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File Nos. 33-47473
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. 16 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 33
(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)
Title and Amount
of Securities
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Flexible Payment
Deferred Annuity
Contracts
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on April 1, 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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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>
15. Cover Page............................. Cover Page
16. Table of Contents...................... Table of Contents
17. General Information and History........ The Polaris Variable
Annuity (P); Separate
Account; General Account;
Investment Options (P);
Other Information (P)
18. Services............................... Other Information (P)
19. Purchase of Securities Being Offered... Purchasing a Polaris
Variable 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.
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[POLARIS VARIABLE ANNUITY LOGO]
THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU SHOULD
KNOW AND CONSIDER BEFORE PURCHASING THE POLARIS VARIABLE ANNUITY. THE ANNUITY IS
MORE FULLY DESCRIBED IN THE PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY.
April 1, 1999
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1. THE POLARIS VARIABLE ANNUITY
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The Polaris Variable Annuity is a contract between you and Anchor National Life
Insurance Company. It is designed to help you invest on a tax-deferred basis and
meet long-term financial goals, such as retirement funding. Tax deferral means
all your money, including the amount you would otherwise pay in current income
taxes, remains in your contract to generate more earnings. Your money could grow
faster than it would in a comparable taxable investment.
Polaris offers a diverse selection of money managers and investment options. You
may divide your money among any or all 27 variable portfolios and 5 fixed
account options. To the extent you invest in the variable portfolios, your
investment is not guaranteed. The value of your Polaris 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, 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.
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3. PURCHASING A POLARIS 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.
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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.
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 the money you withdraw. The percentage declines over
the time the money is in the contract.
<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>
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> 5
<TABLE>
<CAPTION>
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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
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<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
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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
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</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 the 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 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.
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8. PERFORMANCE
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When you invest in the Polaris 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> 6
<TABLE>
<CAPTION>
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CALENDAR YEAR
ANCHOR SERIES TRUST PORTFOLIO 1998 1997 1996 1995
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<S> <C> <C> <C> <C>
Capital Appreciation 20.30% 23.50% 23.17% 32.41%
Growth 26.98% 28.36% 23.06% 24.30%
Natural Resources (18.80)% (10.10)% 12.20% 15.45%
Gov't and Quality Bond 7.42% 7.82% 1.35% 17.49%
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SUNAMERICA SERIES TRUST
PORTFOLIO
Emerging Markets (25.56)% (17.37)%* -- --
Int'l Diversified Equities 16.62% 4.71% 7.59% 8.52%
Global Equities 20.90% 13.25% 12.37% 17.33%
Int'l Growth and Income 9.05% 5.36%* -- --
Aggressive Growth 15.58% 10.55% 4.33%*** --
MFS Mid-Cap Growth --**** -- -- --
Real Estate (16.72)% 17.16%* -- --
Putnam Growth 32.63% 30.41% 18.46% 22.83%
MFS Growth and Income1 27.26% 21.28% 14.12% 30.12%
Alliance Growth 49.85% 29.41% 27.10% 41.58%
"Dogs" of Wall Street (1.81)%** -- -- --
Venture Value 11.98% 32.21% 22.86% 35.36%
Federated Value 16.07% 29.37% 7.32%*** --
Growth-Income 28.76% 31.85% 22.11% 31.95%
Utility 12.24% 23.78% 8.26%*** --
Asset Allocation 1.69% 19.93% 17.05% 24.33%
MFS Total Return2 17.65% 15.09% 8.18% 25.51%
SunAmerica Balanced 22.70% 22.52% 9.39%*** --
Worldwide High Income (18.44)% 13.72% 23.38% 19.04%
High-Yield Bond (4.50)% 12.66% 12.71% 12.44%
Corporate Bond 4.31% 9.14% 2.86% 15.82%
Global Bond 9.05% 8.31% 7.58% 15.83%
Cash Management 3.51% 3.58% 3.31% 3.85%
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<CAPTION>
- ------------------------------- --------------------
CALENDAR YEAR
ANCHOR SERIES TRUST PORTFOLIO 1994
- ------------------------------- --------------------
<S> <C>
Capital Appreciation (5.60)%
Growth (6.27)%
Natural Resources (5.93)%
Gov't and Quality Bond (4.44)%
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SUNAMERICA SERIES TRUST
PORTFOLIO
Emerging Markets --
Int'l Diversified Equities (3.68)%
Global Equities (1.96)%
Int'l Growth and Income --
Aggressive Growth --
MFS Mid-Cap Growth --
Real Estate --
Putnam Growth (3.25)%
MFS Growth and Income1 (9.52)%
Alliance Growth (3.76)%
"Dogs" of Wall Street --
Venture Value (1.23)%
Federated Value --
Growth-Income (4.20)%
Utility --
Asset Allocation (1.80)%
MFS Total Return2 (0.58)%
SunAmerica Balanced --
Worldwide High Income (2.39)%
High-Yield Bond (6.98)%
Corporate Bond (4.73)%
Global Bond (6.27)%
Cash Management 2.12 %
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* Inception to 12/31/97.
** Inception to 12/31/98.
*** Inception to 12/31/96.
****This portfolio was not available for sale during calendar year 1998.
Inception date for each portfolio varies.
1 Formerly named Growth/Phoenix and managed by Phoenix Investment Counsel, Inc.
2 Formerly named Balanced/Phoenix and managed by Phoenix Investment Counsel, Inc.
</TABLE>
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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.
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 anniversary, 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).
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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 (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
<PAGE> 7
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 and the
1-year 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 a confirmation of each transaction within your contract. 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> 8
[POLARIS LOGO]
PROSPECTUS
APRIL 1, 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 Variable Annuity. VARIABLE SEPARATE ACCOUNT
The annuity has 32 investment choices -5 fixed account
To learn more about the annuity options and 27 Variable Portfolios listed below. The 5 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. The 27 Variable Portfolios are part of the Anchor
Additional Information ("SAI") dated Series Trust or the SunAmerica Series Trust.
April 1, 1999. The SAI has been filed
with the Securities and Exchange ANCHOR SERIES TRUST:
Commission ("SEC") and is MANAGED BY WELLINGTON MANAGEMENT COMPANY, LLP
incorporated by reference into this - Capital Appreciation Portfolio
prospectus. The Table of Contents of - Growth Portfolio
the SAI appears on page 19 of this - Natural Resources Portfolio
prospectus. For a free copy of the - Government and Quality Bond Portfolio
SAI, call us at (800) 445-SUN2 or
write to us at our Annuity Service SUNAMERICA SERIES TRUST:
Center, P.O. Box 54299, Los Angeles, MANAGED BY ALLIANCE CAPITAL MANAGEMENT L.P.
California 90054-0299. - Global Equities Portfolio
- Alliance Growth Portfolio
In addition, the SEC maintains a - Growth-Income Portfolio
website (http://www.sec.gov) that MANAGED BY DAVIS SELECTED ADVISERS, L.P.
contains the SAI, materials - Venture Value Portfolio
incorporated by reference and other - Real Estate Portfolio
information filed electronically with MANAGED BY FEDERATED INVESTORS
the SEC by Anchor National. - Federated Value Portfolio
- Utility Portfolio
ANNUITIES INVOLVE RISKS, INCLUDING - Corporate Bond Portfolio
POSSIBLE LOSS OF PRINCIPAL, AND ARE MANAGED BY GOLDMAN SACHS ASSET MANAGEMENT/
NOT A DEPOSIT OR OBLIGATION OF, OR GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
GUARANTEED OR ENDORSED BY, ANY BANK. - Asset Allocation Portfolio
THEY ARE NOT FEDERALLY INSURED BY THE - Global Bond Portfolio
FEDERAL DEPOSIT INSURANCE MANAGED BY MASSACHUSETTS FINANCIAL SERVICES COMPANY
CORPORATION, THE FEDERAL RESERVE - MFS Mid-Cap Growth
BOARD OR ANY OTHER AGENCY. - 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> 9
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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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 quarter ended December 31,
1998 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 shall also be 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 statement and its 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 herein 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
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SECURITIES AND EXCHANGE COMMISSION POSITION ON INDEMNIFICATION
- ----------------------------------------------------------------
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If indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") is provided Anchor National's officers, directors and controlling
persons, the SEC has advised Anchor National 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 need
not submit the issue to a court for determination.
2
<PAGE> 10
<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 VARIABLE ANNUITY................................ 6
PURCHASING A POLARIS 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")....................... 8
Transfers During the Accumulation Phase............... 9
Dollar Cost Averaging................................. 10
Asset Allocation Rebalancing.......................... 10
Principal Advantage Program........................... 10
Voting Rights......................................... 11
Substitution.......................................... 11
ACCESS TO YOUR MONEY........................................ 11
Systematic Withdrawal Program......................... 11
Nursing Home Waiver................................... 12
Minimum Contract Value................................ 12
DEATH BENEFIT............................................... 12
EXPENSES.................................................... 13
Insurance Charges..................................... 13
Withdrawal Charges.................................... 13
Investment Charges.................................... 13
Contract Maintenance Fee.............................. 13
Transfer Fee.......................................... 13
Premium Tax........................................... 13
Income Taxes.......................................... 13
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited........................... 13
INCOME OPTIONS.............................................. 14
Annuity Date.......................................... 14
Income Options........................................ 14
Fixed or Variable Income Payments..................... 14
Income Payments....................................... 15
Transfers During the Income Phase..................... 15
Deferment of Payments................................. 15
TAXES....................................................... 15
Annuity Contracts in General.......................... 15
Tax Treatment of Distributions -
Non-Qualified Contracts............................... 15
Tax Treatment of Distributions -
Qualified Contracts................................... 15
Minimum Distributions................................. 16
Diversification....................................... 16
PERFORMANCE................................................. 16
OTHER INFORMATION........................................... 16
Anchor National....................................... 16
The Separate Account.................................. 17
The General Account................................... 17
Distribution of the Contract.......................... 17
Administration........................................ 17
Year 2000............................................. 17
Legal Proceedings..................................... 18
Ownership............................................. 18
Custodian............................................. 18
Independent Accountants............................... 18
Legal Matters......................................... 18
Registration Statement................................ 18
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION....
19
APPENDIX A -- CONDENSED FINANCIAL INFORMATION............... A-1
APPENDIX B -- MARKET VALUE ADJUSTMENT ("MVA")............... B-1
APPENDIX C -- PREMIUM TAXES................................. C-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").
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> 11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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> 12
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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) surrendered at the end of the stated time period;
(b) if the contract is not surrendered*.
<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>
* Anchor National does not impose any fees or charges when you begin the
Income Phase of your contract.
5
<PAGE> 13
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%); 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 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.
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.
Anchor National Life Insurance Company (Anchor National, The Company, Us, We)
issues the Polaris Variable Annuity. When you purchase a Polaris 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 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.
This 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
15.
<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, but not limited to, one which would cause the contract value 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.
