<PAGE> 1
As filed pursuant to Rule 497(c)
under the Securities Act of 1933
Registration Nos. 33-32569 and 811-4296
- --------------------------------------------------------------------------------
FLEXIBLE PAYMENT VARIABLE ANNUITY
CONTRACTS
- --------------------------------------------------------------------------------
ISSUED BY
ANCHOR NATIONAL LIFE INSURANCE COMPANY
IN CONNECTION WITH
VARIABLE ANNUITY ACCOUNT ONE
CORRESPONDENCE ACCOMPANIED ALL OTHER CORRESPONDENCE,
BY PAYMENTS ADMINISTRATIVE SERVICE CENTER:
P.O. BOX 100330 P.O. BOX 54299
PASADENA, CALIFORNIA 91189-0001 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").
Purchase Payments under the Contracts may be allocated among the Divisions
of the Separate Account, and/or to the Fixed Account option funded through the
Company's General Account. Each of the twelve Divisions of the Separate Account
described in this Prospectus are invested solely in the shares of one of the
following currently available portfolios of Anchor Series Trust:
<TABLE>
<S> <C>
- Foreign Securities Portfolio - Multi-Asset Portfolio
- Capital Appreciation Portfolio - High Yield Portfolio
- Growth Portfolio - Target '98 Portfolio
- Natural Resources Portfolio - Fixed Income Portfolio
- Convertible Securities Portfolio - Government and Quality Bond Portfolio
- Strategic Multi-Asset Portfolio - 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 January 31, 1996, appears on page 32 of this Prospectus.
This Prospectus is dated January 31, 1996.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
DEFINITIONS.................................................................................... 2
SUMMARY........................................................................................ 4
FEE TABLES..................................................................................... 6
EXAMPLES....................................................................................... 7
EXPLANATION OF FEE TABLES AND EXAMPLES......................................................... 7
CONDENSED FINANCIAL INFORMATION -- ACCUMULATION UNIT VALUES.................................... 8
PERFORMANCE DATA............................................................................... 9
DESCRIPTION OF ANCHOR NATIONAL LIFE INSURANCE COMPANY AND
THE SEPARATE ACCOUNT......................................................................... 9
Company.................................................................................... 9
Reinsurance of Previously Issued Contracts................................................. 10
Separate Account........................................................................... 10
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............................................................. 22
Death Benefit During Annuity Period........................................................ 23
PURCHASES AND CONTRACT VALUE................................................................... 23
Minimum Purchase Payment................................................................... 23
Maximum Purchase Payment................................................................... 23
Allocation of Purchase Payments............................................................ 23
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................................................................................. 26
TAXES.......................................................................................... 27
General.................................................................................... 27
Withholding Tax on Distributions........................................................... 27
Diversification............................................................................ 28
Multiple Contracts......................................................................... 28
Tax Treatment of Assignments............................................................... 29
Tax Treatment of Withdrawals -- Non-Qualified Contracts.................................... 29
Qualified Plans............................................................................ 29
Tax Treatment of Withdrawals -- Qualified Contracts........................................ 30
Tax Sheltered Annuities -- Withdrawal Limitations.......................................... 31
Deferred Compensation Plans -- Section 457................................................. 31
LEGAL PROCEEDINGS.............................................................................. 31
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................................... 32
</TABLE>
(i)
<PAGE> 3
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
The following terms, as used in this Prospectus, have the indicated
meanings:
ACCUMULATION PERIOD -- The period between the Issue Date of the Contract and the
Annuity Date, the build-up phase of the Contract.
ACCUMULATION UNIT -- A unit of measurement which the Company uses to calculate
Contract Value during the Accumulation Period.
ADMINISTRATIVE SERVICE CENTER -- Its current address and phone number are: P.O.
Box 54299, Los Angeles, California 90054-0299, (800) 445-7862. Correspondence
accompanying a payment should be directed to P.O. Box 100330, Pasadena,
California 91189-0001. 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, an Arizona corporation.
CONTRACT(S) -- The flexible payment variable annuity contracts offered by this
Prospectus.
CONTRACT OWNER(S) OR OWNER(S) -- The person(s) having the privileges of
ownership defined in the Contract. If an Owner dies during the Accumulation
Period, the Beneficiary will, unless the Owner has elected otherwise, become the
Owner of the Contract. Joint Owners have equal ownership interests in the
Contract unless the Company is advised otherwise in writing. Only spouses may be
Joint Owners.
CONTRACT VALUE -- The sum of the values of the Owner's interest in the General
Account and the Separate Account Divisions.
CONTRACT YEAR -- A year starting from the Issue Date in one calendar year and
ending on the Issue Date in the succeeding calendar year.
CONTRIBUTION YEAR -- With respect to a given Purchase Payment, a year starting
from the date of the Purchase Payment in one calendar year and ending on the day
before the anniversary of such date in the succeeding calendar years. The
Contribution Year in which a Purchase Payment is made is "Contribution Year 0".
Subsequent Contribution Years are successively numbered beginning with
Contribution Year 1.
DIVISION OR SEPARATE ACCOUNT DIVISION -- A Division of the Separate Account
invested wholly in shares of one of the Portfolios of the Trust.
DUE PROOF OF DEATH -- (1) A certified copy of a death certificate; or (2) a
certified copy of a decree of a court of competent jurisdiction as to the
finding of death; or (3) a written statement by a medical doctor who attended
the deceased at time of death; or (4) any other proof satisfactory to the
Company.
2
<PAGE> 4
FIXED ANNUITY -- A series of payments that are fixed in amount and made during
the Annuity Period to a payee under a Contract.
GENERAL ACCOUNT -- The Company's general investment account which contains all
the assets of the Company, with the exception of the Separate Account and other
segregated asset accounts.
ISSUE DATE -- The date a Contract is issued.
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
<PAGE> 5
- --------------------------------------------------------------------------------
SUMMARY
- --------------------------------------------------------------------------------
This Prospectus describes the uses and objectives of the Contracts, their
costs, and the rights and privileges of the Owner. It also contains information
about the Company, the Separate Account and its Divisions, and the Portfolios in
which the Divisions invest. We urge you to read it carefully and retain it and
the Prospectus for the Trust for future reference. (The Prospectus for the Trust
is attached to and follows this Prospectus).
WHAT IS THE CONTRACT?
The Contract offered is a tax deferred annuity which provides fixed
benefits, variable benefits or a combination of both. Individuals wishing to
purchase a Contract must complete an application and provide an initial Purchase
Payment which will be sent to the Company at its Administrative Service Center
or in such other manner as deemed acceptable to the Company. The minimum and
maximum of Purchase Payments vary depending upon the type of Contract purchased.
(See "Minimum Purchase Payment").
WHAT IS THE DIFFERENCE BETWEEN A VARIABLE ANNUITY AND A FIXED ANNUITY?
The Contract has appropriate provisions relating to variable and fixed
accumulation values and variable and fixed annuity payments. A Variable Annuity
and a Fixed Annuity have certain similarities. Both provide that Purchase
Payments, less certain deductions, will be accumulated prior to the Annuity
Date. After the Annuity Date, annuity payments will be made to a designated
payee for the life of the Annuitant or a period certain or a combination
thereof. The Company assumes mortality and expense risks under the Contracts,
for which it receives certain compensation.
The most significant difference between a Variable Annuity and a Fixed
Annuity is that under a Variable Annuity, all investment risk before and after
the Annuity Date is assumed by the Owner or other payee; the amounts of the
annuity payments vary with the investment performance of the Divisions of the
Separate Account selected by the Owner. Under a Fixed Annuity, in contrast, the
investment risk after the Annuity Date is assumed by the Company and the amounts
of the annuity payments do not vary.
HOW MAY PURCHASE PAYMENTS BE ALLOCATED?
Purchase Payments for the Contracts may be allocated pursuant to
instructions in the application to one or more Divisions of the Separate
Account, and/or to the Company's General Account. The Separate Account invests
in shares of the following Portfolios (see "Anchor Series Trust"):
* 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").
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> 6
Qualified Plans may be subject to additional withdrawal restrictions imposed by
the plan. Earnings under a Contract may be withdrawn at any time during such
period free of a Withdrawal Charge. Alternatively, there is a free withdrawal
amount which applies to the first withdrawal during a Contract Year after the
first Contract Year. (See "Contract Charges -- Sales Charges -- Withdrawal
Charge"). Certain Owners of Nonqualified Plan Contracts and Contracts issued in
connection with Individual Retirement Annuities ("IRAs") may choose to withdraw
amounts which in the aggregate add up to 10% of their Purchase Payments annually
pursuant to a systematic withdrawal program without charge. (See "Purchases and
Contract Value -- Systematic Withdrawal Program"). Withdrawals are taxable and a
10% federal tax penalty may apply to withdrawals before age 59 1/2.
Owners should consult their own tax counsel or other tax adviser regarding
any withdrawals or distributions.
CAN I EXAMINE THE CONTRACT?
The Contract Owner may return the Contract to the Company within 10 days
(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").
DOES THE CONTRACT PAY ANY DEATH BENEFITS?
A Death Benefit is provided in the event of the death of the Owner during
the Accumulation Period. The Death Benefit is equal to the greater of: (1) the
Contract Value upon receipt of Due Proof of Death; or (2) the total of Purchase
Payments made prior to the death of the Owner, minus any partial withdrawals
and/or partial annuitizations and contract charges, 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
and/or partial annuitizations since that anniversary. (See "Description of the
Contracts -- Death Benefit").
WHAT ARE THE AVAILABLE ANNUITY OPTIONS UNDER THE CONTRACT?
There are three available annuity options under the Contract. They include
an annuity for life, a joint and survivor annuity, and monthly payments for a
specified number of years. If a Contract Owner does not elect otherwise, monthly
annuity payments generally will be made under the first option to provide a life
annuity with 120 monthly payments certain. (See "Annuity Period -- Annuity
Options").
DOES THE OWNER HAVE ANY VOTING RIGHTS UNDER THE CONTRACT?
Owners will have the right to vote on matters affecting the Portfolios to
the extent that proxies are solicited by the Trust. If the Owner does not vote,
the Company will vote such interests in the same proportion as it votes shares
for which it has received instructions. (See "Anchor Series Trust -- Voting
Rights").
5
<PAGE> 7
- --------------------------------------------------------------------------------
FEE TABLES
- --------------------------------------------------------------------------------
OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE (AS A PERCENTAGE OF PURCHASE PAYMENTS):
<TABLE>
<CAPTION>
CONTRIBUTION YEAR
<S> <C>
One.................................................................................. 5%
Two.................................................................................. 4%
Three................................................................................ 3%
Four................................................................................. 2%
Five................................................................................. 1%
Six and later........................................................................ 0%
ANNUAL RECORDS MAINTENANCE CHARGE.......................................................... $30
TRANSFER FEE............................................................................... $25*
(applies solely to transfers in excess of fifteen in a Contract Year)
</TABLE>
- ---------------
* $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>
- ---------------
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
<PAGE> 8
- --------------------------------------------------------------------------------
EXAMPLES
- --------------------------------------------------------------------------------
<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
- ---------------------------------------------------------------------------------------------------------------
NATURAL SAME (a) 76 106 143 286
RESOURCES (b) 26 79 134 286
- ---------------------------------------------------------------------------------------------------------------
CONVERTIBLE SAME (a) 75 103 138 276
SECURITIES (b) 25 76 129 276
- ---------------------------------------------------------------------------------------------------------------
STRATEGIC SAME (a) 79 115 158 315
MULTI-ASSET (b) 29 88 149 315
- ---------------------------------------------------------------------------------------------------------------
MULTI-ASSET SAME (a) 77 109 148 296
(b) 27 82 139 296
- ---------------------------------------------------------------------------------------------------------------
HIGH YIELD SAME (a) 75 103 138 276
(b) 25 76 129 276
- ---------------------------------------------------------------------------------------------------------------
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>
- --------------------------------------------------------------------------------
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" of this Prospectus and "Management of the Trust" of the Prospectus
for the Trust. The examples do not illustrate the tax consequences of
surrendering a Contract.
2. The examples assume that there were no transactions which would result in
the imposition of the Transfer Fee. Premium taxes are not reflected.
3. For purposes of the amounts reported in the examples, the Records
Maintenance Charge is reflected by dividing the total amount of Records
Maintenance Charges anticipated to be collected during the year by the total
net assets of the Separate Account's Divisions and the related Fixed Account
assets.
4. NEITHER THE FEE TABLES NOR THE EXAMPLES ARE REPRESENTATIONS OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
7
<PAGE> 9
- --------------------------------------------------------------------------------
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPARATE ACCOUNT ------------------------------------------------------------------------------------------------------------
DIVISION 12/31/85 12/31/86 12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign Securities
Beginning AUV 3/23/87
(inception)...... -- -- $ 9.99 $ 8.70 $ 10.47 $ 13.32 $ 11.45 $ 11.26 $ 9.64 $ 12.39
End AUV............ -- -- $ 8.70 $ 10.47 $ 13.32 $ 11.45 $ 11.26 $ 9.64 $ 12.39 $ 11.83
End # AU's (000)... -- -- 1,344 1,449 2,978 2,875 2,623 2,878 5,512 5,328
Capital Appreciation
Beginning AUV 3/23/87
(inception)...... -- -- $ 9.99 $ 8.16 $ 9.80 $ 12.08 $ 9.97 $ 15.36 $ 19.09 $ 22.79
End AUV............ -- -- $ 8.16 $ 9.80 $ 12.08 $ 9.97 $ 15.36 $ 19.09 $ 22.79 $ 21.62
End # AU's (000)... -- -- 909 1,714 2,515 2,553 2,834 4,148 5,413 5,136
Growth
Beginning AUV...... $ 10.03 $ 12.99 $ 13.99 $ 13.88 $ 15.43 $ 19.79 $ 18.99 $ 26.36 $ 27.40 $ 29.12
End AUV............ $ 12.99 $ 13.99 $ 13.88 $ 15.43 $ 19.79 $ 18.99 $ 26.36 $ 27.40 $ 29.12 $ 27.36
End # AU's (000)... 2,328 15,087 14,899 12,043 7,998 7,465 8,053 9,030 8,345 5,853
Natural Resources
Beginning AUV 1/1/88
(inception)...... -- -- -- $ 10.00 $ 11.02 $ 12.86 $ 10.77 $ 11.13 $ 11.25 $ 15.11
End AUV............ -- -- -- $ 11.02 $ 12.86 $ 10.77 $ 11.13 $ 11.25 $ 15.11 $ 15.05
End # AU's (000)... -- -- -- 857 1,004 1,323 810 748 1,142 1,220
Convertible
Securities
Beginning AUV 3/23/87
(inception)...... -- -- $ 10.00 $ 8.65 $ 9.76 $ 11.04 $ 10.50 $ 13.12 $ 15.55 $ 18.70
End AUV............ -- -- $ 8.65 $ 9.76 $ 11.04 $ 10.50 $ 13.12 $ 15.55 $ 18.70 $ 16.67
End # AU's (000)... -- -- 1,611 1,636 1,446 1,184 1,034 1,424 2,057 1,915
Strategic
Multi-Asset
Beginning AUV 3/23/87
(inception)...... -- -- $ 10.00 $ 9.06 $ 10.26 $ 12.13 $ 11.06 $ 13.55 $ 13.88 $ 15.78
End AUV............ -- -- $ 9.06 $ 10.26 $ 12.13 $ 11.06 $ 13.55 $ 13.88 $ 15.78 $ 15.16
End # AU's (000)... -- -- 6,663 7,267 7,568 7,487 6,289 5,447 4,546 3,958
Multi-Asset
Beginning AUV 3/23/87
(inception)...... -- -- $ 10.02 $ 9.34 $ 10.09 $ 11.91 $ 11.93 $ 14.98 $ 15.97 $ 16.90
End AUV............ -- -- $ 9.34 $ 10.09 $ 11.91 $ 11.93 $ 14.98 $ 15.97 $ 16.90 $ 16.39
End # AU's (000)... -- -- 13,023 14,199 11,945 11,811 10,975 11,719 10,510 8,354
High Yield
Beginning AUV 1/1/86
(inception)...... -- $ 10.00 $ 11.51 $ 11.53 $ 13.00 $ 12.48 $ 11.01 $ 14.44 $ 16.24 $ 19.07
End AUV............ -- $ 11.51 $ 11.53 $ 13.00 $ 12.48 $ 11.01 $ 14.44 $ 16.24 $ 19.07 $ 17.96
End # AU's (000)... -- 4,695 4,490 4,212 2,361 1,791 2,247 2,813 4,000 2,489
Target '98
Beginning AUV 5/2/88
(inception)...... -- -- -- $ 10.00 $ 10.63 $ 12.29 $ 12.89 $ 15.11 $ 15.97 $ 17.52
End AUV............ -- -- -- $ 10.63 $ 12.29 $ 12.89 $ 15.11 $ 15.97 $ 17.52 $ 16.57
End # AU's (000)... -- -- -- 397 922 941 767 1,132 1,065 1,028
Fixed Income
Beginning AUV...... $ 10.85 $ 12.84 $ 14.37 $ 14.29 $ 15.08 $ 16.78 $ 17.84 $ 20.31 $ 21.34 $ 22.71
End AUV............ $ 12.84 $ 14.37 $ 14.29 $ 15.08 $ 16.78 $ 17.84 $ 20.31 $ 21.34 $ 22.71 $ 21.67
End # AU's (000)... 796 4,793 3,871 3,003 2,240 1,851 1,813 1,785 1,657 1,183
Government & Quality
Bond
Beginning AUV...... $ 10.85 $ 12.80 $ 13.91 $ 13.93 $ 14.95 $ 17.04 $ 18.15 $ 21.00 $ 22.13 $ 23.63
End AUV............ $ 12.80 $ 13.91 $ 13.93 $ 14.95 $ 17.04 $ 18.15 $ 21.00 $ 22.13 $ 23.63 $ 22.60
End # AU's (000)... 7,286 17,128 18,902 12,769 8,752 8,183 8,917 8,626 7,256 6,270
Money Market
Beginning AUV...... $ 10.23 $ 10.85 $ 11.42 $ 12.07 $ 12.78 $ 13.73 $ 14.61 $ 15.23 $ 15.53 $ 15.72
End AUV............ $ 10.85 $ 11.42 $ 12.07 $ 12.78 $ 13.73 $ 14.61 $ 15.23 $ 15.53 $ 15.72 $ 16.10
End # AU's (000)... 700 3,642 6,548 12,570 16,141 11,858 7,594 7,824 5,746 7,324
</TABLE>
- ------------------------------
AUV -- Accumulation Unit Value.
