<PAGE> 1
Filed pursuant to Rule 497(c)
of the Securities Act of 1933
File Nos. 33-32569 and 811-4296
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FLEXIBLE PAYMENT VARIABLE ANNUITY
CONTRACTS
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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:
- - Foreign Securities Portfolio
- - Capital Appreciation Portfolio
- - Growth Portfolio
- - Natural Resources Portfolio
- - Growth and Income Portfolio
(formerly the Convertible Securities Portfolio)
- - Strategic Multi-Asset Portfolio
- - Multi-Asset Portfolio
- - High Yield Portfolio
- - Target '98 Portfolio
- - Fixed Income Portfolio
- - Government and Quality Bond Portfolio
- - Money Market Portfolio
Additional Portfolios may be made available in the future.
The Fixed Account option pays a fixed rate of interest declared by the
Company for one year from the date amounts are allocated to it.
This Prospectus concisely sets forth the information a prospective investor
ought to know before investing. PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN
IT FOR YOUR FUTURE REFERENCE. Owners bear the complete investment risk for all
Purchase Payments allocated to the Separate Account.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE CONTRACTS OFFERED BY THIS PROSPECTUS INVOLVE RISK, INCLUDING LOSS OF
PRINCIPAL, AND ARE NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES.
A Statement of Additional Information about the variable portion of the
Contracts has been filed with the Commission, as part of the Registration
Statement, and is available without charge upon written or oral request to the
Company at its Administrative Service Center at the address and telephone number
set forth above. The Statement of Additional Information is incorporated herein
by reference. The Table of Contents of the Statement of Additional Information,
dated January 28, 1997, appears on page 29 of this Prospectus.
This Prospectus is dated January 28, 1997.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
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<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............................................................................... 11
Managed Portfolios.............................................................................. 12
Fixed Income Portfolios......................................................................... 12
Voting Rights................................................................................... 13
Substitution of Securities...................................................................... 13
CONTRACT CHARGES.................................................................................... 13
Mortality and Expense Risk Charge............................................................... 13
Administrative Charges.......................................................................... 14
Administrative Expense Charge................................................................. 14
Records Maintenance Charge.................................................................... 14
Sales Charges................................................................................... 14
Withdrawal Charge............................................................................. 14
Annuity Charge................................................................................ 15
Premium Taxes................................................................................... 15
Deduction for Separate Account Income Taxes..................................................... 15
Other Expenses.................................................................................. 15
Reduction of Charges for Sales to Certain Groups................................................ 16
DESCRIPTION OF THE CONTRACTS........................................................................ 16
Transfer During Accumulation Period............................................................. 16
Automatic Dollar Cost Averaging Program......................................................... 17
Modification of the Contract.................................................................... 17
Assignment...................................................................................... 17
Death of Owner of Non-Qualified Contract........................................................ 17
Death Benefit................................................................................... 18
Beneficiary..................................................................................... 18
ANNUITY PERIOD...................................................................................... 19
Annuity Date.................................................................................... 19
Allocation of Annuity Payments.................................................................. 19
Annuity Options................................................................................. 19
Other Options................................................................................... 20
Transfer During Annuity Period.................................................................. 21
Death Benefit During Annuity Period............................................................. 21
PURCHASES AND CONTRACT VALUE........................................................................ 21
Minimum Purchase Payment........................................................................ 21
Maximum Purchase Payment........................................................................ 21
Allocation of Purchase Payments................................................................. 21
Accumulation Unit Value......................................................................... 22
Distribution of Contracts....................................................................... 22
Withdrawals (Redemptions)....................................................................... 23
Systematic Withdrawal Program................................................................... 23
ERISA Plans..................................................................................... 24
Texas Optional Retirement Program............................................................... 24
Minimum Contract Value.......................................................................... 24
ADMINISTRATION...................................................................................... 24
TAXES............................................................................................... 24
General......................................................................................... 25
Withholding Tax on Distributions................................................................ 25
Diversification................................................................................. 25
Multiple Contracts.............................................................................. 26
Tax Treatment of Assignments.................................................................... 26
Tax Treatment of Withdrawals -- Non-Qualified Contracts......................................... 26
Qualified Plans................................................................................. 26
Tax Treatment of Withdrawals -- Qualified Contracts............................................. 28
Tax Sheltered Annuities -- Withdrawal Limitations............................................... 28
Deferred Compensation Plans -- Section 457...................................................... 28
LEGAL PROCEEDINGS................................................................................... 29
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION........................................ 29
</TABLE>
(i)
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DEFINITIONS
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The following terms, as used in this Prospectus, have the indicated
meanings:
ACCUMULATION PERIOD -- The period between the Issue Date of the Contract and the
Annuity Date, the build-up phase of the Contract.
ACCUMULATION UNIT -- A unit of measurement which the Company uses to calculate
Contract Value during the Accumulation Period.
ADMINISTRATIVE SERVICE CENTER -- Its current address and phone number are: P.O.
Box 54299, Los Angeles, California 90054-0299, (800) 445-7862. 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.
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.
2
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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
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SUMMARY
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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
* GROWTH AND INCOME * 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 Qualified
Plans may be subject to additional withdrawal restrictions imposed by the plan.
Earnings under a Contract may be withdrawn at any time during such period free
of a Withdrawal Charge. Alternatively, there is a free withdrawal amount which
applies to the first withdrawal during a Contract Year after the first Contract
Year. (See "Contract Charges -- Sales Charges -- Withdrawal Charge"). Certain
Owners of Nonqualified Plan Contracts and Contracts issued in connection with
Individual Retirement Annuities ("IRAs") may choose to withdraw amounts which in
the aggregate add up to 10%
4
<PAGE> 6
of their Purchase Payments annually pursuant to a systematic withdrawal program
without charge. (See "Purchases and Contract Value -- Systematic Withdrawal
Program"). Withdrawals are taxable and a 10% federal tax penalty may apply to
withdrawals before age 59 1/2.
Owners should consult their own tax counsel or other tax adviser regarding
any withdrawals or distributions.
CAN I EXAMINE THE CONTRACT?
The Contract Owner may return the Contract to the Company within 10 days
(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
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FEE TABLES
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OWNER TRANSACTION EXPENSES
WITHDRAWAL CHARGE (AS A PERCENTAGE OF PURCHASE PAYMENTS):
<TABLE>
<CAPTION>
CONTRIBUTION YEAR
-----------------
<S> <C>
One....................................................................................... 5%
Two....................................................................................... 4%
Three..................................................................................... 3%
Four...................................................................................... 2%
Five...................................................................................... 1%
Six and later............................................................................. 0%
ANNUAL RECORDS MAINTENANCE CHARGE............................................................... $30
TRANSFER FEE.................................................................................... $25*
(applies solely to transfers in excess of fifteen in a Contract Year)
</TABLE>
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* $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.
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ANNUAL SEPARATE ACCOUNT EXPENSES
(AS A PERCENTAGE OF DAILY NET ASSET VALUE)
<TABLE>
<S> <C>
MORTALITY RISK CHARGE.......................................................................... 0.90%
EXPENSE RISK CHARGE............................................................................ 0.35%
ADMINISTRATION EXPENSE CHARGE.................................................................. 0.15%
------
TOTAL EXPENSE CHARGE..................................................................... 1.40%
======
</TABLE>
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ANNUAL TRUST EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS FOR THE FISCAL YEAR ENDED DECEMBER 31,
1995):
<TABLE>
<CAPTION>
TOTAL
ANNUAL
MANAGEMENT FEE OTHER EXPENSES EXPENSES
-------------- --------------
- ------------
<S> <C> <C> <C>
Foreign Securities............................................... .9% .3% 1.2%
Capital Appreciation............................................. .7% .1% .8%
Growth........................................................... .7% .2% .9%
Natural Resources................................................ .8% .2% 1.0%
Growth and Income................................................ .7% .2% .9%
Strategic Multi-Asset............................................ 1.0% .3% 1.3%
Multi-Asset...................................................... 1.0% .1% 1.1%
High Yield....................................................... .7% .2% .9%
Target '98....................................................... .6% .3% .9%
Fixed Income..................................................... .6% .2% .8%
Government & Quality Bond........................................ .6% .1% .7%
Money Market..................................................... .5% .1% .6%
</TABLE>
6
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EXAMPLES
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<TABLE>
<CAPTION>
SEPARATE CONDITIONS
ACCOUNT A Contract Owner would pay the following expenses on a TIME PERIODS
DIVISION $1,000 investment assuming 5% annual return on assets: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C> <C> <C>
FOREIGN (a) upon surrender at the end of the stated time (a) $ 77 $ 111 $ 153 $305
period.
SECURITIES (b) if the Contract WAS NOT surrendered (b) 27 84 144 305
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CAPITAL SAME (a) 73 99 133 265
APPRECIATION (b) 23 72 124 265
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GROWTH SAME (a) 74 102 138 275
(b) 24 75 129 275
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NATURAL SAME (a) 75 105 143 285
RESOURCES (b) 25 78 134 285
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GROWTH AND SAME (a) 74 102 138 275
INCOME (b) 24 75 129 275
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STRATEGIC SAME (a) 78 114 158 315
MULTI-ASSET (b) 28 87 149 315
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MULTI-ASSET SAME (a) 76 108 148 295
(b) 26 81 139 295
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HIGH YIELD SAME (a) 74 102 138 275
(b) 24 75 129 275
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TARGET '98 SAME (a) 74 102 138 275
(b) 24 75 129 275
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FIXED SAME (a) 73 99 133 265
INCOME (b) 23 72 124 265
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GOV'T & SAME (a) 72 96 128 255
QUALITY BOND (b) 22 69 119 255
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MONEY MARKET SAME (a) 71 93 123 245
(b) 21 66 114 245
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</TABLE>
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EXPLANATION OF FEE TABLES
AND EXAMPLES
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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
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CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
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<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPARATE ACCOUNT ------------------------------------------------------------------------------------------------------------
DIVISION 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 12/31/95
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<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 $ 11.83
End AUV............ -- $ 8.70 $ 10.47 $ 13.32 $ 11.45 $ 11.26 $ 9.64 $ 12.39 $ 11.83 $ 13.13
End # AU's (000)... -- 1,344 1,449 2,978 2,875 2,623 2,878 5,512 5,328 3,704
Capital Appreciation
Beginning AUV 3/23/87
(inception)...... -- $ 9.99 $ 8.16 $ 9.80 $ 12.08 $ 9.97 $ 15.36 $ 19.09 $ 22.79 $ 21.62
End AUV............ -- $ 8.16 $ 9.80 $ 12.08 $ 9.97 $ 15.36 $ 19.09 $ 22.79 $ 21.62 $ 28.68
End # AU's (000)... -- 909 1,714 2,515 2,553 2,834 4,148 5,413 5,136 4,751
Growth
Beginning AUV...... $ 12.99 $ 13.99 $ 13.88 $ 15.43 $ 19.79 $ 18.99 $ 26.36 $ 27.40 $ 29.12 $ 27.36
End AUV............ $ 13.99 $ 13.88 $ 15.43 $ 19.79 $ 18.99 $ 26.36 $ 27.40 $ 29.12 $ 27.36 $ 34.08
End # AU's (000)... 15,087 14,899 12,043 7,998 7,465 8,053 9,030 8,345 5,853 5,375
Natural Resources
Beginning AUV 1/1/88
(inception)...... -- -- $ 10.00 $ 11.02 $ 12.86 $ 10.77 $ 11.13 $ 11.25 $ 15.11 $ 15.05
End AUV............ -- -- $ 11.02 $ 12.86 $ 10.77 $ 11.13 $ 11.25 $ 15.11 $ 15.05 $ 17.43
End # AU's (000)... -- -- 857 1,004 1,323 810 748 1,142 1,220 997
Growth and Income
Beginning AUV 3/23/87
(inception)...... -- $ 10.00 $ 8.65 $ 9.76 $ 11.04 $ 10.50 $ 13.12 $ 15.55 $ 18.70 $ 16.67
End AUV............ -- $ 8.65 $ 9.76 $ 11.04 $ 10.50 $ 13.12 $ 15.55 $ 18.70 $ 16.67 $ 19.16
End # AU's (000)... -- 1,611 1,636 1,446 1,184 1,034 1,424 2,057 1,915 1,521
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 $ 15.16
End AUV............ -- $ 9.06 $ 10.26 $ 12.13 $ 11.06 $ 13.55 $ 13.88 $ 15.78 $ 15.16 $ 18.35
End # AU's (000)... -- 6,663 7,267 7,568 7,487 6,289 5,447 4,546 3,958 3,213
Multi-Asset
Beginning AUV 3/23/87
(inception)...... -- $ 10.02 $ 9.34 $ 10.09 $ 11.91 $ 11.93 $ 14.98 $ 15.97 $ 16.90 $ 16.39
End AUV............ -- $ 9.34 $ 10.09 $ 11.91 $ 11.93 $ 14.98 $ 15.97 $ 16.90 $ 16.39 $ 20.19
End # AU's (000)... -- 13,023 14,199 11,945 11,811 10,975 11,719 10,510 8,354 6,930
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 $ 17.96
End AUV............ $ 11.51 $ 11.53 $ 13.00 $ 12.48 $ 11.01 $ 14.44 $ 16.24 $ 19.07 $ 17.96 $ 21.03
End # AU's (000)... 4,695 4,490 4,212 2,361 1,791 2,247 2,813 4,000 2,489 2,088
Target '98
Beginning AUV 5/2/88
(inception)...... -- -- $ 10.00 $ 10.63 $ 12.29 $ 12.89 $ 15.11 $ 15.97 $ 17.52 $ 16.57
End AUV............ -- -- $ 10.63 $ 12.29 $ 12.89 $ 15.11 $ 15.97 $ 17.52 $ 16.57 $ 18.72
End # AU's (000)... -- -- 397 922 941 767 1,132 1,065 1,028 578
Fixed Income
Beginning AUV...... $ 12.84 $ 14.37 $ 14.29 $ 15.08 $ 16.78 $ 17.84 $ 20.31 $ 21.34 $ 22.71 $ 21.67
End AUV............ $ 14.37 $ 14.29 $ 15.08 $ 16.78 $ 17.84 $ 20.31 $ 21.34 $ 22.71 $ 21.67 $ 25.46
End # AU's (000)... 4,793 3,871 3,003 2,240 1,851 1,813 1,785 1,657 1,183 1,006
Government & Quality
Bond
Beginning AUV...... $ 12.80 $ 13.91 $ 13.93 $ 14.95 $ 17.04 $ 18.15 $ 21.00 $ 22.13 $ 23.63 $ 22.60
End AUV............ $ 13.91 $ 13.93 $ 14.95 $ 17.04 $ 18.15 $ 21.00 $ 22.13 $ 23.63 $ 22.60 $ 26.60
End # AU's (000)... 17,128 18,902 12,769 8,752 8,183 8,917 8,626 7,256 6,270 4,038
Money Market
Beginning AUV...... $ 10.85 $ 11.42 $ 12.07 $ 12.78 $ 13.73 $ 14.61 $ 15.23 $ 15.53 $ 15.72 $ 16.10
End AUV............ $ 11.42 $ 12.07 $ 12.78 $ 13.73 $ 14.61 $ 15.23 $ 15.53 $ 15.72 $ 16.10 $ 16.77
End # AU's (000)... 3,642 6,548 12,570 16,141 11,858 7,594 7,824 5,746 7,324 5,320
</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, CalFarm Life Insurance Company, SunAmerica
Asset Management Corp., Imperial Premium Finance, Inc., Resources Trust Company
and three broker-dealers, offer a full line of financial services, including
fixed and variable annuities, mutual funds, premium finance, broker-dealer, and
trust administration services. The Company is admitted to conduct life insurance
and annuity business in the 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 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
9
<PAGE> 11
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 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").