6
<PAGE> 14
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. (SEE BELOW). 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
your Purchase Payment or the value of your contract, whichever is larger. 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 portfolios may be available in the future. The Variable
Portfolios operate similarly 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.
7
<PAGE> 15
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 five 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.
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 one fixed account
or one of the Variable Portfolios to another fixed account.
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 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.
MARKET VALUE ADJUSTMENT ("MVA")
NOTE: THE FOLLOWING DISCUSSION APPLIES TO THE 3, 5, 7 AND 10-YEAR FIXED ACCOUNT
OPTIONS, ONLY.
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
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<PAGE> 16
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
- If annuitization occurs on the latest Annuity Date.
The 1-year fixed account option does not impose a MVA. This fixed account option
is not registered under the Securities Act of 1933 and is not subject to the
provisions of the Investment Company Act of 1940.
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. 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, in the future you may be able to execute
transfers or other financial transactions over the internet. When receiving
instructions over the telephone, 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.
Upon implementation of internet account transactions we will have appropriate
procedures in place to provide reasonable assurance that the transactions
executed are genuine. Thus, we would not be responsible for any claim, loss or
expense from any error resulting from instructions received over the internet.
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
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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 do 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.
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 program addresses this situation. At your election, we periodically
rebalance your investments 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.
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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 against withdrawals 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. A free withdrawal amount is
the portion of your account that we allow you to take out each year without
being charged a withdrawal charge.
Purchase Payments that are no longer subject to a withdrawal charge and not
previously withdrawn, plus earnings, may be withdrawn free of a withdrawal
charge at any time.
After the first year, you may withdraw the greater of the following amounts free
of a withdrawal charge (1) earnings in your contract as of the date you make the
withdrawal; or (2) 10% of the Purchase Payments you invested for at least one
year and not yet withdrawn, less any previous earnings withdrawals or Systematic
Withdrawals that year.
Only your first withdrawal of the year is free. If you do not take the entire
free amount available to you at that first withdrawal, you will forfeit the
opportunity to withdraw that money free of the withdrawal charge for that year.
The portion of a free withdrawal which exceeds the sum of: (1) earnings in the
contract and (2) Purchase Payments which are both no longer subject to the
withdrawal charge schedule and not yet withdrawn is assumed to be a withdrawal
against future earnings. Although amounts withdrawn free of a withdrawal charge
under the 10% provision may reduce principal for purposes of calculating amounts
available for future withdrawals of earnings, they do not reduce the amount you
invested for purposes of calculating the withdrawal charge if you withdraw your
entire contract value.
However, upon a future full surrender of your contract, we will recoup any
withdrawal charges which would have been applicable if your free withdrawal(s)
had not been free.
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 in 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 15.
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
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withdrawal is $250. 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.
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).
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 ON 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.
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. Additionally, we will not assess a
withdrawal charge when you switch to the Income Phase.
Withdrawals made prior to age 59 1/2 may result in tax penalties. SEE TAXES ON
PAGE 15.
INVESTMENT CHARGES
Charges are deducted from your Variable Portfolios for the advisory and other
expenses of the Variable Portfolios. THE FEE TABLES LOCATED ON 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
and Utah) 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
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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 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 15.
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
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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;
- 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.
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TAXES
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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; (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:
15
<PAGE> 23
(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. Failure to satisfy 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 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.
16
<PAGE> 24
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 six 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 originally established a separate account, 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.
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. Anchor National's management is making expenditures which we
expect will ultimately total $5.0 million to replace certain other noncompliant
systems. Total expenditures relating to the replacement of noncompliant systems
will be capitalized by the Company 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 being conducted during calendar 1999.
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
17
<PAGE> 25
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 Polaris 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.
LEGAL MATTERS
The organization of Anchor National, its authority to issue the contracts and
the validity of the form of the contracts have been passed upon by Susan L.
Harris, Senior Vice President and General Counsel of SunAmerica Inc., of which
Anchor National is an indirect wholly-owned subsidiary.
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.
18
<PAGE> 26
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- ----------------------------------------------------------------
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............................... 9
Annuity Unit Values........................... 10
Taxes......................................... 12
Distribution of Contracts..................... 16
Financial Statements.......................... 16
</TABLE>
19
<PAGE> 27
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A -- CONDENSED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
PORTFOLIOS 11/30/94 11/30/95 11/30/96 11/30/97 11/30/98
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Appreciation
Beginning AUV................................ $ 11.14 $ 10.64 $ 14.19 $ 17.63 $ 21.26
Ending AUV................................... $ 10.64 $ 14.19 $ 17.63 $ 21.26 $ 23.72
Ending Number of AUs......................... 8,462,152 13,247,155 20,470,395 24,889,133 24,068,557
- ---------------------------------------------------------------------------------------------------------------------
Growth
Beginning AUV................................ $ 10.78 $ 10.41 $ 12.95 $ 16.32 $ 20.31
Ending AUV................................... $ 10.41 $ 12.95 $ 16.32 $ 20.31 $ 24.41
Ending Number of AUs......................... 3,950,678 5,968,263 7,557,844 9,747,428 9,838,138
- ---------------------------------------------------------------------------------------------------------------------
Natural Resources (Inception Date -- 10/31/94)
Beginning AUV................................ $ 10.00 $ 9.27 $ 10.78 $ 12.13 $ 11.14
Ending AUV................................... $ 9.27 $ 10.78 $ 12.13 $ 11.14 $ 9.30
Ending Number of AUs......................... 51,412 848,159 2,171,050 2,937,198 2,605,274
- ---------------------------------------------------------------------------------------------------------------------
Government and Quality Bond
Beginning AUV................................ $ 10.32 $ 9.81 $ 11.51 $ 11.94 $ 12.65
Ending AUV................................... $ 9.81 $ 11.51 $ 11.94 $ 12.65 $ 13.66
Ending Number of AUs......................... 7,008,717 8,504,677 9,176,239 10,047,042 14,076,819
- ---------------------------------------------------------------------------------------------------------------------
Emerging Markets (Inception Date -- 6/2/97)
Beginning AUV................................ -- -- -- $ 10.00 $ 7.97
Ending AUV................................... -- -- -- $ 7.97 $ 6.14
Ending Number of AUs......................... -- -- -- 1,751,922 1,352,484
- ---------------------------------------------------------------------------------------------------------------------
International Diversified Equities (Inception
Date -- 10/31/94)
Beginning AUV................................ $ 10.00 $ 9.77 $ 10.07 $ 11.39 $ 11.62
Ending AUV................................... $ 9.77 $ 10.07 $ 11.39 $ 11.62 $ 13.53
Ending Number of AUs......................... 271,316 4,659,066 12,762,343 18,010,557 17,917,499
- ---------------------------------------------------------------------------------------------------------------------
Global Equities
Beginning AUV................................ $ 10.86 $ 11.43 $ 13.01 $ 15.15 $ 16.90
Ending AUV................................... $ 11.43 $ 13.01 $ 15.15 $ 16.90 $ 19.21
Ending Number of AUs......................... 11,705,418 12,350,883 15,583,207 18,376,185 17,594,064
- ---------------------------------------------------------------------------------------------------------------------
International Growth and Income (Inception Date -- 6/2/97)
Beginning AUV................................ -- -- -- $ 10.00 $ 10.33
Ending AUV................................... -- -- -- $ 10.33 $ 11.16
Ending Number of AUs......................... -- -- -- 2,721,228 3,306,665
- ---------------------------------------------------------------------------------------------------------------------
Aggressive Growth (Inception Date -- 6/3/96)
Beginning AUV................................ -- -- $ 10.00 $ 10.29 $ 11.51
Ending AUV................................... -- -- $ 10.29 $ 11.51 $ 11.86
Ending Number of AUs......................... -- -- 3,165,900 7,215,024 7,059,502
- ---------------------------------------------------------------------------------------------------------------------
MFS Mid-Cap Growth (Inception Date -- 4/1/99>
Beginning AUV................................ -- -- -- -- --
Ending AUV................................... -- -- -- -- --
Ending Number of AUs......................... -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Real Estate (Inception Date -- 6/2/97)
Beginning AUV................................ -- -- -- $ 10.00 $ 11.44
Ending AUV................................... -- -- -- $ 11.44 $ 9.80
Ending Number of AUs......................... -- -- -- 1,632,804 2,521,169
- ---------------------------------------------------------------------------------------------------------------------
Putnam Growth
Beginning AUV................................ $ 9.92 $ 9.79 $ 12.60 $ 14.88 $ 18.47
Ending AUV................................... $ 9.79 $ 12.60 $ 14.88 $ 18.47 $ 22.29
Ending Number of AUs......................... 7,610,104 8,932,998 10,354,025 11,336,732 12,052,558
- ---------------------------------------------------------------------------------------------------------------------
MFS Growth and Income**
Beginning AUV................................ $ 10.65 $ 9.79 $ 12.81 $ 14.94 $ 17.63
Ending AUV................................... $ 9.79 $ 12.81 $ 14.94 $ 17.63 $ 20.46
Ending Number of AUs......................... 10,477,818 11,457,899 12,077,737 11,714,450 10,439,634
- ---------------------------------------------------------------------------------------------------------------------
Alliance Growth
Beginning AUV................................ $ 10.78 $ 10.53 $ 15.44 $ 19.46 $ 24.51
Ending AUV................................... $ 10.53 $ 15.44 $ 19.46 $ 24.51 $ 32.81
Ending Number of AUs......................... 4,997,778 10,560,070 18,333,555 24,050,697 24,146,276
- ---------------------------------------------------------------------------------------------------------------------
* Formerly named Growth/Phoenix and managed by Phoenix Investment Counsel, Inc.
