<PAGE> 1
As filed pursuant to Rule 497(e)
Registration Nos. 33-32569 and
811-4296
ANCHOR NATIONAL LIFE INSURANCE COMPANY
VARIABLE ANNUITY ACCOUNT ONE
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SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 28, 1995
As of the date of this Supplement, the Company is not accepting telephone
withdrawal requests. A written request or Systematic Withdrawal Program
enrollment form must be sent to the Company at its Annuity Service Center.
Delete the fourth sentence of the first paragraph in the section entitled
"COMPANY" on page 9 and replace with the following:
The Company is a wholly owned subsidiary of SunAmerica Life Insurance Company,
an Arizona corporation which is wholly owned by SunAmerica Inc., a Maryland
corporation.
Delete the first sentence of the second paragraph in the section entitled
"COMPANY" on page 9 and replace with the following:
The Company and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, SunAmerica Asset Management Corp. and
Resources Trust Company, offer a full line of financial services, including
fixed and variable annuities, mutual funds and trust administration services.
Date: July 11, 1995
PLEASE KEEP THIS SUPPLEMENT WITH YOUR PROSPECTUS
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FLEXIBLE PAYMENT VARIABLE ANNUITY
CONTRACTS
- --------------------------------------------------------------------------------
ISSUED BY
ANCHOR NATIONAL LIFE INSURANCE COMPANY
IN CONNECTION WITH
VARIABLE ANNUITY ACCOUNT ONE
CORRESPONDENCE ACCOMPANIED
BY PAYMENTS ALL OTHER CORRESPONDENCE,
P.O. BOX 100330 ADMINISTRATIVE SERVICE CENTER:
PASADENA, CALIFORNIA 91189-0001 P.O. BOX 54299
LOS ANGELES, CALIFORNIA 90054-0299
TELEPHONE NUMBER: (800) 445-7862
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,"
page 27).
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>
o Foreign Securities Portfolio o Multi-Asset Portfolio
o Capital Appreciation Portfolio o High Yield Portfolio
o Growth Portfolio o Target '98 Portfolio
o Natural Resources Portfolio o Fixed Income Portfolio
o Convertible Securities Portfolio o Government and Quality Bond Portfolio
o Strategic Multi-Asset Portfolio o Money Market 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 Table of Contents of the Statement of Additional
Information, dated February 28, 1995, appears on page 32 of this prospectus.
This Prospectus is dated February 28, 1995.
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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 ANCHOR NATIONAL LIFE INSURANCE COMPANY AND
THE SEPARATE ACCOUNT......................................................................... 9
Company.................................................................................... 9
Reinsurance of Previously Issued Contracts................................................. 10
Separate Account........................................................................... 11
FINANCIAL STATEMENTS........................................................................... 11
ANCHOR SERIES TRUST............................................................................ 11
Equity Portfolios.......................................................................... 12
Managed Portfolios......................................................................... 12
Fixed Income Portfolios.................................................................... 13
Voting Rights.............................................................................. 14
Substitution of Securities................................................................. 14
CONTRACT CHARGES............................................................................... 14
Mortality and Expense Risk Charge.......................................................... 14
Administrative Charges..................................................................... 15
Administrative Expense Charge............................................................ 15
Records Maintenance Charge............................................................... 15
Sales Charges.............................................................................. 15
Withdrawal Charge........................................................................ 15
Annuity Charge........................................................................... 16
Premium Taxes.............................................................................. 16
Deduction for Separate Account Income Taxes................................................ 17
Other Expenses............................................................................. 17
Reduction of Charges for Sales to Certain Groups........................................... 17
DESCRIPTION OF THE CONTRACTS................................................................... 17
Transfer During Accumulation Period........................................................ 17
Automatic Dollar Cost Averaging Program.................................................... 18
Modification of the Contract............................................................... 19
Assignment................................................................................. 19
Death of Owner of Non-Qualified Contract................................................... 19
Death Benefit.............................................................................. 20
Beneficiary................................................................................ 20
ANNUITY PERIOD................................................................................. 20
Annuity Date............................................................................... 20
Allocation of Annuity Payments............................................................. 21
Annuity Options............................................................................ 21
Other Options.............................................................................. 22
Transfer During Annuity Period............................................................. 23
Death Benefit During Annuity Period........................................................ 23
PURCHASES AND CONTRACT VALUE................................................................... 23
Minimum Purchase Payment................................................................... 23