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
10
<PAGE> 12
reinsured Capitol Contract Owners and the Company under the reinsured Capitol
Contracts or those of Contract Owners and the Company under the Contracts. Nor
did the merger affect those Owners' Contract Values.
The assets of the Separate Account are the property of the Company.
However, the assets of the Separate Account, equal to the reserves and other
contract liabilities of the Separate Account, are not chargeable with
liabilities arising out of any other business the Company may conduct. The
Company's obligations arising under the Contracts are general corporate
obligations of the Company.
Income, gains and losses, whether or not realized, from assets allocated to
the Separate Account are credited to or charged against the Separate Account
without regard to other income, gains or losses of the Company.
The Separate Account is divided into Divisions, with the assets of each
Division invested in the shares of one of the twelve Portfolios of the Trust.
The Company does not guarantee the investment performance of the Separate
Account or its Divisions. Values allocated to the Separate Account and the
amount of variable annuity payments will vary with the value of shares of the
Portfolios and the Contract charges. The Separate Account has also been
segmented into subaccounts which fund group annuity contracts issued by the
Company.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Financial statements of the Separate Account appear in the Statement of
Additional Information. Financial information regarding the General Account is
reported in the Company's financial statements. The Company's financial
statements are also included in the Statement of Additional Information. A copy
of the Statement of Additional Information may be obtained by contacting the
Company, c/o its Administrative Service Center.
- --------------------------------------------------------------------------------
ANCHOR SERIES TRUST
- --------------------------------------------------------------------------------
Each of the twelve Divisions of the Separate Account invests solely in the
shares of one of the twelve Portfolios of the Trust. The Trust is an open-end
diversified management investment company registered under the Investment
Company Act of 1940. While a brief summary of the investment objectives is set
forth below, more comprehensive information, including a discussion of potential
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, LLP ("WMC"), which is not affiliated
with the Company, serves as sub-adviser for the Trust. (See the Trust Prospectus
for information concerning the investment management fees.)
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
11
<PAGE> 13
benefit from rising inflation, because they own or control assets which
appreciate in inflationary periods, or because of increased activity during
these periods of inflation, and in debt obligations and fixed income securities
which are expected to provide favorable returns in periods of rising inflation.
This Portfolio will invest in domestic securities and foreign securities and may
engage in transactions including stock index futures contracts and options
thereon, and transactions involving the future delivery of fixed income
securities ("Financial Futures Contracts") and options thereon, as a hedge
against changes in market conditions.
GROWTH AND INCOME PORTFOLIO seeks high current income and long-term capital
appreciation. This Portfolio will invest primarily in securities that provide
the potential for growth and offer income, such as dividend-paying stocks and
securities convertible into common stock. This Portfolio may also engage in
transactions involving stock index futures and options thereon as a hedge
against changes in market conditions.
MANAGED PORTFOLIOS
STRATEGIC MULTI-ASSET PORTFOLIO seeks high long-term total investment
return. This Portfolio will invest in a diversified group of securities of the
following types: growth equity and aggressive growth equity securities,
including the securities of smaller companies which may be newer and less
seasoned, investment grade and high-yield, high-risk bonds, international
securities and money market instruments. The Portfolio may also engage in
transactions involving stock index futures contracts and options thereon, and
Financial Futures Contracts and options thereon, as a hedge against changes in
market conditions.
MULTI-ASSET PORTFOLIO seeks long-term total investment return consistent
with moderate investment risk. This Portfolio will invest in a diversified group
of securities, including: growth equity securities, convertible securities,
investment grade fixed income securities and money market securities. The
Portfolio also may engage in transactions involving stock index futures
contracts and options thereon, and Financial Futures Contracts and options
thereon, as a hedge against changes in market conditions.
FIXED INCOME PORTFOLIOS
HIGH YIELD PORTFOLIO seeks high current income. A secondary investment
objective is capital appreciation. This Portfolio will seek its objectives by
investing, except for temporary defensive purposes, at least 65% of its assets
in high-yielding, high-risk, income producing corporate bonds, which generally
carry ratings lower than those assigned to investment grade bonds by Moody's 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.
12
<PAGE> 14
GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current income,
liquidity and security of principal. This Portfolio will invest in obligations
issued, guaranteed or insured by the U.S. Government, its agencies or
instrumentalities ("government securities") and in corporate debt securities
rated Aa or better by Moody's or AA or better by Standard & Poor's ("high
quality corporate bonds"). It is currently anticipated that the Portfolio will
have the majority of its assets invested in government securities since the
Trust is permitted to treat each U.S. agency or instrumentality as a separate
issuer for purposes of determining compliance with diversification standards
imposed by Section 817(h) of the Code. (See "Taxes -- Diversification").
MONEY MARKET PORTFOLIO seeks current income consistent with stability of
principal through investment in a diversified portfolio of money market
instruments maturing in 397 days or less. The Portfolio will maintain a dollar-
weighted average portfolio maturity of not more than 90 days.
There is no assurance that the investment objective of any of the
Portfolios will be met. Contract Owners bear the complete investment risk for
Purchase Payments allocated to a Division. Contract Values will fluctuate in
accordance with the investment performance of the Division(s) to which Purchase
Payments are allocated, and in accordance with the imposition of the fees and
charges assessed under the Contracts.
Shares of the Trust are and will be issued and redeemed only in connection
with investments in and payments under variable contracts sold by the Company
and its affiliate, 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
13
<PAGE> 15
benefit prior to the Annuity Date. The expense risk assumed by the Company is
that the costs of administering the Contracts and the Separate Account will
exceed the amount received from the Records Maintenance Charge and the
Administrative Expense Charge. (See "Administrative Charges"). This charge is
guaranteed by the Company and cannot be increased.
ADMINISTRATIVE CHARGES
ADMINISTRATIVE EXPENSE CHARGE
The Company deducts an Administrative Expense Charge from each Division of
the Separate Account which is equal, on an annual basis, to .15% of the daily
net asset value of each Division. This charge is designed to cover those
administrative expenses which exceed the revenues from the Records Maintenance
Charge. The Company does not intend to profit from this charge. The Company
believes that the Administrative Expense Charge has been set at a level that
will recover no more than the actual costs associated with administering the
Contract. In the event that it exceeds the amount necessary to reimburse the
Company for its administrative expenses the charge will be appropriately
reduced. In no event will this charge be increased. The Administrative Expense
Charge is assessed during both the Accumulation Period and the Annuity Period.
RECORDS MAINTENANCE CHARGE
An annual Records Maintenance Charge of $30 is charged against each
Contract. The amount of this charge is guaranteed and cannot be increased by the
Company. This charge reimburses the Company for expenses incurred in
establishing and maintaining records relating to a Contract.
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 of the withdrawal will be greater than the withdrawal amount
requested and paid. Free
14
<PAGE> 16
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%.
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.
15
<PAGE> 17
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 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
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<PAGE> 18
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 accompanied by payments. The Company reserves the right to
modify, suspend or terminate the DCA Program at any time.
A Contract Owner may not simultaneously participate in both the DCA Program
and the Systematic Withdrawal Program. Participation in the DCA Program will be
effective one week after the Company has received and approved the application
to participate in the DCA Program.
MODIFICATION OF THE CONTRACT
Only the Company's President or Secretary may approve a change or waive the
provisions of the Contract. Any change or waiver must be in writing. No agent
has the authority to change or waive the provisions of the Contract.
ASSIGNMENT
Contracts issued pursuant to Non-Qualified Plans that are not subject to
Title 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, 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:
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<PAGE> 19
(A) The Owner and the Annuitant are the same individual and that
individual dies during the Accumulation Period; or
(B) The Owner and Annuitant are different persons and the Owner dies
during the Accumulation Period prior to the Annuitant's death.
If either of the above conditions occurs, the following provisions apply:
(1) If the Beneficiary is the spouse of the Owner, then the
Beneficiary may elect to become the Owner and maintain the Contract in full
force and effect. A spouse Beneficiary may alternatively choose to take a
lump sum distribution. (See below).
(2) If the Beneficiary is a natural person and not the spouse of the
Owner, the Beneficiary can elect to have the existing Contract Value paid
under one of the annuity options set forth in the Contract over a period
not extending beyond the life expectancy of the Beneficiary at the time of
the election, or such a Beneficiary can elect to take a lump sum
distribution. (See below). Payments under any annuity option selected must
begin not later than one year after the date of death of the Owner.
(3) If there is no Beneficiary or if the Beneficiary is not a natural
person, then the entire Contract Value must be paid out within five years
of the Owner's death.
The amount of a lump sum distribution is the greater of:
(1) the current Contract Value at the time of election; or
(2) the total amount of Purchase Payments made under the Contract less
the aggregate dollar amount of any partial withdrawals and any Withdrawal
Charges which were assessed at the time of withdrawal. Under this
alternative election, the lump sum must be paid to the Beneficiary within
five years of the Owner's death.
If the Contract is issued pursuant to a Qualified Plan, similar provisions
will apply upon the death of the Contract Owner. Purchasers acquiring Contracts
pursuant to Qualified Plans should consult a qualified pension or tax adviser.
DEATH BENEFIT
If the Annuitant dies during the Accumulation Period, a Death Benefit will
be payable to the Beneficiary upon receipt by the Company of Due Proof of Death
of the Annuitant.
The Death Benefit is equal to the greater of:
(1) the Contract Value at the end of the Valuation Period during which
Due Proof of Death and an election of the type of payment to 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
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<PAGE> 20
Form provided by the Company. Any change will take effect when recorded by the
Company. The Company is not liable for any payment made or action taken before
it records the change.
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ANNUITY PERIOD
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ANNUITY DATE
The Contract Owner selects an Annuity Date (the date on which annuity
payments are to begin) at the time of application. The Annuity Date must always
be the first day of a calendar month and must be at least one month after the
Issue Date. Annuity payments will begin no later than the first day of the
calendar month following the Annuitant's 85th birthday. Where joint Annuitants
are named, the Annuity Date may not be later than the first of the month
following the 85th birthday of the youngest Annuitant. The Contract Owner may
change the Annuity Date at any time at least seven days prior to the Annuity
Date then indicated on the Company's records by written notice to the Company,
c/o its Administrative Service Center.
