<PAGE> 1
File Nos. 2-86837
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. 32 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ X ]
Amendment No. 25
(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)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
--
X on May 1, 2000 pursuant to paragraph (b) of Rule 485
--
60 days after filing pursuant to paragraph (a)(1) of Rule 485
--
on [ ] pursuant to paragraph (a)(1) of Rule 485
--
<PAGE> 2
VARIABLE SEPARATE ACCOUNT
Cross Reference Sheet
PART A - PROSPECTUS
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption
- ----------------------- -------
<S> <C> <C>
1. Cover Page............................. Cover Page
2. Definitions............................ Definitions
3. Synopsis............................... Summary; Fee Tables;
Examples
4. Condensed Financial Information........ Condensed Financial
Information; Financial
Statements
5. General Description of Registrant,
Depositor and Portfolio Companies...... Description of
Anchor National, the
Separate Account and
the General Account;
Variable Account
Options; Fixed
Account Option
6. Deductions............................. Contract Charges
7. General Description of
Variable Annuity Contracts............. Description of the
Contracts
8. Annuity Period......................... Income Phase
9. Death Benefit.......................... Description of the
Contract
10. Purchases and Contract Value........... Purchases, Withdrawals
and Contract Value;
Distribution of Contracts
11. Redemptions............................ Purchases, Withdrawals
and Contract Value;
Contract Charges
12. Taxes.................................. Taxes
13. Legal Proceedings...................... Legal Proceedings
14. Table of Contents of Statement
of Additional Information.............. Statement of Additional
Information
</TABLE>
<PAGE> 3
PART B - STATEMENT OF ADDITIONAL INFORMATION
Certain information required in part B of the Registration
Statement has been included within the Prospectus forming part of this
Registration Statement; the following cross-references suffixed with a "P" are
made by reference to the captions in the Prospectus.
<TABLE>
<CAPTION>
Item Number in Form N-4 Caption
- ----------------------- -------
<S> <C> <C>
15. Cover Page............................. Cover Page
16. Table of Contents...................... Table of Contents
17. General Information and History........ Not Applicable
18. Services............................... Not Applicable
19. Purchase of Securities Being Offered... Variable Account
Accumulation Provisions;
Description of the
Contracts (P); Variable
Account Options (P)
20. Underwriters........................... Distribution of Contracts (P)
21. Calculation of Performance Data........ Performance Data
22. Annuity Payments....................... Income Phase (P);
Income Options (P);
Accumulation Units (P)
23. Financial Statements................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE> 4
AMERICAN PATHWAY II
PROSPECTUS
MAY 1, 2000
AN INDIVIDUAL DEFERRED VARIABLE BENEFIT AND FIXED BENEFIT ANNUITY
FLEXIBLE PURCHASE PAYMENT-NONPARTICIPATING CONTRACT
ISSUED BY
ANCHOR NATIONAL LIFE INSURANCE COMPANY
IN CONNECTION WITH
VARIABLE SEPARATE ACCOUNT
The annuity has 8 investment choices - 1 fixed account option and 7
variable accounts listed below. The one year fixed account option is funded
through the general account of Anchor National Life Insurance Company ("Anchor
National"). Each of the 7 variable accounts invest solely in the shares of the
corresponding series of the Anchor Pathway Fund.
<TABLE>
<S> <C>
- Growth - High-Yield Bond
- International - U.S. Government/AAA-Rated Securities
- Growth-Income - Cash Management
- Asset Allocation
</TABLE>
Anchor National discontinued new sales of the contract as of the close of
business on August 31, 1993. Anchor National will continue to accept subsequent
payments on existing contracts and to issue the contract to new participants in
existing qualified retirement plans using the contract as a funding vehicle.
Please read this prospectus carefully before investing and keep it for
future reference. It contains important information about the American Pathway
II contract.
To learn more about the annuity offered by this prospectus, obtain a copy
of the Statement of Additional Information ("SAI") dated May 1, 2000. The SAI is
on file with Securities and Exchange Commission ("SEC") and is incorporated by
reference into this prospectus. The Table of Contents of the SAI appears on page
28 of this prospectus. For a free copy of the SAI, call us at (800) 445-SUN2 or
write to us at our Annuity Service Center, P.O. Box 54299, Los Angeles,
California 90054-0299.
In addition, the SEC 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.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
ANCHOR PATHWAY FUND. YOU SHOULD READ EACH PROSPECTUS CAREFULLY AND RETAIN BOTH
FOR FUTURE REFERENCE.
ANNUITIES INVOLVE RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. ANNUITIES
ARE NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THEY
ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR HAS
THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS CRIMINAL.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ITEM ----
<S> <C>
DEFINITIONS................................................. 3
SUMMARY..................................................... 4
FEE TABLES.................................................. 7
EXAMPLES.................................................... 8
CONDENSED FINANCIAL INFORMATION -- ACCUMULATION UNIT
VALUES.................................................... 9
PERFORMANCE DATA............................................ 10
DESCRIPTION OF ANCHOR NATIONAL, THE SEPARATE ACCOUNT AND THE
GENERAL ACCOUNT........................................... 10
Anchor National Life Insurance Company................. 10
Separate Account....................................... 11
General Account........................................ 11
VARIABLE ACCOUNT OPTIONS.................................... 11
Voting Rights.......................................... 12
Substitution of Securities............................. 12
FIXED ACCOUNT OPTION........................................ 12
Allocations............................................ 12
CONTRACT CHARGES............................................ 13
Insurance Charges...................................... 13
Withdrawal Charges..................................... 13
Investment Charges..................................... 13
Contract Maintenance Fee............................... 13
Transfer Fee........................................... 14
Premium Tax............................................ 14
Income Taxes........................................... 14
Reduction or Elimination of Charges and Expenses, and
Additional Amounts Credited........................... 14
Free Withdrawal Amount................................. 14
DESCRIPTION OF THE CONTRACTS................................ 14
Summary................................................ 14
Ownership.............................................. 15
Annuitant.............................................. 15
Modification of the Contract........................... 15
Assignment............................................. 15
Death Benefit.......................................... 15
Enhanced Death Benefit................................. 16
PURCHASES, WITHDRAWALS AND CONTRACT VALUE................... 17
Purchase Payments...................................... 17
Automatic Dollar Cost Averaging Program................ 17
Allocation of Purchase Payments........................ 18
Accumulation Units..................................... 18
Free Look.............................................. 19
Transfers During the Accumulation Phase................ 19
Distribution of Contracts.............................. 20
Withdrawals............................................ 20
Systematic Withdrawal Program.......................... 21
Minimum Contract Value................................. 21
INCOME PHASE................................................ 21
Annuity Date........................................... 21
Income Options......................................... 22
Fixed and/or Variable Income Options................... 22
Fixed Income Only Options.............................. 22
Other Income Options................................... 23
Transfers During the Income Phase...................... 23
Deferment of Payments.................................. 23
ADMINISTRATION.............................................. 23
Year 2000................................................... 23
TAXES....................................................... 24
Annuity Contracts in General........................... 24
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
ITEM ----
<S> <C>
Tax Treatment of Distributions -- Non-Qualified
Contracts............................................. 24
Tax Treatment of Distributions -- Qualified
Contracts............................................. 24
Minimum Distributions.................................. 25
Diversification........................................ 25
CUSTODIAN................................................... 25
LEGAL PROCEEDINGS........................................... 25
REGISTRATION STATEMENTS..................................... 26
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT........... 26
FINANCIAL STATEMENTS........................................ 26
APPENDIX A -- PREMIUM TAXES................................. A-1
</TABLE>
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
The following terms, as used in this prospectus, have the indicated
meanings:
ACCUMULATION PHASE -- The period during which you invest money in your contract.
ACCUMULATION UNIT -- A unit of measurement which 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 begin, as selected by you.
ANNUITY UNIT(S) -- 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.
FUND -- Anchor Pathway Fund, an open-end management investment company.
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 pre-tax dollars. These
contracts are generally purchased under a pension plan, specially sponsored
program or IRA.
VARIABLE ACCOUNT(S) -- The variable investment options available under the
contract. Each Variable Account has its own investment objective and is invested
in the underlying investments of the Fund.
3
<PAGE> 7
- --------------------------------------------------------------------------------
SUMMARY
- --------------------------------------------------------------------------------
This summary sets forth some of the more important points that you should
know and consider before investing in the American Pathway II Variable Annuity.
The remainder of the prospectus discusses the topics in more detail. We urge you
to read it carefully and retain it, and the prospectus for the Fund, for future
reference.
WHAT IS AN ANNUITY CONTRACT?
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.
The American Pathway II Variable Annuity is a contract between you and
Anchor National (the Company, Us, We). It is designed to help you invest on a
tax deferred basis and meet long-term financial goals, such as retirement
funding.
Like most annuities, this 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 Accounts you
allocate money to and/or the interest rate earned on fixed the account option.
During the Income Phase, you will receive income payments from your annuity.
Your payments may be fixed in dollar amount, may vary with investment
performance of the Variable Accounts or be a combination of both. Among other
factors, the amount of money you are able to accumulate in your contract during
the Accumulation Phase will determine the amount of your payments during the
Income Phase.
WHAT IS THE DIFFERENCE BETWEEN A VARIABLE ANNUITY AND A FIXED ANNUITY?
A fixed annuity earns interest at a fixed rate guaranteed by the insurance
company. A variable annuity typically provides a fixed account option but also
provides Variable Accounts. The Variable Accounts are similar to a mutual fund,
but are only available through the purchase of an annuity. Most significantly,
you as the contract owner bear the entire investment risk with respect to any
Purchase Payments allocated to the Variable Accounts of an annuity. This means
that the value of your contract will go up and down, depending on the
performance of the Variable Accounts.
American Pathway II Annuity is a variable annuity with one fixed account
option and seven Variable Accounts.
WHAT ARE THE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACT?
You may allocate money to the following variable investment series of the
Fund:
<TABLE>
<S> <C>
- Growth - High-Yield Bond
- International - U.S. Government/AAA-Rated
- Growth-Income Securities
- Asset Allocation - Cash Management
</TABLE>
You may also allocate money to the fixed account option for a period of one
year. We call this time period the guarantee period. Anchor National guarantees
the interest rate credited to money in the fixed account
4
<PAGE> 8
option. The interest rate offered for the guarantee period may differ from time
to time, but we will never credit less than a 4% annual effective rate.
During the Accumulation Phase, you may transfer among the Variable Accounts
and/or the fixed account options. Fifteen free transfers are permitted per
contract year. After that, we assess a transfer fee.
HOW MAY I ACCESS MY MONEY?
The contract provides for a free withdrawal amount on your first withdrawal
of each contract year. The free withdrawal amount is equal to 10% of total
Purchase Payments, still subject to the contingent deferred sales charge (also
referred to as the "withdrawal charge"), which have been in your contract one
year or longer. You will not get the benefit of a free withdrawal amount upon a
full surrender of your contract.
Withdrawals in excess of these limits may be assessed a withdrawal charge.
Generally, withdrawals may be made from your contract in the amount of $500 or
more. You may request withdrawals in writing or by establishing systematic
withdrawals. Under systematic withdrawals, the minimum withdrawal amount is
$250.
There are no withdrawal charges on that portion of your money invested for
seven years or more. Of course, upon a withdrawal you may have to pay income
tax. A 10% IRS penalty tax may also apply if you are under age 59 1/2.
Additionally, we do not assess withdrawal charges upon payment of a death
benefit or when you switch to the Income Phase.
CAN I EXAMINE THE CONTRACT?
You may cancel your contract within ten days of your receipt of the
contract (or longer if required by state law) by mailing it to our Annuity
Service Center. Your contract will be treated as void on the date we receive it
and we will refund an amount equal to the contract value (unless otherwise
required by state law). Its value may be more or less than the money you
initially invested.
WHAT ARE THE CHARGES AND DEDUCTIONS UNDER A CONTRACT?
Each year, we deduct a $30 contract maintenance fee from your contract. We
also deduct insurance charges which equal 1.30% annually of the average daily
value of your contract allocated to the Variable Accounts. The insurance charges
include: mortality and expense risk, 1.15%, and distribution expense, .15%. If
you elect the enhanced death benefit, we also deduct an enhanced death benefit
charge which equals .10% annually of the average daily value of your contract
allocated to the Variable Accounts.
As with other professionally managed investments, there are also investment
charges imposed on contracts with money allocated to the Variable Accounts,
which are estimated to range from .54% to 1.03%.
If you take money out in excess of the amount allowed for in your contract,
you may be assessed a withdrawal charge which is a percentage of the Purchase
Payments you withdraw. The withdrawal charge is applied against each Purchase
Payment as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
YEAR 1 2 3 4 5 6
- ---------------------------------------------------------------------------------------
WITHDRAWAL
CHARGE 5% 5% 5% 5% 5% 0%
- ---------------------------------------------------------------------------------------
</TABLE>
Each year, you are allowed to make 15 transfers without charge. After your
first 15 free transfers, a $25 transfer fee ($10 in Pennsylvania and Texas) will
apply 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.
5
<PAGE> 9
WHAT IS THE DEATH BENEFIT UNDER THE CONTRACT?
Under the standard death benefit, if the Annuitant on your contract dies
prior to the Annuity Date, your Beneficiary will receive a death benefit.
The standard death benefit is the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Purchase Payments less any withdrawals and partial annuitizations
(and any fees or charges applicable to such distributions); or
3. after your fifth contract year, your contract value on the last
anniversary preceding your death, plus any Purchase Payments and less
any withdrawals and partial annuitizations (and any fees or charges
applicable to such distributions) since that contract anniversary.
We also offer an optional enhanced guaranteed minimum death benefit which
is an alternative to the standard death benefit. (SEE DESCRIPTION OF CONTRACTS,
ENHANCED DEATH BENEFIT, PAGE 16.)
WHAT ARE THE AVAILABLE INCOME OPTIONS UNDER THE CONTRACT?
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 years;
(4) payments for your lifetime, but for not less than 10 or 20 years; and
(5) payments for a specified period of 3 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
payment is taxable as income.
6
<PAGE> 10
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE (AS A PERCENTAGE OF EACH PURCHASE PAYMENT):
<TABLE>
<CAPTION>
CONTRIBUTION YEAR
<S> <C>
One.................................................. 5%
Two.................................................. 5%
Three................................................ 5%
Four................................................. 5%
Five................................................. 5%
Six.................................................. 0%
ANNUAL CONTRACT MAINTENANCE FEE............................. $30
TRANSFER FEE................................................ $25*
(no transfer fee applies to the first 15 transfers in a
contract year)
</TABLE>
- ---------------
* $10 in Texas and Pennsylvania.
- --------------------------------------------------------------------------------
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF DAILY NET ASSET VALUE)
<TABLE>
<S> <C>
MORTALITY RISK CHARGE....................................... 0.80%
EXPENSE RISK CHARGE......................................... 0.35%
DISTRIBUTION EXPENSE CHARGE................................. 0.15%
----
TOTAL EXPENSE CHARGES (EXCLUDING OPTIONAL ENHANCED
DEATH BENEFIT CHARGE)............................... 1.30%
====
OPTIONAL ENHANCED DEATH BENEFIT CHARGE...................... 0.10%
TOTAL EXPENSE CHARGES (INCLUDING OPTIONAL ENHANCED
DEATH BENEFIT CHARGE)............................... 1.40%
</TABLE>
- ---------------
ANNUAL OPERATING EXPENSES OF ANCHOR PATHWAY FUND
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE
FUND'S FISCAL YEAR ENDED FEBRUARY 29, 2000)
<TABLE>
<CAPTION>
U.S.
GROWTH- ASSET GOVERNMENT/ CASH
GROWTH INTERNATIONAL INCOME ALLOCATION HIGH-YIELD AAA RATED MANAGEMENT
SERIES SERIES SERIES SERIES BOND SERIES SERIES SERIES
------ ------------- ------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fee........... 0.30% 0.60% 0.30% 0.31% 0.32% 0.32% 0.33%
Business Management Fee........... 0.20% 0.24% 0.20% 0.21% 0.21% 0.22% 0.22%
Other Expenses:
Custodian and trustee fees...... 0.03% 0.17% 0.03% 0.05% 0.05% 0.06% 0.05%
Auditing and legal fees......... 0.00% 0.01% 0.00% 0.01% 0.02% 0.03% 0.03%
Other expenses.................. 0.01% 0.01% 0.01% 0.00% 0.00% 0.00% 0.00%
TOTAL FUND OPERATING EXPENSES..... 0.54% 1.03% 0.54% 0.58% 0.60% 0.63% 0.63%
</TABLE>
- ------------
THE ABOVE EXPENSES WERE PROVIDED BY THE FUND, THE COMPANY HAS NOT VERIFIED THE
ACCURACY OF THE INFORMATION.
7
<PAGE> 11
- --------------------------------------------------------------------------------
EXAMPLES
- --------------------------------------------------------------------------------
EXAMPLES, if you have not elected the enhanced death benefit, you would pay the
following expenses on a $1,000 investment assuming 5% annual return on assets
and:
(a) surrender the contract at the end of the stated time period; and
(b) if the contract is not surrendered*.
<TABLE>
<CAPTION>
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth.................................... (a) $68 (a) $109 (a) $151 (a) $221
(b) $18 (b) $ 59 (b) $101 (b) $221
International............................. (a) $73 (a) $123 (a) $176 (a) $272
(b) $23 (b) $ 73 (b) $126 (b) $272
Growth-Income............................. (a) $68 (a) $109 (a) $151 (a) $221
(b) $18 (b) $ 59 (b) $101 (b) $221
Asset Allocation.......................... (a) $69 (a) $110 (a) $153 (a) $225
(b) $19 (b) $ 60 (b) $103 (b) $225
High-Yield Bond........................... (a) $69 (a) $110 (a) $154 (a) $228
(b) $19 (b) $ 60 (b) $104 (b) $228
U.S. Government/AAA Rated................. (a) $69 (a) $111 (a) $156 (a) $231
(b) $19 (b) $ 61 (b) $106 (b) $231
Cash Management........................... (a) $69 (a) $111 (a) $156 (a) $230
(b) $19 (b) $ 61 (b) $106 (b) $230
</TABLE>
EXAMPLES, for a Contract on which you have elected the enhanced death benefit,
you would pay the following expenses on a $1,000 investment assuming 5% annual
return on assets and:
(a) surrender the contract at the end of the stated time period; and
(b) if the contract is not surrendered*.
<TABLE>
<CAPTION>
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth.................................... (a) $70 (a) $112 (a) $157 (a) $232
(b) $20 (b) $ 62 (b) $107 (b) $232
International............................. (a) $75 (a) $127 (a) $182 (a) $282
(b) $25 (b) $ 77 (b) $132 (b) $282
Growth-Income............................. (a) $70 (a) $112 (a) $157 (a) $232
(b) $20 (b) $ 62 (b) $107 (b) $232
Asset Allocation.......................... (a) $70 (a) $113 (a) $159 (a) $237
(b) $20 (b) $ 63 (b) $109 (b) $237
High-Yield Bond........................... (a) $71 (a) $114 (a) $160 (a) $239
(b) $21 (b) $ 64 (b) $110 (b) $239
U.S. Government/AAA Rated................. (a) $71 (a) $115 (a) $162 (a) $242
(b) $21 (b) $ 65 (b) $112 (b) $242
Cash Management........................... (a) $70 (a) $114 (a) $161 (a) $240
(b) $20 (b) $ 64 (b) $111 (b) $240
</TABLE>
- ---------------
* Anchor National does not impose any fees or charges when beginning the Income
Phase of your contract.