Maximum Purchase Payment................................................................... 23
Allocation of Purchase Payments............................................................ 24
Accumulation Unit Value.................................................................... 24
Distribution of Contracts.................................................................. 25
Withdrawals (Redemptions).................................................................. 25
Systematic Withdrawal Program.............................................................. 26
ERISA Plans................................................................................ 26
Texas Optional Retirement Program.......................................................... 26
Minimum Contract Value..................................................................... 26
ADMINISTRATION................................................................................. 27
TAXES.......................................................................................... 27
General.................................................................................... 27
Withholding Tax on Distributions........................................................... 28
Diversification............................................................................ 28
Multiple Contracts......................................................................... 29
Tax Treatment of Assignments............................................................... 29
Tax Treatment of Withdrawals -- Non-Qualified Contracts.................................... 29
Qualified Plans............................................................................ 29
Tax Treatment of Withdrawals -- Qualified Contracts........................................ 31
Tax Sheltered Annuities -- Withdrawal Limitations.......................................... 31
Deferred Compensation Plans -- Section 457................................................. 31
LEGAL MATTERS.................................................................................. 32
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................................... 32
</TABLE>
(i)
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DEFINITIONS
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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) 445-7862. 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 -- Anchor National Life Insurance Company, whose Executive Office is at
1 SunAmerica Center, Los Angeles, California 90067-6022.
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 -- The period between anniversaries of the Issue Date of a
Contract.
CONTRIBUTION YEAR -- Each Contract Year in which a Purchase Payment is made and
each succeeding year measured from the end of the Contract Year during which
such Purchase Payment was made. Any Purchase Payments made within the
twelve-month period of a Contract Year bear the same Contribution Year.
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.
2
<PAGE> 6
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 on which the first Contract Year and first Contribution
Year begin.
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" (formerly "ICAP Variable Annuity Account
One").
TRUST -- Anchor Series Trust (formerly "Integrated Resources 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
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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 Annuity 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," page 23).
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," page 11):
* FOREIGN SECURITIES * MULTI-ASSET
* CAPITAL APPRECIATION * HIGH-YIELD
* GROWTH * TARGET '98
* NATURAL RESOURCES * FIXED INCOME
* CONVERTIBLE SECURITIES * GOVERNMENT AND QUALITY BOND
* STRATEGIC MULTI-ASSET * MONEY MARKET
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," page 17).
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
4
<PAGE> 8
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," page 15). 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% of their Purchase Payments
annually pursuant to a systematic withdrawal program without charge. (See
"Purchases and Contract Value -- Systematic Withdrawal Program," page 26.)
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
(or longer period if required by state law) 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, unless otherwise required by
state law, 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 ($10 in Texas and Pennsylvania) 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," page 14.)
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 or
partial annuitizations and contract charges, all accumulated annually at 5%; 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 or partial
annuitizations since that anniversary. (See "Description of the
Contracts -- Death Benefit," page 20.)
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," page 21.)
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," page 14.)
5
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FEE TABLES
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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>
- ---------------
* $10 in Pennsylvania and Texas.
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>
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ANNUAL TRUST EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1994):
<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% .1% .8%
Natural Resources...................................... .8% .2% 1.0%
Convertible Securities................................. .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% .2% .8%
Fixed Income........................................... .6% .2% .8%
Government & Quality Bond.............................. .6% .1% .7%
Money Market........................................... .5% .1% .6%
</TABLE>
6
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EXAMPLES
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<TABLE>
<CAPTION>
CONDITIONS
SEPARATE A Contract Owner would pay the following
ACCOUNT expenses on a $1,000 investment assuming 5% TIME PERIODS
DIVISION 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 (a) $ 78 $ 112 $ 153 $306
SECURITIES period.