The actual dollar amount of variable annuity payments is dependent upon:
(1) the Contract Value at the time of annuitization; (2) the annuity table
specified in the Contract; (3) the annuity option selected; and (4) the
investment performance of the Divisions selected. In addition, if annuity option
3, Income for a Specified Period, is elected, an Annuity Charge may apply. (See
"Contract Charges -- Sales Charges" and "Contract Charges -- Annuity Charge").
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, annuity payments will
decrease. If a higher assumed investment rate were used, the initial payment
would be higher, but the actual net investment rate would have to be higher in
order for annuity payments to increase.
The Annuitant receives the value of a fixed number of Annuity Units each
month. The value of a fixed number of Annuity Units will reflect the investment
performance of the Divisions elected, and the amount of each annuity payment
will vary accordingly.
ALLOCATION OF ANNUITY PAYMENTS
If all of the Contract Value on the seventh calendar day before the Annuity
Date is allocated to the General Account, the Annuity will be paid as a fixed
annuity. If all of the Contract Value on that date is allocated to the Separate
Account, the Annuity will be paid as a Variable Annuity. If the Contract Value
on that date is allocated to both the General Account and the Separate Account,
the Annuity will be paid as a combination of a fixed annuity and a Variable
Annuity to reflect the allocation between the accounts. Variable Annuity
payments will reflect the investment performance of the Separate Account
Divisions. The payee(s) may, by written notice to the Company, convert Variable
Annuity payments to fixed annuity payments. However, fixed annuity payments may
not be converted to Variable Annuity payments.
ANNUITY OPTIONS
The Contract Owner, or any Beneficiary who is so entitled, may elect to
receive a lump sum at the end of the Accumulation Period. However, a lump sum
distribution may be deemed to be a withdrawal, and at least a portion of it may
be subject to federal income tax. (See "Taxes -- Tax Treatment of
Withdrawals -- Non-Qualified Contracts" and "Tax Treatment of
Withdrawals -- Qualified Contracts"). Alternatively, an annuity option may be
elected. The Contract Owner may elect an annuity option or change an annuity
option at any time during the lifetime of the Annuitant prior to the Annuity
Date. The Annuitant may make the election on the Annuity Date unless the
Contract Owner has restricted the right to make such an election. The
Beneficiary may elect an annuity option upon the Annuitant's death unless the
Contract Owner has restricted this right.
If no other annuity option is elected, monthly annuity payments will be
made in accordance with annuity option 1 below with a 10 year period certain.
Generally, annuity payments will be made in monthly installments. However, if
the amount available to apply under an annuity option is less than $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
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<PAGE> 21
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.
Contract Owners may elect to have annuity payments electronically wired to
his or her financial institution by completing the instructions on the
Electronic Fund Transfer Form or by written request delivered to the Company at
its Administrative Service Center. A voided check (for checking accounts), the
account number and bank ABA number must accompany all requests. Electronic
transfers may also be requested on the Annuity Option Selection Form. The
Company reserves the right to modify, suspend or terminate the availability of
electronic fund transfers at any time.
The following annuity options are generally available under the Contract.
However, there may be restrictions in the retirement plan pursuant to which a
Contract issued on a qualified basis has been purchased.
OPTION 1 -- LIFE INCOME WITH INSTALLMENTS GUARANTEED
An annuity payable monthly during the lifetime of the payee. Upon election
a guaranteed payment period of either 10 years or 20 years may be chosen. If the
payee dies before the end of the guaranteed period, the present value, based on
a 5% annual interest rate, of any remaining guaranteed payments will be paid to
the payee's estate or to the Beneficiary.
OPTION 2 -- JOINT AND SURVIVOR ANNUITY
An annuity payable monthly while both payees are living. Upon the death of
either payee, the monthly income payable will continue during the lifetime of
the surviving payee at the percentage of the full amount chosen at the time of
election of this annuity option. This is the automatic form of annuity where
joint Annuitants are named, but a different option may be elected.
Annuity payments terminate automatically and immediately upon the death of
the surviving payee without regard to the number or total amount of payments
received.
There is no minimum number of guaranteed payments and it is possible to
have only one annuity payment if both payees die before the due date of the
second payment.
No Annuity Charge applies if either option 1 or option 2 is elected.
OPTION 3 -- INCOME FOR A SPECIFIED PERIOD
If Purchase Payments were made in the Contract Year in which annuity
payments are to begin or in any of the four preceding Contract Years, an Annuity
Charge may apply. The Annuity Charge equals the Withdrawal Charge that would
apply if the Contract were being surrendered. No Annuity Charge will be assessed
if annuity option 3 is elected by a Beneficiary under the Death Benefit.
Under this option, a payee can elect an annuity payable monthly for any
period of years from 5 to 30. This election must be made for full 12 month
periods. In the event the payee dies before the specified number of payments has
been made, the Beneficiary may elect to continue receiving the scheduled
payments or may alternatively elect to receive the present value, based on a 5%
annual interest rate, of any remaining guaranteed payments. Because Contract
Values are redeemable even after the Annuity Date under this option at any time
while payments are being made, the payee may elect to receive the present value
of the remaining payments, commuted at the interest rate used to create the
annuity factor for this option.
The value of an Annuity Unit, regardless of the option chosen, takes into
account the Mortality and Expense Risk Charge. (See "Contract
Charges -- Mortality and Expense Risk Charge"). Since annuity option 3, Income
for a Specified Period, does not contain an element of mortality risk, the payee
is not getting the benefit of this Charge. There shall be no right to terminate
the Contract during the Annuity Period if the option elected contains an element
of mortality risk.
OTHER OPTIONS
At the sole discretion of the Company, other annuity options may be made
available to the Contract Owner. However, to the extent that Withdrawal Charges
would otherwise apply to a withdrawal or termination, the identical Withdrawal
Charge may apply with respect to any additional options.
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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.
(2) The entire value in a Separate Account Division must be
transferred.
(3) The request for transfer must be received by the Company, c/o its
Administrative Service Center, during the 45 days preceding the anniversary
of the Contract's Issue Date. The transfer will be effected at the next
Annuity Unit value calculation after receipt of a valid transfer request
which meets the limitations and conditions as are prescribed for transfers
during the Accumulation Period. (See "Transfer During Accumulation
Period").
(4) The amount allocated to the General Account in the event of a
transfer from a Separate Account Division will be equal to the annuity
reserve for the payee's interest in that Separate Account Division. The
annuity reserve is the product of "(A)" multiplied by "(B)" multiplied by
"(C)", where "(A)" is the number of Annuity Units representing the payee's
interest in the Separate Account Division per annuity payment; "(B)" is the
Annuity Unit value for the Separate Account Division; and "(C)" is the
present value of $1.00 per payment period as of the adjusted age of the
payee attained at the time of transfer, determined by using the 1983 Table
A, projected at Scale G with interest at the rate of 5% per annum. Amounts
transferred to the General Account will be applied under the annuity option
originally elected, except that adjustment will be made for the time
elapsed since the Annuity Date. All amounts and Annuity Unit values will be
determined as of the end of the Valuation Period preceding the effective
date of transfer.
(5) The transfer privilege may be suspended or discontinued at any
time.
DEATH BENEFIT DURING ANNUITY PERIOD
If the payee dies after the Annuity Date while the Contract is in force,
the death proceeds, if any, will depend upon the annuity option in effect at the
time of the payee's death. If the Owner or Annuitant, if different, dies after
the Annuity Date and before the entire interest in the Contract has been
distributed, the remaining interest, if any, as provided for in the annuity
option elected will be distributed at least as rapidly as under the method of
distribution in effect at the Owner's or Annuitant's death.
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PURCHASES AND CONTRACT VALUE
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MINIMUM PURCHASE PAYMENT
The minimum initial Purchase Payment for Contracts issued pursuant to a
Non-Qualified Plan is $1,000. Minimum additional Purchase Payments may be made
in amounts of $500. The minimum Purchase Payment for a Contract issued pursuant
to a Qualified Plan is $100. A minimum of $500 must be allocated to one Division
or the General Account before transfers are permitted. (See "Description of the
Contracts -- Transfer During Accumulation Period"). The Company reserves the
right to refuse any Purchase Payment at any time.
MAXIMUM PURCHASE PAYMENT
Purchase Payments of more than $1,000,000 require prior Company approval.
ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments are allocated to the General Account and/or the 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
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Company for one year from the date amounts are allocated to it. The Company, at
its discretion, may offer other General Account allocation options which are
subject to different terms and conditions than apply to the current option.
Contract Owners making initial Purchase Payments should be sure to specify
their allocations on the application for a Contract. If the application is in
good order, the Company will apply the initial Purchase Payment to the General
Account and the selected 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.
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
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<PAGE> 24
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 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.
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Depending on fluctuations in the net asset value of the Portfolios, systematic
withdrawals may reduce or even exhaust Contract Value. The minimum systematic
withdrawal amount is $250 per withdrawal.
Amounts withdrawn under to the Systematic Withdrawal Program may be
electronically wired to the Contract Owner's financial institution by completing
the instructions on the Electronic Fund Transfer Form or by written request
delivered to the Company at its Administrative Service Center. A voided check
(for checking accounts), the account number and bank ABA number must accompany
all requests. Electronic transfers may also be requested on the Systematic
Withdrawal Request Form. The Company reserves the right to modify, suspend or
terminate the Systematic Withdrawal Program and the availability of electronic
fund transfers at any time.
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 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.
- --------------------------------------------------------------------------------
TAXES
- --------------------------------------------------------------------------------
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
24
<PAGE> 26
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 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
25
<PAGE> 27
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.
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.
26
<PAGE> 28
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.
(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
27
<PAGE> 29
use with corporate pension or profit sharing plans should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
TAX TREATMENT OF WITHDRAWALS -- QUALIFIED CONTRACTS
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion
of any early distribution from qualified retirement plans, including contracts
issued and qualified under Code Sections 401 (H.R. 10 and Corporate Pension and
Profit Sharing Plans), 403(b) (Tax-Sheltered Annuities) and 408(b) (IRAs).
The tax penalty will not apply to the following distributions: (1) if
distribution is made on or after the date on which the Contract Owner or
Annuitant (as applicable) reaches age 59 1/2; (2) distributions following the
death or disability of the Contract Owner or Annuitant (as applicable) (for this
purpose "disability" is defined in Section 72(m)(7) of the Code); (3)
distributions that are part of substantially equal periodic payments made not
less frequently than annually for the life (or life expectancy) of the Contract
Owner or Annuitant (as applicable) or the joint lives (or joint life
expectancies) of such Contract Owner or Annuitant (as applicable) and his or her
designated Beneficiary; (4) distributions to a Contract Owner or Annuitant (as
applicable) who has separated from service after he or she has attained age 55;
(5) distributions made to the Contract Owner or Annuitant (as applicable) to the
extent such distributions do not exceed the amount allowable as a deduction
under Code Section 213 to the Contract Owner or Annuitant (as applicable) for
amounts paid during the taxable year for medical care; and (6) distributions
made to an alternate payee pursuant to a qualified domestic relations order.
The exceptions stated in items (4), (5) and (6) above do not apply in the
case of an IRA.
The taxable portion of a withdrawal or distribution from Contracts issued
under certain types of plans may, under some circumstances, be "rolled over"
into another eligible plan so as to continue to defer income tax on the taxable
portion. Effective January 1, 1993, such treatment is available for any
"eligible rollover distribution" made by certain types of plans (as described
above under "Taxes -- Withholding Tax on Distributions") 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.
28
<PAGE> 30
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no legal proceedings to which the Separate Account is a party or
to which the assets of the Separate Account are subject. The Company is engaged
in various kinds of routine litigation that in the Company's judgment will not
have a material adverse impact upon the Company's financial position.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ITEM PAGE
----
<S> <C>
COMPANY................................................................................... 1
INDEPENDENT ACCOUNTANTS................................................................... 1
DISTRIBUTORS.............................................................................. 1
PERFORMANCE DATA.......................................................................... 2
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>
29
<PAGE> 31
Please forward a copy (without charge) of the Statement of Additional
Information concerning ICAP II Variable Annuity Contracts issued by
Anchor National Life Insurance Company to:
(Please print or type and fill in all information.)
- ------------------------------------------------------------------------------
Name
- ------------------------------------------------------------------------------
Address
- ------------------------------------------------------------------------------
City/State/Zip
- ------------------------------------------------------------------------------
Date: Signed:
------------------------ -------------------------------------
Return to: Anchor National Life Insurance Company, Annuity Service Center, P.O.
Box 54299, Los Angeles, California 90054-0299.
<PAGE> 32
Filed pursuant to Rule 497(c)
of the Securities Act of 1933
File 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 28, 1997, 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 28, 1997
<PAGE> 33
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
<S> <C>
Company........................................................1
Independent Accountants........................................1
Distributors...................................................1
Performance Data...............................................2
Money Market Division.......................................2
Other Divisions.............................................3
Annuity Payments...............................................4
Annuity Unit Value..........................................4
Amount of Annuity Payments..................................4
Subsequent Monthly Payments.................................5
Financial Statements...........................................5
</TABLE>
<PAGE> 34
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, 1996 and 1995 and for each of the three years in the period ended September
30, 1996 are presented in this Statement of Additional Information. The
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,
1995 and for each of the two years in the period ended December 31, 1995, also
are included in this Statement of Additional Information.