AU -- Accumulation Units.
8
<PAGE> 10
- --------------------------------------------------------------------------------
PERFORMANCE DATA
- --------------------------------------------------------------------------------
From time to time the Separate Account may advertise its Money Market
Division's "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Money Market Division refers to the net income generated for a
Contract funded by an investment in the Division over a seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" is calculated similarly but,
when annualized, the income earned by an investment in the Division is assumed
to be reinvested at the end of each seven-day period. The "effective yield" will
be slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. Neither the yield nor the effective yield takes into
consideration the effect of any capital changes that might have occurred during
the seven-day period, nor do they reflect the impact of premium taxes or any
Annuity Charges or Withdrawal Charges. The impact of other, recurring charges on
both yield figures is, however, reflected in them to the same extent it would
affect the yield (or effective yield) for a Contract of average size.
In addition, the Separate Account may advertise "total return" data for its
other Divisions. Like the yield figures described above, total return figures
are based on historical data and are not intended to indicate future
performance. The "total return" is a computed rate of return that, when
compounded annually over a stated period of time and applied to a hypothetical
initial investment in a Division made at the beginning of the period, will
produce the same Contract Value at the end of the period that the hypothetical
investment would have produced over the same period (assuming a complete
redemption of the Contract at the end of the period). Recurring Contract charges
are reflected in the total return figures in the same manner as they are
reflected in the yield data for Contracts funded through the Money Market
Division. The effect of applicable Withdrawal Charges due to the assumed
redemption will be reflected in the return figures, but may be omitted in
additional return figures given for comparison.
For a more complete description of Contract charges, see "Contract
Charges"; for a more detailed description of the performance data computations,
please refer to the Statement of Additional Information.
- --------------------------------------------------------------------------------
DESCRIPTION OF ANCHOR NATIONAL LIFE INSURANCE
COMPANY AND THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
COMPANY
The Company is a stock life insurance company originally organized under
the laws of the state of California in April 1965. On January 1, 1996, the
Company redomesticated under the laws of the state of Arizona. The principal
business address of the Company is 1 SunAmerica Center, Los Angeles, California
90067-6022. The Company is an indirect wholly owned subsidiary of SunAmerica
Inc., a Maryland corporation.
The Company and its affiliates, SunAmerica Life Insurance Company, First
SunAmerica Life Insurance Company, SunAmerica Asset Management Corp., Imperial
Premium Finance, Inc., Resources Trust Company and two broker-dealers, offer a
full line of financial services, including fixed and variable annuities, mutual
funds, premium finance, and trust administration services. As of September 30,
1995, the Company had $7.78 billion in assets while SunAmerica Inc., the
Company's ultimate parent, together with its subsidiaries, held $28.39 billion
of assets, consisting of $16.84 billion
9
<PAGE> 11
of assets owned, $2.13 billion of assets managed in mutual funds and private
accounts and $9.42 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, as well as in the Company's General
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").
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"). 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> 12
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. In connection with the
redomestication of the Company, the establishment of the Separate Account was
ratified by the Company under Arizona 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
11
<PAGE> 13
objectives is set forth below, more comprehensive information, including a
discussion of potential risks, is found in the Prospectus for the Trust.
Additional copies of this Prospectus, the Trust's Prospectus and the Statement
of Additional Information can be obtained by calling the Administrative Service
Center number on the cover page of this Prospectus. Both Prospectuses should be
read carefully before investing to understand all aspects of the Contract, the
Separate Account and the Portfolios. 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> 14
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)").
FIXED INCOME PORTFOLIO seeks high level of current income consistent with
preservation of capital. This Portfolio will invest primarily in investment
grade, fixed income securities and may engage in Financial Futures Contracts and
options thereon as a hedge against changes in market conditions.
GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current income,
liquidity and security of principal. This Portfolio will invest in obligations
issued, guaranteed or insured by the U.S. Government, its agencies or
instrumentalities ("government securities") and in corporate debt securities
rated Aa or better by Moody's or AA or better by Standard & Poor's ("high
quality corporate bonds"). It is currently anticipated that the Portfolio will
have the majority of its assets invested in government securities since the
Trust is permitted to treat each U.S. agency or instrumentality as a separate
issuer for purposes of determining compliance with diversification standards
imposed by Section 817(h) of the Code. (See "Taxes -- Diversification").
MONEY MARKET PORTFOLIO seeks current income consistent with stability of
principal through investment in a diversified portfolio of money market
instruments maturing in 397 days or less. The Portfolio will maintain a
dollar-weighted average portfolio maturity of not more than 90 days.
There is no assurance that the investment objective of any of the
Portfolios will be met. Contract Owners bear the complete investment risk for
Purchase Payments allocated to a Division. Contract Values will fluctuate in
accordance with the investment performance of the Division(s) to which
13
<PAGE> 15
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.
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"). This charge
is guaranteed by the Company and cannot be increased.
14
<PAGE> 16
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, the Contract Value may be withdrawn at any time during the
Accumulation Period. Contract Owners should consult their own tax counsel or
other tax adviser regarding any withdrawals. (See "Taxes -- Tax Treatment of
Withdrawals -- Non-Qualified Contracts" and "Taxes -- Tax Treatment of
Withdrawals -- Qualified Contracts").
There is a Free Withdrawal Amount which applies to the first withdrawal
during a Contract Year after the first Contract Year. The Free Withdrawal Amount
is equal to 10% of the aggregate Purchase Payments less prior withdrawals.
Alternatively, certain Owners of Non-Qualified Contracts and Contracts issued in
connection with IRAs may choose to withdraw amounts which in the aggregate add
up to 10% of their initial Purchase Payments annually pursuant to the Systematic
Withdrawal Program without charge. The Systematic Withdrawal Program is
available under such Contracts which were issued on and after April 1, 1989. To
participate in the Systematic Withdrawal Program, Owners must complete an
enrollment form which describes the program and send it to the Company, c/o its
Administrative Service Center. Depending on fluctuations in the net asset value
of the Separate Account's Divisions, systematic withdrawals may reduce or even
exhaust Contract Value. (See "Purchases and Contract Value -- Systematic
Withdrawal Program").
A contingent deferred sales charge, which is referred to as the Withdrawal
Charge, may be imposed upon other withdrawals. Withdrawal Charges will vary in
amount depending upon the Contribution Year in which the Purchase Payment being
withdrawn was made, and will be calculated based on the Withdrawal Charge Table,
below, and the amount of Purchase Payment withdrawn which is still subject to
the Withdrawal Charge and not previously withdrawn. The Withdrawal Charge is
deducted from remaining Contract Value so that the actual reduction in Contract
Value as a result
15
<PAGE> 17
of the withdrawal will be greater than the withdrawal amount requested and paid.
Free withdrawals and other withdrawals will be allocated to Purchase Payments on
a first-in-first-out basis so that all withdrawals are allocated to Purchase
Payments to which the lowest Withdrawal Charge, if any, applies.
WITHDRAWAL CHARGE TABLE
<TABLE>
<CAPTION>
APPLICABLE WITHDRAWAL
CONTRIBUTION YEAR CHARGE PERCENTAGE
----------------- ---------------------
<S> <C>
First................................................... 5%
Second.................................................. 4%
Third................................................... 3%
Fourth.................................................. 2%
Fifth................................................... 1%
Sixth and later......................................... 0%
</TABLE>
Where legally permitted, the Withdrawal Charge will be eliminated when a
Contract is issued to an officer, director or employee of the Company or its
affiliates, or an immediate family member of such person. In addition, the
Withdrawal Charge may be waived by the Company on withdrawals where the amount
withdrawn is used to purchase another annuity contract issued by the Company.
Additional information regarding the elimination or waiver of the Withdrawal
Charge may be obtained by contacting the Company.
The amounts obtained from the Withdrawal Charge will be used to pay sales
commissions and other promotional or distribution expenses associated with the
marketing of the Contracts. To the extent that the Withdrawal Charge is
insufficient to cover all sales commissions and other promotional or
distribution expenses, the Company may use any of its corporate assets,
including potential profit which may arise from the Mortality and Expense Risk
Charge, (See "Contract Charges -- Mortality and Expense Risk Charge"), to make
up any difference.
ANNUITY CHARGE
If a Contract Owner elects to have annuity payments made under annuity
option 1, Life Income with Installments Guaranteed or annuity option 2, Joint
and Survivor Annuity (See "Annuity Period -- Annuity Options"), no Annuity
Charge applies and 100% of Contract Value, 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 were being surrendered. Further, no Annuity Charge will be
assessed if annuity option 3 is elected by a Beneficiary under the Death
Benefit.
The Annuity Charge also applies to certain annuitizations of Contract
Values allocated to the General Account.
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 3.5%.
16
<PAGE> 18
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").
OTHER EXPENSES
There are other deductions from and expenses paid out of the assets of the
Trust which are described in the accompanying Trust Prospectus.
REDUCTION OF CHARGES FOR SALES TO CERTAIN GROUPS
The Company may reduce the charges on individual Contracts sold to certain
groups of individuals, or to a trustee, employer or other entity representing a
group, where it is expected that such sales will result in savings of sales or
administrative expenses. The Company determines the eligibility of groups for
such reduced charges, and the amount of such reductions for particular groups,
by considering the following factors: (1) the size of the group; (2) the total
amount of Purchase Payments expected to be received from the group; (3) the
nature of the group for which the Contracts are purchased, and the persistency
expected in that group; (4) the purpose for which the Contracts are purchased
and whether that purpose makes it likely that expenses will be reduced; and (5)
any other circumstances which the Company believes to be relevant to determining
whether reduced sales or administrative expenses may be expected. None of the
reductions in charges for group sales is contractually guaranteed. Such
reductions may be withdrawn or modified by the Company on a uniform basis. The
Company's reductions in charges for group sales will not be unfairly
discriminatory to the interests of any Contract Owners.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
TRANSFER DURING ACCUMULATION PERIOD
During the Accumulation Period, the Contract Owner, or his or her agent,
may transfer Contract Values among Divisions and/or the General Account, by
written request or by telephone authorization. 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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below, are counted against this limitation in the same manner as other
transfers. The fee will be deducted from Contract Values which remain in the
Division from which the transfer was made. If the remaining Contract Value is
insufficient to pay the transfer fee, then the fee will be deducted from
transferred Contract Values. The transfer fee is at cost with no margin included
for profit. The transfer fee may be waived, under certain circumstances, in
connection with pre-approved transfer programs. Contract Owners are not
permitted to transfer amounts allocated or transferred to the Target '98
Division from that Division more frequently than once every 30 days.
This transfer privilege may be suspended, modified or terminated at any
time without notice. (See "Taxes -- Diversification").
The minimum partial transfer amount is $500. No partial transfer may be
made if the value of the Contract Owner's interest in the Division from which a
transfer is being made would be less than $500 after the transfer. As with
initial Purchase Payments, at least $500 must be allocated to a Division before
another Division is selected. These dollar amounts are subject to change at the
Company's option. The Company may waive the minimum partial transfer amount in
connection with pre-authorized automatic transfer programs.
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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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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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 and/or partial annuitizations made since that
anniversary.
Payment of the Death Benefit may be made in one lump sum or applied under
one of the annuity options.
BENEFICIARY
The Contract Owner may designate the Beneficiary(ies) to receive any amount
payable on death. However, where a Contract is jointly owned, each joint Owner
shall be a primary Beneficiary. The original Beneficiary(ies) will be named in
the application. Unless an irrevocable Beneficiary(ies) designation was
previously filed or unless the Contract is jointly owned, the Contract Owner may
change the Beneficiary(ies) prior to the Annuity Date by written request
delivered to the Company, c/o its Administrative Service Center, or by
completing a Change of Beneficiary Form provided by the Company. Any change will
take effect when recorded by the Company. The Company is not liable for any
payment made or action taken before it records the change.
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ANNUITY PERIOD
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ANNUITY DATE
The Contract Owner selects an Annuity Date (the date on which annuity
payments are to begin) at the time of application. The Annuity Date must always
be the first day of a calendar month and must be at least one month after the
Issue Date. Annuity payments will begin no later than the first day of the
calendar month following the Annuitant's 85th birthday. Where joint Annuitants
are named, the Annuity Date may not be later than the first of the month
following the 85th birthday of the youngest Annuitant. The Contract Owner may
change the Annuity Date at any time at least seven days prior to the Annuity
Date then indicated on the Company's records by written notice to the Company,
c/o its Administrative Service Center.
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The actual dollar amount of variable annuity payments is dependent upon:
(1) the Contract Value at the time of annuitization; (2) the annuity table
specified in the Contract; (3) the annuity option selected; and (4) the
investment performance of the Divisions selected. In addition, if annuity option
3, Income for a Specified Period, is elected, an Annuity Charge may apply. (See
"Contract Charges -- Sales Charges" and "Contract Charges -- Annuity Charge").
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, annuity payments will
decrease. If a higher assumed investment rate were used, the initial payment
would be higher, but the actual net investment rate would have to be higher in
order for annuity payments to increase.
The Annuitant receives the value of a fixed number of Annuity Units each
month. The value of a fixed number of Annuity Units will reflect the investment
performance of the Divisions elected, and the amount of each annuity payment
will vary accordingly.