(b) if the Contract WAS NOT surrendered (b) 28 85 144 306
- ---------------------------------------------------------------------------------------------------------------
CAPITAL SAME (a) 74 100 133 266
APPRECIATION (b) 24 73 124 266
- ---------------------------------------------------------------------------------------------------------------
GROWTH SAME (a) 74 100 133 266
(b) 24 73 124 266
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NATURAL SAME (a) 76 106 143 286
RESOURCES (b) 26 79 134 286
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CONVERTIBLE SAME (a) 75 103 138 276
SECURITIES (b) 25 76 129 276
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STRATEGIC SAME (a) 79 115 158 315
MULTI-ASSET (b) 29 88 149 315
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MULTI-ASSET SAME (a) 77 109 148 296
(b) 27 82 139 296
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HIGH YIELD SAME (a) 75 103 138 276
(b) 25 76 129 276
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TARGET '98 SAME (a) 74 100 133 266
(b) 24 73 124 266
- ---------------------------------------------------------------------------------------------------------------
FIXED SAME (a) 74 100 133 266
INCOME (b) 24 73 124 266
- ---------------------------------------------------------------------------------------------------------------
GOV'T & SAME (a) 73 97 128 256
QUALITY BOND (b) 23 70 119 256
- ---------------------------------------------------------------------------------------------------------------
MONEY MARKET SAME (a) 72 94 123 246
(b) 22 67 114 246
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
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EXPLANATION OF FEE TABLES
AND EXAMPLES
- --------------------------------------------------------------------------------
1. The purpose of the foregoing table 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," beginning on Page 14 of this Prospectus and "Management of the
Trust", beginning on Page 23 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. Premium taxes are not reflected. See
"Premium Taxes", page 16.
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> 11
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CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
8/13/84
SEPARATE (INCEPTION) FISCAL YEAR ENDED
ACCOUNT TO ----------------------------------------------------
DIVISION 12/31/84 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89
- -------- ---------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Foreign Securities
Beginning AUV 3/23/87
(inception)........... -- -- -- $ 9.99 $ 8.70 $10.47
End AUV................. -- -- -- $ 8.70 $10.47 $13.32
End # AU's (000)........ -- -- -- 1,344 1,449 2,978
Capital Appreciation
Beginning AUV 3/23/87
(inception)........... -- -- -- $ 9.99 $ 8.16 $ 9.80
End AUV................. -- -- -- $ 8.16 $ 9.80 $12.08
End # AU's (000)........ -- -- -- 909 1,714 2,515
Growth
Beginning AUV........... $10.00 $10.03 $12.99 $13.99 $13.88 $15.43
End AUV................. $10.03 $12.99 $13.99 $13.88 $15.43 $19.79
End # AU's (000)........ 200 2,328 15,087 14,899 12,043 7,998
Natural Resources
Beginning AUV 1/1/88
(inception)........... -- -- -- -- $10.00 $11.02
End AUV................. -- -- -- -- $11.02 $12.86
End # AU's (000)........ -- -- -- -- 857 1,004
Convertible Securities
Beginning AUV 3/23/87
(inception)........... -- -- -- $10.00 $ 8.65 $ 9.76
End AUV................. -- -- -- $ 8.65 $ 9.76 $11.04
End # AU's (000)........ -- -- -- 1,611 1,636 1,446
Strategic Multi-Asset
Beginning AUV 3/23/87
(inception)........... -- -- -- $10.00 $ 9.06 $10.26
End AUV................ -- -- -- $ 9.06 $10.26 $12.13
End # AU's (000)........ -- -- -- 6,663 7,267 7,568
Multi-Asset
Beginning AUV 3/23/87
(inception)........... -- -- -- $10.02 $ 9.34 $10.09
End AUV................. -- -- -- $ 9.34 $10.09 $11.91
End # AU's (000)........ -- -- -- 13,023 14,199 11,945