</TABLE>
A-1
<PAGE> 28
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
PORTFOLIOS 11/30/94 11/30/95 11/30/96 11/30/97 11/30/98
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
"Dogs" of Wall Street (Inception Date -- 4/1/98)
Beginning AUV................................ -- -- -- -- $ 10.00
Ending AUV................................... -- -- -- -- $ 9.71
Ending Number of AUs......................... -- -- -- -- 1,450,214
- ---------------------------------------------------------------------------------------------------------------------
Venture Value (Inception Date -- 10/31/94)
Beginning AUV................................ $ 10.00 $ 9.77 $ 13.29 $ 16.68 $ 21.30
Ending AUV................................... $ 9.77 $ 13.29 $ 16.68 $ 21.30 $ 23.36
Ending Number of AUs......................... 355,083 11,270,792 29,247,554 44,892,446 46,069,429
- ---------------------------------------------------------------------------------------------------------------------
Federated Value (Inception Date -- 6/3/96)
Beginning AUV................................ -- -- $ 10.00 $ 11.00 $ 13.62
Ending AUV................................... -- -- $ 11.00 $ 13.62 $ 15.86
Ending Number of AUs......................... -- -- 1,021,137 3,095,513 4,255,000
- ---------------------------------------------------------------------------------------------------------------------
Growth-Income
Beginning AUV................................ $ 10.47 $ 10.09 $ 13.32 $ 16.70 $ 21.41
Ending AUV................................... $ 10.09 $ 13.32 $ 16.70 $ 21.41 $ 25.71
Ending Number of AUs......................... 8,329,322 12,560,865 18,546,142 24,795,824 25,801,808
- ---------------------------------------------------------------------------------------------------------------------
Utility (Inception Date -- 6/3/96)
Beginning AUV................................ -- -- $ 10.00 $ 10.67 $ 12.74
Ending AUV................................... -- -- $ 10.67 $ 12.74 $ 14.56
Ending Number of AUs......................... -- -- 543,461 1,541,346 2,120,487
- ---------------------------------------------------------------------------------------------------------------------
Asset Allocation
Beginning AUV................................ $ 10.30 $ 10.17 $ 12.64 $ 14.97 $ 17.98
Ending AUV................................... $ 10.17 $ 12.64 $ 14.97 $ 17.98 $ 18.22
Ending Number of AUs......................... 10,372,954 15,418,350 19,940,733 25,272,776 26,043,996
- ---------------------------------------------------------------------------------------------------------------------
MFS Total Return** (Inception Date -- 10/31/94)
Beginning AUV................................ $ 10.00 $ 9.95 $ 12.33 $ 13.82 $ 15.45
Ending AUV................................... $ 9.95 $ 12.33 $ 13.82 $ 15.45 $ 17.28
Ending Number of AUs......................... 51,759 2,441,901 4,583,234 5,415,312 5,465,650
- ---------------------------------------------------------------------------------------------------------------------
SunAmerica Balanced (Inception Date -- 6/3/96)
Beginning AUV................................ -- -- $ 10.00 $ 11.04 $ 13.22
Ending AUV................................... -- -- $ 11.04 $ 13.22 $ 15.60
Ending Number of AUs......................... -- -- 817,039 2,447,948 4,179,545
- ---------------------------------------------------------------------------------------------------------------------
Worldwide High Income (Inception
Date -- 10/31/94)
Beginning AUV................................ $ 10.00 $ 9.95 $ 11.36 $ 14.20 $ 15.98
Ending AUV................................... $ 9.95 $ 11.36 $ 14.20 $ 15.98 $ 13.57
Ending Number of AUs......................... 53,315 1,040,828 3,196,739 6,368,247 5,463,589
- ---------------------------------------------------------------------------------------------------------------------
High-Yield Bond
Beginning AUV................................ $ 10.98 $ 10.35 $ 11.48 $ 12.99 $ 14.66
Ending AUV................................... $ 10.35 $ 11.48 $ 12.99 $ 14.66 $ 14.25
Ending Number of AUs......................... 5,370,944 7,075,451 8,358,195 11,443,250 12,597,083
- ---------------------------------------------------------------------------------------------------------------------
Corporate Bond
Beginning AUV................................ $ 10.12 $ 9.63 $ 11.10 $ 11.65 $ 12.54
Ending AUV................................... $ 9.63 $ 11.10 $ 11.65 $ 12.54 $ 13.15
Ending Number of AUs......................... 1,643,694 2,623,065 3,059,808 4,235,990 5,896,471
- ---------------------------------------------------------------------------------------------------------------------
Global Bond
Beginning AUV................................ $ 10.25 $ 9.78 $ 11.20 $ 12.25 $ 13.08
Ending AUV................................... $ 9.78 $ 11.20 $ 12.25 $ 13.08 $ 14.40
Ending Number of AUs......................... 4,532,386 5,288,158 5,413,149 6,164,455 5,906,756
- ---------------------------------------------------------------------------------------------------------------------
Cash Management
Beginning AUV................................ $ 10.07 $ 10.27 $ 10.67 $ 11.04 $ 4.43
Ending AUV................................... $ 10.27 $ 10.67 $ 11.04 $ 11.43 $ 11.83
Ending Number of AUs......................... 8,623,034 8,372,979 8,005,908 11,224,451 11,160,200
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
** Formerly named Balanced/Phoenix and managed by Phoenix Investment Counsel,
Inc.
AUV -- Accumulation Unit Value
AU -- Accumulation Units
A-2
<PAGE> 29
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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> 30
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX C - PREMIUM TAXES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Premium taxes vary according to the state and are subject to change without
notice. In many states, there is no tax at all. Listed below are the current
premium tax rates in those states that assess a premium tax. For current
information, you should consult your tax adviser.
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
STATE CONTRACT CONTRACT
<S> <C> <C>
========================================================================================
California .50% 2.35%
- ----------------------------------------------------------------------------------------
District of Columbia 2.25% 2.25%
- ----------------------------------------------------------------------------------------
Kentucky 2% 2%
- ----------------------------------------------------------------------------------------
Maine 0% 2%
- ----------------------------------------------------------------------------------------
Nevada 0% 3.5%
- ----------------------------------------------------------------------------------------
South Dakota 0% 1.25%
- ----------------------------------------------------------------------------------------
West Virginia 1% 1%
- ----------------------------------------------------------------------------------------
Wyoming 0% 1%
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
C-1
<PAGE> 31
- --------------------------------------------------------------------------------
Please forward a copy (without charge) of the Polaris Variable Annuity
Statement of Additional Information to:
(Please print or type and fill in all information.)
------------------------------------------------------------------------
Name
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
City/State/Zip
<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> 32
STATEMENT OF ADDITIONAL INFORMATION
Fixed and Variable Group Deferred Contracts
issued by
VARIABLE SEPARATE ACCOUNT
DEPOSITOR: ANCHOR NATIONAL LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus; it should be read
with the prospectus, dated April 1, 1999, relating to the annuity contracts
described above, a copy of which may be obtained without charge by written
request addressed to:
Anchor National Life Insurance Company
Annuity Service Center
P.O. Box 54299
Los Angeles, California 90054-0299
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS
April 1, 1999
<PAGE> 33
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Separate Account ....................................................... 3
General Account ........................................................ 3
Performance Data ....................................................... 4
Income Payments ........................................................ 9
Annuity Unit Values .................................................... 10
Taxes .................................................................. 12
Distribution of Contracts .............................................. 16
Financial Statements ................................................... 17
</TABLE>
-2-
<PAGE> 34
SEPARATE ACCOUNT
Variable Separate Account was originally established by the 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
Variable Portfolios 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 allocated to the separate account or any other
segregated asset account of the Company. A Purchase Payment may be allocated to
the one-year fixed investment option available in connection with the general
account, as elected by the owner at the time of purchasing a contract. Assets
supporting amounts allocated to fixed investment option 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.
-3-
<PAGE> 35
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 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 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. The effect of applicable withdrawal charges due to the
assumed redemption will be reflected in the return figures, but may be omitted
in additional return figures given for comparison.
For periods starting prior to the date the contracts were first offered
to the public, the total return data for the Capital Appreciation, Growth,
Natural Resources and the Government and Quality Bond Portfolios of the separate
account will be derived from the performance of the corresponding underlying
funds of Anchor Trust, modified to reflect the charges and expenses as if the
separate account Variable Portfolio had been in existence since the inception
date of each respective Anchor Trust underlying fund. Thus, such performance
figures should not be construed to be actual historic performance of the
relevant separate account Variable Portfolio. Rather, they are intended to
indicate the historic performance of the
-4-
<PAGE> 36
four corresponding underlying funds of Anchor 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). The Capital Appreciation, Growth,
Natural Resources and Government and Quality Bond underlying funds of Anchor
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
- -------------------------
The annualized current yield and the effective yield for the Cash
Management Portfolio for the 7 day period ending November 30, 1998 were 2.94%
and 2.98%, respectively. The annualized current yield and the effective yield
for the Cash Management Portfolio for the 7 day period ending December 31, 1998
were 5.22% and 5.36%, 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:
Base Period Return = (EV-SV-CMF)/(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
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 fee is proportional to the percentage of the number of accounts
that have money allocated to that Variable Portfolio. The charge 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, as
is done with the other charges discussed above, 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.
-5-
<PAGE> 37
However, the effective yield accounts for dividend reinvestment by compounding
the current yield according to the formula:
365/7
Effective Yield = [(Base Period Return + 1) - 1].
Net investment income for yield quotation purposes will not include
either realized capital gains and losses or unrealized appreciation and
depreciation, whether reinvested or not. The yield quotations also do not
reflect any impact of premium taxes, transfer fees, or withdrawal charges.
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 not only on the type, quality and maturities of the
investments held by the underlying fund and changes in interest rates on such
investments, but also on factors such as an owner's account size (since the
impact of fixed dollar charges will be greater for small accounts than for
larger accounts).
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 of the various Variable Portfolios for 1 year and
since each Variable Portfolio's inception date are shown on the next page, both
with and without an assumed complete redemption at the end of the period.
-6-
<PAGE> 38
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 4.56/11.56 15.95/16.28 15.83/16.00
Growth 2/19/93 13.14/20.14 17.39/17.71 16.46/16.63
Natural Resources 10/31/94 -23.66/-16.66 0.18/0.77 -2.71/-1.92
Government & Quality Bond 2/22/93 0.90/7.90 5.22/5.71 5.22/5.49
Aggressive Growth 6/3/96 -4.00/3.00 -- 5.18/7.02
International Diversified Equities 10/31/94 9.44/16.44 -- 7.00/7.59
Global Equities 2/9/93 6.57/13.57 11.65/12.03 11.62/11.83
Putnam Growth 2/9/93 13.63/20.63 17.20/17.52 14.55/14.73
MFS Growth and Income* 2/9/93 8.99/15.99 13.54/13.90 12.86/13.05
Alliance Growth 2/9/93 26.84/33.84 24.64/24.89 22.51/22.64
"Dogs" of Wall Street 4/1/98 -- -- -9.91/-2.91
Venture Value 10/31/94 2.64/9.64 -- 22.66/23.05
Federated Value 6/3/96 9.40/16.40 -- 18.73/20.27
Growth-Income 2/9/93 13.06/20.06 19.34/19.64 17.45/17.60
Utility 6/3/96 7.14/14.14 -- 14.57/16.20
Asset Allocation 7/1/93 -5.74/1.26 11.67/12.05 11.43/11.66
MFS Total Return** 10/31/94 4.77/11.77 -- 13.74/14.23
SunAmerica Balanced 6/3/96 10.97/17.97 -- 17.93/19.48
Worldwide High Income 10/31/94 -22.14/-15.14 -- 7.08/7.67
High-Yield Bond 2/9/93 -9.83/-2.83 4.81/5.31 5.97/6.23
Corporate Bond 7/1/93 -2.15/4.85 4.81/5.31 4.81/5.10
Global Bond 7/1/93 2.98/9.98 6.50/6.96 6.60/6.88
Emerging Markets 6/2/97 -30.12/-23.12 -- -32.77/-27.96
International Growth and Income 6/2/97 0.90/7.90 -- 3.63/7.53
Real Estate 6/2/97 -21.46/-14.46 -- -5.52/-1.43
</TABLE>
- -----------------
* Formerly named Growth/Phoenix and managed by Phoenix Investment Counsel, Inc.
