<PAGE> 1
Filed pursuant to Rule 497(c)
of the Securities Act of 1933
File Nos. 33-39888 and 811-6313
- --------------------------------------------------------------------------------
FLEXIBLE PAYMENT VARIABLE ANNUITY
CONTRACTS
- --------------------------------------------------------------------------------
ISSUED BY
FIRST SUNAMERICA LIFE INSURANCE COMPANY
IN CONNECTION WITH
VARIABLE ANNUITY ACCOUNT ONE
CORPORATE OFFICE:
733 THIRD AVENUE, 4TH FLOOR
NEW YORK, NEW YORK 10017
<TABLE>
<S> <C>
CORRESPONDENCE ACCOMPANIED ALL OTHER CORRESPONDENCE,
BY PAYMENTS: ADMINISTRATIVE SERVICE CENTER:
P.O. BOX 100357 P.O. BOX 54299
PASADENA, CALIFORNIA 91189-0357 LOS ANGELES, CA 90054-0299
TELEPHONE NUMBER: (800) 99-NYSUN
</TABLE>
The Contracts offered by this Prospectus provide for accumulation of
Contract Values and payment of annuity benefits on a variable basis. The
Contracts are available for both Qualified and Nonqualified Plans. (See
"Taxes").
Purchase Payments under the Contracts may be allocated among the Divisions
of the Separate Account, and/or to the Fixed Account option funded through the
Company's General Account. Each of the twelve Divisions of the Separate Account
described in this Prospectus are invested solely in the shares of one of the
following currently available portfolios of Anchor Series Trust:
<TABLE>
<S> <C>
- Foreign Securities Portfolio - Multi-Asset Portfolio
- Capital Appreciation Portfolio - High Yield Portfolio
- Growth Portfolio - Target '98 Portfolio
- Natural Resources Portfolio - Fixed Income Portfolio
- Growth and Income Portfolio - Government and Quality Bond Portfolio
(formerly the Convertible Securities - Money Market Portfolio
Portfolio)
- Strategic Multi-Asset Portfolio
</TABLE>
Additional Portfolios may be made available in the future.
The Fixed Account option pays a fixed rate of interest declared by the
Company for one year from the date amounts are allocated to it.
This Prospectus concisely sets forth the information a prospective investor
ought to know before investing. PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN
IT FOR YOUR FUTURE REFERENCE. Owners bear the complete investment risk for all
Purchase Payments allocated to the Separate Account.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE CONTRACTS OFFERED BY THIS PROSPECTUS INVOLVE RISK, INCLUDING LOSS OF
PRINCIPAL, AND ARE NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES.
A Statement of Additional Information about the variable portion of the
Contracts has been filed with the Commission, as part of the Registration
Statement, and is available without charge upon written or oral request to the
Company at its Administrative Service Center at the address and telephone number
set forth above. The Statement of Additional Information is incorporated herein
by reference. The Table of Contents of the Statement of Additional Information,
dated January 28, 1997, appears on page 27 of this Prospectus.
This Prospectus is dated January 28, 1997.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---------------------------------------------------------------------------------------------------- ----
<S> <C>
DEFINITIONS......................................................................................... 2
SUMMARY............................................................................................. 4
FEE TABLES.......................................................................................... 6
EXAMPLES............................................................................................ 7
EXPLANATION OF FEE TABLES AND EXAMPLES.............................................................. 7
CONDENSED FINANCIAL INFORMATION -- ACCUMULATION UNIT VALUES......................................... 8
PERFORMANCE DATA.................................................................................... 9
DESCRIPTION OF THE COMPANY AND THE SEPARATE ACCOUNT................................................. 9
Company......................................................................................... 9
Separate Account................................................................................ 10
FINANCIAL STATEMENTS................................................................................ 10
ANCHOR SERIES TRUST................................................................................. 10
Equity Portfolios............................................................................... 11
Managed Portfolios.............................................................................. 11
Fixed Income Portfolios......................................................................... 11
Voting Rights................................................................................... 12
Substitution of Securities...................................................................... 13
CONTRACT CHARGES.................................................................................... 13
Mortality and Expense Risk Charge............................................................... 13
Administrative Charges.......................................................................... 13
Administrative Expense Charge................................................................. 13
Records Maintenance Charge.................................................................... 13
Sales Charges................................................................................... 13
Withdrawal Charge............................................................................. 13
Annuity Charge................................................................................ 14
Deduction for Separate Account Income Taxes..................................................... 14
Other Expenses.................................................................................. 15
Reduction of Charges for Sales to Certain Groups................................................ 15
DESCRIPTION OF THE CONTRACTS........................................................................ 15
Transfer During Accumulation Period............................................................. 15
Automatic Dollar Cost Averaging Program......................................................... 16
Modification of the Contract.................................................................... 16
Assignment...................................................................................... 16
Death of Owner of Non-Qualified Contract........................................................ 17
Death Benefit................................................................................... 17
Beneficiary..................................................................................... 17
ANNUITY PERIOD...................................................................................... 18
Annuity Date.................................................................................... 18
Allocation of Annuity Payments.................................................................. 18
Annuity Options................................................................................. 18
Other Options................................................................................... 19
Transfer During Annuity Period.................................................................. 20
Death Benefit During Annuity Period............................................................. 20
PURCHASES AND CONTRACT VALUE........................................................................ 20
Minimum Purchase Payment........................................................................ 20
Maximum Purchase Payment........................................................................ 20
Allocation of Purchase Payments................................................................. 20
Accumulation Unit Value......................................................................... 21
Distribution of Contracts....................................................................... 21
Withdrawals (Redemptions)....................................................................... 22
Systematic Withdrawal Program................................................................... 22
ERISA Plans..................................................................................... 23
Minimum Contract Value.......................................................................... 23
ADMINISTRATION...................................................................................... 23
TAXES............................................................................................... 23
General......................................................................................... 23
Withholding Tax on Distributions................................................................ 24
Diversification................................................................................. 24
Multiple Contracts.............................................................................. 25
Tax Treatment of Assignments.................................................................... 25
Tax Treatment of Withdrawals -- Non-Qualified Contracts......................................... 25
Qualified Plans................................................................................. 25
Tax Treatment of Withdrawals -- Qualified Contracts............................................. 26
Tax Sheltered Annuities -- Withdrawal Limitations............................................... 27
Deferred Compensation Plans -- Section 457...................................................... 27
LEGAL PROCEEDINGS................................................................................... 27
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION........................................ 27
</TABLE>
(i)
<PAGE> 3
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
The following terms, as used in this Prospectus, have the indicated
meanings:
ACCUMULATION PERIOD -- The period between the Issue Date of the Contract and the
Annuity Date, the build-up phase of the Contract.
ACCUMULATION UNIT -- A unit of measurement which the Company uses to calculate
Contract Value during the Accumulation Period.
ADMINISTRATIVE SERVICE CENTER -- Its current address and phone number are: P.O.
Box 54299, Los Angeles, California 90054-0299, (800) 99-NYSUN. Correspondence
accompanying a payment should be directed to P.O. Box 100357, Pasadena,
California 91189-0357. The Company will notify Contract Owners of any change in
address or telephone number.
ANNUITANT(S) -- The person(s) designated on the application to receive or who
actually receive(s) annuity payments. Annuity payments involving life
contingencies depend on the continuation of an Annuitant's life.
ANNUITIZATION -- The process by which an Owner converts from the Accumulation
Period to the Annuity Period. Upon Annuitization, the Contract is converted from
the build-up phase to the phase during which the Annuitant(s) receive(s)
periodic annuity payments.
ANNUITY DATE -- The date on which annuity payments are to begin.
ANNUITY PERIOD -- The period starting on the Annuity Date.
ANNUITY UNIT -- A unit of measurement which the Company uses to calculate the
amount of Variable Annuity payments.
BENEFICIARY(IES) -- The person designated to receive any benefits under a
Contract upon the death of the Annuitant or the Owner. If the Owner dies during
the Accumulation Period, the Beneficiary will, unless the Owner has elected
otherwise, become the Owner of the Contract.
CODE -- The Internal Revenue Code of 1986, as amended.
COMPANY -- First SunAmerica Life Insurance Company, a New York corporation.
CONTRACT(S) -- The flexible payment variable annuity contracts offered by this
Prospectus.
CONTRACT OWNER(S) OR OWNER(S) -- The person(s) having the privileges of
ownership defined in the Contract. If an Owner dies during the Accumulation
Period, the Beneficiary will, unless the Owner has elected otherwise, become the
Owner of the Contract. Joint Owners have equal ownership interests in the
Contract unless the Company is advised otherwise in writing. Only spouses may be
Joint Owners.
CONTRACT VALUE -- The sum of the values of the Owner's interest in the General
Account and the Separate Account Divisions.
CONTRACT YEAR -- A year starting from the Issue Date in one calendar year and
ending on the Issue Date in the succeeding calendar year.
CONTRIBUTION YEAR -- With respect to a given Purchase Payment, a year starting
from the date of the Purchase Payment in one calendar year and ending on the day
before the anniversary of such date in the succeeding calendar years. The
Contribution Year in which a Purchase Payment is made is "Contribution Year 0";
subsequent Contribution Years are successively numbered beginning with
Contribution Year 1.
DIVISION OR SEPARATE ACCOUNT DIVISION -- A Division of the Separate Account
invested wholly in shares of one of the Portfolios of the Trust.
DUE PROOF OF DEATH -- (1) A certified copy of a death certificate; or (2) a
certified copy of a decree of a court of competent jurisdiction as to the
finding of death; or (3) a written statement by a medical doctor who attended
the deceased at time of death; or (4) any other proof satisfactory to the
Company.
FIXED ANNUITY -- A series of payments that are fixed in amount and made during
the Annuity Period to a payee under a Contract.
GENERAL ACCOUNT -- The Company's general investment account which contains all
the assets of the Company, with the exception of the Separate Account and other
segregated asset accounts.
ISSUE DATE -- The date a Contract is issued.
2
<PAGE> 4
NON-QUALIFIED PLAN -- A retirement plan which does not receive favorable tax
treatment under Sections 401, 403(b), 408 or 457 of the Code.
PORTFOLIO -- One of the investment options available under the Contract in the
Trust.
PURCHASE PAYMENTS -- Amounts paid to the Company by a Contract Owner.
QUALIFIED PLAN -- A retirement plan which receives favorable tax treatment under
Sections 401, 403(b), 408 or 457 of the Code.
SEPARATE ACCOUNT OR ACCOUNT -- A segregated investment account of the Company
entitled "Variable Annuity Account One" established by the Company.
TRUST -- Anchor Series Trust.
VALUATION DATE -- Monday through Friday except for New Year's Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas Day.
VALUATION PERIOD -- The period commencing at 4:00 p.m. New York time on each
Valuation Date and ending at 4:00 p.m. New York time on the next succeeding
Valuation Date.
VARIABLE ANNUITY -- A series of payments made during the Annuity Period which
varies in amount in accordance with the investment experience of the Separate
Account Division(s).
WITHDRAWAL CHARGE -- The contingent deferred sales charge assessed against
certain withdrawals or annuitizations.
WITHDRAWAL VALUE -- Contract Value, less any premium tax payable if the Contract
is being annuitized, minus any applicable Withdrawal Charge.
3
<PAGE> 5
- --------------------------------------------------------------------------------
SUMMARY
- --------------------------------------------------------------------------------
This Prospectus describes the uses and objectives of the Contracts, their
costs, and the rights and privileges of the Owner. It also contains information
about the Company, the Separate Account and its Divisions, and the Portfolios in
which the Divisions invest. We urge you to read it carefully and retain it and
the Prospectus for the Trust for future reference. (The Prospectus for the Trust
is attached to and follows this Prospectus).
WHAT IS THE CONTRACT?
The Contract offered is a tax deferred annuity which provides fixed
benefits, variable benefits or a combination of both. Individuals wishing to
purchase a Contract must complete an application and provide an initial Purchase
Payment which will be sent to the Company at its Administrative Service Center
or in such other manner as deemed acceptable to the Company. The minimum and
maximum of Purchase Payments vary depending upon the type of Contract purchased.
(See "Minimum Purchase Payment").
WHAT IS THE DIFFERENCE BETWEEN A VARIABLE ANNUITY AND A FIXED ANNUITY?
The Contract has appropriate provisions relating to variable and fixed
accumulation values and variable and fixed annuity payments. A Variable Annuity
and a Fixed Annuity have certain similarities. Both provide that Purchase
Payments, less certain deductions, will be accumulated prior to the Annuity
Date. After the Annuity Date, annuity payments will be made to a designated
payee for the life of the Annuitant or a period certain or a combination
thereof. The Company assumes mortality and expense risks under the Contracts,
for which it receives certain compensation.
The most significant difference between a Variable Annuity and a Fixed
Annuity is that under a Variable Annuity, all investment risk before and after
the Annuity Date is assumed by the Owner or other payee; the amounts of the
annuity payments vary with the investment performance of the Divisions of the
Separate Account selected by the Owner. Under a Fixed Annuity, in contrast, the
investment risk after the Annuity Date is assumed by the Company and the amounts
of the annuity payments do not vary.
HOW MAY PURCHASE PAYMENTS BE ALLOCATED?
Purchase Payments for the Contracts may be allocated pursuant to
instructions in the application to one or more Divisions of the Separate
Account, and/or to the Company's General Account. The Separate Account invests
in shares of the following Portfolios (see "Anchor Series Trust"):
<TABLE>
<S> <C>
* FOREIGN SECURITIES * MULTI-ASSET
* CAPITAL APPRECIATION * HIGH-YIELD
* GROWTH * TARGET '98
* NATURAL RESOURCES * FIXED INCOME
* GROWTH AND INCOME * GOVERNMENT AND QUALITY BOND
* STRATEGIC MULTI-ASSET * MONEY MARKET
</TABLE>
Purchase Payments allocated to the General Account will earn interest at the
current rate then being offered by the Company for a one year period beginning
on the date amounts are allocated to it.
Prior to the Annuity Date, transfers may be made among the Divisions and/or
the General Account. Fifteen transfers are permitted before a transfer fee will
be assessed. (See "Description of the Contracts -- Transfer During Accumulation
Period").
MAY WITHDRAWALS BE MADE BEFORE ANNUITIZATION?
Except as explained below, Contract Value may be withdrawn at any time
during the Accumulation Period. In addition to potential losses due to
investment risks, withdrawals may be reduced by a Withdrawal Charge, and a
penalty tax and income tax may apply. Contracts in connection with Qualified
Plans may be subject to additional withdrawal restrictions imposed by the plan.
Earnings under a Contract may be withdrawn at any time during such period free
of a Withdrawal Charge. Alternatively, there is a free withdrawal amount which
applies to the first withdrawal during a Contract Year after the first Contract
Year. (See "Contract Charges -- Sales Charges -- Withdrawal Charge"). Certain
Owners of Nonqualified Plan Contracts and Contracts issued in connection with
Individual Retirement Annuities ("IRAs") may choose to withdraw amounts which in
the aggregate add up to 10%
4
<PAGE> 6
of their Purchase Payments annually pursuant to a systematic withdrawal program
without charge. (See "Purchases and Contract Value -- Systematic Withdrawal
Program"). Withdrawals are taxable and a 10% federal tax penalty may apply to
withdrawals before age 59 1/2.
Owners should consult their own tax counsel or other tax adviser regarding
any withdrawals or distributions.
CAN I EXAMINE THE CONTRACT?
The Contract Owner may return the Contract to the Company within 10 days
after it is received by delivering or mailing it to the Company's Administrative
Service Center. If the Contract is returned to the Company, it will be
terminated and the Company will pay the Owner an amount equal to the Contract
Value represented by the Contract on the date it is received by the Company.
WHAT ARE THE CHARGES AND DEDUCTIONS UNDER A CONTRACT?
A mortality and expense risk charge is assessed daily against the assets of
each Division at an annual rate of 1.25%. An administrative expense charge is
assessed daily against the assets of each Division at an annual rate of 0.15%.
The Contracts also provide for certain deductions and charges, including a
Records Maintenance Charge of $30 annually, which is guaranteed not to increase.
The Contract permits up to 15 free transfers each Contract Year, after which
point a $25 transfer fee is applicable to each subsequent transfer.
Additionally, a Withdrawal Charge may be assessed against the Contract Value
during the first five Contribution Years (5%-4%-3%-2%-1%) when a withdrawal is
made. (See "Contract Charges").
DOES THE CONTRACT PAY ANY DEATH BENEFITS?
A Death Benefit is provided in the event of the death of the Owner during
the Accumulation Period. The Death Benefit is equal to the greater of: (1) the
Contract Value upon receipt of Due Proof of Death; or (2) the total of Purchase
Payments made prior to the death of the Owner, minus any partial withdrawals
and/or partial annuitizations and contract charges; or (3) after the fifth
Contract Year, the Contract Value at the last anniversary of the Issue Date of
the Contract minus any partial withdrawals and/or partial annuitizations since
that anniversary. (See "Description of the Contracts -- Death Benefit").
WHAT ARE THE AVAILABLE ANNUITY OPTIONS UNDER THE CONTRACT?
There are three available annuity options under the Contract. They include
an annuity for life, a joint and survivor annuity, and monthly payments for a
specified number of years. If a Contract Owner does not elect otherwise, monthly
annuity payments generally will be made under the first option to provide a life
annuity with 120 monthly payments certain. (See "Annuity Period -- Annuity
Options").
DOES THE OWNER HAVE ANY VOTING RIGHTS UNDER THE CONTRACT?
Owners will have the right to vote on matters affecting the Portfolios to
the extent that proxies are solicited by the Trust. If the Owner does not vote,
the Company will vote such interests in the same proportion as it votes shares
for which it has received instructions. (See "Anchor Series Trust -- Voting
Rights").
5
<PAGE> 7
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE (AS A PERCENTAGE OF PURCHASE PAYMENTS):
<TABLE>
<CAPTION>
CONTRIBUTION YEAR
-----------------
<S> <C>
One....................................................................................... 5%
Two....................................................................................... 4%
Three..................................................................................... 3%
Four...................................................................................... 2%
Five...................................................................................... 1%
Six and later............................................................................. 0%
ANNUAL RECORDS MAINTENANCE CHARGE............................................................... $30
TRANSFER FEE.................................................................................... $25
(applies solely to transfers in excess of fifteen in a Contract Year)
</TABLE>
- ---------------
The Owner Transaction Expenses apply to the Contract Value allocated to the
General Account, as well as the Separate Account.