Price Waterhouse LLP, 400 South Hope Street, Los Angeles, California
90071, serves as the independent accountants for the Separate Account and the
Company. The financial statements referred to above included in this Statement
of Additional Information have been so included in reliance on the reports of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
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, 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 December 31, 1994, the aggregate amount of
underwriting commissions paid to SunAmerica Capital Services, Inc. was
1
<PAGE> 35
$2,973,118, of which $309,945 was retained by them. For the year ended December
31, 1995, the aggregate amount of underwriting commissions paid to SunAmerica
Capital Services, Inc. was $1,572,943, of which $162,469 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, 1996 were 3.30% and
3.35%, respectively.
Current yield is computed by first determining the Base Period Return
attributable to a hypothetical Contract having a balance of one Accumulation
Unit at the beginning of a 7 day period using the formula:
Base Period Return = (EV-SV-RMC)/(SV)
where:
SV = value of one Accumulation Unit at the start of a 7 day
period
EV = value of one Accumulation Unit at the end of the 7 day
period
RMC = an allocated portion of the $30 annual Records Maintenance
Charge, prorated for 7 days
The change in the value of an Accumulation Unit during the 7 day period
reflects the income received, minus any expenses incurred, during such 7 day
period. 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 Period Return over a 7 day
period. However, the effective yield accounts for dividend reinvestment by
compounding the current yield according to the formula:
365/7
Effective Yield = [(Base Period Return + 1) - 1].
Net investment income for yield quotation purposes will not include
either realized capital gains and losses or unrealized appreciation and
depreciation, whether reinvested or not. The yield quotations also do not
reflect any impact of premium taxes, transfer fees, or Withdrawal 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
2
<PAGE> 36
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 PERIOD ENDING ON 12/31/96:
(Return with/without redemption)
<TABLE>
<CAPTION>
Inception Since
Division Date 1 Year 5 Years 10 Years Inception
- -------- --------- ------ ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Foreign Securities 3/23/87 4.72/9.72 4.71/4.86 ---- 3.57/3.57
Capital Appreciation 3/23/87 18.31/23.31 17.97/18.07 ---- 13.63/13.63
Growth 8/13/84 18.26/23.26 9.54/9.67 11.51/11.51 12.19/12.19
Natural Resources 1/01/88 7.27/12.27 11.56/11.67 ---- 7.41/7.41
Growth and Income* 3/23/87 13.50/18.50 11.31/11.43 ---- 8.52/8.52
Strategic Multi-Asset 3/23/87 8.11/13.11 8.66/8.79 ---- 7.62/7.62
Multi-Asset 3/23/87 7.21/12.21 8.43/8.56 ---- 8.61/8.61
High Yield 1/01/86 4.99/9.99 9.64/9.76 7.06/7.06 7.77/7.77
Target '98 5/02/88 -2.87/2.13 4.58/4.73 ---- 7.69/7.69
Fixed Income 8/13/84 -4.15/0.85 4.48/4.63 5.82/5.82 7.79/7.79
Gov't & Quality Bond 8/13/84 -3.56/1.44 4.89/5.04 6.75/6.75 8.26/8.26
- ---------------------
</TABLE>
Total return figures are based on historical data and are not intended to
indicate future performance.
* Formerly the Convertible Securities Division
These figures show the total return hypothetically 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:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
3
<PAGE> 37
ERV = ending redeemable value of a hypothetical $1000 payment
made at the beginning of the 1, 5, or 10 year periods at
the end of the 1, 5, or 10 year periods (or fractional
portion thereof).
The total return figures given reflect the effects of both
non-recurring and recurring charges, as discussed herein. Recurring charges are
taken into account in a manner similar to that used for the yield computations
for the Money Market Division, described above. The applicable Withdrawal Charge
(if any) is deducted as of the end of the period, to reflect the effect of the
assumed complete redemption in the case of the first of the two figures given in
the table above for each Division and time period. Because the impact of Records
Maintenance Charges on a particular Contract Owner's account would generally
have differed from that assumed in the computation, due to differences between
most actual allocations and the assumed one, as well as differences due to
varying account sizes, the total return experienced by an actual account over
these same time periods would generally have been different from those given
above. As with the Money Market Division yield figures, total return figures are
derived from historical data and are not intended to be a projection of future
performance.
ANNUITY PAYMENTS
Annuity Unit Value
- ------------------
The value of an Annuity Unit is determined independently for each
Separate Account Division.
For each Division, the value of an Annuity Unit for any Valuation
Period is determined by multiplying the Annuity Unit value for the
immediately preceding Valuation Period by the net investment factor for the
Valuation Period for which the Annuity Unit value is being calculated and
multiplying the result by an interest factor which offsets the effect of the
investment earnings rate of five percent (5%) per annum that is assumed in the
annuity table contained in the Contract.
The net investment factor for each Division for a Valuation Period is
determined by dividing (a) by (b) and subtracting (c) from the result where: (a)
is the value of an Accumulation Unit from the applicable Division as of the end
of the current Valuation Period; (b) is the value of an Accumulation 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.
4
<PAGE> 38
<TABLE>
<CAPTION>
Adjusted Age Table
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 statements of the Separate
Account are also included in this Statement of Additional Information.
5
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders 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, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," in fiscal 1994.
Price Waterhouse LLP
Los Angeles, California
November 8, 1996
6
<PAGE> 40
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
ASSETS
Investments:
Cash and short-term investments $ 122,058,000 $ 249,209,000
Bonds, notes and redeemable
preferred stocks:
Available for sale, at fair value
(amortized cost: 1996, $2,001,024,000;
1995, $1,500,062,000) 1,987,271,000 1,489,213,000
Held for investment, at amortized cost
(fair value: 1995, $165,004,000) --- 157,901,000
Mortgage loans 98,284,000 94,260,000
Common stocks, at fair value (cost:
1996, $2,911,000; 1995, $6,576,000) 3,970,000 4,097,000
Real estate 39,724,000 55,798,000
Other invested assets 77,925,000 64,430,000
-------------- --------------
Total investments 2,329,232,000 2,114,908,000
Variable annuity assets 6,311,557,000 5,230,246,000
Receivable from brokers for sales
of securities 52,348,000 ---
Accrued investment income 19,675,000 14,192,000
Deferred acquisition costs 443,610,000 383,069,000
Other assets 48,113,000 41,282,000
-------------- --------------
TOTAL ASSETS $9,204,535,000 $7,783,697,000
============== ==============
</TABLE>
7
<PAGE> 41
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET (Continued)
<TABLE>
<CAPTION>
September 30,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Reserves, payables and accrued liabilities:
Reserves for fixed annuity contracts $1,789,962,000 $1,497,052,000
Reserves for guaranteed investment
contracts 415,544,000 277,095,000
Payable to brokers for purchases of
securities --- 155,861,000
Income taxes currently payable 21,486,000 15,720,000
Other liabilities 74,710,000 56,372,000
-------------- --------------
Total reserves, payables
and accrued liabilities 2,301,702,000 2,002,100,000
-------------- --------------
Variable annuity liabilities 6,311,557,000 5,230,246,000
-------------- --------------
Subordinated notes payable to Parent 35,832,000 35,832,000
-------------- --------------
Deferred income taxes 70,189,000 73,459,000
-------------- --------------
Shareholder's equity:
Common Stock 3,511,000 3,511,000
Additional paid-in capital 280,263,000 252,876,000
Retained earnings 207,002,000 191,346,000
Net unrealized losses on debt and equity
securities available for sale (5,521,000) (5,673,000)
-------------- --------------
Total shareholder's equity 485,255,000 442,060,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $9,204,535,000 $7,783,697,000
============== ==============
</TABLE>
See accompanying notes
8
<PAGE> 42
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Investment income $ 164,631,000 $ 129,466,000 $ 127,758,000
------------- ------------- -------------
Interest expense on:
Fixed annuity contracts (82,690,000) (72,975,000) (66,311,000)
Guaranteed investment contracts (19,974,000) (3,733,000) ---
Senior indebtedness (2,568,000) (227,000) (71,000)
Subordinated notes payable
to Parent (2,556,000) (2,448,000) (2,380,000)
------------- ------------ -------------
Total interest expense (107,788,000) (79,383,000) (68,762,000)
------------- ------------ -------------
NET INVESTMENT INCOME 56,843,000 50,083,000 58,996,000
------------- ------------ -------------
NET REALIZED INVESTMENT LOSSES (13,355,000) (4,363,000) (33,713,000)
------------- ------------ -------------
Fee income:
Variable annuity fees 103,970,000 84,171,000 79,101,000
Asset management fees 25,413,000 26,935,000 31,302,000
Net retained commissions 31,548,000 24,108,000 20,822,000
------------- ------------ -------------
TOTAL FEE INCOME 160,931,000 135,214,000 131,225,000
------------- ------------- -------------
Other income and expenses:
Surrender charges 5,184,000 5,889,000 5,034,000
General and administrative
expenses (80,048,000) (61,629,000) (52,636,000)
Amortization of deferred
acquisition costs (57,520,000) (58,713,000) (44,195,000)
Annual commissions (4,613,000) (2,658,000) (1,158,000)
Other, net 1,886,000 1,174,000 3,767,000
------------- ------------- -------------
TOTAL OTHER INCOME AND EXPENSES (135,111,000) (115,937,000) (89,188,000)
------------- ------------- -------------
PRETAX INCOME 69,308,000 64,997,000 67,320,000
Income tax expense (24,252,000) (25,739,000) (22,705,000)
------------- ------------- -------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING FOR
INCOME TAXES 45,056,000 39,258,000 44,615,000
Cumulative effect of change
in accounting for income taxes --- --- (20,463,000)
------------- ------------- -------------
NET INCOME $ 45,056,000 $ 39,258,000 $ 24,152,000
============= ============= =============
</TABLE>
See accompanying notes
9
<PAGE> 43
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 45,056,000 $ 39,258,000 $ 24,152,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Interest credited to:
Fixed annuity contracts 82,690,000 72,975,000 66,311,000
Guaranteed investment contracts 19,974,000 3,733,000 ---
Net realized investment losses 13,355,000 4,363,000 33,713,000
Accretion of net discounts
on investments (8,976,000) (6,865,000) (2,050,000)
Amortization of goodwill 1,169,000 1,168,000 1,169,000
Provision for deferred
income taxes (3,351,000) (1,489,000) 19,395,000
Cumulative effect of change
in accounting for income taxes --- --- 20,463,000
Change in:
Accrued investment income (5,483,000) 3,373,000 (1,310,000)
Deferred acquisition costs (60,941,000) (7,180,000) (34,612,000)
Other assets (8,000,000) 7,047,000 5,133,000
Income taxes currently payable 5,766,000 3,389,000 6,559,000
Other liabilities 5,474,000 4,063,000 46,000
Other, net (129,000) 7,000 360,000
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 86,604,000 123,842,000 139,329,000
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Premium receipts on:
Fixed annuity contracts 651,649,000 245,320,000 138,526,000
Guaranteed investment contracts 134,967,000 275,000,000 ---
Net exchanges to (from) the fixed
accounts of variable annuity
contracts (236,705,000) 10,475,000 (29,286,000)
Withdrawal payments on:
Fixed annuity contracts (173,489,000) (237,977,000) (269,412,000)
Guaranteed investment contracts (16,492,000) (1,638,000) ---
Claims and annuity payments on
fixed annuity contracts (31,107,000) (31,237,000) (31,146,000)
Net receipts from (repayments of)
other short-term financings (119,712,000) 3,202,000 (166,685,000)
Capital contribution received 27,387,000 --- ---
Dividend paid (29,400,000) --- ---
------------- ------------ -------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 207,098,000 263,145,000 (358,003,000)
------------- ------------ -------------
</TABLE>
10
<PAGE> 44
ANCHOR NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years ended September 30,
---------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of:
Bonds, notes and redeemable
preferred stocks $(1,937,890,000) $(1,556,586,000) $(1,197,743,000)
Mortgage loans (15,000,000) --- (10,666,000)
Other investments, excluding
short-term investments (36,770,000) (13,028,000) (26,317,000)
Sales of:
Bonds, notes and redeemable
preferred stocks 1,241,928,000 1,026,078,000 877,068,000
Real estate 900,000 36,813,000 33,443,000
Other investments, excluding
short-term investments 4,937,000 5,130,000 2,353,000
Redemptions and maturities of:
Bonds, notes and redeemable
preferred stocks 288,969,000 178,688,000 173,763,000
Mortgage loans 11,324,000 14,403,000 10,087,000
Other investments, excluding
short-term investments 20,749,000 13,286,000 13,500,000
------------- ------------- -------------
NET CASH USED BY INVESTING
ACTIVITIES (420,853,000) (295,216,000) (124,512,000)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS (127,151,000) 91,771,000 (343,186,000)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF PERIOD 249,209,000 157,438,000 500,624,000
------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 122,058,000 $ 249,209,000 $ 157,438,000
============= ============= =============
Supplemental cash flow information:
Interest paid on indebtedness $ 5,982,000 $ 3,235,000 $ 1,175,000
============= ============= =============
Net income taxes paid (recovered) $ 22,031,000 $ 23,656,000 $ (3,328,000)
============= ============= =============
</TABLE>
See accompanying notes
11
<PAGE> 45
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Anchor National Life Insurance Company (the "Company") is a wholly owned
indirect subsidiary of SunAmerica, Inc. (the "Parent"). The Company is an
Arizona-domiciled life insurance company and, on a consolidated basis,
conducts its business through three segments: annuity operations, asset
management operations and broker-dealer operations. Annuity operations
include the sale and administration of fixed and variable annuities and
guaranteed investment contracts. Asset management operations, which
include the sale and management of mutual funds, is conducted by
SunAmerica Asset Management Corp. Broker-dealer operations include the
sale of securities and financial services products, and is conducted by
Royal Alliance Associates, Inc.