ALLOCATION OF ANNUITY PAYMENTS
If all of the Contract Value on the seventh calendar day before the Annuity
Date is allocated to the General Account, the Annuity will be paid as a fixed
annuity. If all of the Contract Value on that date is allocated to the Separate
Account, the Annuity will be paid as a Variable Annuity. If the Contract Value
on that date is allocated to both the General Account and the Separate Account,
the Annuity will be paid as a combination of a fixed annuity and a Variable
Annuity to reflect the allocation between the accounts. Variable Annuity
payments will reflect the investment performance of the Separate Account
Divisions. The payee(s) may, by written notice to the Company, convert Variable
Annuity payments to fixed annuity payments. However, fixed annuity payments may
not be converted to Variable Annuity payments.
ANNUITY OPTIONS
The Contract Owner, or any Beneficiary who is so entitled, may elect to
receive a lump sum at the end of the Accumulation Period. However, a lump sum
distribution may be deemed to be a withdrawal, and at least a portion of it may
be subject to federal income tax. (See "Taxes -- Tax Treatment of
Withdrawals -- Non-Qualified Contracts" and "Tax Treatment of
Withdrawals -- Qualified Contracts"). Alternatively, an annuity option may be
elected. The Contract Owner may elect an annuity option or change an annuity
option at any time during the lifetime of the Annuitant prior to the Annuity
Date. The Annuitant may make the election on the Annuity Date unless the
Contract Owner has restricted the right to make such an election. The
Beneficiary may elect an annuity option upon the Annuitant's death unless the
Contract Owner has restricted this right.
If no other annuity option is elected, monthly annuity payments will be
made in accordance with annuity option 1 below with a 10 year period certain.
Generally, annuity payments will be made in monthly installments. However, if
the amount available to apply under an annuity option is less than $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 the
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guaranteed period, the present value, based on a 5% annual interest rate, of any
remaining guaranteed payments will be paid to the payee's estate or to the
Beneficiary.
OPTION 2 -- JOINT AND SURVIVOR ANNUITY
An annuity payable monthly while both payees are living. Upon the death of
either payee, the monthly income payable will continue during the lifetime of
the surviving payee at the percentage of the full amount chosen at the time of
election of this annuity option. This is the automatic form of annuity where
joint Annuitants are named, but a different option may be elected.
Annuity payments terminate automatically and immediately upon the death of
the surviving payee without regard to the number or total amount of payments
received.
There is no minimum number of guaranteed payments and it is possible to
have only one annuity payment if both payees die before the due date of the
second payment.
No Annuity Charge applies if either option 1 or option 2 is elected.
OPTION 3 -- INCOME FOR A SPECIFIED PERIOD
If Purchase Payments were made in the Contract Year in which annuity
payments are to begin or in any of the four preceding Contract Years, an Annuity
Charge may apply. The Annuity Charge equals the Withdrawal Charge that would
apply if the Contract were being surrendered. No Annuity Charge will be assessed
if annuity option 3 is elected by a Beneficiary under the Death Benefit.
Under this option, a payee can elect an annuity payable monthly for any
period of years from 5 to 30. This election must be made for full 12 month
periods. In the event the payee dies before the specified number of payments has
been made, the Beneficiary may elect to continue receiving the scheduled
payments or may alternatively elect to receive the present value, based on a 5%
annual interest rate, of any remaining guaranteed payments. Because Contract
Values are redeemable even after the Annuity Date under this option at any time
while payments are being made, the payee may elect to receive the present value
of the remaining payments, commuted at the interest rate used to create the
annuity factor for this option.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. (See "Contract Charges --
Mortality and Expense Risk Charge"). Since annuity option 3, Income for a
Specified Period, does not contain an element of mortality risk, the payee is
not getting the benefit of this Charge. There shall be no right to terminate
the Contract during the Annuity Period if the option elected contains an
element of mortality risk.
OTHER OPTIONS
At the sole discretion of the Company, other annuity options may be made
available to the Contract Owner. However, to the extent that Withdrawal Charges
would otherwise apply to a withdrawal or termination, the identical Withdrawal
Charge may apply with respect to any additional options.
With respect to Contracts issued under Sections 401, 403(b) or 408 of the
Code, any payments will be made only to the Annuitant and the Annuitant's
spouse.
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.
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(2) The entire value in a Separate Account Division must be
transferred.
(3) The request for transfer must be received by the Company, c/o its
Administrative Service Center, during the 45 days preceding the anniversary
of the Contract's Issue Date. The transfer will be effected at the next
Annuity Unit value calculation after receipt of a valid transfer request
which meets the limitations and conditions as are prescribed for transfers
during the Accumulation Period. (See "Transfer During Accumulation
Period").
(4) The amount allocated to the General Account in the event of a
transfer from a Separate Account Division will be equal to the annuity
reserve for the payee's interest in that Separate Account Division. The
annuity reserve is the product of "(A)" multiplied by "(B)" multiplied by
"(C)", where "(A)" is the number of Annuity Units representing the payee's
interest in the Separate Account Division per annuity payment; "(B)" is the
Annuity Unit value for the Separate Account Division; and "(C)" is the
present value of $1.00 per payment period as of the adjusted age of the
payee attained at the time of transfer, determined by using the 1983 Table
A, projected at Scale G with interest at the rate of 5% per annum. Amounts
transferred to the General Account will be applied under the annuity option
originally elected, except that adjustment will be made for the time
elapsed since the Annuity Date. All amounts and Annuity Unit values will be
determined as of the end of the Valuation Period preceding the effective
date of transfer.
(5) The transfer privilege may be suspended or discontinued at any
time.
DEATH BENEFIT DURING ANNUITY PERIOD
If the payee dies after the Annuity Date while the Contract is in force,
the death proceeds, if any, will depend upon the annuity option in effect at the
time of the payee's death. If the Owner or Annuitant, if different, dies after
the Annuity Date and before the entire interest in the Contract has been
distributed, the remaining interest, if any, as provided for in the annuity
option elected will be distributed at least as rapidly as under the method of
distribution in effect at the Owner's or Annuitant's death.
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PURCHASES AND CONTRACT VALUE
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MINIMUM PURCHASE PAYMENT
The minimum initial Purchase Payment for Contracts issued pursuant to a
Non-Qualified Plan is $1,000. Minimum additional Purchase Payments may be made
in amounts of $500. The minimum Purchase Payment for a Contract issued pursuant
to a Qualified Plan is $100. A minimum of $500 must be allocated to one Division
or the General Account before transfers are permitted. (See "Description of the
Contracts -- Transfer During Accumulation Period"). The Company reserves the
right to refuse any Purchase Payment at any time.
MAXIMUM PURCHASE PAYMENT
Purchase Payments of more than $500,000 require prior Company approval.
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.
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Contract Owners making initial Purchase Payments should be sure to specify
their allocations on the application for a Contract. If the application is in
good order, the Company will apply the initial Purchase Payment to the General
Account and the selected Division(s), and credit the Contract with Accumulation
Units within two business days of receipt at the P.O. Box for the Company's
Administrative Service Center. The number of Accumulation Units in a Division
attributable to a Purchase Payment is determined by dividing that portion of the
Purchase Payment which is allocated to the Division by the Division's
Accumulation Unit value during the Valuation Period when the allocation occurs.
IF THE APPLICATION DOES NOT SPECIFY AN ALLOCATION, THE APPLICATION IS NOT
IN GOOD ORDER.
If the application for a Contract is not in good order, the Company will
attempt to rectify it within five business days of its receipt at the P.O. Box
for the Company's Administrative Service Center. The Company will credit the
initial Purchase Payment within two business days after the application has been
rectified. Unless the Contract Owner consents otherwise, the application and the
initial Purchase Payment will be returned if the application cannot be put in
good order within five business days of its receipt.
Just like Contract Owners making initial Purchase Payments, Contract Owners
making subsequent Purchase Payments should be sure to specify how they want
their payments allocated. OTHERWISE, THE COMPANY WILL AUTOMATICALLY PROCESS THE
PURCHASE PAYMENT BASED ON THE PREVIOUS ALLOCATION.
A Contract Owner may elect to increase, decrease or change the frequency or
amount of Purchase Payments. The application and any Purchase Payments should be
sent to the Company at its Administrative Service Center.
ACCUMULATION UNIT VALUE
Accumulation Unit value is determined Monday through Friday (except for the
following Federal holidays) as of 4:00 p.m. New York time.
<TABLE>
<S> <C>
New Year's Day Independence Day
President's Day Labor Day
Good Friday Thanksgiving
Memorial Day Christmas Day
</TABLE>
A separate Accumulation Unit value is determined for each Division. If the
Company elects or is required to assess a charge for taxes, a separate
Accumulation Unit value may be calculated for Non-Qualified and Qualified
Contracts within each Division.
The net assets are determined by calculating the total value of each
Division's assets (that is, the aggregate value of the shares of the Portfolio
of the Trust held by the Division). After calculation of the net assets of a
Division, that amount is reduced by the accrued but unpaid daily charge for
mortality and expense risks and administration expense (which together amount to
1.40% per annum) and any provision for taxes which may occur. After that
calculation, the resulting number is then divided by the number of Accumulation
Units outstanding at the end of the Valuation Period to determine Accumulation
Unit value.
The Accumulation Unit value for each Division will vary with the price of a
share in the underlying Portfolio and in accordance with the Mortality and
Expense Risk Charge, Administrative Expense Charge, and any provision for taxes.
Assessments of premium tax, Withdrawal Charges and Records Maintenance Charges
are made separately for each Contract. They do not affect Accumulation Unit
value.
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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., an indirect wholly-owned subsidiary of SunAmerica Inc., is
registered as a broker-dealer under the Securities Exchange Act of 1934, as
amended, and is a member of the National Association of Securities Dealers, Inc.
WITHDRAWALS (REDEMPTIONS)
Except as explained below, the Contract Owner may redeem a Contract for all
or a portion of the Contract Value during the Accumulation Period. The Contract
Owner may also redeem Contract Values after the Annuity Date if annuity option 3
is elected. Withdrawal Charges may be assessed. (See "Contract
Charges -- Withdrawal Charge").
Effective January 1, 1989, withdrawals of amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in
Section 403(b)(11) of the Code) are limited to circumstances only: when the
Contract Owner attains age 59 1/2, separates from service, dies, becomes
disabled (within the meaning of Section 72(m)(7) of the Code), or in the case of
hardship. Withdrawals for hardship are restricted to the portion of the Contract
Owner's Contract Value which represents contributions made by the Contract Owner
and does not include any investment results. These limitations on withdrawals
apply to: (1) salary reduction contributions made after December 31, 1988; (2)
income attributable to such contributions; and (3) income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers or exchanges between certain Qualified Plans. Tax penalties may
also apply. (See "Taxes -- Tax Sheltered Annuities -- Withdrawal Limitations").
While the foregoing limitations only apply to certain contracts issued in
connection with 403(b) Qualified Plans, all Contract Owners should seek
competent tax advice regarding any withdrawals or distributions.
Except in connection with the Systematic Withdrawal Program, the minimum
partial withdrawal amount is $500, or the Owner's entire interest in the
Division from which a withdrawal is requested. The Owner's interest in the
Division from which the withdrawal is requested must be at least $500 after the
withdrawal is completed if anything is left in that Division.
A written withdrawal request or Systematic Withdrawal Program enrollment
form, as the case may be, must be sent to the Company, c/o its Administrative
Service Center. The required form will not be in good order unless it includes
the Contract Owner's Tax I.D. Number (e.g., Social Security Number) and provides
instructions regarding withholding of income taxes. The Company provides the
required forms.
If the request is for total withdrawal, the Contract or a Lost Contract
Affidavit (which may be obtained by calling the Company's Administrative Service
Center) must be submitted as well. The Withdrawal Value is determined on the
basis of the Accumulation Unit values next computed following receipt of a
request in proper order. The Withdrawal Value will be paid within seven days
after the day a proper request is received by the Company. However, the Company
may suspend the right of withdrawal or delay payment more than seven days: (1)
during any period when the New York Stock Exchange is closed (other than
customary weekend and holiday closings); (2) when trading on the markets the
Separate Account or Portfolios normally utilize is restricted or an
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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
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
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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.
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
27
<PAGE> 29
rollover distribution (including an amount equal to the 20% portion of the
distribution that was withheld) could have adverse tax consequences, including
the imposition of a penalty tax on premature withdrawals, described later in
this section.
Withdrawals or distributions from a Contract other than eligible rollover
distributions are also subject to withholding on the estimated taxable portion
of the distribution, but the Contract Owner may elect in such cases to waive the
withholding requirement. If not waived, withholding is imposed (1) for periodic
payments, at the rate that would be imposed if the payments were wages, or (2)
for other distributions, at the rate of 10%. If no withholding exemption
certificate is in effect for the payee, the rate under (1) above is computed by
treating the payee as a married individual claiming 3 withholding exemptions.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified, in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the close of each quarter, the underlying
assets meet the diversification standards for a regulated investment company,
and no more than 55% of the total assets consist of cash, cash items, U.S.
Government securities and securities of other regulated investment companies.
The Treasury Department has issued Regulations which establish
diversification requirements for the investment portfolios underlying variable
contracts such as the Contracts. The Regulations amplify the diversification
requirements for variable contracts set forth in the Code and provide an
alternative to the safe harbor provision described above. Under the Regulations
an investment portfolio will be deemed adequately diversified if: (1) no more
than 55% of the value of the total assets of the portfolio is represented by any
one investment; (2) no more than 70% of the value of the total assets of the
portfolio is represented by any two investments; (3) no more than 80% of the
value of the total assets of the portfolio is represented by any three
investments; and (4) no more than 90% of the value of the total assets of the
portfolio is represented by any four investments. For purposes of determining
whether or not the diversification standards imposed on the underlying assets of
variable contracts by Section 817(h) of the Code have been met, "each United
States government agency or instrumentality shall be treated as a separate
issuer."
The Company intends that each Portfolio of the Trust underlying the
Contracts will be managed by the investment adviser for the Trust in such a
manner as to comply with these diversification requirements.
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.
28
<PAGE> 30
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").
QUALIFIED PLANS
The Contracts offered by this Prospectus are designed to be suitable for
use under various types of Qualified Plans. Taxation of participants in each
Qualified Plan varies with the type of plan and the terms and conditions of each
specific plan. Contract Owners, Annuitants and Beneficiaries are cautioned that
benefits under a Qualified Plan may be subject to the terms and conditions of
the plan, regardless of the terms and conditions of the contracts issued
pursuant to the plan.
Following are general descriptions of the types of Qualified Plans with
which the Contracts may be used. Such descriptions are not exhaustive and are
for general informational purposes only. The tax rules regarding Qualified Plans
are very complex and will have differing applications depending on individual
facts and circumstances. Each purchaser should obtain competent tax advice prior
to purchasing a Contract issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this Prospectus. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals -- Qualified Contracts").
(A) H.R. 10 PLANS
Section 401 of the Code permits self-employed individuals to establish
Qualified Plans for themselves and their employees, commonly referred to as
"H.R. 10" or "Keogh" Plans. Contributions made to the Plan for the benefit
of the employees will not be included in the gross income of the employees
until distributed from the Plan. The tax consequences to participants may
vary depending upon the particular Plan design. However, the Code places
limitations and restrictions on all Plans on such items as: amounts of
allowable contributions; form, manner and timing of distributions; vesting
and nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. (See "Tax Treatment of Withdrawals -- Qualified Contracts").