** Formerly named Balanced/Phoenix and managed by Phoenix Investment Counsel,
Inc.
Total return figures are based on historical data and are not intended to
indicate future performance.
-7-
<PAGE> 39
TOTAL ANNUAL RETURN (IN PERCENT) FOR
PERIOD ENDING DECEMBER 31, 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 13.30/20.30 17.72/18.03 17.50/17.66
Growth 2/19/93 19.98/26.98 18.24/18.54 17.54/17.70
Natural Resources 10/31/94 -25.80/-18.80 -1.88/-1.24 -3.56/2.76
Government & Quality Bond 2/22/93 .42/7.42 5.19/5.68 5.20/5.46
Aggressive Growth 6/3/96 8.58/15.58 -- 10.17/11.81
International Diversified Equities 10/31/94 9.62/16.62 -- 7.35/7.92
Global Equities 2/9/93 13.90/20.90 11.74/12.13 12.80/12.99
Putnam Growth 2/9/93 25.63/32.63 19.22/19.52 16.42/16.58
MFS Growth and Income* 2/9/93 20.26/27.26 15.40/15.74 14.67/14.84
Alliance Growth 2/9/93 42.85/49.85 27.23/27.46 24.72/24.83
"Dogs" of Wall Street 4/1/98 -- -- -8.81/-1.81
Venture Value 10/31/94 4.98/11.98 -- 23.42/23.78
Federated Value 6/3/96 9.07/16.07 -- 18.89/20.36
Growth-Income 2/9/93 21.76/28.76 21.00/21.28 18.92/19.07
Utility 6/3/96 5.24/12.24 -- 15.65/17.18
Asset Allocation 7/1/93 -5.31/1.69 11.39/11.78 11.42/11.64
MFS Total Return** 10/31/94 10.65/17.65 -- 15.14/15.59
SunAmerica Balanced 6/3/96 15.70/22.70 -- 19.86/21.31
Worldwide High Income 10/31/94 -25.44/-18.44 -- 6.52/7.10
High-Yield Bond 2/9/93 -11.50/-4.50 4.39/4.89 5.78/6.04
Corporate Bond 7/1/93 -2.69/4.31 4.79/5.29 4.79/5.08
Global Bond 7/1/93 2.05/9.05 6.21/6.67 6.55/6.83
Emerging Markets 6/2/97 -32.56/-25.56 -- -31.14/-26.51
International Growth and Income 6/2/97 2.05/9.05 -- 5.54/9.19
Real Estate 6/2/97 -23.72/-16.72 -- -5.41/-1.54
</TABLE>
- -------------
* Formerly named Growth/Phoenix and managed by Phoenix Investment Counsel, Inc.
** Formerly named Balanced/Phoenix and managed by Phoenix Investment Counsel,
Inc.
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 the time period shown
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:
n
P(1+T) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
-8-
<PAGE> 40
n = number of years
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 both nonrecurring and
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. The applicable withdrawal charge (if any)
is deducted as of the end of the period, to reflect the effect of the assumed
complete redemption. Because the impact of Contract Maintenance Fees on a
particular account will generally differ from that assumed in the computation,
due to differences between most actual allocations and the assumed one, as well
as differences due to varying account sizes, the total return experienced by an
actual Variable Portfolio over the same time periods would generally have been
different from those produced by the computation. 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 investment option 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.
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 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.
-9-
<PAGE> 41
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 exceed 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 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 from no change in
the value of the Variable Portfolio; a NIF greater than 1.000 results from an
increase in the value of the Variable Portfolio; and a NIF less than 1.000
results from a decrease in the value of the Variable Portfolio. 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
-10-
<PAGE> 42
the previous month. The NIF for the month of September is:
NIF = ($11.46/$11.44)
= 1.00174825
Illustrative Example
--------------------
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 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.
-11-
<PAGE> 43
P's first variable Income Payment is determined from the annuity rate
tables in P's contract, using the information assumed above. From the tables,
which supply monthly Income Payments for each $1,000 of applied contract value,
P's first variable Income Payment is determined by multiplying the monthly
installment of $5.42 (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 = $5.42 x ($116,412.31/$1,000) = $630.95
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 = $630.95/$13.256932 = 47.593968
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:
Second Payment = 47.593968 x $13.327695 = $634.32
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 Income Phase
(assuming no transfers from the Variable Portfolio). The net investment
performance of the Variable Portfolio during the Income 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 Non-qualified 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
-12-
<PAGE> 44
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.
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
payments under the contract. The Code contains a safe harbor provision which
provides that annuity contracts such as the contracts 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
-13-
<PAGE> 45
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 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
-14-
<PAGE> 46
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 and 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.
(B) Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of
"tax-sheltered annuities" by public schools and certain charitable, educational
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.
(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.
(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 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
Section 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
-15-
<PAGE> 47
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 interest; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders.
(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.
-16-
<PAGE> 48
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 investment
options. The financial statements of Variable Separate Account (Portion Relating
to the POLARIS Variable Annuity) as of November 30, 1998 and for each of the two
years in the period ended 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.
-17-
<PAGE> 49
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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS VARIABLE ANNUITY)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
NOVEMBER 30, 1998
F-1
<PAGE> 66
REPORT OF INDEPENDENT ACCOUNTANTS
March 22, 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 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 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 two years then ended, 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.
F-2
<PAGE> 67
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
Government
Capital Natural and
Appreciation Growth Resources Quality Bond
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $570,973,106 $240,167,237 $ 24,235,972 $192,325,235
Investments in SunAmerica Series Trust,
at market value 0 0 0 0
Liabilities 0 0 0 0
------------ ------------ ------------ ------------
Net Assets $570,973,106 $240,167,237 $ 24,235,972 $192,325,235
============ ============ ============ ============
Accumulation units outstanding 24,068,557 9,838,138 2,605,274 14,076,819
============ ============ ============ ============
Unit value of accumulation units $ 23.72 $ 24.41 $ 9.30 $ 13.66
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
International
Diversified Global Aggressive
Equities Equities Growth
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 242,517,120 337,917,564 83,753,403
Liabilities 0 0 0
------------ ------------ ------------
Net Assets $242,517,120 $337,917,564 $ 83,753,403
============ ============ ============
Accumulation units outstanding 17,917,499 17,594,064 7,059,502
============ ============ ============
Unit value of accumulation units $ 13.53 $ 19.21 $ 11.86
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 68
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
NOVEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
Venture Federated Putnam
Value Value Growth
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 1,076,267,170 67,490,837 268,683,994
Liabilities 0 0 0
-------------- -------------- --------------
Net Assets $1,076,267,170 $ 67,490,837 $ 268,683,994
============== ============== ==============
Accumulation units outstanding 46,069,429 4,255,000 12,052,558
============== ============== ==============
Unit value of accumulation units $ 23.36 $ 15.86 $ 22.29
============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Growth/Phoenix
Investment Alliance Growth- Asset
Counsel Growth Income Allocation
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 213,524,083 857,830,671 663,333,275 474,508,847
Liabilities 0 0 0 0
-------------- -------------- -------------- --------------
Net Assets $ 213,524,083 $ 857,830,671 $ 663,333,275 $ 474,508,847
============== ============== ============== ==============
Accumulation units outstanding 10,434,634 26,146,276 25,801,808 26,043,996
============== ============== ============== ==============
Unit value of accumulation units $ 20.46 $ 32.81 $ 25.71 $ 18.22
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 69
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS 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 65,209,129 94,422,658 30,868,679 74,150,275
Liabilities 0 0 0 0
------------ ------------ ------------ ------------
Net Assets $ 65,209,129 $ 94,422,658 $ 30,868,679 $ 74,150,275
============ ============ ============ ============
Accumulation units outstanding 4,179,545 5,465,650 2,120,487 5,463,589
============ ============ ============ ============
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 179,564,069 85,069,554 77,553,790
Liabilities 0 0 0
------------ ------------ ------------
Net Assets $179,564,069 $ 85,069,554 $ 77,553,790
============ ============ ============
Accumulation units outstanding 12,597,083 5,906,756 5,896,471
============ ============ ============
Unit value of accumulation units $ 14.25 $ 14.40 $ 13.15
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 70
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
NOVEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
International Emerging Real
Growth & Income Markets Estate
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 36,889,914 8,296,599 24,700,943
Liabilities 0 0 0
-------------- -------------- --------------
Net Assets $ 36,889,914 $ 8,296,599 $ 24,700,943
============== ============== ==============
Accumulation units outstanding 3,306,665 1,352,484 2,521,169
============== ============== ==============
Unit value of accumulation units $ 11.16 $ 6.14 $ 9.80
============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
"Dogs" of Cash
Wall Street Management
Portfolio Portfolio TOTAL
-------------- -------------- --------------
<S> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $ 0 $ 0 $1,027,701,550
Investments in SunAmerica Series Trust,
at market value 14,081,104 132,089,162 5,108,722,840
Liabilities 0 0 0
-------------- -------------- --------------
Net Assets $ 14,081,104 $ 132,089,162 $6,136,424,390
============== ============== ==============
Accumulation units outstanding 1,450,214 11,160,200
============== ==============
Unit value of accumulation units $ 9.71 $ 11.83
============== ==============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 71
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS 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 17,675,771 $ 32.30 $ 570,973,106 $ 506,602,166
Growth Portfolio 7,901,640 30.39 240,167,237 190,223,871
Natural Resources Portfolio 2,017,916 12.01 24,235,972 31,616,831
Government and Quality Bond Portfolio 13,196,532 14.57 192,325,235 187,202,804
-------------- --------------
1,027,701,550 915,645,672
-------------- --------------
SUNAMERICA SERIES TRUST:
International Diversified Equities Portfolio 18,860,169 12.86 242,517,120 209,923,496
Global Equities Portfolio 19,990,719 16.90 337,917,564 279,732,905
Aggressive Growth Portfolio 6,805,145 12.32 83,753,403 72,915,502
Venture Value Portfolio 46,601,489 23.10 1,076,267,170 772,213,653
Federated Value Portfolio 4,202,209 16.06 67,490,837 54,859,055
Putnam Growth Portfolio 13,297,585 20.21 268,683,994 194,056,870