The operations of the Company are influenced by many factors, including
general economic conditions, monetary and fiscal policies of the federal
government, and policies of state and other regulatory authorities. The
level of sales of the Company's financial products is influenced by many
factors, including general market rates of interest; strength, weakness
and volatility of equity market; and terms and conditions of competing
financial products. The Company is exposed to the typical risks normally
associated with a portfolio of fixed-income securities, namely interest
rate, option, liquidity and credit risks. The Company controls its
exposure to these risks by, among other things, closely monitoring and
matching the duration of its assets and liabilities, monitoring and
limiting prepayment and extension risk in its portfolio, maintaining a
large percentage of its portfolio in highly liquid securities, and
engaging in a disciplined process of underwriting, reviewing and
monitoring credit risk. The Company also is exposed to market risk, as
market volatility may result in reduced fee income in the case of assets
managed in mutual funds and held in separate accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles and include the accounts of the Company and all of its wholly
owned subsidiaries. All significant intercompany accounts and transactions
are eliminated in consolidation. Certain 1995 and 1994 amounts have been
reclassified to conform with the 1996 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions that affect the amounts reported in the financial statements
and the accompanying notes. Actual results could differ from those
estimates.
12
<PAGE> 46
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
RECENTLY ISSUED ACCOUNTING STANDARDS: Effective October 1, 1993, the
Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Accordingly, the
cumulative effect of this change in accounting for income taxes was
recorded on October 1, 1993 to increase the liability for Deferred Income
Taxes by $20,463,000.
INVESTMENTS: Cash and short-term investments primarily include cash,
commercial paper, money market investments, repurchase agreements and
short-term bank participations. All such investments are carried at cost
plus accrued interest, which approximates fair value, have maturities of
three months or less and are considered cash equivalents for purposes of
reporting cash flows.
Bonds, notes and redeemable preferred stocks available for sale and common
stocks are carried at aggregate fair value and changes in unrealized gains
or losses, net of tax, are credited or charged directly to shareholder's
equity. Bonds, notes and redeemable preferred stocks held for investment
(the "Held for Investment Portfolio") are carried at amortized cost. On
December 1, 1995, the Company reassessed the appropriateness of
classifying a portion of its portfolio of bonds, notes and redeemable
preferred stocks as held for investment. This reassessment was made
pursuant to the provisions of "Special Report: A Guide to Implementation
of Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities," issued by the Financial Accounting Standards Board in
November 1995. As a result of its reassessment, the Company reclassified
all of its Held for Investment Portfolio as available for sale. At
December 1, 1995, the amortized cost of the Held for Investment Portfolio
aggregated $157,830,000 and its fair value was $166,215,000. Upon
reclassification, the resulting net unrealized gain of $8,385,000 was
credited to Net Unrealized Losses on Debt and Equity Securities Available
for Sale in the shareholder's equity section of the balance sheet.
Bonds, notes and redeemable preferred stocks are reduced to estimated net
realizable value when necessary for declines in value considered to be
other than temporary. Estimates of net realizable value are subjective and
actual realization will be dependent upon future events.
Mortgage loans are carried at amortized unpaid balances, net of provisions
for estimated losses. Real estate is carried at the lower of cost or fair
value. Other invested assets include investments in limited partnerships,
which are accounted for by using the cost method of accounting; separate
account investments; leveraged leases; policy loans, which are carried at
unpaid balances; and collateralized mortgage obligation residuals.
Realized gains and losses on the sale of investments are recognized in
operations at the date of sale and are determined 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.
13
<PAGE> 47
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
DEFERRED ACQUISITION COSTS: Policy acquisition costs are deferred and
amortized, with interest, over the estimated lives of the contracts in
relation to the present value of estimated gross profits, which are
composed of net interest income, net realized investment gains and losses,
variable annuity fees, surrender charges and direct administrative
expenses. 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 that vary with,
and are primarily related to, the production or acquisition of new
business.
As debt and equity securities available for sale are carried at aggregate
fair value, an adjustment is made to deferred acquisition costs equal to
the change in amortization that would have been recorded if such
securities had been sold at their stated aggregate fair value and the
proceeds reinvested at current yields. The change in this adjustment, net
of tax, is included with the change in net unrealized gains or losses on
debt and equity securities available for sale that is credited or charged
directly to shareholder's equity. Deferred Acquisition Costs have been
increased by $4,200,000 at September 30, 1996, and by $4,600,000 at
September 30, 1995 for this adjustment.
VARIABLE ANNUITY ASSETS AND LIABILITIES: The assets and liabilities
resulting from the receipt of variable annuity premiums are segregated in
separate accounts. The Company receives administrative fees for managing
the funds and other fees for assuming mortality and certain expense risks.
Such fees are included in Variable Annuity Fees in the income statement.
GOODWILL: Goodwill, amounting to $19,478,000 at September 30, 1996, is
amortized by using the straight-line method over periods 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 recorded
in income as earned. Net retained commissions are recognized as income
on a trade-date basis.
14
<PAGE> 48
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES: The Company is included in the consolidated federal income
tax return of the Parent and files as a "life insurance company" under the
provisions of the Internal Revenue Code of 1986. Income taxes have been
calculated as if the Company filed a separate return. Deferred income tax
assets and liabilities are recognized based on the difference between
financial statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.
15
<PAGE> 49
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. 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, 1996:
AVAILABLE FOR SALE:
Securities of the United States
Government $ 311,458,000 $ 304,538,000
Mortgage-backed securities 747,653,000 741,876,000
Securities of public utilities 3,684,000 3,672,000
Corporate bonds and notes 590,071,000 591,148,000
Redeemable preferred stocks 9,064,000 8,664,000
Other debt securities 339,094,000 337,373,000
-------------- --------------
Total available for sale $2,001,024,000 $1,987,271,000
============== ==============
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States
Government $ 59,756,000 $ 60,258,000
Mortgage-backed securities 1,121,064,000 1,110,676,000
Securities of public utilities 792,000 774,000
Corporate bonds and notes 290,924,000 288,883,000
Redeemable preferred stocks 3,945,000 4,937,000
Other debt securities 23,581,000 23,685,000
-------------- --------------
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
============== ==============
</TABLE>
16
<PAGE> 50
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (continued)
The amortized cost and estimated fair value of bonds, notes and redeemable
preferred stocks available for sale by contractual maturity, as of
September 30, 1996, follow:
<TABLE>
<CAPTION>
Estimated
Amortized fair
cost value
-------------- --------------
<S> <C> <C>
AVAILABLE FOR SALE:
Due in one year or less $ 18,792,000 $ 19,357,000
Due after one year through
five years 505,564,000 499,163,000
Due after five years through
ten years 378,249,000 378,250,000
Due after ten years 350,766,000 348,625,000
Mortgage-backed securities 747,653,000 741,876,000
-------------- --------------
Total available for sale $2,001,024,000 $1,987,271,000
============== ==============
</TABLE>
Actual maturities of bonds, notes and redeemable preferred stocks will
differ from those shown above due to prepayments and redemptions.
17
<PAGE> 51
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (continued)
Gross unrealized gains and losses on bonds, notes and redeemable preferred
stocks available for sale and held for investment by major category
follow:
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
gains losses
------------- -------------
<S> <C> <C>
AT SEPTEMBER 30, 1996:
AVAILABLE FOR SALE:
Securities of the United States
Government $ 284,000 $ (7,204,000)
Mortgage-backed securities 7,734,000 (13,511,000)
Securities of public utilities 1,000 (13,000)
Corporate bonds and notes 11,709,000 (10,632,000)
Redeemable preferred stocks 16,000 (416,000)
Other debt securities 431,000 (2,152,000)
------------- -------------
Total available for sale $ 20,175,000 $ (33,928,000)
============= =============
AT SEPTEMBER 30, 1995:
AVAILABLE FOR SALE:
Securities of the United States
Government $ 553,000 $ (51,000)
Mortgage-backed securities 12,013,000 (22,401,000)
Securities of public utilities --- (18,000)
Corporate bonds and notes 5,344,000 (7,385,000)
Redeemable preferred stocks 992,000 ---
Other debt securities 104,000 ---
------------- -------------
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)
============= =============
</TABLE>
18
<PAGE> 52
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (continued)
At September 30, 1996, gross unrealized gains on equity securities
aggregated $1,368,000 and gross unrealized losses aggregated $309,000. At
September 30, 1995, gross unrealized gains on equity securities aggregated
$1,082,000 and gross unrealized losses aggregated $3,561,000.
Gross realized investment gains and losses on sales of all types of
investments are as follows:
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
BONDS, NOTES AND REDEEMABLE
PREFERRED STOCKS:
Available for sale:
Realized gains $ 14,532,000 $ 15,983,000 $ 12,760,000
Realized losses (10,432,000) (21,842,000) (31,066,000)
Held for investment:
Realized gains --- 2,413,000 890,000
Realized losses --- (586,000) (1,913,000)
EQUITIES:
Realized gains 511,000 994,000 467,000
Realized losses (3,151,000) (114,000) (303,000)
OTHER INVESTMENTS:
Realized gains 1,135,000 3,561,000 ---
Realized losses (1,729,000) (12,000) (358,000)
IMPAIRMENT WRITEDOWNS (14,221,000) (4,760,000) (14,190,000)
------------ ------------ ------------
Total net realized
investment losses $(13,355,000) $ (4,363,000) $(33,713,000)
============ ============ ============
</TABLE>
19
<PAGE> 53
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (continued)
The sources and related amounts of investment income are as follows:
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Short-term investments $ 10,647,000 $ 8,308,000 $ 4,648,000
Bonds, notes and
redeemable preferred stocks 140,387,000 107,643,000 98,935,000
Mortgage loans 8,701,000 7,419,000 12,133,000
Common stocks 8,000 3,000 1,000
Real estate (196,000) (51,000) 1,379,000
Limited partnerships 4,073,000 5,128,000 9,487,000
Other invested assets 1,011,000 1,016,000 1,175,000
-------------- ------------- -------------
Total investment income $164,631,000 $129,466,000 $127,758,000
============== ============= =============
</TABLE>
Expenses incurred to manage the investment portfolio amounted to
$1,737,000 for the year ended September 30, 1996, $1,983,000 for the year
ended September 30, 1995, and $1,714,000 for the year ended September 30,
1994 and are included in General and Administrative Expenses in the income
statement.
At September 30, 1996, no investment exceeded 10% of the Company's
consolidated shareholder's equity.
At September 30, 1996, mortgage loans were collateralized by properties
located in 11 states, with loans totaling approximately 21% of the
aggregate carrying value of the portfolio secured by properties located in
Colorado, approximately 17% by properties located in New Jersey and
approximately 14% by properties located in California. No more than 12% of
the portfolio was secured by properties in any other single state.
At September 30, 1996, bonds, notes and redeemable preferred stocks
included $160,801,000 (fair value, $160,158,000) of bond and notes not
rated investment grade by either Standard & Poor's Corporation, Moody's
Investors Service, Duff and Phelps Credit Rating Co., Fitch Investor
Service, Inc. or under National Association of Insurance Commissioners'
guidelines. The Company had no material concentrations of
non-investment-grade assets at September 30, 1996.
At September 30, 1996, the amortized cost of investments in default as to
the payment of principal or interest was $3,115,000, consisting of
$1,580,000 of non-investment-grade bonds and $1,535,000 of mortgage loans.
Such nonperforming investments had an estimated fair value of $2,935,000.
20
<PAGE> 54
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (continued)
At September 30, 1996, $6,486,000 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 $28,410,000, during the next year,
to affiliated or nonaffiliated parties, and the Parent has guaranteed that
the Company will receive its current carrying value for these assets.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value disclosures are limited to reasonable
estimates of the fair value of only the Company's financial instruments.
The disclosures do not address the value of the Company's recognized and
unrecognized nonfinancial assets (including its 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.
RECEIVABLE FROM (PAYABLE TO) BROKERS FOR SALES (PURCHASES) OF SECURITIES:
Such obligations represent net transactions of a short-term nature for
which the carrying value is considered a reasonable estimate of fair
value.
