks........................................... 34,000 16,000 8,000
Real estate............................................. (467,000) (296,000) (196,000)
Cost-method partnerships................................ 24,311,000 6,725,000 4,073,000
Other invested assets................................... (572,000) 11,864,000 1,011,000
------------ ------------ ------------
Total investment income....................... $221,966,000 $210,759,000 $164,631,000
============ ============ ============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to $1,910,000 for
the year ended September 30, 1998, $2,050,000 for the year ended September 30,
1997, and $1,737,000 for the year ended September 30, 1996, and are included in
General and Administrative Expenses in the income statement.
At September 30, 1998, no investment exceeded 10% of the Company's consolidated
shareholder's equity.
At September 30, 1998, mortgage loans were collateralized by properties located
in 29 states, with loans totaling approximately 21% of the aggregate carrying
value of the portfolio secured by properties located in California and
approximately 14% by properties located in New York. No more than 8% of the
portfolio was secured by properties in any other single state.
At September 30, 1998, bonds, notes and redeemable preferred stocks included
$167,564,000 of bonds and notes not rated investment grade. The Company had no
material concentrations of non-investment-grade assets at September 30, 1998.
At September 30, 1998, the carrying value of investments in default as to the
payment of principal or interest was $917,000, all of which were mortgage loans.
Such nonperforming investments had an estimated fair value equal to their
carrying value.
As a component of its asset and liability management strategy, the Company
utilizes Swap Agreements to match assets more closely to liabilities. Swap
Agreements are agreements to exchange with a counterparty interest rate payments
of differing character (for example, variable-rate payments exchanged for
fixed-rate payments) based on an underlying principal balance (notional
principal) to hedge against interest rate changes. The Company typically
utilizes Swap Agreements to create a hedge that effectively converts
floating-rate assets and liabilities to fixed-rate instruments. At September 30,
1998, the Company had one outstanding Swap Agreement with a notional principal
amount of $21,538,000, which matures in December 2024. The net interest paid
amounted to $278,000 and $125,000 for the years ended September 30, 1998 and
1997, respectively, and is included in Interest Expense on Guaranteed Investment
Contracts in the income statement.
At September 30, 1998, $5,154,000 of bonds, at amortized cost, were on deposit
with regulatory authorities in accordance with statutory requirements.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to reasonable
estimates of the fair value of only the Company's financial instruments. The
disclosures do not address the value of the Company's recognized and
unrecognized nonfinancial assets (including its real estate investments and
other invested assets except for cost-method partnerships) and liabilities or
the value of anticipated future business. The Company does not plan to sell most
of its assets or settle most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. Selling expenses and potential taxes are not
included. The estimated fair value amounts were determined using available
market information, current pricing information and various valuation
methodologies. If quoted market prices were not readily available for a
financial instrument, management determined an estimated fair value.
Accordingly, the estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market transaction.
41
<PAGE> 96
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND SHORT-TERM INVESTMENTS: Carrying value is considered to be a reasonable
estimate of fair value.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based principally on
independent pricing services, broker quotes and other independent information.
MORTGAGE LOANS: Fair values are primarily determined by discounting future cash
flows to the present at current market rates, using expected prepayment rates.
COMMON STOCKS: Fair value is based principally on independent pricing services,
broker quotes and other independent information.
COST-METHOD PARTNERSHIPS: Fair value of limited partnerships accounted for by
using the cost method is based upon the fair value of the net assets of the
partnerships as determined by the general partners.
VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS: Variable annuity assets are
carried at the market value of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts and single
premium life contracts are assigned a fair value equal to current net surrender
value. Annuitized contracts are valued based on the present value of future cash
flows at current pricing rates.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the present
value of future cash flows at current pricing rates and is net of the estimated
fair value of a hedging Swap Agreement, determined from independent broker
quotes.
PAYABLE TO BROKERS FOR PURCHASES OF SECURITIES: Such obligations represent net
transactions of a short-term nature for which the carrying value is considered a
reasonable estimate of fair value.
VARIABLE ANNUITY LIABILITIES RELATED TO SEPARATE ACCOUNTS: Fair values of
contracts in the accumulation phase are based on net surrender values. Fair
values of contracts in the payout phase are based on the present value of future
cash flows at assumed investment rates.
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based on the
quoted market prices for similar issues.
42
<PAGE> 97
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
The estimated fair values of the Company's financial instruments at September
30, 1998 and 1997, compared with their respective carrying values, are as
follows:
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
--------------- ---------------
<S> <C> <C>
1998:
ASSETS:
Cash and short-term investments........................... $ 333,735,000 $ 333,735,000
Bonds, notes and redeemable preferred stocks.............. 1,954,754,000 1,954,754,000
Mortgage loans............................................ 391,448,000 415,981,000
Common stocks............................................. 169,000 169,000
Cost-method partnerships.................................. 4,403,000 12,744,000
Variable annuity assets held in separate accounts......... 11,133,569,000 11,133,569,000
LIABILITIES:
Reserves for fixed annuity contracts...................... 2,189,272,000 2,116,874,000
Reserves for guaranteed investment contracts.............. 282,267,000 282,267,000
Payable to brokers for purchases of securities............ 27,053,000 27,053,000
Variable annuity liabilities related to separate
accounts............................................... 11,133,569,000 10,696,607,000
Subordinated notes payable to Parent...................... 39,182,000 40,550,000
=============== ===============
1997:
ASSETS:
Cash and short-term investments........................... $ 113,580,000 $ 113,580,000
Bonds, notes and redeemable preferred stocks.............. 1,986,194,000 1,986,194,000
Mortgage loans............................................ 339,530,000 354,495,000
Common stocks............................................. 1,275,000 1,275,000
Cost-method partnerships.................................. 46,880,000 84,186,000
Variable annuity assets held in separate accounts......... 9,343,200,000 9,343,200,000
LIABILITIES:
Reserves for fixed annuity contracts...................... 2,098,803,000 2,026,258,000
Reserves for guaranteed investment contracts.............. 295,175,000 295,175,000
Payable to brokers for purchases of securities............ 263,000 263,000
Variable annuity liabilities related to separate
accounts............................................... 9,343,200,000 9,077,200,000
Subordinated notes payable to Parent...................... 36,240,000 37,393,000
=============== ===============
</TABLE>
5. SUBORDINATED NOTES PAYABLE TO PARENT
Subordinated notes and accrued interest payable to Parent totaled $39,182,000 at
interest rates ranging from 8.5% to 9% at September 30, 1998, and require
principal payments of $23,060,000 in 1999, $5,400,000 in 2000 and $10,000,000 in
2001.
6. REINSURANCE
On August 11, 1998, the Company entered into a modified coinsurance transaction,
approved by the Arizona Department of Insurance, which involves the ceding of
approximately $5,000,000,000 of variable annuities to ANLIC Insurance Company
(Cayman), a Cayman Islands stock life insurance company, effective December 31,
1997. As a part of this transaction, the Company received cash amounting to
approximately $188,700,000, and recorded a corresponding reduction of DAC
related to the coinsured annuities.
As payments are made to the reinsurer, the reduction of DAC is relieved. The net
reduction in DAC at September 30, 1998 was $166,631,000. Certain expenses
related to this transaction are being charged directly to DAC amortization in
the income statement. The net effect of this transaction in the income statement
is not material.
43
<PAGE> 98
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CONTINGENT LIABILITIES
The Company has entered into three agreements in which it has provided liquidity
support for certain short-term securities of two municipalities by agreeing to
purchase such securities in the event there is no other buyer in the short-term
marketplace. In return the Company receives a fee. The maximum liability under
these guarantees is $242,600,000. Management does not anticipate any material
future losses with respect to these liquidity support facilities. An additional
$51,000,000 has been committed to investments in the process of being funded or
to be available in the case of certain natural disasters, for which the Company
receives a fee.
The Company is involved in various kinds of litigation common to its businesses.
These cases are in various stages of development and, based on reports of
counsel, management believes that provisions made for potential losses relating
to such litigation are adequate and any further liabilities and costs will not
have a material adverse impact upon the Company's financial position or results
of operations.
8. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value Common
Stock. At September 30, 1998 and 1997, 3,511 shares were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balances.................................... $308,674,000 $280,263,000 $252,876,000
Capital contributions received........................ -- 28,411,000 27,387,000
------------ ------------ ------------
Ending balances....................................... $308,674,000 $308,674,000 $280,263,000
============ ============ ============
RETAINED EARNINGS:
Beginning balances.................................... $244,628,000 $207,002,000 $191,346,000
Net income............................................ 138,641,000 63,126,000 45,056,000
Dividend paid......................................... (51,200,000) (25,500,000) (29,400,000)
------------ ------------ ------------
Ending balances....................................... $332,069,000 $244,628,000 $207,002,000
============ ============ ============
NET UNREALIZED GAINS (LOSSES) ON
DEBT AND EQUITY SECURITIES
AVAILABLE FOR SALE:
Beginning balances.................................... $ 18,405,000 $ (5,521,000) $ (5,673,000)
Change in net unrealized gains (losses) on debt
securities available for sale...................... (23,818,000) 57,463,000 (2,904,000)
Change in net unrealized gains (losses) on equity
securities available for sale...................... (950,000) (55,000) 3,538,000
Change in adjustment to deferred acquisition costs.... 9,400,000 (20,600,000) (400,000)
Tax effects of net changes............................ 5,378,000 (12,882,000) (82,000)
------------ ------------ ------------
Ending balances....................................... $ 8,415,000 $ 18,405,000 $ (5,521,000)
============ ============ ============
</TABLE>
Dividends that the Company may pay to its shareholder in any year without prior
approval of the Arizona Department of Insurance are limited by statute. The
maximum amount of dividends which can be paid to shareholders of insurance
companies domiciled in the state of Arizona without obtaining the prior approval
of the Insurance Commissioner is limited to the lesser of either 10% of the
preceding year's statutory surplus or the preceding year's statutory net gain
from operations. Dividends in the amounts of $51,200,000, $25,500,000 and
$29,400,000 were paid on June 4, 1998, April 1, 1997 and March 18, 1996,
respectively.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the nine months ended
September 30, 1998 was $64,125,000. The statutory net income for the year ended
December 31, 1997 was $74,407,000, and the statutory net income for the year
ended December 31, 1996 was $27,928,000. The Company's statutory
44
<PAGE> 99
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SHAREHOLDER'S EQUITY -- (CONTINUED)
capital and surplus was $537,542,000 at September 30, 1998, $567,979,000 at
December 31, 1997 and $311,176,000 at December 31, 1996.