- --------------------------------------------------------------------------------
ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF DAILY NET ASSET VALUE)
<TABLE>
<S> <C>
MORTALITY RISK CHARGE.......................................................................... 0.90%
EXPENSE RISK CHARGE............................................................................ 0.35%
ADMINISTRATION EXPENSE CHARGE.................................................................. 0.15%
------
TOTAL EXPENSE CHARGE..................................................................... 1.40%
======
</TABLE>
- ---------------
ANNUAL TRUST EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE FISCAL YEAR ENDED DECEMBER 31,
1995):
<TABLE>
<CAPTION>
TOTAL
ANNUAL
MANAGEMENT FEE OTHER EXPENSES EXPENSES
-------------- --------------
- ------------
<S> <C> <C> <C>
Foreign Securities............................................... .9% .3% 1.2%
Capital Appreciation............................................. .7% .1% .8%
Growth........................................................... .7% .2% .9%
Natural Resources................................................ .8% .2% 1.0%
Growth and Income................................................ .7% .2% .9%
Strategic Multi-Asset............................................ 1.0% .3% 1.3%
Multi-Asset...................................................... 1.0% .1% 1.1%
High Yield....................................................... .7% .2% .9%
Target '98....................................................... .6% .3% .9%
Fixed Income..................................................... .6% .2% .8%
Government & Quality Bond........................................ .6% .1% .7%
Money Market..................................................... .5% .1% .6%
</TABLE>
6
<PAGE> 8
- --------------------------------------------------------------------------------
EXAMPLES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPARATE CONDITIONS
ACCOUNT A Contract Owner would pay the following expenses on a TIME PERIODS
DIVISION $1,000 investment assuming 5% annual return on assets: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOREIGN (a) upon surrender at the end of the stated time period. (a) $ 77 $ 110 $ 150 $300
SECURITIES (b) if the Contract WAS NOT surrendered. (b) 27 83 141 300
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL SAME (a) 73 98 130 260
APPRECIATION (b) 23 71 121 260
- ---------------------------------------------------------------------------------------------------------------------------
GROWTH SAME (a) 74 101 135 270
(b) 24 74 126 270
- ---------------------------------------------------------------------------------------------------------------------------
NATURAL SAME (a) 75 104 140 280
RESOURCES (b) 25 77 131 280
- ---------------------------------------------------------------------------------------------------------------------------
GROWTH AND SAME (a) 74 101 135 270
INCOME (b) 24 74 126 270
- ---------------------------------------------------------------------------------------------------------------------------
STRATEGIC SAME (a) 78 113 155 309
MULTI-ASSET (b) 28 86 146 309
- ---------------------------------------------------------------------------------------------------------------------------
MULTI-ASSET SAME (a) 76 107 145 290
(b) 26 80 136 290
- ---------------------------------------------------------------------------------------------------------------------------
HIGH YIELD SAME (a) 74 101 135 270
(b) 24 74 126 270
- ---------------------------------------------------------------------------------------------------------------------------
TARGET '98 SAME (a) 74 101 135 270
(b) 24 74 126 270
- ---------------------------------------------------------------------------------------------------------------------------
FIXED SAME (a) 73 98 130 260
INCOME (b) 23 71 121 260
- ---------------------------------------------------------------------------------------------------------------------------
GOV'T & SAME (a) 72 95 125 250
QUALITY BOND (b) 22 68 116 250
- ---------------------------------------------------------------------------------------------------------------------------
MONEY MARKET SAME (a) 71 92 120 239
(b) 21 65 111 239
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
EXPLANATION OF FEE TABLES
AND EXAMPLES
- --------------------------------------------------------------------------------
1. The purpose of the foregoing tables and examples is to assist the Contract
Owner in understanding the various costs and expenses that he or she will
bear directly or indirectly. The table reflects expenses of the Separate
Account as well as the Trust. For additional information see "Contract
Charges" of this Prospectus and "Management of the Trust" of the Prospectus
for the Trust. The examples do not illustrate the tax consequences of
surrendering a Contract.
2. The examples assume that there were no transactions which would result in
the imposition of the Transfer Fee. The Contracts are sold only in the State
of New York, which does not assess premium taxes. Accordingly, premium taxes
are not reflected.
3. For purposes of the amounts reported in the examples, the Records
Maintenance Charge is reflected by dividing the total amount of Records
Maintenance Charges anticipated to be collected during the year by the total
net assets of the Separate Account's Divisions and the related Fixed Account
assets.
4. NEITHER THE FEE TABLES NOR THE EXAMPLES ARE REPRESENTATIONS OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
7
<PAGE> 9
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
9/23/91 FISCAL FISCAL FISCAL FISCAL
(INCEPTION) YEAR YEAR YEAR YEAR
TO ENDED ENDED ENDED ENDED
SEPARATE ACCOUNT DIVISION 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
- ----------------------------------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Foreign Securities
Beginning AUV.................... $ 11.66 $11.26 $ 9.64 $12.39 $11.83
End AUV.......................... $ 11.26 $ 9.64 $12.39 $11.83 $13.13
End # AU's....................... 6,197 32,027 110,045 165,468 130,525
Capital Appreciation
Beginning AUV.................... $ 13.71 $15.36 $19.09 $22.79 $21.62
End AUV.......................... $ 15.36 $19.09 $22.79 $21.62 $28.68
End # AU's....................... 244 27,092 111,129 167,384 131,688
Growth
Beginning AUV.................... $ 23.45 $23.36 $27.40 $29.12 $27.36
End AUV.......................... $ 26.36 $27.40 $29.12 $27.36 $34.08
End # AU's....................... 4,483 108,874 179,035 170,859 146,484
Natural Resources
Beginning AUV.................... $ 11.51 $11.13 $11.25 $15.11 $15.05
End AUV.......................... $ 11.13 $11.25 $15.11 $15.05 $17.43
End # AU's....................... 451 8,283 20,215 43,075 23,005
Growth and Income
Beginning AUV.................... $ 12.66 $13.12 $15.55 $18.70 $16.67
End AUV.......................... $ 13.12 $15.55 $18.70 $16.67 $19.16
End # AU's....................... 1,911 19,305 58,427 69,818 59,120
Strategic Multi-Asset
Beginning AUV.................... $ 12.65 $13.55 $13.88 $15.78 $15.16
End AUV.......................... $ 13.55 $13.88 $15.78 $15.16 $18.35
End # AU's....................... 545 11,556 32,409 77,616 55,855
Multi-Asset
Beginning AUV.................... $ 13.78 $14.98 $15.97 $16.90 $16.39
End AUV.......................... $ 14.98 $15.97 $16.90 $16.39 $20.19
End # AU's....................... 8,409 141,059 310,679 287,625 241,450
High Yield
Beginning AUV.................... $ 13.75 $14.44 $16.24 $19.07 $17.96
End AUV.......................... $ 14.44 $16.24 $19.07 $17.96 $21.03
End # AU's....................... 1,395 34,946 63,091 80,486 64,930
Target '98
Beginning AUV.................... $ 13.80 $15.11 $15.97 $17.52 $16.57
End AUV.......................... $ 15.11 $15.97 $17.52 $16.57 $18.72
End # AU's....................... 4,195 23,426 51,836 61,733 61,464
Fixed Income
Beginning AUV.................... $ 19.00 $20.31 $21.34 $22.71 $21.67
End AUV.......................... $ 20.31 $21.34 $22.71 $21.67 $25.46
End # AU's....................... 1,266 40,684 66,362 56,430 36,124
Government &
Quality Bond
Beginning AUV.................... $ 19.61 $21.00 $22.13 $23.63 $22.60
End AUV.......................... $ 21.00 $22.13 $23.63 $22.60 $26.60
End # AU's....................... 3,572 177,925 217,255 176,490 148,101
Money Market
Beginning AUV.................... $ 15.06 $15.23 $15.53 $15.72 $16.10
End AUV.......................... $ 15.23 $15.53 $15.72 $16.10 $16.77
End # AU's....................... 48 91,048 82,889 15,560 29,241
</TABLE>
AUV -- Accumulation Unit Value.
AU -- Accumulation Units.
8
<PAGE> 10
- --------------------------------------------------------------------------------
PERFORMANCE DATA
- --------------------------------------------------------------------------------
From time to time the Separate Account may advertise its Money Market
Division's "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Money Market Division refers to the net income generated for a
Contract funded by an investment in the Division over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in the Division 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
Annuity Charges or Withdrawal Charges. The impact of other, recurring charges on
both yield figures is, however, reflected in them to the same extent it would
affect the yield (or effective yield) for a Contract of average size.
In addition, the Separate Account may advertise "total return" data for its
other Divisions. 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 Division 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 Money Market
Division. The effect of applicable Withdrawal Charges due to the assumed
redemption will be reflected in the return figures, but may be omitted in
additional return figures given for comparison.
For periods starting prior to September 23, 1991, the date the Contracts
were first offered the public, the total return data will be derived from the
performance of the corresponding Portfolios of the Trust, modified to reflect
the same charges and expenses as if the Division had been in existence since the
inception date of each respective Portfolio. Thus, such performance figures
should not be construed to be actual historic performance of the Division.
Rather, they are intended to indicate the historic performance of the Trust,
adjusted to provide direct comparability to the performance of the Division
after September 23, 1991. The Trust has served since its inception as an
underlying investment medium for separate accounts of other insurance companies
having the same fee and charge schedules as those of the Separate Account.
For a more complete description of Contract charges, see "Contract
Charges"; for a more detailed description of the performance data computations,
please refer to the Statement of Additional Information.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE COMPANY AND THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
COMPANY
The Company is a stock life insurance company organized under the laws of
the state of New York on December 5, 1978. Its legal domicile is 733 Third
Avenue, New York, New York 10017. The Company is an indirect, wholly owned
subsidiary of SunAmerica Inc., a Maryland corporation.
The Company and its affiliates, SunAmerica Life Insurance Company, Anchor
National Life Insurance Company, CalFarm Life Insurance Company, SunAmerica
Asset Management Corp., Imperial Premium Finance, Inc., Resources Trust Company
and three broker-dealers, offer a full line of financial services, including
fixed and variable annuities, mutual funds, premium finance, broker-dealer and
trust administration services. The Company is admitted to conduct life insurance
and annuity business in the state of New York.
The Company may from time to time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by A.M. Best Company ("A.M. Best"). A.M. Best's ratings reflect its
9
<PAGE> 11
current opinion on the relative financial strength and operating performance of
an insurance company in comparison to the norms of the life/health insurance
industry. Its ratings do not apply to the Separate Account. However, the
contractual obligations under the Contracts are general corporate obligations of
the Company.
The Contracts offered by this Prospectus are issued by the Company and will
be funded in the Separate Account, as well as in the Company's General Account.
SEPARATE ACCOUNT
The Separate Account was established pursuant to New York insurance law on
May 30, 1990. The Separate Account is registered with the Securities and
Exchange Commission as a unit investment trust under the Investment Company Act
of 1940. This registration does not involve supervision of the management of the
Separate Account or the Company by the Securities and Exchange Commission.
The assets of the Separate Account are the property of the Company.
However, the assets of the Separate Account, equal to the reserves and other
contract liabilities of the Separate Account, are not chargeable with
liabilities arising out of any other business the Company may conduct. The
Company's obligations arising under the Contracts are general corporate
obligations of the Company.
Income, gains and losses, whether or not realized, from assets allocated to
the Separate Account are credited to or charged against the Separate Account
without regard to other income, gains or losses of the Company.
The Separate Account is divided into Divisions, with the assets of each
Division invested in the shares of one of the twelve Portfolios of the Trust.
The Company does not guarantee the investment performance of the Separate
Account or its Divisions. Values allocated to the Separate Account and the
amount of variable annuity payments will vary with the value of shares of the
Portfolios and the Contract charges.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Financial statements of the Separate Account appear in the Statement of
Additional Information. Financial information regarding the General Account is
reported in the Company's financial statements. The Company's financial
statements are also included in the Statement of Additional Information. A copy
of the Statement of Additional Information may be obtained by contacting the
Company at its Administrative Service Center.
- --------------------------------------------------------------------------------
ANCHOR SERIES TRUST
- --------------------------------------------------------------------------------
Each of the twelve Divisions of the Separate Account invests solely in the
shares of one of the twelve Portfolios of Anchor Series Trust. The Trust is an
open-end diversified management investment company registered under the
Investment Company Act of 1940. While a brief summary of the investment
objectives is set forth below, more comprehensive information, including a
discussion of potential risks, is found in the Prospectus for the Trust.
Additional copies of this Prospectus, the Trust's Prospectus and the Statement
of Additional Information can be obtained by calling the Administrative Service
Center number on the cover page of this Prospectus. Both prospectuses should be
read carefully before investing to understand all aspects of the Contract, the
Separate Account and the Portfolios. SunAmerica Asset Management Corp. ("SAAM"),
an affiliate of the Company, is the investment manager for the Trust. Wellington
Management Company, LLP ("WMC"), which is not affiliated with the Company,
serves as sub-adviser for the Trust. (See the Trust Prospectus for information
concerning the investment management fees.)
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<PAGE> 12
The twelve Portfolios and their investment objectives are:
EQUITY PORTFOLIOS
FOREIGN SECURITIES PORTFOLIO seeks long-term capital appreciation. This
Portfolio will invest primarily in a diversified group of equity securities
issued by foreign companies and primarily denominated in foreign currencies.
CAPITAL APPRECIATION PORTFOLIO seeks long-term capital appreciation. This
Portfolio will invest in a widely diversified group of growth equity securities,
debt securities and preferred stocks that are convertible into, or which carry
warrants to purchase, common stocks or other equity interests and in addition
may invest up to 25% of its total assets in foreign securities. This Portfolio
may also engage in transactions involving stock index futures and options
thereon as a hedge against changes in market conditions.
GROWTH PORTFOLIO seeks capital appreciation. This Portfolio will invest in
growth equity securities and may invest up to 25% of its total assets in foreign
securities. This Portfolio may also engage in transactions involving stock index
futures and options thereon as a hedge against changes in market conditions.
NATURAL RESOURCES PORTFOLIO seeks total return in excess of the U.S. rate
of inflation as represented by the Consumer Price Index. This Portfolio will
invest primarily in equity securities of companies which are expected to benefit
from rising inflation, because they own or control assets which appreciate in
inflationary periods, or because of increased activity during these periods of
inflation, and in debt obligations and fixed income securities which are
expected to provide favorable returns in periods of rising inflation. This
Portfolio will invest in domestic securities and foreign securities and may
engage in transactions including stock index futures contracts and options
thereon, and transactions involving the future delivery of fixed income
securities ("Financial Futures Contracts") and options thereon, as a hedge
against changes in market conditions.
GROWTH AND INCOME PORTFOLIO seeks high current income and long-term capital
appreciation. This Portfolio will invest primarily in securities that provide
the potential for growth and offer income, such as dividend-paying stocks and
securities convertible into common stock. This Portfolio may also engage in
transactions involving stock index futures and options thereon as a hedge
against changes in market conditions.
MANAGED PORTFOLIOS
STRATEGIC MULTI-ASSET PORTFOLIO seeks high long-term total investment
return. This Portfolio will invest in a diversified group of securities of the
following types: growth equity and aggressive growth equity securities,
including the securities of smaller companies which may be newer and less
seasoned, investment grade and high-yield, high-risk bonds, international
securities and money market instruments. The Portfolio may also engage in
transactions involving stock index futures contracts and options thereon, and
Financial Futures Contracts and options thereon, as a hedge against changes in
market conditions.
MULTI-ASSET PORTFOLIO seeks long-term total investment return consistent
with moderate investment risk. This Portfolio will invest in a diversified group
of securities, including: growth equity securities, convertible securities,
investment grade fixed income securities and money market securities. The
Portfolio also may engage in transactions involving stock index futures
contracts and options thereon, and Financial Futures Contracts and options
thereon, as a hedge against changes in market conditions.
FIXED INCOME PORTFOLIOS
HIGH YIELD PORTFOLIO seeks high current income. A secondary investment
objective is capital appreciation. This Portfolio will seek its objectives by
investing, except for temporary defensive purposes, at least 65% of its assets
in high-yielding, high-risk, income-producing corporate bonds, which generally
carry ratings lower than those assigned to investment grade bonds by Moody's
Investor's Service, Inc. ("Moody's") or Standard & Poor's Corporation ("Standard
& Poor's"), or which are unrated. This Portfolio may also engage in transactions
involving Financial Futures Contracts and options thereon as a hedge against
changes in market conditions. High-yield, high-risk bonds typically are subject
to greater risks than are investments in lower-yielding, higher-rated bonds. See
the Trust's Prospectus for more information.
TARGET '98 PORTFOLIO seeks a predictable compounded investment return for a
specified time period, consistent with preservation of capital. This Portfolio
will invest primarily in zero coupon securities and current, interest-bearing,
investment grade debt obligations which are issued by the U.S. Government, its
agencies and instrumentalities, and both domestic and foreign corporations.
These investments will generally mature no later than November 15, 1998. Upon
maturity, the Portfolio will be converted to cash. The redemption proceeds will,
except as otherwise directed by the Contract Owner, be used to purchase shares
of the Money Market Portfolio.
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<PAGE> 13
In January 1998, the Company will notify all Contract Owners then having
Contract Value allocated to the Target '98 Division of the forthcoming maturity
and liquidation of the Target '98 Portfolio, and will request instructions as to
which other Division(s) each Contract Owner's interest in the Target '98
Division is to be reallocated upon such liquidation. Contract Values will be
automatically reallocated to the Money Market Division except to the extent that
instructions indicating a different reallocation are received by the Company on
or before November 15, 1998.
To facilitate an orderly liquidation, no transfers into the Target '98
Division will be permitted after January 1, 1998. Reallocations of Contract
Value from the Target '98 Division effected in connection with the liquidation
as described above will not be considered "transfers" for purposes of
determining any applicable transfer fees. Other transfers out of the Target '98
Division will not be permitted after October 15, 1998. Of course, none of the
foregoing constraints affect a Contract Owner's right to redeem his or her
Contract Value at any time. (See "Purchases and Contract Value -- Withdrawals
(Redemption)").
FIXED INCOME PORTFOLIO seeks high level of current income consistent with
preservation of capital. This Portfolio will invest primarily in investment
grade, fixed income securities and may engage in Financial Futures Contracts and
options thereon as a hedge against changes in market conditions.
GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current income,
liquidity and security of principal. This Portfolio will invest in obligations
issued, guaranteed or insured by the U.S. Government, its agencies or
instrumentalities ("government securities") and in corporate debt securities
rated Aa or better by Moody's or AA or better by Standard & Poor's ("high
quality corporate bonds"). It is currently anticipated that the Portfolio will
have the majority of its assets invested in government securities since the
Trust is permitted to treat each U.S. agency or instrumentality as a separate
issuer for purposes of determining compliance with diversification standards
imposed by Section 817(h) of the Code. (See "Taxes -- Diversification").