21
<PAGE> 55
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
RESERVES FOR FIXED ANNUITY CONTRACTS: Deferred annuity contracts and
single premium life contracts are assigned a fair value equal to current
net surrender value. Annuitized contracts are valued based on the present
value of future cash flows at current pricing rates.
RESERVES FOR GUARANTEED INVESTMENT CONTRACTS: Fair value is based on the
present value of future cash flows at current pricing rates.
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.
22
<PAGE> 56
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
The estimated fair values of the Company's financial instruments at
September 30, 1996 and 1995, compared with their respective carrying
values, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
value value
-------------- --------------
<S> <C> <C>
1996:
ASSETS:
Cash and short-term investments $ 122,058,000 $ 122,058,000
Bonds, notes and redeemable
preferred stocks 1,987,271,000 1,987,271,000
Mortgage loans 98,284,000 102,112,000
Receivable from brokers for sales
of securities 52,348,000 52,348,000
Variable annuity assets 6,311,557,000 6,311,557,000
LIABILITIES:
Reserves for fixed annuity contracts 1,789,962,000 1,738,784,000
Reserves for guaranteed investment
contracts 415,544,000 416,695,000
Variable annuity liabilities 6,311,557,000 6,117,508,000
Subordinated notes payable to Parent 35,832,000 37,339,000
============== ==============
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 35,832,000 34,620,000
============== ==============
</TABLE>
23
<PAGE> 57
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. SUBORDINATED NOTES PAYABLE TO PARENT
Subordinated notes payable to Parent averaged $35,832,000 at a weighted
average interest rate of 8.71% (with rates ranging from 7% to 9%) at
September 30, 1996 and require principal payments of $5,272,000 in 1997,
$7,500,000 in 1998 and $23,060,000 in 1999.
6. CONTINGENT LIABILITIES
The Company has entered into two agreements in which it has guaranteed the
liquidity of certain short-term securities of two municipalities by
agreeing to purchase such securities in the event there is no other buyer
in the short-term marketplace. In return the Company receives a fee. These
guarantees total up to $182,600,000. Management does not anticipate any
material future losses with respect to these guarantees.
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.
7. SHAREHOLDER'S EQUITY
The Company is authorized to issue 4,000 shares of its $1,000 par value
Common Stock. At September 30, 1996, 1995 and 1994, 3,511 shares are
outstanding.
Changes in shareholder's equity are as follows:
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
ADDITIONAL PAID-IN CAPITAL:
Beginning balance $ 252,876,000 $ 252,876,000 $ 252,876,000
Capital contributions received 27,387,000 --- ---
------------- ------------- -------------
Ending balance $ 280,263,000 $ 252,876,000 $ 252,876,000
============= ============= =============
RETAINED EARNINGS:
Beginning balance 191,346,000 152,088,000 127,936,000
Net income 45,056,000 39,258,000 24,152,000
Dividend paid (29,400,000) --- ---
------------- ------------- -------------
Ending balance $ 207,002,000 $ 191,346,000 $ 152,088,000
============= ============= =============
</TABLE>
24
<PAGE> 58
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. SHAREHOLDER'S EQUITY (continued)
<TABLE>
<CAPTION>
Years ended September 30,
----------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
NET UNREALIZED LOSSES ON
DEBT AND EQUITY SECURITIES
AVAILABLE FOR SALE:
Beginning balance $ (5,673,000) $ (24,953,000) $ (13,230,000)
Change in net unrealized
gains/losses on debt
securities available
for sale (2,904,000) 71,302,000 (69,407,000)
Change in net unrealized
gains/losses on equity
securities available for sale 3,538,000 (1,240,000) (753,000)
Change in adjustment to
deferred acquisition costs (400,000) (40,400,000) 45,000,000
Tax effects of net changes (82,000) (10,382,000) 13,437,000
------------- ------------- -------------
Ending balance $ (5,521,000) $ (5,673,000) $ (24,953,000)
============= ============= =============
</TABLE>
Dividends that the Company may pay to its shareholder in any year without
prior approval of the Arizona Department of Insurance are limited by
statute. The maximum amount of dividends which can be paid to shareholders
of insurance companies domiciled in the state of Arizona without obtaining
the prior approval of the Insurance Commissioner is limited to the lesser
of either 10% of the preceding year's Statutory Surplus or the preceding
year's statutory net gain from operations. A dividend in the amount of
$29,400,000 was paid on March 18, 1996. No dividends were paid in fiscal
years 1995 or 1994.
Under statutory accounting principles utilized in filings with insurance
regulatory authorities, the Company's net income for the nine months ended
September 30, 1996 was $21,898,000. The statutory net income for the year
ended December 31, 1995 was $30,673,000 and for the year ended December
31, 1994 was $35,060,000. The Company's statutory capital and surplus was
$282,275,000 at September 30, 1996, $294,767,000 at December 31, 1995 and
$219,577,000 at December 31, 1994.
25
<PAGE> 59
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. 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>
1996:
Currently payable $ 5,754,000 $ 21,849,000 $ 27,603,000
Deferred (10,347,000) 6,996,000 (3,351,000)
------------- ------------ ------------
Total income tax expense $ (4,593,000) $ 28,845,000 $ 24,252,000
============= ============ ============
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
============= ============ ============
</TABLE>
26
<PAGE> 60
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. INCOME TAXES (continued)
Income taxes computed at the United States federal income tax rate of 35%
and income taxes provided differ as follows:
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------------
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
Amount computed at
statutory rate $ 24,258,000 $ 22,749,000 $ 23,562,000
Increases (decreases)
resulting from:
Amortization of differences
between book and tax
bases of net assets
acquired 464,000 3,049,000 465,000
State income taxes, net of
federal tax benefit 2,070,000 437,000 (662,000)
Dividends-received deduction (2,357,000) --- ---
Tax credits (257,000) (168,000) (612,000)
Other, net 74,000 (328,000) (48,000)
------------ ------------ ------------
Total income tax expense $ 24,252,000 $ 25,739,000 $ 22,705,000
============ ============ ============
</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, 1996. The Company
does not anticipate any transactions which would cause any part of this
surplus to be taxable.
27
<PAGE> 61
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. INCOME TAXES (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax reporting purposes.
The significant components of the liability for Deferred Income Taxes are
as follows:
<TABLE>
<CAPTION>
September 30,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Investments $ 15,036,000 $ 14,181,000
Deferred acquisition costs 136,747,000 118,544,000
State income taxes 1,466,000 1,847,000
------------- -------------
Total deferred tax liabilities 153,249,000 134,572,000
------------- -------------
DEFERRED TAX ASSETS:
Contractholder reserves (77,522,000) (55,910,000)
Guaranty fund assessments (1,031,000) (1,123,000)
Other assets (1,534,000) (1,025,000)
Net unrealized losses on certain
debt and equity securities (2,973,000) (3,055,000)
------------- -------------
Total deferred tax assets (83,060,000) (61,113,000)
------------- -------------
Deferred income taxes $ 70,189,000 $ 73,459,000
============= =============
</TABLE>
28
<PAGE> 62
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. RELATED PARTY MATTERS
The Company pays commissions to two affiliated companies, SunAmerica
Securities, Inc. and Advantage Capital Corp. These broker-dealers
represent a significant portion of the Company's business, amounting to
approximately 15.6%, 14.1% and 14.5% of premiums in 1996, 1995 and 1994,
respectively. Commissions paid to these broker- dealers totaled
$16,906,000 in 1996, $9,435,000 in 1995 and $9,725,000 in 1994.
The Company purchases administrative, investment management, accounting,
marketing and data processing services from SunAmerica Financial, Inc.,
whose purpose is to provide services to the SunAmerica companies. Amounts
paid for such services totaled $65,351,000 for the year ended September
30, 1996, $42,083,000 for the year ended September 30, 1995 and
$36,934,000 for the year ended September 30, 1994. Such amounts are
included in General and Administrative Expenses in the income statement.
On December 31, 1995, the Parent made a $27,387,000 capital contribution
to the Company, through the Company's direct parent, in exchange for the
termination of its guaranty with respect to certain real estate owned in
Arizona. Accordingly, the Company reduced the carrying value of this real
estate to estimated fair value to reflect the termination of the guaranty.
During the year ended September 30, 1995, 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, 1996, the Company sold various
invested assets to the Parent, SunAmerica Life Insurance Company and Ford
Life Insurance Company ("Ford") for cash equal to their current market
values of $274,000, $8,968,000 and $38,353,000, respectively. The Company
recorded net losses of $3,000 on such transactions.
During the year ended September 30, 1996, the Company also purchased
certain invested assets from SunAmerica Life Insurance Company and Ford
for cash equal to their current market values of $5,159,000 and
$23,220,000, respectively.
29
<PAGE> 63
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. BUSINESS SEGMENTS
Summarized data for the Company's business segments follow:
<TABLE>
<CAPTION>
Total
depreciation
and
Total amortization Pretax Total
revenues expense income assets
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
1996:
Annuity operations $ 250,645,000 $ 43,974,000 $ 53,827,000 $9,092,770,000
Asset management 29,711,000 18,295,000 2,448,000 74,410,000
Broker-dealer operations 31,851,000 449,000 13,033,000 37,355,000
------------- ------------ ------------ --------------
Total $ 312,207,000 $ 62,718,000 $ 69,308,000 $9,204,535,000
============= ============ ============ ==============
1995:
Annuity operations $ 205,698,000 $ 38,350,000 $ 55,462,000 $7,667,946,000
Asset management 30,253,000 24,069,000 510,000 86,510,000
Broker-dealer operations 24,366,000 411,000 9,025,000 29,241,000
------------- ------------ ------------ --------------
Total $ 260,317,000 $ 62,830,000 $ 64,997,000 $7,783,697,000
============= ============ ============ ==============
1994:
Annuity operations $ 171,553,000 $ 26,501,000 $ 52,284,000 $6,473,065,000
Asset management 32,803,000 19,330,000 7,916,000 102,192,000
Broker-dealer operations 20,914,000 408,000 7,120,000 26,869,000
------------- ------------ ------------ --------------
Total $ 225,270,000 $ 46,239,000 $ 67,320,000 $6,602,126,000
============= ============ ============ ==============
</TABLE>
30
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS
February 22, 1996
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, 1995, the results of their operations for the year
then ended, and the changes in their net assets for each of the two years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Separate Account's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1995 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
31
<PAGE> 65
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
December 31, 1995
<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 $48,631,663 $136,268,838 $183,158,848 $17,377,972 $29,126,602 $58,969,326 $139,949,169
Liabilities 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------------
Net Assets $48,631,663 $136,268,838 $183,158,848 $17,377,972 $29,126,602 $58,969,326 $139,949,169
============================================================================================
Accumulation units outstanding 3,703,697 4,751,349 5,374,837 996,950 1,520,568 3,212,853 6,930,032
============================================================================================
Unit value of accumulation units $ 13.13 $ 28.68 $ 34.08 $ 17.43 $ 19.16 $ 18.35 $ 20.19
============================================================================================
</TABLE>
See accompanying notes to financial statements.
32
<PAGE> 66
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF NET ASSETS
December 31, 1995
(Continued)
<TABLE>
<CAPTION>
Government and Money
High Yield Target '98 Fixed Income Quality Bond Market
Portfolio Portfolio Portfolio Portfolio Portfolio Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments in Anchor Series Trust,
at market value $43,915,550 $10,826,010 $25,616,107 $107,387,592 $89,189,358 $890,417,035
Liabilities 0 0 0 0 0 0
----------------------------------------------------------------------------------------
Net Assets $43,915,550 $10,826,010 $25,616,107 $107,387,592 $89,189,358 $890,417,035
========================================================================================
Accumulation units outstanding 2,087,849 578,150 1,005,981 4,037,515 5,319,545
========================================================================
Unit value of accumulation units $ 21.03 $ 18.72 $ 25.46 $ 26.60 $ 16.77
========================================================================
</TABLE>
See accompanying notes to financial statements.
33
<PAGE> 67
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1995
<TABLE>
<CAPTION>
Market Value Market
Variable Accounts Shares Per Share Value Cost
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign Securities Portfolio 4,116,303 $11.81 $ 48,631,663 $ 43,593,039
Capital Appreciation Portfolio 5,868,497 23.22 136,268,838 113,314,618
Growth Portfolio 9,402,988 19.48 183,158,848 185,132,934
Natural Resources Portfolio 1,149,284 15.12 17,377,972 15,407,663
Convertible Securities Portfolio 2,425,238 12.01 29,126,602 30,370,840
Strategic Multi-Asset Portfolio 5,006,570 11.78 58,969,326 57,153,464
Multi-Asset Portfolio 10,731,613 13.04 139,949,169 125,983,713
High Yield Portfolio 5,270,201 8.33 43,915,550 44,470,876
Target '98 Portfolio 856,288 12.64 10,826,010 11,168,320
Fixed Income Portfolio 1,809,648 14.16 25,616,107 24,919,438
Government and Quality Bond Portfolio 7,546,891 14.23 107,387,592 101,504,901
Money Market Portfolio 89,189,358 1.00 89,189,358 89,189,358
--------------------------------
$890,417,035 $842,209,164
================================
</TABLE>
See accompanying notes to financial statements.