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. The table
reflects expenses of the separate account as well as the Fund. The examples
do not illustrate the tax consequences of surrendering the contract.
2. The examples assume that no transfer fees were imposed. Although premium
taxes may apply in certain states, they are not reflected in the examples.
3. For purposes of the amounts reported in the examples, the contract
maintenance fee is calculated by dividing the total amount of contract
maintenance fees anticipated to be collected during the year by the total net
assets of the separate account's series and the related fixed account assets.
4. THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
8
<PAGE> 12
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR 11/30/97
VARIABLE ACCOUNTS ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED -------------------
OF SEPARATE ACCOUNT 11/30/89 11/30/90 11/30/91 11/30/92 11/30/93 11/30/94 11/30/95 11/30/96 * **
------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth
Beg. AUV.......... $17.70 $25.99 $23.47 $29.37 $35.17 $41.05 $41.86 $57.00 $ 64.16 $ 83.15
End AUV........... $25.99 $23.47 $29.37 $35.17 $41.05 $41.86 $57.00 $64.16 $ 78.39 $ 78.38
Ending Number of
AUs (000)....... 7.318 11,434 15,619 18,313 17,915 17,020 15,740 12,673 10,205 15
International(1)
Beg. AUV.......... -- $10.00 $ 9.61 $10.01 $ 9.91 $12.48 $13.32 $14.62 $ 17.31 $ 21.44
End AUV........... -- $ 9.61 $10.01 $ 9.91 $12.48 $13.32 $14.62 $17.31 $ 19.34 $ 19.34
Ending Number of
AUs (000)....... -- 1,426 5,058 8,666 15,403 19,494 15,613 14,410 11,563 8
Growth-Income
Beg. AUV.......... $19.50 $25.58 $23.35 $27.93 $31.99 $35.47 $35.70 $47.04 $ 56.59 $ 70.36
End AUV........... $25.58 $23.35 $27.93 $31.99 $35.47 $35.70 $47.04 $56.59 $ 69.61 $ 69.61
Ending Number of
AUs (000)....... 14,235 18,151 20,935 24,304 24,321 21,452 18,752 16,244 13,632 20
Asset Allocation(2)
Beg. AUV.......... $10.00 $10.91 $10.61 $12.41 $13.96 $15.25 $14.93 $19.31 $ 22.74 $ 26.52
End AUV........... $10.91 $10.61 $12.41 $13.96 $15.25 $14.93 $19.31 $22.74 $ 26.46 $ 26.45
Ending Number of
AUs (000)....... 2,138 5,189 6,306 9,611 10,926 9,558 7,954 6,731 5,870 6
High-Yield Bond
Beg. AUV.......... $18.40 $19.78 $19.55 $24.93 $28.06 $32.25 $30.34 $35.62 $ 40.11 $ 44.53
End AUV........... $19.78 $19.55 $24.93 $28.06 $32.25 $30.34 $35.62 $40.11 $ 44.64 $ 44.64
Ending Number of
AUs (000)....... 4,338 4,051 4,723 5,272 5,907 4,200 4,115 3,274 2,657 1
U.S. Government/
AAA-Rated Securities
Beg. AUV.......... $12.13 $13.39 $14.16 $15.89 $17.23 $19.15 $18.12 $20.73 $ 21.58 $ 22.27
End AUV........... $13.39 $14.16 $15.89 $17.23 $19.15 $18.12 $20.73 $21.58 $ 22.61 $ 22.60
Ending Number of
AUs (000)....... 6,415 9,061 12,105 13,392 11,935 8,242 6,505 5,045 3,607 3
Cash Management
Beg. AUV.......... $13.10 $14.08 $15.01 $15.69 $15.99 $16.20 $16.56 $17.24 $ 17.86 ***
End AUV........... $14.08 $15.01 $15.69 $15.99 $16.20 $16.56 $17.24 $17.86 $ 18.51 ***
Ending Number of
AUs (000)....... 5,637 10,920 12,618 12,728 11,875 11,258 5,852 4,993 3,739 0
<CAPTION>
YEAR ENDED YEAR ENDED 11/30/99-
11/30/98 11/30/99 12/31/99
VARIABLE ACCOUNTS ------------------- ------------------- -------------------
OF SEPARATE ACCOUNT * ** * ** * **
------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Growth
Beg. AUV.......... $ 78.39 $ 78.38 $ 96.88 $ 96.78 $139.53 $139.24
End AUV........... $ 96.88 $ 96.78 $139.53 $139.24 $156.14 $155.80
Ending Number of
AUs (000)....... 8,320 247 7,158 237 7,075 235
International(1)
Beg. AUV.......... $ 19.34 $ 19.34 $ 21.87 $ 21.85 $ 32.06 $ 31.99
End AUV........... $ 21.87 $ 21.85 $ 32.06 $ 31.99 $ 36.98 $ 36.90
Ending Number of
AUs (000)....... 8,517 275 7,219 261 7,133 263
Growth-Income
Beg. AUV.......... $ 69.61 $ 69.61 $ 79.08 $ 78.99 $ 87.22 $ 87.04
End AUV........... $ 79.08 $ 78.99 $ 87.22 $ 87.04 $ 88.70 $ 88.50
Ending Number of
AUs (000)....... 11,186 346 9,592 331 9,430 324
Asset Allocation(2)
Beg. AUV.......... $ 26.46 $ 26.45 $ 28.54 $ 28.51 $ 30.70 $ 30.64
End AUV........... $ 28.54 $ 28.51 $ 30.70 $ 30.64 $ 31.47 $ 31.40
Ending Number of
AUs (000)....... 4,580 117 3,802 110 3,714 110
High-Yield Bond
Beg. AUV.......... $ 44.64 $ 44.64 $ 45.51 $ 45.46 $ 43.75 $ 43.66
End AUV........... $ 45.51 $ 45.46 $ 43.75 $ 43.66 $ 44.18 $ 44.08
Ending Number of
AUs (000)....... 2,110 66 1,619 40 1,561 39
U.S. Government/
AAA-Rated Securities
Beg. AUV.......... $ 22.61 $ 22.60 $ 24.24 $ 24.22 $ 24.12 $ 24.06
End AUV........... $ 24.24 $ 24.22 $ 24.12 $ 24.06 $ 23.99 $ 23.94
Ending Number of
AUs (000)....... 3,209 75 2,573 57 2,518 57
Cash Management
Beg. AUV.......... $ 18.51 *** $ 19.19 19.18 $ 19.81 $ 19.77
End AUV........... $ 19.19 $ 19.18 $ 19.81 19.77 $ 19.87 $ 19.83
Ending Number of
AUs (000)....... 3,222 100 3,449 125 3,630 144
</TABLE>
- ------------
AUV -- Accumulation Unit Value
AU -- Accumulation Units
(1) First offered May 9, 1990.
(2) First offered March 31, 1989.
* Applies to Contracts Without Optional Enhanced Death Benefit feature.
** Applies to Contracts With Optional Enhanced Death Benefit feature. Inception
dates for the Variable Accounts are 10/15/97, 10/16/97, 10/16/97, 10/17/97,
11/12/97 and 10/16/97, respectively.
*** As of November 30, 1997, there were no funds in this Variable Account.
9
<PAGE> 13
- --------------------------------------------------------------------------------
PERFORMANCE DATA
- --------------------------------------------------------------------------------
We advertise the Money Market Account's "yield" and "effective yield." Both
figures are based on historical earnings and are not intended to indicate future
performance. The "yield" of the Cash Management Account refers to the net income
generated for a contract funded by an investment in the Cash Management Account
over a seven-day period. This income is then "annualized." That is, the amount
of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in the Cash Management Account is assumed to
be reinvested at the end of each seven-day period. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. Neither the yield nor the effective yield takes into
consideration the effect of any capital changes that might have occurred during
the seven-day period, nor do they reflect the impact of premium taxes or 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 Accounts. Like the yield figures described above, total return
figures are based on historical data and are not intended to indicate future
performance. The "total return" is a computed rate of return that, when
compounded annually over a stated period of time and applied to a hypothetical
initial investment in a Variable Account made at the beginning of the period,
will produce the same contract value at the end of the period that the
hypothetical investment would have produced over the same period (assuming a
complete redemption of the contract at the end of the period). Recurring
contract charges are reflected in the total return figures in the same manner as
they are reflected in the yield data for contracts funded through the Cash
Management Account. The effect of applicable withdrawal charges due to the
assumed redemption will be reflected in the return figures, but may be omitted
in additional return figures given for comparison.
The separate account may also advertise an annualized 30-day (or one month)
yield figure for Variable Accounts other than the Cash Management Account. These
yield figures are based upon the actual performance of the Variable Account over
a 30-day (or one month) period ending on a date specified in the advertisement.
Like the total return data described above, the 30-day (or one month) yield data
will reflect the effect of all recurring contract charges (but will not reflect
any withdrawal charges or premium taxes). The yield figure is derived from net
investment gain (or loss) over the period expressed as a fraction of the
investment's value at the end of the period.
More detailed information on the computation of advertised performance data
for the separate account is contained in the SAI.
- --------------------------------------------------------------------------------
DESCRIPTION OF ANCHOR NATIONAL, THE SEPARATE ACCOUNT
AND THE GENERAL ACCOUNT
- --------------------------------------------------------------------------------
ANCHOR NATIONAL LIFE INSURANCE COMPANY
Anchor National 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 90067-6022. We conduct life insurance and annuity
business in the District of Columbia and all states except New York. We are an
indirect wholly-owned subsidiary of American International Group, Inc. ("AIG"),
a Delaware corporation.
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
10
<PAGE> 14
and investment products and services. Business focuses include fixed and
variable annuities, mutual funds, premium finance, broker-dealer services and
trust administration services.
Anchor National may 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 Anchor National's
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. These ratings do not relate to the performance of the
Variable Accounts.
SEPARATE ACCOUNT
Anchor National originally established Variable Separate Account (the
"separate account") under California law on June 25, 1981. We redomesticated
under Arizona law on January 1, 1996 and the separate account was assumed by
Anchor National. The separate account is registered with the SEC as a unit
investment trust under the Investment Company Act of 1940, as amended. Anchor
National owns the assets of 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.
GENERAL ACCOUNT
Money allocated to the fixed account option 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.
- --------------------------------------------------------------------------------
VARIABLE ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
The contract currently offers seven variable investment Variable Accounts.
These Variable Accounts invest in a specified series of the Fund. These Variable
Accounts operate similarly to a mutual fund but are only available through the
purchase of this annuity contract. The underlying series of the Fund are:
<TABLE>
<S> <C>
- GROWTH SERIES - ASSET ALLOCATION SERIES
- INTERNATIONAL SERIES - HIGH-YIELD BOND SERIES
- GROWTH-INCOME SERIES - U.S. GOVERNMENT/AAA-RATED
SECURITIES SERIES
- CASH MANAGEMENT SERIES
</TABLE>
11
<PAGE> 15
The Fund is an open-end diversified management investment company
registered under the Investment Company Act of 1940. Capital Research and
Management Company, 333 South Hope Street, Los Angeles, California 90071, one of
the nation's largest and oldest investment management organizations, serves as
the investment adviser to the Fund. The administration and business affairs of
the Fund are managed by SunAmerica Asset Management Corp., an indirectly wholly
owned subsidiary of the Company.
The Fund offers its shares solely to the separate account. Fund shares are
used solely as the underlying investment medium for the contracts offered in
this prospectus. In the future, however, Fund shares may be used as the
underlying investment medium for other annuity contracts or variable life
contracts offered by the Company. The offering of Fund shares to variable
annuity and variable life separate accounts is referred to as "mixed funding."
It may be disadvantageous for variable life separate accounts and variable
annuity separate accounts to invest in the Fund simultaneously. Although neither
the Company nor the Fund currently foresees such disadvantages either to
variable life or variable annuity owners, the Board of Trustees of the Fund
would monitor events in order to identify any material conflicts to determine
what action, if any, would need to be taken in response thereto.
YOU SHOULD READ THE PROSPECTUS FOR THE FUND CAREFULLY. THE PROSPECTUS
CONTAINS DETAILED INFORMATION ABOUT THE UNDERLYING FUNDS, INCLUDING MORE
DETAILED INFORMATION ABOUT EACH SERIES' INVESTMENT OBJECTIVE AND RISK FACTORS.
VOTING RIGHTS
Anchor National is the legal owner of the Fund's shares. However, when a
Variable Account 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. Should we determine that we
are no longer required to comply with these rules, we will vote the shares in
our own right.
SUBSTITUTION OF SECURITIES
If Variable Accounts become unavailable for investment, we may be required
to substitute shares of another Variable Account. We will seek prior approval of
the SEC and give you notice before substituting shares.
- --------------------------------------------------------------------------------
FIXED ACCOUNT OPTION
- --------------------------------------------------------------------------------
ALLOCATIONS
The contract also offers a fixed account option for a 1-year period. We
call this time period the guarantee period. The fixed account option pays
interest at a rate set and guaranteed by Anchor National. The interest rate may
differ from time to time and is set at our sole discretion. We will never credit
less than a 4% annual effective rate to the fixed account option. The interest
rate offered for new Purchase Payments may differ from interest rates offered
for subsequent Purchase Payments and money already in the fixed account option.
Once established, the rate for the specified payments do not change during the
guarantee period.
When the guarantee period ends, you may leave your money in the fixed
account. You may also reallocate your money to the Variable Accounts. If you
want to reallocate your money you must contact us within 30 days after the end
of the current guarantee period and instruct us how to reallocate the money. If
we do not hear from you, we will keep your money in the fixed account where it
will earn the renewal interest rate applicable at that time.
12
<PAGE> 16
- --------------------------------------------------------------------------------
CONTRACT CHARGES
- --------------------------------------------------------------------------------
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 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 1.30% annually, of the value of your contract
invested in the Variable Accounts. If you elect the enhanced death benefit, we
also deduct an enhanced death benefit charge which equals 10% annually, of the
value of your contract allocated to the Variable Accounts. We deduct the charge
daily.
The insurance charge compensates us for the mortality and expense risks and
the costs of contract distribution we assume. If these charges do not cover all
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 CONTRACT
CHARGES, FREE WITHDRAWAL AMOUNT, ON THE NEXT PAGE.) If you take money out in
excess of the free withdrawal amount, 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 five 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 applies to each Purchase Payment, as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
YEAR 1 2 3 4 5 6
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WITHDRAWAL CHARGE 5% 5% 5% 5% 5% 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, applicable
withdrawal charges are deducted from the amount withdrawn.
We do not assess a withdrawal charge for money withdrawn to pay a death
benefit or to begin the Income Phase of your contract. Withdrawals made prior to
age 59 1/2 may result in a 10% IRS penalty tax. SEE TAXES, PAGE 24.
INVESTMENT CHARGES
Charges are deducted from the Underlying Funds for the advisory and other
expenses of the underlying Variable Accounts. THE FEE TABLES LOCATED AT PAGE 7
illustrate these charges and expenses. For more detailed information on these
investment charges, refer to the attached prospectus for the Fund.
CONTRACT MAINTENANCE FEE
During the Accumulation Phase, we subtract a contract maintenance fee from
your account once per contract year. This charge compensates us for the cost of
contract administration. We deduct the $30 contract maintenance fee from your
account value on your contract anniversary. If you withdraw your entire contract
value, the fee is deducted from that withdrawal.
13
<PAGE> 17
TRANSFER FEE
The contract currently provides for 15 free transfers between investment
options each contract year. After that, a charge of $25 applies to each
additional transfer in any one contract year ($10 in Pennsylvania and Texas).
SEE INCOME PHASE, TRANSFERS DURING THE ACCUMULATION PHASE, PAGE 19.
PREMIUM TAX
Certain states charge us 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 A 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 used to make a determination are: size of the group; amount of
expected Purchase Payments; relationship existing between us and prospective
purchaser; nature of the purchase; length of time a group of contracts is
expected to remain active; purpose of the purchase and whether that purpose
increases the likelihood that our expenses will be reduced; and/or any other
factors that we believe indicate that administrative and/or sales expenses may
be reduced.
We may make such a determination regarding sales to our employees, our
affiliates' employees and employees of currently contracted broker-dealers, our
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.
FREE WITHDRAWAL AMOUNT
Your contract provides for a free withdrawal amount. Purchase Payments that
are no longer subject to a withdrawal charge and not previously withdrawn, plus
earnings, may be withdrawn without penalty.
The contract provides for a free withdrawal amount on your first withdrawal
of each contract year. The free withdrawal amount is equal to 10% of total
Purchase Payments, still subject to the withdrawal charge, which have been in
your contract one year or longer.
We will waive the withdrawal charge upon payment of a death benefit and
when you switch to the Income Phase of your contract.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
SUMMARY
This contract works in two stages, the Accumulation Phase and the Income
Phase. Your contract is in the Accumulation Phase while you make payments into
the contract. The Income Phase begins when you request that we begin making
payments to you out of the money accumulated in your contract.
14
<PAGE> 18
OWNERSHIP
You, as the contract owner, are entitled to the rights and privileges of
the contract. If you die during the Accumulation Phase, your Beneficiary will
become the owner of the contract unless you elect otherwise. Joint owners have
equal ownership interests in the contract unless we advise otherwise in writing.
Only spouses may be joint owners.
ANNUITANT
The annuitant is the person on whose life we base income payments. You may
change the Annuitant at any time before the Annuity Date. You may also designate
a second person on whose life, together with the annuitant, income payments
depend. If the annuitant dies before the Annuity Date, you must notify us and
select a new annuitant.
MODIFICATION OF THE CONTRACT
Only the Company's President, a Vice President or Secretary may approve a
change or waive a provision of the contract. Any change or waiver must be in
writing. We reserve the right to modify the terms of the contract as necessary
to comply with changes in applicable law.
ASSIGNMENT
Contracts issued pursuant to Non-qualified plans that are not subject to
Title 1 of the Employee Retirement Income Security Act of 1974 ("ERISA") may be
assigned by the owner at any time during the lifetime of the Annuitant prior to
the Annuity Date. We will not be bound by any assignment until written notice is
received by us at our Annuity Service Center. We are not responsible for the
validity, tax or other legal consequences of any assignment. An assignment will
not affect any payments we may make or actions we may take before we receive
notice of the assignment.
If the contract is issued pursuant to a Qualified plan (or a Non-qualified
plan that is subject to Title 1 of ERISA), it may not be assigned, pledged or
otherwise transferred except under such conditions as may be allowed under
applicable law.
BECAUSE AN ASSIGNMENT MAY BE A TAXABLE EVENT, YOU SHOULD CONSULT A
COMPETENT TAX ADVISER SHOULD YOU WISH TO ASSIGN YOUR CONTRACT.
DEATH BENEFIT
If the Annuitant on your contract dies prior to the Annuity Date, your
Beneficiary will receive a death benefit. The standard death benefit is an
automatic feature of your contract. We also offer an optional enhanced
guaranteed minimum death benefit which you may elect as an alternative to the
standard death benefit. The optional enhanced death benefit is described in the
next section.