MONEY MARKET PORTFOLIO seeks current income consistent with stability of
principal through investment in a diversified portfolio of money market
instruments maturing in 397 days or less. The Portfolio will maintain a dollar-
weighted average portfolio maturity of not more than 90 days.
There is no assurance that the investment objective of any of the
Portfolios will be met. Contract Owners bear the complete investment risk for
Purchase Payments allocated to a Division. Contract Values will fluctuate in
accordance with the investment performance of the Division(s) to which Purchase
Payments are allocated, and in accordance with the imposition of the fees and
charges assessed under the Contracts.
Shares of the Trust are, and will be, issued and redeemed only in
connection with investments in and payments under variable contracts sold by the
Company and its affiliate, Anchor National Life Insurance Company as well as two
unaffiliated companies, Presidential Life Insurance Company and Phoenix Mutual
Life Insurance Company. No disadvantage to Contract Owners is seen to arise from
the fact that the Trust offers its shares in this fashion.
Additional Portfolios may be established by the Trust from time to time and
may be made available to Contract Owners. However, there is no assurance that
this will occur.
VOTING RIGHTS
In accordance with its view of present applicable law, the Company will
vote the shares of the Trust held in the Separate Account at special meetings of
the shareholders of the Trust in accordance with instructions received from
persons having the voting interest in the Separate Account. The Company will
vote shares for which it has not received instructions in the same proportion as
it votes shares for which it has received instructions. The Trust does not hold
regular meetings of shareholders.
The number of shares which a person has a right to vote will be determined
as of a date to be chosen by the Company not more than 60 days prior to the
meeting of the Trust's shareholders. Voting instructions will be solicited by
written communication at least 14 days prior to such meeting. The person having
such voting rights will be the Contract Owner before the Annuity Date or the
death of the Annuitant; thereafter the payee entitled to receive payments under
the Contract. Voting rights attributable to a Contract will generally decrease
as Contract Values decrease.
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<PAGE> 14
SUBSTITUTION OF SECURITIES
If the shares of any of the Portfolios should no longer be available for
investment by the Separate Account or if, in the judgment of the Company's Board
of Directors, further investment in the shares of a Portfolio is no longer
appropriate in view of the purpose of the Contract, the Company may substitute
shares of another open-end management investment company (or series thereof) for
Portfolio shares already purchased or to be purchased in the future by Purchase
Payments under the Contract. No substitution of securities may take place
without prior approval of the Securities and Exchange Commission and under such
requirements as it may impose.
- --------------------------------------------------------------------------------
CONTRACT CHARGES
- --------------------------------------------------------------------------------
MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a risk charge from each Division of the Separate
Account during each Valuation Period. The risk charge is equal, on an annual
basis, to 1.25% of the daily net asset value of each Division (approximately
.90% is for mortality risks and approximately .35% is for expense risks). The
mortality risks assumed by the Company arise from its contractual obligations to
make annuity payments after the Annuity Date for the life of the Annuitant(s),
to waive the Withdrawal Charge in the event of the death of the Annuitant, and
to provide the death benefit prior to the Annuity Date. The expense risk assumed
by the Company is that the costs of administering the Contracts and the Separate
Account will exceed the amount received from the Records Maintenance Charge and
the Administrative Expense Charge. (See "Administrative Charges"). This charge
is guaranteed by the Company and cannot be increased.
ADMINISTRATIVE CHARGES
ADMINISTRATIVE EXPENSE CHARGE
The Company deducts an Administrative Expense Charge from each Division of
the Separate Account which is equal, on an annual basis, to .15% of the daily
net asset value of each Division. This charge is designed to cover those
administrative expenses which exceed the revenues from the Records Maintenance
Charge. The Company does not intend to profit from this charge. The Company
believes that the Administrative Expense Charge has been set at a level that
will recover no more than the actual costs associated with administering the
Contract. In the event that it exceeds the amount necessary to reimburse the
Company for its administrative expenses, the charge will be appropriately
reduced. In no event will this charge be increased. The Administrative Expense
Charge is assessed during both the Accumulation Period and the Annuity Period.
RECORDS MAINTENANCE CHARGE
An annual Records Maintenance Charge of $30 is charged against each
Contract. The amount of this charge is guaranteed and cannot be increased by the
Company. This charge reimburses the Company for expenses incurred in
establishing and maintaining records relating to a Contract. The Records
Maintenance Charge will be assessed each Contract Year on the anniversary of the
Issue Date of the Contract. In the event that a total surrender of Contract
Value is made, the Charge will be assessed as of the date of surrender without
proration.
SALES CHARGES
The Withdrawal Charge and the Annuity Charge are sales charges.
WITHDRAWAL CHARGE
Effective January 1, 1989, federal tax law limits withdrawals from annuity
contracts issued in connection with 403(b) Qualified Plans. Subject to those
limitations, the Contract Value may be withdrawn at any time during the
Accumulation Period. Contract Owners should consult their own tax counsel or
other tax adviser regarding any withdrawals. (See "Taxes -- Tax Treatment of
Withdrawals -- Non-Qualified Contracts" and "Taxes -- Tax Treatment of
Withdrawals -- Qualified Contracts").
There is a Free Withdrawal Amount which applies to the first withdrawal
during a Contract Year after the first Contract Year. The Free Withdrawal Amount
is equal to 10% of the aggregate Purchase Payments less prior
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<PAGE> 15
withdrawals. Alternatively, certain Owners of Non-Qualified Contracts and
Contracts issued in connection with IRAs may choose to withdraw amounts which in
the aggregate add up to 10% of their initial Purchase Payments annually pursuant
to the Systematic Withdrawal Program without charge. To participate in the
Systematic Withdrawal Program, Owners must complete an enrollment form which
describes the program and send it to the Company, c/o its Administrative Service
Center. Depending on fluctuations in the net asset value of the Separate
Account's Divisions, systematic withdrawals may reduce or even exhaust Contract
Value. (See "Purchases and Contract Value -- Systematic Withdrawal Program").
A contingent deferred sales charge, which is referred to as the Withdrawal
Charge, may be imposed upon other withdrawals. Withdrawal Charges will vary in
amount depending upon the Contribution Year in which the Purchase Payment being
withdrawn was made, and will be calculated based on the Withdrawal Charge Table,
below, and the amount of Purchase Payment withdrawn which is still subject to
the Withdrawal Charge and not previously withdrawn. The Withdrawal Charge is
deducted from remaining Contract Value so that the actual reduction in Contract
Value as a result of the withdrawal will be greater than the withdrawal amount
requested and paid. Free withdrawals and other withdrawals will be allocated to
Purchase Payments on a first-in-first-out basis so that all withdrawals are
allocated to Purchase Payments to which the lowest Withdrawal Charge, if any,
applies.
WITHDRAWAL CHARGE TABLE
<TABLE>
<CAPTION>
APPLICABLE WITHDRAWAL
CONTRIBUTION YEAR CHARGE PERCENTAGE
------------------------------------------------------------- ---------------------
<S> <C>
First........................................................ 5%
Second....................................................... 4%
Third........................................................ 3%
Fourth....................................................... 2%
Fifth........................................................ 1%
Sixth and later.............................................. 0%
</TABLE>
Where legally permitted, the Withdrawal Charge will be eliminated when a
Contract is issued to an officer, director or employee of the Company or its
affiliates, or an immediate family member of such person. In addition, the
Withdrawal Charge may be waived by the Company on withdrawals where the amount
withdrawn is used to purchase another annuity contract issued by the Company.
Additional information regarding the elimination or waiver of the Withdrawal
Charge may be obtained by contacting the Company.
The amounts obtained from the Withdrawal Charge will be used to pay sales
commissions and other promotional or distribution expenses associated with the
marketing of the Contracts. To the extent that the Withdrawal Charge is
insufficient to cover all sales commissions and other promotional or
distribution expenses, the Company may use any of its corporate assets,
including potential profit which may arise from the Mortality and Expense Risk
Charge (See "Contract Charges -- Mortality and Expense Risk Charge"), to make up
any difference.
ANNUITY CHARGE
If a Contract Owner elects to have annuity payments made under annuity
option 1, Life Income with Installments Guaranteed or annuity option 2, Joint
and Survivor Annuity (See "Annuity Period -- Annuity Options"), no Annuity
Charge applies and 100% of Contract Value is applied.
If a Contract Owner elects annuity option 3, Income for a Specified Period,
and if Purchase Payments were made in the Contract Year in which annuity
payments are to begin or any of the four preceding Contract Years, an Annuity
Charge may apply. This Annuity Charge equals the Withdrawal Charge that would
apply if the Contract were being surrendered. Further, no Annuity Charge will be
assessed if annuity option 3 is elected by a Beneficiary under the Death
Benefit.
The Annuity Charge also applies to certain annuitizations of Contract
Values allocated to the General Account.
DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES
While the Company is not currently maintaining a provision for taxes, the
Company has reserved the right to establish such a provision for taxes in the
future if it determines in its sole discretion, that it will incur a tax as a
result of the operation of the Separate Account. The Company will deduct for any
taxes incurred by it as a result of the operation of the Separate Account
whether or not there was a provision for taxes and whether or not it was
sufficient. (See "Taxes").
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<PAGE> 16
OTHER EXPENSES
There are other deductions from and expenses paid out of the assets of the
Trust which are described in the accompanying Trust Prospectus.
REDUCTION OF CHARGES FOR SALES TO CERTAIN GROUPS
The Company may reduce the charges on individual Contracts sold to certain
groups of individuals, or to a trustee, employer or other entity representing a
group, where it is expected that such sales will result in savings of sales or
administrative expenses. The Company determines the eligibility of groups for
such reduced charges, and the amount of such reductions for particular groups,
by considering the following factors: (1) the size of the group; (2) the total
amount of Purchase Payments expected to be received from the group; (3) the
nature of the group for which the Contracts are purchased, and the persistency
expected in that group; (4) the purpose for which the Contracts are purchased
and whether that purpose makes it likely that expenses will be reduced; and (5)
any other circumstances which the Company believes to be relevant to determining
whether reduced sales or administrative expenses may be expected. None of the
reductions in charges for group sales is contractually guaranteed. Such
reductions may be withdrawn or modified by the Company on a uniform basis. The
Company's reductions in charges for group sales will not be unfairly
discriminatory to the interests of any Contract Owners.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
TRANSFER DURING ACCUMULATION PERIOD
During the Accumulation Period, the Contract Owner, or his or her agent,
may transfer Contract Values among Divisions and/or the General Account, by
written request or by telephone authorization pursuant to a duly executed
Telephone Transfer Authorization Form delivered to the Company at its
Administrative Service Center, if applicable law permits. The Company has in
place procedures which are designed to provide reasonable assurance that
telephone authorizations are genuine, including tape recording all telephone
communications and requesting identifying information. Accordingly, the Company
and its affiliates disclaim all liability for any claim, loss or expense
resulting from any alleged error or mistake in connection with a telephone
transfer which was not properly authorized by the Contract Owner. However, if
the Company fails to employ reasonable procedures to ensure that all telephone
transfers are properly authorized, the Company may be held liable for such
losses. The Company reserves the right to modify or discontinue at any time and
without notice the use of telephone transfers and acceptance of telephone
transfer instructions from someone other than the Contract Owner. Telephone
calls authorizing transfers must be completed by 4:00 p.m. Eastern time in order
to effect the transfer the day of receipt. All other transfers will be processed
on the next business day.
Transactions effecting transfer may not be made more than fifteen times in
any Contract Year without charge. A charge of $25 per transaction is assessed
against any transaction effecting transfer in excess of the fifteen permitted
without charge in any Contract Year or, if all or part of a Contract Owner's
interest in a Division is transferred to another Division, within 30 days of the
Issue Date. Transfers made under the Dollar Cost Averaging Program, described
below, are counted against this limitation in the same manner as other
transfers. The fee will be deducted from Contract Values which remain in the
Division from which the transfer was made. If the remaining Contract Value is
insufficient to pay the transfer fee, then the fee will be deducted from
transferred Contract Values. The transfer fee is at cost with no margin included
for profit. The transfer fee may be waived, under certain circumstances, in
connection with pre-approved transfer programs. Contract Owners are not
permitted to transfer amounts allocated or transferred to the Target '98
Division from that Division more frequently than once every 30 days.
This transfer privilege may be suspended, modified or terminated at any
time without notice. (See "Taxes -- Diversification").
The minimum partial transfer amount is $500. No partial transfer may be
made if the value of the Contract Owner's interest in the Division from which a
transfer is being made would be less than $500 after the transfer. As with
initial Purchase Payments, at least $500 must be allocated to a Division before
another Division is selected. These dollar amounts are subject to change at the
Company's option. The Company may waive the minimum partial transfer amount in
connection with pre-authorized automatic transfer programs.
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<PAGE> 17
Any amounts allocated or transferred to the General Account may only be
transferred from the General Account once each Contract Year during the 30-day
period following the anniversary of such allocation or transfer. If a transfer
request is received prior to the anniversary of an allocation or transfer, then
the transfer will take effect on the next Valuation Date following the
anniversary if the anniversary is not a Valuation Date. If the Company receives
the transfer request within the 30 days following the anniversary of an
allocation or transfer to the General Account the transfer will be effective on
the next following Valuation Date. The foregoing limitations may be waived in
connection with pre-authorized automatic transfer programs.
AUTOMATIC DOLLAR COST AVERAGING PROGRAM
Contract Owners who wish to purchase units of the Separate Accounts over a
period of time may be able to do so through the Dollar Cost Averaging ("DCA")
Program. Under this DCA Program, a Contract Owner may authorize the automatic
transfer of a fixed dollar amount ($100 minimum) or percentage of his or her
choice at regular intervals from either the Money Market Portfolio, Government
and Quality Bond Portfolio or the General Account to one or more of the Separate
Accounts (other than the Money Market Portfolio or the Government and Quality
Bond Portfolio) at the unit values determined on the dates of the transfers. The
intervals between transfers from the Money Market Portfolio or Government and
Quality Bond Portfolio may be monthly, quarterly, semi-annually or annually, at
the option of the Contract Owner. Transfers from the General Account must be
made by percentage and at quarterly intervals only and are limited to 8% of the
value of the Contract Owner's interest in the General Account in any Contract
Year. The theory of dollar cost averaging is that greater numbers of units are
purchased at times when the unit prices are relatively low than are purchased
when the prices are higher. This has the effect of reducing the aggregate
average cost per unit to less than the average of the unit prices on the same
purchase dates. However, participation in the DCA Program does not assure the
Contract Owner of a greater profit, or any profit, from his or her purchases
under the DCA Program; nor will it prevent or necessarily alleviate losses in a
declining market.
Although the various options under the DCA Program will allow transfers to
be made either from the Money Market Portfolio, Government and Quality Bond
Portfolio or the General Account, a Contract Owner must elect to have the
transfers made exclusively from one or the other of these three sources. A
Contract Owner may elect to increase, decrease or change the frequency or amount
of Purchase Payments under a DCA Program. The application and any Purchase
Payments should be sent to the Company at the address set forth on the first
page for correspondence accompanied by payments. The Company reserves the right
to modify, suspend or terminate the DCA Program at any time.
A Contract Owner may not simultaneously participate in both the DCA Program
and the Systematic Withdrawal Program. Participation in the DCA Program will be
effective one week after the Company has received and approved the application
to participate in the DCA Program.
MODIFICATION OF THE CONTRACT
Only the Company's President or Secretary may approve a change or waive the
provisions of the Contract. Any change or waiver must be in writing. No agent
has the authority to change or waive the provisions of the Contract.
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. The Company will not be bound by any assignment until written
notice is received by the Company, c/o its Administrative Service Center. The
Company is not responsible for the validity, tax or other legal consequences of
any assignment. An assignment will not affect any payments the Company may make
or actions it may take before it receives 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, CONTRACT OWNERS SHOULD
CONSULT COMPETENT TAX ADVISERS SHOULD THEY WISH TO ASSIGN THEIR CONTRACTS.
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<PAGE> 18
DEATH OF OWNER OF NON-QUALIFIED CONTRACT
The following section applies only if the Contract is issued on a
Non-Qualified basis and if either of the two following conditions exists:
(A) The Owner and the Annuitant are the same individual and that
individual dies during the Accumulation Period; or
(B) The Owner and Annuitant are different persons and the Owner dies
during the Accumulation Period prior to the Annuitant's death.
If either of the above conditions occurs, the following provisions apply:
(1) If the Beneficiary is the spouse of the Owner, then the
Beneficiary may elect to become the Owner and maintain the Contract in full
force and effect. A spouse Beneficiary may alternatively choose to take a
lump sum distribution. (See below).
(2) If the Beneficiary is a natural person and not the spouse of the
Owner, the Beneficiary can elect to have the existing Contract Value paid
under one of the annuity options set forth in the Contract over a period
not extending beyond the life expectancy of the Beneficiary at the time of
the election, or such a Beneficiary can elect to take a lump sum
distribution. (See below). Payments under any annuity option selected must
begin not later than one year after the date of death of the Owner.
(3) If there is no Beneficiary or if the Beneficiary is not a natural
person, then the entire Contract Value must be paid out within five years
of the Owner's death.
The amount of a lump sum distribution is the greater of:
(1) the current Contract Value at the time of election; or
(2) the total amount of Purchase Payments made under the Contract less
the aggregate dollar amount of any partial withdrawals and any Withdrawal
Charges which were assessed at the time of withdrawal. Under this
alternative election, the lump sum must be paid to the Beneficiary within
five years of the Owner's death.
If the Contract is issued pursuant to a Qualified Plan, similar provisions
will apply upon the death of the Contract Owner. Purchasers acquiring Contracts
pursuant to Qualified Plans should consult a qualified pension or tax adviser.
DEATH BENEFIT
If the Annuitant dies during the Accumulation Period, a Death Benefit will
be payable to the Beneficiary upon receipt by the Company of Due Proof of Death
of the Annuitant.
The Death Benefit is equal to the greater of:
(1) the Contract Value at the end of the Valuation Period during which
Due Proof of Death and an election of the type of payment to be made to the
Beneficiary is received by the Company, c/o its Administrative Service
Center; or
(2) the total amount of Purchase Payments minus the amount of partial
withdrawals and/or partial annuitizations and applicable contract charges;
or
(3) after the fifth Contract Year, the Contract Value at the last
anniversary of the Issue Date of the Contract minus the total amount of any
partial withdrawals and/or partial annuitizations made since that
anniversary.
Payment of the Death Benefit may be made in one lump sum or applied under
one of the annuity options.