Growth/Phoenix Investment Counsel Portfolio 13,890,387 15.37 213,524,083 168,691,429
Alliance Growth Portfolio 30,586,345 28.04 857,830,671 592,190,797
Growth-Income Portfolio 27,372,103 24.23 663,333,275 433,670,069
Asset Allocation Portfolio 32,038,826 14.81 474,508,847 418,228,331
SunAmerica Balanced Portfolio 4,176,595 15.61 65,209,129 54,666,797
Balanced/Phoenix Investment Counsel Portfolio 6,311,191 14.96 94,422,658 79,782,179
Utility Portfolio 2,134,457 14.46 30,868,679 26,634,913
Worldwide High Income Portfolio 7,192,444 10.31 74,150,275 89,096,058
High-Yield Bond Portfolio 16,355,795 10.98 179,564,069 182,128,761
Global Bond Portfolio 7,224,892 11.77 85,069,554 77,539,516
Corporate Bond Portfolio 6,559,381 11.83 77,553,790 71,866,320
International Growth & Income Portfolio 3,260,375 11.31 36,889,914 35,942,992
Emerging Markets Portfolio 1,333,303 6.22 8,296,599 10,839,874
Real Estate Portfolio 2,501,087 9.88 24,700,943 27,558,375
Dogs of Wall Street Portfolio 1,435,571 9.81 14,081,104 13,748,243
Cash Management Portfolio 12,485,266 10.58 132,089,162 130,549,919
-------------- --------------
5,108,722,840 3,996,836,054
-------------- --------------
$6,136,424,390 $4,912,481,726
============== ==============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 72
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS 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 $ 44,525,164 $ 13,200,423 $ 637,424 $ 7,885,263
------------- ------------- ------------- -------------
Total investment income 44,525,164 13,200,423 637,424 7,885,263
------------- ------------- ------------- -------------
Expenses:
Mortality risk charge (5,637,455) (2,258,347) (299,032) (1,621,244)
Expense risk charge (1,934,421) (774,923) (102,609) (556,309)
Distribution expense charge (829,038) (332,110) (43,976) (238,419)
------------- ------------- ------------- -------------
Total expenses (8,400,914) (3,365,380) (445,617) (2,415,972)
------------- ------------- ------------- -------------
Net investment income (loss) 36,124,250 9,835,043 191,807 5,469,291
------------- ------------- ------------- -------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 229,630,699 48,286,551 9,469,253 50,438,681
Cost of shares sold (197,984,755) (39,955,203) (11,451,690) (49,355,588)
------------- ------------- ------------- -------------
Net realized gains (losses) from
securities transactions 31,645,944 8,331,348 (1,982,437) 1,083,093
------------- ------------- ------------- -------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period 69,462,881 28,617,724 (3,940,480) (604,526)
End of period 64,370,940 49,943,366 (7,380,859) 5,122,431
------------- ------------- ------------- -------------
Change in net unrealized appreciation/depreciation
of investments (5,091,941) 21,325,642 (3,440,379) 5,726,957
------------- ------------- ------------- -------------
Increase (decrease) in net assets from operations $ 62,678,253 $ 39,492,033 $ (5,231,009) $ 12,279,341
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
International
Diversified Global Aggressive
Equities Equities Growth
Portfolio Portfolio Portfolio
------------- ------------- -------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 10,413,752 $ 30,294,361 $ 0
------------- ------------- -------------
Total investment income 10,413,752 30,294,361 0
------------- ------------- -------------
Expenses:
Mortality risk charge (2,435,406) (3,438,696) (806,130)
Expense risk charge (835,678) (1,179,945) (276,613)
Distribution expense charge (358,148) (505,690) (118,549)
------------- ------------- -------------
Total expenses (3,629,232) (5,124,331) (1,201,292)
------------- ------------- -------------
Net investment income (loss) 6,784,520 25,170,030 (1,201,292)
------------- ------------- -------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 46,847,208 63,649,488 21,684,071
Cost of shares sold (40,420,944) (54,451,016) (19,792,533)
------------- ------------- -------------
Net realized gains (losses) from
securities transactions 6,426,264 9,198,472 1,891,538
------------- ------------- -------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period 10,201,704 52,559,239 8,655,631
End of period 32,593,624 58,184,659 10,837,901
------------- ------------- -------------
Change in net unrealized appreciation/depreciation
of investments 22,391,920 5,625,420 2,182,270
------------- ------------- -------------
Increase (decrease) in net assets from operations $ 35,602,704 $ 39,993,922 $ 2,872,516
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 73
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS 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 $ 37,949,834 $ 1,328,857 $ 36,553,230 $ 36,072,395
------------- ------------- ------------- -------------
Total investment income 37,949,834 1,328,857 36,553,230 36,072,395
------------- ------------- ------------- -------------
Expenses:
Mortality risk charge (10,786,845) (583,744) (2,520,299) (2,148,433)
Expense risk charge (3,701,368) (200,304) (864,809) (737,208)
Distribution expense charge (1,586,301) (85,845) (370,632) (315,946)
------------- ------------- ------------- -------------
Total expenses (16,074,514) (869,893) (3,755,740) (3,201,587)
------------- ------------- ------------- -------------
Net investment income 21,875,320 458,964 32,797,490 32,870,808
------------- ------------- ------------- -------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 108,207,373 8,885,902 43,787,755 34,526,296
Cost of shares sold (82,300,285) (7,419,961) (32,703,040) (26,958,642)
------------- ------------- ------------- -------------
Net realized gains from
securities transactions 25,907,088 1,465,941 11,084,715 7,567,654
------------- ------------- ------------- -------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period 260,513,321 6,354,475 74,402,917 54,020,390
End of period 304,053,517 12,631,782 74,627,124 44,832,654
------------- ------------- ------------- -------------
Change in net unrealized appreciation/depreciation
of investments 43,540,196 6,277,307 224,207 (9,187,736)
------------- ------------- ------------- -------------
Increase in net assets from operations $ 91,322,604 $ 8,202,212 $ 44,106,412 $ 31,250,726
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Alliance Growth- Asset
Growth Income Allocation
Portfolio Portfolio Portfolio
------------- ------------- -------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 65,389,285 $ 28,845,545 $ 57,589,382
------------- ------------- -------------
Total investment income 65,389,285 28,845,545 57,589,382
------------- ------------- -------------
Expenses:
Mortality risk charge (7,582,395) (6,184,223) (4,968,016)
Expense risk charge (2,601,802) (2,122,037) (1,704,711)
Distribution expense charge (1,115,059) (909,445) (730,591)
------------- ------------- -------------
Total expenses (11,299,256) (9,215,705) (7,403,318)
------------- ------------- -------------
Net investment income 54,090,029 19,629,840 50,186,064
------------- ------------- -------------
Net realized gains (losses) from securities
transactions:
Proceeds from shares sold 139,871,701 71,647,078 29,036,847
Cost of shares sold (103,542,464) (49,571,770) (26,265,761)
------------- ------------- -------------
Net realized gains from
securities transactions 36,329,237 22,075,308 2,771,086
------------- ------------- -------------
Net unrealized appreciation (depreciation)
of investments:
Beginning of period 148,214,653 164,042,181 105,031,733
End of period 265,639,874 229,663,206 56,280,516
------------- ------------- -------------
Change in net unrealized appreciation/depreciation
of investments 117,425,221 65,621,025 (48,751,217)
------------- ------------- -------------
Increase in net assets from operations $ 207,844,487 $ 107,326,173 $ 4,205,933
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 74
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS 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 $ 1,314,330 $ 9,826,367 $ 884,291 $ 10,760,951
------------ ------------ ------------ ------------
Total investment income 1,314,330 9,826,367 884,291 10,760,951
------------ ------------ ------------ ------------
Expenses:
Mortality risk charge (467,869) (923,038) (265,735) (984,004)
Expense risk charge (160,543) (316,729) (91,184) (337,648)
Distribution expense charge (68,805) (135,741) (39,078) (144,707)
------------ ------------ ------------ ------------
Total expenses (697,217) (1,375,508) (395,997) (1,466,359)
------------ ------------ ------------ ------------
Net investment income 617,113 8,450,859 488,294 9,294,592
------------ ------------ ------------ ------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 7,569,621 5,406,735 9,607,178 34,353,333
Cost of shares sold (6,904,571) (4,682,765) (8,447,139) (37,162,511)
------------ ------------ ------------ ------------
Net realized gains (losses) from
securities transactions 665,050 723,970 1,160,039 (2,809,178)
------------ ------------ ------------ ------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period 4,577,395 13,826,493 2,616,111 6,889,678
End of period 10,542,332 14,640,479 4,233,766 (14,945,783)
------------ ------------ ------------ ------------
Change in net unrealized appreciation/depreciation
of investments 5,964,937 813,986 1,617,655 (21,835,461)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from operations $ 7,247,100 $ 9,988,815 $ 3,265,988 $(15,350,047)
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
High-Yield Global Corporate
Bond Bond Bond
Portfolio Portfolio Portfolio
------------ ------------ ------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 12,329,025 $ 6,893,605 $ 2,449,931
------------ ------------ ------------
Total investment income 12,329,025 6,893,605 2,449,931
------------ ------------ ------------
Expenses:
Mortality risk charge (1,983,280) (875,922) (691,498)
Expense risk charge (680,537) (300,562) (237,279)
Distribution expense charge (291,659) (128,812) (101,691)
------------ ------------ ------------
Total expenses (2,955,476) (1,305,296) (1,030,468)
------------ ------------ ------------
Net investment income 9,373,549 5,588,309 1,419,463
------------ ------------ ------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 72,761,757 27,305,059 6,152,398
Cost of shares sold (69,371,564) (25,246,709) (5,754,383)
------------ ------------ ------------
Net realized gains (losses) from
securities transactions 3,390,193 2,058,350 398,015
------------ ------------ ------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period 14,934,511 6,907,949 4,430,649
End of period (2,564,692) 7,530,038 5,687,470
------------ ------------ ------------
Change in net unrealized appreciation/depreciation
of investments (17,499,203) 622,089 1,256,821
------------ ------------ ------------
Increase (decrease) in net assets from operations $ (4,735,461) $ 8,268,748 $ 3,074,299
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE> 75
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
NOVEMBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
International Emerging Real
Growth & Income Markets Estate
Portfolio Portfolio Portfolio
--------------- --------------- ---------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 170,435 $ 63,534 $ 241,456
--------------- --------------- ---------------
Total investment income 170,435 63,534 241,456
--------------- --------------- ---------------
Expenses:
Mortality risk charge (325,952) (82,945) (262,714)
Expense risk charge (111,846) (28,461) (90,147)
Distribution expense charge (47,935) (12,198) (38,635)
--------------- --------------- ---------------
Total expenses (485,733) (123,604) (391,496)
--------------- --------------- ---------------
Net investment income (loss) (315,298) (60,070) (150,040)
--------------- --------------- ---------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 18,445,621 11,068,464 12,778,519
Cost of shares sold (18,106,928) (13,953,402) (13,161,408)
--------------- --------------- ---------------
Net realized gains (losses) from
securities transactions 338,693 (2,884,938) (382,889)
--------------- --------------- ---------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period 212,462 (3,248,424) 1,182,933
End of period 946,922 (2,543,275) (2,857,432)
--------------- --------------- ---------------