High Yield
Beginning AUV 1/1/86
(inception)........... -- -- $10.00 $11.51 $11.53 $13.00
End AUV................. -- -- $11.51 $11.53 $13.00 $12.48
End # AU's (000)........ -- -- 4,695 4,490 4,212 2,361
Target '98
Beginning AUV 5/2/88
(inception)........... -- -- -- -- $10.00 $10.63
End AUV................. -- -- -- -- $10.63 $12.29
End # AU's (000)........ -- -- -- -- 397 922
Fixed Income
Beginning AUV........... $10.00 $10.85 $12.84 $14.37 $14.29 $15.08
End AUV................. $10.85 $12.84 $14.37 $14.29 $15.08 $16.78
End # AU's (000)........ 113 796 4,793 3,871 3,003 2,240
Government & Quality Bond
Beginning AUV........... $10.00 $10.85 $12.80 $13.91 $13.93 $14.95
End AUV................. $10.85 $12.80 $13.91 $13.93 $14.95 $17.04
End # AU's (000)........ 591 7,286 17,128 18,902 12,769 8,752
Money Market
Beginning AUV........... $10.00 $10.23 $10.85 $11.42 $12.07 $12.78
End AUV................. $10.23 $10.85 $11.42 $12.07 $12.78 $13.73
End # AU's (000)........ 204 700 3,642 6,548 12,570 16,141
</TABLE>
- -----------------------------
AUV -- Accumulation Unit Value.
AU -- Accumulation Units.
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPARATE FISCAL YEAR ENDED
ACCOUNT -----------------------------------------------------
DIVISION 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- -------- ---------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Foreign Securities
Beginning AUV 3/23/87
(inception)........... $13.32 $11.45 $11.26 $ 9.64 $12.39
End AUV................. $11.45 $11.26 $ 9.64 $12.39 $11.83
End # AU's (000)........ 2,875 2,623 2,878 5,512 5,328
Capital Appreciation
Beginning AUV 3/23/87
(inception)........... $12.08 $ 9.97 $15.36 $19.09 $22.79
End AUV................. $ 9.97 $15.36 $19.09 $22.79 $21.62
End # AU's (000)........ 2,553 2,834 4,148 5,413 5,136
Growth
Beginning AUV........... $19.79 $18.99 $26.36 $27.40 $29.12
End AUV................. $18.99 $26.36 $27.40 $29.12 $27.36
End # AU's (000)........ 7,465 8,053 9,030 8,345 5,853
Natural Resources
Beginning AUV 1/1/88
(inception)........... $12.86 $10.77 $11.13 $11.25 $15.11
End AUV................. $10.77 $11.13 $11.25 $15.11 $15.05
End # AU's (000)........ 1,323 810 748 1,142 1,220
Convertible Securities
Beginning AUV 3/23/87
(inception)........... $11.04 $10.50 $13.12 $15.55 $18.70
End AUV................. $10.50 $13.12 $15.55 $18.70 $16.67
End # AU's (000)........ 1,184 1,034 1,424 2,057 1,915
Strategic Multi-Asset
Beginning AUV 3/23/87
(inception)........... $12.13 $11.06 $13.55 $13.88 $15.78
End AUV................ $11.06 $13.55 $13.88 $15.78 $15.16
End # AU's (000)........ 7,487 6,289 5,447 4,546 3,958
Multi-Asset
Beginning AUV 3/23/87
(inception)........... $11.91 $11.93 $14.98 $15.97 $16.90
End AUV................. $11.93 $14.98 $15.97 $16.90 $16.39
End # AU's (000)........ 11,811 10,975 11,719 10,510 8,354
High Yield
Beginning AUV 1/1/86
(inception)........... $12.48 $11.01 $14.44 $16.24 $19.07
End AUV................. $11.01 $14.44 $16.24 $19.07 $17.96
End # AU's (000)........ 1,791 2,247 2,813 4,000 2,489
Target '98
Beginning AUV 5/2/88
(inception)........... $12.29 $12.89 $15.11 $15.97 $17.52
End AUV................. $12.89 $15.11 $15.97 $17.52 $16.57
End # AU's (000)........ 941 767 1,132 1,065 1,028
Fixed Income
Beginning AUV........... $16.78 $17.84 $20.31 $21.34 $22.71
End AUV................. $17.84 $20.31 $21.34 $22.71 $21.67
End # AU's (000)........ 1,851 1,813 1,785 1,657 1,183
Government & Quality Bond
Beginning AUV........... $17.04 $18.15 $21.00 $22.13 $23.63
End AUV................. $18.15 $21.00 $22.13 $23.63 $22.60
End # AU's (000)........ 8,183 8,917 8,626 7,256 6,270
Money Market
Beginning AUV........... $13.73 $14.61 $15.23 $15.53 $15.72
End AUV................. $14.61 $15.23 $15.53 $15.72 $16.10
End # AU's (000)........ 11,858 7,594 7,824 5,746 7,324
</TABLE>
- ----------------------
AUV -- Accumulation Unit Value.