Purchasers of Contracts for use with an H.R. 10 Plan should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
29
<PAGE> 31
(B) TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered
annuities" by public schools and certain charitable, educational and
scientific organizations described in Section 501(c)(3) of the Code. These
qualifying employers may make contributions to the Contracts for the
benefit of their employees. Such contributions are not includible in the
gross income of the employee until the employee receives distributions from
the Contract. The amount of contributions to the tax-sheltered annuity is
limited to certain maximums imposed by the Code. Furthermore, the Code sets
forth additional restrictions governing such items as transferability,
distributions, nondiscrimination and withdrawals. (See "Tax Treatment of
Withdrawals -- Qualified Contracts"). Any employee should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
(C) INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute
to an individual retirement program known as an "Individual Retirement
Annuity" ("IRA"). Under applicable limitations, certain amounts may be
contributed to an IRA which will be deductible from the individual's gross
income. These IRAs are subject to limitations on eligibility,
contributions, transferability and distributions. (See "Tax Treatment of
Withdrawals -- Qualified Contracts"). Under certain conditions,
distributions from other IRAs and other Qualified Plans may be rolled over
or transferred on a tax-deferred basis into an IRA. Sales of Contracts for
use with IRAs are subject to special requirements imposed by the Code,
including the requirement that certain informational disclosure be given to
persons desiring to establish an IRA. Purchasers of Contracts to be
qualified as IRAs should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
(D) CORPORATE PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Code permit corporate employers to
establish various types of retirement plans for employees. These retirement
plans may permit the purchase of the Contracts to provide benefits under
the plan. Contributions to the plan for the benefit of employees will not
be includible in the gross income of the employee until distributed from
the plan. The tax consequences to participants may vary depending upon the
particular plan design. However, the Code places limitations on all plans
on such items as amount of allowable contributions; form, manner and timing
of distributions; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation; and the tax treatment
of distributions, withdrawals and surrenders. (See "Tax Treatment of
Withdrawals -- Qualified Contracts".) Purchasers of Contracts for use with
corporate pension or profit sharing plans should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
TAX TREATMENT OF WITHDRAWALS -- QUALIFIED CONTRACTS
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion
of any early distribution from qualified retirement plans, including contracts
issued and qualified under Code Sections 401 (H.R. 10 and Corporate Pension and
Profit Sharing Plans), 403(b) (Tax-Sheltered Annuities) and 408(b) (IRAs).
The tax penalty will not apply to the following distributions: (1) if
distribution is made on or after the date on which the Contract Owner or
Annuitant (as applicable) reaches age 59 1/2; (2) distributions following the
death or disability of the Contract Owner or Annuitant (as applicable) (for this
purpose "disability" is defined in Section 72(m)(7) of the Code); (3)
distributions that are part of substantially equal periodic payments made not
less frequently than annually for the life (or life expectancy) of the Contract
Owner or Annuitant (as applicable) or the joint lives (or joint life
expectancies) of such Contract Owner or Annuitant (as applicable) and his or her
designated Beneficiary; (4) distributions to a Contract Owner or Annuitant (as
applicable) who has separated from service after he or she has attained age 55;
(5) distributions made to the Contract Owner or
30
<PAGE> 32
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") that is transferred
within 60 days of receipt into a plan qualified under section 401(a) or 403(a)
of the Code, a tax-sheltered annuity, an IRA, or an individual retirement
account described in section 408(a) of the Code. Plans making such eligible
rollover distributions are also required, with some exceptions specified in the
Code, to provide for a direct "trustee to trustee" transfer of the distribution
to the transferee plan designated by the recipient.
TAX SHELTERED ANNUITIES -- WITHDRAWAL LIMITATIONS
The Tax Reform Act of 1986, effective January 1, 1989, limits the
withdrawal of amounts attributed to contributions made pursuant to a salary
reduction agreement (as defined in Section 403(b)(11) of the Code) to
circumstances only: when the Contract Owner attains age 59 1/2, separates from
service, dies, becomes disabled (within the meaning of Section 72(m)(7) of the
Code), or in the case of hardship. Withdrawals for hardship are restricted to
the portion of the Contract Owner's Contract Value which represents
contributions by the Contract Owner and does not include any investment results.
These limitations on withdrawals apply only to salary reduction contributions
made after December 31, 1988, to income attributable to such contributions, and
to income attributable to amounts held as of December 31, 1988. The limitations
on withdrawals do not affect rollovers or exchanges between certain Qualified
Plans. Contract Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
DEFERRED COMPENSATION PLANS -- SECTION 457
Under Section 457 of the Code, governmental and certain other tax exempt
employers may establish deferred compensation plans for the benefit of their
employees which may invest in annuity contracts. The Code, as in the case of
Qualified Plans, establishes limitations and restrictions on eligibility,
contributions, and distributions. Under these plans, contributions made for the
benefit of the employees will not be includible in the employees' gross income
until distributed from the plan. However, under a 457 plan all the plan assets
shall remain solely the property of the employer, subject only to the claims of
the employer's general creditors until such time as made available to a
participant or a beneficiary.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no legal proceedings to which the Separate Account is a party or
to which the assets of the Separate Account are subject. The Company is engaged
in various kinds of routine litigation that in the Company's judgment will not
have a material adverse impact upon the Company's financial position.
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<PAGE> 33
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ITEM PAGE
----
<S> <C>
COMPANY.............................................................................. 1
INDEPENDENT ACCOUNTANTS.............................................................. 1
DISTRIBUTORS......................................................................... 1
PERFORMANCE DATA..................................................................... 1
Money Market Division.............................................................. 2
Other Divisions.................................................................... 3
ANNUITY PAYMENTS..................................................................... 4
Annuity Unit Value................................................................. 4
Amounts of Annuity Payments........................................................ 4
Subsequent Monthly Payments........................................................ 5
FINANCIAL STATEMENTS................................................................. 5
</TABLE>
32
<PAGE> 34
As filed pursuant to Rule 497(c)
under the Securities Act of 1933
Registration Nos. 33-32569 and 811-4296
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ANNUITY ACCOUNT ONE
of
ANCHOR NATIONAL LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION
SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL FLEXIBLE
PREMIUM DEFERRED VARIABLE ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE
INVESTOR OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS DATED
JANUARY 31, 1996, AS IT MAY BE SUPPLEMENTED, CALL OR WRITE THE COMPANY
C/O ITS ADMINISTRATIVE SERVICE CENTER, P.O. BOX 54299, LOS ANGELES,
CALIFORNIA 90054-0299, 1-800-445-SUN2.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED
JANUARY 31, 1996
<PAGE> 35
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
<S> <C>
COMPANY .......................................... 1
INDEPENDENT ACCOUNTANTS........................... 1
DISTRIBUTORS ..................................... 1
PERFORMANCE DATA.................................. 1
Money Market Division........................... 2
Other Divisions................................. 3
ANNUITY PAYMENTS ................................. 4
Annuity Unit Value ............................. 4
Amount of Annuity Payments ..................... 4
Subsequent Monthly Payments .................... 5
FINANCIAL STATEMENTS ............................. 5
</TABLE>
<PAGE> 36
COMPANY
Information regarding the Anchor National Life Insurance Company (the
"Company") and its ownership is contained in the Prospectus.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of the Company as of September
30, 1995 and 1994 and for each of the three years in the period ended September
30, 1995 are presented in this Statement of Additional Information. The
consolidated financial statements of the Company should be considered only as
bearing on the ability of the Company to meet its obligation under the
Contracts. The financial statements of the Separate Account as of December 31,
1994 and for each of the two years in the period ended December 31, 1994, also
are included in this Statement of Additional Information.
Price Waterhouse LLP, 400 South Hope Street, Los Angeles, California
90071, serves as the independent accountants for the Separate Account and the
Company. The financial statements referred to above included in this Statement
of Additional Information have been so included in reliance on the reports of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
DISTRIBUTORS
The Contracts are sold by licensed insurance agents, where the
Contracts may be lawfully sold, who are registered representatives of
broker-dealers which are registered under the Securities Exchange Act of 1934
and are members of the National Association of Securities Dealers, Inc.
The offering is on a continuous basis.
Effective January 28, 1994, the Contracts are offered through the
distributors for the Separate Account, SunAmerica Capital Services, Inc., 733
Third Avenue, 4th Floor, New York, New York 10017, which is an indirect wholly
owned subsidiary of SunAmerica Inc. Prior to this time, Anchor National
Financial Services, Inc., SunAmerica Securities, Inc., both located at 2800 N.
Central Avenue, Phoenix, Arizona 85004, and Royal Alliance Associates, Inc.,
located at 733 Third Street, 4th Floor, New York, New York 10017, served as
co-distributors of the Contract. SunAmerica Securities, Inc. and Royal
Alliance Associates, Inc. are each an indirect wholly-owned subsidiary of
SunAmerica Inc. Prior to the closing date of the assumption reinsurance
agreement between Integrated Resources Life Insurance Company and Anchor
National Life Insurance Company discussed in the Prospectus, the principal
underwriter of the Contracts was Integrated Resources Capital Services, Inc.
For the year ended December 31, 1992, the aggregate amount of
underwriting commissions paid to Anchor National Financial Services, SunAmerica
Capital Services, Inc. and Royal Alliance Associates, Inc. was $7,335,620, of
which $1,454,413 was retained by them. For the year ended December 31, 1993,
the aggregate amount of underwriting commissions paid to SunAmerica Securities,
Inc. and Royal Alliance Associates, Inc. was $5,737,997, of which $1,203,412
was retained by them. For the year ended
<PAGE> 37
December 31, 1994, the aggregate amount of underwriting commissions paid to
SunAmerica Capital Services, Inc. was $2,973,118, of which $309,945 was
retained by them.
PERFORMANCE DATA
Performance data for the various Divisions of the Separate Account are
determined in the manner described below.
Money Market Division
The annualized current yield and the effective yield for the Money
Market Division for the 7 day period ended December 31, 1994 were 2.72% and
2.75%, respectively.
Current yield is computed by first determining the Base Period Return
attributable to a hypothetical Contract having a balance of one Accumulation
Unit at the beginning of a 7 day period using the formula:
Base Period Return = (EV-SV)/(SV)
where:
SV = value of one Accumulation Unit at the start of a 7
day period
EV = value of one Accumulation Unit at the end of the 7
day period
The value of the Accumulation Unit at the end of the period (EV) is
determined by (1) adding, to the value of the Unit at the beginning of the
period (SV), the investment income from the Money Market Division attributed to
the Accumulation Unit over the period, and (2) subtracting, from the result,
the sum of (a) the portion of the annual Mortality and Expense Risk and
Administrative Charges allocable to the 7 day period (obtained by multiplying
the charges by the fraction 7/365), and (b) a prorated portion of the annual
Records Maintenance Charge of $30 per Contract. The Records Maintenance Charge
is first allocated among the Divisions and the General Account so that each
Division's allocated portion of the charge is proportional to the percentage of
the number of Contract Owners' accounts that have money allocated to that
Division. The portion of the Charge allocable to the Money Market Division is
further reduced, for purposes of the yield computation, by multiplying it by
the ratio that the value of the hypothetical Contract bears to the value of an
account of average size for Contracts funded by the Money Market Division.
Finally, as is done with the other charges discussed above, the result is
multiplied by the fraction 7/365 to arrive at the portion attributable to the 7
day period.
The current yield is then obtained by annualizing the Base Period
Return:
Current Yield = (Base Period Return) x (365/7)
The Money Market Division also quotes an "effective yield" that
differs from the current yield given above in that it takes into account the
effect of dividend reinvestment in the Money Market Division. The effective
yield, like the current yield, is derived from the Base
<PAGE> 38
Period Return over a 7 day period. However, the effective yield accounts for
dividend reinvestment by compounding the current yield according to the
formula:
Effective Yield = [(Base Period Return + 1) to the 365/7 power -1].
Net investment income for yield quotation purposes will not include
either realized capital gains and losses or unrealized appreciation and
depreciation, whether reinvested or not. The yield quotations also do not
reflect any impact of premium taxes, transfer fees, or Withdrawal or Annuity
Charges.
The yields quoted should not be considered a representation of the
yield of the Money Market Division in the future since the yield is not fixed.
Actual yields will depend not only on the type, quality and maturities of the
investments held by the Money Market Division and changes in interest rates on
such investments, but also on factors such as a Contract Owner's account size
(since the impact of fixed dollar charges will be greater for small accounts
than for larger accounts).
Yield information may be useful in reviewing the performance of the
Money Market Division and for providing a basis for comparison with other
investment alternatives. However, the Money Market Division's yield
fluctuates, unlike bank deposits or other investments that typically pay a
fixed yield for a stated period of time.
Other Divisions
Divisions of the Separate Account other than the Money Market Division
compute their performance data as "total return." The total returns of the
various Divisions over the last 1, 5 and 10 year periods, and since their
inception, are shown below, both with/without an assumed complete redemption at
the end of the period.
Total Annual Return (in percent) for Periods Ending on 12/31/94:
(RETURN WITH/WITHOUT REDEMPTION)
<TABLE>
<CAPTION>
Inception Since
Division Date 1 Year 5 Years 10 Years Inception
- -------- --------- ------ ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Foreign Securities 3/23/87 -9.76/-4.76 -2.88/-2.68 ---- 1.90/1.90
Capital Appreciation 3/23/87 -10.26/-5.26 12.05/12.16 ---- 10.23/10.23
Growth 8/13/84 11.16/-6.16 6.42/6.56 10.45/10.45 10.07/10.07
Natural Resources 1/01/88 -5.78/-0.78 2.54/2.70 ---- 5.62/5.62
Convertible Securities 3/23/87 -16.08/-11.08 8.22/8.35 ---- 6.54/6.54
Strategic Multi-Asset 3/23/87 -9.12/-4.12 4.23/4.38 ---- 5.33/5.33
Multi-Asset 3/23/87 -8.17/-3.17 6.35/6.49 ---- 6.42/6.42
High Yield 1/01/86 -10.98/-5.98 7.21/7.35 ---- 6.54/6.54
Target '98 5/02/88 -10.59/-5.59 5.89/6.04 ---- 7.76/7.76
Fixed Income 8/13/84 -9.83/-4.83 4.90/5.04 7.00/7.00 7.58/7.58
Gov't Quality Bond 8/13/84 -9.52/-4.52 5.55/5.69 7.52/7.52 8.07/8.07
- ---------------------
</TABLE>
Total return figures are based on historical data and are not intended to
indicate future performance.
These figures show the total return hypothetically
<PAGE> 39
experienced by Contracts funded through the various Divisions of the Account
over the time periods shown.
Total return for a Division represents a computed annual rate of
return that, when compounded annually over the time period shown and applied to
a hypothetical initial investment in a Contract funded by that Division made at
the beginning of the period, will produce the same Contract Value at the end of
the period that the hypothetical investment would have produced over the same
period. The total rate of return (T) is computed so that it satisfies the
formula:
P(1+T) to the nth power = ERV
where:
P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1000 payment made at the beginning of the 1, 5,
or 10 year periods at the end of the 1, 5, or 10
year periods (or fractional portion thereof).
The total return figures given reflect the effects of both
non-recurring and recurring charges, as discussed herein. Recurring charges
are taken into account in a manner similar to that used for the yield
computations for the Money Market Division, described above. The applicable
Withdrawal Charge (if any) is deducted as of the end of the period, to reflect
the effect of the assumed complete redemption in the case of the first of the
two figures given in the table above for each Division and time period.
Because the impact of Records Maintenance Charges on a particular Contract
Owner's account would generally have differed from that assumed in the
computation, due to differences between most actual allocations and the assumed
one, as well as differences due to varying account sizes, the total return
experienced by an actual account over these same time periods would generally
have been different from those given above. As with the Money Market Division
yield figures, total return figures are derived from historical data and are
not intended to be a projection of future performance.
ANNUITY PAYMENTS
Annuity Unit Value
The value of an Annuity Unit is determined independently for
each Separate Account Division.
For each Division, the value of an Annuity Unit for any
Valuation Period is determined by multiplying the Annuity Unit value for the
immediately preceding Valuation Period by the net investment factor for the
Valuation Period for which the Annuity Unit value is being calculated and
multiplying the result by an interest factor which offsets the effect of the
investment earnings rate of five percent (5%) per annum that is assumed in the
annuity table contained in the Contract.