Change in net unrealized appreciation/depreciation
of investments 734,460 705,149 (4,040,365)
--------------- --------------- ---------------
Increase (decrease) in net assets from operations $ 757,855 $ (2,239,859) $ (4,573,294)
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
"Dogs" of Cash
Wall Street Management
Portfolio Portfolio TOTAL
--------------- --------------- ---------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 0 $ 4,725,741 $ 420,344,581
--------------- --------------- ---------------
Total investment income 0 4,725,741 420,344,581
--------------- --------------- ---------------
Expenses:
Mortality risk charge (55,653) (1,415,890) (59,604,765)
Expense risk charge (19,097) (485,845) (20,452,615)
Distribution expense charge (8,184) (208,219) (8,765,413)
--------------- --------------- ---------------
Total expenses (82,934) (2,109,954) (88,822,793)
--------------- --------------- ---------------
Net investment income (loss) (82,934) 2,615,787 331,521,788
--------------- --------------- ---------------
Net realized gains (losses) from securities transactions:
Proceeds from shares sold 900,955 505,966,282 1,618,284,825
Cost of shares sold (962,931) (504,237,052) (1,450,165,015)
--------------- --------------- ---------------
Net realized gains (losses) from
securities transactions (61,976) 1,729,230 168,119,810
--------------- --------------- ---------------
Net unrealized appreciation (depreciation) of investments:
Beginning of period 0 1,054,729 1,030,916,329
End of period 332,861 1,539,243 1,223,942,664
--------------- --------------- ---------------
Change in net unrealized appreciation/depreciation
of investments 332,861 484,514 193,026,335
--------------- --------------- ---------------
Increase (decrease) in net assets from operations $ 187,951 $ 4,829,531 $ 692,667,933
=============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE> 76
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS 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) $ 36,124,250 $ 9,835,043 $ 191,807 $ 5,469,291
Net realized gains (losses) from
securities transactions 31,645,944 8,331,348 (1,982,437) 1,083,093
Change in net unrealized appreciation/
depreciation of investments (5,091,941) 21,325,642 (3,440,379) 5,726,957
------------- ------------- ------------- -------------
Increase (decrease) in net assets from operations 62,678,253 39,492,033 (5,231,009) 12,279,341
------------- ------------- ------------- -------------
From capital transactions:
Net proceeds from units sold 17,162,536 7,123,914 948,816 5,536,298
Cost of units redeemed (35,954,314) (13,523,791) (1,609,838) (10,993,988)
Net transfers (1,941,763) 9,080,349 (2,585,769) 58,359,031
------------- ------------- ------------- -------------
Increase (decrease) in net assets
from capital transactions (20,733,541) 2,680,472 (3,246,791) 52,901,341
------------- ------------- ------------- -------------
Increase (decrease) in net assets 41,944,712 42,172,505 (8,477,800) 65,180,682
Net assets at beginning of period 529,028,394 197,994,732 32,713,772 127,144,553
------------- ------------- ------------- -------------
Net assets at end of period $ 570,973,106 $ 240,167,237 $ 24,235,972 $ 192,325,235
============= ============= ============= =============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 740,144 319,148 88,720 421,397
Units redeemed (1,562,125) (599,961) (153,365) (837,252)
Units transferred 1,405 371,523 (267,279) 4,445,632
------------- ------------- ------------- -------------
Increase (decrease) in units outstanding (820,576) 90,710 (331,924) 4,029,777
Beginning units 24,889,133 9,747,428 2,937,198 10,047,042
------------- ------------- ------------- -------------
Ending units 24,068,557 9,838,138 2,605,274 14,076,819
============= ============= ============= =============
</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) $ 6,784,520 $ 25,170,030 $ (1,201,292)
Net realized gains (losses) from
securities transactions 6,426,264 9,198,472 1,891,538
Change in net unrealized appreciation/
depreciation of investments 22,391,920 5,625,420 2,182,270
------------- ------------- -------------
Increase (decrease) in net assets from operations 35,602,704 39,993,922 2,872,516
------------- ------------- -------------
From capital transactions:
Net proceeds from units sold 6,840,445 7,444,968 3,413,653
Cost of units redeemed (11,017,277) (21,348,644) (4,639,272)
Net transfers 1,872,969 1,244,805 (926,390)
------------- ------------- -------------
Increase (decrease) in net assets
from capital transactions (2,303,863) (12,658,871) (2,152,009)
------------- ------------- -------------
Increase (decrease) in net assets 33,298,841 27,335,051 720,507
Net assets at beginning of period 209,218,279 310,582,513 83,032,896
------------- ------------- -------------
Net assets at end of period $ 242,517,120 $ 337,917,564 $ 83,753,403
============= ============= =============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 522,155 401,379 294,237
Units redeemed (835,386) (1,151,597) (402,100)
Units transferred 220,173 (31,903) (47,659)
------------- ------------- -------------
Increase (decrease) in units outstanding (93,058) (782,121) (155,522)
Beginning units 18,010,557 18,376,185 7,215,024
------------- ------------- -------------
Ending units 17,917,499 17,594,064 7,059,502
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE> 77
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS 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 $ 21,875,320 $ 458,964 $ 32,797,490 $ 32,870,808
Net realized gains from
securities transactions 25,907,088 1,465,941 11,084,715 7,567,654
Change in net unrealized appreciation/
depreciation of investments 43,540,196 6,277,307 224,207 (9,187,736)
--------------- --------------- --------------- ---------------
Increase in net assets from operations 91,322,604 8,202,212 44,106,412 31,250,726
--------------- --------------- --------------- ---------------
From capital transactions:
Net proceeds from units sold 47,383,154 3,628,680 8,778,289 3,826,919
Cost of units redeemed (54,932,014) (3,128,650) (14,581,779) (13,929,554)
Net transfers 36,304,819 16,633,897 20,979,462 (14,171,074)
--------------- --------------- --------------- ---------------
Increase (decrease) in net assets
from capital transactions 28,755,959 17,133,927 15,175,972 (24,273,709)
--------------- --------------- --------------- ---------------
Increase in net assets 120,078,563 25,336,139 59,282,384 6,977,017
Net assets at beginning of period 956,188,606 42,154,698 209,401,610 206,547,066
--------------- --------------- --------------- ---------------
Net assets at end of period $ 1,076,267,170 $ 67,490,837 $ 268,683,994 $ 213,524,083
=============== =============== =============== ===============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 2,090,520 245,735 427,414 200,022
Units redeemed (2,448,129) (207,095) (697,501) (718,168)
Units transferred 1,534,592 1,120,847 985,913 (761,670)
--------------- --------------- --------------- ---------------
Increase (decrease) in units outstanding 1,176,983 1,159,487 715,826 (1,279,816)
Beginning units 44,892,446 3,095,513 11,336,732 11,714,450
--------------- --------------- --------------- ---------------
Ending units 46,069,429 4,255,000 12,052,558 10,434,634
=============== =============== =============== ===============
</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 $ 54,090,029 $ 19,629,840 $ 50,186,064
Net realized gains from
securities transactions 36,329,237 22,075,308 2,771,086
Change in net unrealized appreciation/
depreciation of investments 117,425,221 65,621,025 (48,751,217)
--------------- --------------- ---------------
Increase in net assets from operations 207,844,487 107,326,173 4,205,933
--------------- --------------- ---------------
From capital transactions:
Net proceeds from units sold 31,279,981 20,277,490 17,563,319
Cost of units redeemed (44,862,048) (36,455,560) (27,943,876)
Net transfers 74,176,211 41,423,730 26,174,022
--------------- --------------- ---------------
Increase (decrease) in net assets
from capital transactions 60,594,144 25,245,660 15,793,465
--------------- --------------- ---------------
Increase in net assets 268,438,631 132,571,833 19,999,398
Net assets at beginning of period 589,392,040 530,761,442 454,509,449
--------------- --------------- ---------------
Net assets at end of period $ 857,830,671 $ 663,333,275 $ 474,508,847
=============== =============== ===============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 1,091,748 851,324 943,086
Units redeemed (1,526,082) (1,516,106) (1,519,582)
Units transferred 2,529,913 1,670,766 1,347,716
--------------- --------------- ---------------
Increase (decrease) in units outstanding 2,095,579 1,005,984 771,220
Beginning units 24,050,697 24,795,824 25,272,776
--------------- --------------- ---------------
Ending units 26,146,276 25,801,808 26,043,996
=============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE> 78
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS 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 $ 617,113 $ 8,450,859 $ 488,294 $ 9,294,592
Net realized gains (losses) from
securities transactions 665,050 723,970 1,160,039 (2,809,178)
Change in net unrealized appreciation/
depreciation of investments 5,964,937 813,986 1,617,655 (21,835,461)
------------- ------------- ------------- -------------
Increase (decrease) in net assets from operations 7,247,100 9,988,815 3,265,988 (15,350,047)
------------- ------------- ------------- -------------
From capital transactions:
Net proceeds from units sold 2,884,371 2,564,367 1,317,505 3,809,808
Cost of units redeemed (2,620,645) (4,518,026) (1,909,553) (5,647,503)
Net transfers 25,338,978 2,737,718 8,550,433 (10,396,335)
------------- ------------- ------------- -------------
Increase (decrease) in net assets
from capital transactions 25,602,704 784,059 7,958,385 (12,234,030)
------------- ------------- ------------- -------------
Increase (decrease) in net assets 32,849,804 10,772,874 11,224,373 (27,584,077)
Net assets at beginning of period 32,359,325 83,649,784 19,644,306 101,734,353
------------- ------------- ------------- -------------
Net assets at end of period $ 65,209,129 $ 94,422,658 $ 30,868,679 $ 74,150,275
============= ============= ============= =============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 201,667 157,118 97,062 236,387
Units redeemed (180,430) (274,374) (135,939) (363,538)
Units transferred 1,710,360 167,594 618,018 (777,507)
------------- ------------- ------------- -------------
Increase (decrease) in units outstanding 1,731,597 50,338 579,141 (904,658)
Beginning units 2,447,948 5,415,312 1,541,346 6,368,247
------------- ------------- ------------- -------------
Ending units 4,179,545 5,465,650 2,120,487 5,463,589
============= ============= ============= =============
</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 $ 9,373,549 $ 5,588,309 $ 1,419,463
Net realized gains (losses) from
securities transactions 3,390,193 2,058,350 398,015
Change in net unrealized appreciation/
depreciation of investments (17,499,203) 622,089 1,256,821
------------- ------------- -------------
Increase (decrease) in net assets from operations (4,735,461) 8,268,748 3,074,299
------------- ------------- -------------
From capital transactions:
Net proceeds from units sold 8,423,042 2,141,820 2,747,025
Cost of units redeemed (13,481,311) (6,321,971) (4,188,628)
Net transfers 21,612,238 326,809 22,821,525
------------- ------------- -------------
Increase (decrease) in net assets
from capital transactions 16,553,969 (3,853,342) 21,379,922
------------- ------------- -------------
Increase (decrease) in net assets 11,818,508 4,415,406 24,454,221
Net assets at beginning of period 167,745,561 80,654,148 53,099,569
------------- ------------- -------------
Net assets at end of period $ 179,564,069 $ 85,069,554 $ 77,553,790
============= ============= =============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 557,130 157,390 214,332
Units redeemed (896,725) (459,677) (324,357)
Units transferred 1,493,428 44,588 1,770,506
------------- ------------- -------------
Increase (decrease) in units outstanding 1,153,833 (257,699) 1,660,481
Beginning units 11,443,250 6,164,455 4,235,990