AU -- Accumulation Units.
8
<PAGE> 12
- --------------------------------------------------------------------------------
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 a more complete description of Contract charges, see "Contract
Charges," beginning at Page 14; for a more detailed description of the
performance data computations, please refer to the Statement of Additional
Information.
- --------------------------------------------------------------------------------
DESCRIPTION OF ANCHOR NATIONAL LIFE INSURANCE
COMPANY AND THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
COMPANY
The Company is a stock life insurance company organized under the laws of
the state of California in April 1965. Its legal domicile is 1 SunAmerica
Center, Los Angeles, California 90067-6022. The principal business address of
the Company is 1 SunAmerica Center, Los Angeles, California 90067-6022. The
Company is a wholly-owned subsidiary of Sun Life Insurance Company of America,
an Arizona corporation wholly-owned by SunAmerica Inc., a Maryland corporation.
The Company and its affiliates, Sun Life Insurance Company of America,
First SunAmerica Life Insurance Company, SunAmerica Asset Management Corp. and
Resources Trust Company, offer a full line of financial services, including
fixed and variable annuities, mutual funds and trust administration services. As
of September 30, 1994, the Company had approximately $6.6 billion in assets
while SunAmerica Inc., the Company's ultimate parent, together with its
subsidiaries, held approximately $23.4 billion of assets, consisting of over
$14.7 billion of assets owned, approximately
9
<PAGE> 13
$2.2 billion of assets managed in mutual funds and private accounts and
approximately $6.5 billion under custody in retirement trust accounts.
The Company may from time to time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by one or more independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Insurance Rating Services ("Standard & Poor's"), and Duff & Phelps. A.M. Best's
and Moody's ratings reflect their current opinion on the relative financial
strength and operating performance of an insurance company in comparison to the
norms of the life/health insurance industry. Standard & Poor's and Duff & Phelps
provide ratings which measure the claims-paying ability of insurance companies.
These ratings are opinions of an operating insurance company's financial
capacity to meet the obligations of its insurance policies in accordance with
their terms. Claims-paying ability ratings do not refer to an insurer's ability
to meet non-policy obligations (i.e., debt/commercial paper). These ratings do
not apply to the Separate Account. However, the contractual obligations under
the Contracts are the general corporate obligations of the Company.
The Company is admitted to conduct life insurance and annuity business in
the District of Columbia and in all states except New York. It intends to market
the Contract in all jurisdictions in which it is admitted to conduct annuity
business. The Contracts offered by this prospectus are issued by the Company and
will be funded in the Separate Account.
REINSURANCE OF PREVIOUSLY ISSUED CONTRACTS
On November 13, 1989, SunAmerica Inc., the Company, Integrated Resources,
Inc. ("IRI") and Integrated Resources Life Insurance Company ("IR Life") entered
into an agreement which amended a stock purchase agreement dated November 1,
1989 (the "Stock Purchase Agreement") between SunAmerica Inc. and IRI. Under the
Stock Purchase Agreement, as amended, the Company acquired, on an assumption
reinsurance basis, the variable annuity contracts of IR Life, including
contracts which except for the issuer are identical in all material respects
("reinsured contracts") to the Contracts offered by this prospectus. Thus, the
Company has all the liabilities and obligations under the reinsured contracts.