BENEFICIARY
The Contract Owner may designate the Beneficiary(ies) to receive any amount
payable on death. However, where a Contract is jointly owned, each joint Owner
shall be a primary Beneficiary. The original Beneficiary(ies) will be named in
the application. Unless an irrevocable Beneficiary(ies) designation was
previously filed or unless the Contract is jointly owned, the Contract Owner may
change the Beneficiary(ies) prior to the Annuity Date by written request
delivered to the Company, c/o its Administrative Service Center, or by
completing a Change of Beneficiary
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Form provided by the Company. Any change will take effect when recorded by the
Company. The Company is not liable for any payment made or action taken before
it records the change.
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ANNUITY PERIOD
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ANNUITY DATE
The Contract Owner selects an Annuity Date (the date on which annuity
payments are to begin) at the time of application. The Annuity Date must always
be the first day of a calendar month and must be at least one month after the
Issue Date. Annuity payments will begin no later than the first day of the
calendar month following the Annuitant's 85th birthday. Where joint Annuitants
are named, the Annuity Date may not be later than the first of the month
following the 85th birthday of the youngest Annuitant. The Contract Owner may
change the Annuity Date at any time at least seven days prior to the Annuity
Date then indicated on the Company's records by written notice to the Company,
c/o its Administrative Service Center.
The actual dollar amount of variable annuity payments is dependent upon:
(1) the Contract Value at the time of annuitization; (2) the annuity table
specified in the Contract; (3) the annuity option selected; and (4) the
investment performance of the Divisions selected. In addition, if annuity option
3, Income for a Specified Period, is elected, an Annuity Charge may apply. (See
"Contract Charges -- Sales Charges" and "Contract Charges -- Annuity Charge").
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, annuity payments will
decrease. If a higher assumed investment rate were used, the initial payment
would be higher, but the actual net investment rate would have to be higher in
order for annuity payments to increase.
The Annuitant receives the value of a fixed number of Annuity Units each
month. The value of a fixed number of Annuity Units will reflect the investment
performance of the Divisions elected, and the amount of each annuity payment
will vary accordingly.
ALLOCATION OF ANNUITY PAYMENTS
If all of the Contract Value on the seventh calendar day before the Annuity
Date is allocated to the General Account, the Annuity will be paid as a fixed
annuity. If all of the Contract Value on that date is allocated to the Separate
Account, the Annuity will be paid as a Variable Annuity. If the Contract Value
on that date is allocated to both the General Account and the Separate Account,
the Annuity will be paid as a combination of a fixed annuity and a Variable
Annuity to reflect the allocation between the Accounts. Variable Annuity
payments will reflect the investment performance of the Separate Account
Divisions. The payee(s) may, by written notice to the Company, convert Variable
Annuity payments to fixed annuity Payments. However, fixed annuity Payments may
not be converted to Variable Annuity payments.
ANNUITY OPTIONS
The Contract Owner, or any Beneficiary who is so entitled, may elect to
receive a lump sum at the end of the Accumulation Period. However, a lump sum
distribution may be deemed to be a withdrawal, and at least a portion of it may
be subject to federal income tax. (See "Taxes -- Tax Treatment of
Withdrawals -- Non-Qualified Contracts" and "Tax Treatment of
Withdrawals -- Qualified Contracts"). Alternatively, an annuity option may be
elected. The Contract Owner may elect an annuity option or change an annuity
option at any time during the lifetime of the Annuitant prior to the Annuity
Date. The Annuitant may make the election on the Annuity Date unless the
Contract Owner has restricted the right to make such an election. The
Beneficiary may elect an annuity option upon the Annuitant's death unless the
Contract Owner has restricted this right.
If no other annuity option is elected, monthly annuity payments will be
made in accordance with annuity option 1 below with a 10 year period certain.
Generally, annuity payments will be made in monthly installments. However, if
the amount available to apply under an annuity option is less than $2,000, the
Company has the right to pay the annuity in one lump sum. In addition, if the
first payment provided would be less than $20, the Company shall have the right
to change the frequency of payments to be at quarterly, semi-annual or annual
intervals so as to result in an initial payment of at least $20.
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Contract Owners may elect to have annuity payments electronically wired to
his or her financial institution by completing the instructions on the
Electronic Fund Transfer Form or by written request delivered to the Company at
its Administrative Service Center. A voided check (for checking accounts), the
account number and bank ABA number must accompany all requests. Electronic
transfers may also be requested on the Annuity Option Selection Form. The
Company reserves the right to modify, suspend or terminate the availability of
electronic fund transfers at any time.
The following annuity options are generally available under the Contract.
However, there may be restrictions in the retirement plan pursuant to which a
Contract issued on a qualified basis has been purchased.
OPTION 1 -- LIFE INCOME WITH INSTALLMENTS GUARANTEED
An annuity payable monthly during the lifetime of the payee. Upon election
a guaranteed payment period of either 10 years or 20 years may be chosen. If the
payee dies before the end of the guaranteed period, the present value, based on
a 5% annual interest rate, of any remaining guaranteed payments will be paid to
the payee's estate or to the Beneficiary.
OPTION 2 -- JOINT AND SURVIVOR ANNUITY
An annuity payable monthly while both payees are living. Upon the death of
either payee, the monthly income payable will continue during the lifetime of
the surviving payee at the percentage of the full amount chosen at the time of
election of this annuity option. This is the automatic form of annuity where
joint Annuitants are named, but a different option may be elected.
Annuity payments terminate automatically and immediately upon the death of
the surviving payee without regard to the number or total amount of payments
received.
There is no minimum number of guaranteed payments and it is possible to
have only one annuity payment if both payees die before the due date of the
second payment.
No Annuity Charge applies if either option 1 or option 2 is elected.
OPTION 3 -- INCOME FOR A SPECIFIED PERIOD
If Purchase Payments were made in the Contract Year in which annuity
payments are to begin or in any of the four preceding Contract Years, an Annuity
Charge may apply. The Annuity Charge equals the Withdrawal Charge that would
apply if the Contract were being surrendered. No Annuity Charge will be assessed
if annuity option 3 is elected by a Beneficiary under the Death Benefit.
Under this option, a payee can elect an annuity payable monthly for any
period of years from 5 to 30. This election must be made for full 12 month
periods. In the event the payee dies before the specified number of payments has
been made, the Beneficiary may elect to continue receiving the scheduled
payments or may alternatively elect to receive the present value, based on a 5%
annual interest rate, of any remaining guaranteed payments. Because Contract
Values are redeemable even after the Annuity Date under this option at any time
while payments are being made, the payee may elect to receive the present value
of the remaining payments, commuted at the interest rate used to create the
annuity factor for this option.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. (See "Contract Charges --
Mortality and Expense Risk Charge"). Since annuity option 3, Income for a
Specified Period, does not contain an element of mortality risk, the payee is
not getting the benefit of this Charge. There shall be no right to terminate the
Contract during the Annuity Period if the option elected contains an element of
mortality risk.
OTHER OPTIONS
At the sole discretion of the Company, other annuity options may be made
available to the Contract Owner. However, to the extent that Withdrawal Charges
would otherwise apply to a withdrawal or termination, the identical Withdrawal
Charge may apply with respect to any additional options.
With respect to Contracts issued under Sections 401, 403(b) or 408 of the
Code, any payments will be made only to the Annuitant and the Annuitant's
spouse.
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TRANSFER DURING ANNUITY PERIOD
During the Annuity Period, the payee has the sole right to transfer the
Contract Value to the General Account and/or among Separate Account Division(s)
by written request to the Company. The following limitations apply:
(1) No transfer to a Separate Account Division may be made during the
first year of the Annuity Period. Thereafter, only one transfer per
Division is permitted during each Contract Year of the Annuity Period.
(2) The entire value in a Separate Account Division must be
transferred.
(3) The request for transfer must be received by the Company, c/o its
Administrative Service Center, during the 45 days preceding the anniversary
of the Contract's Issue Date. The transfer will be effected at the next
Annuity Unit value calculation after receipt of a valid transfer request
which meets the limitations and conditions as are prescribed for transfers
during the Accumulation Period. (See "Transfer During Accumulation
Period").
(4) The amount allocated to the General Account in the event of a
transfer from a Separate Account Division will be equal to the annuity
reserve for the payee's interest in that Separate Account Division. The
annuity reserve is the product of "(A)" multiplied by "(B)" multiplied by
"(C)", where "(A)" is the number of Annuity Units representing the payee's
interest in the Separate Account Division per annuity payment; "(B)" is the
Annuity Unit value for the Separate Account Division; and "(C)" is the
present value of $1.00 per payment period as of the adjusted age of the
payee attained at the time of transfer, determined by using the 1983 Table
A, projected at Scale G with interest at the rate of 5% per annum. Amounts
transferred to the General Account will be applied under the annuity option
originally elected, except that adjustment will be made for the time
elapsed since the Annuity Date. All amounts and Annuity Unit values will be
determined as of the end of the Valuation Period preceding the effective
date of transfer.
(5) The transfer privilege may be suspended or discontinued at any
time.
DEATH BENEFIT DURING ANNUITY PERIOD
If the payee dies after the Annuity Date while the Contract is in force,
the death proceeds, if any, will depend upon the annuity option in effect at the
time of the payee's death. If the Owner or Annuitant, if different, dies after
the Annuity Date and before the entire interest in the Contract has been
distributed, the remaining interest, if any, as provided for in the annuity
option elected will be distributed at least as rapidly as under the method of
distribution in effect at the Owner's or Annuitant's death.
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PURCHASES AND CONTRACT VALUE
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MINIMUM PURCHASE PAYMENT
The minimum initial Purchase Payment for Contracts issued pursuant to a
Non-Qualified Plan is $1,000. Minimum additional Purchase Payments may be made
in amounts of $500. The minimum Purchase Payment for a Contract issued pursuant
to a Qualified Plan is $100. A minimum of $500 must be allocated to one Division
or the General Account before transfers are permitted. (See "Description of the
Contracts -- Transfer During Accumulation Period"). The Company reserves the
right to refuse any Purchase Payment at any time.
MAXIMUM PURCHASE PAYMENT
Purchase Payments of more than $1,000,000 require prior Company approval.
ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments are allocated to the General Account and/or the
Division(s) of the Separate Account selected by the Contract Owner. The current
General Account allocation option pays a fixed rate of interest declared by the
Company for one year from the date amounts are allocated to it. The Company, at
its discretion, may offer other General Account allocation options which are
subject to different terms and conditions than apply to the current option.
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Contract Owners making initial Purchase Payments should be sure to specify
their allocations on the application for a Contract. If the application is in
good order, the Company will apply the initial Purchase Payment to the General
Account and the selected Division(s), and credit the Contract with Accumulation
Units within two business days of receipt at the P.O. Box for the Company's
Administrative Service Center. The number of Accumulation Units in a Division
attributable to a Purchase Payment is determined by dividing that portion of the
Purchase Payment which is allocated to the Division by the Division's
Accumulation Unit value during the Valuation Period when the allocation occurs.
IF THE APPLICATION DOES NOT SPECIFY AN ALLOCATION, THE APPLICATION IS NOT
IN GOOD ORDER.
If the application for a Contract is not in good order, the Company will
attempt to rectify it within five business days of its receipt at the P.O. Box
for the Company's Administrative Service Center. The Company will credit the
initial Purchase Payment within two business days after the application has been
rectified. Unless the Contract Owner consents otherwise, the application and the
initial Purchase Payment will be returned if the application cannot be put in
good order within five business days of its receipt.
Just like Contract Owners making initial Purchase Payments, Contract Owners
making subsequent Purchase Payments should be sure to specify how they want
their payments allocated. OTHERWISE, THE COMPANY WILL AUTOMATICALLY PROCESS THE
PURCHASE PAYMENT BASED ON THE PREVIOUS ALLOCATION.
A Contract Owner may elect to increase, decrease or change the frequency or
amount of Purchase Payments. The application and any Purchase Payments should be
sent to the Company at its Administrative Service Center.
ACCUMULATION UNIT VALUE
Accumulation Unit value is determined Monday through Friday (except for the
following Federal holidays) as of 4:00 p.m. New York time.
<TABLE>
<S> <C>
New Year's Day Independence Day
President's Day Labor Day
Good Friday Thanksgiving
Memorial Day Christmas Day
</TABLE>
A separate Accumulation Unit value is determined for each Division. If the
Company elects or is required to assess a charge for taxes, a separate
Accumulation Unit value may be calculated for Non-Qualified and Qualified
Contracts within each Division.
The net assets are determined by calculating the total value of each
Division's assets (that is, the aggregate value of the shares of the Portfolio
of the Trust held by the Division). After calculation of the net assets of a
Division, that amount is reduced by the accrued but unpaid daily charge for
mortality and expense risks and administration expense (which together amount to
1.40% per annum) and any provision for taxes which may occur. After that
calculation, the resulting number is then divided by the number of Accumulation
Units outstanding at the end of the Valuation Period to determine Accumulation
Unit value.
The Accumulation Unit value for each Division will vary with the price of a
share in the underlying Portfolio and in accordance with the Mortality and
Expense Risk Charge, Administrative Expense Charge, and any provision for taxes.
Assessments of Withdrawal Charges and Records Maintenance Charges are made
separately for each Contract. They do not affect Accumulation Unit value.
DISTRIBUTION OF CONTRACTS
The Contracts are only available in the State of New York.
Contracts are sold by registered representatives of broker-dealers who are
licensed insurance agents of the Company, either individually or through an
incorporated insurance agency. Commissions paid to registered representatives
may vary, but in the aggregate are not anticipated to exceed 5% of any Purchase
Payment.
SunAmerica Capital Services, Inc., located at 733 Third Avenue, New York,
New York 10017 serves as distributor of the Contracts. SunAmerica Capital
Services, Inc., an indirect wholly owned subsidiary of SunAmerica 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.
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WITHDRAWALS (REDEMPTIONS)
Except as explained below, the Contract Owner may redeem a Contract for all
or a portion of the Contract Value during the Accumulation Period. The Contract
Owner may also redeem Contract Values after the Annuity Date if annuity option 3
is elected. Withdrawal Charges may be assessed. (See "Contract Charges --
Withdrawal Charge").
Effective January 1, 1989, withdrawals of amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in
Section 403(b)(11) of the Code) are limited to circumstances only: when the
Contract Owner attains age 59 1/2, separates from service, dies, becomes
disabled (within the meaning of Section 72(m)(7) of the Code), or in the case of
hardship. Withdrawals for hardship are restricted to the portion of the Contract
Owner's Contract Value which represents contributions made by the Contract Owner
and does not include any investment results. These limitations on withdrawals
apply to: (1) salary reduction contributions made after December 31, 1988; (2)
income attributable to such contributions; and (3) income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers or exchanges between certain Qualified Plans. Tax penalties may
also apply. (See "Taxes -- Tax Sheltered Annuities -- Withdrawal Limitations").
While the foregoing limitations only apply to certain contracts issued in
connection with 403(b) Qualified Plans, all Contract Owners should seek
competent tax advice regarding any withdrawals or distributions.
Except in connection with the Systematic Withdrawal Program, the minimum
partial withdrawal amount is $500, or the Owner's entire interest in the
Division from which a withdrawal is requested. The Owner's interest in the
Division from which the withdrawal is requested must be at least $500 after the
withdrawal is completed if anything is left in that Division.
A written withdrawal request or Systematic Withdrawal Program enrollment
form, as the case may be, must be sent to the Company, c/o its Administrative
Service Center. The required form will not be in good order unless it includes
the Contract Owner's Tax I.D. Number (e.g., Social Security Number) and provides
instructions regarding withholding of income taxes. The Company provides the
required forms.
If the request is for total withdrawal, the Contract or a Lost Contract
Affidavit (which may be obtained by calling the Company's Administrative Service
Center) must be submitted as well. The Withdrawal Value is determined on the
basis of the Accumulation Unit values next computed following receipt of a
request in proper order. The Withdrawal Value will be paid within seven days
after the day a proper request is received by the Company. However, the Company
may suspend the right of withdrawal or delay payment more than seven days: (1)
during any period when the New York Stock Exchange is closed (other than
customary weekend and holiday closings); (2) when trading on the markets the
Separate Account or Portfolios normally utilize is restricted or an emergency
exists as determined by the Securities and Exchange Commission so that disposal
of the Separate Account's or a Portfolio's investments or determination of
Accumulation Unit value is not reasonably practicable; or (3) for such other
periods as the Securities and Exchange Commission, by order, may permit for
protection of Contract Owners.
SYSTEMATIC WITHDRAWAL PROGRAM
Certain Participants of Nonqualified Plan Contracts and Contracts issued in
connection with IRAs may choose to withdraw amounts which in the aggregate add
up to a maximum of 10% of their Purchase Payments annually pursuant to a
Systematic Withdrawal Program without charge. Withdrawals are taxable and a 10%
federal tax penalty may apply to withdrawals before age 59 1/2. Participants
must complete an enrollment form which describes the program and send it to the
Company, c/o its Administrative Service Center. Participation in the Systematic
Withdrawal Program may be elected at the time the Contract is issued or on any
date prior to the Annuity Date. Depending on fluctuations in the net asset value
of the Portfolios, systematic withdrawals may reduce or even exhaust Contract
Value. The minimum systematic withdrawal amount is $250 per withdrawal.
Amounts withdrawn under to the Systematic Withdrawal Program may be
electronically wired to the Contract Owner's financial institution by completing
the instructions on the Electronic Fund Transfer Form or by written request
delivered to the Company at its Administrative Service Center. A voided check
(for checking accounts), the account number and bank ABA number must accompany
all requests. Electronic transfers may also be requested on the Systematic
Withdrawal Request Form. The Company reserves the right to modify, suspend or
terminate the Systematic Withdrawal Progam and the availability of electronic
fund transfers at any time.
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ERISA PLANS
Spousal consent may be required when a married Contract Owner seeks a
distribution from a Contract that has been issued in connection with a Qualified
Plan or a Non-Qualified Plan that is subject to Title I of ERISA. Owners should
obtain competent advice.
MINIMUM CONTRACT VALUE
If the Contract Value is less than $500 and no Purchase Payments have been
made during the previous three full calendar years, the Company reserves the
right, after 60 days written notice to the Owner, to terminate the Contract and
distribute the Withdrawal Value to the Owner. This privilege will be exercised
only if the Contract Value has been reduced to less than $500 as a result of
withdrawals. In no instance shall such termination occur if the value has fallen
below $500 due to either decline in Accumulation Unit value or the imposition of
fees and charges.
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ADMINISTRATION
- --------------------------------------------------------------------------------
The Company has primary responsibility for all administration of the
Contracts and the Separate Account. Its Administrative Service Center is located
at P.O. Box 54299, Los Angeles, California 90054-0299 and its telephone number
is (800) 99-NYSUN.
The administrative services provided include, but are not limited to:
issuance of the Contracts; maintenance of Contract Owner records; Contract Owner
services; calculation of unit values; and preparation of Contract Owner reports.