34
<PAGE> 68
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
December 31, 1995
<TABLE>
<CAPTION>
Foreign Capital Natural Convertible
Securities Appreciation Growth Resources Securities
Portfolio Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 306,726 $ 2,142,794 $ 27,591,729 $ 578,474 $ 3,228,429
------------------------------------------------------------------------
Total investment income 306,726 2,142,794 27,591,729 578,474 3,228,429
------------------------------------------------------------------------
Expenses:
Mortality risk charge (479,524) (1,123,292) (1,529,016) (166,644) (267,927)
Expense risk charge (186,482) (436,836) (594,618) (64,806) (104,194)
Administration expense charge (79,920) (187,215) (254,836) (27,774) (44,654)
------------------------------------------------------------------------
Total expenses (745,926) (1,747,343) (2,378,470) (259,224) (416,775)
------------------------------------------------------------------------
Net investment income (loss) (439,200) 395,451 25,213,259 319,250 2,811,654
------------------------------------------------------------------------
Realized gains (losses) from securities transactions:
Proceeds from shares sold 40,991,974 66,803,838 43,025,293 12,576,239 9,448,229
Cost of shares sold (39,878,123) (61,096,668) (43,600,332) (11,542,561) (9,853,138)
------------------------------------------------------------------------
Net realized gains (losses) from securities transactions 1,113,851 5,707,170 (575,039) 1,033,678 (404,909)
------------------------------------------------------------------------
Net unrealized appreciation/depreciation of investments:
Beginning of period 583,171 (5,126,829) (14,316,488) 543,686 (2,955,507)
End of period 5,038,624 22,954,220 (1,974,086) 1,970,309 (1,244,238)
------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation
of investments 4,455,453 28,081,049 12,342,402 1,426,623 1,711,269
------------------------------------------------------------------------
Increase in net assets from operations $ 5,130,104 $ 34,183,670 $ 36,980,622 $ 2,779,551 $ 4,118,014
========================================================================
</TABLE>
<TABLE>
<CAPTION>
Strategic
Multi-Asset Multi-Asset
Portfolio Portfolio
------------------------------
<S> <C> <C>
Investment income:
Dividends and capital gains distributions $ 8,834,062 $ 15,303,103
------------------------------
Total investment income 8,834,062 15,303,103
------------------------------
Expenses:
Mortality risk charge (526,262) (1,251,516)
Expense risk charge (204,657) (486,701)
Administration expense charge (87,710) (208,586)
------------------------------
Total expenses (818,629) (1,946,803)
------------------------------
Net investment income (loss) 8,015,433 13,356,300
------------------------------
Realized gains (losses) from securities transactions:
Proceeds from shares sold 14,316,389 32,717,098
Cost of shares sold (13,641,127) (29,798,740)
------------------------------
Net realized gains (losses) from securities transactions 675,262 2,918,358
------------------------------
Net unrealized appreciation/depreciation of investments:
Beginning of period (677,221) 1,176,432
End of period 1,815,862 13,965,456
------------------------------
Change in net unrealized appreciation/depreciation
of investments 2,493,083 12,789,024
------------------------------
Increase in net assets from operations $ 11,183,778 $ 29,063,682
==============================
</TABLE>
See accompanying notes to financial statements.
35
<PAGE> 69
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
December 31, 1995
(Continued)
<TABLE>
<CAPTION>
Government and Money
High Yield Target '98 Fixed Income Quality Bond Market
Portfolio Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends and capital gains distributions $ 5,014,807 $ 1,090,422 $ 1,980,206 $ 8,300,421 $ 5,885,666
--------------------------------------------------------------------------
Total investment income 5,014,807 1,090,422 1,980,206 8,300,421 5,885,666
--------------------------------------------------------------------------
Expenses:
Mortality risk charge (418,635) (123,645) (227,827) (1,065,362) (970,669)
Expense risk charge (162,803) (48,084) (88,599) (414,308) (377,482)
Administration expense charge (69,772) (20,608) (37,971) (177,560) (161,778)
--------------------------------------------------------------------------
Total expenses (651,210) (192,337) (354,397) (1,657,230) (1,509,929)
--------------------------------------------------------------------------
Net investment income (loss) 4,363,597 898,085 1,625,809 6,643,191 4,375,737
--------------------------------------------------------------------------
Realized gains (losses) from securities transactions:
Proceeds from shares sold 30,370,040 8,673,648 6,151,200 66,237,090 140,936,343
Cost of shares sold (31,161,462) (8,701,052) (6,159,962) (64,619,879) (140,936,343)
--------------------------------------------------------------------------
Net realized gains (losses) from securities transactions (791,422) (27,404) (8,762) 1,617,211 0
--------------------------------------------------------------------------
Net unrealized appreciation/depreciation of investments:
Beginning of period (4,247,894) (1,305,393) (1,773,736) (5,589,995) 0
End of period (555,326) (342,310) 696,669 5,882,691 0
--------------------------------------------------------------------------
Change in net unrealized appreciation/depreciation
of investments 3,692,568 963,083 2,470,405 11,472,686 0
--------------------------------------------------------------------------
Increase in net assets from operations $ 7,264,743 $ 1,833,764 $ 4,087,452 $ 19,733,088 $ 4,375,737
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
Total
--------------
<S> <C>
Investment income:
Dividends and capital gains distributions $ 80,256,839
--------------
Total investment income 80,256,839
--------------
Expenses:
Mortality risk charge (8,150,319)
Expense risk charge (3,169,570)
Administration expense charge (1,358,384)
--------------
Total expenses (12,678,273)
--------------
Net investment income (loss) 67,578,566
--------------
Realized gains (losses) from securities transactions:
Proceeds from shares sold 472,247,381
Cost of shares sold (460,989,387)
--------------
Net realized gains (losses) from securities transactions 11,257,994
--------------
Net unrealized appreciation/depreciation of investments:
Beginning of period (33,689,774)
End of period 48,207,871
--------------
Change in net unrealized appreciation/depreciation
of investments 81,897,645
--------------
Increase in net assets from operations $ 160,734,205
=============
</TABLE>
See accompanying notes to financial statements.
36
<PAGE> 70
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1995
<TABLE>
<CAPTION>
Foreign Capital Natural
Securities Appreciation Growth Resources
Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (439,200) $ 395,451 $ 25,213,259 $ 319,250
Net realized gains (losses) from securities transactions 1,113,851 5,707,170 (575,039) 1,033,678
Change in net unrealized appreciation/depreciation
of investments 4,455,453 28,081,049 12,342,402 1,426,623
------------------------------------------------------------------
Increase in net assets from operations 5,130,104 34,183,670 36,980,622 2,779,551
------------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 1,844,536 6,038,119 5,576,418 832,958
Cost of units redeemed (12,893,518) (24,572,567) (34,291,600) (3,908,502)
Net transfers (8,461,827) 9,584,951 14,763,808 (685,618)
------------------------------------------------------------------
Decrease in net assets from capital transactions (19,510,809) (8,949,497) (13,951,374) (3,761,162)
------------------------------------------------------------------
Increase (decrease) in net assets (14,380,705) 25,234,173 23,029,248 (981,611)
Net assets at beginning of period 63,012,368 111,034,665 160,129,600 18,359,583
------------------------------------------------------------------
Net assets at end of period $ 48,631,663 $ 136,268,838 $ 183,158,848 $ 17,377,972
==================================================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 153,711 239,672 183,402 51,050
Units redeemed (1,068,356) (970,609) (1,114,859) (238,431)
Units transferred (710,014) 346,475 453,402 (35,487)
------------------------------------------------------------------
Decrease in units outstanding (1,624,659) (384,462) (478,055) (222,868)
Beginning units 5,328,356 5,135,811 5,852,892 1,219,818
------------------------------------------------------------------
Ending units 3,703,697 4,751,349 5,374,837 996,950
==================================================================
</TABLE>
<TABLE>
<CAPTION>
Convertible Strategic
Securities Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio
------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 2,811,654 $ 8,015,433 $ 13,356,300
Net realized gains (losses) from securities transactions (404,909) 675,262 2,918,358
Change in net unrealized appreciation/depreciation
of investments 1,711,269 2,493,083 12,789,024
------------------------------------------------
Increase in net assets from operations 4,118,014 11,183,778 29,063,682
------------------------------------------------
From capital transactions:
Net proceeds from units sold 873,411 1,494,023 2,952,700
Cost of units redeemed (7,113,626) (12,719,207) (31,915,061)
Net transfers (656,776) (995,239) 2,947,211
------------------------------------------------
Decrease in net assets from capital transactions (6,896,991) (12,220,423) (26,015,150)
------------------------------------------------
Increase (decrease) in net assets (2,778,977) (1,036,645) 3,048,532
Net assets at beginning of period 31,905,579 60,005,971 136,900,637
------------------------------------------------
Net assets at end of period $ 29,126,602 $ 58,969,326 $ 139,949,169
================================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 49,120 90,942 162,782
Units redeemed (402,031) (771,293) (1,755,404)
Units transferred (41,029) (64,731) 168,213
------------------------------------------------
Decrease in units outstanding (393,940) (745,082) (1,424,409)
Beginning units 1,914,508 3,957,935 8,354,441
------------------------------------------------
Ending units 1,520,568 3,212,853 6,930,032
================================================
</TABLE>
See accompanying notes to financial statements.
37
<PAGE> 71
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
December 31, 1995
(Continued)
<TABLE>
<CAPTION>
Government and
High Yield Target '98 Fixed Income Quality Bond
Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 4,363,597 $ 898,085 $ 1,625,809 $ 6,643,191
Net realized gains (losses) from securities transactions (791,422) (27,404) (8,762) 1,617,211
Change in net unrealized appreciation/depreciation
of investments 3,692,568 963,083 2,470,405 11,472,686
--------------------------------------------------------------
Increase in net assets from operations 7,264,743 1,833,764 4,087,452 19,733,088
--------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 1,174,201 297,407 613,947 2,377,157
Cost of units redeemed (13,333,212) (3,030,133) (4,970,144) (27,887,607)
Net transfers 4,092,760 (5,298,145) 257,155 (28,500,021)
--------------------------------------------------------------
Decrease in net assets from capital transactions (8,066,251) (8,030,871) (4,099,042) (54,010,471)
--------------------------------------------------------------
Increase (decrease) in net assets (801,508) (6,197,107) (11,590) (34,277,383)
Net assets at beginning of period 44,717,058 17,023,117 25,627,697 141,664,975
--------------------------------------------------------------
Net assets at end of period $ 43,915,550 $ 10,826,010 $ 25,616,107 $ 107,387,592
==============================================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 60,439 16,756 26,177 97,915
Units redeemed (690,095) (171,335) (212,032) (1,138,876)
Units transferred 228,146 (294,848) 9,283 (1,191,182)
--------------------------------------------------------------
Decrease in units outstanding (401,510) (449,427) (176,572) (2,232,143)
Beginning units 2,489,359 1,027,577 1,182,553 6,269,658
--------------------------------------------------------------
Ending units 2,087,849 578,150 1,005,981 4,037,515
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Money
Market
Portfolio TOTAL
-------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 4,375,737 $ 67,578,566
Net realized gains (losses) from securities transactions 0 11,257,994
Change in net unrealized appreciation/depreciation
of investments 0 81,897,645
-------------------------------
Increase in net assets from operations 4,375,737 160,734,205
-------------------------------
From capital transactions:
Net proceeds from units sold 6,754,163 30,829,040
Cost of units redeemed (49,189,095) (225,824,272)
Net transfers 9,326,332 (3,625,409)
-------------------------------
Decrease in net assets from capital transactions (33,108,600) (198,620,641)
-------------------------------
Increase (decrease) in net assets (28,732,863) (37,886,436)
Net assets at beginning of period 117,922,221 928,303,471
-------------------------------
Net assets at end of period $ 89,189,358 $ 890,417,035
===============================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 412,340
Units redeemed (2,998,004)
Units transferred 581,465
--------------
Decrease in units outstanding (2,004,199)
Beginning units 7,323,744
--------------
Ending units 5,319,545
==============
</TABLE>
See accompanying notes to financial statements.