9. INCOME TAXES
The components of the provisions for federal income taxes on pretax income
consist of the following:
<TABLE>
<CAPTION>
NET REALIZED
INVESTMENT
GAINS (LOSSES) OPERATIONS TOTAL
-------------- ------------ ------------
<S> <C> <C> <C>
1998:
Currently payable..................................... $ 4,221,000 $ 32,743,000 $ 36,964,000
Deferred.............................................. (550,000) 34,637,000 34,087,000
------------ ------------ ------------
Total income tax expense...................... $ 3,671,000 $ 67,380,000 $ 71,051,000
============ ============ ============
1997:
Currently payable..................................... $ (3,635,000) $ 50,828,000 $ 47,193,000
Deferred.............................................. (2,258,000) (13,766,000) (16,024,000)
------------ ------------ ------------
Total income tax expense...................... $ (5,893,000) $ 37,062,000 $ 31,169,000
============ ============ ============
1996:
Currently payable..................................... $ 5,754,000 $ 21,849,000 $ 27,603,000
Deferred.............................................. (10,347,000) 6,996,000 (3,351,000)
------------ ------------ ------------
Total income tax expense...................... $ (4,593,000) $ 28,845,000 $ 24,252,000
============ ============ ============
</TABLE>
Income taxes computed at the United States federal income tax rate of 35% and
income taxes provided differ as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Amount computed at statutory rate.......................... $73,392,000 $33,003,000 $24,258,000
Increases (decreases) resulting from:
Amortization of differences between book and tax bases of
net assets acquired................................... 460,000 666,000 464,000
State income taxes, net of federal tax benefit........... 5,530,000 1,950,000 2,070,000
Dividends-received deduction............................. (7,254,000) (4,270,000) (2,357,000)
Tax credits.............................................. (1,296,000) (318,000) (257,000)
Other, net............................................... 219,000 138,000 74,000
----------- ----------- -----------
Total income tax expense......................... $71,051,000 $31,169,000 $24,252,000
=========== =========== ===========
</TABLE>
For United States federal income tax purposes, certain amounts from life
insurance operations are accumulated in a memorandum policyholders' surplus
account and are taxed only when distributed to shareholders or when such account
exceeds prescribed limits. The accumulated policyholders' surplus was
$14,300,000 at September 30, 1998. The Company does not anticipate any
transactions which would cause any part of this surplus to be taxable.
45
<PAGE> 100
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. The significant
components of the liability for Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Investments................................................. $ 17,643,000 $ 13,160,000
Deferred acquisition costs.................................. 223,392,000 154,949,000
State income taxes.......................................... 2,873,000 1,777,000
Other liabilities........................................... 144,000 --
Net unrealized gains on debt and equity securities available
for sale.................................................. 4,531,000 9,910,000
------------- -------------
Total deferred tax liabilities.............................. 248,583,000 179,796,000
------------- -------------
DEFERRED TAX ASSETS:
Contractholder reserves..................................... (149,915,000) (108,090,000)
Guaranty fund assessments................................... (2,910,000) (2,707,000)
Other assets................................................ -- (1,952,000)
------------- -------------
Total deferred tax assets................................... (152,825,000) (112,749,000)
------------- -------------
Deferred income taxes....................................... $ 95,758,000 $ 67,047,000
============= =============
</TABLE>
10. RELATED-PARTY MATTERS
The Company pays commissions to five affiliated companies, SunAmerica
Securities, Inc., Advantage Capital Corp., Financial Services Corp., Sentra
Securities Corp. and Spelman & Co. Inc. Commissions paid to these broker-dealers
totaled $32,946,000 in 1998, $25,492,000 in 1997, and $16,906,000 in 1996. These
broker-dealers, when combined with the Company's wholly owned broker-dealer,
represent a significant portion of the Company's business, amounting to
approximately 33.6%, 36.1%, and 38.3% of premiums in 1998, 1997, and 1996,
respectively. The Company also sells its products through unaffiliated
broker-dealers, the largest two of which represented approximately 17.3% and
8.4% of premiums in 1998, 19.2% and 10.1% in 1997, and 19.7% and 10.2% in 1996,
respectively.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from SunAmerica Financial, whose purpose
is to provide services to the Company and its affiliates. Amounts paid for such
services totaled $84,975,000 for the year ended September 30, 1998, $86,116,000
for the year ended September 30, 1997 and $65,351,000 for the year ended
September 30, 1996. The marketing component of such costs during these periods
amounted to $39,482,000, $31,968,000 and $17,442,000, respectively, and are
deferred and amortized as part of Deferred Acquisition Costs. The other
components of such costs are included in General and Administrative Expenses in
the income statement.
The Parent made a capital contribution of $28,411,000 in December 1996 to the
Company, through the Company's direct parent, in exchange for the termination of
its guaranty with respect to certain real estate owned in Arizona. Accordingly,
the Company reduced the carrying value of this real estate to estimated fair
value to reflect the termination of the guaranty.
During the year ended September 30, 1998, the Company sold various invested
assets to the Parent for cash equal to their current market value of
$64,431,000. The Company recorded a net gain aggregating $16,388,000 on such
transactions.
During the year ended September 30, 1998, the Company purchased certain invested
assets from the Parent, SunAmerica Life Insurance Company and CalAmerica Life
Insurance Company for cash equal to their current market value, which aggregated
$20,666,000, $10,468,000 and $61,000, respectively.
During the year ended September 30, 1997, the Company sold various invested
assets to SunAmerica Life Insurance Company and to CalAmerica Life Insurance
Company for cash equal to their current market value of $15,776,000 and $15,000,
respectively. The Company recorded a net gain aggregating $276,000 on such
transactions.
46
<PAGE> 101
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED-PARTY MATTERS (CONTINUED)
During the year ended September 30, 1997, the Company purchased certain invested
assets from SunAmerica Life Insurance Company and CalAmerica Life Insurance
Company for cash equal to their current market value of $8,717,000 and $284,000,
respectively.
During the year ended September 30, 1996, the Company sold various invested
assets to the Parent and to SunAmerica Life Insurance Company for cash equal to
their current market value of $274,000 and $47,321,000, respectively. The
Company recorded a net loss aggregating $3,000 on such transactions.
During the year ended September 30, 1996, the Company purchased certain invested
assets from SunAmerica Life Insurance Company for cash equal to their current
market value, which aggregated $28,379,000.
11. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
TOTAL
DEPRECIATION
AND
TOTAL AMORTIZATION PRETAX TOTAL
REVENUES EXPENSE INCOME ASSETS
------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
1998:
Annuity operations........................... $443,407,000 $60,731,000 $178,120,000 $14,366,018,000
Broker-dealer operations..................... 47,363,000 1,770,000 22,401,000 55,870,000
Asset management operations.................. 41,040,000 14,780,000 9,171,000 104,476,000
------------ ----------- ------------ ---------------
Total................................ $531,810,000 $77,281,000 $209,692,000 $14,526,364,000
============ =========== ============ ===============
1997:
Annuity operations........................... $332,845,000 $55,675,000 $ 74,792,000 $12,438,021,000
Broker-dealer operations..................... 38,005,000 689,000 16,705,000 51,400,000
Asset management operations.................. 35,661,000 16,357,000 2,798,000 81,518,000
------------ ----------- ------------ ---------------
Total................................ $406,511,000 $72,721,000 $ 94,295,000 $12,570,939,000
============ =========== ============ ===============
1996:
Annuity operations........................... $256,681,000 $43,974,000 $ 53,827,000 $ 9,092,770,000
Broker-dealer operations..................... 31,053,000 449,000 13,033,000 37,355,000
Asset management operations.................. 33,047,000 18,295,000 2,448,000 74,410,000
------------ ----------- ------------ ---------------
Total................................ $320,781,000 $62,718,000 $ 69,308,000 $ 9,204,535,000
============ =========== ============ ===============
</TABLE>
12. SUBSEQUENT EVENTS
On July 15, 1998, the Company entered into a definitive agreement to acquire the
individual life business and the individual and group annuity business of MBL
Life Assurance Corporation ("MBL Life") via a 100% coinsurance transaction for
approximately $130,000,000 in cash. The transaction will include approximately
$2,000,000,000 of universal life reserves and $3,000,000,000 of fixed annuity
reserves. The Company plans to reinsure a large portion of the mortality risk
associated with the acquired block of universal life business. Completion of
this acquisition is expected by the end of calendar year 1998 and is subject to
customary conditions and required approvals. Included in this block of business
is approximately $250,000,000 of individual life business and $500,000,000 of
group annuity business whose contract owners are residents of New York State
("the New York Business"). Approximately six months subsequent to completion of
the transaction, the New York Business will be acquired by the Company's New
York affiliate, First SunAmerica Life Insurance Company, and the remainder of
the business will be acquired by the Company via assumption reinsurance
agreements between MBL Life and the respective companies, which will supersede
the coinsurance agreement. The $130,000,000 purchase price will be allocated
between the Company and its affiliate based on their respective assumed life
insurance reserves.
47
<PAGE> 102
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENTS (CONTINUED)
On August 20, 1998, the Parent announced that it has entered into a definite
agreement to merge with and into American International Group, Inc. ("AIG").
Under the terms of the agreement, each share of the Parent's common stock
(including Nontransferable Class B) will be exchanged for 0.855 shares of AIG's
common stock. The transaction will be treated as a pooling of interests for
accounting purposes and will be a tax-free reorganization. The transaction was
approved by both the Parent's and AIG's shareholders on November 18, 1998, and,
subject to various regulatory approvals, will be completed in late 1998 or early
1999.