The net investment factor for each Division for a Valuation
Period is determined by dividing (a) by (b) and subtracting (c) from the result
where: (a) is the value of an Accumulation Unit from the applicable
<PAGE> 40
Division as of the end of the current Valuation Period; (b) is the value of an
Accumulation Unit for the applicable Division as of the end of the immediately
preceding Valuation Period; and (c) is a factor representing the daily charge
for mortality and expense risks and administration of one and four-tenths
percent (1.40%) per annum.
Amount of Annuity Payments
The initial annuity payment is determined by applying the
Contract Value, less any premium tax, and less any Annuity Charge (if annuity
option 3 is elected), to the annuity table specified in the Contract. Those
tables are based on a set amount per $1,000 of proceeds applied. The
appropriate rate must be determined by the sex and adjusted age of the
Annuitant and joint Annuitant, if any. The adjusted age is determined from the
actual age to the nearest birthday at the Annuity Date according to the table
below. The Adjusted Age Table is used to correct for population mortality
improvements over time.
Adjusted Age Table
<TABLE>
<CAPTION>
Adjustment Adjustment
Calendar to Actual Calendar to Actual
Year of Birth Age Year of Birth Age
- ------------- --- ------------- ---
<S> <C> <C> <C>
1899-1905 +6 1946-1951 -1
1906-1911 +5 1952-1958 -2
1912-1918 +4 1959-1965 -3
1919-1925 +3 1966-1972 -4
1926-1932 +2 1973-1979 -5
1933-1938 +1 1980-1985 -6
1939-1945 0 1986-1992 -7
</TABLE>
The dollars applied are then divided by 1,000 and multiplied
by the appropriate annuity factor to indicate the amount of the first annuity
payment. That amount is divided by the value of an Annuity Unit as of the
Annuity Date to establish the number of Annuity Units representing each annuity
payment. The number of Annuity Units determined for the first annuity payment
remains constant for the second and subsequent monthly payments.
Subsequent Monthly Payments
The amount of the second and subsequent annuity payments is
determined by multiplying the number of Annuity Units by the Annuity Unit value
as of the Valuation Period next preceding the date on which each annuity
payment is due. The dollar amount of the first annuity payment determined as
above is divided by the value of an Annuity Unit as of the Annuity Date to
establish the number of Annuity Units representing each annuity payment. The
number of Annuity Units determined for the first annuity payment remains
constant for the second and subsequent monthly payments.
FINANCIAL STATEMENTS
The consolidated financial statements of the Company included
herein should be considered only as bearing upon the ability of the Company to
meet its obligations under the Contracts. The financial
<PAGE> 41
statements of the Separate Account are also included in this Statement of
Additional Information.
<PAGE> 42
[LOGO]
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
<PAGE> 43
[PRICE WATERHOUSE LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Anchor National Life Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated income statement and statement of cash flows present fairly, in
all material respects, the financial position of Anchor National Life Insurance
Company and its subsidiaries at September 30, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 7, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," in fiscal 1994.
Price Waterhouse LLP
Los Angeles, California
November 6, 1995
<PAGE> 44
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
--------------- ---------------
<S> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 249,209,000 $ 157,438,000
Bonds, notes and redeemable preferred stocks:
Available for sale, at fair value
(amortized cost: 1995, $1,500,062,000;
1994, $1,108,271,000) 1,489,213,000 1,026,120,000
Held for investment, at amortized cost
(fair value: 1995, $165,004,000; 1994, $180,247,000) 157,901,000 175,885,000
Mortgage loans 94,260,000 108,332,000
Common stocks, at fair value (cost: 1995, $6,576,000;
1994, $8,789,000) 4,097,000 7,550,000
Real estate 55,798,000 89,539,000
Other invested assets 64,430,000 67,208,000
--------------- ---------------
Total investments 2,114,908,000 1,632,072,000
Variable annuity assets 5,230,246,000 4,486,703,000
Accrued investment income 14,192,000 17,565,000
Deferred acquisition costs 383,069,000 416,289,000
Other assets 41,282,000 49,497,000
--------------- ---------------
TOTAL ASSETS $ 7,783,697,000 $ 6,602,126,000
=============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $ 1,497,052,000 $ 1,437,488,000
Reserves for guaranteed investment contracts 277,095,000 ---
Payable to brokers for purchases of securities 155,861,000 124,624,000
Income taxes currently payable 15,720,000 12,331,000
Other liabilities 58,204,000 58,891,000
--------------- ---------------
Total reserves, payables and accrued liabilities 2,003,932,000 1,633,334,000
--------------- ---------------
Variable annuity liabilities 5,230,246,000 4,486,703,000
--------------- ---------------
Subordinated notes payable to Parent 34,000,000 34,000,000
--------------- ---------------
Deferred income taxes 73,459,000 64,567,000
--------------- ---------------
Shareholder's equity:
Common Stock 3,511,000 3,511,000
Additional paid-in capital 252,876,000 252,876,000
Retained earnings 191,346,000 152,088,000
Net unrealized losses on debt and equity
securities available for sale (5,673,000) (24,953,000)
--------------- ---------------
Total shareholder's equity 442,060,000 383,522,000
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 7,783,697,000 $ 6,602,126,000
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 45
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Investment income $ 129,466,000 $ 127,758,000 $ 137,591,000
------------- ------------- -------------
Interest expense on:
Fixed annuity contracts (72,975,000) (66,311,000) (87,479,000)
Guaranteed investment contracts (3,733,000) --- ---
Senior indebtedness (227,000) (71,000) (34,000)
Subordinated notes payable to Parent (2,448,000) (2,380,000) (1,166,000)
------------- ------------- -------------
Total interest expense (79,383,000) (68,762,000) (88,679,000)
------------- ------------- -------------
NET INVESTMENT INCOME 50,083,000 58,996,000 48,912,000
NET REALIZED INVESTMENT LOSSES (4,363,000) (33,713,000) (22,247,000)
------------- ------------- -------------
Fee income:
Variable annuity fees 84,171,000 79,101,000 67,222,000
Asset management fees 26,935,000 31,302,000 32,293,000
Net retained commissions 23,267,000 19,180,000 16,928,000
------------- ------------- -------------
TOTAL FEE INCOME 134,373,000 129,583,000 116,443,000
------------- ------------- -------------
Other income and expenses:
Surrender charges 5,889,000 5,034,000 5,306,000
General and administrative expenses (61,629,000) (52,636,000) (55,142,000)
Provision for future guaranty fund
assessments --- --- (4,800,000)
Amortization of deferred acquisition costs (57,005,000) (43,992,000) (30,825,000)
Other, net (2,351,000) 4,048,000 5,865,000
------------- ------------- -------------
TOTAL OTHER INCOME AND EXPENSES (115,096,000) (87,546,000) (79,596,000)
------------- ------------- -------------
PRETAX INCOME 64,997,000 67,320,000 63,512,000
Income tax expense (25,739,000) (22,705,000) (21,794,000)
------------- ------------- -------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR INCOME TAXES 39,258,000 44,615,000 41,718,000
Cumulative effect of change in accounting
for income taxes --- (20,463,000) ---
------------- ------------- -------------
NET INCOME $ 39,258,000 $ 24,152,000 $ 41,718,000
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 46
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 39,258,000 $ 24,152,000 $ 41,718,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Interest credited to:
Fixed annuity contracts 72,975,000 66,311,000 87,479,000
Guaranteed investment contracts 3,733,000 --- ---
Net realized investment losses 4,363,000 33,713,000 22,247,000
Accretion of net discounts on
investments (6,865,000) (2,050,000) (9,149,000)
Amortization of goodwill 1,168,000 1,169,000 1,167,000
Provision for deferred income taxes (1,489,000) 19,395,000 2,982,000
Cumulative effect of change in
accounting for income taxes --- 20,463,000 ---
Change in:
Deferred acquisition costs (7,180,000) (34,612,000) (48,413,000)
Other assets 7,047,000 5,133,000 3,017,000
Income taxes receivable/payable 3,389,000 6,559,000 23,479,000
Other liabilities 2,231,000 46,000 11,596,000
Other, net 3,380,000 (950,000) 466,000
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 122,010,000 139,329,000 136,589,000
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts 245,320,000 138,526,000 63,796,000
Guaranteed investment contracts 275,000,000 --- ---
Net exchanges to (from) the fixed
accounts of variable annuity
contracts 10,475,000 (29,286,000) (45,516,000)
Withdrawal payments on:
Fixed annuity contracts (237,977,000) (269,412,000) (245,250,000)
Guaranteed investment contracts (1,638,000) --- ---
Claims and annuity payments on
fixed annuity contracts (31,237,000) (31,146,000) (33,938,000)
Net increase in subordinated notes
payable to Parent --- --- 18,500,000
Net receipts from (repayments of)
other short-term financings 5,034,000 (166,685,000) 38,857,000
------------ ------------ ------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 264,977,000 (358,003,000) (203,551,000)
------------ ------------ ------------
</TABLE>
<PAGE> 47
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Years ended September 30,
---------------------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Bonds, notes and redeemable preferred
stocks available for sale $(1,556,586,000) $(1,197,743,000) $(1,254,755,000)
Bonds, notes and redeemable preferred
stocks held for investment --- (209,000) (64,167,000)
Mortgage loans --- (10,666,000) (39,100,000)
Other investments, excluding
short-term investments (13,028,000) (26,108,000) (31,674,000)
Sales of:
Bonds, notes and redeemable preferred
stocks available for sale 1,026,078,000 877,068,000 878,277,000
Bonds, notes and redeemable preferred
stocks held for investment --- --- 82,014,000
Real estate 36,813,000 33,443,000 38,333,000
Other investments, excluding
short-term investments 5,130,000 2,353,000 21,616,000
Redemptions and maturities of:
Bonds, notes and redeemable preferred
stocks available for sale 157,195,000 139,691,000 255,787,000
Bond, notes and redeemable preferred
stocks held for investment 21,493,000 34,072,000 184,925,000
Investment in real estate separate
account --- --- 92,130,000
Mortgage loans 14,403,000 10,087,000 17,614,000
Other investments, excluding
short-term investments 13,286,000 13,500,000 6,962,000
Payment of holdback liability for 1990
purchase of annuity business --- --- (14,250,000)
--------------- --------------- ---------------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES (295,216,000) (124,512,000) 173,712,000
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS 91,771,000 (343,186,000) 106,750,000
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 157,438,000 500,624,000 393,874,000
--------------- --------------- ---------------
CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD $ 249,209,000 $ 157,438,000 $ 500,624,000
=============== =============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid on indebtedness $ 3,235,000 $ 1,175,000 $ 34,000
=============== =============== ===============
Income taxes paid (recovered) $ 23,656,000 $ (3,328,000) $ (6,736,000)
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 48
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL: Anchor National Life Insurance Company (the "Company") is a
wholly owned indirect subsidiary of SunAmerica Inc. (the "Parent").
The consolidated financial statements include the accounts of the
Company and all significant subsidiaries, including Anchor Investment
Advisor, Inc.; SunAmerica Asset Management Corp.; SunAmerica Capital
Services, Inc.; Saamsun Holdings Corp.; SAM Holdings Corporation;
SunRoyal Holding Corporation; and Royal Alliance Associates, Inc.
All significant intercompany transactions have been eliminated.
Certain items have been reclassified to conform to the current year's
presentation.
INVESTMENTS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and
short-term bank participations. All such investments are carried at
cost plus accrued interest, which approximates fair value, have
maturities of three months or less and are considered cash equivalents
for purposes of reporting cash flows. Bonds, notes and redeemable
preferred stocks available for sale and common stocks are carried at
aggregate fair value and changes in unrealized gains or losses, net of
tax, are credited or charged directly to shareholder's equity. It is
management's intent, and the Company has the ability, to hold the
remainder of bonds, notes and redeemable preferred stocks until
maturity, and therefore, these investments are carried at amortized
cost. Bonds, notes and redeemable preferred stocks, whether available
for sale or held for investment, are reduced to estimated net
realizable value when necessary for declines in value considered to be
other than temporary. Estimates of net realizable value are
subjective and actual realization will be dependant upon future
events. Mortgage loans are carried at amortized unpaid balances, net
of provisions for estimated losses. Real estate is carried at the
lower of cost or fair value. Other invested assets include
investments in limited partnerships, most of which are accounted for
by using the cost method of accounting; separate account investments;
leveraged leases; policy loans, which are carried at unpaid balances;
and collateralized mortgage obligation residuals. Realized gains and
losses on the sale of investments are recognized in operations at the
date of sale and are determined using the specific cost identification
method. Premiums and discounts on investments are amortized to
investment income using the interest method over the contractual lives
of the investments.
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, over the estimated lives of the contracts in
relation to the present value of estimated gross profits, which are
composed of net interest income, net realized investment gains and
losses, variable annuity fees, surrender charges and direct
administrative expenses. Costs incurred to sell mutual funds are also
deferred and amortized over the estimated lives of the funds obtained.
Deferred acquisition costs consist of commissions and other costs
which vary with, and are primarily related to, the production or
acquisition of new business.
2
<PAGE> 49
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
As debt and equity securities available for sale are carried at
aggregate fair value, an adjustment is made to deferred acquisition
costs equal to the change in amortization that would have been
recorded if such securities had been sold at their stated aggregate
fair value and the proceeds reinvested at current yields. The change
in this adjustment, net of tax, is included with the change in net
unrealized gains or losses on debt and equity securities available for
sale that is credited or charged directly to shareholder's equity. At
September 30, 1995 and 1994, deferred acquisition costs have been
increased by $4,600,000 and $45,000,000, respectively, for this
adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated
in separate accounts. The Company receives administrative fees for
managing the funds and other fees for assuming mortality and certain
expense risks. Such fees are included in Variable Annuity Fees in the
income statement.
GOODWILL: Goodwill, amounting to $20,647,000 at September 30, 1995,
is amortized by using the straight-line method over a period averaging
25 years and is included in Other Assets in the balance sheet.
CONTRACTHOLDER RESERVES: Contractholder reserves for fixed annuity
contracts and guaranteed investment contracts are accounted for as
investment-type contracts in accordance with Statement of Financial
Accounting Standards No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains
and Losses from the Sale of Investments," and are recorded at
accumulated value (premiums received, plus accrued interest, less
withdrawals and assessed fees).
FEE INCOME: Variable Annuity fees and asset management fees are
recognized in income as earned. Net retained commissions are
recognized on a trade date basis.
INCOME TAXES: The Company is included in the consolidated federal
income tax return of the Parent and files as a "life insurance
company" under the provisions of the Internal Revenue Code of 1986.
Income taxes have been calculated as if the Company filed a separate
return. Effective October 1, 1993 deferred income tax assets and
liabilities are recognized based on the difference between financial
statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.