The standard death benefit on your contract is the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. total Purchase Payments less any withdrawals and partial annuitizations
(and any fees or charges applicable to such distributions); or
3. after your fifth contract year, your contract value on the last contract
anniversary preceding your death plus any Purchase Payments and less any
withdrawals or partial annuitizations (and any fees or charges
applicable to such distributions) since that contract anniversary.
We do not pay the death benefit if the Annuitant dies after you switch to
the Income Phase. However, if the Annuitant dies during the Income Phase, your
Beneficiary receives any remaining guaranteed income payments in accordance with
the income option you selected. (SEE INCOME PHASE, INCOME OPTIONS, PAGE 22.)
15
<PAGE> 19
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 the date
of the Annuitant's death. 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.
If you are the Annuitant and your spouse is the Beneficiary, the
Beneficiary/spouse can elect to continue the contract at the then current value
upon your death. If the Beneficiary/spouse continues the contract, we do not pay
a death benefit to him or her.
ENHANCED DEATH BENEFIT
If you elect the optional enhanced death benefit and the Annuitant on your
contract dies prior to the Annuity date we will pay to your Beneficiary the
greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. the maximum contract anniversary value between the date the enhanced
death benefit goes into effect and the Annuitant's 75th birthday.
A contract anniversary value is equal to the contract value on a contract
anniversary plus any Purchase Payments and less any withdrawals or partial
annuitizations since that anniversary.
If you elected the enhanced death benefit prior to May 31, 1998, we will
pay the greater of:
1. the value of your contract at the time we receive satisfactory proof of
death; or
2. the maximum contract anniversary value between the date one year prior
to the election of the enhanced death benefit and the Annuitant's 75th
birthday.
You may elect the enhanced death benefit by completing the appropriate
form. The optional enhanced death benefit form is available from our Annuity
Service Center. If you elected the enhanced death benefit prior to May 31, 1998,
it will take effect on the day we receive your election. If you elect the
enhanced death benefit on or after May 31, 1998, it will take effect on your
contract anniversary following the election, or on your contract anniversary if
we receive your election on your contract anniversary. We will transfer the
Accumulation Units in each Variable Account to corresponding Accumulation Units
of that Variable Account with the enhanced death benefit and begin deducting the
charge described below on your contract anniversary following election of the
enhanced death benefit.
You may cancel the enhanced death benefit at any time by sending us a
written request. If you cancel, the enhanced death benefit will terminate on
your next contract anniversary and the standard death benefit will be
reinstated. If you cancel the enhanced death benefit on your contract
anniversary, the cancellation will take effect on that date. We will cease
deducting the charge for the enhanced death benefit upon cancellation and
transfer the Accumulation Units in each Variable Account to corresponding
Accumulation Units of that
16
<PAGE> 20
Variable Account without the enhanced death benefit. You cannot reinstate the
enhanced death benefit after you cancel it.
We assess a daily charge for the enhanced death benefit so long as the
enhanced death benefit is elected and remains in effect. If you elected the
enhanced death benefit prior to May 31, 1998, we will waive the daily charge
until your contract anniversary following election. The charge is equal to 0.10%
of the average daily value of your contract allocated to the Variable Accounts.
(SEE FEE TABLES, ANNUAL SEPARATE ACCOUNT EXPENSES ON PAGE 7 AND EXAMPLES ON PAGE
8.)
- --------------------------------------------------------------------------------
PURCHASES, WITHDRAWALS AND CONTRACT VALUE
- --------------------------------------------------------------------------------
PURCHASE PAYMENTS
A 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 your contract
is Qualified or Non-qualified for tax purposes. SEE TAXES, PAGE 24.
<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
$1,500,000. Also, the optional automatic payment plan allows you to make
subsequent Purchase Payments of as little as $25.00.
We may refuse any Purchase Payment. In general, Anchor National 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 80.
AUTOMATIC DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging ("DCA") program allows you to invest gradually in
the Variable Accounts. Under the program you systematically transfer a set
dollar amount or percentage of portfolio value from the Cash Management Account
or the fixed account (source accounts) to any other Variable Account. Transfers
may be monthly, quarterly, semiannually or annually. 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. You may not
participate in the DCA program and the systematic withdrawal program at the same
time.
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.
17
<PAGE> 21
EXAMPLE:
Assume that you want to gradually move $750 each quarter from the Cash
Management Account to the Growth-Income Account over six quarters. You set
up dollar cost averaging and purchase Accumulation Units at the following
hypothetical values:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
ACCUMULATION UNITS
QUARTER UNIT VALUE 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>
In this example, 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.
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 invest the money according to your last allocation
instructions. SEE VARIABLE ACCOUNT OPTIONS, PAGE 11 AND FIXED ACCOUNT OPTION,
PAGE 12.
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 Accounts, we credit
your contract with Accumulation Units of the separate account based upon AUV
next determined after receipt. We determine the number of Accumulation Units
credited by dividing the Purchase Payment by the Accumulation Unit value for the
specific Variable Account. The value of an Accumulation Unit will go up and down
based on the performance of the Variable Accounts.
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
Account;
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 Account.
18
<PAGE> 22
EXAMPLE:
We receive a $25,000 Purchase Payment from you on Wednesday. You allocate
the money to the Asset Allocation Account. The value of an Accumulation
Unit for the Asset Allocation Account is $11.10 when the NYSE closes on
Wednesday. Your Purchase Payment of $25,000 is then divided by $11.10 and
we credit your contract on Wednesday night with 2252.52 Accumulation Units
of the Asset Allocation Account.
Performance of the Variable Accounts and the charges 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). Anchor National calls this a "free look." To cancel,
you must mail the contract along with your free look request to the Annuity
Service Center at P.O. Box 54299, Los Angeles, California 90054-0299. We will
refund 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.
TRANSFERS DURING THE ACCUMULATION PHASE
During the Accumulation Phase you may transfer funds between the Variable
Accounts and/or the fixed account options. You must transfer at least $500. If
less than $500 will remain in any Variable Account after a transfer, that amount
must be transferred as well. You may not transfer more than 25% of the fixed
account value to the Variable Accounts per contract year. Additionally,
transfers from the fixed account may not be made during the 90 days preceding
your Annuity Date.
You may request transfers of your account value between the Variable
Accounts and/or the fixed account option in writing or by telephone. We
currently allow 15 free transfers per contract per year. A charge of $25 ($10 in
Pennsylvania and Texas) for each additional transfer in any contract year
applies after the first 15 transfers. Transfers resulting from your
participation in the DCA program count against your 15 free transfers per
contract year.
We accept transfer requests by telephone unless you specify 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 transfers we will have appropriate
procedures in place to provide reasonable assurance that the transactions
executed are genuine. Thus, Anchor National 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 any 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 Accounts; or
- The underlying Variable Accounts inform us that they need to restrict the
purchase or redemption of the shares because of excessive trading or
because a specific transfer or group of transfers is deemed to have a
detrimental effect on share prices of affected underlying Variable
Accounts.
19
<PAGE> 23
Where permitted by law, we may accept your authorization for a third party
to make transfers for you subject to certain 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 will 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 extra for providing these support services. This includes, but
is not limited to, transfers between investment options in accordance with
market timing strategies. Such independent third parties may or may not be
appointed with us for the sale of annuities. However, WE DO NOT ENGAGE ANY THIRD
PARTIES TO OFFER INVESTMENT ALLOCATION SERVICES OF ANY TYPE. WE TAKE NO
RESPONSIBILITY FOR THE INVESTMENT ALLOCATION AND TRANSFERS TRANSACTED ON YOUR
BEHALF BY SUCH THIRD PARTIES OR FOR ANY INVESTMENT ALLOCATION RECOMMENDATIONS
MADE BY SUCH PARTIES.
For information regarding transfers during the Income Phase, SEE INCOME
PHASE, TRANSFERS DURING THE INCOME PHASE, PAGE 23.
We reserve the right to modify, suspend, waive or terminate these transfer
provisions at any time.
DISTRIBUTION OF CONTRACTS
Registered representatives of broker-dealers sell the contract. Anchor
National pays commissions to these representatives for the sale of the
contracts. We do not expect the total commissions to exceed 5.5% 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. No underwriting fees are paid in
connection with the distribution of the contract.
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 is 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.
WITHDRAWALS
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 PHASE,
PAGE 21.)
Generally, we deduct a withdrawal charge applicable to any total or partial
withdrawal. If you withdraw your entire contract value, a deduction for premium
taxes and the contract maintenance fee also occurs. (SEE CONTRACT CHARGES,
WITHDRAWAL CHARGE, PAGE 13.)
Under most circumstances, the partial withdrawal minimum is $500. We
require that the value of your contract be at least $500 after the withdrawal.
You must send a written withdrawal request. Unless you provide different
instructions, partial withdrawals will be made pro rata from each Variable
Account and the fixed account option in which your contract is invested.
20
<PAGE> 24
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 24.)
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 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 Accounts 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 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, semiannual or annual payments from your
contract. Electronic transfer of these funds to your bank account is available.
The minimum amount of each withdrawal is $250. You may withdraw up to 10% of
your total Purchase Payments in any twelve month period. There must be at least
$100 remaining in each Variable Account after a withdrawal from your contract at
all times. Other withdrawals may be subject to a withdrawal charge and taxation,
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. You may not participate in
both the systematic withdrawal program and the DCA program at the same time.
The program is not available to everyone. Please check with our Annuity
Service Center, which can provide the necessary enrollment forms. Anchor
National reserves the right to modify, suspend or terminate this program at any
time.
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 value to you.
- --------------------------------------------------------------------------------
INCOME PHASE
- --------------------------------------------------------------------------------
ANNUITY DATE
During the Income Phase, we use the money accumulated in your contract to
make regular monthly income payments to you. You may switch to the Income Phase
any time after your 2nd contract anniversary. You select the month and year in
which 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
thirty days before the income payments are scheduled to begin. Once you begin
receiving income payments, you cannot change your income option. Additionally,
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 85th birthday (80th birthday
if your contract was issued prior to June 1, 1990.) 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, PAGE 24.)
21
<PAGE> 25
INCOME OPTIONS
Currently, this contract offers 6 income options, four of which can provide
variable income payments, fixed income payments or a combination of both and two
options which provide a fixed income stream only. Depending on the income option
you select, your payments may be fixed or variable. Further, if you are invested
in both the fixed and variable investment options when payments begin, your
payments will be fixed and variable. If income payments are fixed, Anchor
National guarantees the amount of each payment. If the income payments are
variable, the amount is not guaranteed. 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.
FIXED AND/OR VARIABLE INCOME OPTIONS
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 TWO-THIRDS 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. During the
survivor's lifetime, we determine variable income payments by using two-thirds
of the number of each type of Annuity Units credited to your contract. Fixed
monthly payments during the lifetime of the survivor will be equal to two-thirds
of the fixed monthly payment paid during your joint lifetimes. Income payments
stop when the survivor dies.
OPTION 3 -- JOINT AND SURVIVOR LIFE ANNUITY WITH 10 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.
FIXED INCOME ONLY OPTIONS
OPTION 5 -- INCOME FOR A SPECIFIED PERIOD
This option provides income payments for a guaranteed period ranging from 3
to 30 years. If the Annuitant dies before all of the guaranteed income payments
are made, the remaining income payments will be made to the Beneficiary under
your contract.
OPTION 6 -- FIXED PAYMENTS
The Company holds the amount used to calculate fixed payments under this
option in its general account. You earn interest on that amount. Fixed payments
will be made in such amounts and at such times as may be agreed upon with the
Company, and will continue until the amount held by the Company with interest is
exhausted. The final payment will be for the balance remaining and may be less
than the amount of each preceding payment. Interest will be credited yearly on
the amount remaining unpaid at a rate determined by the Company from time to
time, but not less than 4% per year compounded annually. The rate may be
22
<PAGE> 26
changed at any time. However, that the rate may not be changed more frequently
than once during each calendar year.
We make income payments on a monthly 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, the frequency of your payments may be
decreased, state law allowing.
If you are invested in the Variable Accounts 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 Accounts on the Annuity Date,
and;
- the 4% assumed investment rate used in the annuity table for the
contract, and;
- the performance of the Variable Accounts in which you are invested during
the time you receive income payments.
If you are invested in both the fixed account option and the Variable
Accounts after the Annuity Date, the allocation of funds between the fixed and
variable options also impacts the amount of your income payments.
OTHER INCOME OPTIONS
Other income options may be made available to you at the sole discretion of
Anchor National. However, to the extent that withdrawal charges would otherwise
apply to a withdrawal, the same withdrawal charge may apply to any additional
income option.
If your contract was issued under Sections 401, 403(b) or 408 of the IRC,
we can only make payments to you or to your spouse.
TRANSFERS DURING THE INCOME PHASE
During the Income Phase, one transfer per month is permitted between the
Variable Accounts. Transfers during the Income Phase are effected on the first
day of the month following your request. No other transfers are allowed during
the Income Phase.
DEFERMENT OF PAYMENTS
We may defer making fixed income payments for up to six months, or less if
required by law. Interest is credited to you during the deferral period.
- --------------------------------------------------------------------------------
ADMINISTRATION
- --------------------------------------------------------------------------------
We are responsible for the administrative servicing of your contract.
Please contact our Annuity Service Center at (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
The Year 2000 issue arose from computer programs written using two digits
rather than four digits to define the applicable year. This possibly could have
caused a failure of the information technology systems (IT systems) and other
equipment containing imbedded technology (non-IT systems) in the year 2000. The
23
<PAGE> 27
Company implemented a plan to address the Year 2000 issue and to assess Year
2000 issues relating to third parties with which the Company has critical
relationships. The Company's cost to make necessary repairs had no significant
impact on its results of operations. The Company has not experienced any
business disruption from the Year 2000 issue. Its IT and non-IT systems were
compliant on January 1, 2000, and there have been no problems related to any
third parties compliance.
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
NOTE: WE PREPARED THE FOLLOWING INFORMATION ON TAXES AS A GENERAL
DISCUSSION OF THE SUBJECT. IT IS NOT TAX ADVICE. WE CAUTION YOU TO SEEK
COMPETENT TAX ADVICE ABOUT YOUR OWN CIRCUMSTANCES. WE DO NOT GUARANTEE THE TAX
STATUS OF YOUR ANNUITY. TAX LAWS CONSTANTLY CHANGE, THEREFORE WE CANNOT
GUARANTEE THAT THE INFORMATION CONTAINED HEREIN IS COMPLETE AND/OR ACCURATE.
ANNUITY CONTRACTS IN GENERAL
The Internal Revenue Code ("IRC") provides for special rules regarding the
tax treatment of annuity contracts. Generally, taxes on the earnings in your
annuity contract are deferred until you take the money out. Qualified retirement
investments automatically provide tax deferral regardless of whether the
underlying contract is an annuity. Different rules apply depending on how you
take the money out and whether your contract is Qualified or Non-qualified.
If you do not purchase your contract under a pension plan, a specially
sponsored employer program or an IRA, 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: 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: (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 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
24
<PAGE> 28
care; (6) to fund higher education expenses (as defined in IRC); (7) to fund
certain first-time home purchase expenses; and, except in the case of an IRA;
(8) when you separate from service after attaining age 55; and (9) when paid to
an alternate payee pursuant to a qualified domestic relations order.
The IRC limits the withdrawal of Purchase Payments from certain
Tax-Sheltered Annuities. Withdrawals can only be made when an owner: (1) reaches
age 59 1/2; (2) leaves his or her job; (3) dies; (4) becomes disabled (as
defined in the IRC); or (5) experiences 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 the minimum distribution requirements
may result in a tax penalty. You should consult your tax advisor for more
information.
DIVERSIFICATION
The IRC imposes certain diversification requirements on the underlying
investments for a variable annuity. We believe that each underlying Variable
Accounts' management monitors the Variable Accounts 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 Accounts. It is unknown to what extent
owners are permitted to select investments, to make transfers among Variable
Accounts or the number and type of Variable Accounts 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 Accounts. Due to the uncertainty in this area, we reserve
the right to modify the contract in an attempt to maintain favorable tax
treatment.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
25
<PAGE> 29
- --------------------------------------------------------------------------------
REGISTRATION STATEMENTS
- --------------------------------------------------------------------------------
Anchor National is subject to the informational requirements of the
Securities and Exchange Act of 1934 (as amended). It files 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
registrations statement and its exhibits. For further information regarding the
separate account, Anchor National and its general account, the Variable Accounts
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.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
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.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Variable Account Accumulation Provisions.................... 3
Performance Data............................................ 4
Taxes....................................................... 6
Distribution of Contracts................................... 10
Financial Statements........................................ 11
</TABLE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Financial Statements of the separate account appear in the SAI. Financial
information regarding the general account is reported in Anchor National's
financial statements, which are also included in the SAI. A copy of the SAI may
be obtained by contacting Anchor National, c/o its Annuity Service Center.
26
<PAGE> 30
APPENDIX A - 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%
- ---------------------------------------------------------------------------
Maine 0% 2%
- ---------------------------------------------------------------------------
Nevada 0% 3.5%
- ---------------------------------------------------------------------------
South Dakota 0% 1.25%
- ---------------------------------------------------------------------------
West Virginia 1% 1%
- ---------------------------------------------------------------------------
Wyoming 0% 1%
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
A-1
<PAGE> 31
Please forward a copy (without charge) of the Statement of Additional
Information concerning American Pathway II Variable Annuity Contracts to:
(Please print or type and fill in all information.)
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
Date: ___________________ Signed: _________________________________________
Return to: Anchor National Life Insurance Company, Service Center,
P.O. Box 54299, Los Angeles, California 90054-0299
<PAGE> 32
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE SEPARATE ACCOUNT
INDIVIDUAL DEFERRED VARIABLE BENEFIT AND FIXED BENEFIT ANNUITY
FLEXIBLE PURCHASE PAYMENT - NON-PARTICIPATING CONTRACT
ANCHOR NATIONAL LIFE INSURANCE COMPANY
May 1, 2000
This Statement of Additional Information is not a prospectus, but should
be read in conjunction with the American Pathway II Prospectus, dated May 1,
2000, as it may be supplemented, a copy of which may be obtained without charge
by writing to Anchor National Life Insurance Company, Service Center, P.O. Box
54299, Los Angeles, California 90054-0299, or by calling (800) 445-SUN2.
1
<PAGE> 33
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TOPIC PAGE
<S> <C>
Variable Account Accumulation Provision .....................................3
Performance Data ............................................................4
Taxes .......................................................................6
Distribution of Contracts...................................................10
Financial Statements........................................................11
</TABLE>
2
<PAGE> 34
VARIABLE ACCOUNT ACCUMULATION PROVISIONS
ACCUMULATION UNITS - The number of accumulation units purchased for a
contract owner ("Owner") with respect to his or her initial purchase payment is
determined by dividing the amount credited to each Variable Account by the
accumulation unit value for that Variable Account next computed following
acceptance of the application (generally the next business day after receipt of
payment by the Company). In the event that an application fails to recite all
necessary information, the Company will promptly request that the Owner furnish
further instructions and will hold the initial purchase payment in a suspense
account, without interest, for a period not exceeding five business days from
receipt of the application at the Company. If the necessary information is not
received within five business days, the Company will return the initial purchase
payment to the prospective Owner unless the prospective Owner, after being
informed of the reasons for the delay, specifically consents to the Company
retaining the initial purchase payment until the application is made complete.