48
<PAGE> 103
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS II VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
NOVEMBER 30, 1998
<PAGE> 104
REPORT OF INDEPENDENT ACCOUNTANTS
March 10, 1999
To the Board of Directors of Anchor National Life Insurance Company
and the Contractholders of its separate account,
Variable Separate Account (Portion Relating to the POLARIS II Variable Annuity)
In our opinion, the accompanying statement of net assets, including the schedule
of portfolio investments, and the related statements of operations and of
changes in net assets present fairly, in all material respects, the financial
position of each of the Variable Accounts constituting Variable Separate Account
(Portion Relating to the POLARIS II Variable Annuity), a separate account of
Anchor National Life Insurance Company (the "Separate Account") at November 30,
1998, the results of their operations for the year then ended, and the changes
in their net assets for the year ended November 30, 1998 and for the period from
inception to November 30, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Separate
Account's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at November 30, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
-2-
<PAGE> 105
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
Government International
Capital Natural and Diversified
Appreciation Growth Resources Quality Bond Equities
Portfolio Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $174,526,487 $89,789,854 $5,967,530 $77,842,356 $ 0
Investments in SunAmerica Series Trust,
at market value 0 0 0 0 61,168,074
Liabilities 0 0 0 0 0
-----------------------------------------------------------------------
Net Assets $174,526,487 $89,789,854 $5,967,530 $77,842,356 $61,168,074
=======================================================================
Accumulation units outstanding 7,356,862 3,678,108 641,479 5,697,571 4,519,545
=======================================================================
Unit value of accumulation units $ 23.72 $ 24.41 $ 9.30 $13.66 $13.53
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
Global Aggressive
Equities Growth
Portfolio Portfolio
--------------------------
<S> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 49,299,846 33,150,802
Liabilities 0 0
--------------------------
Net Assets $49,299,846 $33,150,802
==========================
Accumulation units outstanding 2,566,912 2,794,187
==========================
Unit value of accumulation units $ 19.21 $ 11.86
==========================
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE> 106
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
NOVEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
Growth/Phoenix
Venture Federated Putnam Investment
Value Value Growth Counsel
Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 484,391,582 60,007,952 110,342,981 14,202,858
Liabilities 0 0 0 0
--------------------------------------------------------------
Net Assets $484,391,582 $60,007,952 $110,342,981 $14,202,858
==============================================================
Accumulation units outstanding 20,734,371 3,783,248 4,949,624 694,076
==============================================================
Unit value of accumulation units $ 23.36 $ 15.86 $ 22.29 $ 20.46
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Alliance Growth- Asset
Growth Income Allocation
Portfolio Portfolio Portfolio
-------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 393,762,184 251,591,449 163,909,936
Liabilities 0 0 0
-------------------------------------------
Net Assets $393,762,184 $251,591,449 $163,909,936
===========================================
Accumulation units outstanding 12,001,651 9,786,202 8,996,522
===========================================
Unit value of accumulation units $ 32.81 $ 25.71 $ 18.22
===========================================
</TABLE>
-4-
<PAGE> 107
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
NOVEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
Balanced/Phoenix
SunAmerica Investment Worldwide
Balanced Counsel Utility High Income
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 55,282,683 25,778,836 26,313,641 32,985,273
Liabilities 0 0 0 0
-------------------------------------------------------------
Net Assets $55,282,683 $25,778,836 $26,313,641 $32,985,273
=============================================================
Accumulation units outstanding 3,543,245 1,492,175 1,807,529 2,430,509
=============================================================
Unit value of accumulation units $ 15.60 $ 17.28 $ 14.56 $ 13.57
=============================================================
</TABLE>
<TABLE>
<CAPTION>
High-Yield Global Corporate
Bond Bond Bond
Portfolio Portfolio Portfolio
------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 71,359,867 19,329,810 47,784,153
Liabilities 0 0 0
------------------------------------------
Net Assets $71,359,867 $19,329,810 $47,784,153
==========================================
Accumulation units outstanding 5,006,115 1,342,157 3,633,064
==========================================
Unit value of accumulation units $ 14.25 $ 14.40 $ 13.15
==========================================
</TABLE>
-5-
<PAGE> 108
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
NOVEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
International Emerging Real "Dogs" of
Growth & Income Markets Estate Wall Street
Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $ 0 $ 0
Investments in SunAmerica Series Trust,
at market value 75,169,281 15,795,868 32,691,828 41,986,957
Liabilities 0 0 0 0
----------------------------------------------------------
Net Assets $75,169,281 $15,795,868 $32,691,828 $41,986,957
==========================================================
Accumulation units outstanding 6,738,263 2,574,316 3,336,767 4,324,225
==========================================================
Unit value of accumulation units $ 11.16 $ 6.14 $ 9.80 $ 9.71
==========================================================
</TABLE>
<TABLE>
<CAPTION>
Cash
Management
Portfolio TOTAL
----------------------------
<S> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 348,126,227
Investments in SunAmerica Series Trust,
at market value 64,914,008 2,131,219,869
Liabilities 0 0
----------------------------
Net Assets $64,914,008 $2,479,346,096
============================
Accumulation units outstanding 5,488,046
===========
Unit value of accumulation units $ 11.83
===========
</TABLE>
-6-
<PAGE> 109
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
Market Value Market
Variable Accounts Shares Per Share Value Cost
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ANCHOR SERIES TRUST:
Capital Appreciation Portfolio 5,402,864 $32.30 $ 174,526,487 $ 176,793,253
Growth Portfolio 2,954,138 30.39 89,789,854 84,905,686
Natural Resources Portfolio 496,864 12.01 5,967,530 7,111,542
Government and Quality Bond Portfolio 5,341,208 14.57 77,842,356 77,129,096
-------------- --------------
348,126,227 345,939,577
-------------- --------------
SUNAMERICA SERIES TRUST:
International Diversified Equities Portfolio 4,756,943 12.86 61,168,074 59,490,190
Global Equities Portfolio 2,916,508 16.90 49,299,846 48,734,214
Aggressive Growth Portfolio 2,693,574 12.32 33,150,802 32,086,348
Venture Value Portfolio 20,973,760 23.10 484,391,582 463,627,538
Federated Value Portfolio 3,736,299 16.06 60,007,952 55,628,856
Putnam Growth Portfolio 5,461,044 20.21 110,342,981 105,860,380
Growth/Phoenix Investment Counsel Portfolio 923,939 15.37 14,202,858 13,886,171
Alliance Growth Portfolio 14,039,771 28.04 393,762,184 355,290,122
Growth-Income Portfolio 10,381,790 24.23 251,591,449 231,481,530
Asset Allocation Portfolio 11,067,195 14.81 163,909,936 170,377,565
SunAmerica Balanced Portfolio 3,540,813 15.61 55,282,683 51,369,762
Balanced/Phoenix Investment Counsel Portfolio 1,723,052 14.96 25,778,836 25,124,492
Utility Portfolio 1,819,493 14.46 26,313,641 24,799,814
Worldwide High Income Portfolio 3,199,513 10.31 32,985,273 39,633,479
High-Yield Bond Portfolio 6,499,893 10.98 71,359,867 75,606,322
Global Bond Portfolio 1,641,666 11.77 19,329,810 18,726,140
Corporate Bond Portfolio 4,041,511 11.83 47,784,153 46,982,454
International Growth & Income Portfolio 6,643,552 11.31 75,169,281 74,917,214
Emerging Markets Portfolio 2,538,470 6.22 15,795,868 19,544,436
Real Estate Portfolio 3,310,201 9.88 32,691,828 35,830,462
"Dogs" of Wall Street Portfolio 4,280,578 9.81 41,986,957 40,424,039
Cash Management Portfolio 6,135,770 10.58 64,914,008 64,226,641
-------------- --------------
2,131,219,869 2,053,648,169
-------------- --------------
$2,479,346,096 $2,399,587,746
============== ==============
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE> 110
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
Government
Capital Natural and
Appreciation Growth Resources Quality Bond
Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 11,032,976 $ 3,924,255 $ 135,751 $ 1,933,196
-----------------------------------------------------------
Total investment income 11,032,976 3,924,255 135,751 1,933,196
-----------------------------------------------------------
Expenses:
Mortality risk charge (939,619) (486,262) (44,827) (307,782)
Expense risk charge (322,418) (166,854) (15,382) (105,611)
Distribution expense charge (138,179) (71,509) (6,592) (45,262)
-----------------------------------------------------------
Total expenses (1,400,216) (724,625) (66,801) (458,655)
-----------------------------------------------------------
Net investment income (loss) 9,632,760 3,199,630 68,950 1,474,541
-----------------------------------------------------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 5,297,980 4,017,683 1,013,478 4,990,080
Cost of shares sold (5,624,893) (4,218,925) (1,217,637) (4,942,839)
-----------------------------------------------------------
Net realized gains (losses) from
securities transactions (326,913) (201,242) (204,159) 47,241
-----------------------------------------------------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period (800,813) (257,990) (340,757) (988)
End of period (2,266,766) 4,884,168 (1,144,012) 713,259
-----------------------------------------------------------
Change in net unrealized appreciation/depreciation
of investments (1,465,953) 5,142,158 (803,255) 714,247
-----------------------------------------------------------
Increase (decrease) in net assets from operations $ 7,839,894 $ 8,140,546 $(938,464) $2,236,029
===========================================================
</TABLE>
<TABLE>
<CAPTION>
International
Diversified Global Aggressive
Equities Equities Growth
Portfolio Portfolio Portfolio
--------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 1,019,739 $1,740,457 $ 0
--------------------------------------------
Total investment income 1,019,739 1,740,457 0
--------------------------------------------
Expenses:
Mortality risk charge (341,130) (279,281) (196,030)
Expense risk charge (117,054) (95,832) (67,265)
Distribution expense charge (50,166) (41,070) (28,828)
--------------------------------------------
Total expenses (508,350) (416,183) (292,123)
--------------------------------------------
Net investment income (loss) 511,389 1,324,274 (292,123)
--------------------------------------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 87,562,769 4,121,440 3,371,563
Cost of shares sold (86,176,118) (4,341,201) (3,563,419)
--------------------------------------------
Net realized gains (losses) from
securities transactions 1,386,651 (219,761) (191,856)
--------------------------------------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period (382,025) (338,902) (414,155)
End of period 1,677,884 565,631 1,064,455
--------------------------------------------
Change in net unrealized appreciation/depreciation
of investments 2,059,909 904,533 1,478,610
--------------------------------------------
Increase (decrease) in net assets from operations $ 3,957,949 $2,009,046 $ 994,631
============================================
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE> 111
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
NOVEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
Growth/Phoenix
Venture Federated Putnam Investment
Value Value Growth Counsel
Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 7,043,389 $ 541,239 $ 5,552,356 $ 958,888
-----------------------------------------------------------
Total investment income 7,043,389 541,239 5,552,356 958,888
-----------------------------------------------------------
Expenses:
Mortality risk charge (2,763,310) (330,661) (563,863) (78,486)
Expense risk charge (948,194) (113,462) (193,483) (26,931)
Distribution expense charge (406,369) (48,626) (82,921) (11,542)
-----------------------------------------------------------
Total expenses (4,117,873) (492,749) (840,267) (116,959)
-----------------------------------------------------------
Net investment income 2,925,516 48,490 4,712,089 841,929
-----------------------------------------------------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 1,469,282 4,265,144 4,579,611 1,797,581
Cost of shares sold (1,642,018) (4,236,615) (4,687,178) (1,814,796)
-----------------------------------------------------------
Net realized gains (losses) from
securities transactions (172,736) 28,529 (107,567) (17,215)
-----------------------------------------------------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period 896,667 219,083 517,729 40,607
End of period 20,764,044 4,379,096 4,482,602 316,687
-----------------------------------------------------------
Change in net unrealized appreciation/depreciation
of investments 19,867,377 4,160,013 3,964,873 276,080
-----------------------------------------------------------
Increase (decrease) in net assets from operations $22,620,157 $4,237,032 $8,569,395 $1,100,794
===========================================================
</TABLE>
<TABLE>
<CAPTION>
Alliance Growth- Asset
Growth Income Allocation
Portfolio Portfolio Portfolio
-------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 11,076,975 $ 4,322,303 $ 7,110,785
-------------------------------------------
Total investment income 11,076,975 4,322,303 7,110,785
-------------------------------------------
Expenses:
Mortality risk charge (1,912,840) (1,300,155) (917,142)
Expense risk charge (656,367) (446,132) (314,706)
Distribution expense charge (281,299) (191,199) (134,874)
-------------------------------------------
Total expenses (2,850,506) (1,937,486) (1,366,722)
-------------------------------------------
Net investment income 8,226,469 2,384,817 5,744,063
-------------------------------------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 5,882,567 3,263,991 601,489
Cost of shares sold (5,842,236) (3,369,642) (627,161)
-------------------------------------------
Net realized gains (losses) from
securities transactions 40,331 (105,651) (25,672)
-------------------------------------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period (443,551) 612,123 (75)
End of period 38,472,062 20,109,919 (6,467,628)
-------------------------------------------
Change in net unrealized appreciation/depreciation
of investments 38,915,613 19,497,796 (6,467,553)
-------------------------------------------
Increase (decrease) in net assets from operations $47,182,413 $21,776,962 $(749,162)
===========================================
</TABLE>
See accompanying notes to financial statements.