All future payments made under the reinsured contracts will be made directly to
or by the Company.
Reinsured Contract Owners have the same contract rights and the same
contract values as they did before the reinsurance transaction. However, they
will look to the Company instead of to IR Life to fulfill the terms of their
Contracts. Pursuant to the reinsurance agreement, the Separate Account
originally held by IR Life with all of its assets was transferred to the
Company. Thus, as of the effective date of the reinsurance closing, the assets
of the Separate Account are only available to satisfy the Company's obligations
under the variable annuity contracts issued by the Separate Account. The
Separate Account is not chargeable with liabilities out of any other business
that IR Life has conducted, and the assets of the Separate Account cannot be
reached by IRI or IRI's creditors. (See "Separate Account," page 11).
The Stock Purchase Agreement, as amended, also provided for the sale of
Integrated Resources Asset Management Corp. ("IRAM") to SunAmerica Inc. Such
transaction constituted a change in the control of IRAM. A change in the control
of IRAM constitutes an assignment of the Investment Management Agreement and
series of Investment Management Contracts between IRAM and the Trust, and the
Sub-Advisory Agreement and series of Sub-Advisory Contracts with Wellington
Management Company. (See "Anchor Series Trust," page 11). These agreements and
contracts terminate automatically in the event of their assignment. New
agreements were approved by the Trust's Board of Trustees and by shareholders on
February 13, 1990. In connection with the sale of IRAM to SunAmerica Inc.,
IRAM's name was changed to SunAmerica Asset Management Corp. ("SAAM").
10
<PAGE> 14
SEPARATE ACCOUNT
The Separate Account was originally established by IR Life pursuant to Iowa
insurance law on January 21, 1985. In fulfillment of the reinsurance agreement,
the Separate Account was assumed intact by the Company on January 18, 1990 and
reestablished under California insurance laws. 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.
On September 24, 1990, Variable Annuity Account One(c) ("Separate
Account(c)") was merged with and into the Separate Account. Separate Account (c)
was a separate account originally established by The Capitol Life Insurance
Company, a subsidiary of IRI, pursuant to Colorado insurance law on September
23, 1986, and used to fund variable annuity contracts ("Capitol Contracts") that
are in all material respects identical to the Contracts. The Capitol Contracts
were reinsured to IR Life and, on January 18, 1990, reinsured to the Company. As
a result of the merger, the reinsured Capitol Contracts are now funded through
the Separate Account. As is the case with the Contracts, the reinsured Capitol
Contracts were (and continue to be) ultimately funded by the Portfolios of the
Trust and by the General Account of the Company. The merger did not affect any
of the rights and obligations of the reinsured Capitol Contract owners and the
Company under the reinsured Capitol Contracts or those of Contract Owners and
the Company under the Contracts. Nor did the merger affect those Owners'
Contract Values.
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. The Separate Account has also been
segmented into subaccounts which fund group annuity contracts issued by the
Company.
- --------------------------------------------------------------------------------
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, c/o 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 the 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
11
<PAGE> 15
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. SAAM, an affiliate of the Company, is the investment manager for
the Trust. Wellington Management Company ("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.)
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 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.
CONVERTIBLE SECURITIES PORTFOLIO seeks high current income and long-term
capital appreciation. This Portfolio will invest primarily in a variety of
securities convertible into common stock which are issued by publicly held
corporations. The Portfolio may also engage in transactions involving Financial
Futures Contracts 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
12
<PAGE> 16
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 or
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.
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
(Redemptions)", page 25.)
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" page 28.)
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
13
<PAGE> 17
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, First SunAmerica 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. (See page 5 of the
Trust's Prospectus.)
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.
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," page 15.) This
charge is guaranteed by the Company and cannot be increased.
14
<PAGE> 18
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.