3
<PAGE> 50
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale and held for investment
by major category follow:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------------- ---------------
<S> <C> <C>
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States Government $ 63,701,000 $ 65,195,000
Mortgage-backed securities 1,144,645,000 1,134,361,000
Securities of public utilities 792,000 774,000
Corporate bonds and notes 290,924,000 288,883,000
--------------- ---------------
Total available for sale $ 1,500,062,000 $ 1,489,213,000
=============== ===============
HELD FOR INVESTMENT:
Securities of the United States Government $ 10,379,000 $ 10,797,000
Mortgage-backed securities 8,378,000 8,378,000
Corporate bonds and notes 105,980,000 112,665,000
Other debt securities 33,164,000 33,164,000
--------------- ---------------
Total held for investment $ 157,901,000 $ 165,004,000
=============== ===============
AT SEPTEMBER 30, 1994:
AVAILABLE FOR SALE:
Securities of the United States Government $ 16,623,000 $ 16,379,000
Mortgage-backed securities 833,445,000 765,946,000
Securities of public utilities 13,423,000 12,837,000
Corporate bonds and notes 243,405,000 229,411,000
Redeemable preferred stocks 1,375,000 1,547,000
--------------- ---------------
Total available for sale $ 1,108,271,000 $ 1,026,120,000
=============== ===============
HELD FOR INVESTMENT:
Securities of the United States Government $ 10,370,000 $ 10,320,000
Mortgage-backed securities 8,831,000 8,725,000
Corporate bonds and notes 126,333,000 130,851,000
Other debt securities 30,351,000 30,351,000
--------------- ---------------
Total held for investment $ 175,885,000 $ 180,247,000
=============== ===============
</TABLE>
4
<PAGE> 51
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of bonds, notes and
redeemable preferred stocks available for sale and held for investment
by contractual maturity, as of September 30, 1995, follow:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------------- ---------------
<S> <C> <C>
AVAILABLE FOR SALE:
Due in one year or less $ 10,243,000 $ 11,285,000
Due after one year through five years 52,644,000 52,922,000
Due after five years through ten years 223,820,000 222,362,000
Due after ten years 68,710,000 68,283,000
Mortgage-backed securities 1,144,645,000 1,134,361,000
--------------- ---------------
Total available for sale $ 1,500,062,000 $ 1,489,213,000
=============== ===============
HELD FOR INVESTMENT:
Due in one year or less $ 500,000 $ 500,000
Due after one year through five years 33,465,000 35,103,000
Due after five years through ten years 67,109,000 70,970,000
Due after ten years 48,449,000 50,053,000
Mortgage-backed securities 8,378,000 8,378,000
--------------- ---------------
Total held for investment $ 157,901,000 $ 165,004,000
=============== ===============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above because of prepayments and redemptions.
5
<PAGE> 52
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS (CONTINUED)
Gross unrealized gains and losses on bonds, notes and redeemable
preferred stocks available for sale and held for investment by major
category follow:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
GAINS LOSSES
-------------- ---------------
<S> <C> <C>
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States Government $ 1,545,000 $ (51,000)
Mortgage-backed securities 12,117,000 (22,401,000)
Securities of public utilities --- (18,000)
Corporate bonds and notes 5,344,000 (7,385,000)
-------------- ---------------
Total available for sale $ 19,006,000 $ (29,855,000)
============== ===============
HELD FOR INVESTMENT:
Securities of the United States Government $ 432,000 $ (14,000)
Corporate bonds and notes 6,685,000 ---
-------------- ---------------
Total held for investment $ 7,117,000 $ (14,000)
============== ===============
AT SEPTEMBER 30, 1994:
AVAILABLE FOR SALE:
Securities of the United States Government $ --- $ (244,000)
Mortgage-backed securities 2,852,000 (70,351,000)
Securities of public utilities --- (586,000)
Corporate bonds and notes 753,000 (14,747,000)
Redeemable preferred stocks 172,000 ---
-------------- ---------------
Total available for sale $ 3,777,000 $ (85,928,000)
============== ===============
HELD FOR INVESTMENT:
Securities of the United States Government $ 85,000 $ (135,000)
Mortgage-backed securities 7,000 (113,000)
Corporate bonds and notes 4,619,000 (101,000)
-------------- ---------------
Total held for investment $ 4,711,000 $ (349,000)
============== ===============
</TABLE>
6
<PAGE> 53
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS (CONTINUED)
At September 30, 1995, gross unrealized gains on equity securities
aggregated $1,082,000 and gross unrealized losses aggregated
$3,561,000. At September 30, 1994, gross unrealized gains on equity
securities aggregated $878,000 and gross unrealized losses aggregated
$2,117,000.
Gross realized investment gains and losses on sales of all types of
investments are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Bonds, notes and redeemable preferred stocks:
Available for sale:
Realized gains $ 15,983,000 $ 12,760,000 $ 20,193,000
Realized losses (21,842,000) (31,066,000) (8,132,000)
Held for investment:
Realized gains 2,413,000 890,000 5,194,000
Realized losses (586,000) (1,913,000) (257,000)
Equities:
Realized gains 994,000 467,000 2,445,000
Realized losses (114,000) (303,000) (2,653,000)
Other investments:
Realized gains 3,561,000 --- 255,000
Realized losses (12,000) (358,000) (1,573,000)
Impairment writedowns (4,760,000) (14,190,000) (37,719,000)
------------- ------------- -------------
Total net realized investment losses $ (4,363,000) $ (33,713,000) $ (22,247,000)
============= ============= =============
</TABLE>
The net realized gains and losses included in bonds, notes and
redeemable preferred stocks held for investment in 1995 and 1994
reflect net gains and losses realized upon redemptions, the net of
which amounted to gains of $1,827,000 in 1995 and losses of $1,023,000
in 1994. In 1993, the net gains of $4,937,000 were realized on sales
of securities totaling $77,077,000.
7
<PAGE> 54
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS (CONTINUED)
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Short-term investments $ 8,308,000 $ 4,648,000 $ 7,278,000
Bonds, notes and redeemable preferred stocks 107,643,000 98,935,000 106,013,000
Mortgage loans 7,419,000 12,133,000 9,418,000
Common stocks 3,000 1,000 15,000
Real estate (51,000) 1,379,000 302,000
Limited partnerships 5,128,000 9,487,000 12,064,000
Other invested assets 1,016,000 1,175,000 2,501,000
------------- ------------- -------------
Total investment income $ 129,466,000 $ 127,758,000 $ 137,591,000
============= ============= =============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to
$1,983,000 for the year ended September 30, 1995, $1,714,000 for the
year ended September 30, 1994, and $1,478,000 for the year ended
September 30, 1993 and are included in General and Administrative
Expenses in the income statement.
At September 30, 1995, no investment exceeded 10% of the Company's
consolidated shareholder's equity.
At September 30, 1995, mortgage loans were collateralized by
properties located in 8 states, with loans totaling approximately 22%
of the aggregate carrying value of the portfolio secured by properties
located in Colorado, approximately 18% by properties located in
California and approximately 17% by properties located in New Jersey.
No more than 13% of the portfolio was secured by properties in any
other single state.
At September 30, 1995, bonds, notes and redeemable preferred stocks
included $148,355,000 (at amortized cost, with fair value of
$143,778,000) of investments not rated investment grade by either
Standard & Poor's Corporation, Moody's Investors Service or under
National Association of Insurance Commissioners' guidelines. The
Company had no material concentrations of non-investment grade assets
at September 30, 1995.
At September 30, 1995, the amortized cost of investments in default as
to the payment of principal or interest was $4,958,000 and the fair
value was $3,500,000, all of which are unsecured non-investment grade
bonds.
8
<PAGE> 55
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS (CONTINUED)
At September 30, 1995, $5,108,000 of bonds, at amortized cost, were on
deposit with regulatory authorities in accordance with statutory
requirements.
The Company has undertaken to dispose of certain real estate
investments, having an aggregate carrying value of $55,798,000, during
the next one to two years, to affiliated or nonaffiliated parties,
and the Parent has guaranteed that the Company will receive its
current carrying value for these assets.
3. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to the
reasonable estimates of the fair value of only the Company's financial
instruments. The disclosures do not address the value of the
Company's recognized and unrecognized nonfinancial assets (including
its other invested assets, equity investments and real estate
investments) and liabilities or the value of anticipated future
business. The Company does not plan to sell most of its assets or
settle most of its liabilities at these estimated fair values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Selling expenses
and potential taxes are not included. The estimated fair value
amounts were determined using available market information, current
pricing information and various valuation methodologies. If quoted
market prices were not readily available for a financial instrument,
management determined an estimated fair value. Accordingly, the
estimates may not be indicative of the amounts the financial
instruments could be exchanged for in a current or future market
transaction.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
CASH AND SHORT TERM INVESTMENTS: Carrying value is considered to be a
reasonable estimate of fair value.
BONDS, NOTES AND REDEEMABLE PREFERRED STOCKS: Fair value is based
principally on independent pricing services, broker quotes and other
independent information.
MORTGAGE LOANS: Fair values are primarily determined by discounting
future cash flows to the present at current market rates, using
expected prepayment rates.
VARIABLE ANNUITY ASSETS: Variable annuity assets are carried at the
market value of the underlying securities.
9
<PAGE> 56
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts and
single premium life contracts are assigned fair value equal to current
net surrender value. Annuitized contracts are valued based on the
present value of future cash flows at current pricing rates.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on
the present value of future cash flows at current pricing rates.
PAYABLE TO BROKERS FOR PURCHASES OF SECURITIES: Such obligations
represent net transactions of a short-term nature for which the
carrying value is considered a reasonable estimate of fair value.
VARIABLE ANNUITY LIABILITIES: Fair values of contracts in the
accumulation phase are based on net surrender values. Fair values of
contracts in the payout phase are based on the present value of future
cash flows at assumed investment rates.
SUBORDINATED NOTES PAYABLE TO PARENT: Fair value is estimated based
on the quoted market prices for similar issues.
10
<PAGE> 57
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments at
September 1995 and 1994, compared with their respective carrying
values are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
--------------- ---------------
<S> <C> <C>
1995:
Assets:
Cash and short-term investments $ 249,209,000 $ 249,209,000
Bonds, notes and redeemable preferred stocks 1,647,114,000 1,654,217,000
Mortgage loans 94,260,000 95,598,000
Variable annuity assets 5,230,246,000 5,230,246,000
Liabilities:
Reserves for fixed annuity contracts 1,497,052,000 1,473,757,000
Reserves for guaranteed investment contracts 277,095,000 277,095,000
Payable to brokers for purchases of securities 155,861,000 155,861,000
Variable annuity liabilities 5,230,246,000 5,077,257,000
Subordinated notes payable to Parent 34,000,000 34,620,000
=============== ===============
1994:
Assets:
Cash and short-term investments $ 157,438,000 $ 157,438,000
Bonds, notes and redeemable preferred stocks 1,202,005,000 1,206,367,000
Mortgage loans 108,332,000 104,835,000
Variable annuity assets 4,486,703,000 4,486,703,000
Liabilities:
Reserves for fixed annuity contracts 1,437,488,000 1,411,117,000
Payable to brokers for purchases of securities 124,624,000 124,624,000
Variable annuity liabilities 4,486,703,000 4,335,753,000
Subordinated notes payable to Parent 34,000,000 33,897,000
=============== ===============
</TABLE>
11
<PAGE> 58
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. SUBORDINATED NOTES PAYABLE TO PARENT
Subordinated notes payable to Parent bear interest at a weighted
average rate of 7.20% (with rates ranging from 7.00% to 9.00%) and
require principal payments of $22,500,000 in 1996, $4,000,000 in 1997
and $7,500,000 in 1998.
5. CONTINGENT LIABILITIES
The Company is involved in various kinds of litigation common to its
businesses. These cases are in various stages of development and,
based on reports of counsel, management believes that provisions made
for potential losses are adequate and any further liabilities and
costs will not have a material adverse impact upon the Company's
financial position or results of operations.
6. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par
value Common Stock. At September 30, 1995, 1994 and 1993, 3,511
shares are outstanding. Changes in shareholder's equity are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
RETAINED EARNINGS:
Beginning balance $ 152,088,000 $ 127,936,000 $ 86,218,000
Net income 39,258,000 24,152,000 41,718,000
------------- ------------- -------------
Ending balance $ 191,346,000 $ 152,088,000 $ 127,936,000
============= ============= =============
NET UNREALIZED GAINS (LOSSES)
ON DEBT AND EQUITY SECURITIES
AVAILABLE FOR SALE:
Beginning balance $ (24,953,000) $ (13,230,000) $ (20,127,000)
Change in net unrealized
gains (losses) on debt
securities available
for sale 71,302,000 (69,407,000) 4,998,000
Change in net unrealized
gains (losses) on equity
securities available
for sale (1,240,000) (753,000) 1,899,000
Change in adjustment to
deferred acquisition costs (40,400,000) 45,000,000 ---
Tax effects of net changes (10,382,000) 13,437,000 ---
------------- ------------- -------------
Ending balance $ (5,673,000) $ (24,953,000) $ (13,230,000)
============= ============= =============
</TABLE>
12
<PAGE> 59
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. SHAREHOLDER'S EQUITY (CONTINUED)
Dividends which the Company may pay to its shareholder in any year
without prior approval of the California Insurance Commissioner are
limited by statute. Under California insurance law, without prior
approval of the insurance commissioner, dividends and distributions to
shareholders are limited to the greater of (i) 10% of the preceding
December 31 balance of statutory surplus as regards policyholders or
(ii) the prior calendar year's net statutory gain from operations. In
addition, new law requires prior notice of any dividend and grants the
commissioner authority to order that a dividend not be paid. No
dividends were paid in fiscal years 1995, 1994 or 1993.
Under statutory accounting principles utilized in filings with
insurance regulatory authorities, the Company's net income for the
nine months ended September 30, 1995 was $34,477,000. The statutory
net income for the year ended December 31, 1994 was $35,060,000 and
for the year ended December 31, 1993 was $51,686,000. The Company's
statutory capital and surplus was $260,454,000 at September 30, 1995,
$219,577,000 at December 31, 1994 and $199,082,000 at December 31,
1993.
7. INCOME TAXES
The components of the provisions for federal income taxes on pretax
income consist of the following:
<TABLE>
<CAPTION>
NET REALIZED
INVESTMENT
GAINS (LOSSES) OPERATIONS TOTAL
------------- ------------ ------------
<S> <C> <C> <C>
1995:
Currently payable $ 4,248,000 $ 22,980,000 $ 27,228,000
Deferred (6,113,000) 4,624,000 (1,489,000)
------------ ------------ ------------
Total income tax expense $ (1,865,000) $ 27,604,000 $ 25,739,000
============ ============ ============
1994:
Currently payable $ (6,825,000) $ 10,135,000 $ 3,310,000
Deferred (1,320,000) 20,715,000 19,395,000
------------ ------------ ------------
Total income tax expense $ (8,145,000) $ 30,850,000 $ 22,705,000
============ ============ ============
1993:
Currently payable $ (836,000) $ 19,648,000 $ 18,812,000
Deferred (6,819,000) 9,801,000 2,982,000
------------ ------------ ------------
Total income tax expense $ (7,655,000) $ 29,449,000 $ 21,794,000
============ ============ ============
</TABLE>
13
<PAGE> 60
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (CONTINUED)
Income taxes computed at the United States federal income tax rate of
35% for 1995 and 1994 and 34.75% for 1993 and income taxes provided
differ as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------
1995 1994 1993
------------- ------------- --------------
<S> <C> <C> <C>
Amount computed at
statutory rate $ 22,749,000 $ 23,562,000 $ 22,000,000
Increases (decreases)
resulting from:
Amortization of differences
between book and tax bases of
net assets acquired 3,049,000 465,000 1,423,000
State income taxes, net of federal
tax benefit 437,000 (662,000) (223,000)
Tax credits (168,000) (612,000) (1,849,000)
Other (328,000) (48,000) 443,000
-------------- -------------- --------------
Total income tax expense $ 25,739,000 $ 22,705,000 $ 21,794,000
============== ============== ==============
</TABLE>
For United States federal income tax purposes, certain amounts from
life insurance operations are accumulated in a memorandum
policyholders' surplus account and are taxed only when distributed to
shareholders or when such account exceeds prescribed limits. The
accumulated policyholders' surplus was $14,300,000 at September 30,
1995. The Company does not anticipate any transactions which would
cause any part of this surplus to be taxable.