-9-
<PAGE> 112
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
NOVEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
Balanced/Phoenix
SunAmerica Investment Worldwide
Balanced Counsel Utility High Income
Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 423,010 $ 953,385 $ 222,084 $ 1,820,546
------------------------------------------------------------
Total investment income 423,010 953,385 222,084 1,820,546
------------------------------------------------------------
Expenses:
Mortality risk charge (229,885) (134,996) (117,525) (228,424)
Expense risk charge (78,882) (46,322) (40,327) (78,381)
Distribution expense charge (33,807) (19,852) (17,284) (33,591)
------------------------------------------------------------
Total expenses (342,574) (201,170) (175,136) (340,396)
------------------------------------------------------------
Net investment income 80,436 752,215 46,948 1,480,150
------------------------------------------------------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 92,767 787,068 1,393,514 2,205,585
Cost of shares sold (92,000) (864,226) (1,327,285) (2,550,083)
------------------------------------------------------------
Net realized gains (losses) from
securities transactions 767 (77,158) 66,229 (344,498)
------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period 66,673 29,397 149,883 (190,492)
End of period 3,912,921 654,344 1,513,827 (6,648,206)
------------------------------------------------------------
Change in net unrealized appreciation/depreciation
of investments 3,846,248 624,947 1,363,944 (6,457,714)
------------------------------------------------------------
Increase (decrease) in net assets from operations $3,927,451 $1,300,004 $1,477,121 $(5,322,062)
============================================================
</TABLE>
<TABLE>
<CAPTION>
High-Yield Global Corporate
Bond Bond Bond
Portfolio Portfolio Portfolio
---------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 1,781,049 $ 469,124 $ 483,098
---------------------------------------------
Total investment income 1,781,049 469,124 483,098
---------------------------------------------
Expenses:
Mortality risk charge (422,451) (101,472) (221,297)
Expense risk charge (144,959) (34,819) (75,935)
Distribution expense charge (62,125) (14,922) (32,544)
---------------------------------------------
Total expenses (629,535) (151,213) (329,776)
---------------------------------------------
Net investment income 1,151,514 317,911 153,322
---------------------------------------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 7,993,650 4,729,694 664,839
Cost of shares sold (8,207,091) (4,648,438) (660,657)
---------------------------------------------
Net realized gains (losses) from
securities transactions (213,441) 81,256 4,182
---------------------------------------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period 158,331 45,993 65,838
End of period (4,246,455) 603,670 801,699
---------------------------------------------
Change in net unrealized appreciation/depreciation
of investments (4,404,786) 557,677 735,861
---------------------------------------------
Increase (decrease) in net assets from operations $(3,466,713) $956,844 $893,365
=============================================
</TABLE>
See accompanying notes to financial statements.
-10-
<PAGE> 113
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
NOVEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
International Emerging Real "Dogs" of
Growth & Income Markets Estate Wall Street
Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 153,234 $ 60,860 $ 180,258 $ 0
--------------------------------------------------------------
Total investment income 153,234 60,860 180,258 0
--------------------------------------------------------------
Expenses:
Mortality risk charge (422,878) (116,442) (222,138) (122,599)
Expense risk charge (145,105) (39,955) (76,224) (42,068)
Distribution expense charge (62,188) (17,124) (32,667) (18,030)
--------------------------------------------------------------
Total expenses (630,171) (173,521) (331,029) (182,697)
--------------------------------------------------------------
Net investment income (loss) (476,937) (112,661) (150,771) (182,697)
--------------------------------------------------------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 26,298,015 1,682,339 2,903,081 207,752
Cost of shares sold (25,592,697) (1,914,820) (2,955,242) (210,257)
--------------------------------------------------------------
Net realized gains (losses) from
securities transactions 705,318 (232,481) (52,161) (2,505)
--------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period (177,654) (924,435) 294,483 0
End of period 252,067 (3,748,568) (3,138,635) 1,562,918
--------------------------------------------------------------
Change in net unrealized appreciation/depreciation
of investments 429,721 (2,824,133) (3,433,118) 1,562,918
--------------------------------------------------------------
Increase (decrease) in net assets from operations $ 658,102 $(3,169,275) $ (3,636,050) $ 1,377,716
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Cash
Management
Portfolio TOTAL
-----------------------------
<S> <C> <C>
Investment income:
Dividends and capital gains distributions $ 1,264,823 $ 64,203,780
-----------------------------
Total investment income 1,264,823 64,203,780
-----------------------------
Expenses:
Mortality risk charge (425,539) (13,227,034)
Expense risk charge (146,018) (4,538,686)
Distribution expense charge (62,579) (1,945,149)
-----------------------------
Total expenses (634,136) (19,710,869)
-----------------------------
Net investment income (loss) 630,687 44,492,911
-----------------------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 208,674,059 389,867,021
Cost of shares sold (208,498,385) (389,825,859)
-----------------------------
Net realized gains (losses) from
securities transactions 175,674 41,162
-----------------------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period 93,577 (1,081,453)
End of period 687,367 79,758,350
-----------------------------
Change in net unrealized appreciation/depreciation
of investments 593,790 80,839,803
-----------------------------
Increase (decrease) in net assets from operations $ 1,400,151 $125,373,876
=============================
</TABLE>
See accompanying notes to financial statements.
-11-
<PAGE> 114
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
Government
Capital Natural and
Appreciation Growth Resources Quality Bond
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $9,632,760 $3,199,630 $68,950 $1,474,541
Net realized gains (losses) from
securities transactions (326,913) (201,242) (204,159) 47,241
Change in net unrealized appreciation/
depreciation of investments (1,465,953) 5,142,158 (803,255) 714,247
-------------------------------------------------------------------
Increase (decrease) in net assets from
operations 7,839,894 8,140,546 (938,464) 2,236,029
-------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 71,721,210 35,475,742 2,712,488 28,907,989
Cost of units redeemed (2,491,708) (1,447,887) (143,369) (968,073)
Net transfers 67,863,753 31,589,411 2,154,514 42,664,629
-------------------------------------------------------------------
Increase in net assets
from capital transactions 137,093,255 65,617,266 4,723,633 70,604,545
-------------------------------------------------------------------
Increase in net assets 144,933,149 73,757,812 3,785,169 72,840,574
Net assets at beginning of period 29,593,338 16,032,042 2,182,361 5,001,782
-------------------------------------------------------------------
Net assets at end of period $174,526,487 $89,789,854 $5,967,530 $77,842,356
===================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 3,101,815 1,578,439 257,386 2,175,939
Units redeemed (108,228) (63,877) (14,128) (72,558)
Units transferred 2,971,013 1,374,272 202,275 3,198,932
-------------------------------------------------------------------
Increase in units outstanding 5,964,600 2,888,834 445,533 5,302,313
Beginning units 1,392,262 789,274 195,946 395,258
-------------------------------------------------------------------
Ending units 7,356,862 3,678,108 641,479 5,697,571
===================================================================
</TABLE>
<TABLE>
<CAPTION>
International
Diversified Global Aggressive
Equities Equities Growth
Portfolio Portfolio Portfolio
--------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $511,389 $1,324,274 $(292,123)
Net realized gains (losses) from
securities transactions 1,386,651 (219,761) (191,856)
Change in net unrealized appreciation/
depreciation of investments 2,059,909 904,533 1,478,610
--------------------------------------------------
Increase (decrease) in net assets from
operations 3,957,949 2,009,046 994,631
--------------------------------------------------
From capital transactions:
Net proceeds from units sold 21,091,841 19,315,338 13,649,199
Cost of units redeemed (1,004,862) (640,259) (828,570)
Net transfers 25,033,100 18,470,077 9,885,207
--------------------------------------------------
Increase in net assets
from capital transactions 45,120,079 37,145,156 22,705,836
--------------------------------------------------
Increase in net assets 49,078,028 39,154,202 23,700,467
Net assets at beginning of period 12,090,046 10,145,644 9,450,335
--------------------------------------------------
Net assets at end of period $ $61,168,074 $49,299,846 $33,150,802
==================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 1,598,306 1,033,453 1,177,432
Units redeemed (75,427) (34,289) (72,238)
Units transferred 1,955,854 967,454 867,888
--------------------------------------------------
Increase in units outstanding 3,478,733 1,966,618 1,973,082
Beginning units 1,040,812 600,294 821,105
--------------------------------------------------
Ending units 4,519,545 2,566,912 2,794,187
==================================================
</TABLE>
See accompanying notes to financial statements.
-12-
<PAGE> 115
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
Growth/Phoenix
Venture Federated Putnam Investment
Value Value Growth Counsel
Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $2,925,516 $48,490 $4,712,089 $841,929
Net realized gains (losses) from
securities transactions (172,736) 28,529 (107,567) (17,215)
Change in net unrealized appreciation/
depreciation of investments 19,867,377 4,160,013 3,964,873 276,080
------------------------------------------------------------------
Increase (decrease) in net assets
from operations 22,620,157 4,237,032 8,569,395 1,100,794
------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 208,314,099 26,931,209 49,959,863 5,669,893
Cost of units redeemed (7,851,820) (1,132,439) (1,645,834) (278,400)
Net transfers 170,105,124 19,944,991 38,106,584 4,341,304
------------------------------------------------------------------
Increase in net assets
from capital transactions 370,567,403 45,743,761 86,420,613 9,732,797
------------------------------------------------------------------
Increase in net assets 393,187,560 49,980,793 94,990,008 10,833,591
Net assets at beginning of period 91,204,022 10,027,159 15,352,973 3,369,267
------------------------------------------------------------------
Net assets at end of period $484,391,582 $60,007,952 $110,342,981 $14,202,858
==================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 9,205,602 1,800,123 2,384,765 294,266
Units redeemed (349,256) (74,877) (78,007) (14,370)
Units transferred 7,596,146 1,321,669 1,811,688 223,079
------------------------------------------------------------------
Increase in units outstanding 16,452,492 3,046,915 4,118,446 502,975
Beginning units 4,281,879 736,333 831,178 191,101
------------------------------------------------------------------
Ending units 20,734,371 3,783,248 4,949,624 694,076
==================================================================
</TABLE>
<TABLE>
<CAPTION>
Alliance Growth- Asset
Growth Income Allocation
Portfolio Portfolio Portfolio
------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $8,226,469 $2,384,817 $5,744,063
Net realized gains (losses) from
securities transactions 40,331 (105,651) (25,672)
Change in net unrealized appreciation/
depreciation of investments 38,915,613 19,497,796 (6,467,553)
------------------------------------------------
Increase (decrease) in net assets
from operations 47,182,413 21,776,962 (749,162)
------------------------------------------------
From capital transactions:
Net proceeds from units sold 156,292,588 102,300,459 71,072,209
Cost of units redeemed (7,072,575) (4,333,954) (2,843,383)
Net transfers 146,090,948 90,122,898 69,478,908
------------------------------------------------
Increase in net assets
from capital transactions 295,310,961 188,089,403 137,707,734
------------------------------------------------
Increase in net assets 342,493,374 209,866,365 136,958,572
Net assets at beginning of period 51,268,810 41,725,084 26,951,364
------------------------------------------------
Net assets at end of period $393,762,184 $251,591,449 $163,909,936
================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 5,295,545 4,276,262 3,835,848
Units redeemed (236,519) (178,639) (157,177)
Units transferred 4,850,581 3,739,287 3,819,170
------------------------------------------------
Increase in units outstanding 9,909,607 7,836,910 7,497,841
Beginning units 2,092,044 1,949,292 1,498,681
------------------------------------------------
Ending units 12,001,651 9,786,202 8,996,522
================================================
</TABLE>
See accompanying notes to financial statements.