For Contracts issued prior to September 1, 1987, the Records Maintenance
Charge will be assessed on December 31 of each calendar year. The charge will be
waived for such Contracts during the year in which Contract Value is totally
surrendered.
For Contracts issued on or after September 1, 1987, 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, which are described on page 24, during the Accumulation Period, the
Contract Value may be withdrawn at any time. Contract Owners should consult
their own tax counsel or other tax adviser regarding any withdrawals. (See
"Taxes -- Tax Treatment of Withdrawals -- Non-Qualified Contracts", page 29 and
"Taxes -- Tax Treatment of Withdrawals -- Qualified Contracts", page 31.)
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 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 a systematic
withdrawal program without charge. The Systematic Withdrawal Program is
available under such Contracts which are issued on and after April 1, 1989.
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.
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
15
<PAGE> 19
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", page 14),
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," page 21), no
Annuity Charge applies and 100% of Contract Value, less any premium tax, 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 was 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.
PREMIUM TAXES
Premium taxes or other taxes payable to a state or other governmental
entity will be charged against the Contract Values. Some states assess premium
taxes at the time Purchase Payments are made; others assess premium taxes at the
time of surrender or when annuity payments begin. The Company currently intends
to deduct premium taxes at the time of surrender, upon death of the Owner or
upon annuitization; however, it reserves the right to deduct premium taxes when
incurred. Premium taxes generally range from 0% to 3.0%.
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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," page 27.)
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.
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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. Telephone transfers are
automatically accepted unless the Contract Owner elects to not permit telephone
transfers on the Contract application or the Company is otherwise instructed by
the Contract Owner. The Company has in place procedures which are designed to
provide reasonable assurance that telephone authorizations are genuine,
including tape recording all telephone communications and requesting identifying
information. Accordingly, the Company and its affiliates disclaim all liability
for any claim, loss or expense resulting from any alleged error or mistake in
connection with a telephone transfer which was not properly authorized by the
Contract Owner. However, if the Company fails to employ reasonable procedures to
ensure that all telephone 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 transfers 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
($10 in Texas and Pennsylvania) 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
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<PAGE> 21
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" page 28.)
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.
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, c/o its Administrative Service Center,
for correspondence. The Company reserves the right to modify, suspend or
terminate the DCA Program at any time.
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<PAGE> 22
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 I 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, or 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 I 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.
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
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<PAGE> 23
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 the
Beneficiary is received by the Company, c/o its Administrative Service
Center; or
(2) the total dollar amount of Purchase Payments minus:
(a) any partial withdrawals;
(b) all Contract Owner transaction expenses deducted during the
term of the Contract prior to the date of death; and
(c) any partial annuitizations,
all accumulated annually at 5% at the date of death; or
(3) after the fifth Contract Year, the Contract Value at the last
anniversary of the Issue Date of the Contract minus the total dollar amount
of partial withdrawals 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 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
- --------------------------------------------------------------------------------
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.
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<PAGE> 24
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,"
pages 15 and 16, respectively.)
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," pages 29 and 31, respectively.)
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 $5,000, and
state law permits, the Company has the right to pay the annuity in one lump sum.
In addition, if the first payment provided would be less than $50, and state law
permits, 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 $50.
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
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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
An Income for a Specified Period may be elected only if at least $20,000 in
Contract Value, less any Annuity Charge, is to be applied. 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. That 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.
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," page 14.) 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 Divisions 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,"
page 17.)
(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," page 17.) The Company
reserves the right to refuse any Purchase Payment at any time.
MAXIMUM PURCHASE PAYMENT
Purchase Payments of more than $500,000 require prior Company approval.
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ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments are allocated to the General Account and/or the Divisions
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.
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 Divisions, 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 such 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 the P.O. Box for the 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
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<PAGE> 28
Expense Charge, and any provision for taxes. Assessments of premium tax,
Withdrawal Charges and Records Maintenance Charges are made separately for each
Contract. They do not affect Accumulation Unit value.