Contract statements and transaction confirmations are mailed to Contract
Owners at least quarterly. Contract Owners should read their statements
carefully and verify their accuracy. Questions about periodic statements should
be communicated to the Company promptly. The Company will investigate all
complaints and make any necessary adjustments retroactively, provided that it
has received notice of a potential error within 30 days after the date the
Contract Owner receives the questioned statement. If the Company has not
received notice of a potential error within this time, any adjustment shall be
made as of the date that the Administrative Service Center receives notice of
the potential error.
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TAXES
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NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING
OF CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE
COMPANY CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE
MADE. PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE
POSSIBILITY OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF
THE CONTRACTS. PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE
TREATED AS "ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS.
GENERAL
Section 72 of the Code governs taxation of annuities in general. A Contract
Owner is not taxed on increases in the value of a Contract until distribution
occurs, either in the form of a lump sum payment or as annuity payments under
the annuity option elected. For a lump sum payment received as a total surrender
(total redemption), the recipient is taxed on the portion of the payment that
exceeds the cost basis of the Contract. For a payment received as a withdrawal
(partial redemption), federal tax liability is determined on a last-in-first-out
basis, meaning taxable income is withdrawn before the cost basis of the Contract
is withdrawn. For Non-Qualified Contracts, the cost basis is generally the
Purchase Payments, while for Qualified Contracts 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 annuity 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 annuity payments for the term of the annuity Contract. The taxable
portion is taxed at ordinary income tax rates. For certain types of Qualified
Plans there may be no cost basis in the
23
<PAGE> 25
Contract within the meaning of Section 72 of the Code. Contract 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 Contract Owner. Withholding
on other types of distributions can be waived.
An "eligible rollover distribution" is the estimated taxable portion of any
amount received by a covered employee from a plan qualified under section 401(a)
or 403(a) of the Code, or from a tax-sheltered annuity qualified under section
403(b) of the Code (other than (1) annuity payments for the life (or life
expectancy) of the employee, or joint lives (or joint life expectancies) of the
employee and his or her designated Beneficiary, or for a specified period of ten
years or more; and (2) distributions required to be made under the Code).
Failure to "roll over" the entire amount of an eligible rollover distribution
(including an amount equal to the 20% portion of the distribution that was
withheld) could have adverse tax consequences, including the imposition of a
penalty tax on premature withdrawals, described later in this section.
Withdrawals or distributions from a Contract other than eligible rollover
distributions are also subject to withholding on the estimated taxable portion
of the distribution, but the Contract Owner may elect in such cases to waive the
withholding requirement. If not waived, withholding is imposed (1) for periodic
payments, at the rate that would be imposed if the payments were wages, or (2)
for other distributions, at the rate of 10%. If no withholding exemption
certificate is in effect for the payee, the rate under (1) above is computed by
treating the payee as a married individual claiming 3 withholding exemptions.
DIVERSIFICATION
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
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the close of each 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."
The Company intends that each Portfolio of the Trust underlying the
Contracts will be managed by the investment adviser for the Trust in such a
manner as to comply with these diversification requirements.
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<PAGE> 26
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 combination of 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. Contract 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 be a taxable event and may be prohibited by
ERISA in some circumstances. Contract Owners should therefore consult competent
tax advisers should they wish to assign their Contracts.
TAX TREATMENT OF WITHDRAWALS -- NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate Purchase
Payments made, any amount withdrawn not in form of an annuity payment will be
treated as coming first from the earnings and then, only after the income
portion is exhausted, as coming from the principal. Withdrawn earnings are
includible in a taxpayer's gross income. Section 72 further provides that a 10%
penalty will apply to the income portion of any premature distribution. The
penalty is not imposed on amounts received: (1) after the taxpayer reaches
59 1/2; (2) upon the death of the Contract Owner; (3) if the taxpayer is totally
disabled; (4) in a series of substantially equal periodic payments made for the
life of the taxpayer or for the joint lives of the taxpayer and his Beneficiary;
(5) under an immediate annuity; or (6) which are allocable to purchase payments
made prior to August 14, 1982.
The above information applies to Qualified Contracts issued pursuant to
Section 457 of the Code, but does not apply to other Qualified Contracts.
Separate tax withdrawal penalties and restrictions apply to Qualified Contracts.
(See "Tax Treatment of Withdrawals -- Qualified Contracts").
QUALIFIED PLANS
The Contracts offered by this Prospectus are designed to be suitable for
use under various types of Qualified Plans. Taxation of participants in each
Qualified Plan varies with the type of plan and the terms and conditions of each
specific plan. Contract 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 informational 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. (See "Tax
Treatment of Withdrawals -- 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 participants may
vary depending upon the particular plan design. However, the Code places
limitations and restrictions on all plans on such items as: amounts of
allowable contributions; form, manner and timing of distributions; vesting
and nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. (See "Tax Treatment of
25
<PAGE> 27
Withdrawals -- Qualified Contracts"). 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, educational and
scientific organizations described in Section 501(c)(3) of the Code. These
qualifying employers may make contributions to the Contracts for the
benefit of their employees. Such contributions are not includible in the
gross income of the employee until the employee receives distributions from
the Contract. The amount of contributions to the tax-sheltered annuity is
limited to certain maximums imposed by the Code. Furthermore, the Code sets
forth additional restrictions governing such items as transferability,
distributions, nondiscrimination and withdrawals. (See "Tax Treatment of
Withdrawals -- Qualified Contracts"). 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. (See "Tax Treatment of
Withdrawals -- Qualified Contracts"). Under certain conditions,
distributions from other IRAs and other Qualified Plans may be rolled over
or transferred on a tax-deferred basis into an IRA. 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) 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 participants 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. (See "Tax Treatment of
Withdrawals -- Qualified Contracts"). 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.
TAX TREATMENT OF WITHDRAWALS -- QUALIFIED CONTRACTS
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion
of any early distribution from qualified retirement plans, including contracts
issued and qualified under Code Sections 401 (H.R. 10 and Corporate Pension and
Profit Sharing Plans), 403(b) (Tax-Sheltered Annuities) and 408(b) (IRAs).
The tax penalty will not apply to the following distributions: (1) if
distribution is made on or after the date on which the Contract Owner or
Annuitant (as applicable) reaches age 59 1/2; (2) distributions following the
death or disability of the Contract Owner or Annuitant (as applicable) (for this
purpose "disability" is defined in Section 72(m)(7) of the Code); (3)
distributions that are part of substantially equal periodic payments made not
less frequently than annually for the life (or life expectancy) of the Contract
Owner or Annuitant (as applicable) or the joint lives (or joint life
expectancies) of such Contract Owner or Annuitant (as applicable) and his or her
designated Beneficiary; (4) distributions to a Contract Owner or Annuitant (as
applicable) who has separated from service after he or she has attained age 55;
(5) distributions made to the Contract Owner or Annuitant (as applicable) to the
extent such distributions do not exceed the amount allowable as a deduction
under Code Section 213 to the Contract Owner or Annuitant (as applicable) for
amounts paid during the taxable year for medical care; and (6) distributions
made to an alternate payee pursuant to a qualified domestic relations order.
The exceptions stated in items (4), (5) and (6) above do not apply in the
case of an IRA.
26
<PAGE> 28
The taxable portion of a withdrawal or distribution from Contracts issued
under certain types of plans may, under some circumstances, be "rolled over"
into another eligible plan so as to continue to defer income tax on the taxable
portion. Effective January 1, 1993, such treatment is available for any
"eligible rollover distribution" made by certain types of plans (as described
above under "Taxes -- Withholding Tax on Distributions") that is transferred
within 60 days of receipt into a plan qualified under section 401(a) or 403(a)
of the Code, a tax-sheltered annuity, an IRA, or an individual retirement
account described in section 408(a) of the Code. Plans making such eligible
rollover distributions are also required, with some exceptions specified in the
Code, to provide for a direct "trustee to trustee" transfer of the distribution
to the transferee plan designated by the recipient.
TAX SHELTERED ANNUITIES -- WITHDRAWAL LIMITATIONS
The Tax Reform Act of 1986, effective January 1, 1989, limits the
withdrawal of amounts attributed to contributions made pursuant to a salary
reduction agreement (as defined in Section 403(b)(11) of the Code) to
circumstances only: when the Contract Owner attains age 59 1/2, separates from
service, dies, becomes disabled (within the meaning of Section 72(m)(7) of the
Code), or in the case of hardship. Withdrawals for hardship are restricted to
the portion of the Contract Owner's Contract Value which represents
contributions by the Contract Owner and does not include any investment results.
These limitations on withdrawals apply only to salary reduction contributions
made after December 31, 1988, to income attributable to such contributions, and
to income attributable to amounts held as of December 31, 1988. The limitations
on withdrawals do not affect rollovers or exchanges between certain Qualified
Plans. Contract Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
DEFERRED COMPENSATION PLANS -- SECTION 457
Under Section 457 of the Code, governmental and certain other tax exempt
employers may establish deferred compensation plans for the benefit of their
employees 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 a
participant or a beneficiary.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no legal proceedings to which the Separate Account is a party or
to which the assets of the Separate Account are subject. The Company is engaged
in various kinds of routine litigation that in the Company's judgment will not
have a material adverse impact upon the Company's financial position.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ITEM PAGE
----
<S> <C>
COMPANY................................................................................... 1
INDEPENDENT ACCOUNTANTS................................................................... 1
DISTRIBUTOR............................................................................... 1
PERFORMANCE DATA.......................................................................... 1
Money Market Division................................................................... 2
Other Divisions......................................................................... 3
ANNUITY PAYMENTS.......................................................................... 4
Annuity Unit Value...................................................................... 4
Amount of Annuity Payments.............................................................. 5
Subsequent Monthly Payments............................................................. 5
FINANCIAL STATEMENTS...................................................................... 5
</TABLE>
27
<PAGE> 29
Please forward a copy (without charge) of the Statement of Additional
Information concerning ICAP II Variable Annuity Contracts issued by First
SunAmerica Life Insurance Company to:
(Please print or type and fill in all information.)
- ------------------------------------------------------------------------------
Name
- ------------------------------------------------------------------------------
Address
- ------------------------------------------------------------------------------
City/State/Zip
- ------------------------------------------------------------------------------
Date: ________________________ Signed: _____________________________________
Return to: First SunAmerica Life Insurance Company, Annuity Service Center, P.O.
Box 54299, Los Angeles, California 90054-0299.
<PAGE> 30
Filed pursuant to Rule 497(c)
of the Securities Act of 1933
File Nos. 33-39888 and 811-6313
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ANNUITY ACCOUNT ONE
of
FIRST SUNAMERICA LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL
INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS WHICH ARE
REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A
PROSPECTIVE INVESTOR OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE
PROSPECTUS DATED JANUARY 28, 1997, AS IT MAY BE SUPPLEMENTED, CALL OR WRITE THE
COMPANY AT P.O. BOX 54299, LOS ANGELES, CALIFORNIA 90054-0299, OR BY CALLING
(800) 99-NYSUN.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED
JANUARY 28, 1997
<PAGE> 31
TABLE OF CONTENTS
Item Page
Company.......................................................1
Independent Accountants.......................................1
Distributor...................................................1
Performance Data..............................................1
Money Market Division......................................2
Other Divisions............................................3
Annuity Payments..............................................4
Annuity Unit Value.........................................4
Amount of Annuity Payments.................................5
Subsequent Monthly Payments................................5
Financial Statements..........................................5
<PAGE> 32
COMPANY
Information regarding First SunAmerica Life Insurance Company (the
"Company") and its ownership is contained in the Prospectus.
INDEPENDENT ACCOUNTANTS
The financial statements of the Company as of September 30, 1996 and
1995 and for each of the three years in the period ended September 30, 1996 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 obligation under the Contracts. The financial statements of
the Separate Account as of December 31, 1995 and for each of the two years in
the period ended December 31, 1995, also are included in this Statement of
Additional Information.
Price Waterhouse 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
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
DISTRIBUTOR
The Contracts are sold by licensed insurance agents, where the
Contracts may be lawfully sold, who are registered representatives of
broker-dealers which are registered under the Securities Exchange Act of 1934
and are members of the National Association of Securities Dealers, Inc.
The offering is on a continuous basis.
Effective January 28, 1994, the Contracts are offered through the
distributor for the Separate Account, SunAmerica Capital Services, Inc., 733
Third Avenue, 4th Floor, New York, New York 10017, which is an indirect wholly
owned subsidiary of SunAmerica Inc. Prior to this time, Royal Alliance
Associates, Inc. and SunAmerica Securities, Inc., both affiliates of SunAmerica
Capital Services, Inc. and located at 733 Third Avenue, 4th Floor, New York, New
York 10017 and 2201 East Camelback Road, Phoenix, Arizona 85016, respectively,
served as co-distributors of the Contracts. Royal Alliance Associates, Inc. and
SunAmerica Capital Services, Inc. are each an indirect, wholly-owned subsidiary
of SunAmerica Inc.
For the year ended December 31, 1993, the aggregate amount of
underwriting commissions paid by the Company to Royal Alliance Associates, Inc.
and SunAmerica Securities, Inc. was $428,906, of which $101,137 was retained by
them. For the year ended December 31, 1994, the aggregate amount of underwriting
commissions paid by the Company to SunAmerica Capital Services, Inc. was
$248,222, of which $25,262 was retained by them. For the year ended December 31,
1995, the aggregate amount of underwriting commissions paid by the Company to
SunAmerica Capital Services, Inc. was $23,437, of which $2,329 was retained by
them.
PERFORMANCE DATA
Performance data for the various Divisions of the Separate Account are
determined in the manner described below.
1
<PAGE> 33
Money Market Division
- ---------------------
The annualized current yield and the effective yield for the Money
Market Division for the seven day period ended December 31, 1995 were 3.70% and
3.77%, respectively.
Current yield is computed by first determining the Base Period Return
attributable to a hypothetical Contract having a balance of one Accumulation
Unit at the beginning of a 7 day period using the formula:
Base Period Return = (EV-SV-RMC)/(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
RMC= an allocated portion of the $30 annual Records
Maintenance Charge, prorated for 7 days.
The change in the value of an Accumulation Unit during the 7 day period
reflects the income received, minus any expenses accrued, during such 7 day
period. The Records Maintenance Charge (RMC) is first allocated among the
Divisions and the General Account so that each Division's allocated portion of
the charge is proportional to the percentage of the number of Contract Owners'
accounts that have money allocated to that Division. The portion of the Charge
allocable to the Money Market Division 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 Money Market Division. 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.
Since the Separate Account was first offered to the public, the
performance of the Money Market Division (and other Divisions) has been computed
on the basis of assumptions about the average account size and the allocation of
contract charges among the various Divisions. These assumptions are based on the
actual experience of another separate account offered for sale in states other
than New York that is used to fund variable annuity contracts that are similar
in all material respects to the Contracts. That separate account, like the
Separate Account, invests in the various Portfolios of the Trust. The Separate
Account will substitute the data derived from its own experience at the earliest
practicable date after such data is judged by the Company to be statistically
reliable. The performance data obtained using these assumptions may be higher or
lower than would have been obtained using different values for allocation and
account size.
The current yield is then obtained by annualizing the Base Period
Return:
Current Yield = (Base Period Return) x (365/7)
The Money Market Division 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 Money Market Division. 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
2
<PAGE> 34
current yield according to the formula:
365/7
Effective Yield = [(Base Period Return+1) -1].
Net investment income for yield quotation purposes will not include
either realized capital gains and losses or unrealized appreciation and
depreciation, whether reinvested or not. The yield quotations also do not
reflect any impact of transfer fees or Withdrawal or Annuity Charges.
The yields quoted should not be considered a representation of the
yield of the Money Market Division 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 Money Market Division 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
Money Market Division and for providing a basis for comparison with other
investment alternatives. However, the Money Market Division's yield fluctuates,
unlike bank deposits or other investments that typically pay a fixed yield for a
stated period of time.
Other Divisions
- ---------------
Divisions of the Separate Account other than the Money Market Division
compute their performance data as "total return." The total returns of the
various Divisions over the last one, five and ten year periods, and since their
inception, are shown below, both with and without an assumed complete redemption
at the end of the period.
TOTAL ANNUAL RETURN (IN PERCENT) FOR PERIODS ENDING ON 12/31/96:
(Return With/Without Redemption)
<TABLE>
<CAPTION>
Inception Since
Division Date 1 Year 5 Years 10 Years** Inception
- -------- --------- ------ ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Foreign Securities 9/23/91 4.79/9.7 9 4.84/4.99 ---- 3.82/3.82
Capital Appreciation 9/23/91 18.33/23.33 18.01/18.10 ---- 19.71/19.71
Growth 9/23/91 18.29/23.29 9.60/9.72 11.60/11.60 11.82/11.82
Natural Resources 9/23/91 7.35/12.35 11.77/11.88 ---- 11.06/11.06
Growth and Income* 9/23/91 13.54/18.54 11.38/11.50 ---- 11.68/11.68
Strategic Multi-Asset 9/23/91 8.16/13.16 8.71/8.84 ---- 9.60/9.60
Multi-Asset 9/23/91 7.24/12.24 8.47/8.60 ---- 9.86/9.86
High Yield 9/23/91 5.07/10.07 9.73/9.85 7.20/7.20 10.11/10.11
Target '98 9/23/91 -2.80/2.20 4.64/4.79 ---- 6.00/6.00
Fixed Income 9/23/91 -4.04/0.96 4.64/4.79 5.99/5.99 5.59/5.59
Gov't and Quality Bond 9/23/91 -3.50/1.50 4.95/5.10 6.83/6.83 5.92/5.92
</TABLE>
- ----------
The total return figures are based on historical data and are not intended to
indicate future performance.
* Formerly the Convertible Securities Division.
** For periods starting prior to September 23, 1991, the date the Contracts were
first offered the public, the total return data is and will be initially derived
from the performance of the corresponding Portfolios of the Trust, modified to
reflect the same charges and expenses as if the Division had been in existence
since the inception date of each respective Portfolio. Thus, such performance
figures should not be construed to be actual historic performance of the
Separate Account. Rather, they are intended to indicate the historic performance
of the Trust, adjusted to provide direct comparability to the performance of the
Division since it was first offered to the public. The Trust has served since
its inception as an underlying investment medium for separate accounts of other
insurance companies having the same fee and charge schedules as those of the
Separate Account.
3
<PAGE> 35
These figures show the total return hypothetically experienced by
Contracts funded through the various Divisions of the Account over the time
period shown.
Total return for a Division 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 Division made at
the beginning of the period, will produce the same Contract Value at the end of
the period that the hypothetical investment would have produced over the same
period. The total rate of return (T) is computed so that it satisfies the
formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
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).