-13-
<PAGE> 116
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
Balanced/Phoenix
SunAmerica Investment Worldwide
Balanced Counsel Utility High Income
Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $80,436 $752,215 $46,948 $1,480,150
Net realized gains (losses) from
securities transactions 767 (77,158) 66,229 (344,498)
Change in net unrealized appreciation/
depreciation of investments 3,846,248 624,947 1,363,944 (6,457,714)
------------------------------------------------------------------
Increase (decrease) in net assets
from operations 3,927,451 1,300,004 1,477,121 (5,322,062)
------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 23,239,334 11,304,259 10,714,120 17,466,056
Cost of units redeemed (821,763) (494,667) (321,498) (766,182)
Net transfers 24,137,415 10,295,638 12,180,126 12,081,287
------------------------------------------------------------------
Increase in net assets
from capital transactions 46,554,986 21,105,230 22,572,748 28,781,161
------------------------------------------------------------------
Increase in net assets 50,482,437 22,405,234 24,049,869 23,459,099
Net assets at beginning of period 4,800,246 3,373,602 2,263,772 9,526,174
------------------------------------------------------------------
Net assets at end of period $55,282,683 $25,778,836 $26,313,641 $32,985,273
==================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 1,595,594 684,178 777,520 1,095,112
Units redeemed (55,510) (29,447) (23,068) (52,697)
Units transferred 1,640,025 619,053 875,459 791,786
------------------------------------------------------------------
Increase in units outstanding 3,180,109 1,273,784 1,629,911 1,834,201
Beginning units 363,136 218,391 177,618 596,308
------------------------------------------------------------------
Ending units 3,543,245 1,492,175 1,807,529 2,430,509
==================================================================
</TABLE>
<TABLE>
<CAPTION>
High-Yield Global Corporate
Bond Bond Bond
Portfolio Portfolio Portfolio
-----------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income $1,151,514 $317,911 $153,322
Net realized gains (losses) from
securities transactions (213,441) 81,256 4,182
Change in net unrealized appreciation/
depreciation of investments (4,404,786) 557,677 735,861
-----------------------------------------------
Increase (decrease) in net assets
from operations (3,466,713) 956,844 893,365
-----------------------------------------------
From capital transactions:
Net proceeds from units sold 42,561,001 7,360,275 22,508,270
Cost of units redeemed (1,599,144) (442,454) (965,054)
Net transfers 22,740,488 9,053,497 21,232,066
-----------------------------------------------
Increase in net assets
from capital transactions 63,702,345 15,971,318 42,775,282
-----------------------------------------------
Increase in net assets 60,235,632 16,928,162 43,668,647
Net assets at beginning of period 11,124,235 2,401,648 4,115,506
-----------------------------------------------
Net assets at end of period $71,359,867 $19,329,810 $47,784,153
===============================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 2,810,972 534,729 1,742,472
Units redeemed (107,339) (31,521) (74,403)
Units transferred 1,543,626 655,386 1,636,695
-----------------------------------------------
Increase in units outstanding 4,247,259 1,158,594 3,304,764
Beginning units 758,856 183,563 328,300
-----------------------------------------------
Ending units 5,006,115 1,342,157 3,633,064
===============================================
</TABLE>
See accompanying notes to financial statements.
-14-
<PAGE> 117
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
International Emerging Real "Dogs" of
Growth & Income Markets Estate Wall Street
Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $(476,937) $(112,661) $(150,771) $(182,697)
Net realized gains (losses) from
securities transactions 705,318 (232,481) (52,161) (2,505)
Change in net unrealized appreciation/
depreciation of investments 429,721 (2,824,133) (3,433,118) 1,562,918
--------------------------------------------------------------------
Increase (decrease) in net assets
from operations 658,102 (3,169,275) (3,636,050) 1,377,716
--------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 28,356,252 7,726,541 16,657,991 21,886,112
Cost of units redeemed (1,031,779) (312,814) (680,765) (263,684)
Net transfers 33,650,652 6,265,150 10,198,411 18,986,813
--------------------------------------------------------------------
Increase in net assets
from capital transactions 60,975,125 13,678,877 26,175,637 40,609,241
--------------------------------------------------------------------
Increase in net assets 61,633,227 10,509,602 22,539,587 41,986,957
Net assets at beginning of period 13,536,054 5,286,266 10,152,241 0
--------------------------------------------------------------------
Net assets at end of period $75,169,281 $15,795,868 $32,691,828 $41,986,957
====================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 2,490,709 1,042,154 1,513,224 2,316,059
Units redeemed (92,993) (45,374) (64,997) (28,630)
Units transferred 3,030,421 914,324 1,001,219 2,036,796
--------------------------------------------------------------------
Increase in units outstanding 5,428,137 1,911,104 2,449,446 4,324,225
Beginning units 1,310,126 663,212 887,321 0
--------------------------------------------------------------------
Ending units 6,738,263 2,574,316 3,336,767 4,324,225
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Cash
Management
Portfolio TOTAL
------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $630,687 $44,492,911
Net realized gains (losses) from
securities transactions 175,674 41,162
Change in net unrealized appreciation/
depreciation of investments 593,790 80,839,803
------------------------------
Increase (decrease) in net assets
from operations 1,400,151 125,373,876
------------------------------
From capital transactions:
Net proceeds from units sold 97,871,143 1,121,065,481
Cost of units redeemed (3,830,114) (44,213,051)
Net transfers (47,835,079) 868,837,912
------------------------------
Increase in net assets
from capital transactions 46,205,950 1,945,690,342
------------------------------
Increase in net assets 47,606,101 2,071,064,218
Net assets at beginning of period 17,307,907 408,281,878
------------------------------
Net assets at end of period $64,914,008 $2,479,346,096
==============================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 8,397,502
Units redeemed (327,207)
Units transferred (4,096,539)
-------------
Increase in units outstanding 3,973,756
Beginning units 1,514,290
-------------
Ending units 5,488,046
=============
</TABLE>
See accompanying notes to financial statements.
-15-
<PAGE> 118
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION
TO NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Government
Capital Natural and
Appreciation Growth Resources Quality Bond
Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $826,863 $503,690 $59,691 $82,504
Net realized gains (losses) from
securities transactions 0 0 63 205
Change in net unrealized appreciation/
depreciation of investments (800,813) (257,990) (340,757) (988)
------------------------------------------------------------------
Increase (decrease) in net assets
from operations 26,050 245,700 (281,003) 81,721
------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 23,159,718 12,696,889 2,216,088 3,868,265
Cost of units redeemed (95,257) (41,312) (11,873) (18,096)
Net transfers 6,502,827 3,130,765 259,149 1,069,892
------------------------------------------------------------------
Increase in net assets
from capital transactions 29,567,288 15,786,342 2,463,364 4,920,061
------------------------------------------------------------------
Increase in net assets 29,593,338 16,032,042 2,182,361 5,001,782
Net assets at beginning of period 0 0 0 0
------------------------------------------------------------------
Net assets at end of period $29,593,338 $16,032,042 $2,182,361 $5,001,782
==================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 1,092,557 635,211 176,104 310,872
Units redeemed (4,415) (2,044) (963) (1,444)
Units transferred 304,120 156,107 20,805 85,830
------------------------------------------------------------------
Increase in units outstanding 1,392,262 789,274 195,946 395,258
Beginning units 0 0 0 0
------------------------------------------------------------------
Ending units 1,392,262 789,274 195,946 395,258
==================================================================
</TABLE>
<TABLE>
<CAPTION>
International
Diversified Global Aggressive
Equities Equities Growth
Portfolio Portfolio Portfolio
-----------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $(36,929) $(31,703) $(26,947)
Net realized gains (losses) from
securities transactions (106,180) 95 (2,866)
Change in net unrealized appreciation/
depreciation of investments (382,025) (338,902) (414,155)
-----------------------------------------------
Increase (decrease) in net assets
from operations (525,134) (370,510) (443,968)
-----------------------------------------------
From capital transactions:
Net proceeds from units sold 10,603,417 8,934,544 7,894,703
Cost of units redeemed (35,899) (33,170) (34,080)
Net transfers 2,047,662 1,614,780 2,033,680
-----------------------------------------------
Increase in net assets
from capital transactions 12,615,180 10,516,154 9,894,303
-----------------------------------------------
Increase in net assets 12,090,046 10,145,644 9,450,335
Net assets at beginning of period 0 0 0
-----------------------------------------------
Net assets at end of period $12,090,046 $10,145,644 $9,450,335
===============================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 869,676 509,783 660,526
Units redeemed (3,019) (1,901) (2,833)
Units transferred 174,155 92,412 163,412
-----------------------------------------------
Increase in units outstanding 1,040,812 600,294 821,105
Beginning units 0 0 0
-----------------------------------------------
Ending units 1,040,812 600,294 821,105
===============================================
</TABLE>
See accompanying notes to financial statements.