38
<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
<TABLE>
<CAPTION>
Foreign Capital Natural
Securities Appreciation Growth Resources
Portfolio Portfolio Portfolio Portfolio
------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ (788,238) $ 10,226,907 $ 23,392,639 $ 16,280
Net realized gains from securities transactions 2,139,043 1,059,097 3,758,825 1,224,002
Change in net unrealized appreciation/depreciation
of investments (5,329,574) (17,856,096) (40,146,301) (1,729,159)
------------------------------------------------------------
Increase (decrease) in net assets from operations (3,978,769) (6,570,092) (12,994,837) (488,877)
------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 6,829,395 11,425,872 9,748,557 1,523,443
Cost of units redeemed (13,596,578) (19,957,285) (35,836,473) (3,897,945)
Net transfers 5,483,460 2,784,450 (43,777,642) 3,966,862
------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (1,283,723) (5,746,963) (69,865,558) 1,592,360
------------------------------------------------------------
Increase (decrease) in net assets (5,262,492) (12,317,055) (82,860,395) 1,103,483
Net assets at beginning of period 68,274,860 123,351,720 242,989,995 17,256,100
------------------------------------------------------------
Net assets at end of period $ 63,012,368 $ 111,034,665 $ 160,129,600 $ 18,359,583
============================================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 559,546 523,875 349,569 99,047
Units redeemed (1,192,391) (928,326) (1,285,044) (279,367)
Units transferred 449,271 127,667 (1,556,242) 257,906
------------------------------------------------------------
Increase (decrease) in units outstanding (183,574) (276,784) (2,491,717) 77,586
Beginning units 5,511,930 5,412,595 8,344,609 1,142,232
------------------------------------------------------------
Ending units 5,328,356 5,135,811 5,852,892 1,219,818
============================================================
</TABLE>
<TABLE>
<CAPTION>
Convertible Strategic
Securities Multi-Asset Multi-Asset
Portfolio Portfolio Portfolio
--------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 4,099,207 $ 10,495,772 $ 19,118,460
Net realized gains from securities transactions 469,162 1,432,212 4,180,090
Change in net unrealized appreciation/depreciation
of investments (8,821,607) (14,657,003) (28,537,074)
--------------------------------------------
Increase (decrease) in net assets from operations (4,253,238) (2,729,019) (5,238,524)
--------------------------------------------
From capital transactions:
Net proceeds from units sold 3,625,750 3,045,243 6,487,675
Cost of units redeemed (6,796,280) (13,391,366) (36,493,323)
Net transfers 862,362 1,327,167 (5,525,628)
--------------------------------------------
Increase (decrease) in net assets from capital transactions (2,308,168) (9,018,956) (35,531,276)
--------------------------------------------
Increase (decrease) in net assets (6,561,406) (11,747,975) (40,769,800)
Net assets at beginning of period 38,466,985 71,753,946 177,670,437
--------------------------------------------
Net assets at end of period $ 31,905,579 $ 60,005,971 $ 136,900,637
============================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 203,934 197,378 393,254
Units redeemed (394,815) (871,523) (2,213,896)
Units transferred 48,504 86,021 (334,939)
--------------------------------------------
Increase (decrease) in units outstanding (142,376) (588,124) (2,155,581)
Beginning units 2,056,884 4,546,059 10,510,022
--------------------------------------------
Ending units 1,914,508 3,957,935 8,354,441
============================================
</TABLE>
See accompanying notes to financial statements.
39
<PAGE> 73
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
Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------
<S> <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
Net realized gains from securities transactions 1,191,256 40,197 1,641 668,153
Change in net unrealized appreciation/depreciation
of investments (9,866,611) (2,409,940) (3,590,361) (16,397,641)
--------------------------------------------------------------
Increase (decrease) in net assets from operations (3,538,149) (1,055,242) (1,602,544) (7,582,420)
--------------------------------------------------------------
From capital transactions:
Net proceeds from units sold 4,155,839 2,672,363 1,693,759 5,276,331
Cost of units redeemed (10,009,288) (2,669,905) (7,204,053) (37,630,399)
Net transfers (22,178,404) (582,489) (4,904,467) 10,117,164
--------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (28,031,853) (580,031) (10,414,761) (22,236,904)
--------------------------------------------------------------
Increase (decrease) in net assets (31,570,002) (1,635,273) (12,017,305) (29,819,324)
Net assets at beginning of period 76,287,060 18,658,390 37,645,002 171,484,299
--------------------------------------------------------------
Net assets at end of period $ 44,717,058 $ 17,023,117 $ 25,627,697 $ 141,664,975
==============================================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 226,509 157,866 77,020 231,076
Units redeemed (545,543) (160,754) (328,916) (1,660,371)
Units transferred (1,192,051) (34,410) (223,019) 443,079
--------------------------------------------------------------
Increase (decrease) in units outstanding (1,511,086) (37,298) (474,916) (986,217)
Beginning units 4,000,445 1,064,875 1,657,469 7,255,875
--------------------------------------------------------------
Ending units 2,489,359 1,027,577 1,182,553 6,269,658
==============================================================
</TABLE>
<TABLE>
<CAPTION>
Money
Market
Portfolio TOTAL
---------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
From operations:
Net investment income (loss) $ 2,998,616 $ 86,144,594
Net realized gains from securities transactions 0 16,163,678
Change in net unrealized appreciation/depreciation
of investments 0 (149,341,367)
---------------------------------
Increase (decrease) in net assets from operations 2,998,616 (47,033,095)
---------------------------------
From capital transactions:
Net proceeds from units sold 16,005,766 72,489,993
Cost of units redeemed (40,725,919) (228,208,814)
Net transfers 49,287,506 (3,139,659)
---------------------------------
Increase (decrease) in net assets from capital transactions 24,567,353 (158,858,480)
---------------------------------
Increase (decrease) in net assets 27,565,969 (205,891,575)
Net assets at beginning of period 90,356,252 1,134,195,046
---------------------------------
Net assets at end of period $ 117,922,221 $ 928,303,471
=================================
ANALYSIS OF INCREASE (DECREASE) IN UNITS
OUTSTANDING:
Units sold 1,008,069
Units redeemed (2,564,984)
Units transferred 3,134,216
--------------
Increase (decrease) in units outstanding 1,577,301
Beginning units 5,746,443
--------------
Ending units 7,323,744
==============
</TABLE>
See accompanying notes to financial statements.
40
<PAGE> 74
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Variable Annuity Account One of Anchor National Life Insurance Company
(the "Separate Account") is a segregated investment account of Anchor
National Life Insurance Company (the "Company"). The Company is an
indirect, wholly owned subsidiary of SunAmerica Inc. 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 portfolios (the
"Variable Accounts"). Each of the Variable Accounts is invested solely
in the shares of one of the twelve currently available investment
portfolios of the Anchor Series Trust (the "Trust"). The Trust is a
diversified, open-end, affiliated investment company, which retains an
investment advisor to assist in the investment activities of the Trust.
The contractholder may elect to have payments allocated to a
guaranteed-interest fund of the Company (the "General Account"), which
is not a part of the Separate Account. The financial statements include
balances allocated by the contractholder to the twelve Variable
Accounts and do not include balances allocated to the General Account.
The investment objectives and policies of the twelve portfolios of the
Trust are summarized below:
FOREIGN SECURITIES PORTFOLIO seeks long-term capital appreciation. This
portfolio invests primarily in a diversified group of equity securities
issued by foreign companies and primarily denominated in foreign
currencies.
CAPITAL APPRECIATION PORTFOLIO seeks long-term capital appreciation.
This portfolio invests in growth equity securities which are widely
diversified by industry and company and may engage in transactions
involving stock index futures and options thereon as a hedge against
changes in market conditions.
GROWTH PORTFOLIO seeks long-term capital appreciation. This portfolio
invests in growth equity securities and may engage in transactions
involving stock index futures and options thereon as a hedge against
changes in market conditions.
41
<PAGE> 75
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. This portfolio invests primarily in
a variety of securities convertible into common stock which are issued
by publicly held corporations. This portfolio may also engage in
transactions involving Financial Futures Contracts and options thereon
as a hedge against changes in market conditions.
STRATEGIC MULTI-ASSET PORTFOLIO seeks high long-term total investment
return. This portfolio invests in growth equity securities, aggressive
growth equity securities, investment grade bonds, high-yield, high-risk
bonds, international equity securities and money market instruments.
This portfolio may also engage in transactions involving stock index
futures contracts and options thereon, and Financial Futures Contracts
and options thereon as a hedge against changes in market conditions.
MULTI-ASSET PORTFOLIO seeks long-term total investment return
consistent with moderate investment risk. This portfolio invests in
growth equity securities, convertible securities, investment grade
fixed-income securities and money market securities. This portfolio may
also engage in transactions involving stock index futures contracts and
options thereon, and Financial Futures Contracts and options thereon as
a hedge against changes in market conditions.
HIGH YIELD PORTFOLIO seeks high current income. A secondary investment
objective is capital appreciation. This portfolio invests at least 65%
of its assets in high-yielding, high-risk, income-producing corporate
bonds, which generally carry ratings lower than those assigned to
investment grade bonds by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Corporation ("S&P"), or which are unrated. This
portfolio may also engage in transactions involving Financial Futures
Contracts and options thereon as a hedge against changes in market
conditions.
42
<PAGE> 76
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.
This portfolio invests primarily in zero coupon securities and current,
interest-bearing, investment grade debt obligations which are issued by
the U.S. Government, its agencies and instrumentalities, and both
domestic and foreign corporations.
FIXED INCOME PORTFOLIO seeks a high level of current income consistent
with preservation of capital. This portfolio invests primarily in
investment grade, fixed-income securities and may engage in Financial
Futures Contracts and options thereon as a hedge against changes in
market conditions.
GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current
income, liquidity and security of principal. This portfolio invests in
obligations issued, guaranteed or insured by the U.S. Government, its
agencies or instrumentalities and in corporate debt securities rated Aa
or better by Moody's or AA or better by S&P.
MONEY MARKET PORTFOLIO seeks current income consistent with stability
of principal through investment in a diversified portfolio of money
market instruments maturing in 397 days or less. The portfolio will
maintain a dollar-weighted average portfolio maturity of not more than
90 days.
Investments in the variable portfolios of the Trust are valued at the
net asset value of the shares of the designated portfolio of the Trust.
Securities transactions are valued on the date the securities are
purchased or sold. Dividends and capital gains distributions are
recorded when received. Realized gains and losses on the sale of
investments in the Trust are recognized at the date of sale and are
determined on an average cost basis.
Accumulation unit values are computed daily based on the total net
assets of the Variable Accounts.
43
<PAGE> 77
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. For purposes of
determining the withdrawal charge, withdrawals will be allocated to
purchase payments on a first-in, first-out basis so that all
withdrawals are allocated to purchase payments to which the lowest (if
any) withdrawal charge applies.
Any amount withdrawn which exceeds a free withdrawal may be subject to
a withdrawal charge in accordance with the withdrawal charge table
shown below:
<TABLE>
<CAPTION>
Contribution Applicable Withdrawal
Year Charge Percentage
------------ ---------------------
<S> <C>
First 5%
Second 4%
Third 3%
Fourth 2%
Fifth 1%
Sixth and later 0%
</TABLE>
44
<PAGE> 78
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 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 3.5%.
45
<PAGE> 79
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 net asset value of each portfolio.
EXPENSE RISK CHARGE: The Company guarantees that the records
maintenance and administrative expense charges will not increase,
regardless of actual expenses. As compensation for this guarantee, the
Company deducts an amount, computed on a daily basis, which is equal to
an annual rate of 0.35% of the net asset value of each portfolio.
ADMINISTRATIVE EXPENSE CHARGE: The Company deducts an administrative
expense charge which is designed to compensate the Company for assuming
the risk that the administrative expenses will exceed the revenues from
the records maintenance charge. As compensation for assuming this risk,
the Company deducts an amount, computed on a daily basis, which is
equal to 0.15% of the net asset value of each portfolio.
SEPARATE ACCOUNT INCOME TAXES: The Company currently does not maintain
a provision for taxes, but has reserved the right to establish such a
provision for taxes in the future if it determines, in its sole
discretion, that it will incur a tax as a result of the operation of
the Separate Account.
46
<PAGE> 80
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, 1995
consist of the following:
<TABLE>
<CAPTION>
Cost of Shares Proceeds from
Variable Accounts Acquired Shares Sold
----------------- -------- -----------
<S> <C> <C>
Foreign Securities Portfolio $ 21,041,965 $ 40,991,974
Capital Appreciation Portfolio 58,249,791 66,803,838
Growth Portfolio 54,287,177 43,025,293
Natural Resources Portfolio 9,134,328 12,576,239
Convertible Securities Portfolio 5,362,893 9,448,229
Strategic Multi-Asset Portfolio 10,111,399 14,316,389
Multi-Asset Portfolio 20,058,247 32,717,098
High Yield Portfolio 26,667,387 30,370,040
Target '98 Portfolio 1,540,862 8,673,648
Fixed Income Portfolio 3,677,967 6,151,200
Government and Quality Bond
Portfolio 18,869,810 66,237,090
Money Market Portfolio 112,203,480 140,936,343
============ ============
</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.
5. SUBSEQUENT EVENT
The decision has been made to change the name of the Convertible
Securities Portfolio to the Growth and Income Portfolio, with revised
investment objectives of high current income and long-term capital
appreciation through investment in securities of issuers that have the
potential for growth and offer income. The revised portfolio may
47
<PAGE> 81
VARIABLE ANNUITY ACCOUNT ONE
OF
ANCHOR NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
5. SUBSEQUENT EVENT (continued)
also enter into forward currency contracts and contracts on financial
futures or stock index futures, or options thereon, as a hedge against
changes in market conditions. These changes will become effective
February 29, 1996.
48