The total return figures given reflect the effects 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 Money Market Division, 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 figures given in
the table above for each Division and time period. Because the impact of Records
Maintenance Charges on a particular Contract Owner's account would generally
have differed from that assumed in the computation, due to differences between
most actual allocations and the assumed one, as well as differences due to
varying account sizes, the total return experienced by an actual account over
these same time periods would generally have been different from those given
above. As with the Money Market Division yield figures, total return figures are
derived from historical data and are not intended to be a projection of future
performance.
ANNUITY PAYMENTS
Annuity Unit Value
- ------------------
The value of an Annuity Unit is determined independently for each
Separate Account Division.
For each Division, the value of an Annuity Unit for any Valuation
Period is determined by multiplying the Annuity Unit value for the immediately
preceding Valuation Period by the net investment factor for the Valuation Period
for which the Annuity Unit Value is being calculated and multiplying the result
by an interest factor which offsets the effect of the investment earnings rate
of five percent (5%) per annum that is assumed in the annuity table contained in
the Contract.
The net investment factor for each Division for a Valuation Period is
determined by dividing (a) by (b) and subtracting (c) from the result where: (a)
is the value of an Accumulation Unit from the applicable Division as of the end
of the current Valuation Period; (b) is the value of an Accumulation
4
<PAGE> 36
Unit for the applicable Division as of the end of the immediately preceding
Valuation Period; and (c) is a factor representing the daily charge for
mortality and expense risks and administration of one and four-tenths
percent (1.40%) per annum.
Amount of Annuity Payments
- --------------------------
The initial annuity payment is determined by applying the Contract
Value, less any Annuity Charge (if annuity option 3 is elected), to the annuity
table specified in the Contract. Those tables are based on a set amount per
$1,000 of proceeds applied. The appropriate rate must be determined by the sex
and adjusted age of the Annuitant and joint Annuitant, if any. The adjusted age
is determined from the actual age to the nearest birthday at the Annuity Date
according to the table below. The Adjusted Age Table is used to correct for
population mortality improvements over time.
ADJUSTED AGE TABLE
<TABLE>
<CAPTION>
Adjustment Adjustment
Calendar to Actual Calendar to Actual
Year of Birth Age Year of Birth Age
- ------------- --------- ------------- ----------
<S> <C> <C> <C>
1899-1905 +6 1946-1951 -1
1906-1911 +5 1952-1958 -2
1912-1918 +4 1959-1965 -3
1919-1925 +3 1966-1972 -4
1926-1932 +2 1973-1979 -5
1933-1938 +1 1980-1985 -6
1939-1945 0 1986-1992 -7
</TABLE>
The dollars applied are then divided by 1,000 and multiplied by the
appropriate annuity factor to indicate the amount of the first annuity payment.
That amount is divided by the value of an Annuity Unit as of the Annuity Date to
establish the number of Annuity Units representing each annuity payment. The
number of Annuity Units determined for the first annuity payment remains
constant for the second and subsequent monthly payments.
Subsequent Monthly Payments
- ---------------------------
The amount of the second and subsequent annuity payments is determined
by multiplying the number of Annuity Units by the Annuity Unit value as of the
Valuation Period next preceding the date on which each annuity payment is due.
The dollar amount of the first annuity payment determined as above is divided by
the value of an Annuity Unit as of the Annuity Date to establish the number of
Annuity Units representing each annuity payment. The number of Annuity Units
determined for the first annuity payment remains constant for the second and
subsequent monthly payments.
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be
considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts. The financial statements of the Separate
Account are also included in this Statement of Additional Information.
5
<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
First SunAmerica Life Insurance Company
In our opinion, the accompanying balance sheet and the related income statement
and statement of cash flows present fairly, in all material respects, the
financial position of First SunAmerica Life Insurance Company at September 30,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," in fiscal 1994.
Price Waterhouse LLP
Los Angeles, California
November 8, 1996
6
<PAGE> 38
FIRST SUNAMERICA LIFE INSURANCE COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
-------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 6,707,000 $ 6,382,000
Bonds and notes:
Available for sale, at fair value
(amortized cost: 1996, $146,908,000;
1995, $109,217,000) 146,401,000 107,771,000
Held for investment, at amortized cost
(fair value: 1995, $2,289,000) --- 2,297,000
Mortgage loans --- 4,733,000
Common stocks, at fair value
(cost: 1996, $0; 1995, $112,000) 129,000 35,000
------------- -------------
Total investments 153,237,000 121,218,000
Variable annuity assets 68,901,000 32,760,000
Receivable from brokers for sales of securities --- 815,000
Accrued investment income 1,462,000 928,000
Deferred acquisition costs 12,127,000 6,491,000
Income taxes currently receivable 299,000 ---
Other assets 842,000 945,000
------------- -------------
TOTAL ASSETS $ 236,868,000 $ 163,157,000
============= =============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $ 140,613,000 $ 106,332,000
Payable to brokers for purchases of securities 1,939,000 ---
Income taxes currently payable --- 23,000
Other liabilities 845,000 1,980,000
------------- -------------
Total reserves, payables and
accrued liabilities 143,397,000 108,335,000
------------- -------------
Variable annuity liabilities 68,901,000 32,760,000
------------- -------------
Deferred income taxes 1,350,000 244,000
------------- -------------
Shareholder's equity:
Common Stock 3,000,000 3,000,000
Additional paid-in capital 14,428,000 14,428,000
Retained earnings 5,973,000 5,250,000
Net unrealized losses on debt and
equity securities available for sale (181,000) (860,000)
------------- -------------
Total shareholder's equity 23,220,000 21,818,000
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 236,868,000 $ 163,157,000
============= =============
</TABLE>
See accompanying notes
7
<PAGE> 39
FIRST SUNAMERICA LIFE INSURANCE COMPANY
INCOME STATEMENT
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------------------------------
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Investment income $ 9,957,000 $ 7,834,000 $ 5,527,000
------------- ------------ ------------
Interest expense on:
Fixed annuity contracts (7,155,000) (5,042,000) (3,635,000)
Senior indebtedness (4,000) (8,000) ---
------------- ------------ ------------
Total interest expense (7,159,000) (5,050,000) (3,635,000)
------------- ------------ ------------
NET INVESTMENT INCOME 2,798,000 2,784,000 1,892,000
------------- ------------ ------------
NET REALIZED INVESTMENT
GAINS (LOSSES) (539,000) (1,348,000) 445,000
------------- ------------ ------------
VARIABLE ANNUITY FEE INCOME 690,000 412,000 382,000
------------- ------------ ------------
Other income and expenses:
Surrender charges 221,000 194,000 367,000
General and administrative
expenses (1,404,000) (1,088,000) (1,040,000)
Amortization of deferred
acquisition costs (500,000) (300,000) ---
Annual commissions (19,000) (33,000) (30,000)
Other, net (76,000) 84,000 (279,000)
------------ ----------- ------------
TOTAL OTHER INCOME AND EXPENSES (1,778,000) (1,143,000) (982,000)
------------ ----------- ------------
PRETAX INCOME 1,171,000 705,000 1,737,000
Income tax expense (448,000) (182,000) (655,000)
------------ ----------- ------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING FOR
INCOME TAXES 723,000 523,000 1,082,000
Cumulative effect of change in
accounting for income taxes --- --- (725,000)
------------ ------------ ------------
NET INCOME $ 723,000 $ 523,000 $ 357,000
============ ============ ============
</TABLE>
See accompanying notes
8
<PAGE> 40
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 723,000 $ 523,000 $ 357,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Interest credited to fixed annuity
contracts 7,155,000 5,042,000 3,635,000
Net realized investment (gains)
losses 539,000 1,348,000 (445,000)
Accretion of net discounts on
investments (343,000) (394,000) (24,000)
Amortization of goodwill 58,000 58,000 58,000
Provision for deferred income taxes 740,000 333,000 1,388,000
Cumulative effect of change in
accounting for income taxes --- --- 725,000
Change in:
Deferred acquisition costs (5,736,000) (2,740,000) (1,011,000)
Income taxes receivable/payable (322,000) (418,000) (555,000)
Other, net (254,000) (323,000) (115,000)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 2,560,000 3,429,000 4,013,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds and notes (124,681,000) (125,130,000) (68,582,000)
Common stock --- (112,000) ---
Sales of bonds and notes 80,440,000 55,553,000 50,708,000
Redemptions and maturities of:
Bonds and notes 11,514,000 21,369,000 5,791,000
Mortgage loans 4,736,000 35,000 31,000
------------ ------------ ------------
Net cash used by investing activities (27,991,000) (48,285,000) (12,052,000)
------------ ------------ ------------
</TABLE>
9
<PAGE> 41
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------------
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on fixed annuity
contracts $ 45,417,000 $51,681,000 $ 7,840,000
Net exchanges to (from) the fixed
accounts of variable annuity contracts (4,719,000) (87,000) 572,000
Withdrawal payments on fixed annuity
contracts (9,850,000)(14,131,000) (10,504,000)
Claims and annuity payments on fixed
annuity contracts (3,752,000) (2,974,000) (3,194,000)
Net receipts from (repayments of)
other short-term financings (1,340,000) 1,964,000 (145,000)
------------ ----------- ------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 25,756,000 36,453,000 (5,431,000)
------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 325,000 (8,403,000) (13,470,000)
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 6,382,000 14,785,000 28,255,000
------------ ----------- ------------
CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD $ 6,707,000 $ 6,382,000 $ 14,785,000
============ =========== ============
Supplemental cash flow information:
Interest paid on indebtedness $ 4,000 $ 8,000 $ ---
============ =========== ============
Net income taxes paid (recovered) $ 30,000 $ 254,000 $ (178,000)
============ =========== ============
</TABLE>
See accompanying notes
10
<PAGE> 42
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
First SunAmerica Life Insurance Company (The "Company") is a New York-
domiciled life insurance company engaged primarily in the business of
writing fixed and variable annuity contracts in the state of New York.
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; strengths, weaknesses
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 risks. 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
held in separate accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying financial statements have been
prepared in accordance with generally accepted accounting principles and
include the accounts of the Company, an indirect wholly owned subsidiary
of SunAmerica Inc. (the "Parent"). Certain 1995 and 1994 amounts have
been reclassified to conform with the 1996 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the amounts reported in the financial statements
and the accompanying notes. Actual results could differ from those
estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS: Effective October 1, 1993, the
Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Accordingly, the
cumulative effect of this change in accounting for income taxes was
recorded on October 1, 1993 to increase the liability for Deferred Income
Taxes by $725,000.
11
<PAGE> 43
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INVESTMENTS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and
short-term bank participations. All such investments are carried at cost
plus accrued interest, which approximates fair value, have maturities of
three months or less and are considered cash equivalents for purposes of
reporting cash flows.
Bonds and notes 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 and
notes held for investment (the "Held for Investment Portfolio") are
carried at amortized cost. On December 1, 1995, the Company reassessed
the appropriateness of classifying a portion of its portfolio of bonds and
notes as held for investment. This reassessment was made pursuant to the
provisions of "Special Report: A Guide to Implementation of Statement 115
on Accounting for Certain Investments in Debt and Equity Securities,"
issued by the Financial Accounting Standards Board in November 1995. As
a result of its reassessment, the Company reclassified all of its Held for
Investment Portfolio as available for sale. At December 1, 1995, the
amortized cost of the Held for Investment Portfolio aggregated $2,296,000
and its fair value was $2,352,000. Upon reclassification, the resulting
net unrealized gain of $56,000 was credited to Net Unrealized Losses on
Debt and Equity Securities Available for Sale in the shareholder's equity
section of the balance sheet.
Bonds and notes 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.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined using the specific cost
identification method. Premiums and discounts on investments are
amortized to investment income using the interest method over the
contractual lives of the investments.
12
<PAGE> 44
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, over the estimated lives of the contracts in
relation to the present value of estimated gross profits, which are
composed of net interest income, net realized investment gains and losses,
variable annuity fees, surrender charges and direct administrative
expenses. Deferred acquisition costs 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 deferred acquisition costs equal to
the change in amortization that would have been recorded if such
securities had been sold at their stated aggregate fair value and the
proceeds reinvested at current yields. The change in this adjustment, net
of tax, is included with the change in net unrealized gains or losses on
debt and equity securities available for sale that is credited or charged
directly to shareholder's equity. Deferred Acquisition Costs have been
increased by $100,000 at September 30, 1996, and by $200,000 at September
30, 1995 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 Fee Income in the
income statement.
GOODWILL: Goodwill, amounting to $821,000 at September 30, 1996, is
amortized by using the straight-line method over a period of 25 years and
is included in Other Assets in the balance sheet.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
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).
VARIABLE ANNUITY FEE INCOME: Variable annuity fees are recorded in income
as earned.
13
<PAGE> 45
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES: The Company is included in the consolidated federal income
tax return of the Parent and files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Income taxes have been
calculated as if the Company filed a separate return. Deferred income tax
assets and liabilities are recognized based on the difference between
financial statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.
14
<PAGE> 46
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
3. INVESTMENTS
The amortized cost and estimated fair value of bonds and notes available
for sale and held for investment by major category follow:
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
------------- -------------
<S> <C> <C>
AT SEPTEMBER 30, 1996:
AVAILABLE FOR SALE:
Securities of the United States
Government $ 9,631,000 $ 9,562,000
Mortgage-backed securities 75,846,000 75,607,000
Securities of public utilities 1,032,000 971,000
Corporate bonds and notes 41,545,000 41,722,000
Other debt securities 18,854,000 18,539,000
------------- -------------
Total available for sale $ 146,908,000 $ 146,401,000
============= =============
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States
Government $ 37,693,000 $ 37,759,000
Mortgage-backed securities 60,558,000 60,367,000
Corporate bonds and notes 10,966,000 9,645,000
------------- -------------
Total available for sale $ 109,217,000 $ 107,771,000
============= =============
HELD FOR INVESTMENT:
Securities of the United States
Government $ 2,297,000 $ 2,289,000
============= =============
</TABLE>
15
<PAGE> 47
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (continued)
The amortized cost and estimated fair value of bonds and notes available
for sale by contractual maturity, as of September 30, 1996, follow:
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
------------- -------------
<S> <C> <C>
AVAILABLE FOR SALE:
Due in one year or less $ --- $ ---
Due after one year through five years 5,660,000 5,687,000
Due after five years through ten years 35,833,000 35,841,000
Due after ten years 29,569,000 29,266,000
Mortgage-backed securities 75,846,000 75,607,000
------------- -------------
Total available for sale $ 146,908,000 $ 146,401,000
============= =============
</TABLE>
Actual maturities of bonds and notes will differ from those shown above
due to prepayments and redemptions.
16
<PAGE> 48
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (continued)
Gross unrealized gains and losses on bonds and notes available for sale
and held for investment by major category follow:
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
gains losses
----------- ------------
<S> <C> <C>
AT SEPTEMBER 30, 1996:
AVAILABLE FOR SALE:
Securities of the United States
Government $ 55,000 $ (124,000)
Mortgage-backed securities 515,000 (754,000)
Securities of public utilities --- (61,000)
Corporate bonds and notes 749,000 (572,000)
Other debt securities 3,000 (318,000)
----------- ------------
Total available for sale $ 1,322,000 $ (1,829,000)
=========== ============
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States
Government $ 263,000 $ (197,000)
Mortgage-backed securities 257,000 (448,000)
Corporate bonds and notes 102,000 (1,423,000)
----------- ------------
Total available for sale $ 622,000 $ (2,068,000)
=========== ============
HELD FOR INVESTMENT:
Securities of the United States
Government $ 22,000 $ (30,000)
=========== ============
</TABLE>
At September 30, 1996, gross unrealized gains on equity securities
aggregated $129,000 and there were no unrealized losses. At September 30,
1995, gross unrealized gains aggregated $35,000 and gross unrealized
losses on equity securities aggregated $112,000.
17
<PAGE> 49
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (continued)
Gross realized investment gains and losses on sales of all types of
investments are as follows:
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
BONDS AND NOTES AVAILABLE
FOR SALE:
Realized gains $ 1,039,000 $ 423,000 $ 644,000
Realized losses (1,295,000) (1,771,000) (199,000)
EQUITIES:
Realized losses (112,000) --- ---
IMPAIRMENT WRITEDOWNS (171,000) --- ---
----------- ----------- -----------
Total net realized
investment gains/losses $ (539,000) $(1,348,000) $ 445,000
=========== =========== ===========
</TABLE>
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------------
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Short-term investments $ 390,000 $ 1,045,000 $ 685,000
Bonds and notes 9,186,000 6,291,000 4,341,000
Mortgage loans 381,000 498,000 501,000
----------- ------------ -----------
Total investment income $ 9,957,000 $ 7,834,000 $ 5,527,000
=========== ============ ===========
</TABLE>
Expenses incurred to manage the investment portfolio amounted to $121,000
for the year ended September 30, 1996, $125,000 for the year ended
September 30, 1995, and $102,000 for the year ended September 30, 1994 and
are included in General and Administrative Expenses in the income
statement.
18
<PAGE> 50
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (continued)
The carrying values of investments in any one entity or its affiliates
exceeding 10% of the Company's shareholder's equity at September 30, 1996
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Bonds and notes:
Lockheed Martin Corp. $ 4,063,000
Nabisco Inc. 3,901,000
PacificCorp 3,021,000
===========
</TABLE>
At September 30, 1996, bonds and notes included $9,895,000 (fair value,
$10,408,000) of bonds and notes not rated investment grade either Standard
& Poor's Corporation, Moody's Investors Service, Duff and Phelps Credit
Rating Co., Fitch Investor Service, Inc. or under National Association of
Insurance Commissioners' guidelines. The Company had no material
concentrations of non-investment-grade assets at September 30, 1996.
At September 30, 1996, the amortized cost of investments in default as to
the payment of principal or interest was $180,000 and the fair value was
$150,000, all of which are unsecured non-investment-grade bonds.
At September 30, 1996, $408,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory
requirements.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to reasonable
estimates of the fair value of only the Company's financial instruments.
The disclosures do not address the value of the Company's recognized and
unrecognized nonfinancial assets (including equity investments) 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
19
<PAGE> 51
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
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 AND NOTES: 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.
VARIABLE ANNUITY ASSETS: Variable annuity assets are carried at the
market value of the underlying securities.
RECEIVABLE FROM (PAYABLE TO) BROKERS FOR SALES (PURCHASES) OF SECURITIES:
Such obligations represent net transactions of a short-term nature for
which the carrying value is considered a reasonable estimate of fair
value.
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.
VARIABLE ANNUITY LIABILITIES: 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.