------------- ------------- -------------
Ending units 12,597,083 5,906,756 5,896,471
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE> 79
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS 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
Growth & Income Markets Estate
Portfolio Portfolio Portfolio
--------------- --------------- ---------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (315,298) $ (60,070) $ (150,040)
Net realized gains (losses) from
securities transactions 338,693 (2,884,938) (382,889)
Change in net unrealized appreciation/
depreciation of investments 734,460 705,149 (4,040,365)
--------------- --------------- ---------------
Increase (decrease) in net assets from operations 757,855 (2,239,859) (4,573,294)
--------------- --------------- ---------------
From capital transactions:
Net proceeds from units sold 3,322,536 636,384 3,138,981
Cost of units redeemed (11,639,505) (8,208,163) (3,653,464)
Net transfers 16,333,647 4,144,100 11,107,587
--------------- --------------- ---------------
Increase (decrease) in net assets
from capital transactions 8,016,678 (3,427,679) 10,593,104
--------------- --------------- ---------------
Increase (decrease) in net assets 8,774,533 (5,667,538) 6,019,810
Net assets at beginning of period 28,115,381 13,964,137 18,681,133
--------------- --------------- ---------------
Net assets at end of period $ 36,889,914 $ 8,296,599 $ 24,700,943
=============== =============== ===============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 287,438 82,499 280,536
Units redeemed (1,122,021) (1,046,506) (326,783)
Units transferred 1,420,020 564,569 934,612
--------------- --------------- ---------------
Increase (decrease) in units outstanding 585,437 (399,438) 888,365
Beginning units 2,721,228 1,751,922 1,632,804
--------------- --------------- ---------------
Ending units 3,306,665 1,352,484 2,521,169
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
"Dogs" of Cash
Wall Street Management
Portfolio Portfolio TOTAL
--------------- --------------- ---------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (82,934) $ 2,615,787 $ 331,521,788
Net realized gains (losses) from
securities transactions (61,976) 1,729,230 168,119,810
Change in net unrealized appreciation/
depreciation of investments 332,861 484,514 193,026,335
--------------- --------------- ---------------
Increase (decrease) in net assets from operations 187,951 4,829,531 692,667,933
--------------- --------------- ---------------
From capital transactions:
Net proceeds from units sold 2,053,916 18,234,648 232,482,865
Cost of units redeemed (204,903) (33,217,804) (390,532,081)
Net transfers 12,044,140 13,927,867 395,173,006
--------------- --------------- ---------------
Increase (decrease) in net assets
from capital transactions 13,893,153 (1,055,289) 237,123,790
--------------- --------------- ---------------
Increase (decrease) in net assets 14,081,104 3,774,242 929,791,723
Net assets at beginning of period 0 128,314,920 5,206,632,667
--------------- --------------- ---------------
Net assets at end of period $ 14,081,104 $ 132,089,162 $ 6,136,424,390
=============== =============== ===============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 214,973 1,580,118
Units redeemed (21,845) (2,853,817)
Units transferred 1,257,086 1,209,448
--------------- ---------------
Increase (decrease) in units outstanding 1,450,214 (64,251)
Beginning units 0 11,224,451
--------------- ---------------
Ending units 1,450,214 11,160,200
=============== ===============
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE> 80
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Capital Natural Government 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) $ 37,405,322 $ 17,334,073 $ 1,823,050 $ 6,351,902
Net realized gains (losses) from
securities transactions 25,739,307 4,160,297 289,997 (216,128)
Change in net unrealized appreciation/
depreciation of investments 20,473,570 13,801,611 (5,045,667) 722,116
------------- ------------- ------------- -------------
Increase (decrease) in net assets from operations 83,618,199 35,295,981 (2,932,620) 6,857,890
------------- ------------- ------------- -------------
From capital transactions:
Net proceeds from units sold 63,814,945 25,522,588 7,473,963 13,954,746
Cost of units redeemed (23,750,681) (9,791,219) (1,283,606) (8,320,472)
Net transfers 44,369,254 23,594,248 3,127,108 5,132,312
------------- ------------- ------------- -------------
Increase in net assets
from capital transactions 84,433,518 39,325,617 9,317,465 10,766,586
------------- ------------- ------------- -------------
Increase in net assets 168,051,717 74,621,598 6,384,845 17,624,476
Net assets at beginning of period 360,976,677 123,373,134 26,328,927 109,520,077
------------- ------------- ------------- -------------
Net assets at end of period $ 529,028,394 $ 197,994,732 $ 32,713,772 $ 127,144,553
============= ============= ============= =============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 3,476,602 1,455,312 617,898 1,168,231
Units redeemed (1,228,940) (532,036) (102,746) (689,911)
Units transferred 2,171,076 1,266,308 250,996 392,483
------------- ------------- ------------- -------------
Increase in units outstanding 4,418,738 2,189,584 766,148 870,803
Beginning units 20,470,395 7,557,844 2,171,050 9,176,239
------------- ------------- ------------- -------------
Ending units 24,889,133 9,747,428 2,937,198 10,047,042
============= ============= ============= =============
</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) $ 3,400,577 $ 9,748,091 $ (863,598)
Net realized gains (losses) from
securities transactions 1,376,135 6,991,103 1,906,802
Change in net unrealized appreciation/
depreciation of investments (1,321,595) 13,691,068 6,343,970
------------- ------------- -------------
Increase (decrease) in net assets from operations 3,455,117 30,430,262 7,387,174
------------- ------------- -------------
From capital transactions:
Net proceeds from units sold 41,819,108 33,005,430 19,057,042
Cost of units redeemed (7,074,811) (13,340,530) (1,959,770)
Net transfers 25,642,622 24,373,244 25,978,063
------------- ------------- -------------
Increase in net assets
from capital transactions 60,386,919 44,038,144 43,075,335
------------- ------------- -------------
Increase in net assets 63,842,036 74,468,406 50,462,509
Net assets at beginning of period 145,376,243 236,114,107 32,570,387
------------- ------------- -------------
Net assets at end of period $ 209,218,279 $ 310,582,513 $ 83,032,896
============= ============= =============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 3,619,718 2,052,329 1,838,030
Units redeemed (602,689) (810,906) (178,584)
Units transferred 2,231,185 1,551,555 2,389,678
------------- ------------- -------------
Increase in units outstanding 5,248,214 2,792,978 4,049,124
Beginning units 12,762,343 15,583,207 3,165,900
------------- ------------- -------------
Ending units 18,010,557 18,376,185 7,215,024
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE> 81
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
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 income (loss) $ 1,130,284 $ (362,662) $ 2,527,087 $ 14,055,262
Net realized gains from
securities transactions 8,379,277 986,648 6,574,248 4,320,480
Change in net unrealized appreciation/
depreciation of investments 164,145,131 5,236,021 30,159,891 13,479,196
------------- ------------- ------------- -------------
Increase in net assets from operations 173,654,692 5,860,007 39,261,226 31,854,938
------------- ------------- ------------- -------------
From capital transactions:
Net proceeds from units sold 168,731,762 10,426,813 20,321,341 11,819,554
Cost of units redeemed (29,879,481) (3,379,784) (8,456,398) (9,740,821)
Net transfers 155,692,370 18,013,600 4,178,527 (7,838,225)
------------- ------------- ------------- -------------
Increase (decrease) in net assets
from capital transactions 294,544,651 25,060,629 16,043,470 (5,759,492)
------------- ------------- ------------- -------------
Increase in net assets 468,199,343 30,920,636 55,304,696 26,095,446
Net assets at beginning of period 487,989,263 11,234,062 154,096,914 180,451,620
------------- ------------- ------------- -------------
Net assets at end of period $ 956,188,606 $ 42,154,698 $ 209,401,610 $ 206,547,066
============= ============= ============= =============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 9,151,286 869,687 1,268,013 757,853
Units redeemed (1,544,744) (292,588) (514,321) (602,007)
Units transferred 8,038,350 1,497,277 229,015 (519,133)
------------- ------------- ------------- -------------
Increase (decrease) in units outstanding 15,644,892 2,074,376 982,707 (363,287)
Beginning units 29,247,554 1,021,137 10,354,025 12,077,737
------------- ------------- ------------- -------------
Ending units 44,892,446 3,095,513 11,336,732 11,714,450
============= ============= ============= =============
</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 (loss) $ 15,768,856 $ 11,037,155 $ 23,434,688
Net realized gains from
securities transactions 13,244,891 6,689,466 1,647,776
Change in net unrealized appreciation/
depreciation of investments 74,150,245 84,649,638 42,966,543
------------- ------------- -------------
Increase in net assets from operations 103,163,992 102,376,259 68,049,007
------------- ------------- -------------
From capital transactions:
Net proceeds from units sold 93,785,157 66,298,687 59,042,689
Cost of units redeemed (25,525,241) (20,766,275) (20,362,730)
Net transfers 61,152,805 73,096,855 49,254,654
------------- ------------- -------------
Increase (decrease) in net assets
from capital transactions 129,412,721 118,629,267 87,934,613
------------- ------------- -------------
Increase in net assets 232,576,713 221,005,526 155,983,620
Net assets at beginning of period 356,815,327 309,755,916 298,525,829
------------- ------------- -------------
Net assets at end of period $ 589,392,040 $ 530,761,442 $ 454,509,449
============= ============= =============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 4,375,748 3,588,612 3,620,967
Units redeemed (1,125,364) (1,074,591) (1,208,246)
Units transferred 2,466,758 3,735,661 2,919,322
------------- ------------- -------------
Increase (decrease) in units outstanding 5,717,142 6,249,682 5,332,043
Beginning units 18,333,555 18,546,142 19,940,733
------------- ------------- -------------
Ending units 24,050,697 24,795,824 25,272,776
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE> 82
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
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 income (loss) $ (231,673) $ 2,059,695 $ (82,244) $ 5,300,446
Net realized gains from
securities transactions 169,207 724,439 229,074 1,606,703
Change in net unrealized appreciation/
depreciation of investments 3,807,626 5,664,661 2,260,538 1,095,610
------------- ------------- ------------- -------------
Increase in net assets from operations 3,745,160 8,448,795 2,407,368 8,002,759
------------- ------------- ------------- -------------
From capital transactions:
Net proceeds from units sold 9,272,164 10,894,722 3,583,011 30,901,544
Cost of units redeemed (1,493,051) (3,296,580) (2,623,327) (3,949,611)
Net transfers 11,811,849 4,269,742 10,478,114 21,371,247
------------- ------------- ------------- -------------
Increase in net assets
from capital transactions 19,590,962 11,867,884 11,437,798 48,323,180
------------- ------------- ------------- -------------
Increase in net assets 23,336,122 20,316,679 13,845,166 56,325,939
Net assets at beginning of period 9,023,203 63,333,105 5,799,140 45,408,414
------------- ------------- ------------- -------------
Net assets at end of period $ 32,359,325 $ 83,649,784 $ 19,644,306 $ 101,734,353
============= ============= ============= =============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 787,249 768,683 320,269 2,047,012
Units redeemed (126,500) (225,942) (223,501) (253,400)
Units transferred 970,160 289,337 901,117 1,377,896
------------- ------------- ------------- -------------
Increase in units outstanding 1,630,909 832,078 997,885 3,171,508
Beginning units 817,039 4,583,234 543,461 3,196,739
------------- ------------- ------------- -------------