The number of accumulation units purchased with respect to subsequent purchase
payments is determined by dividing the amount credited to each Variable Account
by the applicable accumulation unit value for the valuation period next
determined following receipt of the payment by the Company. The accumulation
unit value of each Variable Account varies in accordance with the investment
experience of that Variable Account, and is affected by the investment
experience of the respective Fund series, by expenses and by the deduction of
certain charges.
VALUE OF AN ACCUMULATION UNIT - The accumulation unit value of each
Variable Account was arbitrarily set at $10 when the Variable Account was
established. The value of an accumulation unit may increase or decrease from one
valuation period to the next. All Variable Accounts are valued as of the close
of general trading on the New York Stock Exchange. The value for any valuation
period is determined by multiplying the value of an accumulation unit for the
last prior valuation period by the net investment factor for that Variable
Account for the current valuation period. The value of an accumulation unit is
independently computed for each Variable Account using the net investment factor
applicable to that Variable Account.
NET INVESTMENT FACTOR - This is an index used to measure the investment
performance of a Variable Account from one valuation period to the next. For
each Variable Account, the net investment factor for a valuation period is found
by dividing (a) by (b), and reducing the result by (c):
Where (a) is:
The net asset value as of the end of the current valuation
period of a share of the series of the Fund in which the
assets of the Variable Account are invested, plus the per
share amount of any dividends and other distributions on those
shares since the end of the immediately preceding valuation
period;
Where (b) is:
The net asset value of a share of the specified series of the
Fund as of the end of the immediately preceding valuation
period;
And where (c) is:
The deduction for mortality, expense and distribution expense
risks, that shall remain constant at .00356% for each day in
the current valuation period. The maximum daily deduction for
mortality, expense risks and distribution risks is equivalent
to an annual rate of 1.30%.
To the extent that the net investment factor is less than 1, the
accumulation unit value will decrease. To the extent that the net investment
factor is greater than 1, the accumulation unit value will increase.
3
<PAGE> 35
PERFORMANCE DATA
Performance data for the various Variable Accounts are determined in
the manner described below.
CASH MANAGEMENT ACCOUNT
The annualized current yield and the effective yield for the Cash
Management Account for the 7 day period ended December 31, 1999 with and
without the Enhanced Death Benefit ("EDB") were as follows:
Current Yield Effective Yield
------------- ---------------
A. With EDB: 3.80% 3.88%
B. Without EDB: 3.90% 3.97%
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 $30 annual Contract Maintenance
Fee, prorated for 7 days
The change in the value of the Accumulation Unit during the 7 day
period reflects the income received, minus any expenses incurred during such 7
day period. The Contract Maintenance Fee ("CMF") is first allocated among the
Fixed and Variable Accounts so that each Account's allocated portion of the
charge is proportional to the percentage of the number of Owners' accounts that
have money allocated to that investment portfolio. The portion of the CMF
allocable to the Cash Management Account 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 Account. 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 Account 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 Cash Management Series. The effective
yield, like the current yield, is derived from the Base Period Return over a 7
day period. However, the effective yield accounts for dividend reinvestment by
compounding the current yield according to the formula:
Effective Yield = [(Base Period Return + 1)365/7 - 1].
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 yields quoted should not be considered a representation of the
yield of the Cash
4
<PAGE> 36
Management Account 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 Cash Management Account and changes in interest rates on such
investments, but also on factors such as a contract 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 Account and for providing a basis for comparison with other
investment alternatives. However, the Cash Management Account's yield
fluctuates, unlike bank deposits or other investments that typically pay a fixed
yield for a stated period of time.
ALL OTHER VARIABLE ACCOUNTS
The Variable Accounts other than the Cash Management Account compute
their performance data as "total return." The total returns of the various
Variable Accounts over the last 1, 5, and 10 year periods, and since their
inception, are shown below, both with/without an assumed complete redemption at
the end of the period.
TOTAL ANNUAL RETURN (IN PERCENT) FOR PERIODS ENDING ON
DECEMBER 31, 1999
(RETURN WITH/WITHOUT REDEMPTION)
<TABLE>
<CAPTION>
WITHOUT ENHANCED INCEPTION SINCE
DEATH BENEFIT DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ---------------- --------- ------ ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Growth 2/07/84 40.54/45.54% 29.66/30.02% 19.79% 18.83%
Growth-Income 2/07/84 2.85/7.85% 19.24/19.73% 13.13% 14.68%
High-Yield Bond 2/07/84 -7.98/-2.98% 6.86/7.62% 8.24% 9.74%
U.S. Government 11/20/85 -6.46/-1.46% 4.72/5.54% 5.92% 6.34%
Asset Allocation 3/31/89 3.88/8.88% 15.18/15.74% 10.98% 11.19%
International 5/03/90 56.11/61.11% 22.51/22.95% N/A 14.38%
<CAPTION>
WITH ENHANCED INCEPTION SINCE
DEATH BENEFIT DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ---------------- --------- ------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Growth 2/07/84 40.39/45.39% 29.56/29.92% 19.69% 18.73%
Growth-Income 2/07/84 2.74/7.74% 19.14/19.63% 13.03% 14.58%
High-Yield Bond 2/07/84 -8.07/-3.07% 6.76/7.52% 8.14% 9.64%
U.S. Government 11/20/85 -6.60/-1.60% 4.62/5.44% 5.82% 6.24%
Asset Allocation 3/31/89 3.77/8.77% 15.08/15.64% 10.88% 11.09%
International 5/03/90 55.96/60.96% 22.41/22.85% N/A 14.28%
</TABLE>
- ----------
These figures show the total return hypothetically experienced by
contracts funded through the various Variable Accounts over the time periods
shown.
In October 1997, the Company began to offer an optional enhanced death
benefit to existing and new policyholders. Choice of this benefit results in a
0.10% increase in the Mortality Risk Charge and slightly reduced annual
returns. Therefore, figures are shown both with and without election of the
enhanced death benefit.
Total return for a Variable Account represents a 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
Account made at the beginning of the period, will produce the same contract
value at the end of the period that the hypothetical investment would have
produced over the same period. The total rate of return (T) is computed so that
it satisfies the formula:
<TABLE>
<CAPTION>
P(1+T)n = ERV
<S> <C>
where:
P = a hypothetical initial payment of $1000
T = average annual total return
n = number of year
ERV = ending redeemable value of a hypothetical $1000
payment made at the beginning of the 1, 5, or 10 year
periods at the end of the 1, 5, or 10 year periods
(or fractional portion thereof).
</TABLE>
5
<PAGE> 37
The total return figures given above reflect the effect of both
non-recurring 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 Account, 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 in the case of the first of the two sets of
figures given in the table for each Variable Account, tax qualification status
and time period. Because the impact of Contract Maintenance Fee on a particular
contract owner's account would generally have differed from those assumed in the
computation, due to differences between most actual allocations and the assumed
ones, as well as differences due to varying account sizes, the total return
experienced by an actual account over these same time periods would generally
have been different from those given above. As with the Cash Management
Account's yield figures, total return figures are derived from historical data
and are not intended to be a projection of future performance.
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 income 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 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
6
<PAGE> 38
by a covered employee from a plan qualified under Section 401(a) or 403(a) of
the Code, or from a tax-sheltered annuity qualified under Section 403(b) of the
Code (other than (1) annuity payments for the life (or life expectancy) of the
employee, or joint lives (or joint life expectancies) of the employee and his or
her designated Beneficiary, or for a specified period of ten years or more; and
(2) distributions required to be made under the Code). Failure to "roll over"
the entire amount of an eligible rollover distribution (including an amount
equal to the 20% portion of the distribution that was withheld) could have
adverse tax consequences, including the imposition of a penalty tax on premature
withdrawals, described later in this section.
Withdrawals or distributions from a contract other than eligible
rollover distributions are also subject to withholding on the estimated taxable
portion of the distribution, but the owner may elect in such cases to waive the
withholding requirement. If not waived, withholding is imposed (1) for periodic
payments, at the rate that would be imposed if the payments were wages, or (2)
for other distributions, at the rate of 10%. If no withholding exemption
certificate is in effect for the payee, the rate under (1) above is computed by
treating the payee as a married individual claiming 3 withholding exemptions.
DIVERSIFICATION - SEPARATE ACCOUNT INVESTMENTS
Section 817(h) of the Code imposes certain diversification standards on
the underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified, in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the contract as
an annuity contract would result in imposition of federal income tax to the
owner with respect to earnings allocable to the contract prior to the receipt of
any payments under the contract. The Code contains a safe harbor provision which
provides that annuity contracts, such as your contract, meet the diversification
requirements if, as of the close of each calendar quarter, the underlying assets
meet the diversification standards for a regulated investment company, and no
more than 55% of the total assets consist of cash, cash items, U.S. government
securities and securities of other regulated investment companies.
The Treasury Department has issued regulations which establish
diversification requirements for the investment portfolios underlying variable
contracts such as the contracts. The regulations amplify the diversification
requirements for variable contracts set forth in the Code and provide an
alternative to the safe harbor provision described above. Under the regulations
an investment portfolio will be deemed adequately diversified if (1) no more
than 55% of the value of the total assets of the portfolio is represented by any
one investment; (2) no more than 70% of the value of the total assets of the
portfolio is represented by any two investments; (3) no more than 80% of the
value of the total assets of the portfolio is represented by any three
investments; and (4) no more than 90% of the value of the total assets of the
portfolio is represented by any four investments. For purposes of determining
whether or not the diversification standards imposed on the underlying assets of
variable contracts by Section 817(h) of the Code have been met, "each United
States government agency or instrumentality shall be treated as a separate
issuer."
7
<PAGE> 39
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.
PARTIAL 1035 EXCHANGES
Section 1035 of the Code provides that an annuity contract may be
exchanged in a tax-free transaction for another annuity contract. Historically,
it was presumed that only the exchange of an entire contract, as opposed to a
partial exchange, would be accorded tax-free status. In 1998 in Conway vs.
Commissioner, the Tax Court held that the direct transfer of a portion of an
annuity contract into another annuity contract qualified as a non-taxable
exchange. On November 22, 1999, the Internal Revenue Service filed an Action on
Decision which indicated that it acquiesced in the Tax Court decision in
Conway. However, in its acquiescence with the decision of the Tax Court, the
Internal Revenue Service stated that it will challenge transactions where
taxpayers enter into a series of partial exchanges and annuitizations as part
of a design to avoid application of the 10% premature distribution penalty or
other limitations imposed on annuity contracts under Section 72 of the Code. In
the absence of further guidance from the Internal Revenue Service it is unclear
what specific types of partial exchange designs and transactions will be
challenged by the Internal Revenue Service. Due to the uncertainty in this area
owners should seek their own tax advice.
QUALIFIED PLANS
The contracts offered by this prospectus are designed to be suitable
for use under various types of Qualified plans. Taxation of owners in each
Qualified plan varies with the type of plan and terms and conditions of each
specific plan. Owners, Annuitants and Beneficiaries are cautioned that benefits
under a Qualified plan may be subject to the terms and conditions of the plan,
regardless of the terms and conditions of the contracts issued pursuant to the
plan.
Following are general descriptions of the types of Qualified plans with
which the contracts may be used. Such descriptions are not exhaustive and are
for general information purposes only. The tax rules regarding Qualified plans
are very complex and will have differing applications depending on individual
facts and circumstances. Each purchaser should obtain competent tax advice prior
to purchasing a contract issued under a Qualified plan.
Contracts issued pursuant to Qualified plans include special provisions
restricting contract provisions that may otherwise be available and described in
this prospectus. Generally, contracts issued pursuant to Qualified plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified contracts.
(a) H.R. 10 PLANS
Section 401 of the Code permits self-employed individuals to
establish Qualified plans for themselves and their employees, commonly
referred to as "H.R. 10" or "Keogh" Plans. Contributions made to the
plan for the benefit of the employees will not be included in the gross
income of the employees until distributed from the plan. The tax
consequences to owners may vary depending upon the particular plan
design. However, the Code places limitations and restrictions on all
plans on such items as: amounts of allowable
8
<PAGE> 40
contributions; form, manner and timing of distributions; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Purchasers of contracts for use with an H.R. 10 Plan should
obtain competent tax advice as to the tax treatment and suitability of
such an investment.
(b) TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of
"tax-sheltered annuities" by public schools and certain charitable,
education and scientific organizations described in Section 501(c)(3)
of the Code. These qualifying employers may make contributions to the
contracts for the benefit of their employees. Such contributions are
not includible in the gross income of the employee until the employee
receives distributions from the contract. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by
the Code. Furthermore, the Code sets forth additional restrictions
governing such items as transferability, distributions,
nondiscrimination and withdrawals. Any employee should obtain competent
tax advice as to the tax treatment and suitability of such an
investment.
(c) INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to
contribute to an individual retirement program known as an "Individual
Retirement Annuity" ("IRA"). Under applicable limitations, certain
amounts may be contributed to an IRA which will be deductible from the
individual's gross income. These IRAs are subject to limitations on
eligibility, contributions, transferability and distributions. Sales of
contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational
disclosure be given to persons desiring to establish an IRA. Purchasers
of contracts to be qualified as IRAs should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
(d) ROTH IRAS
Section 408(a) of the Code permits an individual to contribute
to an individual retirement program called a Roth IRA. Unlike
contributions to a regular IRA under Section 408(b) of the Code,
contributions to a Roth IRA are not made on a tax-deferred basis, but
distributions are tax-free if certain requirements are satisfied. Like
regular IRAs, Roth IRAs are subject to limitations on the amount that
may be contributed, those who may be eligible and the time when
distributions may commence without tax penalty. Certain persons may be
eligible to convert a regular IRA into a Roth IRA, and the taxes on the
resulting income may be spread over four years if the conversion occurs
before January 1, 1999. If and when the contracts are made available
for use with Roth IRAs, they may be subject to special requirements
imposed by the Internal Revenue Service ("IRS"). Purchasers of the
contracts for this purpose will be provided with such supplementary
information as may be required by the IRS or other appropriate agency.
9
<PAGE> 41
(e) CORPORATE PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit corporate
employers to establish various types of retirement plans for employees.
These retirement plans may permit the purchase of the contracts to
provide benefits under the plan. Contributions to the plan for the
benefit of employees will not be includible in the gross income of the
employee until distributed from the plan. The tax consequences to
owners may vary depending upon the particular plan design. However, the
Code places limitations on all plans on such items as amount of
allowable contributions; form, manner and timing of distributions;
vesting and nonforfeitability of interests; nondiscrimination in
eligibility and participation; and the tax treatment of distributions,
withdrawals and surrenders. Purchasers of contracts for use with
corporate pension or profit sharing plans should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
(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.
10
<PAGE> 42
FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company as of
December 31, 1999, December 31, 1998, and September 30, 1998 and for the year
ended December 31, 1999, and for the three months ended December 31, 1998, and
for each of the two fiscal years in the period ended September 30, 1998 are
presented in this Statement of Additional Information. The financial statements
of the Company should be considered only as bearing on the ability of the
Company to meet its obligations under the contracts. Effective December 31,
1999, the Company changed its fiscal year end from September 30 to December 31.
Effective December 31, 1999, Variable Separate Account changed its
fiscal year end from November 30 to December 31. Reflecting this change, the
Variable Separate Account (Portion Relating to the AMERICAN PATHWAY Variable
Annuity) audited financial statements as of and for the one month period ended
December 31, 1999 and as of November 30, 1999 and for each of the two fiscal
years in the period ended November 30, 1999 are incorporated herein by reference
to Post-Effective Amendment No. 31 under the Securities Act of 1933 ("33 Act")
and No. 24 under the Investment Company Act of 1940 ("40 Act") to this
Registration Statement File No. 2-86837 and 811-3859 filed on Form N-4 on March
24, 2000.
Documents incorporated by reference for filing purposes will still
appear at the end of this document when it is distributed upon request.
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 included in this
Statement of Additional Information 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.