20
<PAGE> 52
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
The estimated fair values of the Company's financial instruments at
September 30, 1996 and 1995, compared with their respective carrying
values, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
value value
------------ -------------
<S> <C> <C>
1996:
ASSETS:
Cash and short-term investments $ 6,707,000 $ 6,707,000
Bonds and notes 146,401,000 146,401,000
Variable annuity assets 68,901,000 68,901,000
LIABILITIES:
Reserves for fixed annuity
contracts 140,613,000 134,479,000
Payable to brokers for purchases
of securities 1,939,000 1,939,000
Variable annuity liabilities 68,901,000 65,546,000
============ =============
1995:
ASSETS:
Cash and short-term investments $ 6,382,000 $ 6,382,000
Bonds and notes 110,068,000 110,060,000
Mortgage loans 4,733,000 4,733,000
Receivable from brokers for
sales of securities 815,000 815,000
Variable annuity assets 32,760,000 32,760,000
LIABILITIES:
Reserves for fixed annuity
contracts 106,332,000 102,782,000
Variable annuity liabilities 32,760,000 31,740,000
============ =============
</TABLE>
5. CONTINGENT LIABILITIES
From time to time, the Company is involved in various kinds of litigation
common to its business. When the Company becomes involved in litigation,
cases are typically in various stages of development and, based on reports
of counsel, management believes that provisions made for potential losses
relating to such litigation would be adequate and any further liabilities
and costs would not have a material adverse impact upon the Company's
financial position or results of operations.
21
<PAGE> 53
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
6. SHAREHOLDER'S EQUITY
The Company is authorized to issue 300 shares of its $10,000 par value
Common Stock. At September 30, 1996, 1995 and 1994, 300 shares are
outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
RETAINED EARNINGS:
Beginning balance $ 5,250,000 $ 4,727,000 $ 4,370,000
Net income 723,000 523,000 357,000
------------ ------------ ------------
Ending balance $ 5,973,000 $ 5,250,000 $ 4,727,000
============ ============ ============
NET UNREALIZED LOSSES
ON DEBT AND EQUITY SECURITIES
AVAILABLE FOR SALE:
Beginning balance $ (860,000)$ (2,340,000) $ 1,331,000
Change in net unrealized
gains/losses on debt
securities available
for sale 939,000 4,254,000 (7,621,000)
Change in net unrealized
gains/losses on equity
securities available
for sale 206,000 (77,000) (118,000)
Change in adjustment to
deferred acquisition costs (100,000) (1,900,000) 2,100,000
Tax effect of net changes (366,000) (797,000) 1,968,000
------------ ------------ ------------
Ending balance $ (181,000) $ (860,000) $ (2,340,000)
============ ============ ============
</TABLE>
For a life insurance company domiciled in the State of New York, no
dividend may be distributed to any shareholder unless notice of the
domestic insurer's intention to declare such dividend and the amount have
been filed with the Superintendent of Insurance not less than 30 days in
advance of such proposed declaration, or if the Superintendent disapproves
the distribution of the dividend within the 30-day period. No dividends
were paid in fiscal years 1996, 1995 or 1994.
22
<PAGE> 54
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
6. SHAREHOLDER'S EQUITY (continued)
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the nine months ended
September 30, 1996 was $191,000. The statutory net loss for the year
ended December 31, 1995 was $2,083,000 and the statutory net gain for the
year ended December 31, 1994 was $726,000. The Company's statutory
capital and surplus was $13,975,000 at September 30, 1996, $13,862,000 at
December 31, 1995 and $16,122,000 at December 31, 1994.
7. INCOME TAXES
The components of the provisions for income taxes on pretax income consist
of the following:
<TABLE>
<CAPTION>
Net realized
investment
gains (losses) Operations Total
-------------- ------------ -------------
<S> <C> <C> <C>
1996:
Currently payable $ (121,000) $ (171,000) $ (292,000)
Deferred (105,000) 845,000 740,000
-------------- ------------ -------------
Total income tax expense $ (226,000) $ 674,000 $ 448,000
============== ============ =============
1995:
Currently payable $ (592,000) $ 441,000 $ (151,000)
Deferred (28,000) 361,000 333,000
-------------- ------------ -------------
Total income tax expense $ (620,000) $ 802,000 $ 182,000
============== ============ =============
1994:
Currently payable $ 121,000 $ (854,000) $ (733,000)
Deferred 65,000 1,323,000 1,388,000
-------------- ------------ -------------
Total income tax expense $ 186,000 $ 469,000 $ 655,000
============== ============ =============
</TABLE>
23
<PAGE> 55
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
7. 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,
--------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Amount computed at statutory rate $ 410,000 $ 247,000 $ 608,000
Increases (decreases) resulting from:
Amortization of differences
between book and tax bases of
net assets acquired 20,000 20,000 10,000
State income taxes, net
of federal tax benefit 25,000 (86,000) 36,000
Other, net (7,000) 1,000 1,000
--------- --------- ---------
Total income tax expense $ 448,000 $ 182,000 $ 655,000
========= ========= =========
</TABLE>
24
<PAGE> 56
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
7. INCOME TAXES (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax reporting purposes.
The significant components of the liability for Deferred Income Taxes are
as follows:
<TABLE>
<CAPTION>
September 30,
-----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Investments $ 225,000 $ 142,000
Deferred acquisition costs 3,902,000 1,703,000
Other liabilities 84,000 66,000
------------- -------------
Total deferred tax liabilities 4,211,000 1,911,000
------------- -------------
Deferred tax assets:
Contractholder reserves (2,582,000) (1,125,000)
State income taxes (79,000) (79,000)
Net unrealized losses on certain
debt and equity securities (97,000) (463,000)
Other assets (103,000) ---
------------- -------------
Total deferred tax assets (2,861,000) (1,667,000)
------------- -------------
Deferred income taxes $ 1,350,000 $ 244,000
============= =============
</TABLE>
25
<PAGE> 57
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (continued)
8. RELATED PARTY MATTERS
The Company pays commissions to three affiliated companies, SunAmerica
Securities, Inc., Advantage Capital Corp. and Royal Alliance Associates,
Inc. These broker-dealers represent a significant portion of the
Company's business, amounting to approximately 44.1%, 14.8% and 26.5% of
premiums in 1996, 1995 and 1994, respectively. Commissions paid to these
broker-dealers totaled $2,646,000 in 1996, $761,000 in 1995, and $326,000
in 1994.
The Company paid occupancy and office services expenses to Royal Alliance
Associates, Inc. totaling $15,000 for the year ended September 30, 1996,
$113,000 for the year ended September 30, 1995 and $122,000 for the year
ended September 30, 1994.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from SunAmerica Financial, Inc.,
whose purpose is to provide services to the SunAmerica companies. Amounts
paid for such services totaled $2,097,000 for the year ended September 30,
1996, $722,000 for the year ended September 30, 1995 and $706,000 for the
year ended September 30, 1994.
26
<PAGE> 58
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1995
27
<PAGE> 59
REPORT OF INDEPENDENT ACCOUNTANTS
February 22, 1996
To the Board of Directors of First SunAmerica Life Insurance Company
and the Contractholders of its separate account,
Variable Annuity Account One
In our opinion, the accompanying statement of net assets, including the schedule
of portfolio investments, and the related statements of operations and of
changes in net assets present fairly, in all material respects, the financial
position of each of the Variable Accounts constituting Variable Annuity Account
One, a separate account of First SunAmerica Life Insurance Company (the
"Separate Account") at December 31, 1995, the results of their operations for
the year then ended, and the changes in their net assets for each of the two
years in the period then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Separate
Account's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1995 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
28
<PAGE> 60
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
December 31, 1995
<TABLE>
<CAPTION>
Foreign Capital Natural
Securities Appreciation Growth Resources
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $1,713,496 $3,776,883 $4,991,637 $401,080
Liabilities 0 0 0 0
-------------------------------------------------------
Net Assets $1,713,496 $3,776,883 $4,991,637 $401,080
=======================================================
Accumulation units outstanding 130,525 131,688 146,484 23,005
=======================================================
Unit value of accumulation units $ 13.13 $ 28.68 $ 34.08 $ 17.43
=======================================================
<CAPTION>
Convertible Strategic
Securities Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio
-------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $1,132,516 $1,025,215 $4,876,008
Liabilities 0 0 0
-----------------------------------------
Net Assets $1,132,516 $1,025,215 $4,876,008
=========================================
Accumulation units outstanding 59,120 55,855 241,450
=========================================
Unit value of accumulation units $ 19.16 $ 18.35 $ 20.19
=========================================
</TABLE>
See accompanying notes to financial statements.
29
<PAGE> 61
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
December 31, 1995
(Continued)
<TABLE>
<CAPTION>
Fixed Government and Money
High Yield Target '98 Income Quality Bond Market
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $1,365,890 $1,150,705 $919,948 $3,939,005 $490,312 $25,782,695
Liabilities 0 0 0 0 0 0
---------------------------------------------------------------------------------------
Net Assets $1,365,890 $1,150,705 $919,948 $3,939,005 $490,312 $25,782,695
=======================================================================================
Accumulation units outstanding 64,930 61,464 36,124 148,101 29,241
========================================================================
Unit value of accumulation units $ 21.03 $ 18.72 $ 25.46 $ 26.60 $ 16.77
========================================================================
</TABLE>
See accompanying notes to financial statements.
30
<PAGE> 62
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
Market Value Market
Variable Accounts Shares Per Share Value Cost
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign Securities Portfolio 145,034 $11.81 $ 1,713,496 $ 1,525,729
Capital Appreciation Portfolio 162,654 23.22 3,776,883 3,058,354
Growth Portfolio 256,260 19.48 4,991,637 5,201,598
Natural Resources Portfolio 26,525 15.12 401,080 369,253
Convertible Securities Portfolio 94,299 12.01 1,132,516 1,232,713
Strategic Multi-Asset Portfolio 87,042 11.78 1,025,215 1,106,324
Multi-Asset Portfolio 373,903 13.04 4,876,008 4,961,072
High Yield Portfolio 163,917 8.33 1,365,890 1,409,007
Target '98 Portfolio 91,016 12.64 1,150,705 1,217,935
Fixed Income Portfolio 64,990 14.16 919,948 926,508
Government and Quality Bond Portfolio 276,822 14.23 3,939,005 3,876,383
Money Market Portfolio 490,312 1.00 490,312 490,312
-----------------------------
$25,782,695 $25,375,188
=============================
</TABLE>
See accompanying notes to financial statements.
31
<PAGE> 63
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
December 31, 1995
<TABLE>
<CAPTION>
Foreign Capital Natural
Securities Appreciation Growth Resources
Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 10,170 $ 59,147 $ 798,843 $ 14,704
-----------------------------------------------------
Total investment income 10,170 59,147 798,843 14,704
-----------------------------------------------------
Expenses:
Mortality risk charge (16,317) (32,903) (44,745) (4,232)
Expense risk charge (6,345) (12,796) (17,401) (1,646)
Administrative expense charge (2,719) (5,484) (7,458) (705)
-----------------------------------------------------
Total expenses (25,381) (51,183) (69,604) (6,583)
-----------------------------------------------------
Net investment income (loss) (15,211) 7,964 729,239 8,121
-----------------------------------------------------
Realized gains (losses) from securities transactions:
Proceeds from shares sold 715,907 1,220,755 1,160,643 436,916
Cost of shares sold (686,697) (1,141,868) (1,193,045) (432,080)
-----------------------------------------------------
Net realized gains (losses) from securities transactions 29,210 78,887 (32,402) 4,836
-----------------------------------------------------
Net unrealized appreciation/depreciation of investments:
Beginning of period 12,517 (214,878) (609,105) (14,771)
End of period 187,767 718,529 (209,961) 31,827
-----------------------------------------------------
Change in net unrealized appreciation/depreciation
of investments 175,250 933,407 399,144 46,598
-----------------------------------------------------
Increase in net assets from operations $ 189,249 $ 1,020,258 $ 1,095,981 $ 59,555
=====================================================
<CAPTION>
Convertible Strategic
Securities Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio
------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 139,084 $ 169,930 $ 571,020
----------------------------------------
Total investment income 139,084 169,930 571,020
----------------------------------------
Expenses:
Mortality risk charge (10,689) (9,967) (45,173)
Expense risk charge (4,157) (3,876) (17,567)
Administrative expense charge ( 1,781) (1,661) (7,529)
----------------------------------------
Total expenses (16,627) (15,504) (70,269)
----------------------------------------
Net investment income (loss) 122,457 154,426 500,751
----------------------------------------
Realized gains (losses) from securities transactions:
Proceeds from shares sold 363,193 419,113 1,141,117
Cost of shares sold (403,714) (458,326) (1,181,092)
----------------------------------------
Net realized gains (losses) from securities transactions (40,521) (39,213) (39,975)
----------------------------------------
Net unrealized appreciation/depreciation of investments:
Beginning of period (182,244) (175,839) (669,542)
End of period (100,197) (81,109) (85,064)
----------------------------------------
Change in net unrealized appreciation/depreciation
of investments 82,047 94,730 584,478
----------------------------------------
Increase in net assets from operations $ 163,983 $ 209,943 $ 1,045,254
========================================
</TABLE>
See accompanying notes to financial statements.
32
<PAGE> 64
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
December 31, 1995
(Continued)
<TABLE>
<CAPTION>
Fixed
High Yield Target '98 Income
Portfolio Portfolio Portfolio
---------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 151,616 $ 107,672 $ 86,273
--------------------------------------
Total investment income 151,616 107,672 86,273
--------------------------------------
Expenses:
Mortality risk charge (12,446) (10,166) (10,470)
Expense risk charge (4,841) (3,954) (4,072)
Administrative expense charge (2,075) (1,694) (1,745)
--------------------------------------
Total expenses (19,362) (15,814) (16,287)
--------------------------------------
Net investment income (loss) 132,254 91,858 69,986
--------------------------------------
Realized gains (losses) from securities transactions:
Proceeds from shares sold 457,376 231,430 562,925
Cost of shares sold (480,304) (243,115) (576,312)
--------------------------------------
Net realized gains (losses from securities transactions (22,928) (11,685) (13,387)
--------------------------------------
Net unrealized appreciation/depreciation of investments:
Beginning of period (150,402) (123,511) (137,338)
End of period (43,117) (67,230) (6,560)
--------------------------------------
Change in net unrealized appreciation/depreciation
of investments 107,285 56,281 130,778
--------------------------------------
Increase in net assets from operations $ 216,611 $ 136,454 $ 187,377
======================================
<CAPTION>
Government and Money
Quality Bond Market
Portfolio Portfolio TOTAL
--------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 293,514 $ 42,859 $ 2,444,832
--------------------------------------------
Total investment income 293,514 42,859 2,444,832
--------------------------------------------
Expenses:
Mortality risk charge (36,168) (7,037) (240,313)
Expense risk charge (14,066) (2,737) (93,458)
Administrative expense charge (6,028) (1,173) (40,052)
--------------------------------------------
Total expenses (56,262) (10,947) (373,823)
--------------------------------------------
Net investment income (loss) 237,252 31,912 2,071,009
--------------------------------------------
Realized gains (losses) from securities transactions:
Proceeds from shares sold 1,114,817 1,815,197 9,639,389
Cost of shares sold (1,126,218) (1,815,197) (9,737,968)
--------------------------------------------
Net realized gains (losses from securities transactions (11,401) 0 (98,579)
--------------------------------------------
Net unrealized appreciation/depreciation of investments:
Beginning of period (368,605) 0 (2,633,718)
End of period 62,622 0 407,507
--------------------------------------------
Change in net unrealized appreciation/depreciation
of investments 431,227 0 3,041,225
--------------------------------------------
Increase in net assets from operations $ 657,078 $ 31,912 $ 5,013,655
============================================
</TABLE>
See accompanying notes to financial statements.
33
<PAGE> 65
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1995
<TABLE>
<CAPTION>
Foreign Capital Natural
Securities Appreciation Growth Resources
Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (15,211) $ 7,964 $ 729,239 $ 8,121
Net realized gains (losses) from securities transactions 29,210 78,887 (32,402) 4,836
Change in net unrealized appreciation/depreciation
of investments 175,250 933,407 399,144 46,598
------------------------------------------------------
Increase in net assets from operations 189,249 1,020,258 1,095,981 59,555
------------------------------------------------------
From capital transactions:
Net proceeds from units sold 23,722 108,878 95,285 20,164
Cost of units redeemed (381,388) (565,025) (730,635) (140,816)
Net transfers (74,677) (405,952) (143,399) (186,152)
------------------------------------------------------
Increase (decrease) in net assets from capital transactions (432,343) (862,099) (778,749) (306,804)
------------------------------------------------------
Increase (decrease) in net assets (243,094) 158,159 317,232 (247,249)
Net assets at beginning of period 1,956,590 3,618,724 4,674,405 648,329
------------------------------------------------------
Net assets at end of period $1,713,496 $3,776,883 $4,991,637 $ 401,080
======================================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 1,955 4,288 3,093 1,232
Units redeemed (30,745) (23,995) (22,813) (8,606)
Units transferred (6,153) (15,989) (4,655) (12,696)
------------------------------------------------------
Increase (decrease) in units outstanding (34,943) (35,696) (24,375) (20,070)
Beginning units 165,468 167,384 170,859 43,075
------------------------------------------------------
Ending units 130,525 131,688 146,484 23,005
======================================================
<CAPTION>
Convertible Strategic
Securities Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio
------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 122,457 $ 154,426 $ 500,751
Net realized gains (losses) from securities transactions (40,521) (39,213) (39,975)
Change in net unrealized appreciation/depreciation
of investments 82,047 94,730 584,478
-----------------------------------------
Increase in net assets from operations 163,983 209,943 1,045,254
-----------------------------------------
From capital transactions:
Net proceeds from units sold 24,270 19,142 70,884
Cost of units redeemed (233,872) (221,790) (882,866)
Net transfers 14,511 (158,795) (70,567)
-----------------------------------------
Increase (decrease) in net assets from capital transactions (195,091) (361,443) (882,549)
-----------------------------------------
Increase (decrease) in net assets (31,108) (151,500) 162,705
Net assets at beginning of period 1,163,624 1,176,715 4,713,303
-----------------------------------------
Net assets at end of period $1,132,516 $1,025,215 $4,876,008
=========================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 1,355 1,145 3,848
Units redeemed (12,863) (13,408) (46,193)
Units transferred 810 (9,498) (3,830)
-----------------------------------------
Increase (decrease) in units outstanding (10,698) (21,761) (46,175)
Beginning units 69,818 77,616 287,625
-----------------------------------------
Ending units 59,120 55,855 241,450
=========================================
</TABLE>
See accompanying notes to financial statements.