-16-
<PAGE> 119
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION
TO NOVEMBER 30, 1997
(Continued)
<TABLE>
<CAPTION>
Growth/Phoenix
Venture Federated Putnam Investment
Value Value Growth Counsel
Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment (loss) $(270,100) $(28,123) $(46,505) $(9,082)
Net realized gains (losses) from
securities transactions 181 2,696 (6,675) 2,728
Change in net unrealized appreciation/
depreciation of investments 896,667 219,083 517,729 40,607
-----------------------------------------------------------------
Increase (decrease) in net assets
from operations 626,748 193,656 464,549 34,253
-----------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 75,639,880 8,474,742 12,706,054 2,192,917
Cost of units redeemed (366,571) (48,799) (84,900) (15,013)
Net transfers 15,303,965 1,407,560 2,267,270 1,157,110
-----------------------------------------------------------------
Increase in net assets
from capital transactions 90,577,274 9,833,503 14,888,424 3,335,014
-----------------------------------------------------------------
Increase in net assets 91,204,022 10,027,159 15,352,973 3,369,267
Net assets at beginning of period 0 0 0 0
-----------------------------------------------------------------
Net assets at end of period $91,204,022 $10,027,159 $15,352,973 $3,369,267
=================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 3,581,844 635,363 710,175 126,887
Units redeemed (17,008) (3,597) (4,701) (861)
Units transferred 717,043 104,567 125,704 65,075
-----------------------------------------------------------------
Increase in units outstanding 4,281,879 736,333 831,178 191,101
Beginning units 0 0 0 0
-----------------------------------------------------------------
Ending units 4,281,879 736,333 831,178 191,101
=================================================================
</TABLE>
<TABLE>
Alliance Growth- Asset
Growth Income Allocation
Portfolio Portfolio Portfolio
----------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment (loss) $(149,588) $(122,722) $(76,920)
Net realized gains (losses) from
securities transactions 8,698 5,525 2,175
Change in net unrealized appreciation/
depreciation of investments (443,551) 612,123 (75)
----------------------------------------------
Increase (decrease) in net assets
from operations (584,441) 494,926 (74,820)
----------------------------------------------
From capital transactions:
Net proceeds from units sold 44,427,684 35,421,957 22,887,086
Cost of units redeemed (226,957) (259,045) (86,548)
Net transfers 7,652,524 6,067,246 4,225,646
----------------------------------------------
Increase in net assets
from capital transactions 51,853,251 41,230,158 27,026,184
----------------------------------------------
Increase in net assets 51,268,810 41,725,084 26,951,364
Net assets at beginning of period 0 0 0
----------------------------------------------
Net assets at end of period 51,268,810 $41,725,084 $26,951,364
==============================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 1,792,757 1,676,588 1,271,411
Units redeemed (8,978) (12,060) (4,764)
Units transferred 308,265 284,764 232,034
----------------------------------------------
Increase in units outstanding 2,092,044 1,949,292 1,498,681
Beginning units 0 0 0
----------------------------------------------
Ending units 2,092,044 1,949,292 1,498,681
==============================================
</TABLE>
See accompanying notes to financial statements.
-17-
<PAGE> 120
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION
TO NOVEMBER 30, 1997
(Continued)
<TABLE>
<CAPTION>
Balanced/Phoenix
SunAmerica Investment Worldwide
Balanced Counsel Utility High Income
Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment (loss) $(13,582) $(9,656) $(6,384) $(31,230)
Net realized gains (losses) from
securities transactions (18) (51) 1,537 9,576
Change in net unrealized appreciation/
depreciation of investments 66,673 29,397 149,883 (190,492)
--------------------------------------------------------------------
Increase (decrease) in net assets
from operations 53,073 19,690 145,036 (212,146)
--------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 3,967,135 2,825,012 1,620,410 9,599,739
Cost of units redeemed (14,781) (18,238) (7,592) (80,608)
Net transfers 794,819 547,138 505,918 219,189
--------------------------------------------------------------------
Increase in net assets
from capital transactions 4,747,173 3,353,912 2,118,736 9,738,320
--------------------------------------------------------------------
Increase in net assets 4,800,246 3,373,602 2,263,772 9,526,174
Net assets at beginning of period 0 0 0 0
--------------------------------------------------------------------
Net assets at end of period $4,800,246 $3,373,602 $2,263,772 $9,526,174
====================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 303,655 184,119 136,523 587,697
Units redeemed (1,120) (1,192) (632) (5,044)
Units transferred 60,601 35,464 41,727 13,655
--------------------------------------------------------------------
Increase in units outstanding 363,136 218,391 177,618 596,308
Beginning units 0 0 0 0
--------------------------------------------------------------------
Ending units 363,136 218,391 177,618 596,308
====================================================================
</TABLE>
<TABLE>
<CAPTION>
High-Yield Global Corporate
Bond Bond Bond
Portfolio Portfolio Portfolio
-----------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment (loss) $(29,931) $(6,564) $(9,322)
Net realized gains (losses) from
securities transactions 4,526 574 3,878
Change in net unrealized appreciation/
depreciation of investments 158,331 45,993 65,838
-----------------------------------------------
Increase (decrease) in net assets
from operations 132,926 40,003 60,394
-----------------------------------------------
From capital transactions:
Net proceeds from units sold 10,011,101 1,999,855 3,335,056
Cost of units redeemed (86,536) (18,819) (67,464)
Net transfers 1,066,744 380,609 787,520
-----------------------------------------------
Increase in net assets
from capital transactions 10,991,309 2,361,645 4,055,112
-----------------------------------------------
Increase in net assets 11,124,235 2,401,648 4,115,506
Net assets at beginning of period 0 0 0
-----------------------------------------------
Net assets at end of period $11,124,235 $2,401,648 $4,115,506
===============================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 691,298 155,461 270,276
Units redeemed (5,942) (1,455) (5,508)
Units transferred 73,500 29,557 63,532
-----------------------------------------------
Increase in units outstanding 758,856 183,563 328,300
Beginning units 0 0 0
-----------------------------------------------
Ending units 758,856 183,563 328,300
===============================================
</TABLE>
See accompanying notes to financial statements.
-18-
<PAGE> 121
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS II Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION
TO NOVEMBER 30, 1997
(Continued)
<TABLE>
International Emerging Real Cash
Growth & Income Markets Estate Management
Portfolio Portfolio Portfolio Portfolio TOTAL
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment (loss) $(39,967) $(17,574) $(27,282) $(44,119) $438,518
Net realized gains (losses) from
securities transactions (10,997) (30,924) 5,246 49,345 (60,663)
Change in net unrealized appreciation/
depreciation of investments (177,654) (924,435) 294,483 93,577 (1,081,453)
-------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations (228,618) (972,933) 272,447 98,803 (703,598)
-------------------------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 11,169,178 5,562,841 7,709,615 29,033,820 357,957,706
Cost of units redeemed (99,588) (21,802) (38,910) (498,166) (2,310,024)
Net transfers 2,695,082 718,160 2,209,089 (11,326,550) 53,337,794
-------------------------------------------------------------------------------------
Increase in net assets
from capital transactions 13,764,672 6,259,199 9,879,794 17,209,104 408,985,476
-------------------------------------------------------------------------------------
Increase in net assets 13,536,054 5,286,266 10,152,241 17,307,907 408,281,878
Net assets at beginning of period 0 0 0 0 0
-------------------------------------------------------------------------------------
Net assets at end of period $13,536,054 $5,286,266 $10,152,241 $17,307,907 $408,281,878
=====================================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 1,059,596 587,681 694,858 2,554,146
Units redeemed (9,440) (2,371) (3,457) (43,640)
Units transferred 259,970 77,902 195,920 (996,216)
--------------------------------------------------------------------
Increase in units outstanding 1,310,126 663,212 887,321 1,514,290
Beginning units 0 0 0 0
--------------------------------------------------------------------
Ending units 1,310,126 663,212 887,321 1,514,290
====================================================================
</TABLE>
See accompanying notes to financial statements.
-19-
<PAGE> 122
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS II VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Separate Account (Portion Relating to the POLARIS II Variable
Annuity) of Anchor National Life Insurance Company (the "Separate
Account") is a segregated investment account of Anchor National Life
Insurance Company (the "Company"). The Company is an indirect, wholly
owned subsidiary of SunAmerica Inc. The Separate Account is registered
as a segregated unit investment trust pursuant to the provisions of the
Investment Company Act of 1940, as amended.
The Separate Account is composed of twenty-six variable portfolios (the
"Variable Accounts"). Each of the Variable Accounts is invested solely
in the shares of either (1) one of the four currently available
investment portfolios of Anchor Series Trust ("Anchor Trust") or (2)
one of the twenty-two currently available investment portfolios of
SunAmerica Series Trust ("SunAmerica Trust"). The Anchor Trust and the
SunAmerica Trust (the "Trusts") are each diversified, open-end,
affiliated investment companies, which retain investment advisors to
assist in the investment activities of the Trusts. The participant may
elect to have payments allocated to any of seven guaranteed-interest
funds of the Company (the "General Account"), which are not a part of
the Separate Account. The financial statements include balances
allocated by the participant to the twenty-six Variable Accounts and do
not include balances allocated to the General Account.
The inception date of the Government Bond and Global Bond Portfolios
was June 11, 1997. The inception date of the Phoenix Balanced Portfolio
was June 10, 1997. The inception date of the Corporate Bond, High-Yield
Bond, and Aggressive Growth Portfolios was June 9, 1997. The inception
date of the Utility Portfolio was June 6, 1997. The inception date of
the Cash Management, Worldwide High Income, SunAmerica Balanced, and
Emerging Markets Portfolios was June 5, 1997. The inception date of the
Natural Resources, Phoenix Investment Counsel, Federated Value,
International Diversified Equities, International Growth & Income, and
Real Estate Portfolios was June 4, 1997. The inception date of the
Venture Value and Alliance Growth Portfolios was June 2, 1997. The
inception date of the "Dogs" of Wall Street Portfolio was April 1,
1998. The inception date of the remaining portfolios was June 3, 1997.
-20-
<PAGE> 123
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS II VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The investment objectives and policies of the four portfolios of the
Anchor Trust are summarized below:
The CAPITAL APPRECIATION PORTFOLIO seeks long-term capital
appreciation. This portfolio invests in growth equity securities which
are widely diversified by industry and company and may engage in
transactions involving stock index futures and options thereon as a
hedge against changes in market conditions.
The GROWTH PORTFOLIO seeks capital appreciation. This portfolio invests
in growth equity securities and may engage in transactions involving
stock index futures and options thereon as a hedge against changes in
market conditions.
The NATURAL RESOURCES PORTFOLIO seeks a total return in excess of the
U.S. rate of inflation as represented by the Consumer Price Index. This
portfolio invests primarily in equity securities of U.S. or foreign
companies which are expected to provide favorable returns in periods of
rising inflation.
The GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current
income, liquidity and security of principal. This portfolio invests in
obligations issued, guaranteed or insured by the U.S. Government, its
agencies or instrumentalities and in corporate debt securities rated Aa
or better by Moody's Investor Service, Inc. or AA or better by Standard
& Poor's Corporation.
Anchor Trust has portfolios in addition to those identified above;
however, none of these other portfolios is currently available for
investment under the Separate Account.
The investment objectives and policies of the twenty-two portfolios of
the SunAmerica Trust are summarized below:
The INTERNATIONAL DIVERSIFIED EQUITIES PORTFOLIO seeks long-term
capital appreciation. This portfolio invests in accordance with country
weightings as determined by the subadvisor in common stocks of foreign
issuers which, in the aggregate, replicate broad country indices.
The GLOBAL EQUITIES PORTFOLIO seeks long-term growth of capital. This
portfolio invests primarily in common stocks or securities of U.S. and
foreign issuers with common stock characteristics which demonstrate the
potential for appreciation and engages in transactions in foreign
currencies.