11
<PAGE> 43
Report of Independent Accountants
To the Board of Directors and Shareholder of
Anchor National Life Insurance Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and comprehensive income and of cash flows
present fairly, in all material respects, the financial position of Anchor
National Life Insurance Company and its subsidiaries (the "Company") at December
31, 1999, December 31, 1998, and September 30, 1998, and the results of their
operations and their cash flows for the year ended December 31, 1999, for the
three months ended December 31, 1998 and for each of the two fiscal years in the
period ended September 30, 1998, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
January 31, 2000
12
<PAGE> 44
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1999 1998 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 475,162,000 $ 3,303,454,000 $ 333,735,000
Bonds, notes and redeemable
preferred stocks available for sale,
at fair value (amortized cost:
December 1999, $4,155,728,000;
December 1998, $4,252,740,000;
September 1998, $1,934,863,000) 3,953,169,000 4,248,840,000 1,954,754,000
Mortgage loans 674,679,000 388,780,000 391,448,000
Policy loans 260,066,000 320,688,000 11,197,000
Separate account seed money 141,499,000 --- ---
Common stocks available for sale,
at fair value (cost: December 1999,
$0; December 1998, $1,409,000;
September 1998, $115,000) --- 1,419,000 169,000
Partnerships 4,009,000 4,577,000 4,403,000
Real estate 24,000,000 24,000,000 24,000,000
Other invested assets 19,385,000 15,185,000 15,036,000
--------------- --------------- ---------------
Total investments 5,551,969,000 8,306,943,000 2,734,742,000
Variable annuity assets held in separate
accounts 19,949,145,000 13,767,213,000 11,133,569,000
Accrued investment income 60,584,000 73,441,000 26,408,000
Deferred acquisition costs 1,089,979,000 866,053,000 539,850,000
Receivable from brokers for sales of
securities 54,760,000 22,826,000 23,904,000
Income taxes currently receivable --- --- 5,869,000
Deferred income taxes 53,445,000 --- ---
Other assets 114,612,000 109,857,000 85,926,000
--------------- --------------- ---------------
TOTAL ASSETS $26,874,494,000 $23,146,333,000 $14,550,268,000
=============== =============== ===============
</TABLE>
See accompanying notes
13
<PAGE> 45
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET (Continued)
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1999 1998 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $ 3,254,895,000 $ 5,500,157,000 $ 2,189,272,000
Reserves for universal life insurance
contracts 1,978,332,000 2,339,194,000 ---
Reserves for guaranteed investment
contracts 305,570,000 306,461,000 282,267,000
Payable to brokers for purchases of
securities 139,000 --- 50,957,000
Income taxes currently payable 23,490,000 11,123,000 ---
Modified coinsurance deposit liability 140,757,000 --- ---
Other liabilities 249,224,000 160,020,000 106,594,000
---------------- ---------------- ----------------
Total reserves, payables
and accrued liabilities 5,952,407,000 8,316,955,000 2,629,090,000
---------------- ---------------- ----------------
Variable annuity liabilities related to
separate accounts 19,949,145,000 13,767,213,000 11,133,569,000
---------------- ---------------- ----------------
Subordinated notes payable to affiliates 37,816,000 209,367,000 39,182,000
---------------- ---------------- ----------------
Deferred income taxes --- 105,772,000 95,758,000
---------------- ---------------- ----------------
Shareholder's equity:
Common Stock 3,511,000 3,511,000 3,511,000
Additional paid-in capital 493,010,000 378,674,000 308,674,000
Retained earnings 551,158,000 366,460,000 332,069,000
Accumulated other comprehensive
income (loss) (112,553,000) (1,619,000) 8,415,000
---------------- ---------------- ----------------
Total shareholder's equity 935,126,000 747,026,000 652,669,000
---------------- ---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 26,874,494,000 $ 23,146,333,000 $ 14,550,268,000
================ ================ ================
</TABLE>
See accompanying notes
14
<PAGE> 46
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended --------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------- ------------ ---------------
<S> <C> <C> <C> <C>
Investment income $ 521,953,000 $ 54,278,000 $ 221,966,000 $ 210,759,000
------------- ------------- ------------- -------------
Interest expense on:
Fixed annuity contracts (231,929,000) (22,828,000) (112,695,000) (109,217,000)
Universal life insurance
contracts (102,486,000) --- --- ---
Guaranteed investment
contracts (19,649,000) (3,980,000) (17,787,000) (22,650,000)
Senior indebtedness (199,000) (34,000) (1,498,000) (2,549,000)
Subordinated notes payable
to affiliates (3,474,000) (853,000) (3,114,000) (3,142,000)
------------- ------------- ------------- -------------
Total interest expense (357,737,000) (27,695,000) (135,094,000) (137,558,000)
------------- ------------- ------------- -------------
NET INVESTMENT INCOME 164,216,000 26,583,000 86,872,000 73,201,000
------------- ------------- ------------- -------------
NET REALIZED INVESTMENT
GAINS (LOSSES) (19,620,000) 271,000 19,482,000 (17,394,000)
------------- ------------- ------------- -------------
Fee income:
Variable annuity fees 306,417,000 58,806,000 200,867,000 139,492,000
Net retained commissions 51,039,000 11,479,000 48,561,000 39,143,000
Asset management fees 43,510,000 8,068,000 29,592,000 25,764,000
Universal life insurance
fees 23,290,000 --- --- ---
Surrender charges 17,137,000 3,239,000 7,404,000 5,529,000
Other fees 13,999,000 1,738,000 3,938,000 3,218,000
------------- ------------- ------------- -------------
TOTAL FEE INCOME 455,392,000 83,330,000 290,362,000 213,146,000
------------- ------------- ------------- -------------
GENERAL AND ADMINISTRATIVE
EXPENSES (154,665,000) (21,993,000) (96,102,000) (98,802,000)
------------- ------------- ------------- -------------
AMORTIZATION OF DEFERRED
ACQUISITION COSTS (116,840,000) (27,070,000) (72,713,000) (66,879,000)
------------- ------------- ------------- -------------
ANNUAL COMMISSIONS (40,760,000) (6,624,000) (18,209,000) (8,977,000)
------------- ------------- ------------- -------------
PRETAX INCOME 287,723,000 54,497,000 209,692,000 94,295,000
Income tax expense (103,025,000) (20,106,000) (71,051,000) (31,169,000)
------------- ------------- ------------- -------------
NET INCOME 184,698,000 34,391,000 138,641,000 63,126,000
------------- ------------- ------------- -------------
Other comprehensive income
(loss), net of tax:
Net unrealized gains (losses)
on debt and equity securities
available for sale:
Net unrealized gains
(losses) identified in
the current period (118,669,000) (10,249,000) (4,027,000) 16,605,000
Less reclassification
adjustment for net
realized (gains) losses
included in net income 7,735,000 215,000 (5,963,000) 7,321,000
------------- ------------- ------------- -------------
OTHER COMPREHENSIVE INCOME
(LOSS) (110,934,000) (10,034,000) (9,990,000) 23,926,000
------------- ------------- ------------- -------------
COMPREHENSIVE INCOME $ 73,764,000 $ 24,357,000 $ 128,651,000 $ 87,052,000
============= ============= ============= =============
</TABLE>
See accompanying notes
15
<PAGE> 47
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION> Year Ended September 30,
Year Ended Three Months Ended -------------------------------------
December 31, 1999 December 31, 1998 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 184,698,000 $ 34,391,000 $ 138,641,000 $ 63,126,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Interest credited to:
Fixed annuity contracts 231,929,000 22,828,000 112,695,000 109,217,000
Universal life insurance
contracts 102,486,000 --- --- ---
Guaranteed investment
contracts 19,649,000 3,980,000 17,787,000 22,650,000
Net realized investment
losses (gains) 19,620,000 (271,000) (19,482,000) 17,394,000
Amortization (accretion) of
net premiums (discounts)
on investments (18,343,000) (1,199,000) 447,000 (18,576,000)
Universal life insurance
fees (23,290,000) --- --- ---
Amortization of goodwill 776,000 356,000 1,422,000 1,187,000
Provision for deferred
income taxes (100,013,000) 15,945,000 34,087,000 (16,024,000)
Change in:
Accrued investment income 9,155,000 (1,512,000) (4,649,000) (2,084,000)
Deferred acquisition costs (208,228,000) (34,328,000) (160,926,000) (113,145,000)
Other assets (5,661,000) (21,070,000) (19,374,000) (14,598,000)
Income taxes currently
payable 12,367,000 16,992,000 (38,134,000) 10,779,000
Other liabilities 49,504,000 5,617,000 (2,248,000) 14,187,000
Other, net 15,087,000 5,510,000 (5,599,000) 418,000
--------------- --------------- --------------- ---------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 289,736,000 47,239,000 54,667,000 74,531,000
--------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of:
Bonds, notes and redeemable
preferred stocks (4,130,682,000) (392,515,000) (1,970,502,000) (2,566,211,000)
Mortgage loans (331,398,000) (4,962,000) (131,386,000) (266,771,000)
Other investments, excluding
short-term investments (227,268,000) (1,992,000) --- (75,556,000)
Sales of:
Bonds, notes and redeemable
preferred stocks 2,660,931,000 265,039,000 1,602,079,000 2,299,063,000
Other investments, excluding
short-term investments 65,395,000 142,000 42,458,000 6,421,000
Redemptions and maturities of:
Bonds, notes and redeemable
preferred stocks 1,274,764,000 37,290,000 424,393,000 376,847,000
Mortgage loans 46,760,000 7,699,000 80,515,000 25,920,000
Other investments, excluding
short-term investments 33,503,000 853,000 67,213,000 23,940,000
Cash and short-term investments
acquired in coinsurance
transaction with MBL Life
Assurance Corporation --- 3,083,211,000 --- ---
Short-term investments
transferred to First
SunAmerica Life Insurance
Company in assumption
reinsurance transaction with
MBL Life Assurance Corporation (371,634,000) --- --- ---
--------------- --------------- --------------- ---------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (979,629,000) 2,994,765,000 114,770,000 (176,347,000)
--------------- --------------- --------------- ---------------
</TABLE>
16
<PAGE> 48
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION> Year Ended September 30,
Year Ended Three Months Ended -------------------------------------
December 31, 1999 December 31, 1998 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Premium receipts on:
Fixed annuity contracts $ 2,016,851,000 $ 351,616,000 $ 1,512,994,000 $ 1,097,937,000
Universal life insurance
contracts 78,864,000 --- --- ---
Guaranteed investment
contracts --- --- 5,619,000 55,000,000
Net exchanges from the fixed
accounts of variable annuity
contracts (1,821,324,000) (448,762,000) (1,303,790,000) (620,367,000)
Withdrawal payments on:
Fixed annuity contracts (2,232,374,000) (41,554,000) (191,690,000) (242,589,000)
Universal life insurance
contracts (81,634,000) --- --- ---
Guaranteed investment
contracts (19,742,000) (3,797,000) (36,313,000) (198,062,000)
Claims and annuity payments on:
Fixed annuity contracts (46,578,000) (9,333,000) (40,589,000) (35,731,000)
Universal life insurance
contracts (158,043,000) --- --- ---
Net receipts from (repayments
of) other short-term
financings (129,512,000) 9,545,000 (10,944,000) 34,239,000
Net receipt/(payment) related
to a modified coinsurance
transaction 140,757,000 (170,436,000) 166,631,000 ---
Receipts from issuance of
subordinated note payable
to affiliate --- 170,436,000 --- ---
Net of capital contributions
and return of capital 114,336,000 70,000,000 --- 28,411,000
Dividends paid --- --- (51,200,000) (25,500,000)
--------------- --------------- --------------- ---------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (2,138,399,000) (72,285,000) 50,718,000 93,338,000
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS (2,828,292,000) 2,969,719,000 220,155,000 (8,478,000)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD 3,303,454,000 333,735,000 113,580,000 122,058,000
--------------- --------------- --------------- ---------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 475,162,000 $ 3,303,454,000 $ 333,735,000 $ 113,580,000
=============== =============== =============== ===============
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid on indebtedness $ 3,787,000 $ 1,169,000 $ 3,912,000 $ 7,032,000
=============== =============== =============== ===============
Net income taxes paid
(refunded) $ 190,126,000 $ (12,302,000) $ 74,932,000 $ 36,420,000
=============== =============== =============== ===============
</TABLE>
See accompanying notes
17
<PAGE> 49
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company, including its wholly owned
subsidiaries, (the "Company") is an Arizona-domiciled life insurance
company which conducts its business through three segments: annuity
operations, asset management operations and broker-dealer operations.
Annuity operations include the sale and administration of deposit-type
insurance contracts, including fixed and variable annuities, universal
life contracts and guaranteed investment contracts. Asset management
operations, which include the distribution and management of mutual
funds, are conducted by SunAmerica Asset Management Corp. Broker-dealer
operations include the sale of securities and financial services
products, and are conducted by Royal Alliance Associates, Inc.
The Company is an indirect wholly owned subsidiary of American
International Group, Inc. ("AIG"), an international insurance and
financial services holding company. At December 31, 1998, the Company
was a wholly owned indirect subsidiary of SunAmerica Inc., a Maryland
Corporation. On January 1, 1999, SunAmerica Inc. merged with and into
AIG in a tax-free reorganization that has been treated as a pooling of
interests for accounting purposes. Thus, SunAmerica Inc. ceased to exist
on that date. However, immediately prior to the date of the merger,
substantially all of the net assets of SunAmerica Inc. were contributed
to a newly formed subsidiary of AIG named SunAmerica Holdings, Inc., a
Delaware Corporation. SunAmerica Holdings, Inc. subsequently changed its
name to SunAmerica Inc. ("SunAmerica").
The operations of the Company are influenced by many factors, including
general economic conditions, monetary and fiscal policies of the federal
government, and policies of state and other regulatory authorities. The
level of sales of the Company's financial products is influenced by many
factors, including general market rates of interest, the strength,
weakness and volatility of equity markets, and terms and conditions of
competing financial products. The Company is exposed to the typical
risks normally associated with a portfolio of fixed-income securities,
namely interest rate, option, liquidity and credit risk. The Company
controls its exposure to these risks by, among other things, closely
monitoring and matching the duration of its assets and liabilities,
monitoring and limiting prepayment and extension risk in its portfolio,
maintaining a large percentage of its portfolio in highly liquid
securities, and engaging in a disciplined process of underwriting,
reviewing and monitoring credit risk. The Company also is exposed to
market risk, as market volatility may result in reduced fee income in
the case of assets managed in mutual funds and held in separate
accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles and include the accounts of the Company and all of
its wholly owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation. Certain items have been
reclassified to conform to the current period's presentation.
18
<PAGE> 50
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Under generally accepted accounting principles, premiums collected on
the non-traditional life and annuity insurance products, such as those
sold by the Company, are not reflected as revenues in the Company's
statement of earnings, as they are recorded directly to policyholders
liabilities upon receipt.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the amounts reported in the financial statements
and the accompanying notes. Actual results could differ from those
estimates.
INVESTED ASSETS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and
short-term bank participations. All such investments are carried at cost
plus accrued interest, which approximates fair value, have maturities of
three months or less and are considered cash equivalents for purposes of
reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and
common stocks are carried at aggregate fair value and changes in
unrealized gains or losses, net of tax, are credited or charged directly
to shareholder's equity. Bonds, notes and redeemable preferred stocks
are reduced to estimated net realizable value when necessary for
declines in value considered to be other than temporary. Estimates of
net realizable value are subjective and actual realization will be
dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of
provisions for estimated losses. Policy loans are carried at unpaid
balances. Separate account seed money consists of seed money for mutual
funds used as investment vehicles for the Company's variable annuity
separate accounts and is valued at market. Limited partnerships are
accounted for by the cost method of accounting. Real estate is carried
at cost, reduced by impairment provisions. Other invested assets include
collateralized bond obligations.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined by using the specific
cost identification method. Premiums and discounts on investments are
amortized to investment income by using the interest method over the
contractual lives of the investments.
INTEREST RATE SWAP AGREEMENTS: The net differential to be paid or
received on interest rate swap agreements ("Swap Agreements") entered
into to reduce the impact of changes in interest rates is recognized
over the lives of the agreements, and such differential is classified as
Investment Income or Interest Expense in the income statement.
Initially, Swap Agreements are designated as hedges and, therefore, are
not marked to market. However, when a hedged asset/liability is sold or
repaid before the related Swap Agreement matures, the Swap Agreement is
marked to market and any gain/loss is classified with any gain/loss
realized on the disposition of the hedged asset/liability. Subsequently,
the Swap Agreement is marked to market and the resulting change in fair
value is included in Investment Income in the income
19
<PAGE> 51
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
statement. When a Swap Agreement that is designated as a hedge is
terminated before its contractual maturity, any resulting gain/loss is
credited/charged to the carrying value of the asset/liability that it
hedged and is treated as a premium/discount for the remaining life of
the asset/liability.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, in relation to the incidence of estimated
gross profits to be realized over the estimated lives of the annuity
contracts. Estimated gross profits are composed of net interest income,
net realized investment gains and losses, variable annuity fees,
universal life insurance fees, surrender charges and direct
administrative expenses. Costs incurred to sell mutual funds are also
deferred and amortized over the estimated lives of the funds obtained.
Deferred acquisition costs ("DAC") consist of commissions and other
costs that vary with, and are primarily related to, the production or
acquisition of new business.
As debt and equity securities available for sale are carried at
aggregate fair value, an adjustment is made to DAC equal to the change
in amortization that would have been recorded if such securities had
been sold at their stated aggregate fair value and the proceeds
reinvested at current yields. The change in this adjustment, net of tax,
is included with the change in accumulated other comprehensive
income/(loss) that is credited or charged directly to shareholder's
equity. DAC has been increased by $29,400,000 at December 31, 1999,
increased by $1,400,000 at December 31, 1998, and decreased by
$7,000,000 at September 30, 1998 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated
in separate accounts. The Company receives administrative fees for
managing the funds and other fees for assuming mortality and certain
expense risks. Such fees are included in Variable Annuity Fees in the
income statement.
GOODWILL: Goodwill, amounting to $22,206,000 at December 31, 1999, is
amortized by using the straight-line method over periods averaging 25
years and is included in Other Assets in the balance sheet. Goodwill is
evaluated for impairment when events or changes in economic conditions
indicate that the carrying amount may not be recoverable.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
contracts, universal life insurance contracts and guaranteed investment
contracts are accounted for as investment-type contracts in accordance
with Statement of Financial Accounting Standards No. 97, "Accounting and
Reporting by Insurance Enterprises for Certain Long-Duration Contracts
and for Realized Gains and Losses from the Sale of Investments," and are
recorded at accumulated value (premiums received, plus accrued interest,
less withdrawals and assessed fees).
MODIFIED COINSURANCE DEPOSIT LIABILITY: Cash received as part of the
modified coinsurance transaction described in Note 8 is recorded as a
deposit liability.
20
<PAGE> 52
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FEE INCOME: Variable annuity fees, asset management fees, universal life
insurance fees and surrender charges are recorded in income as earned.
Net retained commissions are recognized as income on a trade date basis.
INCOME TAXES: The Company files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Its federal income tax
return is consolidated with those of its direct parent, SunAmerica Life
Insurance Company (the "Parent"), and its affiliate, First SunAmerica
Life Insurance Company. Income taxes have been calculated as if the
Company filed a separate return. Deferred income tax assets and
liabilities are recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.
RECENTLY ISSUED ACCOUNTING STANDARDS: In June 1998, the FASB issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging
activities. SFAS 133 was postponed by SFAS 137, and now will be
effective for the Company as of January 1, 2001. Therefore, it is not
included in the accompanying financial statements. The Company has not
completed its analysis of the effect of SFAS 133, but management
believes that it will not have a material impact on the Company's
results of operations, financial condition or liquidity.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was adopted for the
year ended December 31, 1999 and is included in Note 14 of the
accompanying financial statements.
3. FISCAL YEAR CHANGE
Effective December 31, 1998, the Company changed its fiscal year end
from September 30 to December 31. Accordingly, the consolidated
financial statements include the results of operations and cash flows
for the three-month transition period ended December 31, 1998. Such
results are not necessarily indicative of operations for a full year.
The consolidated financial statements as of and for the three months
ended December 31, 1998 were originally filed as the Company's unaudited
Transition Report on Form 10-Q.
Results for the comparable prior year period are summarized below.
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1997
<S> <C>
Investment income 59,855,000
Net investment income 26,482,000
Net realized investment gains 20,935,000
Total fee income 63,984,000
Pretax income 67,654,000
Net income 44,348,000
==========
</TABLE>
21
<PAGE> 53
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. ACQUISITION
On December 31, 1998, the Company acquired the individual life business
and the individual and group annuity business of MBL Life Assurance
Corporation ("MBL Life") ("the Acquisition"), via a 100% coinsurance
transaction, for a cash purchase price of $128,420,000. As part of this
transaction, the Company acquired assets having an aggregate fair value
of $5,718,227,000, composed primarily of invested assets totaling
$5,715,010,000. Liabilities assumed in this acquisition totaled
$5,831,266,000, including $3,460,503,000 of fixed annuity reserves,
$2,308,742,000 of universal life reserves and $24,011,000 of guaranteed
investment contract reserves. The excess of the purchase price over the
fair value of net assets received amounted to $104,509,000 at December
31, 1999, after adjustment for the transfer of the New York business to
First SunAmerica Life Insurance Company (see below), and is included in
Deferred Acquisition Costs in the accompanying consolidated balance
sheet. The income statement for the year ended December 31, 1999
includes the impact of the Acquisition. On a pro forma basis, assuming
the Acquisition had been consummated on October 1, 1996, the beginning
of the prior-year periods discussed within, investment income would have
been $517,606,000 and net income would have been $158,887,000 for the
year ended September 30, 1998. For the year ended September 30, 1997,
investment income would have been $506,399,000 and net income would have
been $83,372,000.
Included in the block of business acquired from MBL Life were policies
whose owners are residents of New York State ("the New York Business").
On July 1, 1999, the New York Business was acquired by the Company's New
York affiliate, First SunAmerica Life Insurance Company ("FSA"), via an
assumption reinsurance agreement, and the remainder of the business
converted to assumption reinsurance in the Company, which superseded the
coinsurance agreement. As part of this transfer, invested assets equal
to $678,272,000, life reserves equal to $282,247,000, group pension
reserves equal to $406,118,000, and other net assets of $10,093,000 were
transferred to FSA.