14
<PAGE> 61
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (CONTINUED)
Effective October 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Accordingly, the cumulative effect of this change in
accounting for income taxes was recorded during the quarter ended
December 31, 1993 to increase the liability for deferred income taxes
by $20,463,000.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
reporting purposes. The significant components of the liability for
deferred income taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Investments $ 14,181,000 $ 17,079,000
Deferred acquisition costs 118,544,000 117,200,000
State income taxes 1,847,000 2,917,000
------------- -------------
Total deferred tax liabilities 134,572,000 137,196,000
------------- -------------
Deferred tax assets:
Contractholder reserves (55,910,000) (54,819,000)
Guaranty fund assessments (1,123,000) (1,197,000)
Deferred expenses (1,025,000) (3,177,000)
Net unrealized losses on certain
debt and equity securities (3,055,000) (13,436,000)
------------- -------------
Total deferred tax assets (61,113,000) (72,629,000)
------------- -------------
Deferred income taxes $ 73,459,000 $ 64,567,000
============= =============
</TABLE>
15
<PAGE> 62
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RELATED PARTY MATTERS
The Company pays commissions to two affiliated companies, SunAmerica
Securities, Inc. and Royal Alliance Associates, Inc. These
broker-dealers represent a significant portion of the Company's
business, amounting to approximately 28.2%, 28.3% and 30.6% of
premiums in 1995, 1994 and 1993, respectively. Commissions paid to
these broker-dealers totaled $19,828,000 in 1995, $18,725,000 in 1994
and $17,541,000 in 1993. The Company purchases administrative,
investment management, accounting, marketing and data processing
services from SunAmerica Financial, Inc., whose purpose is to provide
services to the SunAmerica companies. Amounts paid for such services
totaled $42,083,000 for the year ended September 30, 1995, $36,934,000
for the year ended September 30, 1994 and $32,711,000 for the year
ended September 30, 1993.
During the year ended September 30, 1994, the Company sold to the
Parent real estate for cash equal to its carrying value of
$29,761,000. During the year ended September 30, 1993, the Company
sold to the Parent various invested assets for cash equal to their
carrying values of $88,488,000 (including real estate of $45,668,000).
During the year ended September 30, 1993, the Company sold to
SunAmerica Life Insurance Company various invested assets with
carrying values of $46,332,000 for cash of $46,334,000 and recorded
net gains of $2,000.
16
<PAGE> 63
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. BUSINESS SEGMENTS
The Company has three business segments: annuity operations, asset
management, and broker-dealer operations. Respectively, these include
the sale of fixed and variable annuities; the management and marketing
of mutual funds; and the sale of securities and financial services
products. Summarized data for the years ended September 30, 1995,
1994 and 1993 follow:
<TABLE>
<CAPTION>
TOTAL
DEPRECIATION
AND
TOTAL AMORTIZATION PRETAX TOTAL
REVENUES EXPENSE INCOME ASSETS
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
1995:
Annuity operations $ 205,698,000 $ 36,642,000 $ 55,462,000 $7,667,946,000
Asset management 30,253,000 24,069,000 510,000 86,510,000
Broker-dealer operations 23,525,000 411,000 9,025,000 29,241,000
------------- ------------- ------------- --------------
Total $ 259,476,000 $ 61,122,000 $ 64,997,000 $7,783,697,000
============= ============= ============= ==============
1994:
Annuity operations $ 171,553,000 $ 26,298,000 $ 52,284,000 $6,473,065,000
Asset management 32,803,000 19,330,000 7,916,000 102,192,000
Broker-dealer operations 19,272,000 408,000 7,120,000 26,869,000
------------- ------------- ------------- --------------
Total $ 223,628,000 $ 46,036,000 $ 67,320,000 $6,602,126,000
============= ============= ============= ==============
1993:
Annuity operations $ 181,057,000 $ 23,634,000 $ 42,682,000 $6,545,966,000
Asset management 33,826,000 8,853,000 14,806,000 98,137,000
Broker-dealer operations 16,904,000 440,000 6,024,000 27,286,000
------------- ------------- ------------- --------------
Total $ 231,787,000 $ 32,927,000 $ 63,512,000 $6,671,389,000
============= ============= ============= ==============
</TABLE>
17
<PAGE> 64
[LOGO]
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1994
<PAGE> 65
[LETTERHEAD] [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
February 21, 1995
To the Board of Directors of Anchor National Life Insurance Company
and the Contractholders of its separate account,
Variable Annuity Account One
In our opinion, the accompanying statement of net assets, including
the schedule of portfolio investments, and the related statements of
operations and of changes in net assets present fairly, in all
material respects, the financial position of each of the Variable
Accounts constituting Variable Annuity Account One, a separate account
of Anchor National Life Insurance Company (the "Separate Account") at
December 31, 1994, the results of their operations for the year then
ended, and the changes in their net assets for each of the two years
in the period then ended, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the Separate Account's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation
of securities owned as of December 31, 1994 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
<PAGE> 66
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
December 31, 1994
<TABLE>
<CAPTION>
Foreign Capital Natural Convertible Strategic
Securities Appreciation Growth Resources Securities Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series
Trust, at market value $63,012,368 $111,034,665 $160,129,600 $18,359,583 $31,905,579 $60,005,971 $136,900,637
Liabilities 0 0 0 0 0 0 0
-------------------------------------------------------------------------------------------------
Net assets $63,012,368 $111,034,665 $160,129,600 $18,359,583 $31,905,579 $60,005,971 $136,900,637
=================================================================================================
Accumulation units outstanding 5,328,356 5,135,811 5,852,892 1,219,818 1,914,508 3,957,935 8,354,441
=================================================================================================
Unit value of accumulation units $11.8258 $21.6196 $27.3589 $15.0511 $16.6652 $15.1609 $16.3866
=================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 67
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
December 31, 1994
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Target '98 Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series
Trust, at market value $44,717,058 $17,023,117 $25,627,697 $141,664,975 $117,922,221 $928,303,471
Liabilities 0 0 0 0 0 0
------------------------------------------------------------------------------------
Net assets $44,717,058 $17,023,117 $25,627,697 $141,664,975 $117,922,221 $928,303,471
====================================================================================
Accumulation units outstanding 2,489,359 1,027,577 1,182,553 6,269,658 7,323,744
====================================================================
Unit value of accumulation units $17.9633 $16.5663 $21.6714 $22.5953 $16.1014
====================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 68
VARIABLE ANNUITY ACCOUNT ONE OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1994
<TABLE>
<CAPTION>
Market Value
Variable Account Shares Per Share Market Value Cost
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign Securities Portfolio 5,970,848.587 $10.553335 $63,012,368 $62,429,197
Capital Appreciation Portfolio 6,339,506.001 17.514719 111,034,665 116,161,494
Growth Portfolio 8,807,909.085 18.180206 160,129,600 174,446,088
Natural Resources Portfolio 1,381,239.601 13.292106 18,359,583 17,815,897
Convertible Securities Portfolio 2,759,231.327 11.563213 31,905,579 34,861,086
Strategic Multi-Asset Portfolio 5,315,491.214 11.288885 60,005,971 60,683,192
Multi-Asset Portfolio 11,693,636.211 11.707277 136,900,637 135,724,205
High Yield Portfolio 5,678,473.759 7.874837 44,717,058 48,964,952
Target '98 Portfolio 1,395,652.714 12.197244 17,023,117 18,328,510
Fixed Income Portfolio 1,986,947.830 12.898022 25,627,697 27,401,433
Government and Quality Bond
Portfolio 11,012,344.306 12.864198 141,664,975 147,254,970
Money Market Portfolio 117,922,220.520 1.000000 117,922,221 117,922,221
------------------------------
$928,303,471 $961,993,245
==============================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 69
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
December 31, 1994
<TABLE>
<CAPTION>
Foreign Capital Natural Convertible Strategic
Securities Appreciation Growth Resources Securities Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital
gains distributions $197,021 $11,752,143 $26,018,780 $289,479 $4,621,938 $11,420,400 $21,289,930
------------------------------------------------------------------------------------------------
Total investment income 197,021 11,752,143 26,018,780 289,479 4,621,938 11,420,400 21,289,930
------------------------------------------------------------------------------------------------
Expenses:
Mortality risk charge (633,381) (980,509) (1,688,234) (175,628) (336,041) (594,404) (1,395,945)
Expense risk charge (246,315) (381,309) (656,535) (68,300) (130,683) (231,157) (542,868)
Administrative expense
risk charge (105,563) (163,418) (281,372) (29,271) (56,007) (99,067) (232,657)
------------------------------------------------------------------------------------------------
Total expenses (985,259) (1,525,236) (2,626,141) (273,199) (522,731) (924,628) (2,171,470)
------------------------------------------------------------------------------------------------
Net investment income
(loss) (788,238) 10,226,907 23,392,639 16,280 4,099,207 10,495,772 19,118,460
------------------------------------------------------------------------------------------------
Realized gains (losses)
from securities
transactions:
Proceeds from shares
sold 51,835,164 89,259,182 98,874,952 15,738,208 9,661,244 12,282,002 39,419,283
Cost of shares sold (49,696,121) (88,200,085) (95,116,127) (14,514,206) (9,192,082) (10,849,790) (35,239,193)
------------------------------------------------------------------------------------------------
Net realized gains from
securities transactions 2,139,043 1,059,097 3,758,825 1,224,002 469,162 1,432,212 4,180,090
------------------------------------------------------------------------------------------------
Change in net unrealized
appreciation/depreciation
of investments:
Beginning of period 5,912,745 12,729,267 25,829,813 2,272,845 5,866,100 13,979,782 29,713,506
End of period 583,171 (5,126,829) (14,316,488) 543,686 (2,955,507) (677,221) 1,176,432
------------------------------------------------------------------------------------------------
Change in net unrealized
appreciation/depreciation
of investments (5,329,574) (17,856,096) (40,146,301) (1,729,159) (8,821,607) (14,657,003) (28,537,074)
------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations ($3,978,769) ($6,570,092) ($12,994,837) ($488,877) ($4,253,238) ($2,729,019) ($5,238,524)
================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 70
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
December 31, 1994
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Target '98 Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital
gains distributions $5,910,352 $1,569,781 $2,417,127 $10,384,101 $4,741,049 $100,612,101
---------------------------------------------------------------------------------------
Total investment income 5,910,352 1,569,781 2,417,127 10,384,101 4,741,049 100,612,101
---------------------------------------------------------------------------------------
Expenses:
Mortality risk charge (497,022) (164,109) (277,040) (1,438,093) (1,120,136) (9,300,542)
Expense risk charge (193,287) (63,820) (107,738) (559,258) (435,608) (3,616,878)
Administrative expense
risk charge (82,837) (27,351) (46,173) (239,682) (186,689) (1,550,087)
---------------------------------------------------------------------------------------
Total expenses (773,146) (255,280) (430,951) (2,237,033) (1,742,433) (14,467,507)
---------------------------------------------------------------------------------------
Net investment income
(loss) 5,137,206 1,314,501 1,986,176 8,147,068 2,998,616 86,144,594
---------------------------------------------------------------------------------------
Realized gains (losses)
from securities
transactions:
Proceeds from shares
sold 81,857,653 4,600,374 14,510,022 80,786,003 180,108,947 678,933,034
Cost of shares sold (80,666,397) (4,560,177) (14,508,381) (80,117,850) (180,108,947) (662,769,356)
---------------------------------------------------------------------------------------
Net realized gains from
securities transactions 1,191,256 40,197 1,641 668,153 0 16,163,678
---------------------------------------------------------------------------------------
Change in net unrealized
appreciation/depreciation
of investments:
Beginning of period 5,618,717 1,104,547 1,816,625 10,807,646 0 115,651,593
End of period (4,247,894) (1,305,393) (1,773,736) (5,589,995) 0 (33,689,774)
---------------------------------------------------------------------------------------
Change in net unrealized
appreciation/depreciation
of investments (9,866,611) (2,409,940) (3,590,361) (16,397,641) 0 (149,341,367)
---------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations ($3,538,149) ($1,055,242) ($1,602,544) ($7,582,420) $2,998,616 ($47,033,095)
=======================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 71
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1994
<TABLE>
<CAPTION>
Foreign Capital
Securities Appreciation Growth
Portfolio Portfolio Portfolio
---------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) ($788,238) $10,226,907 $23,392,639
Net realized gains from securities transactions 2,139,043 1,059,097 3,758,825
Change in net unrealized appreciation/
depreciation of investments (5,329,574) (17,856,096) (40,146,301)
---------------------------------------------
Increase (decrease) in net assets from operations (3,978,769) (6,570,092) (12,994,837)
---------------------------------------------
From capital transactions:
Net proceeds from units sold 6,829,395 11,425,872 9,748,557
Cost of units redeemed (13,596,578) (19,957,285) (35,836,473)
Net transfers 5,483,460 2,784,450 (43,777,642)
---------------------------------------------
Increase (decrease) in net assets
from capital transactions (1,283,723) (5,746,963) (69,865,558)
---------------------------------------------
Increase (decrease) in net assets (5,262,492) (12,317,055) (82,860,395)
Net assets at beginning of period 68,274,860 123,351,720 242,989,995
---------------------------------------------
Net assets at end of period $63,012,368 $111,034,665 $160,129,600
=============================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 559,546 523,875 349,569
Units redeemed (1,192,391) (928,326) (1,285,044)
Units transferred 449,271 127,667 (1,556,242)
---------------------------------------------
Increase (decrease) in units outstanding (183,574) (276,784) (2,491,717)
Beginning units 5,511,930 5,412,595 8,344,609
---------------------------------------------
Ending units 5,328,356 5,135,811 5,852,892
=============================================
<CAPTION>
Natural Convertible Strategic
Resources Securities Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $16,280 $4,099,207 $10,495,772 $19,118,460
Net realized gains from securities transactions 1,224,002 469,162 1,432,212 4,180,090
Change in net unrealized appreciation/
depreciation of investments (1,729,159) (8,821,607) (14,657,003) (28,537,074)
------------------------------------------------------------
Increase (decrease) in net assets from operations (488,877) (4,253,238) (2,729,019) (5,238,524)
------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 1,523,443 3,625,750 3,045,243 6,487,675
Cost of units redeemed (3,897,945) (6,796,280) (13,391,366) (36,493,323)
Net transfers 3,966,862 862,362 1,327,167 (5,525,628)
------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions 1,592,360 (2,308,168) (9,018,956) (35,531,276)
------------------------------------------------------------
Increase (decrease) in net assets 1,103,483 (6,561,408) (11,747,975) (40,769,800)
Net assets at beginning of period 17,256,100 38,466,985 71,753,946 177,670,437
------------------------------------------------------------
Net assets at end of period $18,359,583 $31,905,579 $60,005,971 $136,900,637
============================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 99,047 203,934 197,378 393,254
Units redeemed (279,367) (394,815) (871,523) (2,213,896)
Units transferred 257,906 48,504 86,021 (334,939)
------------------------------------------------------------
Increase (decrease) in units outstanding 77,586 (142,376) (588,124) (2,155,581)
Beginning units 1,142,232 2,056,884 4,546,059 10,510,022
------------------------------------------------------------
Ending units 1,219,818 1,914,508 3,957,935 8,354,441
============================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 72
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1994
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Target '98 Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $5,137,206 $1,314,501 $1,986,176 $8,147,068 $2,998,616 $86,144,594
Net realized gains from securities
transactions 1,191,256 40,197 1,641 668,153 0 16,163,678
Change in net unrealized appreciation/
depreciation of investments (9,866,611) (2,409,940) (3,590,361) (16,397,641) 0 (149,341,367)
-----------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations (3,538,149) (1,055,242) (1,602,544) (7,582,420) 2,998,616 (47,033,095)
-----------------------------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 4,155,839 2,672,363 1,693,759 5,276,331 16,005,766 72,489,993
Cost of units redeemed (10,009,288) (2,669,905) (7,204,053) (37,630,399) (40,725,919) (228,208,814)
Net transfers (22,178,404) (582,489) (4,904,467) 10,117,164 49,287,506 (3,139,659)
-----------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions (28,031,853) (580,031) (10,414,761) (22,236,904) 24,567,353 (158,858,480)
-----------------------------------------------------------------------------------------
Increase (decrease) in net assets (31,570,002) (1,635,273) (12,017,305) (29,819,324) 27,565,969 (205,891,575)