-21-
<PAGE> 124
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS II VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The AGGRESSIVE GROWTH PORTFOLIO seeks capital appreciation. This
portfolio invests primarily in equity securities of small
capitalization growth companies.
The VENTURE VALUE PORTFOLIO seeks growth of capital. This portfolio
invests primarily in common stocks.
The FEDERATED VALUE PORTFOLIO seeks growth of capital and income. This
portfolio invests primarily in the securities of high quality
companies.
The PUTNAM GROWTH, GROWTH/PHOENIX INVESTMENT COUNSEL AND ALLIANCE
GROWTH PORTFOLIOS seek long-term growth of capital. These portfolios
invest primarily in common stocks or securities with common stock
characteristics which the advisor believes have the potential for
appreciation.
The GROWTH-INCOME PORTFOLIO seeks growth of capital and income. This
portfolio invests primarily in common stocks or securities which
demonstrate the potential for appreciation and/or dividends.
The ASSET ALLOCATION PORTFOLIO seeks high total return (including
income and capital gains) consistent with preservation of capital over
the long term. This portfolio invests in a diversified selection of
common stocks and other securities having common stock characteristics,
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 SUNAMERICA BALANCED PORTFOLIO seeks to conserve principal. This
portfolio maintains at all times a balanced portfolio of stocks and
bonds.
The BALANCED/PHOENIX INVESTMENT COUNSEL PORTFOLIO seeks reasonable
income, long-term capital growth and conservation of capital. This
portfolio invests primarily in common stocks and fixed-income
securities, with an emphasis on income-producing securities which
appear to have some potential for capital enhancement.
The UTILITY PORTFOLIO seeks high current income and moderate capital
appreciation. This portfolio invests primarily in the equity and debt
securities of utility companies.
-22-
<PAGE> 125
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS II VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The WORLDWIDE HIGH INCOME PORTFOLIO seeks high current income and,
secondarily, capital appreciation. This portfolio invests primarily in
a selection of high-yielding fixed-income securities of issuers located
throughout the world.
The HIGH-YIELD BOND PORTFOLIO seeks a high level of current income and,
secondarily, seeks capital appreciation. This portfolio invests
primarily in intermediate and long-term corporate obligations, with
emphasis on higher-yielding, higher-risk, lower-rated or unrated
securities.
The GLOBAL BOND PORTFOLIO seeks a high total return, emphasizing
current income and, to a lesser extent, providing opportunities for
capital appreciation. This portfolio invests in high quality
fixed-income securities of U.S. and foreign issuers and engages in
transactions in foreign currencies.
The CORPORATE BOND PORTFOLIO seeks a high total return with only
moderate price risk. This portfolio invests primarily in investment
grade fixed-income securities.
The INTERNATIONAL GROWTH AND INCOME PORTFOLIO seeks growth of capital
with current income as a secondary objective. This portfolio invests
primarily in common stocks traded on markets outside the United States.
The EMERGING MARKETS PORTFOLIO seeks long-term capital appreciation.
This portfolio invests mainly in the common stocks and other equity
securities of companies that its subadvisor believes have above-average
growth prospects primarily in emerging markets outside the United
States.
The REAL ESTATE PORTFOLIO seeks to achieve total return through a
combination of growth and income. This portfolio invests primarily in
securities of companies principally engaged in or related to the real
estate industry or which own significant real estate assets or which
primarily invest in real estate financial instruments.
The "DOGS" OF WALL STREET PORTFOLIO seeks total return (including
capital appreciation and current income) primarily through the annual
selection of thirty high dividend yielding common stocks from the Dow
Jones Industrial Average and the Standard & Poor's 400 Industrials.
-23-
<PAGE> 126
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS II VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The CASH MANAGEMENT PORTFOLIO seeks high current yield while preserving
capital. This portfolio invests in a diversified selection of money
market instruments.
The SunAmerica Trust has portfolios in addition to those identified
above; however, none of these other portfolios is currently available
for investment under the Separate Account.
Purchases and sales of shares of the portfolios of the Trusts are
valued at the net asset values of the shares on the date the shares are
purchased or sold. Dividends and capital gains distributions are
recorded when received. Realized gains and losses on the sale of
investments in the Trusts are recognized at the date of sale and are
determined on an average cost basis.
Accumulation unit values are computed daily based on the total net
assets of the Variable Accounts.
-24-
<PAGE> 127
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS II VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS
Charges and deductions are applied against the current value of the
Separate Account and are paid as follows:
WITHDRAWAL CHARGE: The contract value may be withdrawn at any time
during the accumulation period. Purchase payments that are no longer
subject to the withdrawal charge and not previously withdrawn and
earnings in the contract may be withdrawn free of withdrawal charges at
any time. In addition, there is a free withdrawal amount for the first
withdrawal during a contract year after the first contract year. The
free withdrawal amount is the greater of earnings in the contract or
10% of the purchase payments that have been invested for at least one
year, and not withdrawn, less any withdrawals made during the year.
Should a withdrawal exceed the free withdrawal amount, a withdrawal
charge, in certain circumstances, is imposed and paid to the Company.
Withdrawal charges vary in amount depending upon the number of years
since the purchase payment being withdrawn was made. The withdrawal
charge is deducted from the remaining contract value so that the actual
reduction in contract value as a result of the withdrawal will be
greater than the withdrawal amount requested and paid. For purposes of
determining the withdrawal charge, withdrawals will be allocated first
to investment income, if any (which may generally be withdrawn free of
a withdrawal charge), and then to the oldest purchase payments first so
that all withdrawals are allocated to purchase payments to which the
lowest (if any) withdrawal charge applies.
Any amount withdrawn which exceeds a free withdrawal may be subject to
a withdrawal charge in accordance with the withdrawal charge table
shown below:
<TABLE>
<CAPTION>
Policy Applicable Withdrawal
Year Charge Percentage
----------------------------------------------------------------------
<S> <C>
First 7%
Second 6%
Third 5%
Fourth 4%
Fifth 3%
Sixth 2%
Seventh 1%
Eighth and beyond 0%
</TABLE>
-25-
<PAGE> 128
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS II VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS (continued)
CONTRACT MAINTENANCE FEE: An annual contract maintenance fee of $35
($30 in North Dakota and Utah) is charged against each contract, which
reimburses the Company for expenses incurred in establishing and
maintaining records relating to a contract. The contract maintenance
fee will be assessed on each anniversary during the accumulation phase.
In the event that a total surrender of contract value is made, the
entire charge will be assessed as of the date of surrender.
TRANSFER FEE: A transfer fee of $25 ($10 in Pennsylvania and Texas) is
assessed on each transfer of funds in excess of fifteen transactions
within a contract year.
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 annuity payments begin. The
Company currently intends to deduct premium taxes at the time of
surrender or upon annuitization; however, it reserves the right to
deduct any premium taxes when incurred or upon the payment of the death
benefit.
MORTALITY AND EXPENSE RISK CHARGE: The Company deducts mortality and
expense risk charges, which total to an annual rate of 1.37% of the net
asset value of each portfolio, computed on a daily basis. The mortality
risk charge is compensation for the mortality risks assumed by the
Company from its contractual obligations to make annuity payments after
the contract has annuitized for the life of the annuitant and to
provide death benefits, and for assuming the risk that the current
charges will be insufficient in the future to cover the cost of
administering the contract.
DISTRIBUTION EXPENSE CHARGE: The Company deducts a distribution expense
charge at an annual rate of 0.15% of the net asset value of each
portfolio, computed on a daily basis. This charge is for all expenses
associated with the distribution of the contract. These expenses
include preparing the contract, confirmations and statements, providing
sales support and maintaining contract records. If this charge is not
enough to cover the costs of distributing the contract, the Company
will bear the loss.
SEPARATE ACCOUNT INCOME TAXES: The Company currently does not maintain
a provision for taxes, but has reserved the right to establish such a
provision for taxes in the future if it determines, in its sole
discretion, that it will incur a tax as a result of the operation of
the Separate Account.
-26-
<PAGE> 129
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS II VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS (continued)
INCOME PROTECTOR FEE: In November 1998, the Company began to offer
three levels of income protection to policyholders. The base income
protector is standard only on certain contracts issued after November
2, 1998. The base income protector is a standard feature at no extra
charge. If elected, the income protector plus and the income protector
max can provide increased levels of minimum guaranteed income. An
annual fee is charged for the plus and max options, as a percent of an
"income benefit base" calculation, in the amount of 0.15% and 0.30%,
respectively. The "income benefit base" calculation is equal to the
contract's value on the election date, plus all subsequent purchase
payments, less all withdrawals and applicable fees and charges in an
amount proportionate to the amount by which such withdrawals decrease
the contract's value. The "income benefit base" also accumulates at an
annual growth rate of 3.25% and 6.50% for the plus and the max options,
respectively.
-27-
<PAGE> 130
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS II VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENT IN ANCHOR TRUST AND SUNAMERICA TRUST
The aggregate cost of the Trusts' shares acquired and the aggregate
proceeds from shares sold during the year ended November 30, 1998
consist of the following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Variable Accounts Acquired Shares Sold
----------------- ---------------------------------------------
<S> <C> <C>
ANCHOR TRUST:
Capital Appreciation Portfolio $ 152,023,995 $ 5,297,980
Growth Portfolio 72,834,579 4,017,683
Natural Resources Portfolio 5,806,061 1,013,478
Government and Quality Bond Portfolio 77,069,166 4,990,080
SUNAMERICA TRUST:
International Diversified Equities Portfolio 133,194,237 87,562,769
Global Equities Portfolio 42,590,869 4,121,440
Aggressive Growth Portfolio 25,785,276 3,371,563
Venture Value Portfolio 374,962,201 1,469,282
Federated Value Portfolio 50,057,395 4,265,144
Putnam Growth Portfolio 95,712,313 4,579,611
Growth/Phoenix Investment
Counsel Portfolio 12,372,307 1,797,581
Alliance Growth Portfolio 309,419,997 5,882,567
Growth-Income Portfolio 193,738,211 3,263,991
Asset Allocation Portfolio 144,053,286 601,489
SunAmerica Balanced Portfolio 46,728,189 92,767
Balanced/Phoenix Investment
Counsel Portfolio 22,644,513 787,068
Utility Portfolio 24,013,210 1,393,514
Worldwide High Income Portfolio 32,466,896 2,205,585
High-Yield Bond Portfolio 72,847,509 7,993,650
Global Bond Portfolio 21,018,923 4,729,694
Corporate Bond Portfolio 43,593,443 664,839
International Growth & Income Portfolio 86,796,203 26,298,015
Emerging Markets Portfolio 15,248,555 1,682,339
Real Estate Portfolio 28,927,947 2,903,081
"Dogs" of Wall Street Portfolio 40,634,296 207,752
Cash Management Portfolio 255,510,696 208,674,059
=========== ===========
</TABLE>
-28-
<PAGE> 131
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS II VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
4. FEDERAL INCOME TAXES
The Company qualifies for federal income tax treatment granted to life
insurance companies under subchapter L of the Internal Revenue Service
Code (the "Code"). The operations of the Separate Account are part of
the total operations of the Company and are not taxed separately. The
Separate Account is not treated as a regulated investment company under
the Code.