The $128,420,000 purchase price was allocated between the Company and
FSA based on the estimated future gross profits of the two blocks of
business. The portion allocated to FSA was $10,000,000.
As part of the Acquisition, the Company received $242,473,000 from MBL
to pay policy enhancements guaranteed by the MBL Life rehabilitation
agreement to policyholders meeting certain requirements. A primary
requirement was that annuity policyholders must have converted their MBL
Life policy to a policy type currently offered by the Company or one of
its affiliates by December 31, 1999. The enhancements are to be credited
in four installments on January 1, 2000, June 30, 2001, June 30, 2002
and June 30, 2003, to eligible policies still active on each of those
dates. On December 31, 1999, the enhancement reserve for such payments
totaled $223,032,000, which includes interest accredited at 6.75% on the
original reserve. Of this amount, $69,836,000 was credited to
policyholders in February 2000 for the January 1, 2000 installment.
22
<PAGE> 54
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale by major category follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
AT DECEMBER 31, 1999:
Securities of the United States
Government $ 24,688,000 $ 22,884,000
Mortgage-backed securities 1,505,729,000 1,412,134,000
Securities of public utilities 114,933,000 107,596,000
Corporate bonds and notes 1,676,006,000 1,596,469,000
Redeemable preferred stocks 4,375,000 4,547,000
Other debt securities 829,997,000 809,539,000
-------------- --------------
Total $4,155,728,000 $3,953,169,000
============== ==============
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 6,033,000 $ 6,272,000
Mortgage-backed securities 546,790,000 553,990,000
Securities of public utilities 208,074,000 205,119,000
Corporate bonds and notes 2,624,330,000 2,616,073,000
Redeemable preferred stocks 6,125,000 7,507,000
Other debt securities 861,388,000 859,879,000
-------------- --------------
Total $4,252,740,000 $4,248,840,000
============== ==============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 84,377,000 $ 88,239,000
Mortgage-backed securities 569,613,000 584,007,000
Securities of public utilities 108,431,000 106,065,000
Corporate bonds and notes 883,890,000 884,209,000
Redeemable preferred stocks 6,125,000 6,888,000
Other debt securities 282,427,000 285,346,000
-------------- --------------
Total $1,934,863,000 $1,954,754,000
============== ==============
</TABLE>
23
<PAGE> 55
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale by contractual maturity,
as of December 31, 1999, follow:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
Due in one year or less $ 199,679,000 $ 199,198,000
Due after one year through
five years 552,071,000 530,289,000
Due after five years through
ten years 1,243,298,000 1,187,044,000
Due after ten years 654,951,000 624,504,000
Mortgage-backed securities 1,505,729,000 1,412,134,000
-------------- --------------
Total $4,155,728,000 $3,953,169,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above due to prepayments and redemptions.
24
<PAGE> 56
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
Gross unrealized gains and losses on bonds, notes and redeemable
preferred stocks available for sale by major category follow:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Gains Losses
------------- -------------
<S> <C> <C>
AT DECEMBER 31, 1999:
Securities of the United States
Government $ 47,000 $ (1,852,000)
Mortgage-backed securities 3,238,000 (96,832,000)
Securities of public utilities 13,000 (7,350,000)
Corporate bonds and notes 10,222,000 (89,758,000)
Redeemable preferred stocks 172,000 ---
Other debt securities 4,275,000 (24,734,000)
------------- -------------
Total $ 17,967,000 $(220,526,000)
============= =============
AT DECEMBER 31, 1998:
Securities of the United States
Government $ 239,000 $ ---
Mortgage-backed securities 9,398,000 (2,198,000)
Securities of public utilities 926,000 (3,881,000)
Corporate bonds and notes 22,227,000 (30,484,000)
Redeemable preferred stocks 1,382,000 ---
Other debt securities 2,024,000 (3,533,000)
------------- -------------
Total $ 36,196,000 $ (40,096,000)
============= =============
AT SEPTEMBER 30, 1998:
Securities of the United States
Government $ 3,862,000 $ ---
Mortgage-backed securities 15,103,000 (709,000)
Securities of public utilities 2,420,000 (4,786,000)
Corporate bonds and notes 31,795,000 (31,476,000)
Redeemable preferred stocks 763,000 ---
Other debt securities 5,235,000 (2,316,000)
------------- -------------
Total $ 59,178,000 $ (39,287,000)
============= =============
</TABLE>
There were no gross unrealized gains on equity securities available for
sale at December 31, 1999. Gross unrealized gains on equity securities
available for sale aggregated $10,000 and $54,000 at December 31, 1998
and September 30, 1998, respectively. There were no unrealized losses at
December 31, 1999, December 31, 1998, or September 30, 1998.
25
<PAGE> 57
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
Gross realized investment gains and losses on sales of investments are
as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended -------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C>
BONDS, NOTES AND
REDEEMABLE PREFERRED
STOCKS:
Realized gains $ 8,333,000 $ 6,669,000 $ 28,086,000 $ 22,179,000
Realized losses (26,113,000) (5,324,000) (4,627,000) (25,310,000)
COMMON STOCKS:
Realized gains 4,239,000 12,000 337,000 4,002,000
Realized losses (11,000) (9,000) --- (312,000)
OTHER INVESTMENTS:
Realized gains --- 573,000 8,824,000 2,450,000
IMPAIRMENT WRITEDOWNS (6,068,000) (1,650,000) (13,138,000) (20,403,000)
------------ ------------ ------------ ------------
Total net realized
investment gains
and losses $(19,620,000) $ 271,000 $ 19,482,000 $(17,394,000)
============ ============ ============ ============
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended ---------------------------------
December 31,1999 December 31, 1998 1998 1997
---------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Short-term investments $ 61,764,000 $ 4,649,000 $ 12,524,000 $ 11,780,000
Bonds, notes and
redeemable preferred
stocks 348,373,000 39,660,000 156,140,000 163,038,000
Mortgage loans 47,480,000 7,904,000 29,996,000 17,632,000
Common stocks 7,000 --- 34,000 16,000
Real estate (525,000) 13,000 (467,000) (296,000)
Cost-method partnerships 6,631,000 352,000 24,311,000 6,725,000
Other invested assets 58,223,000 1,700,000 (572,000) 11,864,000
------------- ------------- ------------- -------------
Total investment
income $ 521,953,000 $ 54,278,000 $ 221,966,000 $ 210,759,000
============= ============= ============= =============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to
$10,014,000 for the year ended December 31, 1999, $500,000 for the three
months ended December 31, 1998, $1,910,000 for the year ended September
30, 1998 and $2,050,000 for the year ended September 30, 1997, and are
included in General and Administrative Expenses in the income statement.
Investment expenses have increased significantly because the size of the
portfolio increased as a result of the Acquisition.
26
<PAGE> 58
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INVESTMENTS (Continued)
At December 31, 1999, the following investments exceeded 10% of the
Company's consolidated shareholder's equity of $935,126,000:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Provident Institutional Funds Inc.
Del Treasury Trust Fund 113,000,000 113,000,000
Salomon Smith Barney Repurchase
Agreement 97,000,000 97,000,000
------------ ------------
Total $210,000,000 $210,000,000
============ ============
</TABLE>
At December 31, 1999, mortgage loans were collateralized by properties
located in 29 states, with loans totaling approximately 36% of the
aggregate carrying value of the portfolio secured by properties located
in California and approximately 11% by properties located in New York.
No more than 8% of the portfolio was secured by properties in any other
single state.
At December 31, 1999, bonds, notes and redeemable preferred stocks
included $377,149,000 of bonds and notes not rated investment grade. The
Company had no material concentrations of non-investment-grade assets at
December 31, 1999.
At December 31, 1999, the carrying value of investments in default as to
the payment of principal or interest was $1,529,000, composed of
$870,000 of bonds and $659,000 of mortgage loans. Such nonperforming
investments had an estimated fair value of $872,000.
As a component of its asset and liability management strategy, the
Company utilizes Swap Agreements to match assets more closely to
liabilities. Swap Agreements are agreements to exchange with a
counterparty interest rate payments of differing character (for example,
variable-rate payments exchanged for fixed-rate payments) based on an
underlying principal balance (notional principal) to hedge against
interest rate changes. The Company typically utilizes Swap Agreements to
create a hedge that effectively converts floating-rate assets and
liabilities to fixed-rate instruments. At December 31, 1999, the Company
had one outstanding Swap Agreement with a notional principal amount of
$21,538,000, which matures in December 2024. The net interest paid
amounted to $215,000 for the year ended December 31, 1999, $54,000 for
the three months ended December 31, 1998, $278,000 for the year ended
September 30, 1998, and $125,000 for the year ended September 30, 1997,
and is included in Interest Expense on Guaranteed Investment Contracts
in the income statement.
At December 31, 1999, $7,418,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory
requirements.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to
27
<PAGE> 59
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
reasonable estimates of the fair value of only the Company's financial
instruments. The disclosures do not address the value of the Company's
recognized and unrecognized nonfinancial assets (including its real
estate investments and other invested assets except for cost-method
partnerships) and liabilities or the value of anticipated future
business. The Company does not plan to sell most of its assets or settle
most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Selling expenses
and potential taxes are not included. The estimated fair value amounts
were determined using available market information, current pricing
information and various valuation methodologies. If quoted market prices
were not readily available for a financial instrument, management
determined an estimated fair value. Accordingly, the estimates may not
be indicative of the amounts the financial instruments could be
exchanged for in a current or future market transaction.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
CASH AND SHORT-TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based
principally on independent pricing services, broker quotes and other
independent information.
MORTGAGE LOANS: Fair values are primarily determined by discounting
future cash flows to the present at current market rates, using expected
prepayment rates.
SEPARATE ACCOUNT SEED MONEY: Carrying value is the market value of the
underlying securities.
COMMON STOCKS: Fair value is based principally on independent pricing
services, broker quotes and other independent information.
COST-METHOD PARTNERSHIPS: Fair value of limited partnerships accounted
for by using the cost method is based upon the fair value of the net
assets of the partnerships as determined by the general partners.
VARIABLE ANNUITY ASSETS HELD IN SEPARATE ACCOUNTS: Variable annuity
assets are carried at the market value of the underlying securities.
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts are
assigned a fair value equal to current net surrender value. Annuitized
contracts are valued based on the present value of future cash flows at
current pricing rates.
RESERVES FOR UNIVERSAL LIFE INSURANCE CONTRACTS: Universal life and
28
<PAGE> 60
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
single life premium life contracts are assigned a fair value equal to
current net surrender value.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the
present value of future cash flows at current pricing rates and is net
of the estimated fair value of a hedging Swap Agreement, determined from
independent broker quotes.
RECEIVABLE FROM/PAYABLE TO BROKERS FOR PURCHASES OF SECURITIES: Such
obligations represent transactions of a short-term nature for which the
carrying value is considered a reasonable estimate of fair value.
MODIFIED COINSURANCE DEPOSIT LIABILITY: Fair value is based on
discounting the liability by the appropriate cost of funds, and
therefore approximates carrying value.
VARIABLE ANNUITY LIABILITIES RELATED TO SEPARATE ACCOUNTS: Fair values
of contracts in the accumulation phase are based on net surrender
values. Fair values of contracts in the payout phase are based on the
present value of future cash flows at assumed investment rates.
SUBORDINATED NOTES PAYABLE TO AFFILIATES: Fair value is estimated based
on the quoted market prices for similar issues.
29
<PAGE> 61
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values of the Company's financial instruments at
December 31, 1999, December 31, 1998 and September 30, 1998 compared
with their respective carrying values, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
--------------- ---------------
<S> <C> <C>
DECEMBER 31, 1999:
ASSETS:
Cash and short-term investments $ 475,162,000 $ 475,162,000
Bonds, notes and redeemable
preferred stocks 3,953,169,000 3,953,169,000
Mortgage loans 674,679,000 673,781,000
Separate account seed money 141,499,000 141,499,000
Common stocks --- ---
Cost-method partnerships 4,009,000 9,114,000
Variable annuity assets held in
separate accounts 19,949,145,000 19,949,145,000
Receivable from brokers for sales
of securities 54,760,000 54,760,000
LIABILITIES:
Reserves for fixed annuity contracts 3,254,895,000 3,053,660,000
Reserves for universal life insurance
contracts 1,978,332,000 1,853,442,000
Reserves for guaranteed investment
contracts 305,570,000 305,570,000
Payable to brokers for purchases
of securities 139,000 139,000
Modified coinsurance deposit
liability 140,757,000 140,757,000
Variable annuity liabilities related
to separate accounts 19,949,145,000 19,367,834,000
Subordinated notes payable to
affiliates 37,816,000 38,643,000
=============== ===============
DECEMBER 31, 1998:
ASSETS:
Cash and short-term investments $ 3,303,454,000 $ 3,303,454,000
Bonds, notes and redeemable
preferred stocks 4,248,840,000 4,248,840,000
Mortgage loans 388,780,000 411,230,000
Separate account seed money --- ---
Common stocks 1,419,000 1,419,000
Cost-method partnerships 4,577,000 12,802,000
Variable annuity assets held in
separate accounts 13,767,213,000 13,767,213,000
Receivable from brokers for sales
of securities 22,826,000 22,826,000
LIABILITIES:
Reserves for fixed annuity contracts 5,500,157,000 5,437,045,000
Reserves for universal life
insurance contracts 2,339,194,000 2,339,061,000
Reserves for guaranteed investment
contracts 306,461,000 306,461,000
Variable annuity liabilities related
to separate accounts 13,767,213,000 13,287,434,000
Subordinated notes payable to
affiliates 209,367,000 211,058,000
=============== ===============
</TABLE>
30
<PAGE> 62
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
Carrying Fair
Value Value
--------------- ---------------
<S> <C> <C>
SEPTEMBER 30, 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
Separate account seed money --- ---
Common stocks 169,000 169,000
Cost-method partnerships 4,403,000 12,744,000
Variable annuity assets held in
separate accounts 11,133,569,000 11,133,569,000
Receivable from brokers for sales
of securities 23,904,000 23,904,000
LIABILITIES:
Reserves for fixed annuity contracts 2,189,272,000 2,116,874,000
Reserves for guaranteed investment
contracts 282,267,000 282,267,000
Payable to brokers for purchases
of securities 50,957,000 50,957,000
Variable annuity liabilities related
to separate accounts 11,133,569,000 10,696,607,000
Subordinated notes payable to
affiliates 39,182,000 41,272,000
=============== ===============
</TABLE>
7. SUBORDINATED NOTES PAYABLE TO AFFILIATES
At December 31, 1998, Subordinated Notes Payable to Affiliates included
a surplus note (the "Note") payable to its immediate parent, SunAmerica
Life Insurance Company (the "Parent"), for $170,436,000. On June 30,
1999, the Parent cancelled the Note and forgave the interest earned.
Funds received were reclassified to Additional Paid-in Capital in the
accompanying consolidated balance sheet.
Subordinated notes and accrued interest payable to affiliates totaled
$37,816,000 at interest rates ranging from 8% to 9% at December 31,
1999, and require principal payments of $5,400,000 in 2000, $10,000,000
in 2001 and $22,060,000 in 2002.
8. REINSURANCE
The business which was assumed from MBL Life is subject to existing
reinsurance ceded agreements. At December 31, 1998, the maximum
retention on any single life was $2,000,000, and a total credit of
$5,057,000 was taken against the life insurance reserves, representing
predominantly yearly renewable term reinsurance. In order to limit even
further the exposure to loss on any single insured and to recover an
additional portion of the benefits paid over such limits, the Company
entered into a reinsurance treaty effective January 1, 1999 under which
the Company retains no more than $100,000 of risk on any
31
<PAGE> 63
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. REINSURANCE (Continued)
one insured life. At December 31, 1999, a total reserve credit of
$3,560,000 was taken against the life insurance reserves. With respect
to these coinsurance agreements, the Company could become liable for all
obligations of the reinsured policies if the reinsurers were to become
unable to meet the obligations assumed under the respective reinsurance
agreements. The Company monitors its credit exposure with respect to
these agreements. However, due to the high credit ratings of the
reinsurers, such risks are considered to be minimal.
On August 1, 1999, the Company entered into a modified coinsurance
transaction, approved by the Arizona Department of Insurance, which
involved the ceding of approximately $6,000,000,000 of variable
annuities to ANLIC Insurance Company (Hawaii), a non-affiliated stock
life insurer. The transaction is accounted for as reinsurance for
statutory reporting purposes. As part of the transaction, the Company
received cash in the amount of $150,000,000 and recorded a corresponding
deposit liability. As payments are made to the reinsurer, the deposit
liability is relieved. The cost of this program, $3,621,000 in 1999, is
classified as General and Administrative Expenses in the income
statement.
On August 11, 1998, the Company entered into a similar modified
coinsurance transaction, approved by the Arizona Department of
Insurance, which involved the ceding of approximately $6,000,000,000 of
variable annuities to ANLIC Insurance Company (Cayman), a Cayman Islands
stock life insurance company, effective December 31, 1997. As a part of
this transaction, the Company received cash amounting to approximately
$188,700,000, and recorded a corresponding reduction of DAC related to
the coinsured annuities. As payments were made to the reinsurer, the
reduction of DAC was relieved. Certain expenses related to this
transaction were charged directly to DAC amortization in the income
statement. The net effect of this transaction in the income statement
was not material.
On December 31, 1998, the Company recaptured this business. As part of
this recapture, the Company paid cash of $170,436,000 and recorded an
increase in DAC of $167,202,000 with the balance of $3,234,000 being
recorded as DAC amortization in the income statement.
9. CONTINGENT LIABILITIES
The Company has entered into four agreements in which it has provided
liquidity support for certain short-term securities of municipalities
and non-profit organizations by agreeing to purchase such securities in
the event there is no other buyer in the short-term marketplace. In
return the Company receives a fee. The maximum liability under these
guarantees is $359,400,000. The Company's Parent currently shares in the
liabilities and fees of two of these agreements. The Parent's share in
these liabilities will increase by $150,000,000 subsequent to December
31, 1999, and the Company's share will decrease to $209,400,000.
Management does not anticipate any material future losses with respect
to these liquidity support facilities.
32
<PAGE> 64
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. CONTINGENT LIABILITIES (Continued)
The Company is involved in various kinds of litigation common to its
businesses. These cases are in various stages of development and, based
on reports of counsel, management believes that provisions made for
potential losses relating to such litigation are adequate and any
further liabilities and costs will not have a material adverse impact
upon the Company's financial position, results of operations or cash
flows.
The Company's current financial strength and counterparty credit ratings
from Standard & Poor's are based in part on a guarantee (the
"Guarantee") of the Company's insurance policy obligations by American
Home Assurance Company ("American Home"), a subsidiary of AIG, and a
member of an AIG intercompany pool, and the belief that the Company is
viewed as a strategically important member of AIG. The Guarantee is
unconditional and irrevocable, and policyholders have the right to
enforce the Guarantee directly against American Home.
The Company's current financial strength rating from Moody's is based in
part on a support agreement between the Company and AIG (the "Support
Agreement"), pursuant to which AIG has agreed that AIG will cause the
Company to maintain a policyholder's surplus of not less than $1 million
or such greater amount as shall be sufficient to enable the Company to
perform its obligations under any policy issued by it. The Support
Agreement also provides that if the Company needs funds not otherwise
available to it to make timely payment of its obligations under policies
issued by it, AIG will provide such funds at the request of the Company.