DISTRIBUTION OF CONTRACTS
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. In addition, under certain circumstances, certain sellers of the
Contracts may be paid persistency bonuses which will take into account, among
other things, the length of time Purchase Payments have been held under a
Contract and Contract Values. A persistency bonus is not anticipated to exceed
.20%, on an annual basis, of the Contract Values considered in connection with
the bonus.
SunAmerica Capital Services, Inc., located at 733 Third Avenue, New York,
New York 10017, serves as distributor of the Contracts. SunAmerica Capital
Services, Inc., is an indirect wholly-owned subsidiary of SunAmerica Inc. and is
registered as a broker-dealer under the Securities Exchange Act of 1934, as
amended, and is a member of the National Association of Securities Dealers, Inc.
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," page 15).
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,"
page 31).
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.
The Company may also accept telephone requests for certain partial
withdrawals from Contract Owners who elect this option either through the
Contract application or by completing a Telephone Redemption Authorization Form
provided by the Company through its Administrative Service Center. The Company
has in place procedures which are designed to provide reasonable assurance that
telephone authorizations are genuine, including tape recording all telephone
communications and requesting identifying information. Accordingly, the Company
and its affiliates disclaim all liability for any claim, loss or expense
resulting from any alleged error or mistake in connection with a telephone
withdrawal which was not properly authorized by the Contract Owner. However, if
the Company fails to employ reasonable procedures to ensure that all telephone
withdrawals are properly authorized, the
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Company may be held liable for such losses. Telephone calls authorizing
withdrawals must be completed by 4:00 p.m. Eastern time in order to effect the
withdrawal the day of receipt. All other withdrawals will be processed on the
next business day. The proceeds of a withdrawal will be sent by check to the
Contract Owner at the address of record only.
A written withdrawal request, Telephone Redemption Authorization Form, 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.
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.
TEXAS OPTIONAL RETIREMENT PROGRAM
A participant in the Texas Optional Retirement Program ("ORP") is required
to obtain a certificate of termination from the participant's employer before a
Contract can be redeemed. This requirement is imposed because the Attorney
General of Texas has ruled that participants in the ORP may redeem their
interest in a Contract issued pursuant to the ORP only upon termination of their
employment by Texas public institutions of higher education, or upon retirement,
death or total disability.
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
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withdrawals, and state law permits. 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
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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) 445-7862.
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 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.
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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
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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.
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 also 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," page 31.)
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.
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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," page 31.)
(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 Withdrawals -- Qualified Contracts,"
page 31.) 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," page 31.) 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," page 31.) 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, with-
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drawals and surrenders. (See "Tax Treatment of Withdrawals -- Qualified
Contracts," below.) 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.
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," page 28) 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.
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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.
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LEGAL MATTERS
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Legal matters relating to the federal securities laws in connection with
the Contracts described herein are being passed upon by the law firm of Routier,
Mackey and Johnson, P.C., 1725 K Street N.W., Suite 500, Washington, D.C. 20006.
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TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL INFORMATION
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<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
COMPANY.............................................................................. 1
INDEPENDENT ACCOUNTANTS.............................................................. 1
DISTRIBUTORS......................................................................... 1
PERFORMANCE DATA..................................................................... 2
Money Market Division.............................................................. 2
Other Divisions.................................................................... 3
ANNUITY PAYMENTS..................................................................... 5
Annuity Unit Value................................................................. 5
Amounts of Annuity Payments........................................................ 5
Subsequent Monthly Payments........................................................ 6
PURCHASE PAYMENTS.................................................................... 6
FINANCIAL STATEMENTS................................................................. 9
</TABLE>
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<TABLE>
<S> <C> <C>
- ------------------------------
- ------------------------------
- ------------------------------ Stamp
</TABLE>
ANCHOR NATIONAL LIFE INSURANCE COMPANY
SERVICE CENTER
P.O. BOX 54299
LOS ANGELES, CA 90054-0299
<PAGE> 37
Please forward a copy (without charge) of the Statement of Additional
Information concerning ICAP II Variable Annuity Contracts to:
(Please print or type and fill in all information.)
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Name
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Address
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City/State/Zip
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Date: Signed:
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