Net assets at beginning of period 76,287,060 18,658,390 37,645,002 171,484,299 90,356,252 1,134,195,046
-----------------------------------------------------------------------------------------
Net assets at end of period $44,717,058 $17,023,117 $25,627,697 $141,664,975 $117,922,221 $928,303,471
=========================================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 226,509 157,866 77,020 231,076 1,008,069
Units redeemed (545,543) (160,754) (328,916) (1,660,371) (2,564,984)
Units transferred (1,192,051) (34,410) (223,019) 443,079 3,134,216
------------------------------------------------------------------------
Increase (decrease) in units outstanding (1,511,086) (37,298) (474,916) (986,217) 1,577,301
Beginning units 4,000,445 1,064,875 1,657,469 7,255,875 5,746,443
------------------------------------------------------------------------
Ending units 2,489,359 1,027,577 1,182,553 6,269,658 7,323,744
========================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 73
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1993
<TABLE>
<CAPTION>
Foreign Capital Natural Convertible Strategic
Securities Appreciation Growth Resources Securities Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) ($136,995) $4,454,035 $7,613,190 ($2,835) $1,094,499 $480,845 $8,942,825
Net realized gains (losses)
from securities
transactions (548,190) 10,200,137 8,509,762 888,946 1,645,784 2,252,420 5,526,218)
Change in net unrealized
appreciation/depreciation
of investments 12,138,950 2,135,297 (791,841) 2,757,580 2,808,107 6,536,433 (4,010,905)
-----------------------------------------------------------------------------------------------
Increase in net assets
from operations 11,453,765 16,789,469 15,331,111 3,643,691 5,548,390 9,269,698 10,460,138
-----------------------------------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 5,772,584 22,457,834 23,397,901 1,512,275 7,040,896 4,435,074 17,936,679
Cost of units redeemed (7,935,630) (11,586,233) (40,704,218) (2,818,511) (3,755,075) (12,236,438) (33,696,666)
Net transfers 31,227,458 16,511,072 (2,464,507) 6,504,168 7,493,970 (5,327,415) (4,215,652)
-----------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions 29,064,412 27,382,673 (19,770,824) 5,197,932 10,779,791 (13,128,779) (19,975,639)
-----------------------------------------------------------------------------------------------
Increase (decrease) in net assets 40,518,177 44,172,142 (4,439,713) 8,841,623 16,328,181 (3,859,081) (9,515,501)
Net assets at beginning of period 27,756,683 79,179,578 247,429,708 8,414,477 22,138,804 75,613,027 187,185,938
-----------------------------------------------------------------------------------------------
Net assets at end of period $68,274,860 $123,351,720 $242,989,995 $17,256,100 $38,466,985 $71,753,946 $177,670,437
===============================================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 523,083 1,037,292 811,195 114,675 413,312 304,281 1,085,519
Units redeemed (719,088) (535,150) (1,411,198) (213,726) (220,429) (839,516) (2,039,305)
Units transferred 2,829,680 762,620 (85,443) 493,206 439,908 (365,502) (255,129)
-----------------------------------------------------------------------------------------------
Increase (decrease) in units
outstanding 2,633,675 1,264,762 (685,446) 394,155 632,791 (900,737) (1,208,915)
Beginning units 2,878,255 4,147,833 9,030,055 748,077 1,424,093 5,446,796 11,718,937
-----------------------------------------------------------------------------------------------
Ending units 5,511,930 5,412,595 8,344,609 1,142,232 2,056,884 4,546,059 10,510,022
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 74
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1993
(Continued)
<TABLE>
<CAPTION>
Government and
High-Yield Target '98 Fixed Income Quality Bond Money Market
Portfolio Portfolio Portfolio Portfolio Portfolio TOTAL
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 3,268,783 $ 1,198,096 $ 1,860,054 $ 7,781,352 $ 1,360,887 $ 37,914,736
Net realized gains (losses)
from securities
transactions 3,587,633 729,839 1,040,348 5,508,332 0 39,343,229
Change in net unrealized
appreciation/depreciation
of investments 3,726,557 (80,115) (443,496) (853,625) 0 23,922,942
--------------------------------------------------------------------------------------
Increase in net assets from
operations 10,582,973 1,847,820 2,456,908 12,436,059 1,360,887 101,180,907
--------------------------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 10,607,872 4,357,180 4,953,627 19,069,617 26,620,266 148,161,605
Cost of units redeemed (11,782,535) (2,485,416) (7,832,261) (30,630,435) (37,419,141) (202,862,559)
Net transfers 21,207,081 (3,148,061) (16,220) (20,268,514) (21,686,331) 25,817,049
--------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions 20,032,418 (1,276,297) (2,894,854) (31,829,332) (32,485,206) (28,903,705)
--------------------------------------------------------------------------------------
Increase (decrease) in net assets 30,615,391 571,523 (437,948) (19,393,273) (31,124,319) 72,277,202
Net assets at beginning of period 45,671,669 18,086,867 38,082,950 190,877,572 121,480,571 1,061,917,844
--------------------------------------------------------------------------------------
Net assets at end of period $76,287,060 $18,658,390 $37,645,002 $171,484,299 $ 90,356,252 $1,134,195,046
======================================================================================
ANALYSIS OF INCREASE (DECREASE)
IN UNITS OUTSTANDING:
Units sold 628,983 230,794 217,932 620,792 1,702,356
Units redeemed (698,634) (131,649) (344,575) (1,318,392) (2,392,940)
Units transferred 1,257,452 (166,749) (714) (872,395) (1,386,832)
---------------------------------------------------------------------
Increase (decrease) in units
outstanding 1,187,801 (67,604) (127,357) (1,369,995) (2,077,416)
Beginning units 2,812,644 1,132,479 1,784,626 8,625,870 7,623,859
---------------------------------------------------------------------
Ending units 4,000,445 1,064,875 1,657,469 7,255,875 5,746,443
=====================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 75
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Annuity Account One (the "Separate Account") is a segregated
investment account of Anchor National Life Insurance Company (the
"Company"). The Company is an indirect wholly-owned subsidiary of
SunAmerica Inc. The Separate Account is registered as a segregated
unit investment trust pursuant to the provisions of the Investment
Company Act of 1940, as amended.
The Separate Account is a funding vehicle for both the ICAP Variable
Annuity and the United Resources Plus Group Variable Annuity. The
Separate Account is composed of twelve variable accounts (the
"Variable Accounts"), each of which invests solely in the shares of
one of the twelve portfolios of the Anchor Series Trust (the "Trust").
The Trust is a diversified, open-ended, affiliated investment company,
which retains an investment advisor to assist in the investment
activities of the Trust. The contractholder may elect to have
payments allocated to a guaranteed-interest fund in the Company (the
"General Account"), which is not a part of the Separate Account.
These financial statements include balances allocated by the
contractholder to the twelve Variable Accounts and do not include
balances allocated to the General Account.
The investment objectives and policies of the twelve portfolios of the
Trust are summarized below:
FOREIGN SECURITIES PORTFOLIO seeks long-term capital appreciation
through investment primarily in a diversified group of equity
securities issued by foreign companies and primarily denominated in
foreign currencies.
CAPITAL APPRECIATION PORTFOLIO seeks long-term capital appreciation.
This portfolio invests in a widely diversified group of domestic and
foreign growth equity securities, debt securities and preferred
stocks that are convertible into, or carry warrants to purchase,
common stocks or other equity interests. This portfolio may engage in
transactions involving stock index futures and options thereon as a
hedge against changes in market conditions.
GROWTH PORTFOLIO seeks capital appreciation through investment in
domestic and foreign growth equity securities. This portfolio may
engage in transactions involving stock index futures and options
thereon as a hedge against changes in market conditions.
1
<PAGE> 76
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NATURAL RESOURCES PORTFOLIO seeks a total return in excess of the U.S.
rate of inflation as represented by the Consumer Price Index. This
portfolio invests primarily in equity securities of U.S. or foreign
companies which are expected to provide favorable returns in periods
of rising inflation. This portfolio may also engage in transactions
involving stock index futures contracts and options thereon, and
transactions involving the future delivery of fixed income securities
("Financial Futures Contracts") and options thereon as a hedge against
changes in market conditions.
CONVERTIBLE SECURITIES PORTFOLIO seeks to provide high current income
and long-term capital appreciation by investing primarily in a variety
of securities convertible into common stock which are issued by
publicly held corporations. This portfolio may also engage in
transactions involving Financial Futures Contracts and options thereon
as a hedge against changes in market conditions.
STRATEGIC MULTI-ASSET PORTFOLIO seeks high long-term total investment
return by investing in growth equity securities, aggressive growth
equity securities, investment grade bonds, high-yield, high-risk
bonds, international equity securities and money market instruments.
This portfolio may also engage in transactions involving stock index
futures contracts and options thereon, and Financial Futures Contracts
and options thereon as a hedge against changes in market conditions.
MULTI-ASSET PORTFOLIO seeks long-term total investment return
consistent with moderate investment risk and invests in growth equity
securities, convertible securities, investment grade fixed income
securities and money market securities. This portfolio may also
engage in transactions involving stock index futures contracts and
options thereon, and Financial Futures Contracts and options thereon
as a hedge against changes in market conditions.
HIGH YIELD PORTFOLIO seeks high current income. A secondary
investment objective is capital appreciation. This portfolio invests
at least 65% of its assets in high-yielding, high-risk,
income-producing corporate bonds, which generally carry ratings lower
than those assigned to investment grade bonds by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"), or
which are unrated. This portfolio may also engage in transactions
involving Financial Futures Contracts and options thereon as a hedge
against changes in market conditions.
2
<PAGE> 77
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
TARGET '98 PORTFOLIO seeks a predictable compounded investment return
for the specified time period, consistent with preservation of
capital, by investing primarily in zero coupon securities and current,
interest-bearing, investment grade debt obligations which are issued
by the U.S. Government, its agencies and instrumentalities, and both
domestic and foreign corporations.
FIXED INCOME PORTFOLIO seeks a high level of current income consistent
with preservation of capital. This portfolio 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 invests
in obligations issued, guaranteed or insured by the U.S. Government,
its agencies or instrumentalities and in corporate debt securities
rated Aa or better by Moody's or AA or better by S&P.
MONEY MARKET PORTFOLIO seeks current income consistent with stability
of principal through investment in a diversified portfolio of money
market instruments maturing in 397 days or less. The portfolio will
maintain a dollar-weighted average portfolio maturity of not more than
90 days.
Investments in the variable portfolios of the Trust are valued at the
net asset value of the fund shares. Securities transactions are
valued on the date the securities are purchased or sold. Income and
capital gains distributions are recorded when received. Realized
gains and losses on the sale of investments in the Trust are
recognized at the date of sale and are determined on an average cost
basis. For purchase payments allocated to the General Account,
interest is credited to the contractholder based on crediting
provisions of the annuity contracts.
Accumulation unit values reflect the net asset value of the Variable
Accounts and are computed daily.
3
<PAGE> 78
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS
Charges and deductions are applied against the current value of the
Separate Account and are paid as follows:
WITHDRAWAL CHARGE: The contract value may be withdrawn at any time
during the accumulation period. There is a free withdrawal amount for
the first withdrawal during a contract year after the first contract
year. The free withdrawal amount is equal to 10% of aggregate
purchase payments that have not previously been withdrawn. Should a
withdrawal exceed the free withdrawal amount, a withdrawal charge, in
certain circumstances, is imposed and paid to the Company.
Withdrawal charges vary in amount depending upon the contract year in
which the purchase payment being withdrawn was made. The withdrawal
charge is deducted from the remaining contract value so that the
actual reduction in contract value as a result of the withdrawal will
be greater than the withdrawal amount requested and paid. Free
withdrawals and other withdrawals are allocated to purchase payments
on a first-in, first-out basis so that all withdrawals are allocated
to purchase payments to which the lowest (if any) withdrawal charge
applies.
Any amount withdrawn which exceeds a free withdrawal may be subject to
a withdrawal charge in accordance with the withdrawal charge table
shown below:
<TABLE>
<CAPTION>
Contribution Applicable Withdrawal
Year Charge Percentage
-------------- -----------------------
<S> <C>
First 5%
Second 4%
Third 3%
Fourth 2%
Fifth 1%
Sixth and later 0%
</TABLE>
4
<PAGE> 79
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS (Continued)
ANNUITY CHARGE: Contractholders may elect a lump sum payment or one
of three annuity options. Option 1 provides a life income with
installments guaranteed; Option 2 provides a joint and survivor
annuity, and Option 3 provides income for a specified period. No
annuity charge is assessed if Option 1 or Option 2 is elected. If a
contractholder elects Option 3, an annuity charge equal to the
withdrawal charge if the contract were surrendered may be applied. No
annuity charge will be assessed if Option 3 is elected by a
beneficiary under the death benefit.
RECORDS MAINTENANCE CHARGE: An annual records maintenance charge of
$30 is charged against each contract, which reimburses the Company for
expenses incurred in establishing and maintaining records relating to
a contract.
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.
TRANSFER FEE: A transfer fee of $25 ($10 in Texas and Pennsylvania)
per transaction is assessed on each transfer of funds in excess of
fifteen transactions within a contract year or if a transfer is made
within 30 days of the issue date of the contract.
PREMIUM TAXES: Premium taxes or other taxes payable to a state or
other governmental entity will be charged against the contract values.
Some states assess premium taxes at the time purchase payments are
made; others assess premium taxes at the time annuity payments begin.
The Company currently intends to deduct premium taxes at the time of
surrender, upon death of the contractholder or upon annuitization.
However, it reserves the right to deduct premium taxes when incurred.
Premium taxes generally range from 0% to 3.0%.
5
<PAGE> 80
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. CHARGES AND DEDUCTIONS (Continued)
MORTALITY RISK CHARGE: The Company deducts a mortality risk charge as
compensation for the mortality risk assumed by virtue of its
contractual obligations to make annuity payments after the contract
has annuitized for the life of the annuitant, to waive the withdrawal
charge in the event of the death of the annuitant and to provide a
death benefit prior to annuitization. As compensation for this, the
Company deducts an amount, computed on a daily basis, which is equal
to an annual rate of 0.90% of the contract value of the Separate
Account.
EXPENSE RISK CHARGE: The Company guarantees that the records
maintenance and administrative expense charges will not increase,
regardless of actual expenses. As compensation for this guarantee,
the Company deducts an amount, computed on a daily basis, which is
equal to an annual rate of 0.35% of the contract value of the Separate
Account.
ADMINISTRATIVE EXPENSE CHARGE: The Company deducts an administrative
expense charge which is designed to cover the risk that the
administrative expenses will exceed the revenues from the records
maintenance charge. As compensation for assuming this risk, the
Company deducts an amount, computed on a daily basis, which is equal
to 0.15% of the contract value of the Separate Account.
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.
6
<PAGE> 81
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENT IN THE TRUST
The aggregate cost of the Trust's shares acquired and the aggregate
proceeds from shares sold during the year ended December 31, 1994
consist of the following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Variable Account Acquired Shares Sold
---------------- --------------- ---------------
<S> <C> <C>
Foreign Securities Portfolio $ 49,763,203 $ 51,835,164
Capital Appreciation Portfolio 93,739,127 89,259,182
Growth Portfolio 52,402,034 98,874,952
Natural Resources Portfolio 17,346,847 15,738,208
Convertible Securities Portfolio 11,452,283 9,661,244
Strategic Multi-Asset Portfolio 13,758,819 12,282,002
Multi-Asset Portfolio 23,006,467 39,419,283
High Yield Portfolio 58,963,005 81,857,653
Target '98 Portfolio 5,334,844 4,600,374
Fixed Income Portfolio 6,081,437 14,510,022
Government and Quality Bond
Portfolio 66,696,166 80,786,003
Money Market Portfolio 207,674,916 180,108,947
============ ============
</TABLE>
4. FEDERAL INCOME TAXES
The Company qualifies for federal income tax treatment granted to life
insurance companies under subchapter L of the Internal Revenue Service
Code ("the Code"). The operations of the Separate Account are part of
the total operations of the Company and are not taxed separately. The
Separate Account is not treated as a regulated investment company
under the Code.
7