34
<PAGE> 66
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1995
(Continued)
<TABLE>
<CAPTION>
Fixed
High Yield Target '98 Income
Portfolio Portfolio Portfolio
--------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 132,254 $ 91,858 $ 69,986
Net realized gains (losses) from securities transactions (22,928) (11,685) (13,387)
Change in net unrealized appreciation/depreciation
of investments 107,285 56,281 130,778
Increase in net assets from operations 216,611 136,454 187,377
-------------------------------------------
From capital transactions:
Net proceeds from units sold 27,610 982 16,991
Cost of units redeemed (271,101) (141,382) (506,734)
Net transfers (53,225) 131,987 (609)
Increase (decrease) in net assets from capital transactions (296,716) (8,413) (490,352)
Increase (decrease) in net assets (80,105) 128,041 (302,975)
Net assets at beginning of period 1,445,995 1,022,664 1,222,923
-------------------------------------------
Net assets at end of period $1,365,890 $1,150,705 $ 919,948
===========================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 1,412 55 719
Units redeemed (14,247) (7,742) (20,999)
Units transferred (2,721) 7,418 (26)
Increase (decrease) in units outstanding (15,556) (269) (20,306)
Beginning units 80,486 61,733 56,430
-------------------------------------------
Ending units 64,930 61,464 36,124
===========================================
<CAPTION>
Government and Money
Quality Bond Market
Portfolio Portfolio TOTAL
---------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 237,252 $ 31,912 $ 2,071,009
Net realized gains (losses) from securities transactions (11,401) 0 (98,579)
Change in net unrealized appreciation/depreciation
of investments 431,227 0 3,041,225
Increase in net assets from operations 657,078 31,912 5,013,655
-----------------------------------------
From capital transactions:
Net proceeds from units sold 30,918 64,034 502,880
Cost of units redeemed (508,459) (1,013,590) (5,597,658)
Net transfers (228,308) 1,157,365 (17,821)
Increase (decrease) in net assets from capital transactions (705,849) 207,809 (5,112,599)
Increase (decrease) in net assets (48,771) 239,721 (98,944)
Net assets at beginning of period 3,987,776 250,591 25,881,639
-----------------------------------------
Net assets at end of period $3,939,005 $ 490,312 $25,782,695
=========================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 1,251 3,896
Units redeemed (20,400) (60,633)
Units transferred (9,240) 70,418
Increase (decrease) in units outstanding (28,389) 13,681
Beginning units 176,490 15,560
--------------------------
Ending units 148,101 29,241
==========================
</TABLE>
See accompanying notes to financial statements.
35
<PAGE> 67
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1994
<TABLE>
<CAPTION>
Foreign Capital Natural
Securities Appreciation Growth Resources
Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (21,630) $ 289,686 $ 643,820 $ 4,795
Net realized gains (losses) from securities transactions 52,615 (15,298) (7,721) (9,035)
Change in net unrealized appreciation/depreciation
of investments (117,117) (410,654) (935,873) (54,055)
------------------------------------------------------
Increase (decrease) in net assets from operations (86,132) (136,266) (299,774) (58,295)
------------------------------------------------------
From capital transactions:
Net proceeds from units sold 360,284 813,413 463,119 109,642
Cost of units redeemed (349,607) (311,100) (408,535) (75,020)
Net transfers 669,012 720,106 (293,686) 366,592
------------------------------------------------------
Increase (decrease) in net assets from capital transactions 679,689 1,222,419 (239,102) 401,214
------------------------------------------------------
Increase (decrease) in net assets 593,557 1,086,153 (538,876) 342,919
Net assets at beginning of period 1,363,033 2,532,571 5,213,281 305,410
------------------------------------------------------
Net assets at end of period $1,956,590 $3,618,724 $4,674,405 $648,329
======================================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 29,519 37,502 17,005 7,128
Units redeemed (28,644) (14,264) (14,649) (4,877)
Units transferred 54,548 33,017 (10,531) 20,609
------------------------------------------------------
Increase (decrease) in units outstanding 55,423 56,255 (8,176) 22,860
Beginning units 110,045 111,129 179,035 20,215
------------------------------------------------------
Ending units 165,468 167,384 170,859 43,075
======================================================
<CAPTION>
Convertible Strategic
Securities Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio
------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 136,151 $ 199,099 $ 615,173
Net realized gains (losses) from securities transactions 6,265 (14,872) (32,600)
Change in net unrealized appreciation/depreciation
of investments (279,414) (217,725) (730,558)
------------------------------------------
Increase (decrease) in net assets from operations (136,998) (33,498) (147,985)
------------------------------------------
From capital transactions:
Net proceeds from units sold 216,123 319,023 415,941
Cost of units redeemed (46,688) (93,253) (477,590)
Net transfers 38,391 472,921 (329,122)
------------------------------------------
Increase (decrease) in net assets from capital transactions 207,826 698,691 (390,771)
------------------------------------------
Increase (decrease) in net assets 70,828 665,193 (538,756)
Net assets at beginning of period 1,092,796 511,522 5,252,059
------------------------------------------
Net assets at end of period $1,163,624 $1,176,715 $4,713,303
==========================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 11,858 20,678 25,212
Units redeemed (2,626) (6,044) (28,317)
Units transferred 2,159 30,574 (19,950)
------------------------------------------
Increase (decrease) in units outstanding 11,391 45,207 (23,054)
Beginning units 58,427 32,409 310,679
------------------------------------------
Ending units 69,818 77,616 287,625
==========================================
</TABLE>
See accompanying notes to financial statements.
36
<PAGE> 68
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1994
(Continued)
<TABLE>
<CAPTION>
Fixed
High Yield Target '98 Income
Portfolio Portfolio Portfolio
-----------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 154,049 $ 71,527 $ 90,911
Net realized gains (losses) from securities transactions 156 (3,503) (23,339)
Change in net unrealized appreciation/depreciation
of investments (233,340) (121,027) (131,187)
----------------------------------------
Increase (decrease) in net assets from operations (79,135) (53,003) (63,615)
----------------------------------------
From capital transactions:
Net proceeds from units sold 393,437 152,035 201,189
Cost of units redeemed (60,784) (16,591) (45,485)
Net transfers (10,686) 31,989 (376,330)
----------------------------------------
Increase (decrease) in net assets from capital transactions 321,967 167,433 (220,626)
----------------------------------------
Increase (decrease) in net assets 242,832 114,430 (284,241)
Net assets at beginning of period 1,203,163 908,234 1,507,164
----------------------------------------
Net assets at end of period $1,445,995 $1,022,664 $1,222,923
========================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 21,290 8,987 9,149
Units redeemed (3,313) (980) (2,068)
Units transferred (582) 1,890 (17,012)
----------------------------------------
Increase (decrease) in units outstanding 17,395 9,897 (9,932)
Beginning units 63,091 51,836 66,362
----------------------------------------
Ending units 80,486 61,733 56,430
========================================
<CAPTION>
Government and Money
Quality Bond Market
Portfolio Portfolio TOTAL
---------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 241,487 $ 14,678 $ 2,439,746
Net realized gains (losses) from securities transactions (106,865) 0 (154,197)
Change in net unrealized appreciation/depreciation
of investments (357,727) 0 (3,588,677)
------------------------------------------
Increase (decrease) in net assets from operations (223,105) 14,678 (1,303,128)
------------------------------------------
From capital transactions:
Net proceeds from units sold 568,879 563,854 4,576,939
Cost of units redeemed (471,685) (623,416) (2,979,754)
Net transfers (1,020,818) (1,007,854) (739,485)
------------------------------------------
Increase (decrease) in net assets from capital transactions (923,624) (1,067,416) 857,700
------------------------------------------
Increase (decrease) in net assets (1,146,729) (1,052,738) (445,428)
Net assets at beginning of period 5,134,505 1,303,329 26,327,067
------------------------------------------
Net assets at end of period $ 3,987,776 $ 250,591 $25,881,639
==========================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 24,914 35,512
Units redeemed (20,657) (39,264)
Units transferred (45,022) (63,588)
---------------------------
Increase (decrease) in units outstanding (40,765) (67,339)
Beginning units 217,255 82,899
---------------------------
Ending units 176,490 15,560
===========================
</TABLE>
See accompanying notes to financial statements.
37
<PAGE> 69
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Annuity Account One of First SunAmerica Life Insurance Company
(the "Separate Account") is a segregated investment account of First
SunAmerica Life Insurance Company (the "Company"). The Company is an
indirect, wholly owned subsidiary of SunAmerica Inc. The Separate
Account is registered as a segregated unit investment trust pursuant to
the provisions of the Investment Company Act of 1940, as amended.
The Separate Account is composed of twelve variable portfolios (the
"Variable Accounts"). Each of the Variable Accounts is invested solely
in the shares of one of the twelve currently available investment
portfolios of the Anchor Series Trust (the "Trust"). The Trust is a
diversified, open-end, affiliated investment company, which retains an
investment advisor to assist in the investment activities of the Trust.
The contractholder may elect to have payments allocated to a
guaranteed- interest fund of the Company (the "General Account"), which
is not a part of the Separate Account. The financial statements include
balances allocated by the contractholder to the twelve Variable
Accounts and do not include balances allocated to the General Account.
The investment objectives and policies of the twelve portfolios of the
Trust are summarized below:
FOREIGN SECURITIES PORTFOLIO seeks long-term capital appreciation. This
portfolio invests primarily in a diversified group of equity securities
issued by foreign companies and primarily denominated in foreign
currencies.
CAPITAL APPRECIATION PORTFOLIO seeks long-term capital appreciation.
This portfolio invests in growth equity securities which are widely
diversified by industry and company and may engage in transactions
involving stock index futures and options thereon as a hedge against
changes in market conditions.
GROWTH PORTFOLIO seeks long-term capital appreciation. This portfolio
invests in growth equity securities and may engage in transactions
involving stock index futures and options thereon as a hedge against
changes in market conditions.
38
<PAGE> 70
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
NATURAL RESOURCES PORTFOLIO seeks a total return in excess of the U.S.
rate of inflation as represented by the Consumer Price Index. This
portfolio invests primarily in equity securities of U.S. or foreign
companies which are expected to provide favorable returns in periods of
rising inflation. This portfolio may also engage in transactions
involving stock index futures contracts and options thereon, and
transactions involving the future delivery of fixed-income securities
("Financial Futures Contracts") and options thereon as a hedge against
changes in market conditions.
CONVERTIBLE SECURITIES PORTFOLIO seeks to provide high current income
and long-term capital appreciation. This portfolio invests primarily in
a variety of securities convertible into common stock which are issued
by publicly held corporations. This portfolio may also engage in
transactions involving Financial Futures Contracts and options thereon
as a hedge against changes in market conditions.
STRATEGIC MULTI-ASSET PORTFOLIO seeks high long-term total investment
return. This portfolio invests in growth equity securities, aggressive
growth equity securities, investment grade bonds, high-yield, high-risk
bonds, international equity securities and money market instruments.
This portfolio may also engage in transactions involving stock index
futures contracts and options thereon, and Financial Futures Contracts
and options thereon as a hedge against changes in market conditions.
MULTI-ASSET PORTFOLIO seeks long-term total investment return
consistent with moderate investment risk. This portfolio invests in
growth equity securities, convertible securities, investment grade
fixed-income securities and money market securities. This portfolio may
also engage in transactions involving stock index futures contracts and
options thereon, and Financial Futures Contracts and options thereon as
a hedge against changes in market conditions.
HIGH YIELD PORTFOLIO seeks high current income. A secondary investment
objective is capital appreciation. This portfolio invests at least 65%
of its assets in high-yielding, high-risk, income-producing corporate
bonds, which generally carry ratings lower than those assigned to
investment grade bonds by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Corporation ("S&P"), or which are unrated. This
portfolio may also engage in transactions involving Financial Futures
Contracts and options thereon as a hedge against changes in market
conditions.
39
<PAGE> 71
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
TARGET '98 PORTFOLIO seeks a predictable compounded investment return
for the specified time period, consistent with preservation of capital.
This portfolio invests primarily in zero coupon securities and current,
interest-bearing, investment grade debt obligations which are issued by
the U.S. Government, its agencies and instrumentalities, and both
domestic and foreign corporations.
FIXED INCOME PORTFOLIO seeks a high level of current income consistent
with preservation of capital. This portfolio invests primarily in
investment grade, fixed- income securities and may engage in Financial
Futures Contracts and options thereon as a hedge against changes in
market conditions.
GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current
income, liquidity and security of principal. This portfolio invests in
obligations issued, guaranteed or insured by the U.S. Government, its
agencies or instrumentalities and in corporate debt securities rated Aa
or better by Moody's or AA or better by S&P.
MONEY MARKET PORTFOLIO seeks current income consistent with stability
of principal through investment in a diversified portfolio of money
market instruments maturing in 397 days or less. The portfolio will
maintain a dollar-weighted average portfolio maturity of not more than
90 days.
Investments in the variable portfolios of the Trust are valued at the
net asset value of the shares of the designated portfolio of the Trust.
Securities transactions are valued on the date the securities are
purchased or sold. Dividends and capital gains distributions are
recorded when received. Realized gains and losses on the sale of
investments in the Trust are recognized at the date of sale and are
determined on an average cost basis.
Accumulation unit values are computed daily based on the total net
assets of the Variable Accounts.
40
<PAGE> 72
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS
Charges and deductions are applied against the current value of the
Separate Account and are paid as follows:
WITHDRAWAL CHARGE: The contract value may be withdrawn at any time
during the accumulation period. There is a free withdrawal amount for
the first withdrawal during a contract year after the first contract
year. The free withdrawal amount is equal to 10% of aggregate purchase
payments that have not previously been withdrawn. Should a withdrawal
exceed the free withdrawal amount, a withdrawal charge, in certain
circumstances, is imposed and paid to the Company.
Withdrawal charges vary in amount depending upon the contract year in
which the purchase payment being withdrawn was made. The withdrawal
charge is deducted from the remaining contract value so that the actual
reduction in contract value as a result of the withdrawal will be
greater than the withdrawal amount requested and paid. For purposes of
determining the withdrawal charge, withdrawals will be allocated to
purchase payments on a first-in, first-out basis so that all
withdrawals are allocated to purchase payments to which the lowest (if
any) withdrawal charge applies.
Any amount withdrawn which exceeds a free withdrawal may be subject to
a withdrawal charge in accordance with the withdrawal charge table
shown below:
<TABLE>
<CAPTION>
Contribution Applicable Withdrawal
Year Charge Percentage
-------------- ----------------------
<S> <C>
First 5%
Second 4%
Third 3%
Fourth 2%
Fifth 1%
Sixth and later 0%
</TABLE>
41
<PAGE> 73
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS (continued)
ANNUITY CHARGE: Contractholders may elect a lump sum payment or one of
three annuity options. Option 1 provides a life income with
installments guaranteed, Option 2 provides a joint and survivor
annuity, and Option 3 provides income for a specified period. No
annuity charge is assessed if Option 1 or Option 2 is elected. If a
contractholder elects Option 3, an annuity charge equal to the
withdrawal charge if the contract were surrendered may be applied. No
annuity charge will be assessed if Option 3 is elected by a beneficiary
under the death benefit.
RECORDS MAINTENANCE CHARGE: An annual records maintenance charge of $30
is charged against each contract, which reimburses the Company for
expenses incurred in establishing and maintaining records relating to a
contract. The records maintenance charge will be assessed each contract
year on the anniversary of the issue date of the contract. In the event
that a total surrender of contract value is made, the charge will be
assessed as of the date of surrender without proration.
TRANSFER FEE: A transfer fee of $25 per transaction is assessed on each
transfer of funds in excess of fifteen transactions within a contract
year or if a transfer is made within 30 days of the issue date of the
contract.
MORTALITY RISK CHARGE: The Company deducts a mortality risk charge as
compensation for the mortality risk assumed by virtue of its
contractual obligations to make annuity payments after the contract has
annuitized for the life of the annuitant, to waive the withdrawal
charge in the event of the death of the annuitant and to provide a
death benefit prior to annuitization. As compensation for this, the
Company deducts an amount, computed on a daily basis, which is equal to
an annual rate of 0.90% of the net asset value of each portfolio.
EXPENSE RISK CHARGE: The Company guarantees that the records
maintenance and administrative expense charges will not increase,
regardless of actual expenses. As compensation for this guarantee, the
Company deducts an amount, computed on a daily basis, which is equal to
an annual rate of 0.35% of the net asset value of each portfolio.
42
<PAGE> 74
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS (continued)
ADMINISTRATIVE EXPENSE CHARGE: The Company deducts an administrative
expense charge which is designed to compensate the Company for assuming
the risk that the administrative expenses will exceed the revenues from
the records maintenance charge. As compensation for assuming this risk,
the Company deducts an amount, computed on a daily basis, which is
equal to 0.15% of the net asset value of the each portfolio.
SEPARATE ACCOUNT INCOME TAXES: The Company currently does not maintain
a provision for taxes, but has reserved the right to establish such a
provision for taxes in the future if it determines, in its sole
discretion, that it will incur a tax as a result of the operation of
the Separate Account.
3. INVESTMENT IN THE TRUST
The aggregate cost of the Trust's shares acquired and the aggregate
proceeds of shares sold for the year ended December 31, 1995 consist of
the following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Variable Accounts Acquired Shares Sold
--------------------------------- --------------- ---------------
<S> <C> <C>
Foreign Securities Portfolio $ 268,351 $ 715,907
Capital Appreciation Portfolio 366,621 1,220,755
Growth Portfolio 1,111,133 1,160,643
Natural Resources Portfolio 138,233 436,916
Convertible Securities Portfolio 290,558 363,193
Strategic Multi-Asset Portfolio 212,095 419,113
Multi-Asset Portfolio 759,320 1,141,117
High Yield Portfolio 292,914 457,376
Target '98 Portfolio 314,876 231,430
Fixed Income Portfolio 142,559 562,925
Government and Quality Bond
Portfolio 646,219 1,114,817
Money Market Portfolio 2,054,918 1,815,197
========== ==========
</TABLE>
43
<PAGE> 75
VARIABLE ANNUITY ACCOUNT ONE
OF
FIRST SUNAMERICA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
4. FEDERAL INCOME TAXES
The Company qualifies for federal income tax treatment granted to life
insurance companies under subchapter L of the Internal Revenue Service
Code (the "Code"). The operations of the Separate Account are part of
the total operations of the Company and are not taxed separately. The
Separate Account is not treated as a regulated investment company under
the Code.
5. SUBSEQUENT EVENT
The decision has been made to change the name of the Convertible
Securities Portfolio to the Growth and Income Portfolio, with revised
investment objectives of high current income and long-term capital
appreciation through investment in securities of issuers that have the
potential for growth and offer income. The revised portfolio may also
enter into forward currency contracts and contracts on financial
futures or stock index futures, or options thereon, as a hedge against
changes in market conditions. These changes will become effective
February 29, 1996.
44