-29-
<PAGE> 132
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The following financial statements are included in Part B of the
Registration Statement:
Consolidated financial statements of Anchor National Life
Insurance Company for the fiscal year ended
September 30, 1998
The following financial statements are included in Part B of the
Registration Statement:
Financial Statements of Variable Separate Account (Portion
relating to the Polaris II Variable Annuity) for the fiscal
year ended November 30, 1998
<TABLE>
<CAPTION>
(b) Exhibits
- ----------------
<S> <C> <C>
(1) Resolution Establishing Separate Account.... ***
(2) Form of Custody Agreements.................. ***
(3) (a) Form of Distribution Contract........... ***
(b) Selling Agreement....................... ***
(4) Variable Annuity Contract
(a) Polaris II Group Annuity Certificate.... ****
(b) Polaris II Individual Annuity Contract.. ****
(c) Polaris II (Principal Rewards) Group
Annuity Certificate..................... *****
(d) Polaris II (Principal Rewards)
Individual Annuity Contract............. *****
(5) Application for Contract
(a) Polaris II Participant Enrollment Form.. *****
(b) Polaris II Annuity Application.......... *****
(6) Depositor - Corporate Documents
(a) Certificate of Incorporation............ ***
(b) By-Laws................................. ***
(7) Reinsurance Contract........................
(8) Form of Fund Participation Agreement
(a) Anchor Series Trust Fund Participation
Agreement............................... ***
(b) SunAmerica Series Trust Fund
Participation Agreement................. ***
(9) Opinion of Counsel.......................... ***
Consent of Counsel.......................... ***
(10) Consent of Independent Accountants.......... *
(11) Financial Statements Omitted from Item 23... **
(12) Initial Capitalization Agreement............ **
(13) Performance Computations.................... **
(14) Diagram and Listing of All Persons Directly
or Indirectly Controlled By or Under Common
Owner Control with Anchor National Life
Insurance Company, the Depositor of
Registrant.................................. *****
(15) Powers of Attorney.......................... ***
</TABLE>
- -------------
* Filed Herewith
** Not Applicable
*** Filed April 18, 1997, as part of the Initial Registration Statement to
this Registration Statement
**** Filed March 20, 1998 as part of Post-Effective Amendment Numbers 2 and 3
to this Registration Statement.
***** Filed April 1, 1999, as part of Post-Effective Amendment Numbers 7 and 8
to this Registration Statement
Item 25. Directors and Officers of the Depositor
- -------------------------------------------------
The officers and directors of Anchor National Life Insurance Company are
listed below. Their principal business address is 1 SunAmerica Center, Los
Angeles, California 90067-6022, unless otherwise noted.
<TABLE>
<CAPTION>
Name Position
<S> <C>
Eli Broad Chairman, President and
Chief Executive Officer
Jay S. Wintrob Director and Executive Vice President
Peter McMillan Director
James R. Belardi Director and Senior Vice President
Susan L. Harris Director, Senior Vice President
and Secretary
Jana W. Greer Director and Senior Vice President
Scott L. Robinson Director and Senior Vice President
James W. Rowan Director and Senior Vice President
N. Scott Gillis Senior Vice President and Controller
Edwin R. Reoliquio Senior Vice President and Chief Actuary
</TABLE>
<PAGE> 133
<TABLE>
<S> <C>
David R. Bechtel Vice President and Treasurer
J. Franklin Grey Vice President
Edward P. Nolan* Vice President
Greg Outcalt Vice President
Scott H. Richland Vice President
</TABLE>
- ------------------
* 88 Bradley Road, P.O. Box 4005, Woodbridge, Connecticut 06525
Item 26. Persons Controlled By or Under Common Control With Depositor or
Registrant
The Registrant is a separate account of Anchor National Life Insurance
Company (Depositor). For a complete listing and diagram of all persons directly
or indirectly controlled by or under common control with the Depositor of
Registrant, see Exhibit 14 of the Initial Registration Statement of Variable
Annuity Account Seven and Anchor National Life Insurance Company (File Nos.
333-65965 and 811-09003)(N-4) and (333-65953)(S-1), which is incorporated
herein by reference. As of January 4, 1999, Anchor National became an indirect
wholly-owned subsidiary of American International Group, Inc. ("AIG"). An
organizational chart for AIG can be found in Form 10-K, SEC file number
001-08787 filed March 31, 1999.
Item 27. Number of Contract Owners
As of December 31, 1998, the number of Contracts funded by the
Variable Separate Account of Anchor National Life Insurance Company
(Portion relating to the Polaris II Variable Annuity) was 59,249, of
which 23,600 were Qualified Contracts and 35,649 were Nonqualified
Contracts
Item 28. Indemnification
None.
Item 29. Principal Underwriter
SunAmerica Capital Services, Inc. serves as distributor to the
Registrant, Presidential Variable Account One, FS Variable Separate Account,
Variable Annuity Account One, FS Variable Annuity Account One, Variable Annuity
Account Four, Variable Annuity Account Five and Variable Annuity Account Seven.
SunAmerica Capital Services, Inc. also serves as the underwriter to the
SunAmerica Income Funds, SunAmerica Equity Funds, SunAmerica Money Market Funds,
Inc., Style Select Series, Inc. and the SunAmerica Strategic Investment Series,
Inc., all issued by SunAmerica Asset Management Corp.
Its principal business address is 733 Third Avenue, 4th Floor, New York,
New York 10017. The following are the directors and officers of SunAmerica
Capital Services, Inc.
<TABLE>
<CAPTION>
Name Position with Distributor
---- -------------------------
<S> <C> <C>
J. Steven Neamtz Director and President
Robert M. Zakem Director, Executive Vice
President, General Counsel
and Assistant Secretary
Peter Harbeck Director
Susan L. Harris Secretary
Debbie Potash-Turner Controller
James Nichols Vice President
</TABLE>
<TABLE>
<CAPTION>
Net
Distribution Compensation
Name of Discounts and on Redemption Brokerage
Distributor Commissions Annuitization Commission Commissions*
- ------------ -------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
SunAmerica None None None None
Capital
Services, Inc.
</TABLE>
- ------------------
* Distribution fee is paid by Anchor National Life Insurance Company.
Item 30. Location of Accounts and Records
Anchor National Life Insurance Company, the Depositor for the
Registrant, is located at 1 SunAmerica Center, Los Angeles, California 90067-
6022. SunAmerica Capital Services, Inc., the distributor of the Contracts, is
located at 733 Third Avenue, 4th Floor, New York, New York 10017. Each maintains
those accounts and records required to be maintained by it pursuant
<PAGE> 134
to Section 31(a) of the Investment Company Act and the rules promulgated
thereunder.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02100, maintains certain accounts and records pursuant to the
instructions of the Registrant.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
Registrant undertakes to (1) file post-effective amendments to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the variable annuity Contracts may be
accepted; (2) include either (A) as part of any application to purchase a
Contract offered by the prospectus forming a part of the Registration Statement,
a space that an applicant can check to request a Statement of Additional
Information, or (B) a postcard or similar written communication affixed to or
included in the Prospectus that the Applicant can remove to send for a Statement
of Additional Information; and (3) deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form N-4 promptly upon written or oral request.
Item 33. Representation
A. The Company hereby represents that it is relying upon a No-Action
Letter issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including
the prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection
with the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (1) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment
alternatives available under the employer's Section 403(b) arrangement
to which the participant may elect to transfer his contract value.
B. REPRESENTATION PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT
OF 1940: The Company represents that the fees and charges to be deducted under
the variable annuity contract described in the prospectus contained in this
registration statement are, in the aggregate, reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
in connection with the contract.
<PAGE> 135
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant certifies it meets the requirements of Securities
Act Rule 485 for effectiveness of this Registration Statement and has caused
this Post-Effective Amendment to the Registration Statement to be signed on
its behalf, in the City of Los Angeles, and the State of California, on this
23rd day of June, 1999.
VARIABLE SEPARATE ACCOUNT
(Registrant)
By: ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Depositor)
By: /s/ JAY S. WINTROB
----------------------------------------
Jay S. Wintrob
Executive Vice President
By: ANCHOR NATIONAL LIFE INSURANCE COMPANY
(Depositor, on behalf of itself and Registrant)
By: /s/ JAY S. WINTROB
----------------------------------------
Jay S. Wintrob
Executive Vice President
As required by the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
ELI BROAD* President, Chief
- ------------------------ Executive Officer and
Eli Broad Chairman of the Board
(Principal Executive
Officer)
SCOTT L. ROBINSON* Senior Vice President
- ------------------------ and Director
Scott L. Robinson (Principal Financial
Officer)
N. SCOTT GILLIS* Senior Vice President
- ------------------------ and Controller
N. Scott Gillis (Principal Accounting
Officer)
JAMES R. BELARDI* Director
- ------------------------
James R. Belardi
JANA W. GREER* Director
- ------------------------
Jana W. Greer
/s/ SUSAN L. HARRIS Director June 23, 1999
- ------------------------
Susan L. Harris
</TABLE>
<PAGE> 136
<TABLE>
<S> <C> <C>
PETER MCMILLAN* Director
- ------------------------
Peter McMillan
JAY S. WINTROB* Director
- ------------------------
Jay S. Wintrob
JAMES W. ROWAN* Director
- ------------------------
James W. Rowan
* By: /s/ SUSAN L. HARRIS Attorney-in-Fact
----------------------
Susan L. Harris
</TABLE>
Date: June 23, 1999
<PAGE> 137
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C> <C>
Ex(10) Consent of Independent Accountants
</TABLE>
<PAGE> 1
EXHIBIT 10
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus and Statement of
Additional Information constituting part of this Registration Statement
on Form N-4 for Variable Separate Account (Portion Relating to the
POLARIS II Variable Annuity) of Anchor National Life Insurance Company
of our report dated November 9, 1998, relating to the consolidated
financial statements of Anchor National Life Insurance Company, and of
our report dated March 10, 1999, relating to the financial statements
of Variable Separate Account (Portion Relating to the POLARIS II
Variable Annuity), which appear in such Statement of Additional
Information. We also consent to the incorporation by reference in such
Prospectus of our report dated March 11, 1999, relating to the
statement of assets acquired and liabilities assumed in the MBL Life
Assurance Corporation transaction at December 31, 1998, appearing on
page 8 of Anchor National Life Insurance Company's Current Report on
Form 8-K/A dated March 12, 1999. We also consent to the reference to us
under the heading "Independent Accountants" in such Prospectus and to
the reference to us under the heading "Financial Statements" in such
Statement of Additional Information.
PricewaterhouseCoopers LLP
Los Angeles, California
June 21, 1999