Ending units 2,447,948 5,415,312 1,541,346 6,368,247
============= ============= ============= =============
</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 (loss) $ 6,273,287 $ 3,649,420 $ 1,248,701
Net realized gains from
securities transactions 1,643,867 450,462 165,437
Change in net unrealized appreciation/
depreciation of investments 9,115,803 861,963 2,052,216
------------- ------------- -------------
Increase in net assets from operations 17,032,957 4,961,845 3,466,354
------------- ------------- -------------
From capital transactions:
Net proceeds from units sold 28,787,123 8,062,445 10,236,124
Cost of units redeemed (8,833,581) (3,848,065) (2,228,695)
Net transfers 22,094,696 5,181,039 5,981,956
------------- ------------- -------------
Increase in net assets
from capital transactions 42,048,238 9,395,419 13,989,385
------------- ------------- -------------
Increase in net assets 59,081,195 14,357,264 17,455,739
Net assets at beginning of period 108,664,366 66,296,884 35,643,830
------------- ------------- -------------
Net assets at end of period $ 167,745,561 $ 80,654,148 $ 53,099,569
============= ============= =============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 2,134,215 648,001 868,904
Units redeemed (641,812) (307,787) (187,790)
Units transferred 1,592,652 411,092 495,068
------------- ------------- -------------
Increase in units outstanding 3,085,055 751,306 1,176,182
Beginning units 8,358,195 5,413,149 3,059,808
------------- ------------- -------------
Ending units 11,443,250 6,164,455 4,235,990
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE> 83
VARIABLE SEPARATE ACCOUNT
(Portion Relating to the POLARIS Variable Annuity)
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
NOVEMBER 30, 1997
(Continued)
<TABLE>
<CAPTION>
International Emerging Real
Growth & Income Markets Estate
Portfolio Portfolio Portfolio
--------------- --------------- ---------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (147,984) $ (99,787) $ (82,712)
Net realized gains (losses) from
securities transactions 10,652 (26,001) 59,183
Change in net unrealized appreciation/
depreciation of investments 212,462 (3,248,424) 1,182,933
--------------- --------------- ---------------
Increase (decrease) in net assets from operations 75,130 (3,374,212) 1,159,404
--------------- --------------- ---------------
From capital transactions:
Net proceeds from units sold 13,780,789 11,660,679 5,714,592
Cost of units redeemed (97,114) (33,193) (1,148,731)
Net transfers 14,356,576 5,710,863 12,955,868
--------------- --------------- ---------------
Increase in net assets
from capital transactions 28,040,251 17,338,349 17,521,729
--------------- --------------- ---------------
Increase in net assets 28,115,381 13,964,137 18,681,133
Net assets at beginning of period 0 0 0
--------------- --------------- ---------------
Net assets at end of period $ 28,115,381 $ 13,964,137 $ 18,681,133
=============== =============== ===============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 1,359,331 1,168,066 547,513
Units redeemed (9,246) (3,471) (103,433)
Units transferred 1,371,143 587,327 1,188,724
--------------- --------------- ---------------
Increase in units outstanding 2,721,228 1,751,922 1,632,804
Beginning units 0 0 0
--------------- --------------- ---------------
Ending units 2,721,228 1,751,922 1,632,804
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Cash
Management
Portfolio TOTAL
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 4,147,593 $ 164,824,829
Net realized gains (losses) from
securities transactions 298,794 87,422,116
Change in net unrealized appreciation/
depreciation of investments (92,255) 486,364,871
--------------- ---------------
Increase (decrease) in net assets from operations 4,354,132 738,611,816
--------------- ---------------
From capital transactions:
Net proceeds from units sold 74,845,717 842,812,735
Cost of units redeemed (20,270,825) (231,454,592)
Net transfers (18,998,081) 600,981,306
--------------- ---------------
Increase in net assets
from capital transactions 35,576,811 1,212,339,449
--------------- ---------------
Increase in net assets 39,930,943 1,950,951,265
Net assets at beginning of period 88,383,977 3,255,681,402
--------------- ---------------
Net assets at end of period $ 128,314,920 $ 5,206,632,667
=============== ===============
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 6,684,622
Units redeemed (1,801,465)
Units transferred (1,664,614)
---------------
Increase in units outstanding 3,218,543
Beginning units 8,005,908
---------------
Ending units 11,224,451
===============
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 84
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS 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 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. On January 1, 1999,
SunAmerica Inc. merged with and into American International Group,
Inc. in a tax-free reorganization that has been treated as a
pooling of interests for accounting purposes. Immediately prior to
the merger, SunAmerica Inc. transferred substantially all of its
net assets to its wholly-owned subsidiary SunAmerica Holdings,
Inc., a Delaware Corporation. On January 4, 1999, SunAmerica
Holdings, Inc. changed its name to 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 five 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 "Dogs" of Wall Street Portfolio was April
1, 1998. The inception date of the International Growth and Income,
Emerging Markets, and Real Estate Portfolios was June 2, 1997. The
inception date of the Aggressive Growth, Federated Value,
SunAmerica Balanced, and Utility Portfolios was June 3, 1996. The
inception date of the Natural Resources, International Diversified
Equities, Venture Value, Balanced/Phoenix Investment Counsel and
Worldwide High Income Portfolios was October 31, 1994. The
inception date of the Asset Allocation, Global Bond and Corporate
Bond Portfolios was July 1, 1993. The inception date of the
remaining portfolios was February 9, 1993.
F-20
<PAGE> 85
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS 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.
F-21
<PAGE> 86
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS 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.
F-22
<PAGE> 87
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS 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.
F-23
<PAGE> 88
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS 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.
F-24
<PAGE> 89
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS 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>
Year since Purchase Applicable Withdrawal
Payment Charge Percentage
------------------- ---------------------
<S> <C>
First 7%
Second 6%
Third 5%
Fourth 4%
Fifth 3%
Sixth 2%
Seventh 1%
Eighth and beyond 0%
</TABLE>
F-25
<PAGE> 90
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS 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.
F-26
<PAGE> 91
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS 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 $245,021,409 $229,630,699
Growth Portfolio 60,802,066 48,286,551
Natural Resources Portfolio 6,414,269 9,469,253
Government and Quality Bond Portfolio 108,809,313 50,438,681
SUNAMERICA TRUST:
International Diversified Equities Portfolio 51,327,865 46,847,208
Global Equities Portfolio 76,160,647 63,649,488
Aggressive Growth Portfolio 18,330,770 21,684,071
Venture Value Portfolio 158,838,654 108,207,373
Federated Value Portfolio 26,478,793 8,885,902
Putnam Growth Portfolio 91,761,217 43,787,755
Growth/Phoenix Investment Portfolio 43,123,395 34,526,296
Alliance Growth Portfolio 254,555,874 139,871,701
Growth-Income Portfolio 116,522,578 71,647,078
Asset Allocation Portfolio 95,016,376 29,036,847
SunAmerica Balanced Portfolio 33,789,438 7,569,621
Balanced/Phoenix Investment Portfolio 14,641,653 5,406,735
Utility Portfolio 18,053,857 9,607,178
Worldwide High Income Portfolio 31,413,895 34,353,333
High-Yield Bond Portfolio 98,689,275 72,761,757
Global Bond Portfolio 29,040,026 27,305,059
Corporate Bond Portfolio 28,951,783 6,152,398
International Growth & Income Portfolio 26,147,001 18,445,621
Emerging Markets Portfolio 7,580,715 11,068,464
Real Estate Portfolio 23,221,583 12,778,519
"Dogs" of Wall Street Portfolio 14,711,174 900,955
Cash Management Portfolio 507,526,780 505,966,282
============ ============
</TABLE>
F-27
<PAGE> 92
VARIABLE SEPARATE ACCOUNT
(PORTION RELATING TO THE POLARIS 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.
F-28
<PAGE> 93
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 Variable Annuity) for the fiscal year
ended November 30, 1998
(b) Exhibits
<TABLE>
<S> <C> <C>
(1) Resolutions Establishing Separate Account...... ***
(2) Custody Agreements............................. **
(3) (a) Distribution Contract...................... ***
(b) Selling Agreement.......................... ***
(4) Variable Annuity Contract...................... ****
(5) Application for Contract....................... ****
(6) Depositor - Corporate Documents
(a) Certificate of Incorporation............... ***
(b) By-Laws.................................... ***
(7) Reinsurance Contract........................... **
(8) 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
Control With Anchor National Life Insurance
Company, the Depositor of Registrant........... *
(15) Powers of Attorney............................. ***
</TABLE>
* Filed Herewith
** Not Applicable
*** Filed January 30, 1998, Post-Effective Amendments 11 and 28
to this Registration Statement
**** Filed March 20, 1998, Post-Effective Amendments 12 and 29
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
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
Name Position
- ---- --------
<S> <C>
Edwin R. Reoliquio Senior Vice President and Chief Actuary
Victor E. Akin Senior Vice President
David R. Bechtel Vice President and Treasurer
J. Franklin Grey Vice President
Keith B. Jones Vice President
Michael Lindquist 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
<PAGE> 95
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.
333-56965 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 30, 1998.
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 Variable Annuity) was 99,625, of which 37,619
were Qualified Contracts and 61,646 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. (currently in Registration); 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>
J. Steven Neamtz Director and President
Robert M. Zakem Director, Executive Vice
President, General Counsel
and Assistant Secretary
Peter Harbeck Director
Debbie Potash-Turner Controller
Per Furmark Vice President
James Nichols Vice President
Susan L. Harris Secretary
</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 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.
<PAGE> 96
Item 31. Management Services
Not Applicable.
<PAGE> 97
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> 98
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant certifies that 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
24th day of March 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)
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 March 24, 1999
- --------------------
Susan L. Harris
PETER MCMILLAN* Director
</TABLE>
<PAGE> 99
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
PETER MCMILLAN
- --------------------
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: March 24, 1999
<PAGE> 100
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
Exhibit 10 Consent of Independent Accountants
Exhibit 14 Diagram and Listing of All Persons Directly or
Indirectly Controlled By or Under Common Control
With Anchor National Life Insurance Company, the
Depositor of Registrant.
</TABLE>
<PAGE> 1
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 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 22, 1999, relating to the financial statements
of Variable Separate Account (Portion Relating to the POLARIS Variable
Annuity), which appear in such Prospectus and Statement of Additional
Information, respectively. 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
March 23, 1999
<PAGE> 1
EXHIBIT 14
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 30, 1998.