The Support Agreement is not a direct or indirect guarantee by AIG to
any person of any obligation of the Company. AIG may terminate the
Support Agreement with respect to outstanding obligations of the Company
only under circumstances where the Company attains, without the benefit
of the Support Agreement, a financial strength rating equivalent to that
held by the Company with the benefit of the support agreement.
Policyholders have the right to cause the Company to enforce its rights
against AIG and, if the Company fails or refuses to take timely action
to enforce the Support Agreement or if the Company defaults in any claim
or payment owed to such policyholder when due, have the right to enforce
the Support Agreement directly against AIG.
American Home does not publish financial statements, although it files
statutory annual and quarterly reports with the New York State Insurance
Department, where such reports are available to the public. AIG is a
reporting company under the Securities Exchange Act of 1934, and
publishes annual reports on Form 10-K and quarterly reports on Form
10-Q, which are available from the Securities and Exchange Commission.
33
<PAGE> 65
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value
Common Stock. At December 31, 1999, December 31, 1998 and September 30,
1998, 3,511 shares were outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
Year Ended Three Months Ended ---------------------------------
December 31, 1999 December 31, 1998 1998 1997
----------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
ADDITIONAL PAID-IN
CAPITAL:
Beginning balances $ 378,674,000 $ 308,674,000 $ 308,674,000 $ 280,263,000
Reclassification of
Note by the Parent 170,436,000 --- --- ---
Return of capital (170,500,000) --- --- ---
Capital contributions
received 114,250,000 70,000,000 --- 28,411,000
Contribution of
partnership
investment 150,000 --- --- ---
------------- ------------- ------------- -------------
Ending balances $ 493,010,000 $ 378,674,000 $ 308,674,000 $ 308,674,000
============= ============= ============= =============
RETAINED EARNINGS:
Beginning balances $ 366,460,000 $ 332,069,000 $ 244,628,000 $ 207,002,000
Net income 184,698,000 34,391,000 138,641,000 63,126,000
Dividends paid --- --- (51,200,000) (25,500,000)
------------- ------------- ------------- -------------
Ending balances $ 551,158,000 $ 366,460,000 $ 332,069,000 $ 244,628,000
============= ============= ============= =============
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(LOSS):
Beginning balances $ (1,619,000) $ 8,415,000 $ 18,405,000 $ (5,521,000)
Change in net
unrealized gains
(losses) on debt
securities
available for sale (198,659,000) (23,791,000) (23,818,000) 57,463,000
Change in net
unrealized gains
(losses) on equity
securities
available for sale (10,000) (44,000) (950,000) (55,000)
Change in adjustment
to deferred
acquisition costs 28,000,000 8,400,000 9,400,000 (20,600,000)
Tax effects of net
changes $ 59,735,000 5,401,000 5,378,000 (12,882,000)
------------- ------------- ------------- -------------
Ending balances $(112,553,000) $ (1,619,000) $ 8,415,000 $ 18,405,000
============= ============= ============= =============
</TABLE>
34
<PAGE> 66
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. SHAREHOLDER'S EQUITY (Continued)
Dividends that the Company may pay to its shareholder in any year
without prior approval of the Arizona Department of Insurance are
limited by statute. The maximum amount of dividends which can be paid to
shareholders of insurance companies domiciled in the state of Arizona
without obtaining the prior approval of the Insurance Commissioner is
limited to the lesser of either 10% of the preceding year's statutory
surplus or the preceding year's statutory net gain from operations less
equity in undistributed income or loss of subsidiaries included in net
investment income if, after paying the dividend, the Company's capital
and surplus would be adequate in the opinion of the Arizona Department
of Insurance. No dividends were paid in the year ended December 31, 1999
or the three months ended December 31, 1998. Dividends in the amounts of
$51,200,000 and $25,500,000 were paid on June 4, 1998 and April 1, 1997,
respectively. Dividends of $69,000,000 were paid on March 1, 2000.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the year ended
December 31, 1999 was $261,539,000. The statutory net loss for the year
ended December 31, 1998 was $98,766,000. The statutory net income for
the year ended December 31, 1997 totaled $74,407,000. The Company's
statutory capital and surplus totaled $694,621,000 at December 31, 1999,
$443,394,000 at December 31, 1998 and $537,542,000 at September 30,
1998.
On June 30, 1999, the Parent cancelled the Company's surplus note
payable of $170,436,000 and funds received were reclassified to
Additional Paid-in Capital in the accompanying consolidated balance
sheet. On September 9, 1999, the Company paid $170,500,000 to its Parent
as a return of capital. On September 14, 1999 and October 25, 1999, the
Parent contributed additional capital to the Company in the amounts of
$54,250,000 and $60,000,000, respectively. Also on December 31, 1999,
the Parent made a $150,000 contribution of partnership investments.
35
<PAGE> 67
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. INCOME TAXES
The components of the provisions for federal income taxes on pretax
income consist of the following:
<TABLE>
<CAPTION>
Net Realized
Investment
Gains (Losses) Operations Total
------------- ------------- -------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Currently payable $ 6,846,000 $ 196,192,000 $ 203,038,000
Deferred (13,713,000) (86,300,000) (100,013,000)
------------- ------------- -------------
Total income tax expense
(benefit) $ (6,867,000) $ 109,892,000 $ 103,025,000
============= ============= =============
THREE MONTHS ENDED DECEMBER 31, 1998:
Currently payable $ 740,000 $ 3,421,000 $ 4,161,000
Deferred (620,000) 16,565,000 15,945,000
------------- ------------- -------------
Total income tax expense $ 120,000 $ 19,986,000 $ 20,106,000
============= ============= =============
YEAR ENDED SEPTEMBER 30, 1998:
Currently payable $ 4,221,000 $ 32,743,000 $ 36,964,000
Deferred (550,000) 34,637,000 34,087,000
------------- ------------- -------------
Total income tax expense $ 3,671,000 $ 67,380,000 $ 71,051,000
============= ============= =============
YEAR ENDED SEPTEMBER 30, 1997:
Currently payable $ (3,635,000) $ 50,828,000 $ 47,193,000
Deferred (2,258,000) (13,766,000) (16,024,000)
------------- ------------- -------------
Total income tax expense
(benefit) $ (5,893,000) $ 37,062,000 $ 31,169,000
============= ============= =============
</TABLE>
36
<PAGE> 68
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. INCOME TAXES (Continued)
Income taxes computed at the United States federal income tax rate of
35% and income taxes provided differ as follows:
<TABLE>
<CAPTION> Years Ended September 30,
Year Ended Three Months Ended ---------------------------------
December 31, 1999 December 31, 1998 1998 1997
---------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Amount computed at
statutory rate $ 100,703,000 $ 19,074,000 $ 73,392,000 $ 33,003,000
Increases (decreases)
resulting from:
Amortization of
differences between
book and tax bases
of net assets
acquired 609,000 146,000 460,000 666,000
State income taxes,
net of federal tax
benefit 7,231,000 1,183,000 5,530,000 1,950,000
Dividends-received
deduction (3,618,000) (345,000) (7,254,000) (4,270,000)
Tax credits (1,346,000) (1,296,000) (318,000)
Other, net (554,000) 48,000 219,000 138,000
------------- ------------- ------------- -------------
Total income tax
expense $ 103,025,000 $ 20,106,000 $ 71,051,000 $ 31,169,000
============= ============= ============= =============
</TABLE>
For United States federal income tax purposes, certain amounts from life
insurance operations are accumulated in a memorandum policyholders'
surplus account and are taxed only when distributed to shareholders or
when such account exceeds prescribed limits. The accumulated
policyholders' surplus was $14,300,000 at December 31, 1999. The Company
does not anticipate any transactions which would cause any part of this
surplus to be taxable.
37
<PAGE> 69
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. INCOME TAXES (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
reporting purposes. The significant components of the liability for
Deferred Income Taxes are as follows:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1999 1998 1998
------------- ------------- -------------
<S> <C> <C> <C>
DEFERRED TAX LIABILITIES:
Investments $ 23,208,000 $ 18,174,000 $ 17,643,000
Deferred acquisition costs 272,697,000 222,943,000 223,392,000
State income taxes 5,203,000 3,143,000 2,873,000
Other liabilities 18,658,000 13,906,000 144,000
Net unrealized gains on debt
and equity securities
available for sale --- --- 4,531,000
------------- ------------- -------------
Total deferred tax liabilities $ 319,766,000 258,166,000 248,583,000
------------- ------------- -------------
DEFERRED TAX ASSETS:
Contractholder reserves (261,781,000) (148,587,000) (149,915,000)
Guaranty fund assessments (2,454,000) (2,935,000) (2,910,000)
Deferred income (48,371,000) --- ---
Other assets --- --- ---
Net unrealized losses on
debt and equity securities
available for sale (60,605,000) (872,000) ---
------------- ------------- -------------
Total deferred tax assets (373,211,000) (152,394,000) (152,825,000)
------------- ------------- -------------
Deferred income taxes $ (53,445,000) $ 105,772,000 $ 95,758,000
============= ============= =============
</TABLE>
12. COMPREHENSIVE INCOME
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") which requires the reporting of comprehensive income in addition
to net income from operations. Comprehensive income is a more inclusive
financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income. The adoption of SFAS 130 did not have an
impact on the Company's results of operations, financial condition or
liquidity. Comprehensive income amounts for the prior years are
disclosed to conform to the current year's presentation.
38
<PAGE> 70
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. COMPREHENSIVE INCOME (Continued)
The before tax, after tax, and tax benefit (expense) amounts for each
component of the increase or decrease in unrealized losses or gains on
debt and equity securities available for sale for both the current and
prior periods are summarized below:
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------- ------------- -------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1999:
Net unrealized losses on debt and
equity securities available
for sale identified in the
current period $(217,259,000) $ 76,041,000 $(141,218,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 34,690,000 (12,141,000) 22,549,000
------------- ------------- -------------
Subtotal (182,569,000) 63,900,000 (118,669,000)
------------- ------------- -------------
Reclassification adjustment for:
Net realized losses included
in net income 18,590,000 (6,507,000) 12,083,000
Related change in deferred
acquisition costs (6,690,000) 2,342,000 (4,348,000)
------------- ------------- -------------
Total reclassification
adjustment 11,900,000 (4,165,000) 7,735,000
------------- ------------- -------------
Total other comprehensive
loss $(170,669,000) $ 59,735,000 $(110,934,000)
============= ============= =============
THREE MONTHS ENDED DECEMBER 31,
1998:
Net unrealized losses on debt
and equity securities available
for sale identified in the
current period $ (24,345,000) $ 8,521,000 $ (15,824,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 8,579,000 (3,004,000) 5,575,000
------------- ------------- -------------
Subtotal (15,766,000) 5,517,000 (10,249,000)
------------- ------------- -------------
Reclassification adjustment for:
Net realized losses included
in net income 510,000 (179,000) 331,000
Related change in deferred
acquisition costs (179,000) 63,000 (116,000)
------------- ------------- -------------
Total reclassification
adjustment 331,000 (116,000) 215,000
------------- ------------- -------------
Total other comprehensive loss $ (15,435,000) $ 5,401,000 $ (10,034,000)
============= ============= =============
</TABLE>
39
<PAGE> 71
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMPREHENSIVE INCOME (Continued)
<TABLE>
<CAPTION>
Tax Benefit
Before Tax (Expense) Net of Tax
------------ ------------ ------------
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
1998:
Net unrealized losses on debt and
equity securities available
for sale identified in the
current period $(10,281,000) $ 3,598,000 $ (6,683,000)
Increase in deferred acquisition
cost adjustment identified in
the current period 4,086,000 (1,430,000) 2,656,000
------------ ------------ ------------
Subtotal (6,195,000) 2,168,000 (4,027,000)
------------ ------------ ------------
Reclassification adjustment for:
Net realized losses included
in net income (14,487,000) 5,070,000 (9,417,000)
Related change in deferred
acquisition costs 5,314,000 (1,860,000) 3,454,000
------------ ------------ ------------
Total reclassification
adjustment (9,173,000) 3,210,000 (5,963,000)
------------ ------------ ------------
Total other comprehensive loss $(15,368,000) $ 5,378,000 $ (9,990,000)
============ ============ ============
YEAR ENDED SEPTEMBER 30,
1997:
Net unrealized gains on debt
and equity securities available
for sale identified in the
current period $ 40,575,000 $(14,201,000) $ 26,374,000
Decrease in deferred acquisition
cost adjustment identified in
the current period (15,031,000) 5,262,000 (9,769,000)
------------ ------------ ------------
Subtotal 25,544,000 (8,939,000) 16,605,000
------------ ------------ ------------
Reclassification adjustment for:
Net realized losses included
in net income 16,832,000 (5,891,000) 10,941,000
Related change in deferred
acquisition costs (5,569,000) 1,949,000 (3,620,000)
------------ ------------ ------------
Total reclassification
adjustment 11,263,000 (3,942,000) 7,321,000
------------ ------------ ------------
Total other comprehensive
income $ 36,807,000 $(12,881,000) $ 23,926,000
============ ============ ============
</TABLE>
40
<PAGE> 72
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED-PARTY MATTERS
The Company pays commissions to five affiliated companies: SunAmerica
Securities, Inc.; Advantage Capital Corp.; Financial Services Corp.;
Sentra Securities Corp.; and Spelman & Co. Inc. Commissions paid to
these broker-dealers totaled $37,435,000 in the year ended December 31,
1999, $6,977,000 in the three months ended December 31, 1998, and
$32,946,000 in the year ended September 30, 1998 and $25,492,000 in the
year ended September 30, 1997. These broker-dealers, when combined with
the Company's wholly owned broker-dealer, represent a significant
portion of the Company's business, amounting to approximately 35.6% of
premiums in the year ended December 31, 1999 and the three months ended
December 31, 1998, 33.6% in the year ended September 30, 1998 and 36.1%
in the year ended September 30, 1997.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from its Parent and SunAmerica,
an indirect parent. Amounts paid for such services totaled $105,059,000
for the year ended December 31, 1999, $21,593,000 for the three months
ended December 31, 1998, $84,975,000 for the year ended September 30,
1998 and $86,116,000 for the year ended September 30, 1997. The
marketing component of such costs during these periods amounted to
$53,385,000, $9,906,000, $39,482,000 and $31,968,000, respectively, and
are deferred and amortized as part of Deferred Acquisition Costs. The
other components of such costs are included in General and
Administrative Expenses in the income statement.
At December 31, 1999 and 1998, the Company held bonds with a fair value
of $50,000 and $84,965,000, respectively, which were issued by its
affiliate, International Lease Finance Corp. The amortized cost of these
bonds is equal to the fair value. At September 30, 1998 and 1997, the
Company held no investments issued by any of its affiliates.
During the year ended December 31, 1999, the Company transferred
short-term investments and bonds to FSA with an aggregate fair value of
$634,596,000 as part of the transfer of the New York Business from the
Acquisition (See Note 4). The Company recorded a net realized loss of
$5,144,000 on the transfer of these assets.
During the year ended December 31, 1999, the Company purchased certain
invested assets from SunAmerica for cash equal to their current market
value of $161,159,000.
For the three months ended December 31, 1998, the Company made no
purchases or sales of invested assets from or to the Parent or its
affiliates.
During the year ended September 30, 1998, the Company sold various
invested assets to SunAmerica for cash equal to their current market
value of $64,431,000. The Company recorded a net gain aggregating
$16,388,000 on such transactions.
During the year ended September 30, 1998, the Company purchased certain
invested assets from SunAmerica, the Parent and CalAmerica Life
Insurance Company ("CalAmerica"), a wholly-owned subsidiary of the
Parent that has since merged into the Parent, for cash equal to their
current market value which aggregated $20,666,000, $10,468,000
41
<PAGE> 73
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. RELATED-PARTY MATTERS (Continued)
and $61,000, respectively.
During the year ended September 30, 1997, the Company sold various
invested assets to the Parent and CalAmerica for cash equal to their
current market value of $15,776,000 and $15,000, respectively. The
Company recorded a net gain aggregating $276,000 on such transactions.
During the year ended September 30, 1997, the Company purchased certain
invested assets from the Parent and CalAmerica for cash equal to their
current market value of $8,717,000 and $284,000, respectively.
14. BUSINESS SEGMENTS
Effective January 1, 1999, the Company adopted Statement of Financial
Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information," which requires the reporting
of certain financial information by business segment. For the purpose of
providing segment information, the Company has three business segments:
annuity operations, asset management operations and broker-dealer
operations. The annuity operations focus primarily on the marketing of
variable annuity products and the administration of the universal life
business acquired from MBL Life in 1998 (See Note 4). The Company's
variable annuity products offer investors a broad spectrum of fund
alternatives, with a choice of investment managers, as well as
guaranteed fixed-rate account options. The Company earns fee income on
investments in the variable options and net investment income on the
fixed-rate options. The asset management operations are conducted by the
Company's registered investment advisor subsidiary, SunAmerica Asset
Management Corp. ("SunAmerica Asset Management"), and its related
distributor. SunAmerica Asset Management earns fee income by
distributing and managing a diversified family of mutual funds, by
managing certain subaccounts within the Company's variable annuity
products and by providing professional management of individual,
corporate and pension plan portfolios. The broker-dealer operations are
conducted by the Company's broker-dealer subsidiary, Royal Alliance
Associates, Inc. ("Royal"), which sells proprietary annuities and mutual
funds, as well as a full range of non-proprietary investment products.
42
<PAGE> 74
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
Asset Broker
Annuity Management Dealer
Operations Operations Operations Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Total assets $ 26,649,310,000 $ 150,966,000 $ 74,218,000 $ 26,874,494,000
Expenditures for long-
lived assets --- 2,563,000 2,728,000 5,291,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 790,697,000 54,652,000 41,185,000 886,534,000
Intersegment revenue --- 62,998,000 8,193,000 71,191,000
---------------- ---------------- ---------------- ----------------
Total revenue 790,697,000 117,650,000 49,378,000 957,725,000
================ ================ ================ ================
Investment income 511,914,000 9,072,000 967,000 521,953,000
Interest expense (354,263,000) (3,085,000) (389,000) (357,737,000)
Depreciation and
amortization expense (95,408,000) (23,249,000) (3,234,000) (121,891,000)
Income from unusual
transactions --- --- --- ---
Pretax income 199,333,000 67,779,000 20,611,000 287,723,000
Income tax expense (65,445,000) (28,247,000) (9,333,000) (103,025,000)
Income from extraordinary
items --- --- --- ---
Net income $ 133,888,000 $ 39,532,000 $ 11,278,000 $ 184,698,000
================ ================ ================ ================
Significant non-cash
items $ --- $ --- $ --- $ ---
================ ================ ================ ================
</TABLE>
43
<PAGE> 75
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
Asset Broker-
Annuity Management Dealer
Operations Operations Operations Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED
DECEMBER 31, 1998:
Total assets $ 22,982,323,000 $ 104,473,000 $ 59,537,000 $ 23,146,333,000
Expenditures for long-
lived assets --- 328,000 1,005,000 1,333,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 103,626,000 11,103,000 9,605,000 124,334,000
Intersegment revenue --- 11,871,000 1,674,000 13,545,000
---------------- ---------------- ---------------- ----------------
Total revenue 103,626,000 22,974,000 11,279,000 137,879,000
================ ================ ================ ================
Investment income 53,149,000 971,000 158,000 54,278,000
Interest expense (26,842,000) (752,000) (101,000) (27,695,000)
Depreciation and
amortization expense (23,236,000) (4,204,000) (561,000) (28,001,000)
Income from unusual
transactions --- --- --- ---
Pretax income 36,961,000 13,092,000 4,444,000 54,497,000
Income tax expense (12,978,000) (5,181,000) (1,947,000) (20,106,000)
Income from extraordinary
items --- --- --- ---
Net income $ 23,983,000 $ 7,911,000 $ 2,497,000 $ 34,391,000
================ ================ ================ ================
Significant non-cash
item $ --- $ --- $ --- $ ---
================ ================ ================ ================
</TABLE>
44
<PAGE> 76
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
Asset Broker-
Annuity Management Dealer
Operations Operations Operations Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1998:
Total assets $ 14,389,922,000 $ 104,476,000 $ 55,870,000 $ 14,550,268,000
Expenditures for long-
lived assets --- 477,000 5,289,000 5,766,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 410,011,000 34,396,000 39,729,000 484,136,000
Intersegment revenue --- 40,040,000 7,634,000 47,674,000
---------------- ---------------- ---------------- ----------------
Total revenue 410,011,000 74,436,000 47,363,000 531,810,000
================ ================ ================ ================
Investment income 218,044,000 2,839,000 1,083,000 221,966,000
Interest expense (131,980,000) (2,709,000) (405,000) (135,094,000)
Depreciation and
amortization expense (60,731,000) (14,780,000) (1,770,000) (77,281,000)
Income from unusual
transactions --- --- --- ---
Pretax income 148,084,000 39,207,000 22,401,000 209,692,000
Income tax expense (44,706,000) (15,670,000) (10,675,000) (71,051,000)
Income from extraordinary
items --- --- --- ---
Net income $ 103,378,000 $ 23,537,000 $ 11,726,000 $ 138,641,000
================ ================ ================ ================
Significant non-cash
items $ --- $ --- $ --- $ ---
================ ================ ================ ================
</TABLE>
45
<PAGE> 77
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
<TABLE>
<CAPTION>
Asset Broker-
Annuity Management Dealer
Operations Operations Operations Total
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1997:
Total assets $ 12,440,311,000 $ 81,518,000 $ 51,400,000 $ 12,573,229,000
Expenditures for long-
lived assets --- 804,000 4,527,000 5,331,000
Investment in subsidiaries --- --- --- ---
Revenue from external
customers 317,061,000 28,655,000 31,678,000 377,394,000
Intersegment revenue --- 22,790,000 6,327,000 29,117,000
---------------- ---------------- ---------------- ----------------
Total revenue 317,061,000 51,445,000 38,005,000 406,511,000
================ ================ ================ ================
Investment income 208,382,000 1,445,000 932,000 210,759,000
Interest expense (134,416,000) (2,737,000) (405,000) (137,558,000)
Depreciation and
amortization expense (55,675,000) (16,357,000) (689,000) (72,721,000)
Income from unusual
transactions --- --- --- ---
Pretax income 58,291,000 19,299,000 16,705,000 94,295,000
Income tax expense (16,318,000) (7,850,000) (7,001,000) (31,169,000)
Income from extraordinary
items --- --- --- ---
Net income $ 41,973,000 $ 11,449,000 $ 9,704,000 $ 63,126,000
================ ================ ================ ================
Significant non-cash
items $ --- $ --- $ --- $ ---
================ ================ ================ ================
</TABLE>
Substantially all of the Company's revenues are derived from the United
States.
The accounting policies of the segments are as described in the summary
of significant accounting policies (Note 2). The Parent makes
expenditures for long-lived assets for the annuity operations segment
and allocates depreciation of such assets to the annuity operations
segment. The annuity operations and asset management operations pay
commissions to Royal for sales of their proprietary products.
Approximately 90% of these commission payments are in turn paid to
registered representatives of Royal, with the remainder of the revenue
reflected in Net Retained Commissions. In addition, premiums from
variable annuity policies sold by the Company are held in trusts that
are owned by the Company, although the assets directly support
policyholder obligations. SunAmerica Asset Management is the Investment
Advisor for all of the subaccounts of these trusts, for which service it
receives fees which are direct expenses of the trusts. Such fees are
reported as Variable Annuity Fees in the consolidated income statement
and are shown as intersegment revenues in the business segments
disclosure above, although there is no corresponding expense on the
books of any segment.
The annuity operations segment's products are marketed through over 800
independent broker-dealers, full-service securities firms and financial
institutions, in addition to the Company's affiliated broker-dealers.
Those independent selling organizations
46
<PAGE> 78
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. BUSINESS SEGMENTS (Continued)
responsible for over 10% of sales represented 12.0% of sales in the year
ended December 31, 1999, 14.7% in the three months ended December 31,
1998, 16.8% in the year ended September 30, 1998, and 18.4% and 10.2% in
the year ended September 30, 1997. Registered representatives sell
products for the Company's asset management operations and sell products
offered by the broker-dealer operations. Revenue from any single
registered representative or group of registered representatives do not
compose a material percentage of total revenues in either the asset
management operations or the broker-dealer operations.
15. SUBSEQUENT EVENTS
On March 1, 2000, the Company paid dividends of $69,000,000 to the
Parent.
47
<PAGE> 79
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:
Audited Consolidated Financial Statements of Anchor National Life
Insurance Company as of December 31, 1999, December 31, 1998 and
September 30, 1998, and for the year ended December 31, 1999, and
for the three months ended December 31, 1998 and for each of the
two fiscal years in the period ended September 30, 1998.
Audited Financial Statements of Variable Separate Account
(Portion Relating to the AMERICAN PATHWAY Variable Annuity) as of
and for the one month period ended December 31, 1999 and as of
November 30, 1999 and for each of the two fiscal years in the
period ended November 30, 1999. [INCORPORATED BY REFERENCE]
(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............................. ****
(27) Financial Data Schedules....................... **
</TABLE>
* Filed Herewith
** Not Applicable
*** Filed on January 29, 1998, Post-Effective Amendments 27 and 20 to this
Registration Statement
**** Filed on January 27, 1997, Post-Effective Amendment 26 and 19 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.
Name Position
- ---- --------
Eli Broad Chairman, President and
Chief Executive Officer
Jay S. Wintrob Director and Executive
Vice President
James R. Belardi Director and Senior Vice President
Jana W. Greer Director and Senior Vice President
Susan L. Harris Director, Senior Vice President
and Secretary
<PAGE> 80
N. Scott Gillis Director and Senior Vice President
Edwin R. Raquel Senior Vice President and Chief
Actuary
Mark H. Gamsin Director and Senior Vice President
Scott H. Richland Vice President
J. Franklin Grey Vice President
Edward P. Nolan* Vice President
Gregory M. Outcalt Senior Vice President and Controller
P. Daniel Demko, Jr. Vice President
Kevin J. Hart Vice President
David R. Bechtel Vice President and Treasurer
Stewart R. Polakov Vice President
Lawrence M. Goldman Assistant Secretary
Christine A. Nixon Assistant Secretary
- ------------------
* 88 Bradley Road, P.O. Box 4005, Woodbridge, Connecticut 06525
Item 26. Persons Controlled By or Under Common Control With Depositor or
- -------------------------------------------------------------------------
Registrant
- ----------
The Registrant is a separate account of Anchor National Life
Insurance Company (Depositor). For a complete listing and diagram of all persons
directly or indirectly controlled by or under common control with the Depositor
or Registrant, see Exhibit 14, 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, 2000.
Item 27. Number of Contract Owners
- ------------------------------------
As of December 31, 1999, the number of Contracts funded by the
Variable Separate Account was 34,105, of which 16,783 were owners of Qualified
Contracts and 17,322 were owners of Non-Qualified Contracts.
Item 28. Indemnification
- -------------------------
None.
Item 29. Principal Underwriter
- --------------------------------
SunAmerica Capital Services, Inc. serves as distributor to the
Registrant.
SunAmerica Capital Services, Inc. also acts as the principal underwriter
to the following:
- 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
- Variable Annuity Account Seven
- SunAmerica Income Funds
- SunAmerica Equity Funds
- SunAmerica Money Market Funds, Inc.
- Style Select Series, Inc.
- SunAmerica Strategic Investment Series, Inc.
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
James Nichols Vice President
Susan L. Harris Secretary
Debbie Potash-Turner Controller
Net
Distribution Compensation
</TABLE>
<PAGE> 81
<TABLE>
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.
<PAGE> 82
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.
Item 31. Management Services
- -----------------------------
Not Applicable.
Item 32. Undertakings
- ----------------------
Registrant undertakes to (1) file post-effective amendments to
this Registration Statement as frequently as is necessary to ensure that the
audited financial statements in the Registration Statement are never more than
16 months old for so long as payments under the variable annuity Contracts may
be accepted; (2) include either (A) as part of any application to purchase a
Contract offered by the prospectus forming a part of the Registration Statement,
a space that an applicant can check to request a Statement of Additional
Information, or (B) a postcard or similar written communication affixed to or
included in the Prospectus that the Applicant can remove to send for a Statement
of Additional Information; and (3) deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form N-4 promptly upon written or oral request.
Item 33. Representation
- ------------------------
a) The Company hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been
complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including
the prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in
connection with the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed
statement acknowledging the participant's understanding of (1) the
restrictions on redemption imposed by Section 403(b)(11),
<PAGE> 83
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 and Registrant represent 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> 84
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 21st day of April, 2000.
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 capacity 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)
MARC H. GAMSIN* Senior Vice President
- ------------------------ and Director
Marc H. Gamsin
N. SCOTT GILLIS* Senior Vice President
- ------------------------ and Director
N. Scott Gillis
JAMES R. BELARDI* Director
- ------------------------
James R. Belardi
</TABLE>
<PAGE> 85
<TABLE>
<S> <C> <C>
JANA W. GREER* Director
- ------------------------
Jana W. Greer
/S/ SUSAN L. HARRIS Director April 21, 2000
- ------------------------
Susan L. Harris
GREGORY M. OUTCALT* Senior Vice President
- ------------------------ and Controller
Gregory M. Outcalt
JAY S. WINTROB* Director
- ------------------------
Jay S. Wintrob
</TABLE>
* By: /S/ SUSAN L. HARRIS Attorney-in-Fact
----------------------
Susan L. Harris
Date: April 21, 2000
<PAGE> 86
EXHIBIT INDEX
Exhibit Description
- ------- -----------
(10) Consent of Independent Accountants
(14) Diagram and Listing of All Persons Directly or
Indirectly Controlled By or Under Common Control
with Anchor National Life Insurance Company, the
Despositor of Registrant
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Registration Statement on Form N-4 for Variable
Separate Account (Portion Relating to the PATHWAY Variable Annuity) of Anchor
National Life Insurance Company of our report dated January 31, 2000, relating
to the consolidated financial statements of Anchor National Life Insurance
Company, which appear in such Statement of Additional Information. We also
consent to the incorporation by reference of our report dated March 3, 2000,
relating to the financial statements of Variable Separate Account (Portion
Relating to the PATHWAY Variable Annuity), in such Statement of Additional
Information. We also consent to the incorporation by reference of our report
dated January 31, 2000, relating to the consolidated financial statements of
Anchor National Life Insurance Company and of our report dated March 3, 2000,
relating to the financial statements of Variable Separate Account (Portion
Relating to the PATHWAY Variable Annuity) into the Prospectus which constitutes
part of this Registration Statement. We also consent to the reference to us
under the heading "Financial Statements" in such Statement of Additional
Information.
PricewaterhouseCoopers LLP /s/ PricewaterhouseCoopers LLP
Los Angeles, California
April 21, 2000
<PAGE> 1
EXHIBIT 14
American International Group, Inc. (a Delaware corporation) owns 100% of
SunAmerica Inc. (a Delaware corporation), which owns 100% of SunAmerica
Investments, Inc. (a Georgia corporation); Resources Trust Company (a Colorado
corporation), which owns 100% of Resources Consolidated Inc. (a Colorado
corporation); SunAmerica Life Insurance Company (an Arizona corporation); Anchor
Insurance Company (Hawaii), Ltd. (a Hawaii corporation); SA Investment Group,
Inc. (a California corporation); SunAmerica Affordable Housing Finance Corp. (a
Delaware corporation); Stanford Ranch, Inc. (a Delaware corporation), which owns
100% of Stanford Ranch, Inc. (a California corporation); Arrowhead SAHP Corp. (a
New Mexico corporation); Chelsea SAHP Corp. (a Florida corporation); Tierra
Vista SAHP Corp. (a Florida corporation); Westwood SAHP Corp. (a New Mexico
corporation); Westwood SAHP Corp. (a New Mexico corporation); Byrton SAHP Corp.
(a Delaware corporation); Churchill SAHP Corp. (a Delaware corporation);
Crossing SAHP Corp. (a Delaware corporation); Emerald SAHP Corp. (a Delaware
corporation); Forest SAHP Corp. (a Delaware corporation); Pleasant SAHP Corp. (a
Delaware corporation); Westlake SAHP Corp. (a Delaware corporation);
Williamsburg SAHP Corp. (a Delaware corporation); Willow SAHP Corp. (a Delaware
corporation); Prairie SAHP Corp. (a Delaware corporation); DIL/SAHP Corp. (a
Delaware corporation); Charleston Bay SAHP Corp. (a Delaware corporation);
SubGen NT Corp. (a Delaware corporation); Belvedere Ventures, Inc. (a Delaware
corporation); SunAmerica Capital Trust IV (a Delaware business trust);
SunAmerica Capital Trust V (a Delaware business trust); SunAmerica Capital Trust
VI (a Delaware business trust); AIG Investment Management, Inc. (a Delaware
corporation). In addition, SunAmerica Inc. owns 33% of New California Life
Holdings, Inc. (a Delaware corporation), which owns a 100% of Aurora National
Life Assurance Company (a California corporation); 85% of AMSUN Realty Holdings
(a California general partnership); 40% of Falcon Financial, LLC (a Delaware
limited liability company); and 93.74% of West Capital Financial Services Corp.
(a California corporation), which owns 100% of West Capital Receivables
Corporation (a California corporation) and 100% of WCFSC Special Purpose
Corporation II (a California corporation), which owns 100% of WCFSC Special
Purpose Corporation (a California corporation) and JOPCO Management Services (a
California corporation).
SunAmerica Investments, Inc. owns 100% of SunAmerica Retirement Markets,
Inc. (a Maryland corporation); SunAmerica Advertising, Inc. (a Georgia
corporation); Accelerated Capital Corp. (a Florida corporation); SunAmerica
Louisiana Properties, Inc. (a California corporation); SunAmerica Real Estate
and Office Administration (a California corporation); SunAmerica Affordable
Housing Partners, Inc. (a California corporation); Hampden I & II Corp. (a
California corporation); Sunport Holdings, Inc. (a California corporation);
Sunport Property Holdings, Inc. (a Florida corporation); SunAmerica Mortgages,
Inc. (a Delaware corporation); Sun Princeton II, Inc. (a California
corporation), which owns Sun Princeton I, Inc. (a California corporation);
Houston Warehouse Corp. (a California corporation); SunAmerica (Cayman)
Insurance Company, Ltd. (a Cayman Islands company); SLP Housing I LLC (a Nevada
limited liability company); SLP Housing II LLC (a Nevada limited liability
company); SLP Housing III LLC (a Nevada limited liability company); SunAmerica
Financial Network, Inc. (a Maryland corporation); SunMexico Holdings, Inc. (a
Delaware corporation); Sun Hechs, Inc. (a California corporation); SAI
Investment Adviser, Inc. (a Delaware corporation); Sun GP Corp. (a California
corporation); Sun CRC, Inc. (a California corporation); Sun-Dollar, Inc. (a
California corporation); Sun PLA, Inc. (a California corporation); Metrocorp,
Inc. (a California corporation). In addition, SunAmerica Investments, Inc. owns
95% of Travel Services Holdings, LLC (a Delaware limited liability company),
which owns 100% of SA Travel Services, Inc. (a California corporation); 70% of
Homes Systems Partners (a California limited partnership), which owns 100% of
Extraneous Holdings Corp. (a Delaware corporation).
<PAGE> 2
SunAmerica Financial Network, Inc. owns 100% of SunAmerica Securities, Inc.
(a Delaware corporation), which owns 50% of Anchor Insurance Services, Inc., (a
Hawaii corporation); SunAmerica Investment Services Corporation (a Georgia
corporation); Financial Service Corporation (a Georgia corporation), which owns
100% of FSC Corporation, which owns 100% FSC Securities Corporation (a Delaware
corporation), FSC Advisory Corporation (a Delaware corporation) and FSC Agency,
Inc. (a Georgia corporation). In addition, SunAmerica Financial Network, Inc.
owns 100% of The Financial Group, Inc. (a Georgia corporation), which owns 100%
of Keogler, Morgan & Co., Inc. (a Georgia corporation), Keogler Investment
Advisory, Inc. (a Georgia corporation); and Keogler Morgan Investments, Inc. (a
Georgia corporation); Advantage Capital Corporation (a New York corporation);
SunAmerica Advisory, Inc. (a Delaware corporation); Glencourt Investments, Inc.
(a California corporation), which owns 100% of Spelman & Co., Inc. (a California
corporation), which owns 100% of Century Investments Group Incorporation (an
Oklahoma corporation); SSC Holding Company, Inc. (a California corporation),
which owns 100% of Sentra Securities Corporation (a California corporation).
SunAmerica Life Insurance Company owns 100% of First SunAmerica Life
Insurance Company (a New York corporation); SunAmerica National Life Insurance
Company (an Arizona corporation); Anchor National Life Insurance Company (an
Arizona corporation); Export Leasing FSC, Inc. (a Virgin Islands company);
SunAmerica Virginia Properties, Inc. (a California corporation); and SAL
Investment Group, Inc. (a California corporation). In additional, SunAmerica
Life Insurance Company owns 85% of SunAmerica Realty Partners (a California
corporation) and 88.75% of Sun Quorum LLC (a Delaware limited liability
company).
Anchor National Life Insurance Company owns 100% of the following
Massachusetts business trusts: Anchor Pathway Fund, Anchor Series Trust,
SunAmerica Series Trust and Seasons Series Trust. In addition, Anchor National
Life Insurance Company owns 5% of Travel Services Holdings; 100% of Sam Holdings
Corporation (a California corporation), which owns 100% of Sun Royal Holdings
Corporation (a California corporation), which owns 100% of Royal Alliance
Associates, Inc. (a Delaware corporation), which owns 50% of Anchor Insurance
Services, Inc. Sam Holdings Corporation owns 100% of SunAmerica Asset Management
Corp. (a Delaware corporation), which owns 100% of SunAmerica Capital Services,
Inc. (a Delaware corporation); SunAmerica Capital Services (a Delaware
corporation); SunAmerica Fund Services, Inc. (a Delaware corporation); ANF
Property Holdings, Inc. (a California corporation); Capital Life Mortgage Corp.
(a Delaware corporation); and UG Corporation (a Georgia corporation).
